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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996       COMMISSION FILE NUMBER 0-8360
 
                                  IHOP CORP.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                  DELAWARE                                95-3038279
    (STATE OR OTHER JURISDICTION                       (I.R.S. EMPLOYER
    OF INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

525 NORTH BRAND BOULEVARD, GLENDALE, CALIFORNIA            91203-1903
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                  (ZIP CODE)

 
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 240-6055
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
                                                           NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS                            ON WHICH REGISTERED
             -------------------                           ---------------------
                    NONE

 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
                         COMMON STOCK, $.01 PAR VALUE
                               (TITLE OF CLASS)
 
  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]
 
  State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of February 28, 1997: $220 million
 
  Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date.
 

<TABLE>
<CAPTION>
                    CLASS                           OUTSTANDING AS OF FEBRUARY 28, 1997
                    -----                           -----------------------------------
<S>                                            <C>
        Common Stock, $.01 par value                             9,518,778
</TABLE>

 
DOCUMENTS INCORPORATED BY REFERENCE:
 
  Portions of the Proxy Statement for Annual Meeting of Shareholders to be
held on Tuesday, May 13, 1997, (the "1997 Proxy Statement") are incorporated
by reference into Part III.
 
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<PAGE>
 

                                    PART I
 

ITEM 1. BUSINESS.
 
GENERAL DEVELOPMENT OF BUSINESS
 
  IHOP Corp. and its subsidiaries ("IHOP" or the "Company") develop, operate
and franchise International House of Pancakes restaurants, one of America's
best-known national family restaurant chains. As of December 31, 1996, the
Company had 729 restaurants of which 535 were operated by franchisees, 136 by
area licensees and 58 by the Company. IHOP restaurants are located in 36
states, Canada and Japan.
 
  IHOP restaurants are well known for the treat appeal, quality and variety of
their pancakes, waffles and other breakfast specialties. The restaurants also
offer a wide selection of moderately priced lunch and dinner items in a
comfortable, sit-down environment. A national consumer survey, performed by an
independent restaurant industry publication in 1996, indicates that
approximately 80% of all Americans are familiar with International House of
Pancakes restaurants, making IHOP one of the two top family restaurant chains
in terms of consumer awareness.
 
  The first IHOP restaurant was opened in 1958 in Toluca Lake, California. The
chain grew rapidly during the 1960s. Beginning in the mid-1970s, however, the
Company's predecessor and its parent underwent a series of ownership changes
and growth was constrained as a result of the financial difficulties of the
then parent Company. IHOP Corp. was incorporated under the laws of the State
of Delaware in 1976 and was a publicly held Company from 1976 until 1981. In
May 1987, the Company was acquired by members of management and investors. The
acquisition afforded IHOP the first opportunity in years to invest significant
funds in the business. In July 1991, IHOP completed an initial public offering
of its common stock.
 
  As a result of the Company's improved financial condition, IHOP has been
able to invest in new restaurant development and the remodeling of older
Company-operated restaurants. IHOP-developed restaurant openings have
increased from 16 in 1991 to 40 in 1995 and 45 in 1996. Total restaurant
openings, which includes restaurants developed by franchisees and licensees,
grew from 23 in 1991 to 65 in 1995 and 63 in 1996.
 
  Average sales per restaurant have risen from $845,000 in 1991 to $1,148,000
in 1996 due to both the growth in the number of new, larger restaurants and
increases in comparable average sales per restaurant.
 
STRATEGY
 
  IHOP's objective is to continue to increase sales and profitability by:
 
  .  Adding new restaurants to the IHOP system in accordance with the
     Company's restaurant development program;
 
  .  Delivering value and service and achieving customer satisfaction by
     providing our valued guests with a high quality dining experience;
 
  .  Attracting new guests to IHOP through improved advertising and marketing
     efforts; and
 
  .  Enhancing the performance and image of the chain by remodeling and
     updating older restaurants.
 
  Complementing the above strategies is IHOP's continued use of its proven
approach to franchising, which is different from most other restaurant
franchisors. This approach is founded on the franchisees' active involvement
in the day-to-day operations of their respective restaurants. This provides a
quality of management and dedication that, in the view of the Company, is
generally unmatched by salaried employees or passive investors. In addition,
IHOP itself develops most new restaurants prior to franchising them and,
following the franchising of a restaurant, becomes the franchisee's landlord.
This landlord/tenant relationship provides IHOP with enhanced profits and
greater control over the franchise system.
 
                                       2

<PAGE>
 
RESTAURANT DEVELOPMENT PROGRAM
 
  The Company intends to add restaurants to the IHOP system primarily through
the development of new restaurants in major markets where the Company has a
core customer base. Management believes that by concentrating growth in its
existing markets, the Company will be able to achieve economies of scale with
respect to supervisory, advertising and distribution functions. New
restaurants are developed after a stringent site selection process which is
supervised by senior management.
 
  When opportunities arise for IHOP to acquire a presence in a market or
markets where it does not currently have such a presence, or in order to
augment its presence in an existing market, the Company may acquire non-IHOP
restaurants for conversion to International House of Pancakes restaurants.
 
  Field training teams and new restaurant opening teams provide on-site
instruction to Company and franchised restaurant employees to assist in the
opening of all IHOP restaurants.
 
  New restaurants average approximately 4,500 square feet with about 170 seats
in comparison to the older A-frame restaurants which average approximately
3,000 square feet with 100 seats. The new restaurants also feature larger
kitchens designed to accommodate IHOP's continuing expansion of its lunch and
dinner business and service more efficiently the peak breakfast and brunch
hours on weekends. In 1996 IHOP began entering high-potential smaller markets
with an experimental, reduced size restaurant of approximately 3,900 square
feet and about 132 seats. As of year end 1996, five such restaurants were
open, and management will be monitoring their performance. To the extent
possible, the Company continues to use its familiar blue signature color on
the roof, awnings and other exterior decor of all of its restaurants.
 
  Generally, IHOP will enter into "build to suit" leases pursuant to which the
land and most of the construction costs are provided by the lessor. However,
in many instances, the Company will purchase the land and construct and equip
the building. Where opportunities exist to quickly and economically acquire
non-IHOP restaurants at sites which meet the Company's criteria, the Company
will convert existing restaurants into International House of Pancakes
restaurants, insofar as possible conforming the exterior and interior
appearance and restaurant kitchen to Company specifications.
 
  The cost of developing a restaurant varies based on the size of the
restaurant, regional factors and whether it is a conversion of an existing
restaurant to an International House of Pancakes restaurant or a "ground up"
development on purchased or leased land. Conversions of existing restaurants
can be accomplished more quickly and have generally been less costly than
"ground up" development.
 
  The table below sets forth the average development cost per restaurant in
1996. For leased restaurants, the discounted present value of the lease and
any "key money" have been allocated to land, building and site improvements
and other costs, as appropriate.
 

<TABLE>
<CAPTION>
                                                                     AVERAGE
                                                                  PER RESTAURANT
                                                                  --------------
      <S>                                                         <C>
      Land.......................................................   $  396,000
      Building...................................................      773,000
      Equipment..................................................      333,000
      Site improvements and other costs..........................      131,000
                                                                    ----------
        Total....................................................   $1,633,000
                                                                    ==========
</TABLE>

 
  New restaurants developed by the Company and opened in 1994 and 1995 have
realized, on average, sales of $1,439,000 in their first full twelve months of
operation.
 
  A table summarizing IHOP's development and franchising activities for the
past five years is included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which is in the Financial
Information Section beginning on page F-1 of this Annual Report on Form 10-K.
 
                                       3

<PAGE>
 
CUSTOMER SATISFACTION
 
  IHOP management believes that achieving customer satisfaction by providing
affordable, comfortable dining that features high quality food and attentive
service is critical to the Company's success. Accordingly, IHOP standardizes
the preparation, presentation and service of food, the maintenance and repair
of premises and the dress and conduct of restaurant employees. IHOP continues
to modify its methods of evaluating restaurant performance to provide more
meaningful input and guidance to franchisees and restaurant managers with
respect to improving their operations. In December 1996, the approximate guest
check average per customer in an IHOP restaurant was $5.60.
 
  The International House of Pancakes menu offers a large selection of high
quality products priced to represent good value and appeal to a broad customer
base. There are approximately 100 core menu items. These include a wide
variety of pancakes, waffles and other breakfast specialties, omelets,
chicken, steak and sandwiches. To attract families with children, IHOP has a
Kid's Corner on its menu featuring moderately priced childrens' items such as
IHOP's popular Funny Face Pancake. To attract senior citizens, many
restaurants feature a seniors' menu or offer a seniors' discount on regular
menu items. In response to local tastes, most IHOP restaurants offer regional
specialties that complement the core menu. IHOP actively engages in the
development of new menu items. New products and combinations are tested and
developed in the corporate test kitchen and further tested in a selected
market prior to introduction. New item introductions take place on a regular
basis. All of the new items are designed to augment and complement the
existing menu. The purpose of adding new items is to be responsive to our
guests' needs and requests, and to keep the menu fresh and appealing to our
repeat IHOP restaurant guests.
 
  A cornerstone of the IHOP philosophy is the belief that consistently good
service is a key to building and maintaining customer loyalty. The Company
believes that it must continue to provide strong leadership and support to its
franchisees to ensure the delivery of high quality food and attentive service
to its customers.
 
  Under the direction of the Executive Vice President, Operations and two Area
Vice Presidents, IHOP employs six Regional Directors, thirty-two Operations
Consultants, and thirty support staff to maintain direct relationships with
franchisees and supervise the management of Company-operated restaurants.
 
  Operations Consultants generally visit each of the restaurants within their
respective areas of responsibility at least once a month. Normally twice
annually, an Operations Consultant spends two or more days in each restaurant
to conduct and prepare a comprehensive, written evaluation of every aspect of
its operation and to consult with the franchisee or Company restaurant manager
regarding the restaurant's strengths, weaknesses and areas for improvement.
 
  The regional Company-operated training restaurants provide thorough "hands-
on" training to new employees, franchisees and managers. The Company provides
training crews to assist in opening new IHOP restaurants. IHOP also holds
office and classroom training and seminars on general management issues both
in the Company's training center and in the field.
 
MARKETING AND ADVERTISING
 
  IHOP's television advertising campaign features actor Cliff Bemis, the
likable, "guy-next-door" spokesperson. Our guests' response to Cliff has been
positive and the Company is continuing to create new Cliff commercials. The
television commercials use low-key humor to feature a variety of quality
meals, with table service, in an attractive setting and at an attractive
price. The interior restaurant shots are filmed in IHOP's newer, larger
restaurants to illustrate the light and attractive new look found in the new
restaurants and many of the older restaurants which have been remodeled. The
campaign also features the slogan, "Any Time's A Good Time For Breakfast At
IHOP."
 
  The Company's advertising expenditures in 1996, 1995, and 1994 were $20.5
million, $18.0 million, $16.0 million, respectively. The majority of those
expenditures were for media purchased through local
 
                                       4

<PAGE>
 
advertising cooperatives consisting of geographically proximate franchisee and
Company-operated restaurants. In addition to television advertising, IHOP
encourages local area marketing by its franchisees. These marketing programs
include discounts and specials in an effort to increase customer traffic and
encourage repeat business.
 
REMODELING AND REFRANCHISING PROGRAM
 
  In the past five years, IHOP has remodeled and updated approximately 48 then
Company-operated restaurants at an average cost per restaurant of
approximately $102,000. Management believes that from 1991 through 1995,
average sales in remodeled Company-operated restaurants increased
approximately 16.5% in the twelve months subsequent to the remodeling. IHOP
intends to continue this remodeling program with respect to Company-operated
restaurants on an ongoing basis to facilitate the refranchising of these
restaurants and to enhance the chain's image and maintain and expand its
customer base.
 
  Restaurants reacquired by IHOP are usually underperforming as a result of
having been poorly operated, physically neglected and/or badly staffed. When a
restaurant enters the pool of Company-operated restaurants as a result of
negotiation or franchisee default, IHOP begins a multi-step rehabilitation
program for that restaurant. Such restaurants are physically rehabilitated by
IHOP. IHOP also hires and trains the restaurant staff. The Company then
implements new marketing and operations programs designed to regain the
business of former guests and attract new patrons. After a restaurant has been
rehabilitated and its sales volume reaches acceptable levels, the restaurant
is refranchised to a qualified franchisee. In the past five years, IHOP
reacquired a total of 44 restaurants from franchisees. In those same years,
restaurants that were refranchised totaled 46.
 
  IHOP also requires most of its franchisees, and strongly encourages all of
its franchisees, to periodically remodel their restaurants. 163 restaurants
have been remodeled by franchisees in the past five years. Of the Company's
535 franchise agreements in place at December 31, 1996, 458 require
franchisees to remodel, upgrade and refurbish their restaurants to comply with
existing Company standards every five years. All franchise agreements executed
since 1982 contain this provision.
 
FRANCHISE SYSTEM
 
  IHOP's approach to franchising differs from that of most of its food service
competitors and franchisors where the franchisee pays a modest initial fee and
uses his own capital to develop a restaurant and fund working capital needs.
IHOP approaches franchising from a management perspective. IHOP generally (i)
identifies the site for the new restaurant, (ii) purchases the site or leases
it from a third party, (iii) builds the restaurant and equips it with all
required equipment, (iv) selects the franchisee and trains the franchisee and
supervisory personnel who will run the restaurant, (v) finances the purchase
of the franchise, (vi) leases the restaurant and equipment to the franchisee
and (vii) provides continuing support with respect to operations, marketing
and new product development. Although IHOP incurs substantial obligations in
the development, franchising and start-up operations of a new restaurant, its
involvement in such development allows the Company to command a substantial
franchise and development fee. In addition, IHOP derives income from the
partial financing of the franchise and development fee and from the leasing of
property and equipment to franchisees. IHOP's involvement in site selection
and development, the training and supervising of franchisees, as well as its
control over restaurant property, products and services, are an integral part
of the Company's operating philosophy.
 
  IHOP franchisees are predominately owner/operators, not passive investors. A
franchisee's active involvement in the day-to-day management of a restaurant
provides a quality of management and dedication that, in the view of the
Company, is generally unmatched by salaried employees or passive investors. In
addition, a majority of new restaurants are franchised to current franchisees
or restaurant managers who already understand IHOP's approach to the
restaurant business. The majority of franchisees own one restaurant and only
eight franchisees (excluding area licensees) currently own in excess of six
restaurants. In the past five years, sales to existing franchisees and IHOP
employees, or their immediate families, constituted approximately 85% of
franchise sales transactions. The Company believes that its ongoing training
and support programs for franchisees, coupled with channels for franchisee
feedback, result in a healthy exchange of information. This, in turn,
contributes to the good and stable relations IHOP generally enjoys with its
franchisees.
 
                                       5

<PAGE>
 
  IHOP's franchise agreements generally require the payment of an initial
franchise and development fee of approximately $200,000 to $350,000 for a
newly developed restaurant (depending on the site), of which approximately 20%
is initially paid in cash. The balance of the initial franchise and
development fee is financed by the Company over five to eight years. IHOP also
receives continuing revenues from the franchisee: a royalty fee usually equal
to 4.5% of a franchisee's sales; income from the leasing of the restaurant and
related equipment; revenue from the sale of certain proprietary products; a
local advertising fee equal to 2% of a franchisee's sales which is usually
paid to a local advertising cooperative; and a national advertising fee equal
to 1% of a franchisee's sales.
 
  IHOP also makes available to its experienced franchisees a Franchise
Investor Program wherein a franchisee directly acquires, constructs and equips
an International House of Pancakes restaurant, subject to IHOP's approval of
the location. In the Franchise Investor Program, the initial franchise fee is
$50,000 and continuing revenues include a royalty fee equal to 4.5% of a
franchisee's sales; revenue from the sale of certain proprietary products; a
local advertising fee equal to 2% of a franchisee's sales which is usually
paid to a local advertising cooperative; and a national advertising fee equal
to 1% of a franchisee's sales.
 
AREA LICENSE ARRANGEMENTS
 
  All International House of Pancakes restaurants in Florida have been
developed and operated or sub-franchised by a corporation which acquired long-
term area development rights from the Company's predecessor, which include
rights to the southern-most counties in Georgia. IHOP is paid a royalty of 1%
of sales and receives advertising fees of 0.25% of sales. The Company also
derives revenue from the sale of proprietary products such as pancake mixes to
the Florida licensee.
 
  In 1978, area rights for Japan were granted pursuant to an area licensing
arrangement with a Japanese corporation. IHOP is paid a royalty of between
0.5% and 1% of sales and derives a modest profit from the sale of proprietary
pancake mixes to the Japanese licensee.
 
  An area license for the Province of British Columbia, Canada, was granted in
1986 to an individual who had already acquired two IHOP franchises in British
Columbia. The Company is paid a royalty of 2% of sales, receives advertising
fees of 0.25% of sales and derives revenue from the sale of proprietary
products such as pancake mixes. Restaurants operated under this area license
are reported as franchise operations by the Company.
 
  IHOP management believes that area licensing arrangements will continue to
be selectively used for both domestic and international expansion into areas
where neither the Company nor investor program franchisees are likely to
develop International House of Pancakes restaurants.
 
COMPANY-OPERATED RESTAURANTS
 
  The pool of Company-operated restaurants consists of those restaurants
newly-developed by the Company which have not yet been franchised and those
restaurants reacquired by the Company through negotiation or franchisee
default. The relative number and identity of restaurants in each group within
the pool, and the total number of restaurants in the pool, varies from time to
time as IHOP develops new restaurants, reacquires franchised restaurants and
franchises new and reacquired restaurants. Those restaurants that the Company
repossesses typically require investment in remodeling and rehabilitation by
the Company before being refranchised and may remain in the pool for a
substantial period of time. As a consequence of this adverse selection
process, some Company-operated restaurants may incur operating losses during
the period of their rehabilitation.
 
PURCHASING
 
  To minimize costs, achieve economies of scale, and ensure food quality and
consistency, IHOP has set up informal purchasing cooperatives among
franchisees to negotiate bulk orders of food products. IHOP has also
 
                                       6

<PAGE>
 
entered into long-term supply contracts for various products, including
pancake mixes, coffee, soft drinks and juices, to ensure the availability of
quality products at competitive prices.
 
COMPETITION AND MARKETS
 
  The restaurant business is highly competitive and is affected by, among
other things, changes in eating habits and preferences, local, regional and
national economic conditions, population trends and traffic patterns. The
principal bases of competition in the industry are the quality and price of
the food products served. Additionally, restaurant location, quality and speed
of service, advertising, name identification and attractiveness of facilities
are also important. The acquisition of sites is highly competitive as well,
with IHOP often competing with other restaurant chains and retail businesses
for suitable sites for the development of new restaurants.
 
  The current structure of the U.S. restaurant and institutional food service
market is characterized by differentiated chains competing within their
segments against each other and local, single-outlet operators. Food service
chains in the United States include the following segments: quick-service
sandwich, chicken, pizza, family restaurant, dinner house, grill-buffet, hotel
restaurant and contract/catering. Information published in 1996 by an industry
trade publication ranked IHOP tied for 36th out of the top 100 chains based on
estimated fiscal 1995 system-wide food service sales in the United States. The
same publication included twelve family restaurant chains in its top 100
chains, and IHOP ranked tied for fourth in this segment.
 
TRADEMARKS AND SERVICE MARKS
 
  The Company has registered "International House of Pancakes," "IHOP" and
variations of each, as well as other trademarks and service marks, including
"Any Time's A Good Time For Breakfast At IHOP," "The Home of the Never Empty
Coffee Pot" and "Good Things Cookin', Breakfast, Lunch & Dinner" with the
United States Patent and Trademark Office. IHOP also registers new trademarks
and service marks from time to time. The Company is not aware of any
infringing uses that could materially affect its business or any prior claim
to these marks that would prevent IHOP from using or licensing the use thereof
for restaurants in any area of the United States. The Company has registered
its trademarks and service marks and variations thereof in Japan and Canada
for use by current licensees and, where feasible and appropriate, registers
its trademarks and service marks in other nations for future use. The
Company's current registered trademarks and service marks will expire, unless
renewed, at various dates from 1997 to 2013. IHOP routinely applies to renew
its active trademarks and service marks prior to their expiration.
 
SEASONALITY
 
  IHOP's business, like that of most restaurants, is seasonal in that
restaurants generally experience greater customer traffic and sales in the
warmer months and during the Thanksgiving and Christmas seasons.
 
GOVERNMENT REGULATION
 
  IHOP is subject to various federal, state and local laws affecting its
business as well as a variety of regulatory provisions relating to zoning of
restaurant sites, sanitation, health and safety. As a franchisor, the Company
is subject to state and federal laws regulating various aspects of franchise
operations and sales. Those laws impose registration and disclosure
requirements on franchisors in the offer and sale of franchises and, in
certain cases, also apply substantive standards to the relationship between
franchisor and franchisee, including primarily default, termination and non-
renewal of franchises.
 
  Various federal and state labor laws govern IHOP's relationships with its
employees, including such matters as minimum wage requirements, overtime and
other working conditions. Environmental requirements have not had a material
effect on the operations of the Company or those of its franchisees.
Significant additional government-imposed increases in minimum wages, paid
leaves of absence, mandated health benefits or increased tax reporting and tax
payment requirements in respect to employees who receive gratuities could,
however, be
 
                                       7

<PAGE>
 
detrimental to the economic viability of franchisee-operated and Company-
operated International House of Pancakes restaurants.
 
EMPLOYEES
 
  At December 31, 1996, the Company employed approximately 2,020 persons, of
whom 214 were full-time, non-restaurant, corporate personnel. The Company
considers relations with its employees to be satisfactory.
 
                                       8

<PAGE>
 

I
TEM 2. PROPERTIES.
 
  The table below shows the location and status of the 729 IHOP restaurants in
operation as of December 31, 1996:
 

<TABLE>
<CAPTION>
                                                                    AREA
      LOCATION                                   FRANCHISE COMPANY LICENSE TOTAL
      --------                                   --------- ------- ------- -----
      <S>                                        <C>       <C>     <C>     <C>
      UNITED STATES
      Alabama..................................       2        1              3
      Arizona..................................      12                      12
      Arkansas.................................       2                       2
      California...............................     138       17            155
      Colorado.................................      16                      16
      Connecticut..............................       6                       6
      Delaware.................................       1                       1
      Florida..................................                      102    102
      Georgia..................................      28        1       1     30
      Hawaii...................................       2                       2
      Idaho....................................                1              1
      Illinois.................................      27       10             37
      Indiana..................................       6                       6
      Kansas...................................       2        1              3
      Maine....................................       1                       1
      Maryland.................................      22        1             23
      Massachusetts............................      18                      18
      Michigan.................................       9                       9
      Mississippi..............................       4                       4
      Missouri.................................       9                       9
      Nevada...................................       9        3             12
      New Hampshire............................       1                       1
      New Jersey...............................      25                      25
      New Mexico...............................       7                       7
      New York.................................      30        2             32
      North Carolina...........................      15                      15
      Oklahoma.................................       1                       1
      Oregon...................................       5       10             15
      Pennsylvania.............................       9        2             11
      Rhode Island.............................       1        1              2
      South Carolina...........................       7                       7
      Tennessee................................       7                       7
      Texas....................................      76                      76
      Virginia.................................      12                      12
      Washington...............................      12        7             19
      Wisconsin................................       3        1              4
      INTERNATIONAL
      Canada (1)...............................      10                      10
      Japan....................................                       33     33
                                                    ---      ---     ---    ---
                                                    535       58     136    729
                                                    ===      ===     ===    ===
</TABLE>

- --------
(1) The Company reports restaurants in Canada as franchise restaurants although
    the ten restaurants are operated under an area license agreement.
 
                                       9

<PAGE>
 
  As of December 31, 1996, of the 58 Company-operated restaurants, 6 were
located on Company-owned sites and 52 were located on Company-leased sites; of
the 535 franchisee-operated restaurants, 37 were located on Company-owned
sites, 404 were located on Company-leased sites and 94 were located on sites
owned or leased by franchisees; and all of the restaurants operated by area
licensees were located on sites owned or leased by area licensees.
 
  IHOP's leases with its landlords generally provide for an initial term of 15
to 25 years, with most having one or more five-year renewal options in favor
of the Company. The leases typically provide for payment of rentals in an
amount equal to the greater of a fixed amount or a specified percentage of
gross sales and for payment by IHOP of taxes, insurance premiums, maintenance
expenses and certain other costs. Historically, IHOP generally has been
successful at renewing those leases that expire without further renewal
options. However, from time to time the Company chooses not to renew a lease
or is unsuccessful in negotiating satisfactory renewal terms, and, as a
result, the restaurant is closed and possession returned to the landlord.
 
  IHOP leases its principal corporate offices in Glendale, California under a
lease having a remaining term of approximately four years with two five-year
options to renew. The Company also leases regional offices in Lyndhurst, New
Jersey; Norcross, Georgia; Lombard, Illinois; Dallas, Texas; Tualatin, Oregon
and Sylmar, California. The Sylmar office also houses the Company's Purchasing
and Product Development Departments, which includes a warehouse facility of
approximately 6,200 square feet and a test kitchen.
 

ITEM 3. LEGAL PROCEEDINGS.
 
  The Company is subject to various claims and legal actions which arise in
the ordinary course of business. The Company believes such claims and legal
actions, individually or in the aggregate, will not have a material adverse
effect on the business or financial condition of the Company.
 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
  There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
 

                                    PART II
 

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
 
  The Company's common stock began trading on the Nasdaq National Market on
July 12, 1991 under the symbol "IHOP". As of January 31, 1997, there were
approximately 2,200 shareholders, including shareholders whose shares are held
in street name.
 
  The following table sets forth the high and low prices of the stock as
reported by the Nasdaq National Market.
 

<TABLE>
<CAPTION>
 QUARTER ENDED                   HIGH     LOW            QUARTER ENDED           HIGH     LOW
 -------------                  ------- -------          -------------          ------- -------
<S>                             <C>     <C>     <C>                             <C>     <C>
March 31, 1996................. $27 1/8 $21 1/2 March 31, 1995................. $29 3/4 $24
June 30, 1996..................  29 7/8  25     June 30, 1995..................  30 1/2  21 1/2
September 30, 1996.............  27 1/8  22     September 30, 1995.............  29      24 1/2
December 31, 1996..............  26 1/4  19 1/4 December 31, 1995..............  26 1/2  20 1/2
</TABLE>

 
  The Company has not paid any dividends on its Common Stock in the last five
years and has no plans to do so in 1997. Any future determination to declare
dividends will depend on the Company's earnings, financial condition, cash
requirements, future prospects and other factors deemed relevant by the
Company's Board of Directors. The purchase agreements governing the Company's
7.79% senior notes, its 7.42% senior notes, and
 
                                      10

<PAGE>
 
its credit agreement with its bank limit the amount of retained earnings
available for dividends and investments. At December 31, 1996, approximately
$25 million of retained earnings was free of restriction as to distribution as
dividends.
 

ITEM 6. SELECTED FINANCIAL DATA.
 
  Certain selected financial data for each of the five years ended December
31, 1996 is contained under the caption "Five Year Financial Summary" in the
Financial Information Section beginning on page F-1 of this Annual Report on
Form 10-K.
 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
 
  A discussion of the Company's financial condition, changes in financial
condition and results of operations is contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Financial Information Section beginning on page F-1 of this
Annual Report on Form 10-K.
 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
  The consolidated balance sheets of IHOP Corp. and Subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996, together with the related notes and the
report of Coopers & Lybrand L.L.P., independent accountants, are contained in
the Financial Information Section beginning on page F-1 of this Annual Report
on Form 10-K.
 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
  None.
 

                                   PART III
 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
  Information appearing under the captions "Information Concerning Nominees
and Members of the Board of Directors," "Executive Officers of the Company"
and "Compliance with Section 16(a) of the Securities Exchange Act" contained
in the 1997 Proxy Statement is incorporated herein by reference.
 

ITEM 11. EXECUTIVE COMPENSATION.
 
  Information appearing under the captions "Executive Compensation--Summary of
Compensation," "Executive Compensation--Stock Options and Stock Appreciation
Rights" and "Executive Officers of the Company--Employment Agreements"
contained in the 1997 Proxy Statement is incorporated herein by reference.
 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
  Information appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the 1997 Proxy Statement is
incorporated herein by reference.
 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
  Information appearing under the caption "Certain Relationships and Related
Transactions" contained in the 1997 Proxy Statement is incorporated herein by
reference.
 
                                      11

<PAGE>
 

                                    PART IV
 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
(a)(1)Consolidated Financial Statements
 
   The following documents are contained in the Financial Information
   Section beginning on page F-1 of this Annual Report on Form 10-K:
 
   Consolidated Balance Sheets as of December 31, 1996 and 1995.
 
   Consolidated Statements of Operations for each of the three years in the
   period ended December 31, 1996.
 
   Consolidated Statement of Shareholders' Equity for each of the three
   years in the period ended December 31, 1996.
 
   Consolidated Statements of Cash Flows for each of the three years in the
   period ended December 31, 1996.
 
   Notes to the Consolidated Financial Statements.
 
   Report of Independent Accountants.
 
(2)Financial Statement Schedules
 
   All schedules are omitted because they are not applicable or the required
   information is shown in the consolidated financial statements or notes
   thereto.
 
(3)Exhibits
 
   Exhibits not incorporated by reference are filed herewith. The remainder
   of the exhibits have heretofore been filed with the Commission and are
   incorporated herein by reference. Management contracts or compensatory
   plans or arrangements are marked with an asterisk.
 

<TABLE>
 <C>             <S>
          3.1    Certificate of Incorporation of IHOP Corp. Exhibit 3.1 to Form
                 10-K for the fiscal year ended December 31, 1991, Commission
                 file number 0-8360, (the "1991 Form 10-K") is hereby
                 incorporated by reference.
          3.2    Bylaws of IHOP Corp. Exhibit 3.2 to Registration Statement on
                 Form S-1 No. 33-40431 is hereby incorporated by reference.
          4.1    Senior Note Purchase Agreement, dated as of November 19, 1992,
                 among IHOP Corp., International House of Pancakes, Inc.
                 ("IHOP, Inc.") and Mutual Life Insurance Company of New York
                 and other purchasers. Exhibit 10.2 to the 1992 Form 10-K is
                 hereby incorporated by reference.
          4.2    First Amendment to Senior Note Purchase Agreement, dated as of
                 November 1, 1996, among IHOP Corp., IHOP Inc., and Mutual Life
                 Insurance Company of New York and other purchasers.
          4.3    $10,000,000 Letter Agreement among IHOP, Inc., IHOP Corp. and
                 Continental Bank, N.A., dated as of June 30, 1995. Exhibit
                 10.2 to the 1993 Form 10-K is hereby incorporated by
                 reference.
          4.4    First Amendment to Letter Agreement, dated as of December 31,
                 1995, among IHOP, Inc., IHOP Corp. and Bank of America
                 Illinois (successor by merger to Continental Bank, N.A.).
                 Exhibit 4.3 to the 1994 Form 10-K is hereby incorporated by
                 reference.
          4.5    Second Amendment to Letter Agreement, dated as of February 5,
                 1996, among IHOP, Inc., IHOP Corp. and Bank of America
                 Illinois. Exhibit 4.4 to the 1995 Form 10-K is hereby
                 incorporated by reference.
</TABLE>

 
 
                                      12

<PAGE>
 

<TABLE>
 <C>             <S>
         4.6     Third Amendment to Letter Agreement, dated as of September 3,
                 1996, among IHOP, Inc., IHOP Corp. and Bank of America
                 Illinois.
         4.7     Fourth Amendment to Letter Agreement, dated as of November 1,
                 1996, among IHOP, Inc., IHOP Corp. and Bank of America
                 Illinois.
         4.8     Senior Note Purchase Agreement, dated as of November 1, 1996,
                 among IHOP, Inc., IHOP Corp. and Jackson National Life
                 Insurance Company and other purchasers.
       *10.1     IHOP Corp. Executive Incentive Plan effective January 1, 1997.
       *10.2     Incentive Appreciation Plan. Exhibit 10.23 to Registration
                 Statement on Form S-1 No. 33-40431 is hereby incorporated by
                 reference.
       *10.3     Amendment No. 1 to Incentive Appreciation Plan. Exhibit 10.36
                 to Registration Statement on Form S-1 No. 33-40431 is hereby
                 incorporated by reference.
       *10.4     IHOP Corp. 1991 Stock Incentive Plan as Amended and Restated
                 February 23, 1994. Exhibit B to the 1994 Proxy Statement is
                 hereby incorporated by reference.
        10.5     IHOP Corp. 1994 Stock Option Plan for Non-Employee Directors.
                 Exhibit A to 1994 Proxy Statement is hereby incorporated by
                 reference.
       *10.6     Employment Agreement between the Company and Rand Michael
                 Ferris.
       *10.7     Employment Agreement between the Company and Susan Henderson-
                 Hernandez.
       *10.8     Employment Agreement between the Company and Richard K.
                 Herzer.
       *10.9     Employment Agreement between the Company and Dennis M.
                 Leifheit.
       *10.10    Employment Agreement between the Company and Naomi K. Shively.
       *10.11    Employment Agreement between the Company and Frederick G.
                 Silny.
       *10.12    Employment Agreement between the Company and Anna G. Ulvan.
       *10.13    Employment Agreement between the Company and Mark D.
                 Weisberger.
        10.14    Area Franchise Agreement, effective as of May 5, 1988, by and
                 between IHOP, Inc. and FMS Management Systems, Inc. Exhibit
                 10.31 to Registration Statement on Form S-1 No. 33-40431 is
                 hereby incorporated by reference.
        10.15    International House of Pancakes Employee Stock Ownership Plan
                 as Amended and Restated as of July 12, 1991 ("the ESOP").
                 Exhibit 10.35 to the 1991 Form 10-K is hereby incorporated by
                 reference.
        10.16    Amendment No. 1 to the ESOP. Exhibit 10.36 to the 1991 Form
                 10-K is hereby incorporated by reference.
        10.17    Amendment No. 2 to the ESOP. Exhibit 10.19 to the 1993 Form
                 10-K is hereby incorporated by reference.
        10.18    Amendment No. 3 to the ESOP. Exhibit 10 to the Form 10-Q for
                 the quarterly period ended September 30, 1996 is hereby
                 incorporated by reference.
        10.19    International House of Pancakes Employee Stock Ownership Trust
                 Agreement between the Company and Chemical Bank. Exhibit 10.17
                 to the 1994 Form 10-K is hereby incorporated by reference.
</TABLE>

 
 
                                       13

<PAGE>
 

<TABLE>
 <C>             <S>
         11.0    Statement Regarding Computation of Per Share Earnings.
         22.0    Subsidiaries of the Company. Exhibit 22.0 to the 1994 Form 10-
                 K is hereby incorporated by reference.
         23.0    Consent of Coopers & Lybrand L.L.P.
         27.0    Financial Data Schedule
</TABLE>

 
(b)  No reports on Form 8-K were filed during the quarter ended December 31,
     1996.
 
(c)  The exhibits described above in Item 14(a)(3) are incorporated herein by
     reference.
 
(d)  Information regarding schedules described above in Item 14(a)(2) is
     incorporated herein by reference.
 
 
                                       14

<PAGE>
 
                         FINANCIAL INFORMATION SECTION
 
                          IHOP CORP. AND SUBSIDIARIES
 

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Five-Year Financial Summary...............................................   F-2
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   F-3
Consolidated Balance Sheets...............................................   F-9
Consolidated Statements of Operations.....................................  F-10
Consolidated Statement of Shareholders' Equity............................  F-11
Consolidated Statements of Cash Flows.....................................  F-12
Notes to the Consolidated Financial Statements............................  F-13
Report of Independent Accountants.........................................  F-22
</TABLE>

 
                                      F-1

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
                          FIVE-YEAR FINANCIAL SUMMARY
 

<TABLE>
<CAPTION>
                                     YEAR ENDED DECEMBER 31,
                           --------------------------------------------------
                             1996     1995        1994     1993        1992
                           -------- --------    -------- --------    --------
                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                        <C>      <C>         <C>      <C>         <C>
INCOME STATEMENT DATA
Revenues
  Franchise operations...  $102,368 $ 93,039    $ 83,868 $ 71,451    $ 61,178
  Company operations.....    53,677   43,001      40,732   47,557      38,204
  Other..................    34,051   28,283      25,394   23,537      14,569
                           -------- --------    -------- --------    --------
    Total revenues.......   190,096  164,323     149,994  142,545     113,951
                           -------- --------    -------- --------    --------
Costs and expenses
  Franchise operations...    47,104   43,519      39,733   33,775      28,164
  Company operations.....    50,852   41,621      37,507   43,791      35,301
  Field, corporate and
   administrative........    26,052   22,193      21,967   21,004      18,637
  Depreciation and
   amortization..........     8,279    6,918       6,382    5,738       5,014
  Interest...............    11,691    8,873       6,805    5,641       4,762
  Other..................    15,367   13,698      12,616   11,480       7,269
  Severance charges......       --       800         --       --          --
  Nonrecurring charge....       --       --          --     2,500         --
                           -------- --------    -------- --------    --------
    Total costs and
     expenses............   159,345  137,622     125,010  123,929      99,147
                           -------- --------    -------- --------    --------
Income before income
 taxes and
  extraordinary item.....  $ 30,751 $ 26,701(a) $ 24,984 $ 18,616(b) $ 14,804
                           -------- --------    -------- --------    --------
Net income...............  $ 18,604 $ 16,154(a) $ 15,115 $ 10,733(b) $  7,931(c)
                           ======== ========    ======== ========    ========
Net income per common and
 common equivalent share.  $   1.95 $   1.70(a) $   1.60 $   1.15(b) $    .89(c)
                           ======== ========    ======== ========    ========
Weighted average common
 and common equivalent
 shares outstanding......     9,523    9,488       9,444    9,310       8,945
                           ======== ========    ======== ========    ========
BALANCE SHEET DATA (END
 OF PERIOD)
  Cash and cash
   equivalents...........  $  8,658 $  3,860    $  2,036 $  1,179    $  5,658
  Property and equipment,
   net...................   120,854   87,795      69,550   63,083      52,066
  Total assets...........   328,889  252,057     202,553  168,657     142,002
  Long-term debt.........    58,564   30,584      34,855   36,981      33,039
  Capital lease
   obligations...........    81,543   61,836      43,180   29,424      20,790
  Shareholders' equity
   (d)...................   129,357  108,297      88,299   71,178      57,992
</TABLE>

- --------
(a) Includes severance charges associated with a realignment of
    responsibilities in the Company's restaurant operations, restaurant
    development and purchasing functions of $800,000, or $484,000 net of
    income tax benefit, or $.05 per share.
 
(b) Includes a nonrecurring charge unrelated to the Company's prior or ongoing
    restaurant and franchising activities pertaining to litigation of
    $2,500,000, or $1,440,000 net of income tax benefit, or $.16 per share.
 
(c)  Includes an extraordinary charge of $833,000, net of income tax benefit,
    or $.09 per share, due to costs associated with the early extinguishment
    of long-term debt.
 
(d) The Company has not paid any dividends on its common stock in the last
    five years and has no plans to do so in 1997. Any future determination to
    declare dividends will depend on the Company's earnings, financial
    condition, cash requirements, future prospects and other factors deemed
    relevant by the Company's Board of Directors.
 
                                      F-2

<PAGE>
 

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GENERAL
 
  IHOP's revenues are recorded in three categories: (i) Franchise Operations,
which includes payments from franchisees of rents, royalties and advertising
fees, proceeds from the sale of proprietary products to distributors and
franchisees, interest income received in connection with the financing of
franchise and development fees and equipment sales, and payments from area
licensees of royalties and advertising fees (except for restaurants in Japan
from which the Company does not receive advertising fees); (ii) Company
Operations, which consists of retail sales at Company-operated restaurants;
and (iii) Other Revenues, which consists primarily of sales of franchises and
equipment and interest income received from direct financing leases on
franchised restaurant buildings.
 
  Revenues from sales of franchises and equipment and their associated costs
of sales are affected by the mix and number of restaurants franchised, as
follows: (i) restaurants newly developed by IHOP normally sell for a franchise
fee of $200,000 to $350,000, have little if any franchise cost of sales and
have equipment in excess of $300,000 that is usually sold at about break-even;
(ii) restaurants developed by franchisees normally sell for a franchise fee of
$50,000, have minor associated franchise cost of sales and do not include an
equipment sale; and (iii) previously reacquired franchises normally sell for a
franchise fee of $100,000 to $300,000, include an equipment sale, and may have
substantial costs of sales associated with both the franchise and the
equipment. The timing of sales of franchises is affected by the timing of new
restaurant openings and the number of restaurants in the Company's "inventory"
of restaurants that are available for refranchising.
 
  IHOP reports separately those expenses that are attributable to franchise
operations and Company operations. Certain expenses, such as those recorded
under field, corporate and administrative, depreciation and amortization, and
interest, relate to both franchise operations and Company operations. Other
expenses consist primarily of IHOP's investment in restaurants and equipment
which are sold as franchises.
 
  IHOP's results of operations are impacted by the timing of additions of new
restaurants, and by the timing of the franchising of those restaurants. When a
restaurant is franchised, IHOP no longer includes in revenues the retail sales
from such restaurant, but receives a one-time franchise and development fee,
periodic interest on the portion of such fee financed by the Company and
recurring payments from franchisees described above and recorded under
franchise operations.
 
                                      F-3

<PAGE>
 
RESULTS OF OPERATIONS
 
  The following table sets forth certain operating data for IHOP restaurants.
 

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                                 -----------------------------
                                                   1996       1995      1994
                                                 --------   --------  --------
                                                   (DOLLARS IN THOUSANDS)
<S>                                              <C>        <C>       <C>
Restaurant Data
 Effective restaurants(a)
  Franchise.....................................      503        463       422
  Company.......................................       57         49        48
  Area license..................................      134        127       118
                                                 --------   --------  --------
   Total........................................      694        639       588
                                                 ========   ========  ========
System-wide
 Sales(b)....................................... $796,555   $714,910  $631,291
  Percent increase..............................     11.4%      13.2%     14.4%
 Average sales per effective restaurant......... $  1,148   $  1,119  $  1,074
  Percent increase..............................      2.6%       4.2%      6.7%
 Comparable average sales per restaurant(c)..... $  1,174   $  1,120  $  1,084
  Percent increase..............................      1.7%       0.9%      3.6%
Franchise
 Sales.......................................... $622,969   $548,784  $483,457
  Percent increase..............................     13.5%      13.5%     18.7%
 Average sales per effective restaurant......... $  1,239   $  1,185  $  1,146
  Percent increase..............................      4.6%       3.4%      6.6%
 Comparable average sales per restaurant(c)..... $  1,207   $  1,159  $  1,124
  Percent increase..............................      1.7%       0.9%      3.9%
Company
 Sales.......................................... $ 53,677   $ 43,001  $ 40,732
  Percent change................................     24.8%       5.6%    (14.4)%
 Average sales per effective restaurant......... $    942   $    878  $    849
  Percent change................................      7.3%       3.4%     (1.8)%
Area License
 Sales.......................................... $119,909   $123,125  $107,102
  Percent change................................     (2.6)%     15.0%     10.6%
 Average sales per effective restaurant......... $    895   $    969  $    908
  Percent change................................     (7.6)%      6.7%      6.8%
</TABLE>

- --------
(a) "Effective restaurants" are the number of restaurants in a given fiscal
    period adjusted to account for restaurants open only a portion of the
    period.
 
(b) "System-wide sales" are retail sales of franchisees, area licensees and
    Company-operated restaurants, as reported to the Company.
 
(c) "Comparable average sales" reflect sales for restaurants that are operated
    for the entire fiscal period in which they are being compared. Comparable
    average sales do not include data on restaurants located in Florida and
    Japan.
 
                                      F-4

<PAGE>
 
  The following table summarizes the Company's restaurant development and
franchising activity:
 

<TABLE>
<CAPTION>
                                                   1996  1995  1994  1993  1992
                                                   ----  ----  ----  ----  ----
   <S>                                             <C>   <C>   <C>   <C>   <C>
   RESTAURANT DEVELOPMENT ACTIVITY(A)
   IHOP -- beginning of year.....................  678   620   572   530   499
    New openings
     IHOP-developed..............................   45    40    30    38    23
     Investor program............................   11    17    14    17    10
     Area license................................    7     8    10     9     7
                                                   ---   ---   ---   ---   ---
    Total new openings...........................   63    65    54    64    40
                                                   ---   ---   ---   ---   ---
    Closings
     Company and franchise.......................  (10)   (7)   (5)  (17)   (6)
     Area license................................   (2)   --    (1)   (5)   (3)
                                                   ---   ---   ---   ---   ---
   IHOP -- end of year...........................  729   678   620   572   530
   Other concepts -- end of year.................   --    --    --    --    17
                                                   ---   ---   ---   ---   ---
    Total -- end of year.........................  729   678   620   572   547
                                                   ===   ===   ===   ===   ===
   Summary -- end of year
    IHOP
     Franchise...................................  535   496   451   407   370
     Company.....................................   58    51    46    51    50
     Area license................................  136   131   123   114   110
                                                   ---   ---   ---   ---   ---
    Total IHOP...................................  729   678   620   572   530
    Other concepts...............................   --    --    --    --    17
                                                   ---   ---   ---   ---   ---
     Total restaurants...........................  729   678   620   572   547
                                                   ===   ===   ===   ===   ===
   RESTAURANT FRANCHISING ACTIVITY(A)
   IHOP-developed................................   41    36    32    30    15
   Investor program..............................   11    17    14    17    10
   Rehabilitated and refranchised................    5     3    10    12    16
                                                   ---   ---   ---   ---   ---
    Total restaurants franchised.................   57    56    56    59    41
   Reacquired by Company.........................  (11)   (8)  (10)   (9)   (6)
   Closed........................................   (7)   (3)   (2)  (13)   (3)
                                                   ---   ---   ---   ---   ---
    Net addition.................................   39    45    44    37    32
                                                   ===   ===   ===   ===   ===
</TABLE>

- --------
(a) The Company reports restaurants in Canada as franchise restaurants
    although the ten restaurants are operated under an area license agreement.
 
  The following discussion and analysis provides information management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto. The forward-looking statements included in Management's

Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") relate to certain matters involving risks and uncertainties,
including anticipated financial performance, business prospects, anticipated
capital expenditures and other similar matters, which reflect management's
best judgment based on factors currently known. Actual results and experience
could differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements as a result of a number
of factors, including but not limited to those discussed in MD&A. Forward-
looking information provided by the Company pursuant to the safe harbor
established under the Private Securities Litigation Reform Act of 1995 should
be evaluated in the context of these factors. In addition, the Company
disclaims any intent or obligation to update these forward-looking statements.
 
                                      F-5

<PAGE>
 
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
 
  System-wide retail sales for 1996 grew 11.4% over system-wide retail sales
for 1995. This was due to increases of 8.6% in the number of effective
restaurants and 2.6% in the revenues per effective restaurant. The above
results were mitigated by an unfavorable change in the Japanese yen--U.S.
dollar exchange rate in 1996 versus the exchange rate in 1995. If the Japanese
sales were excluded from the comparison, system-wide sales in 1996 would have
grown by 13.2% over those in 1995. System-wide comparable average sales per
restaurant (exclusive of area license restaurants) for 1996 grew by 1.7% over
those in 1995. Comparable average sales in the restaurant industry remained
weak during 1996, however, IHOP's performance in this area has been, in
general, stronger than that of our competitors. Management continues to pursue
growth in sales through the Company's restaurant development program, improved
marketing efforts, improvements in customer service and operations, and the
Company's remodeling program.
 
  Franchise operations revenues for 1996 grew 10.0% over franchise operations
revenues for 1995. This was primarily due to increases in the number of
effective franchised restaurants of 8.6% and in the revenues per effective
franchised restaurant of 4.6%. Franchise operations costs and expenses for
1996 increased 8.2% over costs and expenses for 1995. As a result of franchise
revenues increasing in excess of franchise expenses, franchise margin rose to
54.0% in 1996 from 53.2% in 1995. The margin improved primarily because of
increases in interest income associated with IHOP's financing of sales of
franchises and equipment to its franchisees.
 
  Company-operated restaurant revenues in 1996 grew 24.8% over revenues for
1995. This was primarily due to increases in the effective number of Company-
operated restaurants of 16.3% and in the revenues per effective Company-
operated restaurant of 7.3%. Company-operated restaurant costs and expenses
for 1996 increased 22.2% from costs and expenses for 1995. Margin at Company-
operated restaurants in 1996 was 5.3% compared to 3.2% in 1995. The
improvement in margin was primarily due to operating reductions in food costs,
salaries and wages and other controllable costs as a percentage of revenues.
 
  Other revenues in 1996 grew 20.4% over other revenues for 1995 primarily due
to a 15.2% increase in sales of franchises and equipment augmented by an
increase in interest income from direct financing leases of 38.3%. Sales of
franchises and equipment in 1996 grew to $25,573,000 from $22,202,000 in the
prior year. IHOP franchised 57 restaurants in 1996 compared with 56 in 1995.
Other costs and expenses in 1996 increased 12.2% over 1995 primarily from the
increase in franchise and equipment costs of sales to $14,334,000 from
$11,565,000.
 
  Field, corporate and administrative costs and expenses in 1996 increased
17.4% over costs and expenses in 1995. The rise in expenses was primarily due
to (a) normal increases in salaries and wages and inflation, (b) additions to
headcount in the Company's restaurant operations, restaurant development and
training functions to support the Company's growth, and (c) additional travel
costs associated with growth in the number of restaurants in the IHOP system.
Field, corporate and administrative expenses were 3.3% of system-wide sales in
1996 compared to 3.1% in 1995.
 
  Depreciation and amortization expense in 1996 increased 19.7% over that of
1995 primarily reflecting the addition of new, larger restaurants and an
increase in the number of Company-operated restaurants.
 
  Interest expense increased 31.8% in 1996 over that of 1995 primarily due to
interest associated with additional capital lease obligations, although
interest associated with debt also increased. Interest associated with debt
rose due to higher levels of borrowings through most of the year under the
Company's bank revolving credit agreement and the private placement of $35
million in senior notes in November 1996 (see Note 5 to the Consolidated
Financial Statements).
 
  Provision for income taxes was 39.5% of income before income taxes in both
1996 and 1995.
 
                                      F-6

<PAGE>
 
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
 
  System-wide retail sales for 1995 grew 13.2% over system-wide retail sales
for 1994. This was due to increases of 8.7% in the number of effective
restaurants and 4.2% in the revenues per effective restaurant. System-wide
comparable average sales per restaurant (exclusive of area license
restaurants) for 1995 grew by 0.9% over those in 1994. Comparable average
sales in the full-service segment of the restaurant industry have been weak
during 1995. IHOP's performance in this area has been, in general, stronger
than our competitors, but below management's expectations. Management
continues to pursue growth in sales increases through the Company's restaurant
development program, improved marketing efforts, improvements in customer
service and operations, and the Company's remodeling program.
 
  Franchise operations revenues for 1995 grew 10.9% over franchise operations
revenues for 1994. This was primarily due to increases in the number of
effective franchised restaurants of 9.7% and in the revenues per effective
franchised restaurant of 3.4%. Franchise operations costs and expenses for
1995 increased 9.5% over costs and expenses for 1994. As a result of franchise
revenues increasing in excess of franchise expenses, franchise margin rose to
53.2% in 1995 from 52.6% in 1994. The margin improved primarily because of
increases in interest income associated with IHOP's financing of sales of
franchises and equipment to its franchisees.
 
  Company-operated restaurant revenues in 1995 grew 5.6% over revenues for
1994. This was primarily due to increases in the revenues per effective
Company-operated restaurant of 3.4% and in the effective number of Company-
operated restaurants of 2.1%. Company-operated restaurant costs and expenses
for 1995 increased 11.0% from costs and expenses for 1994. Margin at Company-
operated restaurants in 1995 was 3.2% compared to 7.9% in 1994. The increase
in restaurant costs and expenses and the change in margin were primarily due
to operating increases in food costs, salaries and wages as a percentage of
revenues. The Company commenced a program in the second quarter of 1995 to
increase revenues at certain Company-operated restaurants, primarily in the
Northwest, by improving service and increasing traffic. The initial result of
the program was deteriorating dollar margins caused by increased labor and
promotional costs. However, in the fourth quarter of 1995 margin increased to
3.5%, versus 3.1% for the first nine months of 1995. An additional factor in
the year-to-year comparison was a one-time reduction in workers' compensation
insurance expense realized in the third quarter of 1994.
 
  Other revenues in 1995 grew 11.4% over other revenues for 1994 primarily due
to an increase in interest income from direct financing leases of 43.6%
augmented by growth in sales of franchises and equipment to $22,202,000 from
$20,869,000 in the prior year. IHOP franchised 56 restaurants in both 1995 and
in 1994. Other costs and expenses in 1995 increased 8.6% over 1994 primarily
from the increase in franchise and equipment costs of sales to $11,565,000
from $10,505,000.
 
  Field, corporate and administrative costs and expenses in 1995 increased
1.0% over costs and expenses in 1994. Salaries and wages rose moderately,
although there was a slight headcount reduction early in the year associated
with a realignment of responsibilities in the Company's restaurant operations,
restaurant development and purchasing functions. Factors that helped to
moderate the year-to-year increase were reductions in the costs of employee
insurance, executive bonus and field bonus programs. Field, corporate and
administrative expenses were 3.1% of system-wide sales in 1995 compared to
3.5% in 1994.
 
  Depreciation and amortization expense in 1995 increased 8.4% over that of
1994 primarily reflecting the addition of new, larger restaurants.
 
  Interest expense increased 30.4% in 1995 over that of 1994 primarily due to
interest associated with additional capital lease obligations.
 
  In the first quarter of 1995, the Company recognized severance charges of
$800,000 associated with a realignment of responsibilities in its restaurant
operations, restaurant development and purchasing functions. The effect of the
charges was $484,000, net of income tax benefit, or $.05 per share.
 
  Provision for income taxes was 39.5% of income before income taxes in both
1995 and 1994.
 
                                      F-7

<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company invests available funds into its business through the
development of additional restaurants and the remodeling of older Company-
operated restaurants.
 
  In 1996, IHOP and its franchisees and area licensees developed and opened 63
IHOP restaurants. Of these, the Company developed and opened 45 restaurants.
Capital expenditures in 1996, which included IHOP's portion of the above
development program, were $57.2 million. Funds for this investment primarily
came from operations, $31.6 million; proceeds from a private placement of
$35.0 million in 7.42% unsecured senior notes due 2008 (see Note 5 to the
Consolidated Financial Statements); and sale and leaseback arrangements of
restaurant land and buildings, $7.6 million. The Company also incurred capital
lease obligations of $19.8 million, a portion of which was due to the sale and
leaseback transactions, and all of which was related to the acquisition of
restaurant buildings.
 
  In 1997, IHOP and its franchisees and area licensees plan to develop and
open approximately 75 restaurants. Included in that number are the development
of 54 new restaurants by the Company and the development of 21 restaurants by
IHOP franchisees and area licensees. Capital expenditures budgeted in 1997,
which include IHOP's portion of the above development program, are
approximately $60 million. In November 1997, the second annual installment of
$4.6 million in principal becomes due on the Company's senior notes due 2002.
The Company expects that funds from operations, sale and leaseback
arrangements (estimated to be about $18 million) and its revolving line of
credit will be sufficient to cover its operating requirements, its budgeted
capital expenditures and its principal repayment on its senior notes in 1997.
At December 31, 1996, $20 million was available to be borrowed under the
Company's unsecured bank revolving credit agreement.
 
                                      F-8

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                                1996     1995
                                                              -------- --------
                           ASSETS
                           ------
<S>                                                           <C>      <C>
Current assets
 Cash and cash equivalents................................... $  8,658 $  3,860
 Receivables.................................................   29,324   21,476
 Reacquired franchises and equipment held for sale, net......    1,474    1,157
 Inventories.................................................    1,180      792
 Prepaid expenses............................................      676      233
                                                              -------- --------
  Total current assets.......................................   41,312   27,518
                                                              -------- --------
Long-term receivables........................................  143,338  115,800
Property and equipment, net..................................  120,854   87,795
Reacquired franchises and equipment held for sale, net.......    8,352    6,553
Excess of costs over net assets acquired, net................   12,908   13,336
Other assets.................................................    2,125    1,055
                                                              -------- --------
  Total assets............................................... $328,889 $252,057
                                                              ======== ========
<CAPTION>
            LIABILITIES AND SHAREHOLDERS' EQUITY
            ------------------------------------
<S>                                                           <C>      <C>
Current liabilities..........................................
 Current maturities of long-term debt........................ $  4,731 $  4,672
 Accounts payable............................................   17,474   15,979
 Accrued employee compensation and benefits..................    2,674    1,562
 Other accrued expenses......................................    5,024    2,349
 Deferred income taxes.......................................    4,311    3,436
 Capital lease obligations...................................      870      719
                                                              -------- --------
  Total current liabilities..................................   35,084   28,717
                                                              -------- --------
Long-term debt...............................................   58,564   30,584
Deferred income taxes........................................   25,061   21,495
Capital lease obligations and other..........................   80,823   62,964
Shareholders' equity
 Preferred stock, $1 par value, 10,000,000 shares authorized;
  issued and outstanding: 1996 and 1995, no shares                 --       --
 Common stock, $.01 par value, 40,000,000 shares authorized;
  shares issued and outstanding: 1996, 9,467,294 shares;
  1995, 9,375,515 shares                                            95       94
 Additional paid-in capital..................................   48,768   46,363
 Retained earnings...........................................   79,244   60,640
 Contribution to ESOP........................................    1,250    1,200
                                                              -------- --------
  Total shareholders' equity.................................  129,357  108,297
                                                              -------- --------
  Total liabilities and shareholders' equity................. $328,889 $252,057
                                                              ======== ========
</TABLE>

 
      See the accompanying notes to the consolidated financial statements.
 
                                      F-9

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                                      --------------------------
                                                        1996     1995     1994
                                                      -------- -------- --------
<S>                                                   <C>      <C>      <C>
Revenues
  Franchise operations
   Rent.............................................  $ 29,642 $ 27,986 $ 25,925
   Service fees and other...........................    72,726   65,053   57,943
                                                      -------- -------- --------
                                                       102,368   93,039   83,868
  Company operations................................    53,677   43,001   40,732
  Other.............................................    34,051   28,283   25,394
                                                      -------- -------- --------
    Total revenues..................................   190,096  164,323  149,994
                                                      -------- -------- --------
Costs and Expenses
  Franchise operations
   Rent.............................................    16,301   15,165   14,023
   Other direct costs...............................    30,803   28,354   25,710
                                                      -------- -------- --------
                                                        47,104   43,519   39,733
  Company operations................................    50,852   41,621   37,507
  Field, corporate and administrative...............    26,052   22,193   21,967
  Depreciation and amortization.....................     8,279    6,918    6,382
  Interest..........................................    11,691    8,873    6,805
  Other.............................................    15,367   13,698   12,616
  Severance charges.................................       --       800      --
                                                      -------- -------- --------
    Total costs and expenses........................   159,345  137,622  125,010
                                                      -------- -------- --------
Income before income taxes..........................    30,751   26,701   24,984
Provision for income taxes..........................    12,147   10,547    9,869
                                                      -------- -------- --------
    Net income......................................  $ 18,604 $ 16,154 $ 15,115
                                                      ======== ======== ========
Net Income Per Share
Net income per common and common equivalent share...  $   1.95 $   1.70 $   1.60
                                                      ======== ======== ========
Weighted average common and common equivalent shares
 outstanding........................................     9,523    9,488    9,444
                                                      ======== ======== ========
</TABLE>

 
 
      See the accompanying notes to the consolidated financial statements.
 
                                      F-10

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                           COMMON STOCK   ADDITIONAL
                         ----------------  PAID-IN   RETAINED CONTRIBUTION
                          SHARES   AMOUNT  CAPITAL   EARNINGS   TO ESOP     TOTAL
                         --------- ------ ---------- -------- ------------ --------
<S>                      <C>       <C>    <C>        <C>      <C>          <C>
Balance, December 31,
 1993................... 9,104,460  $91    $40,666   $29,371    $ 1,050    $ 71,178
Issuance of shares......    37,837  --       1,050       --      (1,050)        --
Exercise of stock
options.................    41,030    1        905       --         --          906
Contribution to ESOP....       --   --         --        --       1,100       1,100
Net income..............       --   --         --     15,115        --       15,115
                         ---------  ---    -------   -------    -------    --------
Balance, December 31,
 1994................... 9,183,327   92     42,621    44,486      1,100      88,299
                         ---------  ---    -------   -------    -------    --------
Issuance of shares......    39,461  --       1,100       --      (1,100)        --
Exercise of stock
options.................   139,697    2      2,642       --         --        2,644
Issuance of restricted
shares..................    13,030  --         --        --         --          --
Contribution to ESOP....       --   --         --        --       1,200       1,200
Net income..............       --   --         --     16,154        --       16,154
                         ---------  ---    -------   -------    -------    --------
Balance, December 31,
 1995................... 9,375,515   94     46,363    60,640     1,.200     108,297
                         ---------  ---    -------   -------    -------    --------
Issuance of shares......    44,445  --       1,200       --      (1,200)        --
Exercise of stock
options.................    47,334    1      1,205       --         --        1,206
Contribution to ESOP....       --   --         --        --       1,250       1,250
Net income..............       --   --         --     18,604        --       18,604
                         ---------  ---    -------   -------    -------    --------
Balance, December 31,
1996.................... 9,467,294  $95    $48,768   $79,244    $ 1,250    $129,357
                         =========  ===    =======   =======    =======    ========
</TABLE>

 
 
      See the accompanying notes to the consolidated financial statements.
 
                                      F-11

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                                 -----------------------------
                                                   1996       1995      1994
                                                 ---------  --------  --------
<S>                                              <C>        <C>       <C>
Cash flows from operating activities
 Net income..................................... $  18,604  $ 16,154  $ 15,115
 Adjustments to reconcile net income to cash
  provided by operating activities
  Depreciation and amortization.................     8,279     6,918     6,382
  Deferred taxes................................     4,441     5,790     4,092
  Contribution to ESOP..........................     1,250     1,200     1,100
  Change in current assets and liabilities
   Accounts receivable..........................    (6,250)   (3,860)     (820)
   Inventories..................................      (388)       25       147
   Prepaid expenses.............................      (443)      435        23
   Accounts payable.............................     1,495     5,246     1,505
   Accrued employee compensation and benefits...     1,112      (759)       31
   Other accrued expenses.......................     1,697       477      (485)
  Other, net....................................     1,804      (302)     (521)
                                                 ---------  --------  --------
    Cash provided by operating activities.......    31,601    31,324    26,569
                                                 ---------  --------  --------
Cash flows from investing activities
 Additions to property and equipment............   (57,159)  (42,024)  (30,522)
 Proceeds from sale and leaseback arrangements..     7,593    12,792     9,613
 Additions to notes, equipment contracts and
  direct financing leases receivable............  (11,427)   (8,610)   (8,364)
 Principal receipts from notes, equipment
  contracts and direct financing leases
  receivable....................................     7,019     6,718     5,396
 Additions to reacquired franchises held for
  sale..........................................      (339)     (926)     (581)
                                                 ---------  --------  --------
    Cash used by investing activities...........   (54,313)  (32,050)  (24,458)
                                                 ---------  --------  --------
Cash flows from financing activities
 Proceeds from issuance of long-term debt.......    34,514     7,700     3,900
 Repayment of long-term debt....................    (7,478)   (7,300)   (5,485)
 Principal payments on capital lease
  obligations...................................      (419)     (492)     (574)
 Exercise of stock options......................       893     2,642       905
                                                 ---------  --------  --------
    Cash provided (used) by financing
     activities.................................    27,510     2,550    (1,254)
                                                 ---------  --------  --------
Net change in cash and cash equivalents.........     4,798     1,824       857
Cash and cash equivalents at beginning of
 period.........................................     3,860     2,036     1,179
                                                 ---------  --------  --------
    Cash and cash equivalents at end of period.. $   8,658  $  3,860  $  2,036
                                                 =========  ========  ========
Supplemental disclosures........................
 Interest paid, net of capitalized amounts...... $  11,300  $  8,953  $  7,067
 Income taxes paid..............................     7,588     4,177     6,594
 Capital lease obligations incurred.............    19,786    19,423    14,505
</TABLE>

 
      See the accompanying notes to the consolidated financial statements.
 
                                      F-12

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Operations
 
  IHOP Corp. and its subsidiaries ("IHOP" or the "Company") engage exclusively
in the food service industry, primarily in the United States, wherein IHOP
franchises and operates restaurants. IHOP grants credit to its franchisees and
licensees, all of whom are in the restaurant business. In the majority of its
franchised operations, IHOP has developed restaurants on sites that it either
owns or controls through leases. IHOP then leases or subleases the restaurants
to its franchisees. Additionally, IHOP finances up to 80% of the initial
franchise fee, leases restaurant equipment and fixtures to its franchisees,
and sells proprietary products to its franchisees and licensees.
 
 Basis of Presentation
 
  The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany accounts and transactions have been
eliminated.
 
 Fiscal Periods
 
  IHOP's fiscal year ends on the Sunday nearest to December 31 of each year.
For convenience, the Company reports all fiscal years as ending on December 31
and fiscal quarters as ending on March 31, June 30 and September 30. The
fiscal years ended December 31, 1996, 1995 and 1994 are comprised of 52 weeks
(364 days).
 
 Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Cash and Cash Equivalents
 
  The Company at times purchases highly liquid, investment-grade securities
with an original maturity of three months or less. These cash equivalents are
stated at cost which approximates market value. IHOP does not believe it is
exposed to any significant credit risk on cash and cash equivalents.
 
 Inventories
 
  Inventories consisting of merchandise and supplies are stated at the lower
of cost (on a first-in, first-out basis) or market.
 
 Property and Equipment
 
  Property and equipment are stated at cost and depreciated on the straight-
line method over the estimated useful lives as follows:
 

<TABLE>
<CAPTION>
                       CATEGORY                   DEPRECIABLE LIFE
                       --------                   ----------------
      <C>                                         <S>
                                                  Shorter of lease term or 25
      Buildings and improvements................. years
      Leaseholds and improvements................ 3-25 years
      Equipment and fixtures..................... 3-10 years
      Properties under capital lease............. Primary lease term
</TABLE>

 
  Leaseholds and improvements are amortized over a period not exceeding the
term of the lease.
 
                                     F-13

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
 
 Impairment of Long-Lived Assets
 
  IHOP adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" effective with its fiscal year ending
December 31, 1996. SFAS No. 121 requires an entity to review long-lived assets
and certain identifiable intangibles whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Estimates of recoverability are subjective and require management's judgment as
to future cash flows and economic conditions, among other factors. Impairment
losses are recognized when the carrying amount of the asset exceeds the
estimated fair value of the asset. There was not a significant impact on the
Company as a result of implementing SFAS No. 121.
 
 Excess of Costs Over Net Assets Acquired
 
  The excess of costs over net assets acquired is amortized utilizing the
straight-line method over forty years. Accumulated amortization at December 31,
1996 and 1995 was $4,179,000 and $3,752,000, respectively.
 
 Franchise Revenues
 
  Revenue from the sale of franchises is recognized as income when IHOP has
substantially performed all of its material obligations under the franchise
agreement, and the franchisee has commenced operations. Continuing service
fees, which are a percentage of the net sales of franchised operations, are
accrued as income when earned.
 
 Leasing
 
  The Company leases restaurant equipment, furniture and fixtures (equipment)
to its franchisees and retains title to the leased equipment. These equipment
contracts are accounted for as sales-type leases upon acceptance of the
equipment by the franchisee. Leases of restaurant facilities are recorded as
direct financing leases upon acceptance.
 
 Preopening Expenses
 
  Expenditures related to the opening of new restaurants, other than those for
capital assets, are charged to expense when incurred.
 
 Advertising
 
  Advertising costs are expensed as incurred. Advertising expense for the years
ended December 31, 1996, 1995 and 1994 was $20,450,000, $18,018,000 and
$16,003,000, respectively.
 
 Foreign Currency
 
  Translation gains and losses on monetary items resulting from changes in
exchange rates are recognized in the current period.
 
 Income Taxes
 
  Income taxes are accounted for under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred tax
assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities. They are measured
using the enacted marginal tax rates and laws that will be in effect when the
differences are expected to reverse.
 
                                      F-14

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
 
 Net Income Per Common and Common Equivalent Share
 
  Net income per common and common equivalent share is computed by dividing the
net income attributable to common shareholders by the weighted average number
of common and common equivalent shares outstanding during the period. Common
share equivalents included in the computation represent shares issuable upon
assumed exercise of stock options using the treasury stock method.
 
 Reclassification
 
  Certain reclassifications have been made to prior year information to conform
to the current year presentation.
 
2. RECEIVABLES

<TABLE>
<CAPTION>
                                                                1996     1995
                                                              -------- --------
                                                               (IN THOUSANDS)
      <S>                                                     <C>      <C>
      Accounts receivable.................................... $ 21,372 $ 14,882
      Notes receivable.......................................   31,924   27,976
      Equipment contracts receivable.........................   53,580   44,118
      Direct financing leases receivable.....................   66,231   50,505
                                                              -------- --------
                                                               173,107  137,481
      Less allowance for doubtful accounts...................      445      205
                                                              -------- --------
                                                               172,662  137,276
      Less current portion...................................   29,324   21,476
                                                              -------- --------
      Long-term receivables.................................. $143,338 $115,800
                                                              ======== ========
</TABLE>

 
  Notes receivable include franchise fee notes due in five to eight years in
the amount of $29,595,000 and $27,555,000 at December 31, 1996 and 1995,
respectively. Franchise fee notes are due in equal weekly installments,
primarily bear interest at 12.0% and are secured by the franchise. The term of
an equipment contract coincides with the term of the corresponding restaurant
building direct financing lease. Equipment contracts are due in equal weekly
installments, primarily bear interest at 11.0% and are secured by the
equipment. Where applicable, franchise fee notes, equipment contracts and
direct financing leases contain cross-default provisions wherein a default
under one constitutes a default under all. There is not a disproportionate
concentration of credit risk in any geographic area.
 
3. PROPERTY AND EQUIPMENT, AT COST

<TABLE>
<CAPTION>
                                                                1996     1995
                                                              -------- --------
                                                               (IN THOUSANDS)
      <S>                                                     <C>      <C>
      Land................................................... $ 17,512 $ 10,965
      Buildings and improvements.............................   32,529   17,290
      Leaseholds and improvements............................   66,295   54,989
      Equipment and fixtures.................................   10,776    7,870
      Construction in progress...............................    3,598    5,855
      Properties under capital lease.........................   15,009   11,786
                                                              -------- --------
                                                               145,719  108,755
      Less accumulated depreciation
      and amortization.......................................   24,865   20,960
                                                              -------- --------
      Property and equipment, net............................ $120,854 $ 87,795
                                                              ======== ========
</TABLE>

 
 
  Accumulated depreciation and amortization includes accumulated amortization
for properties under capital lease in the amount of $1,740,000 and $1,248,000
at December 31, 1996 and 1995, respectively.
 
                                      F-15

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
 
4. REACQUIRED FRANCHISES AND EQUIPMENT HELD FOR SALE
 
  Reacquired franchises and equipment held for sale are accounted for on the
specific identification basis. At the date of reacquisition the franchise and
equipment are recorded at the lower of (i) the sum of the franchise
receivables and costs of reacquisition or (ii) the estimated net realizable
value. Pending the sale of such franchise, the carrying value is amortized
ratably over the remaining life of the asset or lease and the estimated net
realizable value is reassessed each year.
 

<TABLE>
<CAPTION>
                                                                   1996    1995
                                                                  ------- ------
                                                                  (IN THOUSANDS)
   <S>                                                            <C>     <C>
   Franchises.................................................... $ 5,484 $4,886
   Equipment.....................................................   6,777  4,278
                                                                  ------- ------
                                                                   12,261  9,164
   Less amortization.............................................   2,435  1,454
                                                                  ------- ------
                                                                    9,826  7,710
   Less current portion..........................................   1,474  1,157
                                                                  ------- ------
   Long-term reacquired franchises and equipment held for sale... $ 8,352 $6,553
                                                                  ======= ======
</TABLE>

 
5. DEBT
 
  Debt consists of the following:

<TABLE>
<CAPTION>
                                                                1996    1995
                                                               ------- -------
                                                               (IN THOUSANDS)
   <S>                                                         <C>     <C>
   Senior notes due November 2008, payable in equal annual
    installments commencing November 2000, interest at 7.42%.  $35,000 $   --
   Senior notes due November 2002, payable in equal annual
    installments commencing November 1996, interest at 7.79%.   27,429  32,000
   Bank revolving credit agreement due June 1999, interest at
    prime or less............................................      --    2,700
   Other.....................................................      866     556
                                                               ------- -------
   Total debt................................................   63,295  35,256
   Less current maturities...................................    4,731   4,672
                                                               ------- -------
   Long-term debt............................................  $58,564 $30,584
                                                               ======= =======
</TABLE>

 
  In November 1996, IHOP completed a private placement of $35 million of
unsecured senior notes due November 2008. The notes have a fixed interest rate
of 7.42% with annual principal payments of $3,889,000 commencing November
2000. Proceeds from the sale of the senior notes were used, in part, to repay
$17.6 million outstanding under the bank revolving credit agreement, to pay
$5.8 million in principal and accrued interest for the senior notes due 2002,
to fund capital expenditures for new restaurants and for general corporate
purposes. The senior notes due November 2002 are also unsecured.
 
  The unsecured bank revolving credit agreement was amended in March 1996 to
extend the maturity date to June 1999 and to increase the commitment amount to
$20 million. Borrowings under the agreement are to bear interest at the bank's
reference rate (prime) or, alternatively, at the bank's quoted rate or at a
Eurodollar rate. A commitment fee of 0.375% per annum is payable on unborrowed
funds available under the agreement. The highest amount outstanding under the
agreement during 1996 was $18,600,000.
 
  The senior note agreements and the bank revolving credit agreement contain
certain restrictions and conditions, the most restrictive of which limit
dividends and investments. At December 31, 1996, approximately $25 million of
retained earnings was free of restriction as to distribution as dividends.
 
                                     F-16

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
 
  The prime rate was 8.25% at December 31, 1996 and 8.5% at December 31, 1995.
 
  The Company's long-term debt maturities are as follows: 1997--$4,731,000;
1998--$4,726,000, 1999--$4,716,000; 2000--$8,545,000; 2001--$8,476,000; and
thereafter--$32,102,000.
 
6. LEASES
 
  The Company leases the majority of its restaurants with the exception of
those where a franchisee enters into a lease directly with a landlord and those
associated with area license agreements. The restaurants are subleased to
franchisees or operated by IHOP. These noncancelable leases and subleases
consist primarily of land and buildings and improvements.
 
  Net investment in direct financing leases receivable is as follows:
 

<TABLE>
<CAPTION>
                                                                 1996     1995
                                                               -------- --------
                                                                (IN THOUSANDS)
      <S>                                                      <C>      <C>
      Total minimum rents receivable.......................... $224,554 $169,665
       Less unearned income...................................  158,323  119,160
                                                               -------- --------
      Net investment in direct financing leases receivable....   66,231   50,505
       Less current portion...................................      615      565
                                                               -------- --------
      Long-term direct financing leases receivable............ $ 65,616 $ 49,940
                                                               ======== ========
</TABLE>

 
  Contingent rental income for the years ended December 31, 1996, 1995 and 1994
was $13,901,000, $14,332,000 and $13,490,000, respectively.
 
  Minimum future lease payments on noncancelable leases at December 31, 1996
are as follows:
 

<TABLE>
<CAPTION>
                                                              CAPITAL  OPERATING
                                                               LEASES   LEASES
                                                              -------- ---------
                                                                (IN THOUSANDS)
      <S>                                                     <C>      <C>
      1997................................................... $  9,988 $ 17,205
      1998...................................................   10,041   16,026
      1999...................................................   10,111   15,008
      2000...................................................   10,229   14,255
      2001...................................................   10,337   12,287
      Thereafter.............................................  181,970  139,297
                                                              -------- --------
      Total minimum lease payments...........................  232,676 $214,078
                                                                       ========
       Less interest.........................................  151,133
                                                              --------
      Capital lease obligations..............................   81,543
       Less current portion..................................      870
                                                              --------
      Long-term capital lease obligations.................... $ 80,673
                                                              ========
</TABLE>

 
                                      F-17

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
 
  The minimum future lease payments shown above have not been reduced by the
future minimum rents to be received on noncancelable subleases and leases of
owned property at December 31, 1996, as follows:
 

<TABLE>
<CAPTION>
                                                              DIRECT
                                                             FINANCING OPERATING
                                                              LEASES    LEASES
                                                             --------- ---------
                                                               (IN THOUSANDS)
      <S>                                                    <C>       <C>
      1997.................................................. $  9,664  $ 18,951
      1998..................................................    9,702    18,201
      1999..................................................    9,729    17,557
      2000..................................................    9,847    16,985
      2001..................................................    9,891    16,181
      Thereafter............................................  175,721   217,705
                                                             --------  --------
      Total minimum rents receivable........................ $224,554  $305,580
                                                             ========  ========
</TABLE>

 
  IHOP has noncancelable leases, expiring at various dates through 2048, that
require payment of contingent rents based upon a percentage of sales of the
related restaurant as well as property taxes, insurance and other charges.
Subleases to franchisees of properties under such leases are generally for the
full term of the Company's lease obligation at rents that include IHOP's
obligations for property taxes, insurance, contingent rents and other charges.
Generally, the noncancelable leases include renewal options. Contingent rent
expense for all noncancelable leases for the years ended December 31, 1996,
1995 and 1994 was $3,161,000, $3,391,000 and $3,258,000, respectively. Minimum
rent expense for all noncancelable operating leases for the years ended
December 31, 1996, 1995 and 1994 was $17,557,000, $15,464,000 and $14,211,000,
respectively.
 
7. SHAREHOLDERS' EQUITY
 
  The Stock Incentive Plan (the "Plan" ) was adopted in 1991 and amended and
restated in 1994 to authorize the issuance of up to 1,380,000 shares of common
stock pursuant to options to officers and key employees of the Company. Except
for substitute stock options which were issued in 1991 pursuant to the
cancellation of a stock appreciation rights plan, no option can be granted at
an option price of less than 100% of fair market value at the date of grant.
Exercisability of options is determined at, or after, the date of grant by the
administrator of the plan. Options granted under the Plan through December 31,
1996, become exercisable 1/3 after one year, 2/3 after two years and 100%
after three years or immediately upon change in control of the Company, as
defined by the Plan, except for the substitute stock options which were
immediately exercisable.
 
  The Stock Option Plan for Non-Employee Directors (the "Directors Plan") was
adopted in 1994 to authorize the issuance of up to 200,000 shares of common
stock pursuant to options to non-employee members of the Company's Board of
Directors. Options are to be granted at an option price equal to 100% of the
fair market value of the stock on the date of grant. Options granted pursuant
to the Directors Plan vest and become exercisable 1/3 after one year, 2/3
after two years and 100% after three years. Options for the purchase of shares
are granted to each non-employee Director under the Directors Plan as follows:
(a) 7,500 on February 23, 1995 or on the Director's election to the Board of
Directors if he or she was not a Director on such date, and (b) 2,500
biannually in conjunction with the Company's Annual Meeting of Shareholders
for that year.
 
                                     F-18

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
 
  IHOP has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" and
will continue to use the intrinsic value based method of accounting prescribed
by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, no compensation cost has been recognized
for the stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant date for
awards in 1995 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated below:
 

<TABLE>
<CAPTION>
                                                                 1996    1995
                                                                ------- -------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
      <S>                                                       <C>     <C>
      Net earnings, as reported................................ $18,604 $16,154
      Net earnings, pro forma..................................  17,953  15,742
      Earnings per share, as reported..........................    1.95    1.70
      Earnings per share, pro forma............................    1.89    1.66
</TABLE>

 
  The fair value of each option grant issued in 1996 and 1995 is estimated at
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: (a) no dividend yield on IHOP stock,
(b) expected volatility of IHOP stock of 59.2%, (c) a risk-free interest rate
of 7.2% and (d) expected option lives of three years.
 
  The following summarizes activity in IHOP's stock option plans for the years
ended December 31, 1996 and 1995:
 

<TABLE>
<CAPTION>
                                                                    PRICE PER
                    SHARES UNDER OPTION                   SHARES      SHARE
                    -------------------                   ------   ------------
   <S>                                                   <C>       <C>
   Outstanding at December 31, 1993.....................  465,904  $ 7.14-16.50
   Granted..............................................  333,000         27.75
   Exercised............................................  (41,030)  10.00-16.50
   Terminated...........................................   (8,334)        16.50
                                                         --------  ------------
   Outstanding at December 31, 1994.....................  749,540    7.14-27.75
   Granted..............................................  298,000   26.00-27.88
   Exercised............................................ (139,697)   7.14-27.75
   Terminated...........................................  (31,935)  27.75-27.88
                                                         --------  ------------
   Outstanding at December 31, 1995.....................  875,908    7.14-27.88
   Granted..............................................  170,500   22.00-28.75
   Exercised............................................  (47,334)   7.14-27.75
   Terminated...........................................  (50,129)  27.75-28.75
                                                         --------  ------------
   Outstanding at December 31, 1996.....................  948,945  $ 7.14-28.75
                                                         ========  ============
   Exercisable at December 31, 1996.....................  506,145  $ 7.14-27.88
                                                         ========  ============
</TABLE>

 
8. OTHER REVENUES
 
  Other revenues include sales of franchises and equipment in the amount of
$25,573,000, $22,202,000, and $20,869,000, for the years ended December 31,
1996, 1995 and 1994, respectively.
 
9. SEVERANCE CHARGES
 
  In the first quarter of 1995, the Company recognized severance charges of
$800,000 associated with a realignment of responsibilities in its restaurant
operations, restaurant development and purchasing functions. The effect of the
charges was $484,000, net of income tax benefit, or $.05 per share.
 
                                     F-19

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
 
10. INCOME TAXES

<TABLE>
<CAPTION>
                                                       1996     1995     1994
                                                      -------  -------  ------
                                                          (IN THOUSANDS)
      <S>                                             <C>      <C>      <C>
      Provision for income taxes
       Current
        Federal...................................... $ 6,368  $ 3,832  $4,781
        State and foreign............................   1,338      925     996
                                                      -------  -------  ------
                                                        7,706    4,757   5,777
                                                      -------  -------  ------
       Deferred
        Federal......................................   3,383    4,997   3,488
        State........................................   1,058      793     604
                                                      -------  -------  ------
                                                        4,441    5,790   4,092
                                                      -------  -------  ------
      Provision for income taxes..................... $12,147  $10,547  $9,869
                                                      =======  =======  ======
 
  The provision for income taxes differs from the expected federal income tax
rates as follows:
 
<CAPTION>
                                                       1996     1995     1994
                                                      -------  -------  ------
      <S>                                             <C>      <C>      <C>
      Statutory federal income tax rate..............    35.0%    35.0%   35.0%
      State and foreign income taxes, net of federal
       tax benefit...................................     4.2      4.2     4.2
      Other, net.....................................     0.3      0.3     0.3
                                                      -------  -------  ------
      Effective tax rate.............................    39.5%    39.5%   39.5%
                                                      -------  -------  ------
</TABLE>

 
  Deferred tax liabilities (assets) consist of the following:
 

<TABLE>
<CAPTION>
                         1996     1995
                        -------  -------
                        (IN THOUSANDS)
      <S>      <C>      <C>      <C>
      Franchise and
       equipment sales,
       including
       differences in
       capitalization
       and revenue
       recognition..... $34,375  $29,403
      Property and
       equipment,
       including
       differences in
       capitalization
       and depreciation
       and
       amortization....   8,037    6,584
      Reacquired
       franchises and
       equipment held
       for resale,
       including
       differences in
       capitalization
       and depreciation
       and
       amortization....  (7,083)  (6,065)
      Direct financing
       leases and
       capital lease
       obligations
       including
       differences in
       capitalization
       and application
       of cash receipts
       and
       disbursements...  (6,315)  (4,961)
      Federal tax
       benefit of net
       deferred state
       tax liability...  (1,516)  (1,285)
      Other net
       liabilities.....   1,874    1,255
                        -------  -------
      Deferred tax
       liabilities..... $29,372  $24,931
                        =======  =======
</TABLE>

 
11. EMPLOYEE BENEFIT PLANS
 
  In 1987, IHOP adopted a noncontributory Employee Stock Ownership Plan
("ESOP"). The ESOP is a stock bonus plan under Section 401(a) of the Internal
Revenue Code. The plan covers IHOP employees who meet the minimum credited
service requirements of the plan except for those employees whose terms of
service are covered by a collective bargaining agreement (unless the terms of
such agreement specifically provide for participation in the ESOP).
 
                                     F-20

<PAGE>
 
                          IHOP CORP. AND SUBSIDIARIES
 
 
  The cost of the ESOP is borne by the Company through contributions
determined by the Board of Directors in accordance with the ESOP provisions
and Internal Revenue Service regulations. The contributions to the plan for
the years ended December 31, 1996, 1995 and 1994 were $1,250,000, $1,200,000,
and $1,100,000, respectively. The contribution for the year ended December 31,
1996 will be made in shares of the Company's common stock.
 
  Shares of stock acquired by the ESOP are allocated to each eligible employee
and held by the ESOP. Upon the employee's termination after vesting, or in
certain other limited circumstances, the employee's shares are distributed to
the employee.
 
12. COMMITMENTS AND CONTINGENCIES
 
  The Company is subject to various claims and legal actions that arise in the
ordinary course of business. The Company believes such claims and legal
actions, individually or in the aggregate, will not have a material adverse
effect on the business or financial condition of the Company.
 
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
  IHOP does not hold or issue financial instruments for trading purposes nor
is it a party to derivative transactions, interest rate swaps or other
transactions commonly utilized to manage interest rate or foreign currency
risk.
 
  The estimated fair values of all cash and cash equivalents, notes receivable
and equipment contracts receivable as of December 31, 1996 and 1995
approximated their carrying amounts in the Consolidated Balance Sheets as of
those dates. The estimated fair values of notes receivable and equipment
contracts receivable are based on current interest rates offered for similar
loans in the Company's present lending activities.
 
  The estimated fair values of long-term debt are based on current rates
available to IHOP for similar debt of the same remaining maturities. The
carrying values of long-term debt at December 31, 1996 and 1995 were
$58,564,000 and $30,584,000, respectively; and the fair values at those dates
were $58,876,000 and $31,700,000, respectively.
 
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 

<TABLE>
<CAPTION>
                                                   GROSS   NET       NET INCOME
                                         REVENUES MARGIN  INCOME    PER SHARE(a)
                                         -------- ------- ------    ------------
                                         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
      <S>                                <C>      <C>     <C>       <C>
      1996:
      1st Quarter....................... $40,292  $14,414 $3,062        $.32
      2nd Quarter.......................  44,465   16,159  4,369         .46
      3rd Quarter.......................  51,569   18,495  5,389         .56
      4th Quarter.......................  53,770   19,426  5,784         .61
      1995:
      1st Quarter....................... $33,178  $11,504 $1,776(a)     $.19(b)
      2nd Quarter.......................  40,123   14,410  4,069         .43
      3rd Quarter.......................  42,570   15,342  4,741         .50
      4th Quarter.......................  48,452   17,311  5,568         .59
</TABLE>

- --------
(a) The quarterly amounts may not add to the full year amount due to rounding.
 
(b) Includes severance charges associated with a realignment of
    responsibilities in the Company's restaurant operations, restaurant
    development and purchasing functions of $800,000, or $484,000 net of
    income tax benefit, or $.05 per share.
 
                                     F-21

<PAGE>
 
 
                      REPORT OF INDEPENDENT ACCOUNTANTS
 
The Shareholders and Board of Directors
IHOP Corp.
 
  We have audited the accompanying consolidated balance sheets of IHOP Corp.
and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. 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 IHOP Corp.
and Subsidiaries as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
 
                                          Coopers & Lybrand L.L.P.
 
Los Angeles, California
February 14, 1997

 
                                     F-22

<PAGE>
 

 
                                 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, on this 28th day
of March, 1997.
 
                                          IHOP CORP.
 
                                          By:    /s/ Richard K. Herzer
                                            -----------------------------------
                                                    Richard K. Herzer
                                                 Chairman of the Board,
                                              President and Chief Executive
                                                         Officer
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, in the capacities indicated, on this 28th day of March, 1997.
 

<TABLE>
<CAPTION>
                   SIGNATURES                               TITLE
                   ----------                               -----
 
 <S>                                            <C>
            /s/ Richard K. Herzer               Chairman of the Board,
 _____________________________________________  President and Chief
               Richard K. Herzer                Executive Officer (Principal
                                                Executive Officer)
 
           /s/ Frederick G. Silny               Vice President--Finance and
 _____________________________________________  Treasurer (Principal
              Frederick G. Silny                Financial Officer)
 
              /s/ Gene A. Scott                 Controller (Principal
 _____________________________________________  Accounting Officer)
                 Gene A. Scott
 
          /s/ H. Frederick Christie             Director
 _____________________________________________
             H. Frederick Christie
 
             /s/ Frank Edelstein                Director
 _____________________________________________
                Frank Edelstein
 
            /s/ Michael S. Gordon               Director
 _____________________________________________
               Michael S. Gordon
 
             /s/ Neven C. Hulsey                Director
 _____________________________________________
                Neven C. Hulsey
 
             /s/ Larry Alan Kay                 Director
 _____________________________________________
                Larry Alan Kay
 
           /s/ Dennis M. Leifheit               Executive Vice President--
 _____________________________________________  Operations, Chief Operating
              Dennis M. Leifheit                Officer and Director
 
            /s/ Caroline W. Nahas               Director
 _____________________________________________
               Caroline W. Nahas
 
             /s/ Patrick W. Rose                Director
 _____________________________________________
                Patrick W. Rose
</TABLE>






<PAGE>
 
                                                                     EXHIBIT 4.2


                     INTERNATIONAL HOUSE OF PANCAKES, INC.
                           525 NORTH BRAND BOULEVARD
                                  THIRD FLOOR
                          GLENDALE, CALIFORNIA  91203



                               November 1, 1996

To the Holder Whose Name
  Appears in the Acceptance
  Form at the End Hereof


          Re:  7.79% Senior Notes due 2002 of
               International House of Pancakes, Inc.
               -------------------------------------

Ladies and Gentlemen:

          Please refer to the Senior Note Purchase Agreements, dated as of
November 19, 1992, among International House of Pancakes, Inc. (the "Borrower"),
IHOP Corp. ("Holdings") and the several purchasers named in Schedule I thereto
(collectively, the "Purchase Agreements").  Capitalized terms used in this
letter and not otherwise defined shall have the meanings ascribed thereto in the
Purchase Agreements.

          International House of Pancakes, Inc. proposes to issue in a private
placement $35,000,000 aggregate principal amount of its senior notes (the "New
Notes").  The New Notes will be guaranteed by IHOP Realty, IHOP Restaurants,
Inc. and IHOP Properties, Inc. (collectively, the "Subsidiaries"), and by
Holdings.  Borrower and Holdings have entered into that certain Letter Agreement
(the "Letter Agreement") with Bank of America Illinois(the "Bank"), dated as of
June 30, 1993, as amended by (i) a letter dated July 15, 1993, (ii) the First
Amendment to the Letter
 Agreement dated as of December 31, 1994 and (iii) the
Second Amendment to the Letter Agreement dated as of March 11, 1996, which
Letter Agreement, as amended, provides for the obligations of Borrower
thereunder to be guaranteed by the Subsidiaries.

          In connection with the issuance of the New Notes, the Borrower has
requested that you (i) enter into an Intercreditor Agreement in the form
attached hereto

<PAGE>
 
November 1, 1996
Page 2


(the "Intercreditor Agreement") and (ii) waive and amend certain covenants in
the Purchase Agreements, and you are willing to do so on the terms and
conditions set forth herein.

          Subject to the condition that (i) each of the Bank and the purchasers
of the New Notes shall enter into the Intercreditor Agreement, (ii) you have
received a copy of the form of Senior Note Purchase Agreement relating to the
New Notes in substantially final form and (iii) the Letter Agreement shall be
amended in substantially the same manner as the Purchase Agreements, you hereby
(x) agree to duly authorize, execute, deliver and perform the Intercreditor
Agreement, (y) consent to the amendment of the Purchase Agreements as set forth
below and (z) agree to waive any Default or Event of Default resulting from the
issuance by the Subsidiaries of guarantees to the Bank (including, without
limitation, any Default or Event of Default arising from a breach of Section
11.1 or Section 11.4 of the Purchase Agreements).

          The Purchase Agreements are hereby amended as follows:

          1.   Clause (ii) of Section 11.1(I) of the Purchase Agreements is
amended and restated in its entirety as follows:

               "(ii) unsecured Debt (other than Additional Permitted Subsidiary
Guarantees) of Subsidiaries of Holdings (other than the Borrower) and
Subsidiaries of the Borrower not otherwise permitted under Section 11.4(A) does
not exceed at any time 15% of Consolidated Tangible Net Worth."

          2.   Section 11.4(B) of the Purchase Agreements is amended and
restated in its entirety as follows:

               "(B) additional Debt (other than Addition al Permitted Subsidiary
Guarantees), provided that the

<PAGE>
 
November 1, 1996
Page 3


sum of the aggregate principal amount of such Debt plus the aggregate principal
amount of all other Debt (without duplication) of Holdings, the Borrower and any
of their Subsidiaries which is secured by Liens not permitted by Sections
11.1(A) through (H) does not exceed 15% of Consolidated Tangible Net Worth."

          3.   Section 12 of the Purchase Agreements is amended to include the
following definitions:

               "Additional Permitted Subsidiary Guarantees" shall mean those
Guarantees delivered by any Subsidiary Guarantor which guarantees Debt of the
Borrower the beneficiaries of which are or become a party to, and thereby agree
to undertake and perform the duties, rights and obligations of a party under the
Intercreditor Agreement.

               "Intercreditor Agreement" means the Intercreditor Agreement dated
as of November 1, 1996 among the 1992 Noteholders (as defined therein),the 1996
Noteholders (as defined therein), Bank of America Illinois and additional
creditors which may become a party thereto from time to time, substantially in
the form attached hereto as Exhibit I.

               "Subsidiary Guarantors" shall mean collectively IHOP Realty,
IHOP Properties, Inc. and IHOP Restaurants, Inc.

          4.   The Purchase Agreements are amended to include the Intercreditor
Agreement as Exhibit I.

          5.   Upon and by virtue of this letter agreement becoming effective
as herein contemplated, the failure of the Borrower and Holdings to comply with
the provisions of Section 11.1(I) and Section 11.4 of the Purchase Agreements by
virtue of the execution and delivery by the Subsidiaries of guarantees to the
Bank which constitute an Event of Default under the Purchase Agreements shall
be deemed to have been waived by the holders

<PAGE>
 
November 1, 1996
Page 4


of the Notes. The Borrowers and Holdings understand and agree that the waivers
contained in this paragraph pertain only to the Event of Defaults herein
described and to the extent so described and not to any other Default or Event
of Default which may exist under, or any other matters arising in connection
with, the Purchase Agreements or to any rights which the holders of the Notes
have arising by virtue of any such other actions or matters.

     Except for the specific consent and waiver granted herein, the Purchase
Agreements shall continue in full force and effect.

<PAGE>
 
November 1, 1996
Page 5


     If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.

                              Very truly yours,

INTERNATIONAL HOUSE OF        IHOP CORP.
  PANCAKES, INC.


By: _________________         By: _______________
     Name:                         Name:
     Title:                        Title:

     By its execution hereof, each of the undersigned acknowledges and agrees
to the terms hereof and confirms that its Guaranty dated as of November 19, 1992
or December 29, 1993, as the case may be, remains in full force and effect:

IHOP RESTAURANTS, INC.        IHOP REALTY CORP.


By: _________________         By: _____________________
    Name:                         Name:
    Title:                        Title:


                              IHOP PROPERTIES, INC.


                              By:  ______________________
                                   Name:
                                   Title:

Accepted as of the date first
above written:

THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK


By:____________________
   Name:
   Title:

<PAGE>
 
November 1, 1996
Page 5


If you are in agreement with the foregoing, please sign the form of acceptance
in the space provided below whereupon this letter shall become a binding
agreement between you and the undersigned.

                              Very truly yours,

INTERNATIONAL HOUSE OF        IHOP CORP.
  PANCAKES, INC.


By: _________________         By: _______________
     Name:                          Name:
     Title:                         Title:

     By its execution hereof, each of the undersigned acknowledges and agrees
to the terms hereof and confirms that its Guaranty dated as of November 19, 1992
or December 29, 1993, as the case may be, remains in full force and effect:

IHOP RESTAURANTS, INC.        IHOP REALTY CORP.


By: _________________         By: _____________________
    Name:                         Name:
    Title:                        Title:


                              IHOP PROPERTIES, INC.


                              By:  ______________________
                                   Name:
                                   Title:

Accepted as of the date first
above written:

THE FRANKLIN LIFE INSURANCE COMPANY


By:____________________
   Name:
   Title:

<PAGE>
 
November 1, 1996
Page 5

If you are in agreement with the foregoing, please sign the form of acceptance
in the space provided below whereupon this letter shall become a binding
agreement between you and the undersigned.

                              Very truly yours,

INTERNATIONAL HOUSE OF        IHOP CORP.
  PANCAKES, INC.


By: _________________         By: _______________
     Name:                          Name:
     Title:                         Title:

     By its execution hereof, each of the undersigned acknowledges and agrees
to the terms hereof and confirms that its Guaranty dated as of November 19, 1992
or December 29, 1993, as the case may be, remains in full force and effect:

IHOP RESTAURANTS, INC.        IHOP REALTY CORP.


By: _________________         By: _____________________
    Name:                         Name:
    Title:                        Title:


                              IHOP PROPERTIES, INC.


                              By:  ______________________
                                   Name:
                                   Title:

Accepted as of the date first
above written:

THE MANUFACTURERS LIFE INSURANCE COMPANY


By:____________________
   Name:
   Title:

<PAGE>
 
November 1, 1996
Page 5


If you are in agreement with the foregoing, please sign the form of acceptance
in the space provided below whereupon this letter shall become a binding
agreement between you and the undersigned.

                              Very truly yours,

INTERNATIONAL HOUSE OF        IHOP CORP.
  PANCAKES, INC.


By: _________________         By: _______________
     Name:                          Name:
     Title:                         Title:

     By its execution hereof, each of the undersigned acknowledges and agrees
to the terms hereof and confirms that its Guaranty dated as of November 19, 1992
or December 29, 1993, as the case may be, remains in full force and effect:

IHOP RESTAURANTS, INC.        IHOP REALTY CORP.


By: _________________         By: _____________________
    Name:                         Name:
    Title:                        Title:


                              IHOP PROPERTIES, INC.


                              By:  ______________________
                                   Name:
                                   Title:

Accepted as of the date first
above written:

THE CANADA LIFE ASSURANCE COMPANY


By:____________________
   Name:
   Title:

<PAGE>
 
November 1, 1996
Page 5

If you are in agreement with the foregoing, please sign the form of acceptance
in the space provided below whereupon this letter shall become a binding
agreement between you and the undersigned.

                              Very truly yours,

INTERNATIONAL HOUSE OF        IHOP CORP.
  PANCAKES, INC.


By: _________________         By: _______________
     Name:                          Name:
     Title:                         Title:

     By its execution hereof, each of the undersigned acknowledges and agrees
to the terms hereof and confirms that its Guaranty dated as of November 19, 1992
or December 29, 1993, as the case may be, remains in full force and effect:

IHOP RESTAURANTS, INC.        IHOP REALTY CORP.


By: _________________         By: _____________________
    Name:                         Name:
    Title:                        Title:


                              IHOP PROPERTIES, INC.


                              By:  ______________________
                                   Name:
                                   Title:

Accepted as of the date first
above written:

MODERN WOODMEN OF AMERICA


By:____________________
   Name:
   Title:

<PAGE>
 
November 1, 1996
Page 5


If you are in agreement with the foregoing, please sign the form of acceptance
in the space provided below whereupon this letter shall become a binding
agreement between you and the undersigned.

                              Very truly yours,

INTERNATIONAL HOUSE OF        IHOP CORP.
  PANCAKES, INC.


By: _________________         By: _______________
     Name:                          Name:
     Title:                         Title:

     By its execution hereof, each of the undersigned acknowledges and agrees
to the terms hereof and confirms that its Guaranty dated as of November 19, 1992
or December 29, 1993, as the case may be, remains in full force and effect:

IHOP RESTAURANTS, INC.        IHOP REALTY CORP.


By: _________________         By: _____________________
    Name:                         Name:
    Title:                        Title:


                              IHOP PROPERTIES, INC.


                              By:  ______________________
                                   Name:
                                   Title:

Accepted as of the date first
above written:

MONY LIFE INSURANCE COMPANY OF AMERICA


By:____________________
   Name:
   Title:

<PAGE>
 

================================================================================


                            INTERCREDITOR AGREEMENT


                         Dated as of November 1, 1996


                                     Among


                           BANK OF AMERICA ILLINOIS


                                      And


                 THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
                     MONY LIFE INSURANCE COMPANY OF AMERICA
                   THE MANUFACTURERS LIFE INSURANCE COMPANY
                      THE FRANKLIN LIFE INSURANCE COMPANY
                       THE CANADA LIFE ASSURANCE COMPANY
                                      and
                           MODERN WOODMEN OF AMERICA

                                      And

 
                    JACKSON NATIONAL LIFE INSURANCE COMPANY
                   PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
                     UNITED OF OMAHA LIFE INSURANCE COMPANY
                                      and
                     SECURITY FIRST LIFE INSURANCE COMPANY

                                      And

                               Additional Lenders

================================================================================

<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section                    Heading                                      Page
<S>                  <C>                                                <C>
Parties................................................................  1

Recitals...............................................................  1

Section 1.        Definitions..........................................  3

Section 2.        Sharing of Recoveries................................  5

Section 3.        Agreements Among the Creditors.......................  6
   Section 3.1.      Independent Actions by Creditors..................  6
   Section 3.2.      Relation of Creditors.............................  6
   Section 3.3.      Acknowledgment of Guarantees......................  6
   Section 3.4.      Additional Lenders................................  6

Section 4.        Miscellaneous........................................  6
   Section 4.1.      Entire Agreement..................................  6
   Section 4.2.      Notices...........................................  7
   Section 4.3.      Successors and Assigns............................  7
   Section 4.4.      Consents, Amendment, Waivers......................  7
   Section 4.5.      Governing Law.....................................  7
   Section 4.6.      Counterparts......................................  7
   Section 4.7.      Severability......................................  7
   Section 4.8.      Expenses..........................................  7

Signature Page.........................................................  8
</TABLE>


                                       i

<PAGE>
 
                            INTERCREDITOR AGREEMENT

       INTERCREDITOR AGREEMENT dated as of November 1, 1996 among BANK OF 
AMERICA ILLINOIS (the "Lender"), THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK,
MONY LIFE INSURANCE COMPANY OF AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY, THE FRANKLIN LIFE INSURANCE COMPANY, THE CANADA LIFE ASSURANCE COMPANY
and MODERN WOODMEN OF AMERICA (each institution is referred to herein as a "1992
Noteholder" and the institutions are collectively referred to as the "1992
Noteholders") and JACKSON NATIONAL LIFE INSURANCE COMPANY, PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY, UNITED OF OMAHA LIFE INSURANCE COMPANY and SECURITY
FIRST LIFE INSURANCE COMPANY (each institution is referred to herein as a "1996
Noteholder" and the institutions are collectively referred to herein as the
"1996 Noteholders"; the 1996 Noteholders, the 1992 Noteholders and the Lender
and each of the additional Persons, if any, that become a party hereto as
contemplated by (S)3.4 hereof (each such Person is referred to as an "Additional
Lender") are individually referred to herein as a "Creditor" and are
collectively referred to herein as the "Creditors").

                               R E C I T A L S:

       A. Under and pursuant to the separate and several Senior Note Purchase
Agreements each dated as of November 1, 1996 (collectively, the "1996 Note
Agreements"), among International House of Pancakes, Inc., a Delaware
corporation (the "Borrower"), IHOP Corp., a Delaware corporation ("Holdings")
and each of the 1996 Noteholders, the Borrower has issued and sold to the 1996
Noteholders $35,000,000 aggregate principal amount of its 7.42% Senior Notes,
Due November, 2008 (the "1996 Notes").

       B. Under and pursuant to the separate and several Senior Note Purchase
Agreements each dated as of November 19, 1992 (collectively, as amended the
"1992 Note Agreements"), among the Borrower, Holdings and each of the 1992
Noteholders, the Borrower has issued and sold to the 1992 Noteholders
$32,000,000 aggregate principal amount of its 7.79% Senior Notes, Due November,
2002 (the "1992 Notes").

       C. Under and pursuant to that certain Letter Agreement dated as of June
30, 1993 (as such agreement may be modified, amended, renewed or replaced,
including any increase in the amount thereof, the "Bank Credit Agreement") among
the Borrower, Holdings, and the Lender, the Lender has made available to the
Borrower certain credit facilities in a current aggregate principal amount up to
$20,000,000 (all amounts outstanding in respect of said credit facilities being
hereinafter collectively referred to as the "Loans").

       D. In connection with the execution of the 1992 Note Agreements and as
security for the 1992 Notes issued thereunder, IHOP Realty Corp., IHOP
Properties, Inc. and IHOP Restaurants, Inc., (individually, a "Subsidiary
Guarantor" and collectively, the "Subsidiary Guarantors") each of which is a
wholly-owned subsidiary of the Borrower, have guaranteed to the 1992 Noteholders
the payment of the principal of, premium, if any, and interest on 

                                      

<PAGE>
 
the 1992 Notes and payment and performance of all other obligations of the
Borrower under the 1992 Note Agreements under the Subsidiary Guarantee dated as
of November 19, 1992 executed by IHOP Realty Corp., the Subsidiary Guarantee
dated as of December 29, 1993 executed by IHOP Properties, Inc., and the
Subsidiary Guarantee dated as of December 29, 1993 executed by IHOP Restaurants,
Inc. (as such agreements may be modified, amended, renewed or replaced,
including any increase in the amount thereof, individually, a "1992 Noteholder
Guaranty" and collectively, the "1992 Noteholder Guarantees").

       E. In connection with the execution of the Bank Credit Agreement and as
support for the Loans made thereunder, the Subsidiary Guarantors have guaranteed
to the Lender the payment of the Loans and all other obligations of the Borrower
under the Bank Credit Agreement under the Subsidiary Guarantee dated as of June
30, 1993 executed by IHOP Realty Corp., the Subsidiary Guarantee dated as of
December 29, 1993 executed by IHOP Properties, Inc., and the Subsidiary
Guarantee dated as of December 29, 1993 executed by IHOP Restaurants, Inc. (as
such agreements may be modified, amended, renewed or replaced, including any
increase in the amount thereof, individually, a "Lender Guaranty" and
collectively, the "Lender Guarantees").

       F. Each Subsidiary Guarantor is entering into a Guaranty Agreement
(individually, a "1996 Noteholder Guaranty" and collectively, the "1996
Noteholder Guarantees") dated as of the date hereof pursuant to which each
Subsidiary Guarantor shall guarantee to the 1996 Noteholders the payment of the
principal of, premium, if any, and interest on the 1996 Notes and the payment
and performance of all other obligations of the Borrower under the 1996 Note
Agreements.  The Lender Guarantees, the 1992 Noteholder Guarantees, the 1996
Noteholder Guarantees and the Additional Permitted Subsidiary Guarantees, if
any, are each hereinafter referred to individually, as a "Subsidiary Guaranty"
and collectively, as the "Subsidiary Guarantees."

       G. Each of the Creditors desires to provide for their respective rights
in respect of the Subsidiary Guarantees and certain collections from the
Subsidiary Guarantors and to make certain other commitments and undertakings in
connection with the 1992 Note Agreements, the Bank Credit Agreement, the 1996
Note Agreements, the Additional Debt Facility Agreements, if any, the Subsidiary
Guarantees, the obligations incurred by the Subsidiary Guarantors under such
agreements and the rights of the Creditors under such agreements.

       H. The 1992 Noteholders, the Lender, and the 1996 Noteholders hereby
contemplate that in the event that any of the Subsidiary Guarantors execute and
deliver an Additional Permitted Subsidiary Guarantee, the beneficiary of such
Additional Permitted Subsidiary Guarantee shall become a party to this Agreement
upon compliance with the terms and conditions set forth in (S)3.4 hereof.

       Now, Therefore, in consideration of the premises and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto hereby agree a follows:

                                      -2-

<PAGE>
 
SECTION 1.    DEFINITIONS.

     The following terms shall have the meanings assigned to them below in this
(S)1 or in the provisions of this Agreement referred to below:

     "Additional Debt Facility" shall mean Debt of the Borrower which is
guaranteed by an Additional Permitted Subsidiary Guarantee.

     "Additional Debt Facility Agreement" shall mean the agreement executed and
delivered by the Borrower and the Additional Lenders evidencing the Additional
Debt Facility.

     "Additional Lender" shall have the meaning assigned thereto in the
introductory paragraph hereto.

     "Additional Permitted Subsidiary Guarantees" shall mean those Guarantees
delivered by any Subsidiary Guarantor which guarantees any of the Borrower's
Guaranteed Obligations the beneficiaries of which are or become a party to, and
thereby agree to undertake and perform the duties, rights and obligations of a
party under, the Intercreditor Agreement.

     "Bank Credit Agreement" shall have the meaning assigned thereto in the
Recitals hereof.

     "Bankruptcy Proceeding" shall mean, with respect to any person, a general
assignment of such person for the benefit of its creditors, or the institution
by or against such person of any proceeding seeking relief as debtor, or seeking
to adjudicate such person as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of such person or its debts, under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for such person or for any substantial part of its property.

     "Borrower" shall have the meaning assigned thereto in the Recitals hereof.

     "Borrower's Guaranteed Obligations" shall mean all principal of, premium,
if any, and interest on, the 1996 Notes, the 1992 Notes, the Loans and the
Additional Debt Facilities, if any, and all other obligations of the Borrower
under or in respect of the 1996 Notes, the 1992 Notes, the Loans and the
Additional Debt Facilities, if any, under the 1996 Note Agreements, the 1992
Note Agreements, the Bank Credit Agreement and the Additional Debt Facility
Agreements and any other obligations of the Borrower to the Creditors which are
guaranteed by the Subsidiary Guarantees; provided that any amount of such
Borrower's Guaranteed Obligations which is not allowed as a claim enforceable
against the Borrower in a Bankruptcy Proceeding under applicable law shall be
excluded from the computation of "Borrower's Guaranteed Obligations" hereunder.

                                      -3-

<PAGE>
 
     "Creditor" shall have the meaning assigned thereto in the introductory
paragraph hereto.

     "Excess Guaranty Payment" shall mean as to any Creditor an amount equal to
the Guaranty Payment received by such Creditor less the Pro Rata Share of
Guaranty Payments to which such Creditor is then entitled.

     "Guaranty Payment" shall have the meaning assigned thereto in (S)2.

     "Lender" shall have the meaning assigned thereto in the introductory
paragraph hereto.

     "Lender Guaranty" and "Lender Guarantees" shall have the meanings assigned
thereto in the Recitals hereof.

     "Loans" shall have the meaning assigned thereto in the Recitals hereof.

     "1992 Note Agreements"  shall have the meaning assigned thereto in the
Recitals hereof.

     "1996 Note Agreements"  shall have the meaning assigned thereto in the
Recitals hereof.

     "1992 Noteholder" shall have the meaning assigned thereto in the
introductory paragraph hereto.

     "1996 Noteholder" shall have the meaning assigned thereto in the
introductory paragraph hereto.

     "1992 Noteholder Guaranty" and "1992 Noteholder Guarantees" shall have the
meanings assigned thereto in the Recitals hereof.

     "1996 Noteholder Guaranty" and "1996 Noteholder Guarantees" shall have the
meanings assigned thereto in the Recitals hereof.

     "1992 Notes" shall have the meaning assigned thereto in the Recitals
hereof.

     "1996 Notes" shall have the meaning assigned thereto in the Recitals
hereof.

     "Pro Rata Share of Guaranty Payments" shall mean as of the date of any
Guaranty Payment to a Creditor under any Subsidiary Guaranty an amount equal to
the product obtained by multiplying (x) the amount of all Guaranty Payments made
by the Subsidiary Guarantors to all Creditors concurrently with the payments to
such Creditor less all reasonable costs incurred by such Creditors in connection
with the collection of such Guaranty Payments by (y) a fraction, the numerator
of which shall be the Specified Amount owing to such Creditor, and the
denominator of which is the aggregate amount of all 

                                      -4-

<PAGE>
 
outstanding Borrower's Guaranteed Obligations (without giving effect in the
denominator to the application of any such Guaranty Payments).

     "Receiving Creditor" shall have the meaning assigned thereto in (S)2.

     "Specified Amount" shall mean as to any Creditor the aggregate amount of
the Borrower's Guaranteed Obligations owed to such Creditor.

     "Subsidiary Guarantor" and "Subsidiary Guarantors" shall have the meanings
assigned thereto in the Recitals hereof.

     "Subsidiary Guaranty" and "Subsidiary Guarantees" shall have the meanings
assigned thereto in the Recitals hereof.

SECTION 2.    SHARING OF RECOVERIES.

     Each Creditor hereby agrees with each other Creditor that payments
(including payments made through setoff of deposit balances or otherwise or
payments or recoveries from any security interest granted to any Creditor) made
pursuant to the terms of any Subsidiary Guaranty (a "Guaranty Payment") (x)
within 90 days prior to the commencement of a Bankruptcy Proceeding with respect
to any Subsidiary Guarantor or the Borrower or (y) following the acceleration of
the 1996 Notes, the 1992 Notes or the Loans or the acceleration of any other
Borrower's Guaranteed Obligation, shall be shared so that each Creditor shall
receive its Pro Rata Share of Guaranty Payments. Accordingly, each Creditor
hereby agrees that in the event (a) an event described in clauses (x) or (y)
above shall have occurred, (b) any Creditor shall receive a Guaranty Payment (a
"Receiving Creditor"), and (c) any other Creditor shall not concurrently receive
its Pro Rata Share of Guaranty Payments from the same Subsidiary Guarantor, then
the Receiving Creditor shall promptly remit the Excess Guaranty Payment to each
other Creditor who shall then be entitled thereto so that after giving effect to
such payment (and any other payments then being made by any other Receiving
Creditor pursuant to this (S)2) each Creditor shall have received its Pro Rata
Share of Guaranty Payments.

     Any such payments shall be deemed to be and shall be made in consideration
of the purchase for cash at face value, but without recourse, ratably from the
other Creditors such amount of 1996 Notes, 1992 Notes, Loans or Additional Debt
Facility, if any, as the case may be, to the extent necessary to cause such
Creditor to share such Excess Guaranty Payment with the other Creditors as
hereinabove provided; provided, however, that if any such purchase or payment is
made by any Receiving Creditor and if such Excess Guaranty Payment or part
thereof is thereafter recovered from such Receiving Creditor by any Subsidiary
Guarantor (including, without limitation, by any trustee in bankruptcy of any
Subsidiary Guarantor or any creditor thereof), the related purchase from the
other Creditors shall be rescinded ratably and the purchase price restored as to
the portion of such Excess Guaranty Payment so recovered, but without interest;
and provided further nothing herein contained shall obligate any Creditor to
resort to any setoff, application of deposit balance or other means of payment
under any Subsidiary Guaranty or avail itself of any 

                                      -5-

<PAGE>
 
recourse by resort to any property of the Borrower or any Subsidiary Guarantor,
the taking of any such action to remain within the absolute discretion of such
Creditor without obligation of any kind to the other Creditors to take any such
action.

SECTION 3.    AGREEMENTS AMONG THE CREDITORS.

     Section 3.1.  Independent Actions by Creditors.  Nothing contained in
this Agreement shall prohibit any Creditor from accelerating the maturity of, or
demanding payment from any Subsidiary Guarantor on, any Borrower's Guaranteed
Obligation of the Borrower to such Creditor or from instituting legal action
against the Borrower or any Subsidiary Guarantor to obtain a judgment or other
legal process in respect of such Borrower's Guaranteed Obligation, but any funds
received from any Subsidiary Guarantor in connection with any recovery therefrom
shall be subject to the terms of this Agreement.

     Section 3.2.  Relation of Creditors.  This Agreement is entered into
solely for the purposes set forth herein, and no Creditor assumes any
responsibility to any other party hereto to advise such other party of
information known to such other party regarding the financial condition of the
Borrower or any Subsidiary Guarantor or of any other circumstances bearing upon
the risk of nonpayment of any Borrower's Guaranteed Obligation.  Each Creditor
specifically acknowledges and agrees that nothing contained in this Agreement is
or is intended to be for the benefit of the Borrower or any Subsidiary Guarantor
and nothing contained herein shall limit or in any way modify any of the
obligations of the Borrower or any Subsidiary Guarantor to the Creditors.

     Section 3.3.  Acknowledgment of Guarantees.  The Lender hereby
expressly acknowledges the existence of the 1992 Noteholder Guarantees and the
1996 Noteholder Guarantees.  The 1992 Noteholders hereby expressly acknowledge
the existence of the Lender Guarantees and the 1996 Noteholder Guarantees.  The
1996 Noteholders hereby expressly acknowledge the existence of the Lender
Guarantees and the 1992 Noteholder Guarantees.

     Section 3.4.  Additional Lenders.  Additional Persons may become
"Creditors" hereunder by executing and delivering to each of the then existing
Creditors (i) a copy of this Agreement so executed and (ii) a copy of the
agreement or documents pursuant to which such Person becomes a creditor of the
Borrower and of any Subsidiary Guarantor.  Accordingly, upon the execution and
delivery of such copy of this Agreement by any such Person, such Person shall,
upon the acknowledgement of the then existing Creditors, thereinafter become a
Creditor for all purposes of this Agreement.

SECTION 4.    MISCELLANEOUS.

     Section 4.1.  Entire Agreement.  This Agreement represents the entire
Agreement among the Creditors and, except as otherwise provided, this Agreement
may not be altered, amended or modified except in a writing executed by all the
parties to this Agreement.

                                      -6-

<PAGE>
 
     Section 4.2.  Notices.  Notices hereunder shall be given to the
Creditors at their addresses as set forth in the 1996 Note Agreements, the 1992
Note Agreements, the Bank Credit Agreement or the Additional Debt Facility
Agreements, as the case may be, or at such other address as may be designated by
each in a written notice to the other parties hereto.

     Section 4.3.  Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of each of the Creditors and their respective
successors and assigns, whether so expressed or not, and, in particular, shall
inure to the benefit of and be enforceable by any future holder or holders of
any Borrower's Guaranteed Obligations, and the term "Creditor" shall include any
such subsequent holder of Borrower's Guaranteed Obligations, wherever the
context permits.

     Section 4.4.  Consents, Amendment, Waivers.  All amendments, waivers
or consents of any provision of this Agreement shall be effective only if the
same shall be in writing and signed by all of the Creditors.

     Section 4.5.  Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.

     Section 4.6.  Counterparts.  This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
Agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart.

     Section 4.7.  Severability.  In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not in any way be affected or impaired thereby.

     Section 4.8.  Expenses.  In the event of any litigation to enforce
this Agreement, the prevailing party shall be entitled to its reasonable
attorney's fees (including the allocated costs of in-house counsel).

                                      -7-

<PAGE>
 
       IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement 
to be executed as of the date first above written.

                                       BANK OF AMERICA ILLINOIS, this Lender


                                       By /s/ Gina M. West
                                          ----------------
                                            Vice President

            
                                       THE MUTUAL LIFE INSURANCE COMPANY OF
                                         NEW YORK, a 1992 Noteholder


                                       By /s/ Suzanne E. Walton
                                          ---------------------
                                            Managing Director


                                       MONY LIFE INSURANCE COMPANY OF
                                         AMERICA, a 1992 Noteholder


                                       By /s/ Suzanne E. Walton
                                          ---------------------
                                            Authorized Agent


                                       THE MANUFACTURERS LIFE INSURANCE
                                         COMPANY, a 1992 Noteholder


                                       By /s/ Richard R. Davis
                                          --------------------
                                            Portfolio Manager - 
                                            High Yield Securities


                                       THE FRANKLIN LIFE INSURANCE COMPANY,
                                         a 1992 Noteholder


                                       By /s/ Julia S. Tucker
                                          -------------------
                                            Investment Officer

                                      -8-

<PAGE>
 
                                       THE CANADA LIFE ASSURANCE COMPANY, a
                                         1992 Noteholder                  
                                                                          
                                                                          
                                       By      /s/ Brian J. Lynch         
                                         ----------------------------------
                                               Associate Treasurer        
                                                                          
                                                                          
                                       MODERN WOODMEN OF AMERICA, a 1992  
                                         Noteholder                       
                                                                          
                                                                          
                                       By       /s/ G. E. Stoefen         
                                         ----------------------------------
                                                Director, Treasurer        
                                              and Investment Manager      
                                                                          
                                                                          
                                       JACKSON NATIONAL LIFE INSURANCE    
                                         COMPANY, a 1996 Noteholder       
                                                                          
                                       By: PPM AMERICA, INC., as Agent    
                                                                          
                                                                          
                                           By        /s/ David Brett      
                                             ------------------------------
                                                     Vice President       
                                                                          
                                                                          
                                                                          
                                       PHOENIX HOME LIFE MUTUAL INSURANCE 
                                         COMPANY, a 1996 Noteholder       
                                                                          
                                                                          
                                       By        /s/ Keith Robbins        
                                         ----------------------------------
                                                   Vice President  

                                      -9-

<PAGE>
 
                                       UNITED OF OMAHA LIFE INSURANCE
                                        COMPANY, a 1996 Noteholder


                                       By   /s/ Edwin H. Garrison, Jr.
                                         ---------------------------------------
                                            First Vice President



                                       SECURITY FIRST LIFE INSURANCE COMPANY,
                                        a 1996 Noteholder


                                       By   /s/ R.J. Ritchie
                                         ---------------------------------------
                                            Director -- U.S. Fixed Income


                                       By   /s/ Ruth Ann McConkey
                                         ---------------------------------------
                                            Manager -- U.S. Fixed Income



                                       [ADDITIONAL LENDER]


                                       By_______________________________________

                                            Its_________________________________



   The undersigned hereby acknowledge and agree to the foregoing Agreement.


                                       INTERNATIONAL HOUSE OF PANCAKES, INC.


                                       By   /s/ Mark D. Weisberger
                                         ---------------------------------------
                                            Vice President -- Legal


                                       IHOP CORP.


                                       By   /s/ Mark D. Weisberger
                                         ---------------------------------------
                                            Vice President -- Legal

                                     -10-

<PAGE>
 
                                            IHOP REALTY CORP.


                                            By   /s/ Mark D. Weisberger
                                              ----------------------------------
                                                 Vice President -- Legal



                                            IHOP PROPERTIES, INC.


                                            By   /s/ Mark D. Weisberger
                                              ----------------------------------
                                                 Vice President -- Legal



                                            IHOP RESTAURANTS, INC.


                                            By   /s/ Mark D. Weisberger
                                              ----------------------------------
                                                 Vice President -- Legal

                                     -11-



<PAGE>
 
                                                                     EXHIBIT 4.6

                      THIRD AMENDMENT TO LETTER AGREEMENT
                      -----------------------------------



          THIS THIRD AMENDMENT TO LETTER AGREEMENT (this "Third Amendment") is
made and dated as of September 3, 1996 among INTERNATIONAL HOUSE OF PANCAKES,
INC., (the "Borrower"), IHOP CORP., as Guarantor (the "Guarantor") and BANK OF
AMERICA ILLINOIS ("Bank"), and amends that certain Letter Agreement dated as of
June 30, 1993, as amended by a letter dated July 15, 1993 from Continental Bank
to the Borrower, a First Amendment to Letter Agreement dated as of December 31,
1994 and a Second Amendment to Letter Agreement dated as of March 11, 1996 (as
so amended, the "Agreement").

                                    RECITAL
                                    -------

          The Borrower has requested that the Bank amend the Agreement, and the
Bank is willing to do so on the terms and conditions set forth herein.


          NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:


          1.  Terms.  All capitalized terms used herein shall have the same
              -----                                                        
meanings as in the Agreement unless otherwise defined herein.  All references to
the Agreement shall mean the Agreement as hereby amended.


          2.  Amendments to Agreement.  The parties hereto agree that the
              -----------------------              
 Agreement is hereby amended as follows:

          2.1 Section 14.12(a) of the Agreement
 is amended and restated in its 
entirety as follows:

              "(a)  incur capital expenditures in excess of $45,000,000 per
          fiscal year, net of all proceeds relating to sale leaseback
          transactions in such fiscal year; provided, however, that in the
                                            --------  -------             
          fiscal year ending December 31, 1996 only, the Borrower many incur
          capital expenditures up to $55,000,000, net of all proceeds relating
          to sale leaseback transactions in such fiscal year;"


          3.  Reaffirmation of IHOP Guaranty.  IHOP does hereby reaffirm that
              ------------------------------                                 
the terms and provisions of Section 17 of the

                                      -1-

<PAGE>
 
Agreement continue in full force and effect and are ratified and confirmed in
all respects on and as of the date hereof, after giving effect to this Third
Amendment.  IHOP agrees that any references to the Note in the Agreement,
including without limitation Section 17 of the Agreement, shall be deemed a
reference to the Agreement and amounts owing thereunder, as evidenced by the
loan accounts referred to in Section 3 of the Agreement, as amended hereby.


          4.   Representations and Warranties.  IHOP and the Borrower do hereby
               ------------------------------                                  
represent and warrant as follows:

          4.1  Authority.  Each of the Borrower and IHOP has been duly
               ---------                                              
incorporated and is a validly existing corporation under the laws of the State
of Delaware, has full legal right, power and authority to enter into this Third
Amendment and to carry out and consummate all transactions contemplated by the
Agreement and this Third Amendment.

          4.2  Enforceability.  This Third Amendment has been duly authorized
               --------------                                                
and is a valid and binding obligation of the Borrower and IHOP, enforceable in
accordance with its terms.

          4.3  No Conflict.  This Third Amendment will not conflict with or
               -----------                                                 
constitute a breach of or default under their respective articles of
incorporation or by-laws, or any material agreement to which the Borrower or
IHOP is a party or by which the Borrower or IHOP or any of their respective
properties are bound, or any rule or regulation of any court or governmental
agency or body having jurisdiction over the Borrower or IHOP or any of their
respective activities or properties.

          4.4  No Event of Default.  No Event of Default under the Agreement has
               -------------------                                              
occurred and is continuing.

          4.5  Representations and Warranties.  The represen-tations and
               ------------------------------                           
warranties in Section 11 of the Agreement are true and correct in all respects
on and as of the date hereof as though made on and as of the date hereof.


          5.   Conditions, Effectiveness.  The effectiveness of this Third
               -------------------------                                  
Amendment shall be subject to the compliance by the Borrower with its agreements
herein contained, and to the delivery of such other evidence with respect to the
Borrower, IHOP and any other person as the Bank may reasonably request in
connection with this Third Amendment and the compliance with the conditions set
forth herein.

                                      -2-

<PAGE>
 
          6.   Miscellaneous.
               ------------- 

          (a)  Except as hereby expressly amended, the Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects.

          (b)  This Third Amendment is specific in time and in intent and does
not constitute, nor should it be construed as, a waiver of any other right,
power or privilege under the Agreement, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement; nor does it
preclude other or further exercise hereof or the exercise of any other right,
power or privilege, nor shall any waiver of any right, power, privilege or
default hereunder, or under any agreement, contract, indenture, document or
instrument mentioned in the Agreement, constitute a waiver of any other default
of the same or of any other term or provision.

          (c)  This amendment may be executed in any number of counterparts and
all of such counterparts taken together shall be deemed to constitute one and
the same instrument.  This amendment shall not become effective until Borrower,
IHOP and IHOP Realty shall each have signed a copy hereof, whether the same or
counterparts, and the same shall have been delivered to Bank.

          7.   Governing Law.  This Third Amendment shall be a contract made
               --------------                                               
under and governed by the internal laws of the state of Illinois.

                                      -3-

<PAGE>
 
          IN WITNESS WHEREOF, each of the parties hereto has caused its
respective duly authorized officer to execute and deliver this Third Amendment
as of the date first written above.



                         INTERNATIONAL HOUSE OF
                         PANCAKES, INC.


                         By: /S/ Richard K. Herzer         
                             ---------------------
                                 Richard K. Herzer
                                   President and
                              Chief Executive Officer


                         IHOP CORP.


                         By: /s/ Richard K. Herzer        
                             ---------------------
                                 Richard K. Herzer
                                   President and
                              Chief Executive Officer


                         BANK OF AMERICA ILLINOIS


                         By: /s/ Yvonne Dennis             
                             -----------------
                                 Yvonne Dennis
                                 Vice President

                                      -4-

<PAGE>
 
                             CONSENT OF GUARANTORS
                             ---------------------


The undersigned Guarantors do hereby consent to the foregoing Third Amendment to
Letter Agreement dated as of June 30, 1993 and hereby reaffirms, ratifies and
confirms that its Subsidiary Guarantee continues in full force and effect on and
as of the date hereof and after giving effect to such Third Amendment.  The
undersigned agree that any references to the Note in each Subsidiary Guarantee
and the Agreement shall be deemed a reference to the Agreement and amounts owing
thereunder, as evidenced by the loan accounts referred to in Section 3 of the
Agreement, as amended hereby.


Date:  September 3, 1996



                              IHOP REALTY CORP.
                              IHOP RESTAURANTS, INC.
                              IHOP PROPERTIES, INC.


                         By: /s/ Richard K. Herzer       
                             ---------------------
                                 Richard K. Herzer
                                     President

                                      -5-



<PAGE>
 
                                                                     EXHIBIT 4.7



                     FOURTH AMENDMENT TO LETTER AGREEMENT
                     ------------------------------------



          THIS FOURTH AMENDMENT TO LETTER AGREEMENT (this "Fourth Amendment") is
made and dated as of November 1, 1996 among INTERNATIONAL HOUSE OF PANCAKES,
INC. (the "Borrower"), IHOP CORP., as Guarantor (the "Guarantor"), and BANK OF
AMERICA ILLINOIS ("Bank"), and amends that certain Letter Agreement dated as of
June 30, 1993, as amended by a letter dated July 15, 1993 from Continental Bank
to the Borrower, a First Amendment to Letter Agreement dated as of December 31,
1994, a Second Amendment to Letter Agreement dated as of March 11, 1996, and a
Third Amendment to Letter Agreement dated as of September 3, 1996 (as so
amended, the "Agreement").

                                    RECITAL
                                    -------

          The Borrower has requested that the Bank enter into the Intercreditor
Agreement in the form attached hereto, amend certain financial covenants and
waive certain Event of Defaults under the Agreement, and the Bank is willing to
do so on the terms and conditions set forth herein.

          NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:

          1.   Terms.  All capitalized terms used herein shall have the same
               -----                                                        
meanings as in the Agreement unless otherwise defined
 herein.  All references to
the Agreement shall mean the Agreement as hereby amended.

          2.   Amendments to Agreement.  The parties hereto agree that the
               -----------------------                                    
Agreement is hereby amended as follows:

               2.1  Section 14.1(i) of the Agreement is amended and restated in
its entirety as follows:

                    "(i)  Liens including Liens arising out of purchase money
financing not otherwise permitted by the foregoing clauses of this Section 14.1
securing Debt (without duplication) of IHOP, the Borrower or any Subsidiary of
IHOP or the Borrower, provided that the sum

<PAGE>
 
of (i) the principal amount of such Debt plus (ii) unsecured Debt (other than
Additional Permitted Subsidiary Guarantees) of Subsidiaries of IHOP (other than
the Borrower) and Subsidiaries of the Borrower not otherwise permitted under
Section 14.4(a) does not exceed at any time 15% of Consolidated Tangible Net
Worth."

               2.2  Section 14.4(B) of the Agreement is amended and restated in
its entirety as follows:

                    "(B) Additional Debt (other than Additional Permitted
Subsidiary Guarantees), provided that the sum of the aggregate principal amount
of such Debt plus the aggregate principal amount of all other Debt (without
duplication) of IHOP, the Borrower and any of their Subsidiaries which is
secured by Permitted Liens permitted by Section 14.1(i) does not exceed 15% of
Consolidated Tangible Net Worth."

               2.3  Section 18 of the Agreement is amended to include the
following definitions:

                    "Additional Permitted Subsidiary Guarantees" shall mean
those Guarantees delivered by any Subsidiary Guarantor which guarantees Debt of
the Borrower the beneficiaries of which are or become a party to, and thereby
agree to undertake and perform the duties, rights and obligations of a party
under, the Intercreditor Agreement.

                    "Intercreditor Agreement" means the Intercreditor Agreement
dated as of November 1, 1996 among the 1992 Noteholders (as defined therein),
the 1996 Noteholders (as defined therein), the Bank and additional creditors
which may become a party thereto from time to time, substantially in the form
attached hereto as Exhibit I.

                    "Subsidiary Guarantors" shall mean collectively IHOP Realty,
IHOP Properties, Inc. and IHOP Restaurants, Inc.

               2.4  The Agreement is amended to include the Intercreditor
Agreement as Exhibit I.

          3.   Reaffirmation of IHOP Guaranty.  IHOP does hereby reaffirm that
               ------------------------------                                 
the terms and provisions of Section

                                       2

<PAGE>
 
17 of the Agreement continue in full force and effect and are ratified and
confirmed in all respects on and as of the date hereof, after giving effect to
this Fourth Amendment.  IHOP agrees that any references to the Note in the
Agreement, including without limitation Section 17 of the Agreement, shall be
deemed a reference to the Agreement and amounts owing thereunder, as evidenced
by the loan accounts referred to in Section 3 of the Agreement, as amended
hereby.

          4.   Execution of Intercreditor Agreement.  The Bank hereby agrees to
               ------------------------------------                            
duly authorize, execute, deliver and perform its obligations under the
Intercreditor Agreement.

          5.   Representations and Warranties.  IHOP and the Borrower do hereby
               ------------------------------                                  
represent and warrant as follows:

               5.1  Authority.  Each of the Borrower and IHOP has been duly
                    ---------                                              
incorporated and is a validly existing corporation under the laws of the State
of Delaware, has full legal right, power and authority to enter into this Fourth
Amendment and to carry out and consummate all transactions contemplated by the
Agreement and this Fourth Amendment.

               5.2  Enforceability.  This Fourth Amendment has been duly
                    --------------                                       
authorized and is a valid and binding obligation of the Borrower and IHOP,
enforceable in accordance with its terms.

               5.3  No Conflict.  This Fourth Amendment will not conflict with
                    -----------                                               
or constitute a breach of or a default under their respective articles of
incorporation or by-laws, or any material agreement to which the Borrower or
IHOP is a party or by which the Borrower or IHOP or any of their respective
properties are bound, or any rule or regulation of any court or governmental
agency or body having jurisdiction over the Borrower or IHOP or any of their
respective activities or properties.

               5.4  No Event of Default.  Except for the Event of Defaults
                    -------------------                                   
waived pursuant to Section 7 hereof, no Event of Default under the Agreement has
occurred and is continuing.

                                       3

<PAGE>
 
               5.5  Representations and Warranties.  The representations and
                    ------------------------------                          
warranties in Section 11 of the Agreement are true and correct in all respects
on and as of the date hereof as though made on and as of the date hereof.

          6.   Conditions, Effectiveness.  The effectiveness of this Fourth
               -------------------------                                    
Amendment shall be subject to the compliance by the Borrower with its agreements
herein contained and the execution and delivery of the Intercreditor Agreement
by the parties thereto.

          7.   Upon and by virtue of this Fourth Amendment becoming effective
as herein contemplated, the Event of Default under Section 16(c) and the Event
of Default under Section 16(f) caused by a default under Sections 11.1(I) and
11.4(B) of the 1992 Note Agreements (as defined in the Intercreditor Agreement)
shall be deemed to have been waived by the Bank.
 
          8.   Miscellaneous
               -------------

          (a) Except as hereby expressly amended, the Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects.

          (b) This Fourth Amendment is specific in time and in intent and does
not constitute, nor shall it be construed as, a waiver of any other right, power
or privilege under the Agreement, or under any agreement, contract, indenture,
document or instrument mentioned in the Agreement; nor does it preclude other or
further exercise hereof or the exercise of any other right, power or privilege,
nor shall any waiver of any right, power, privilege or default hereunder, or
under any agreement, contract, indenture, document or instrument mentioned in
the Agreement, constitute a waiver of any other default of the same or of any
other term or provision.

          (c) This amendment may be executed in any number of counterparts and
all of such counterparts taken together shall be deemed to constitute one and
the same instrument.  This amendment shall not become effective until the
Borrower, IHOP, IHOP Realty, IHOP Properties, Inc. and IHOP Restaurants, Inc.
shall each have signed a copy hereof, whether the same or counterparts, and the
same shall have been delivered to Bank and the Bank shall

                                       4

<PAGE>
 
have signed a copy hereof, whether the same or counterpart, and the same shall
have been delivered to the Borrower.

          9.   Governing Law.  This Fourth Amendment shall be a contract made
               -------------                                                 
under and governed by the internal laws of the state of Illinois.

          IN WITNESS WHEREOF, each of the parties hereto has caused its
respective duly authorized officer to execute and deliver this Fourth Amendment
as of the date first written above.

                         INTERNATIONAL HOUSE OF PANCAKES, INC.



                         By: /s/ Richard K. Herzer
                             _____________________  
                              Richard K. Herzer
                              President and
                                Chief Executive Officer

                         IHOP CORP.


 
                         By: /s/ Richard K. Herzer
                             _____________________ 
                              Richard K. Herzer
                              President and
                                Chief Executive Officer


                         BANK OF AMERICA ILLINOIS


                        By: /s/ Gina M. West
                            ________________
                              Gina M. West
                              Vice President
 

                                       5

<PAGE>
 
                             CONSENT OF GUARANTOR
                             --------------------



          The undersigned Guarantor does hereby consent to the foregoing Fourth
Amendment to Letter Agreement dated as of November 1, 1996 and hereby reaffirms,
ratifies and confirms that its Subsidiary Guarantee continues in full force and
effect on and as of the date hereof and after giving effect to such Fourth
Amendment.  The undersigned agrees that any references to the Note in the
Guarantee and the Agreement shall be deemed a reference to the Agreement and
amounts owing thereunder, as evidenced by the loan accounts referred to in
Section 3 of the Agreement.

Dated:  November 8, 1996



                              IHOP REALTY CORP.



                              By: /s/ Richard K. Herzer
                                  _____________________ 
                                    Richard K. Herzer
                                    President and
                                      Chief Executive Officer

                                       6

<PAGE>
 
                             CONSENT OF GUARANTOR
                             --------------------



          The undersigned Guarantor does hereby consent to the foregoing Fourth
Amendment to Letter Agreement dated as of November 1, 1996 and hereby reaffirms,
ratifies and confirms that its Subsidiary Guarantee continues in full force and
effect on and as of the date hereof and after giving effect to such Fourth
Amendment.  The undersigned agrees that any references to the Note in the
Guarantee and the Agreement shall be deemed a reference to the Agreement and
amounts owing thereunder, as evidenced by the loan accounts referred to in
Section 3 of the Agreement.

Dated:  November 8, 1996


                              IHOP PROPERTIES, INC.



                              By: /s/ Richard K. Herzer
                                  _____________________
                                  Richard K. Herzer
                                  President and
                                      Chief Executive Officer

                                       7



<PAGE>
 
                                                                  IHOP CORP 10-K

                                                                     EXHIBIT 4.8


================================================================================



                                   IHOP Corp.

                     International House of Pancakes, Inc.



                         Senior Note Purchase Agreement


                    $35,000,000 7.42% Senior Notes Due 2008



                          Dated as of November 1, 1996


================================================================================

<PAGE>
 
                               TABLE OF CONTENTS


<TABLE>

<S>                                                                        <C>
Section 1.             Authorization and Issue of Notes...................  1

Section 2.             Purchase and Sale of Notes.........................  1

Section 3.             Payments of Notes..................................  2

   Section 3.1.        Mandatory Payments of Principal....................  2
   Section 3.2.        Optional Prepayments of the Notes..................  2
   Section 3.3.        Notice of Prepayment of the Notes..................  3
   Section 3.4.        Allocation of Payments.............................  3
   Section 3.5.        Surrender of Notes; Notation Thereon...............  3
   Section 3.6.        Purchase of Notes..................................  4

Section 4.             Representations and Warranties.....................  4

   Section 4.1.        Corporate Existence and Power......................  4
   Section 4.2.        Corporate Authority................................  4
   Section 4.3.        Binding Effect.....................................  5
   Section 4.4.        Capital Stock......................................  5
   Section 4.5.        Business Operations and Other Information;.........  5
                       Financial Condition
   Section 4.6.        Subsidiaries.......................................  7
   Section 4.7.        Litigation; No Violation of Governmental Orders....  8
                       or Laws
   Section 4.8.        Outstanding Debt...................................  9
   Section 4.9.        Consent, Etc.......................................  9
   Section 4.10.       Title to Properties................................  9
   Section 4.11.       Taxes..............................................  10
   Section 4.12.       No Conflicts with Agreements, Etc..................  10
   Section 4.13.       Disclosure.........................................  10
   Section 4.14.       Offering of Securities.............................  11
   Section 4.15.       Broker's or Finder's Commissions...................  11
   Section 4.16.       Labor Matters......................................
  11
   Section 4.17.       Environmental Matters..............................  12
   Section 4.18.       Margin Regulations.................................  13
   Section 4.19.       Compliance with ERISA..............................  13
   Section 4.20.       Material Contracts.................................  15
   Section 4.21.       Insurance..........................................  15
   Section 4.22.       Status under Certain Laws..........................  15
   Section 4.23.       Intentionally Deleted..............................  15
   Section 4.24.       Possession of Franchises, Licenses, Etc............  15
   Section 4.25.       Franchises.........................................  16
   Section 4.26.       Use of Proceeds....................................  16
   Section 4.27.       Patents and Trademarks.............................  16
   Section 4.28.       Compliance with Laws...............................  16

</TABLE>
 

                                      -i-

<PAGE>
 

<TABLE>


<S>                                                                        <C>
   Section 4.29.      Franchisees........................................  16
   Section 4.30.      Other Agreements...................................  16
   Section 4.31.      Solvency...........................................  16
   Section 4.32.      Foreign Assets Control Regulations.................  17

Section 5.            Representation of Purchasers.......................  17

   Section 5.1.       Authority..........................................  17
   Section 5.2.       Investment Intent..................................  17
   Section 5.3.       Source of Funds....................................  17
   Section 5.4.       Investor Status....................................  19

Section 6.         Conditions to Obligations of the Purchasers...........  19

   Section 6.1.       Proceedings Satisfactory...........................  19
   Section 6.2.       Opinion of Purchasers' Special Counsel.............  19
   Section 6.3.       Opinion of Counsel to the Borrower and Holdings....  19
   Section 6.4.       Representations and Warranties True, Etc.;.........  19
                      Certificates
   Section 6.5.       Absence of Material Adverse Change, Etc............  20
   Section 6.6.       Consents and Approvals.............................  20
   Section 6.7.       Absence of Litigation, Orders, Etc.................  20
   Section 6.8.       Other Purchasers...................................  20
   Section 6.9.       Legal Investment...................................  20
   Section 6.10.      Amendments to Outstanding Debt Agreements..........  20
   Section 6.11.      Fees...............................................  21
   Section 6.12.      PPN Number.........................................  21
   Section 6.13.      Subsidiary Guarantees..............................  21
   Section 6.14.      Intercreditor Agreement............................  21
   Section 6.15.      Corporate Status and Documentation.................  21

Section 7.         Conditions to Obligations of the Borrower.............  22

   Section 7.1.       Representations and Warranties True, Etc...........  22
   Section 7.2.       Absence of Litigation, Orders, Etc.................  22
   Section 7.3.       Other Purchasers...................................  22

Section 8.            Financial Statements and Information...............  22

Section 9.            Inspection of Properties and Books.................  26

Section 10.        Affirmative Covenants.................................  27

   Section 10.1.      Payment of Principal, Prepayment Charge and........  27
                      Interest, Etc.
   Section 10.2.      Payment of Taxes and Claims........................  27
   Section 10.3.      Maintenance of Properties and Corporate Existence..  28

</TABLE>
 

                                      -ii-

<PAGE>
 

<TABLE>


<S>                                                                        <C>
   Section 10.4.      Insurance..........................................  28

Section 11.        Negative and Maintenance Covenants....................  29

   Section 11.1.      Restrictions on Liens..............................  29
   Section 11.2.      Limitation on Funded Debt..........................  30
   Section 11.3.      Consolidated Tangible Net Worth....................  31
   Section 11.4.      Limitation on Debt of Subsidiaries.................  31
   Section 11.5.      Restricted Payments; Restricted Investments........  31
   Section 11.6.      Sale of Assets.....................................  32
   Section 11.7.      Consolidation or Merger............................  33
   Section 11.8.      Maintenance of Fixed Charge Coverage...............  33
   Section 11.9.      Transactions with Affiliates.......................  34
   Section 11.10.     Acquisition of Margin Securities...................  34
   Section 11.11.     Conduct of Business................................  34

Section 12.        Definitions...........................................  34

Section 13.        Events of Default.....................................  45

   Section 13.1.      Events of Default; Remedies........................  45
   Section 13.2.      Acceleration of Notes..............................  47
   Section 13.3.      Rescission of Acceleration.........................  48
   Section 13.4.      Suits for Enforcement..............................  48
   Section 13.5.      Remedies Cumulative................................  49
   Section 13.6.      Remedies Not Waived................................  49

Section 14.         Registration, Exchange, and Transfer of Notes........  49

Section 15.         Lost, Stolen, Damaged and Destroyed Notes............  49

Section 16.         Miscellaneous........................................  50

   Section 16.1.      Home Office Payment................................  50
   Section 16.2.      Amendment and Waiver...............................  50
   Section 16.3.      Expenses...........................................  51
   Section 16.4.      Survival of Representations and Warranties.........  51
   Section 16.5.      Successors and Assigns.............................  51
   Section 16.6.      Notices............................................  52
   Section 16.7.      Governing Law......................................  52
   Section 16.8.      Submission to Jurisdiction; Waiver of Service and 
                       Venue.............................................  52
   Section 16.9.      Indemnification....................................  53
   Section 16.10.     Integration and Severability.......................  54
   Section 16.11.     Payments Due on Days not Business Days.............  54
   Section 16.12.     Further Assurances.................................  54
   Section 16.13.     Counterparts.......................................  54
   Section 16.14.     Guarantee of Holdings..............................  54
   Section 16.15.     Waiver of Right to Trial by Jury...................  57

</TABLE>


                                     -iii-

<PAGE>
 

<TABLE> 
<S>                                                                        <C> 
Signature Page..........................................................    59
</TABLE>
 
 
Schedule I         --   Manner of Payment and Communications to the Purchasers
Schedule 4.5       --   Interim Changes
Schedule 4.6       --   List of Direct and Indirect Subsidiaries
Schedule 4.7       --   Litigation Summary
Schedule 4.8       --   Existing Current and Funded Debt and Liens
Schedule 4.9       --   Consents and Approvals
Schedule 4.11      --   Taxes
Schedule 4.16      --   Labor Matters
Schedule 4.17      --   Environmental Matters
Schedule 4.19      --   Compliance with ERISA
Schedule 4.25      --   Franchises
Schedule 12        --   Restricted Investments at Closing Date
Exhibit A      --   Form of Note
Exhibit B      --   Form of Opinion of Counsel for the Purchaser
Exhibit C      --   Form of Opinion of Counsel for the Borrower
Exhibit D-1    --   Form of IHOP Realty Guarantee
Exhibit D-2    --   Form of IHOP Properties Guarantee
Exhibit D-3    --   Form of IHOP Restaurants Guarantee
Exhibit E      --   Form of IHOP Realty Lease
Exhibit F-1    --   Form of Quarterly compliance Statement
Exhibit F-2    --   Form of Compliance Certificate
Exhibit G      --   Form of Franchise Agreement
Exhibit H      --   Form of Intercreditor Agreement

                                      -iv-

<PAGE>
 
                     INTERNATIONAL HOUSE OF PANCAKES, INC.
                         SENIOR NOTE PURCHASE AGREEMENT

                                                                November 1, 1996

To The Purchaser Whose Name
 Appears in the Acceptance
 Form at the End Hereof


Ladies and Gentlemen:

     The undersigned, International House of Pancakes, Inc., a Delaware
corporation (the "Borrower"), and IHOP Corp., a Delaware corporation of which
the Borrower is a wholly owned Subsidiary ("Holdings"), hereby agree with you as
follows:

Section 1.    Authorization and Issue of Notes.

The Borrower has duly authorized the issue, sale and delivery of its 7.42%
Senior Notes Due 2008 in the aggregate principal amount of $35,000,000, to be
dated the date of issue thereof, to bear interest on the outstanding principal
thereof (computed on the basis of a 360-day year of twelve 30-day months) from
such date, payable in arrears in cash semi-annually on the eighth day of May and
November in each year (commencing May 8, 1997) and at maturity, at the rate of
7.42% per annum, and to bear interest at a rate equal to the greater of 9.42% or
the rate of interest announced publicly from time to time by Bank of America
Illinois in Chicago, Illinois as its "prime rate" on any overdue principal and
prepayment charge and, to the extent permitted by applicable law, on any overdue
interest (determined as of the date such principal, payment charge or interest
first becomes overdue), until the same shall be paid in full, to mature on
November 1, 2008, and to be substantially in the form of Exhibit A hereto
attached (all such Notes originally issued pursuant to this Agreement or the
Other Agreements, or delivered in substitution or exchange for any thereof,
being collectively called the "Notes" and individually a "Note").

You, together with the other purchasers named in Schedule I to this Agreement,
are herein sometimes referred to collectively as the "Purchasers" and
individually as a "Purchaser."

Section 2.    Purchase and Sale of Notes.

Subject to the terms and conditions herein set forth, the Borrower hereby agrees
to sell to you and you agree to purchase from the Borrower, Notes in the
respective aggregate principal amounts set forth opposite your name in Schedule
I hereto, at a purchase price of 100% of the principal amount thereof.

<PAGE>
 
The purchase and delivery of the Notes to be purchased by you shall take place
at the offices of Chapman and Cutler, 111 W. Monroe, Chicago, Illinois at 10:00
a.m., Chicago time on November 8, 1996 (or such other time and place as the
parties shall agree provided, however, that in no event shall funding be
provided after 1:00 p.m., New York time) (herein called the "Closing Date").  On
the Closing Date, the Borrower will deliver to you Notes registered in your name
or in the name of your nominee, each such Note to be duly executed and dated the
Closing Date, each to be in the respective aggregate principal amounts to be
purchased by you as specified above, in such denominations (multiples of $1,000)
as you may specify by timely notice to the Borrower (or, in the absence of such
notice, one Note registered in your name in a principal amount equal to the
aggregate principal amount of Notes to be purchased by you), against your
delivery to the Borrower of immediately available funds in the amount of the
aggregate purchase price therefor.

Section 3.    Payments of Notes.

   Section 3.1 Mandatory Payments of Principal. The principal amount of the
Notes shall be prepaid by the Borrower in installments, payable on each of the
dates set forth below in the respective aggregate amounts set forth opposite
such dates:
               
             Payment Date                   Principal Amount
 
           November 1, 2000                  $3,888,888.00  
           November 1, 2001                  $3,888,888.00     
           November 1, 2002                  $3,888,888.00               
           November 1, 2003                  $3,888,888.00                  
           November 1, 2004                  $3,888,888.00            
           November 1, 2005                  $3,888,888.00            
           November 1, 2006                  $3,888,888.00            
           November 1, 2007                  $3,888,888.00            

provided, however, that if Notes aggregating less than $35,000,000 in principal
amount are issued and sold pursuant to this Agreement and the Other Agreements,
each of the prepayment amounts set forth above shall be reduced to an amount
which is equal to the product achieved by multiplying each amount set forth
above by a fraction, the numerator of which shall be the aggregate principal
amount of all Notes issued and sold pursuant to this Agreement and the Other
Agreements and the denominator of which shall be $35,000,000.

     The entire remaining principal amount of the Notes shall become due and
payable on November 1, 2008.  Each payment of Notes made pursuant to this
Section 3.1 shall be allocated as provided in Section 3.4.

   Section 3.2.   Optional Prepayments of the Notes.  The Borrower, at
its option, upon notice given as provided in Section 3.3, may, on any Interest
Payment Date, prepay all or any part of the principal amount of outstanding
Notes (in the minimum amount of $100,000 and additional increments of integral
multiples of $100,000), at a price equal to the sum of (i) the greater of the
principal amount of the Notes being so prepaid or the Present Value

                                      -2-

<PAGE>
 
Amount of the Notes being so prepaid, plus (ii) all accrued but unpaid interest
on the outstanding principal amount of the Notes being prepaid through the date
of such prepayment.

     Each prepayment made pursuant to this Section 3.2 shall be allocated as
provided in Section 3.4. All principal amounts prepaid pursuant to this Section
3.2 shall be applied to reduce the amounts of the mandatory payments of
principal thereafter due pursuant to Section 3.1 in the inverse order of
maturity of those mandatory payments.

     Section 3.3.   Notice of Prepayment of the Notes.  The Borrower shall
call Notes for prepayment pursuant to Section 3.2 by giving written notice
thereof to each holder of Notes, which notice shall be given not less than 30
nor more than 60 days prior to the date fixed for such prepayment in such notice
and shall specify the principal amount so to be prepaid, the accrued interest
applicable to such prepayment and the date fixed for such prepayment.  Notice of
prepayment having been so given, the aggregate amount to be paid as specified in
such notice (together with the prepayment charge, if any) shall become due and
payable on the specified prepayment date.  At least three Business Days prior to
the date of any such prepayment, the Borrower shall furnish to each holder of
Notes, via telecopy (with delivery of the original by overnight courier on the
next Business Day), an Officer's Certificate of the Borrower setting forth
computations in reasonable detail showing an estimate of the prepayment charge,
if any, required to be paid in connection with such prepayment, and the manner
of calculation of the prepayment charge and attaching a copy of the source of
market data by reference to which the Treasury Yield was determined in
connection with such computations.  No later than noon eastern time one Business
Day prior to the date of any such prepayment, the Borrower shall furnish to each
holder of Notes, via telecopy (with delivery of the original by overnight
courier on the next Business Day), a certificate of an Appropriate Officer of
the Borrower setting forth computations in reasonable detail showing the manner
of calculation of the actual prepayment charge, if any, required to be paid in
connection with such prepayment and attaching a copy of the source of market
data by reference to which the Treasury Yield was determined in connection with
such computations.  Prior to 2:00 p.m. eastern time on the Business Day referred
to in the immediately preceding sentence, the Borrower shall call each Purchaser
to confirm receipt of such certificate.

   Section 3.4.  Allocation of Payments.  In the event of any payment or
prepayment of less than all of the outstanding Notes pursuant to Section 3.1 or
Section 3.2, the Borrower shall allocate the principal amount so to be paid or
prepaid by it (but only in units of $1,000) and the interest and prepayment
charge if any, among the Notes in proportion, as nearly as may be practicable,
to the respective unpaid principal amounts thereof.

   Section 3.5.  Surrender of Notes; Notation Thereon.  Subject to the
provisions of Section 16.1, the Borrower shall not, as a condition of payment of
all or any part of the principal of, prepayment charge (if any) and interest on,
any Note, require the holder to present such Note for notation of such payment
or require the surrender thereof.  Upon receipt of payment in full of the
principal of, prepayment charge (if any) and interest on, any Note, such Note
shall be deemed to be automatically cancelled, without any further

                                      -3-

<PAGE>
 
action on the part of the Borrower or the Noteholder. However, each Noteholder
shall make reasonable efforts to promptly return all cancelled Notes .

     Section 3.6.  Purchase of Notes.  Except as set forth in Section 3.1, 3.2
or the next following sentence of this Section 3.6, neither the Borrower nor
Holdings will, nor will either of them permit any of its Subsidiaries or
Affiliates to, acquire directly or indirectly by purchase or prepayment or
otherwise any of the outstanding Notes except by way of payment or prepayment in
accordance with the provisions of this Agreement. The Borrower may repurchase
the Note or Notes of any holder provided that, prior to any such repurchase, the
Borrower offers, in a written notice, to repurchase a Pro Rata Portion of each
holders Notes on the same terms, and, at such time, the Borrower shall have
sufficient funds then available to it to repurchase such Notes. Each holder of
Notes shall have ten (10) Business Days after receipt of such written notice to
accept or reject the Borrower's offer set forth in such notice. Failure of any
holder of Notes to respond to any such notice within ten (10) Business Days
after its receipt thereof shall be deemed to be a rejection of the offer
therein. In the event that the Borrower has purchased less than the entire
outstanding principal balance of the Notes, the amount of the principal balance
so purchased shall be multiplied by a fraction, the numerator of which is 1 and
the denominator of which is the number of scheduled principal payments pursuant
to Section 3.1 (including the payment scheduled to be made on November 1, 2008)
which have not yet been made as of the date of the purchase of the Notes and
such product shall be deducted from each of the payments otherwise due following
the date of the purchase of the Notes. The remaining payments due after giving
effect to this deduction shall be allocated in accordance with Section 3.4.

Section 4.  Representations and Warranties.

        The Borrower and Holdings, jointly and severally, represent and warrant
to Purchasers that:

   Section 4.1.  Corporate Existence and Power.  Each of the Borrower,
Holdings, and each of their respective Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and is duly qualified to do business in each additional
jurisdiction where the failure to so qualify would have a Material Adverse
Effect. Each of the Borrower, Holdings and each of their respective Subsidiaries
has all requisite corporate power to own its Properties and to carry on its
business as now being conducted and as proposed to be conducted, and in the case
of the Borrower and Holdings to execute, deliver and perform its obligations
under this Agreement and the Other Agreements, in the case of the Borrower to
execute, issue, sell, deliver and perform its obligations under the Notes, in
the case of the Subsidiary Guarantors to execute, deliver and perform their
respective obligations under the Subsidiary Guarantees, and in the case of each
such Person to engage in the respective transactions contemplated by this
Agreement and the Other Agreements.

   Section 4.2.  Corporate Authority.  The execution, delivery and performance
(a) by the Borrower of this Agreement, the Other Agreements and the Notes, (b)
by Holdings of this Agreement and the Other Agreements, and (c) by the
Subsidiary Guarantors of the

                                      -4-

<PAGE>
 
Subsidiary Guarantees, are within the respective corporate powers of such
Persons and have been duly authorized by all necessary corporate action on the
part of the respective Boards of Directors and stockholders of each of them.

   Section 4.3.    Binding Effect.  This Agreement and the Other Agreements are
the legal, valid and binding obligations of the Borrower and Holdings, and the
Notes when issued and delivered against payment therefor as herein provided will
be the legal, valid and binding obligations of the Borrower; and the Subsidiary
Guarantees will, when executed and delivered by the Subsidiary Guarantors on the
Closing Date be the legal, valid and binding obligations of the Subsidiary
Guarantors; in each case enforceable against such respective parties in
accordance with their respective terms, except, in each case, as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws relative to or affecting the
enforcement of creditors rights generally in effect from time to time and by
general principles of equity.

   Section 4.4. Capital Stock. (a) On the Closing Date, the authorized capital
stock of the Borrower will consist of 1,000 shares of common stock, no par
value, and all of the capital stock of the Borrower is validly issued, fully
paid and non-assessable and owned, of record and beneficially, free and clear of
any Liens, by Holdings. On the Closing Date, the Borrower will not have
outstanding any securities convertible into or exchangeable for any of its
capital stock, nor will it have outstanding any rights to subscribe for or to
purchase, or any options or warrants for the purchase of, or any agreements
(contingent or otherwise) providing for the issuance of, or any calls,
commitments or claims of any character relating to, any of its capital stock or
any securities convertible into or exchangeable for any of its capital stock.
The Borrower is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any of its capital stock, or to any
obligation (contingent or otherwise) evidencing the right of the holder thereof
to purchase any of its capital stock.
          
           (b) On the Closing Date, the authorized capital stock of Holdings
will consist of 40,000,000 shares of common stock and 10,000,000 shares of
preferred stock. On the Closing Date, Holdings will not have outstanding any
securities convertible into or exchangeable for any of its capital stock, nor
will it have outstanding any rights to subscribe for or to purchase, or any
options or warrants for the purchase of, or any agreements (contingent or
otherwise) providing for the issuance of, or any calls, commitments or claims of
any character relating to, any of its capital stock or any securities
convertible into or exchangeable for any of its capital stock, except for
options and other securities issued pursuant to the IHOP Corp. 1991 Stock
Incentive Plan, as Amended and Restated on February 23, 1994 and the 1994 Stock
Option Plan for Non-Employee Directors. Holdings is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its capital stock, or to any obligation (contingent or otherwise)
evidencing the right of the holder thereof to purchase any of its capital stock.

   Section 4.5.  Business Operations and Other Information; Financial
Condition. (a) The Borrower (or Bank of America NT & SA, on behalf of the
Borrower) has delivered to you (or, in the case of clause (iv) below, made
available and delivered to the extent

                                      -5-

<PAGE>
 
requested) true and complete copies of (i) the Confidential Private Placement
Memorandum dated September 1996 prepared by the Borrower and Bank of America NT
& SA in connection with the offering of the Notes to be purchased by you
hereunder (together with the Exhibits thereto, the "Confidential Memorandum"),
(ii) the audited consolidated balance sheets of Holdings and its Subsidiaries as
at December 31 for 1991, 1992, 1993, 1994, and 1995, and the related audited
consolidated statements of operations, shareholders equity and cash flows for
the fiscal years ended December 31, 1991, 1992, 1993, 1994 and 1995, together
with the notes thereto and the reports thereon of Coopers & Lybrand (the
"Audited Financial Statements"), (iii) (A) the unaudited consolidating balance
sheets of Holdings and its Subsidiaries as at December 31, 1995 and the related
consolidating statements of operations for the fiscal year then ended and (B)
the unaudited consolidated balance sheet of Holdings and its Subsidiaries as at
June 30, 1996, and the related consolidated statements of operations,
shareholders equity and cash flows for the six months then ended (the "Unaudited
Financial Statements"; the Audited Financial Statements and the Unaudited
Financial Statements are sometimes hereinafter collectively referred to as the
"Financial Statements"), and (iv) the SEC Reports. The Confidential Memorandum
and the SEC Reports correctly describe in all material respects the businesses,
operations and principal Properties of Holdings, the Borrower and their
Subsidiaries. The Financial Statements have been prepared in accordance with
GAAP (except as noted thereon) consistently applied throughout the periods
involved, and fairly present the consolidated and consolidating financial
position of Holdings and its Subsidiaries as at each of the dates and for each
of the periods covered thereby, subject to, in the case of the Unaudited
Financial Statements, year-end audit adjustments and the notes required by GAAP
and, with respect to the consolidating statements, the failure to prepare
statements of cash flows and stockholders equity and the failure to include
notes thereon as required by GAAP. As of the date of each of the balance sheets
included in the Financial Statements, neither Holdings, the Borrower nor any of
their Subsidiaries had any material Debt or liability, absolute or contingent,
liquidated or unliquidated, except Debt and liabilities reflected or reserved
against on the Financial Statements or described in the notes thereto. Neither
Holdings nor any of its Subsidiaries has made any filing with the SEC on Form 
8-K since December 31, 1995.
          
       (b) Except as contemplated herein, or as disclosed in the Confidential
Memorandum or the SEC Reports or on Schedule 4.5 hereto, or reflected in the
Financial Statements, since December 31, 1995, neither Holdings, the Borrower
nor any of their Subsidiaries has:
           
           (1) incurred or assumed any Debt, obligations or liabilities which
are, individually or in the aggregate, material (absolute, accrued, or
contingent and whether due or to become due), except current liabilities
incurred in the ordinary course of business, except as set forth in Schedule 4.8
attached hereto and except for Capitalized Leases not required to be disclosed
on Schedule 4.8;

           (2) paid any Debt (other than reductions of outstanding revolving
Debt made during such period pursuant to the BA Credit Agreement), obligations
or liabilities which are, individually or in the aggregate, material, other than
current liabilities in the ordinary course of business, or discharged any Liens
which are, individually or in

                                      -6-

<PAGE>
 
the aggregate, material, other than Liens securing current liabilities
discharged in the ordinary course of business;

          (3) declared or paid any dividend or distribution to its shareholders,
or purchased or redeemed any of its shares, or incurred or paid any management
fee or similar charge, or obligated itself to do so;
      
          (4) subjected any of its Property to any Lien other than Permitted
Liens;
 
          (5) sold, disposed, transferred, licensed or released any of its
Property except in the ordinary course of business;
    
          (6) suffered any physical damage, destruction, or loss (whether or not
covered by insurance) which had or could reasonably be expected to have a
Material Adverse Effect;
    
          (7) entered into any material transaction other than in the ordinary
course of business;

          (8) encountered any strike, work stoppage or other adverse collective
labor action or any labor union organizing activities;

          (9) issued or sold any shares or other securities or granted any
material options or similar rights with respect thereto, except for the issuance
or sale of shares or other securities pursuant to the 1991 IHOP Corp. Stock
Incentive Plan as Amended and Restated on February 23, 1994 and the 1994 Stock
Option Plan for Non-Employee Directors;

          (10) made any change in accounting methods, practices or principles;
  
          (11) waived, released, granted or transferred any rights having,
individually or in the aggregate, material value, or modified or changed in any
material respect any existing franchise, license, lease, contract or other
document, other than in the ordinary course of business; or
  
          (12) agreed to do any of the foregoing.

   Section 4.6.  Subsidiaries.  Holdings has no direct equity interest in any
Person other than the Borrower, and no indirect equity interest in any Person
other than the Subsidiaries of the Borrower. Set forth on Schedule 4.6 attached
hereto is a true and complete list of all Subsidiaries of the Borrower (the
"Subsidiaries List"), setting forth as to each such Subsidiary its jurisdiction
of incorporation and the percentage of capital stock of each such Subsidiary
owned by the Borrower or a Subsidiary of the Borrower. On the Closing Date, (i)
except as disclosed in the Financial Statements, the Borrower will have no
direct or indirect equity interest in any Person other than the Subsidiaries
listed on the Subsidiaries List, the Borrower will have good title to all of the
shares it owns of each of its Subsidiaries,

                                      -7-

<PAGE>
 
free and clear in each case of any Lien, (ii) all such shares of each such
Subsidiary will have been duly and validly issued, and will be fully paid and
non-assessable and owned of record or beneficially by the Borrower and/or one or
more of such Subsidiaries, and (iii) there will be no securities outstanding
that are convertible into or exchangeable for any shares of the Borrower's
Subsidiaries, nor will there be outstanding any rights to subscribe for or
purchase, or any options or warrants for the purchase of, or any agreements
(contingent or otherwise) providing for the issuance of, or any calls,
commitments or claims of any character relating to, any shares of the Borrower's
Subsidiaries or any securities convertible into or exchangeable for any such
shares.

   Section 4.7.  Litigation; No Violation of Governmental Orders or Laws.
Except as set forth on Schedule 4.7:
     
           (a) There are no actions, suits or proceedings pending, or, to the
knowledge of Holdings or the Borrower after due inquiry, threatened against or
affecting Holdings or any of its Subsidiaries or any Properties or rights of any
of them which, if adversely determined, individually or in the aggregate would
have a Material Adverse Effect.
           
           (b) There are no actions, suits or proceedings pending or, to the
knowledge of Holdings or the Borrower after due inquiry, threatened against or
affecting Holdings or any of its Subsidiaries which seek to enjoin, or otherwise
prevent the consummation of, the transactions contemplated herein or to recover
any damages or obtain any relief as a result of any of the transactions
contemplated herein in any court or before any arbitrator of any kind or before
or by any Governmental Body.
           
           (c) Neither Holdings nor any of its Subsidiaries is or will be, after
or as a result of giving effect to the transactions contemplated herein, in
default under or in violation of any Order of any court, arbitrator or
Governmental Body or of any statute or law or of any rule or regulation of any
Governmental Body, which default or violation has or could reasonably be
expected to have a Material Adverse Effect; and none of them is subject to or a
party to any Order of any court or Governmental Body arising out of any action,
suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters.
          
           (d) All cash payments required to be paid pursuant to that certain
Settlement Agreement entered into on November 7, 1973, together with all
amendments thereto, approved by an order dated November 29, 1973 of the United
States District Court for the Western District of Missouri, with respect to In
re: IHOP Franchise Litigation, M.D.L. Docket No. 77 have been paid, all
litigation regarding such Settlement Agreement has been settled or dismissed and
all payments required to be paid pursuant thereto have been paid, and all of the
Borrower's current documents evidencing its franchising arrangements with its
franchisees are in a form permitted by such Settlement Agreement.

                                      -8-

<PAGE>
 
     Section 4.8.  Outstanding Debt.  Schedule 4.8 sets forth a correct and
complete list and description of all Debt of Holdings and its Subsidiaries
(after giving effect to the use of proceeds from the sale and issuance of the
Notes) other than Capitalized Leases which (i) on any consolidated balance sheet
of Holdings and its Subsidiaries would have a capitalized value of less than
$2.5 million and (ii) cover Property on which a restaurant unit operated by the
Borrower or a franchisee in the ordinary course is located and all Liens on
Property of Holdings or its Subsidiaries securing such Debt outstanding or
existing on the Closing Date (excluding any Debt evidenced by the Notes or any
Guaranty thereof), and there exists no breach or default or event of default in
the terms and provisions of any instrument, agreement or contract pertaining to
any such Debt.

     Section 4.9. Consent, Etc. No consent, approval or authorization of or
declaration, registration or filing with any Governmental Body or any
nongovernmental Person, including, without limitation, any creditor or
shareholder of Holdings or any of its Subsidiaries, is required in connection
with the execution or delivery of this Agreement, the Notes or the Subsidiary
Guarantees, or the performance by the Borrower, its Subsidiaries and Holdings of
their respective obligations hereunder and thereunder, or as a condition to the
legality, validity or enforceability of this Agreement or the Notes or the
Subsidiary Guarantees, except for any thereof as are set forth on Schedule 4.9,
all of which have been made or obtained and are in full force and effect and
except for declarations, registrations or filings with Governmental Bodies
which, in accordance with law, are to be made following the Closing Date.

     Section 4.10.  Title to Properties.  Holdings and each of its Subsidiaries
(after giving effect to the use of proceeds from the sale and issuance of the
Notes) have (i) good and marketable fee simple title to their respective real
Properties (other than real Properties which are leased from others), subject to
no Lien of any kind except Permitted Liens, and (ii) good title to all of their
other respective Properties and assets (other than Properties and assets leased
from others), subject to no Lien of any kind except Permitted Liens. Holdings
and each of its Subsidiaries have possession, not subject to encumbrances which
materially affect the rights of the lessee thereunder, under all leases under
which they are lessees (subject to the rights of sublessees, in their capacities
as sublessees under subleases entered into in the ordinary course of the
Borrower's business), whether of realty or personalty, to which they
respectively are parties, none of which contains any unusually burdensome
provisions, and all such leases are the legal, valid and binding obligations of
those of Holdings, the Borrower and their Subsidiaries which are parties thereto
and, to the knowledge of Holdings and the Borrower, the other parties thereto
and each is subsisting and in full force and effect. Neither Holdings nor any of
its Subsidiaries is in material breach or violation of the terms of any such
lease, and neither Holdings nor the Borrower knows of any material breach or
violation of any of such lease by any third party.

     Each of the leases under which Holdings or any of its Subsidiaries is a
lessee is in substantially the form of Exhibit E hereto, if IHOP Realty is the
lessor. Each such lease is the legal, valid and binding obligation of Holdings
or of the Subsidiary of Holdings which is the lessee thereunder and IHOP Realty.
Neither Holdings nor the Borrower is aware of the

                                      -9-

<PAGE>
 
existence of a material breach or default under any such lease, and each such
lease is in full force and effect on the Closing Date.

     Each lease or sublease under which Holdings or any of its Subsidiaries
is lessor or sublessor is free of unusually burdensome provisions and all such
leases and subleases are the legal, valid and binding obligations of those of
Holdings, the Borrower and their Subsidiaries which are parties thereto and, to
the knowledge of Holdings and the Borrower, the other parties thereto and each
is, to the knowledge of Holdings and the Borrower, subsisting and in full force
and effect. Neither Holdings nor any of its Subsidiaries is in material breach
or violation of the terms of any such lease, and neither Holdings nor the
Borrower knows of any breach or violation of any such lease by any third party,
which breach or violation could be expected to have, individually or in the
aggregate, a Material Adverse Effect.

     Section 4.11.  Taxes.  Holdings and each of its Subsidiaries has filed (or
has had filed on its behalf), all federal, state and local tax returns, which
are required to have been filed by any of them, and there have been paid all
taxes shown to be due and payable on such returns and all other material taxes
and assessments payable by any of them, to the extent the same have become due
and payable and before they have become delinquent. Except as set forth in
Schedule 4.11, no material tax assessment against Holdings or any of its
Subsidiaries has been proposed and all of their respective tax liabilities are
adequately provided for or reserved against on their respective books and
financial statements in accordance with GAAP. Neither Holdings nor any of its
Subsidiaries have taken any reporting position for which it does not have a
reasonable basis. The tax returns of Holdings and its Subsidiaries are currently
being audited as set forth in Schedule 4.11. Schedule 4.11 sets forth consents
to the waiver or extension of relevant statutes of limitations.

     Section 4.12.  No Conflicts with Agreements, Etc.  Neither the execution
and delivery of this Agreement, the Other Agreements, the Subsidiary Guarantees
or the Notes, nor the offering, issuance or sale of the Notes nor the
fulfillment of or compliance with the terms and provisions hereof or thereof,
will conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, or result in the creation of any Lien on any
Properties or assets of Holdings or any of its Subsidiaries, or cause Holdings
or any of its Subsidiaries to be unable to pay any of its Debt when due, or
result in any violation of, or require for its validity any authorization,
consent, approval, exemption or other action by, or notice to any Governmental
Body or any of the stockholders of Holdings or any of its Subsidiaries, pursuant
to the charter or by-laws of any of them, or pursuant to any award of any
arbitrator, or pursuant to any material contract, agreement, mortgage,
indenture, lease, instrument, Order, statute, law, rule or regulation to which
any of them or any of their respective assets is subject. Neither Holdings nor
any of its Subsidiaries is in violation of, or in default under, any (i) Order,
law or administrative regulation binding upon it or any of its Properties, or
(ii) contract, mortgage, indenture, lease, instrument or agreement binding upon
it or any of its Properties, which breach, conflict, violation or default could
reasonably be expected to have a Material Adverse Effect.

     Section 4.13. Disclosure. Neither this Agreement, the Subsidiary
Guarantees nor any other document, certificate or statement furnished to any
Purchaser by or on behalf of the

                                      -10-

<PAGE>
 
Borrower, Holdings or any of their Subsidiaries in connection herewith,
including the Confidential Memorandum and the SEC Reports, contained (when taken
together, to the extent that any later document supersedes or supplements an
earlier document), as of its respective date, or now contains, any untrue
statement of a material fact or as of any such date omitted, or now omits, to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to the Borrower or Holdings
which now has or in the future could reasonably be expected to have (so far as
the Borrower or Holdings can reasonably foresee) a Material Adverse Effect other
than (i) facts with respect to economic conditions, generally and (ii) facts
that have been disclosed to the Purchasers in writing in connection with this
transaction.

     Section 4.14.  Offering of Securities.  None of Holdings, the Borrower,
any of their Subsidiaries or any of their representatives has, directly or
indirectly, offered any of the Notes or any security similar to any of them for
sale to, or solicited any offers to buy any of the Notes, the Subsidiary
Guarantees or any security similar to any of them from, or otherwise approached
or negotiated with respect thereto with, more than 44 Persons including you, and
none of Holdings, the Borrower, any of their Subsidiaries or any such
representative has taken or will take any action which would subject the
issuance or sale of any of the Notes to the registration requirements of Section
5 of the Securities Act or violate the provisions of any securities or Blue Sky
laws of any applicable jurisdiction.

     Section 4.15.  Broker's or Finder's Commissions.  Neither the Borrower,
Holdings nor any of their Subsidiaries has engaged any broker or finder other
than Bank of America NT & SA with respect to the issuance and sale of the Notes.
The Borrower and Holdings agree, jointly and severally, to indemnify you and
hold you harmless against any loss, cost, claim or liability (including, without
limitation, reasonable attorneys fees and disbursements for the investigation
and defense of claims) arising out of or relating to any claim for a fee or
commission by any such actual or alleged broker or finder.

     Section 4.16.  Labor Matters.  During the past five years there has been
no strike, work stoppage, slowdown or other labor dispute or grievance involving
Holdings or any of its Subsidiaries, or employees of any of such Persons, which
has had or could reasonably be expected to have a Material Adverse Effect, nor
to the knowledge of Holdings or the Borrower after due inquiry is any such
action, dispute or grievance currently pending or threatened against Holdings or
its Subsidiaries. Except as set forth on Schedule 4.16, none of Holdings or any
of its Subsidiaries is a party to any collective bargaining agreement and none
of them has any knowledge after due inquiry of any pending or threatened effort
to organize any employees of Holdings or any of its Subsidiaries. There are
currently no pending retaliatory or wrongful discharge claims or federal, state
or local employment discrimination charges or complaints or administrative or
judicial complaints arising therefrom pending against Holdings or any of its
Subsidiaries, or any employees of any of such Persons, which has had or could
reasonably be expected to have a Material Adverse Effect, nor to the knowledge
of the Borrower or Holdings after due inquiry are any such charges or complaints
threatened against Holdings or any of its Subsidiaries. The Borrower and its
Subsidiaries are in compliance with all applicable federal, state and local
statutes, laws, rules, ordinances, regulations, codes, licenses and orders
relating to the employment of

                                      -11-

<PAGE>
 
labor, including, without limitation, any provisions thereof relating to wages,
bonuses, collective bargaining agreements, equal pay, occupational safety and
health, equal employment opportunity and wrongful or retaliatory termination of
employment, except where non-compliance could not reasonably be expected to have
a Material Adverse Effect.

     Section 4.17.  Environmental Matters.  Except as disclosed in the SEC
Reports or on Schedule 4.17,
       
          (a) there is no Environmental Matter relating to Holdings or any of
its Subsidiaries or any Properties of any of such Persons, which could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, and Holdings and the Borrower are aware of no facts that could
reasonably be expected to result in any such Environmental Matter. Neither
Holdings nor any of its Subsidiaries has agreed to assume by contract with any
Person or consent order or other written agreement with a Governmental Body any
liability of any other Person for cleanup, compliance, or required capital
expenditures in connection with any Environmental Matter arising prior to the
date hereof and, to the best knowledge of Holdings and the Borrower, no such
liability has arisen by operation of law;
          
          (b) the Properties presently and, to the best knowledge of Holdings
and the Borrower, previously used, owned, leased, operated, managed or
controlled by Holdings or any of its Subsidiaries are free of contamination from
Hazardous Materials, including, without limitation, any contamination of the
associated air, soil, groundwater or surface waters, except for such instances
of contamination as could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
         
          (c) Holdings and its Subsidiaries are currently in compliance in all
material respects with all applicable Environmental Laws, are not currently in
receipt of any notice of violation, are not currently in receipt of any notice
of any potential liability for cleanup of Hazardous Materials and are not now
subject to any investigation known to Holdings or the Borrower, or information
request by a Governmental Body concerning Hazardous Materials or any
Environmental Laws. Holdings and its Subsidiaries hold and are in compliance in
all material respects with all governmental permits, licenses, and
authorizations necessary to operate their businesses that relate to siting,
wetlands, coastal zone management, air emissions, discharges to surface or
ground water, discharges to any sewer or septic system, noise emissions, solid
waste disposal or the generation, use, transportation or other management of
Hazardous Materials. Neither Holdings nor any of its Subsidiaries has generated,
manufactured, refined, recycled, discharged, emitted, released, buried,
processed, produced, reclaimed, stored, treated, transported, or disposed of any
Hazardous Materials except in compliance with all applicable laws and
regulations, including permit requirements (except for such instances of non-
compliance as could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect);

                                      -12-

<PAGE>
 
          (d) no Properties of Holdings or any of its Subsidiaries are subject
to any material Lien or claim for material Lien in favor of any Person as a
result of any Environmental Matter or response thereto;
         
          (e) no Hazardous Materials, including leachate and effluents,
generated, disposed of, transported, managed or released by Holdings or any of
its Subsidiaries have caused or are reasonably likely to cause in whole or in
part any contamination or injury to any Person, Property or the environment,
except for such contamination or injury as could not reasonably be expected to
have, individually, or in the aggregate, a Material Adverse Effect.  Neither
Holdings nor any of its Subsidiaries has handled, transported, disposed of or
managed any Hazardous Material in any manner that may reasonably be expected to
form the basis for any present or future claim, demand or action seeking cleanup
of any site, location, or body of water, surface or subsurface, except for such
claims, demands or actions as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, and none of them
has any material liabilities, absolute or contingent, on the date hereof with
respect thereto; and
         
         (f) to the best knowledge of Holdings and the Borrower, all facilities
where any Person has treated, stored, disposed of, reclaimed, or recycled any
Hazardous Material on behalf of Holdings or any of its Subsidiaries are in
compliance in all material respects with all applicable Environmental Laws.

     Section 4.18.  Margin Regulations.  None of Holdings or any of its
Subsidiaries owns or now intends to acquire any "margin stock" as defined in
Regulation G of the Board of Governors of the Federal Reserve System of the
United States (12 CFR 207). No part of the proceeds from the sale of the Notes
will be used, and no part of the proceeds of any loans repaid with the proceeds
from the sale of the Notes was used, directly or indirectly, for the purpose of
buying or carrying any margin stock within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System of the United States (12 CFR
207), or for the purpose of buying or carrying or trading in any securities
under such circumstances as to involve any of Holdings or any Subsidiary in a
violation of Regulation X of said Board (12 CFR 224) or to involve any broker or
dealer in a violation of Regulation T of said Board (12 CFR 220). Neither
Holdings, any of its Subsidiaries nor any agent acting on behalf of Holdings or
any such Subsidiary has taken or will take any action which might cause this
Agreement or the Notes to violate Regulation G, Regulation X, Regulation T or
any other regulation of the Board of Governors of the Federal Reserve System or
to violate the Exchange Act, in each case as in effect now or as the same may
hereafter be in effect. As used in this Section, the term "purpose of buying or
carrying" has the meaning assigned thereto in the aforesaid Regulation G.

     Section 4.19.  Compliance with ERISA.  (a) No Pension Plan which is
subject to Part 3 of Subtitle B of Title 1 of ERISA or Section 412 of the Code
had an accumulated funding deficiency (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year that such Pension Plan heretofore ended;

                                      -13-

<PAGE>
 
       (b) no liability to the PBGC (other than required insurance premiums,
all of which have been paid) has been incurred and is outstanding with respect
to any Pension Plan, and there has not been any Reportable Event, or any other
event or condition, which presents a material risk of involuntary termination of
any Pension Plan by the PBGC;
          
       (c) neither any Multiemployer Plan or Plan nor any trust created
thereunder, nor any trustee or administrator thereof, has, to the knowledge of
Holdings or the Borrower, engaged in a prohibited transaction (as such term is
defined in Section 4975 of the Code or Section 406 of ERISA) that could subject
Holdings or any of its Subsidiaries or ERISA Affiliates to any material tax or
penalty on prohibited transactions imposed under said Section 4975;
          
       (d) no material liability has been incurred and is outstanding with
respect to any Multiemployer Plan as a result of the complete or partial
withdrawal by Holdings or any of its Subsidiaries or ERISA Affiliates from such
Multiemployer Plan under Title IV of ERISA, nor has Holdings or any of its
Subsidiaries or ERISA Affiliates been notified by any Multiemployer Plan that
such Multiemployer Plan is currently in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such Multiemployer
Plan intends to terminate or has been terminated  under Section 4041A of ERISA;
          
       (e) Holdings and its Subsidiaries and ERISA Affiliates are in
compliance in all material respects with all applicable provisions of ERISA and
the Code and the regulations and published interpretations thereunder with
respect to all Plans and Multiemployer Plans;
          
       (f) as of the Closing Date, the actuarial present value of all benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) under all Pension Plans
that are subject to Title IV of ERISA did not exceed the fair market value of
the assets allocable to such liabilities, determined as if all such Plans were
terminated as of the Closing Date, and by using the Plans actuarial assumptions
as set forth in the most recent actuarial report pertaining to each Plan;
          
       (g) as of the Closing Date, none of Holdings, the Borrower or any of
their Subsidiaries or ERISA Affiliates is a party to a "multiple employer plan"
(as defined in 29 CFR 2530.210(c)(3)) or, except as set forth on Schedule 4.19,
a Multiemployer Plan.  With respect to the Multiemployer Plan listed on Schedule
4.19, as of the Closing Date, such Multiemployer Plan has no unfunded vested
benefits within the meaning of Section 4213(c) of ERISA for which Holdings, the
Borrower or any of their Subsidiaries or ERISA Affiliates is or could become
liable;
         
       (h) no event has occurred with respect to any Plan or with respect to
any other employee benefit pension plan (as defined in Section 3(2) of ERISA)
established or maintained at any time during the five-year period immediately
preceding the Closing Date for the benefit of employees of Holdings or any of
its Subsidiaries or ERISA Affiliates which presents a risk of material liability
of Holdings or any of its Subsidiaries or ERISA Affiliates under Section 4069 of
ERISA;

                                      -14-


<PAGE>
 
       (i) there are no material liabilities under the Plans that are employee
welfare benefit plans (as defined in Section 3(l) of ERISA) providing for
medical, health, life or other welfare benefits that are not insured by fully
paid non-assessable insurance policies, and no such Plan provides for continued
medical, health, life or other welfare benefits for employees after they leave
the employment of Holdings or any of its Subsidiaries or ERISA Affiliates (other
than any such welfare benefits required to be provided under the Consolidated
Omnibus Budget Reconciliation Act or other similar law); and

       (j) Schedule 4.19 contains a complete and accurate list of each of the
employee benefit plans (as defined in Section 3(3) of ERISA) with respect to
which the Borrower or Holdings or any of their respective Subsidiaries or ERISA
Affiliates is a "party in interest" as defined in Section 3 of ERISA or a
"disqualified person" as defined in Section 4975 of the Code.

     Section 4.20. Material Contracts. Each of the Material Contracts is valid,
subsisting and in full force and effect, and neither Holdings nor any of its
Subsidiaries is in breach or violation of the terms, conditions or provisions of
any of the Material Contracts to which it is a party which is reasonably likely
to have a Material Adverse Effect. On the Closing Date, neither Holdings nor any
of its Subsidiaries will be a party to any Material Contract or be subject to
any restriction contained in the charter or by-laws of any of them which has or
is reasonably likely to have a Material Adverse Effect.

     Section 4.21. Insurance. All policies of workers compensation, general
liability, fire, property, casualty, marine, business interruption, errors and
omissions, flood and other insurance carried by Holdings and its Subsidiaries
are in full force and effect on the date hereof, and neither Holdings nor any of
its Subsidiaries has received notice of cancellation with respect to any such
policy.

     Section 4.22. Status under Certain Laws. None of Holdings or any
Subsidiary of Holdings is an "investment company" or a "person directly or
indirectly controlled by or acting on behalf of an investment company" within
the meaning of 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," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.

     Section 4.23.  Intentionally Deleted.

     Section 4.24. Possession of Franchises, Licenses, Etc. Holdings and its
Subsidiaries possess all franchises, certificates, licenses, permits,
registrations, and other authorizations from national, state and local
governmental or regulatory authorities, free from unusually burdensome
restrictions, that are necessary for the ownership, maintenance and operation of
their respective Properties and assets, and for the conduct of their respective
businesses as now conducted and as described in the Confidential Memorandum, and
none of Holdings or any of its Subsidiaries is in violation of any thereof in
any material respect.

                                      -15-

<PAGE>
 
    Section 4.25. Franchises. Except as set forth on Schedule 4.25, each of
the Borrower's franchisees has entered into documents evidencing its franchising
arrangement with the Borrower (including the sublease, if any, from the Borrower
of the franchised premises) which, with respect to such arrangements initially
entered into prior to 1979 (or renewed, on substantially similar terms and
conditions since that date) were entered into (or renewed, as the case may be)
in accordance with all then applicable laws and regulations including, without
limitation, all applicable disclosure periods and waiting requirements and, with
respect to such arrangements entered into since 1979, are substantially in the
forms of the agreements attached as Exhibit G hereto which are substantially in
the same form as the exhibits to the Franchise Offering Circular for Prospective
Franchisees Required by the Federal Trade Commission as in effect on the date
such arrangements were entered into (the "Offering Circular") and such documents
have been entered into in accordance with all applicable laws and regulations,
including, without limitation, all applicable disclosure requirements and
waiting periods. All such franchising documents are in full force and effect and
neither Holdings nor the Borrower is aware of any breaches of any such documents
by the franchisees thereunder which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

    Section 4.26. Use of Proceeds. The proceeds from the sale and issuance of
the Notes will be used (i) to fund capital expenditures, (ii) to refinance
existing Debt of the Borrower, and (iii) for general corporate purposes.

    Section 4.27. Patents and Trademarks. Holdings and each Subsidiary own or
possess all the patents, trademarks, trade names, service marks, copyright,
licenses and rights with respect to the foregoing necessary for the present and
planned future conduct of their respective businesses, without any known
conflict with the rights of others.

    Section 4.28. Compliance with Laws. Neither Holdings nor any of its
Subsidiaries is in violation of any federal, state or local law, statute,
regulation, ordinance or rule which violation could reasonably be expected to
have a Material Adverse Effect.

    Section 4.29. Franchisees. Except as disclosed in the SEC Reports, during
the fiscal year ended December 31, 1995, no franchisee accounted for more than
10% of Holdings' consolidated revenues from sales of products or services or
royalties.

    Section 4.30. Other Agreements. Simultaneously with the execution and
delivery of this Agreement, the Borrower and Holdings are entering into the
Other Agreements, which are identical in all respects with this Agreement
(except for the respective principal amounts of Notes to be purchased) with the
other Purchasers named in Schedule I hereto. The purchases by you and said other
Purchasers are to be separate and several transactions.

    Section 4.31. Solvency. On the Closing Date, and after the payment of all
estimated legal, investment banking, accounting and other fees related hereto,
Holdings and each of its Subsidiaries will be Solvent.

                                      -16-

<PAGE>
 
     Section 4.32.  Foreign Assets Control Regulations.  Neither the sale of
the Notes by the Borrower hereunder nor the use of the proceeds thereof as
contemplated hereby will violate the Foreign Assets Control Regulations, the
Transaction Control Regulations, the Cuban Assets Control Regulations, the
Iranian Transactions Regulations, the Iranian Assets Control Regulations, the
Libyan Sanctions Regulations, the Iraqi Sanctions Regulations, or the Haitian
Transaction Regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended), or the restrictions on transactions with
Yugoslavia contained in Executive Orders 12808 and 12810, dated May 30, 1992 and
June 5, 1992, respectively .

Section 5.  Representation of Purchasers.

     You represent, and in making this sale to you it is specifically understood
and agreed, that:

     Section 5.1.  Authority.  You are authorized to enter into this Agreement
and to perform your obligations hereunder and to consummate the transactions
contemplated hereby.

     Section 5.2.  Investment Intent.  You represent, and in entering into this
Agreement the Company understands, that you are acquiring the Notes for the
purpose of investment and not with a view to the distribution thereof, and that
you have no present intention of selling, negotiating or otherwise disposing of
the Notes; provided that the disposition of your property shall at all times be
and remain within your control.

     Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act, the
Notes shall bear a legend in substantially the following form:

                       This Note Has Not Been Registered
                 under the Securities Act of 1933, as amended,
                       and May Not Be Sold or Otherwise
                      Transferred in the Absence of Such
                    Registration or an Exemption Therefrom.

     Section 5.3.  Source of Funds.  You represent that at least one of the
following statements concerning each source of funds to be used by you to
purchase the Notes is accurate as of the Closing Date:
         
         (a) the source of funds to be used by you to pay the purchase price of
     the Notes is an "insurance company general account" within the meaning of
     Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued
     July 12, 1995) and there is no employee benefit plan, treating as a single
     plan, all plans maintained by the same employer or employee organization,
     with respect to which the amount of the general account reserves and
     liabilities for all contracts held by or on behalf of such plan, exceed ten
     percent (10%) of the total reserves and liabilities of such general

                                      -17-

<PAGE>
 
     account (exclusive of separate account liabilities) plus surplus, as set
     forth in the NAIC Annual Statement filed with your state of domicile;

         (b) all or a part of such funds constitute assets of one or more
     separate accounts, trusts or a commingled pension trust maintained by you,
     and you have disclosed to the Company the names of such employee benefit
     plans whose assets in such separate account or accounts or pension trusts
     exceed 10% of the total assets or are expected to exceed 10% of the total
     assets of such account or accounts or trusts as of the date of such
     purchase (for the purpose of this clause (b), all employee benefit plans
     maintained by the same employer or employee organization are deemed to be a
     single plan);

         (c) all or part of such funds constitute assets of a bank collective
     investment fund maintained by you, and you have disclosed to the Company
     the names of such employee benefit plans whose assets in such collective
     investment fund exceed 10% of the total assets or are expected to exceed
     10% of the total assets of such fund as of the date of such purchase (for
     the purpose of this clause (c), all employee benefit plans maintained by
     the same employer or employee organization are deemed to be a single plan);

         (d) all or part of such funds constitute assets of one or more employee
     benefit plans, each of which has been identified to the Company in writing;

         (e) you are acquiring the Notes for the account of one or more pension
     funds, trust funds or agency accounts, each of which is a "governmental
     plan" as defined in Section 3(32) of ERISA;

         (f) the source of funds is an "investment fund" managed by a "qualified
     professional asset manager" or "QPAM" (as defined in Part V of PTE 84-14,
     issued March 13, 1984), provided that no other party to the transactions
     described in this Agreement and no "affiliate" of such other party (as
     defined in Section V(c) of PTE 84-14) has at this time, and during the
     immediately preceding one year has exercised the authority to appoint or
     terminate said QPAM as manager of the assets of any plan identified in
     writing pursuant to this clause (f) or to negotiate the terms of said QPAMs
     management agreement on behalf of any such identified plans; or

         (g) if you are other than an insurance company, all or a portion of
     such funds consists of funds which do not constitute "plan assets."

     The Company shall deliver a certificate on the Closing Date which
certificate shall either state that (i) it is neither a "party in interest" (as
defined in Title I, Section 3(14) of ERISA) nor a "disqualified person" (as
defined in Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended),
with respect to any plan identified pursuant to paragraphs (b), (c) or (d)
above, or (ii) with respect to any plan identified pursuant to paragraph (f)
above, neither it nor any "affiliate" (as defined in Section V(c) of PTE 84-14)
is described in the proviso to said paragraph (f). As used in this Section 5.3,
the terms

                                      -18-

<PAGE>
 
"separate account," "employer securities," and "employee benefit plan" shall
have the respective meanings assigned to them in ERISA and the term "plan
assets" shall have the meaning assigned to it in Department of Labor Regulation
29 C.F.R. (S)2510.3-101.

     Section 5.4. Investor Status. You are an "accredited investor" within the
meaning of Rule 501 under the Securities Act .

   
Section 6.  Conditions to Obligations of the Purchasers.

       Your obligation to purchase and pay for the Notes to be purchased by you
hereunder on the Closing Date shall be subject to the satisfaction, on or before
the Closing Date, of the following conditions:

     Section 6.1. Proceedings Satisfactory. All corporate and other proceedings
taken or to be taken by Holdings and its Subsidiaries in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to you and your special counsel,
and you and your special counsel shall have received all such counterpart
originals or certified or other copies of such documents as you or they may
reasonably request.

     Section 6.2. Opinion of Purchasers' Special Counsel. You shall have
received from Chapman and Cutler, who are acting as special counsel for you in
connection with this transaction, an opinion addressed to you and dated the
Closing Date, substantially in the form of Exhibit B. Such opinion shall also
cover such other matters incident to the matters herein contemplated as you may
reasonably request.

     Section 6.3. Opinion of Counsel to the Borrower and Holdings. You shall
have received from Skadden, Arps, Slate, Meagher & Flom, special counsel to the
Borrower, Holdings and the Subsidiary Guarantors, and Mark D. Weisberger,
General Counsel to the Borrower, Holdings and the Subsidiary Guarantors, legal
opinions addressed to you and dated the Closing Date. Such opinions shall cover
the matters set forth in the form of legal opinion attached hereto as Exhibit C,
and shall also cover such other matters incident to the matters herein
contemplated as you may reasonably request.

     Section 6.4. Representations and Warranties True, Etc.; Certificates. The
representations and warranties contained in Section 4 of this Agreement shall be
true on and as of the Closing Date with the same effect as if such
representations and warranties had been made on and as of the Closing Date. The
Borrower shall have performed all agreements on its part required to be
performed under this Agreement prior to the Closing Date; there shall exist on
the Closing Date no Default or Event of Default; the Borrower and Holdings shall
have delivered to you an Officers Certificate, dated the Closing Date, to the
effect of the foregoing clauses of this Section 6.4, and Sections 6.5, 6.6 and
6.7, and certifying that, on the Closing Date, giving effect to the transactions
contemplated by this Agreement and the Other Agreements, the Borrower and its
Subsidiaries could incur $1.00 of additional Debt pursuant to Section 11.2(c);
and you shall have received such certificates or other evidence

                                      -19-

<PAGE>
 
as you may request to establish that the proceeds of the sale of the Notes on
the Closing Date will be applied as contemplated by Section 4.26.

     Section 6.5. Absence of Material Adverse Change, Etc. Since December 31,
1995, no change or changes shall have occurred to the business, operations,
Properties, assets, income, prospects or condition, financial or otherwise, of
Holdings and its Subsidiaries, taken as a whole, which you reasonably believe in
good faith to constitute a Material Adverse Effect. 

     Section 6.6. Consents and Approvals. All necessary consents, approvals and
authorizations of, and declarations, registrations and filings with,
Governmental Bodies and nongovernmental Persons required in order to consummate
the transactions contemplated herein shall have been obtained or made and shall
be in full force and effect except for declarations, registrations or filings
with Governmental Bodies which, in accordance with law, are to be made following
the Closing Date.

     Section 6.7. Absence of Litigation, Orders, Etc. Except as disclosed on
Schedule 4.7 attached hereto, there shall not be pending or, to the knowledge of
Holdings or the Borrower after due inquiry, threatened, any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
of Holdings or its Subsidiaries or their respective assets or Property (and, as
to any action, suit, proceeding, governmental investigation or arbitration so
disclosed, there shall not have occurred since the date of this Agreement any
development) which seeks to enjoin or restrain any of the transactions
contemplated herein or which you reasonably believe in good faith could have a
Material Adverse Effect. No Order of any court, arbitrator or Governmental Body
shall be in effect which purports to enjoin or restrain any of the transactions
contemplated herein or which you reasonably believe in good faith to constitute
a Material Adverse Effect.

     Section 6.8. Other Purchasers. The other Purchasers referred to in Section
1 shall have purchased and made payment for the Notes to be purchased by them
pursuant to the Other Agreements referred to in said Section.

     Section 6.9. Legal Investment. Your purchase of and payment for the Notes
to be purchased by you hereunder on the Closing Date shall be permitted by the
laws and regulations of the jurisdictions to which you are subject, including
without limitation all applicable laws and regulations regulating investments
for life insurance companies (without reference to any "basket" or "leeway"
provision which permits the making of an investment without restriction as to
the character of the particular investment being made); and you shall have
received such certificates or other evidence as you may request to establish
compliance with this condition.

     Section 6.10.  Amendments to Outstanding Debt Agreements.  You shall have
received on or prior to the Closing Date all amendments or waivers to the
outstanding Debt agreements of the Borrower which are necessary to permit the
compliance by the Borrower with the closing conditions set forth in this Section
6 as of the Closing Date in form and substance reasonably satisfactory to you.

                                      -20-

<PAGE>
 
     Section 6.11. Fees. The fees and out-of-pocket expenses and disbursements
incurred by Chapman and Cutler in connection with the preparation of this
Agreement and the transactions contemplated hereby shall be paid in full on the
Closing Date.

     Section 6.12. PPN Number. You shall have been supplied with a private
placement number for the Notes from Standard and Poor's Corporation.

     Section 6.13. Subsidiary Guarantees. IHOP Realty, IHOP Properties and IHOP
Restaurants shall have each executed and delivered a Subsidiary Guarantee.

     Section 6.14. Intercreditor Agreement. An Intercreditor Agreement in the
form of Exhibit H attached hereto shall have been duly executed and delivered by
the parties thereto and shall be in full force and effect and you shall have
received a true, correct, and complete copy thereof.

     Section 6.15.  Corporate Status and Documentation.
          
       (a) Certificates of Incorporation.  You shall have received true and
correct copies of the Certificates of Incorporation of Holdings, the Borrower
and the Subsidiary Guarantors, together with all amendments thereto, certified
as of a recent date by the Secretary of State of the jurisdiction of
incorporation of each such Person.

       (b) Secretarys Certificate.  You shall have received certificates
dated the Closing Date of the Secretary or an Assistant Secretary of each of
Holdings, the Borrower and the Subsidiary Guarantors, duly certifying that:
          
           (i) attached thereto is a true, complete and correct copy of the by-
       laws of such Person, which have been in full force and effect since the
       date specified in such certificate and to which no amendments or
       modifications have been made since such date;

          (ii) attached thereto is an incumbency certificate, in a format
       satisfactory to the Purchasers, duly executed by the Secretary or an
       Assistant Secretary and those other officers of such Person who have
       executed documents and agreements in connection with the transactions
       hereby contemplated; and

         (iii) attached thereto are true and correct copies of the resolutions,
       in form and substance satisfactory to the Purchasers, adopted by the
       Board of Directors or authorized Executive Committee of such Person (with
       evidence of such authorization), evidencing, with respect to such Person,
       approval of the transactions contemplated by this Agreement, the Other
       Agreements, the Notes, the Subsidiary Guarantees and the other documents
       and instruments executed and delivered in connection therewith or
       pursuant thereto, and authorizing the appropriate officers of such Person
       to negotiate the form of, and to execute and deliver, this Agreement, the
       Other Agreements, the Notes, the Subsidiary Guarantees and such other
       documents and instruments (in each 

                                      -21-

<PAGE>
 
       case to the extent such Person is a party thereto), with such
       modifications as such authorized officers shall approve.

     (c) Good Standing Certificates.  You shall have received a certificate
of recent date of the Secretary of State or other appropriate official of the
jurisdiction of incorporation of Holdings, the Borrower and the Subsidiary
Guarantors certifying that each such Person is in good standing in its
jurisdiction of incorporation.  You shall also have received certificates of
recent date of the appropriate governmental officials in the jurisdiction in
which Holdings, the Borrower or the Subsidiary Guarantors conducts the material
portion of its business as a foreign corporation or owns a material portion of
assets certifying that the Borrower, Holdings or the Subsidiary Guarantors, as
the case may be, is in good standing as a foreign corporation in such
jurisdiction, except where the failure to so qualify would not have a Material
Adverse Effect.

Section 7.  Conditions to Obligations of the Borrower.

        The Borrower's obligation to issue and sell the Notes to be sold by it
hereunder on the Closing Date shall be subject to the satisfaction, on or before
the Closing Date, of the following conditions:

     Section 7.1. Representations and Warranties True, Etc. The representations
and warranties contained in Section 5 of this Agreement shall be true on and as
of the Closing Date with the same effect as if such representations and
warranties had been made on and as of the Closing Date.

     Section 7.2. Absence of Litigation, Orders, Etc. There shall not be
pending or, to the knowledge of Holdings or the Borrower after due inquiry,
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting any of Holdings or its Subsidiaries or their
respective assets or Property which seeks to enjoin or restrain any of the
transactions contemplated herein. No Order of any court, arbitrator or
Governmental Body shall be in effect which purports to enjoin or restrain any of
the transactions contemplated herein.

     Section 7.3. Other Purchasers. Notes representing no less than $30 million
of initial principal amount shall have been purchased by the Purchaser and
Purchasers purchasing Notes pursuant to the Other Agreements on the Closing
Date.

Section 8.  Financial Statements and Information.

        The Borrower and Holdings will furnish to you and to any of your
Purchaser Affiliates, so long as you or such Purchaser Affiliate shall be
obligated to purchase or shall hold any Notes, and to each other institutional
holder of any Notes (such a holder in any such case being hereinafter called an
"Eligible Holder"), in duplicate:

                                      -22-

<PAGE>
 
   (A) as soon as available and in any event within 45 days after the end
of each of the first three quarterly accounting periods in each fiscal year of
Holdings ("quarterly accounting period"),

          (1) either (a) copies of Holdings' Quarterly Report on Form l0-Q for
     the quarterly accounting period then ended, as filed with the SEC or (b) if
     Holdings is not subject to Section 13 or 15(d) of the Exchange Act, copies
     of the consolidated balance sheet of Holdings and its Subsidiaries as of
     the end of the quarterly accounting period and of the related consolidated
     statements of operations, shareholders equity and cash flows for such
     accounting period, all in reasonable detail and stating in comparative form
     the consolidated figures as of the end of and for the corresponding date
     and period in the previous fiscal year, all Certified by an Appropriate
     Officer of Holdings; and

          (2) a written statement in the form of Exhibit F-1 hereto executed by
     Appropriate Officers of Holdings and the Borrower setting forth
     computations or other pertinent information in reasonable detail showing as
     at the end of such quarterly accounting period (a) whether or not the
     financial covenants set forth in Sections 11.2 through 11.8 hereof,
     inclusive, have been met, accompanied by calculations setting forth the
     maximum amount of Funded Debt that could have been incurred pursuant to
     Sections 11.2(B) and 11.2(C) hereof, and the maximum amount of dividends or
     distributions that could have been declared or paid pursuant to Section
     11.5 hereof, and (b) whether or not Liens on Property or assets of Holdings
     or its Subsidiaries or securing Debt of Holdings or its Subsidiaries, as
     the case may be, exceed the threshold set forth in Section 11.1(I) hereof,
     accompanied by calculations setting forth the maximum amount of additional
     Funded Debt secured by Liens that could have been incurred under Section
     11.1(I) hereof (a "Quarterly Compliance Statement");
     
     (B) as soon as available and in any event within 90 days after the end of
each fiscal year of Holdings,

          (1) either (a) copies of Holdings' Annual Report on Form 10-K and
     Annual Report to Shareholders, in each case, for the year then ended and as
     filed with the SEC together with copies of the consolidating balance sheets
     of Holdings and its Subsidiaries as of the end of such fiscal year and the
     related consolidating statements of operations, or (b) if Holdings is not
     subject to Section 13 or 15(d) of the Exchange Act, copies of the
     consolidated and consolidating balance sheets of Holdings and its
     Subsidiaries as of the end of such fiscal year, and of the related
     consolidated and consolidating statements of operations and the related
     consolidated statements of shareholders' equity and cash flows, together
     with the notes to such consolidated statements, which consolidated
     statements state in comparative form the respective consolidated figures as
     of the end of and for the previous fiscal year, and in the case of such
     consolidated financial statements referred to in subclauses (a) or (b),
     accompanied by a report thereon of Coopers & Lybrand or other independent

                                      -23-

<PAGE>
 
     public accountants of recognized national standing selected by Holdings
     (the "Accountants"), which report shall be unqualified as to going concern
     and scope of audit and shall state that such consolidated financial
     statements present fairly the consolidated financial position of Holdings
     and its Subsidiaries as at the end of such fiscal year and the consolidated
     results of operations and cash flow for such fiscal year in conformity with
     GAAP, and that the examination by the Accountants in connection with such
     consolidated financial statements has been made in accordance with
     generally accepted auditing standards. Together with each delivery of
     financial statements or Annual Reports required by this subparagraph (1),
     the Accountants shall deliver to Holdings or the Borrower (which recipient
     shall deliver the same to each Purchaser, Purchaser Affiliate and Eligible
     Holder) their report (on which the Purchasers, Purchaser Affiliates and
     Eligible Holders shall be entitled to rely) stating that, in making the
     audit necessary to the certification of such financial statements, they
     have obtained no knowledge of any Default or Event of Default or, if any
     such Default or Event of Default has occurred, specifying the nature and
     period of existence thereof; and
              
          (2) a Quarterly Compliance Statement.
          
     (C) concurrently with the financial statements or reports furnished
pursuant to Subsections A and B of this Section 8, a certificate of Appropriate
Officers of the Borrower and Holdings in the form of Exhibit F2, stating that,
based upon such examination or investigation and review of this Agreement as in
the opinion of the signer is necessary to enable the signer to express an
informed opinion with respect thereto, no Default or Event of Default by
Holdings, the Borrower or any of their Subsidiaries in the fulfillment of any of
the terms, covenants, provisions or conditions of this Agreement exists or has
existed during such period or, if such a Default or Event of Default shall exist
or have existed, the nature and period of existence thereof and what action
Holdings, the Borrower or such Subsidiary, as the case may be, has taken, is
taking or proposes to take with respect thereto;
          
     (D) promptly after the same are available and in any event within 15 days
thereof, copies of all such proxy statements, financial statements, notices and
reports as Holdings or any of its Subsidiaries shall send or make available
generally to any of their security holders, and copies of all regular and
periodic reports and of all registration statements which Holdings or any of its
Subsidiaries may file with the SEC or with any securities exchange;
          
     (E) promptly (and in any event within 5 days) after becoming aware of (1)
the existence of any Default or Event of Default, a certificate of Appropriate
Officers of Holdings and the Borrower specifying the nature and period of
existence thereof and what action the Borrower or Holdings is taking or proposes
to take with respect thereto; or (2) any Debt of Holdings, the Borrower or any
Subsidiary being declared due and payable before its expressed maturity,

                                      -24-

<PAGE>
 
because of the occurrence of any default (or any event which, with notice and/or
the lapse of time shall constitute any such default) under such Debt or the
agreement pursuant to which such Debt was issued, a certificate of an
Appropriate Officer describing the nature and status of such letters and what
action Holdings or such Subsidiary is taking or proposes to take with respect
thereto; provided, however, that any Default or Event of Default which is deemed
to have arisen upon Holdings or the Borrower's failure to promptly notify the
Purchasers of another Default or Event of Default in accordance with this
Section 8(E) shall be deemed to be waived so long as (i) such underlying Default
or Event of Default as to which notice is required to be given (the "Underlying
Default") has been completely cured; (ii) the Underlying Default, if it had not
been completely cured, would not have had a Material Adverse Effect and (iii)
notice of the Underlying Default is delivered within 30 days of its occurrence;

          (F) promptly and in any event within 10 days after Holdings or the
Borrower knows or, in the case of a Pension Plan has reason to know, that a
Reportable Event with respect to any Pension Plan has occurred, that any Pension
Plan or Multiemployer Plan is or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA, or that Holdings or any of its
Subsidiaries or ERISA Affiliates will or may incur any material liability to or
on account of a Pension Plan or Multiemployer Plan under Title IV of ERISA or
any other material liability under ERISA has been asserted against Holdings or
any of its Subsidiaries or ERISA Affiliates, a certificate of an Appropriate
Officer of Holdings setting forth information as to such occurrence and what
action, if any, Holdings or such Subsidiary or ERISA Affiliate is required or
proposes to take with respect thereto, together with any notices concerning such
occurrences which are (a) required to be filed by Holdings or such Subsidiary or
ERISA Affiliate or the plan administrator of any such Pension Plan controlled by
Holdings or such Subsidiary or ERISA Affiliate with the Internal Revenue Service
or the PBGC, or (b) received by Holdings or such Subsidiary or ERISA Affiliate
from any plan administrator of a Pension Plan not under their control or from a
Multiemployer Plan;
          
          (G) promptly after the Borrower or Holdings becomes aware of any
Material Adverse Effect with respect to which notice is not otherwise required
to be given pursuant to this Section 8, a certificate of an Appropriate Officer
setting forth the details of such Material Adverse Effect and stating what
action Holdings, the Borrower or any of their respective Subsidiaries has taken
or proposes to take with respect thereto;
          
          (H) promptly (and in any event within 15 days) after the Borrower or
Holdings knows of (a) the institution of, or threat of, any action, suit,
proceeding, governmental investigation or arbitration against or affecting
Holdings or any of its Subsidiaries or any Property of any of them, or (b) any
material development in any such action, suit, proceeding, governmental
investigation or arbitration, which, in either case, is likely to have a
Material Adverse Effect, a certificate of an Appropriate Officer describing the
nature and status of such matter in reasonable detail;

                                      -25-

<PAGE>
 
          (I) in the event that Borrower is no longer a consolidated Subsidiary
of Holdings, financial statements of Borrower and its consolidated Subsidiaries
at such times and in such form (together with such certifications) as are
required to be delivered pursuant to Sections 8(A), (B) and (C);
          
          (J) to the extent prepared, not later than 90 days following the end
of each fiscal year of Holdings, a copy of the consolidated budget of Holdings
and its Subsidiaries prepared by Holdings for the next succeeding fiscal year;
and
          
          (K) any other information, including financial statements and
computations, relating to the performance of obligations arising under this
Agreement and/or the affairs of Holdings, the Borrower or any of their
Subsidiaries that the Purchaser or any other Eligible Holder may from time to
time reasonably request and which is capable of being obtained, produced or
generated by Holdings, the Borrower or such Subsidiary or of which any of them
has knowledge, including, without limitation, a brief statement describing any
significant events relating to Holdings, the Borrower and their Subsidiaries for
any fiscal period.

       It is further understood and agreed that, for the purpose of effecting
compliance with Rule 144A promulgated by the SEC in connection with any resales
of Notes that may hereafter be effected pursuant to the provisions of such Rule,
if Holdings is not subject to Section 13 or 15(d) of the Exchange Act, each
prospective purchaser of Notes designated by a holder thereof shall have the
right to obtain from Holdings and the Borrower, upon the written request of such
holder, the information required pursuant to Rule 144A(d)(4) under the
Securities Act.

       Each of Holdings and the Borrower will keep at its principal executive
office a true copy of this Agreement, and cause the same to be available for
inspection at said offices during normal business hours by any holder of any of
the Notes or any prospective purchaser of any thereof designated by the holder
thereof.

Section 9.  Inspection of Properties and Books

        Each of the Borrower and Holdings agrees that you or any Qualified
Holder who agrees to abide by the confidentiality requirement set forth below in
this Section may, so long as you or such Qualified Holder owns any Notes, after
giving reasonable notice to Holdings and the Borrower, visit at your or its own
expense the offices and Properties of Holdings, the Borrower or any of their
Subsidiaries, and may examine and make copies of the relevant books and records,
and discuss the affairs, finances and accounts of such companies with their
officers and public accountants (and by this provision the Borrower and each
Subsidiary hereby authorizes said accountants to discuss with you or such
Qualified Holder its affairs, finances and accounts) all at reasonable times
during normal business hours as often as you or it may reasonably desire.

        At any time when a Default or an Event of Default shall have occurred
and be continuing, the Borrower shall be required to pay or reimburse you or any
such Qualified 

                                      -26-

<PAGE>
 
Holder for expenses which you or such Qualified Holder may reasonably incur in
connection with any such visitation or inspection.

        You and any other Qualified Holder shall use such information only for
your own purposes, shall keep it confidential and shall not disclose it to any
third person (other than a Purchaser Affiliate or an affiliate of a Qualified
Holder or accountants engaged by you or such Qualified Holder), except for
disclosures to: (i) such Qualified Holders or Purchaser Affiliates directors,
trustees, partners, officers, employees, agents and professional consultants,
(ii) any other Noteholder, (iii) any Person to which such Qualified Holder
offers to sell such Note or any part thereof, (iv) any Person to which such
Qualified Holder sells or offers to sell a participation in all or any part of
such Note, (v) any Person from which such Qualified Holder offers to purchase
any security of the Borrower, (vi) any federal, state or Canadian provincial
regulatory authority having jurisdiction over such Qualified Holder, (vii) the
National Association of Insurance Commissioners or any similar organization,
(viii) any nationally recognized financial rating service that is rating or
reviewing the rating of the Notes or (ix) any other Person to which such
delivery or disclosure may be necessary or appropriate (a) in compliance with
any law, rule, regulation or order applicable to such Qualified Holder, (b) in
response to any subpoena or other legal process or informal investigative
demand, (c) in connection with any litigation to which such Qualified Holder is
a party, or (d) to protect such Qualified Holders investment in the Notes;
provided, however, that, (1) prior to any disclosure of any such information to
any Person described in clause (iii), (iv) or (v) above, such Person agrees to
keep any non-public information so delivered to it confidential or (2) if you
(or such Qualified Holder) are required to disclose any such information in
connection with judicial or governmental proceedings, you (or such Qualified
Holder) shall provide the Borrower and Holdings with prompt prior notice of such
requirement. Any bona fide transferee of any Note (or any participant in your
interest in the Notes), by its acceptance thereof, shall be bound by the
provisions of this Section 9 to the same extent as you are bound.

Section 10.  Affirmative Covenants

        The Borrower and Holdings covenant and agree that so long as any of the
Notes shall be outstanding:

     Section 10.1.  Payment of Principal, Prepayment Charge and Interest, Etc.
The Borrower will duly and punctually pay the principal of, prepayment charge
(if any) and interest on the Notes in accordance with the terms of such Notes
and this Agreement. The Borrower and Holdings will comply with all of the
covenants, agreements and conditions contained in this Agreement.

     Section 10.2.  Payment of Taxes and Claims.  Holdings and the Borrower
will, and will cause each of their respective Subsidiaries to, pay before they
become delinquent:
   
          (A) all taxes (including excise taxes), assessments and governmental
charges or levies imposed upon it or its income or profits or upon its Property,
real, personal or mixed, or upon any part thereof;

                                      -27-

<PAGE>
 
          (B) all claims for labor, materials and supplies which, if unpaid,
might result in the creation of a Lien upon its Property; and

          (C) all claims, assessments, or levies required to be paid by any of
them pursuant to any agreement, contract, law, ordinance or governmental rule or
regulation governing any pension, retirement, profit-sharing or any similar
plan; provided, that the taxes, assessments, charges and levies described in
this Section 10.2 need not be paid while being diligently contested in good
faith and by appropriate proceedings so long as adequate book reserves have been
established with respect thereto in accordance with GAAP.  The Borrower and
Holdings will timely file, and will cause their Subsidiaries to file, all tax
returns required to be filed in connection with the payment of taxes required by
this Section 10.2.

     Section 10.3.  Maintenance of Properties and Corporate Existence. Holdings
and the Borrower will, and will cause each of their respective Subsidiaries to:
   
          (A) maintain its Property in good condition and make all renewals,
repairs, replacements, additions, betterments, and improvements thereto as are
necessary in the reasonable opinion of management;
          
          (B) keep books, records and accounts in accordance with GAAP;
      
          (C) do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights and powers and
franchises including, without limitation thereof, any necessary qualification or
licensing in any foreign jurisdiction; and
      
          (D) comply with all applicable statutes, regulations, franchises, and
orders of, and all applicable restrictions imposed by, any Governmental Body
(all as now or at any time hereafter may be in effect), in respect of the
conduct of its business and the ownership of its Properties (including, without
limitation, applicable statutes, rules, ordinances, regulations and Orders
relating to Environmental Laws), except where non-compliance could not
reasonably be expected to have a Material Adverse Effect.

    Section 10.4. Insurance. Holdings and the Borrower will maintain, and will
cause to be maintained on behalf of each Subsidiary, insurance coverage by
financially sound and reputable insurers, against such casualties and
contingencies, of such types (including without limitation public liability,
workmens compensation, larceny and embezzlement or other criminal
misappropriation insurance) and in such amounts as are prudent, and in any event
in such amounts as are adequate to cover foreseeable losses to the business of
Holdings, the Borrower and their Subsidiaries. The Borrower or Holdings shall
furnish to the Purchasers on or prior to the Closing Date a summary of insurance
presently in force in a separate letter.

                                      -28-

<PAGE>
 
Section 11.  Negative and Maintenance Covenants

     The provisions of this Section 11 shall remain in effect so long as any
Notes shall remain outstanding.

     Section 11.1. Restrictions on Liens. Holdings and the Borrower covenant
that they will not, nor will they permit any Subsidiary to, directly or
indirectly, create, assume or suffer to exist any Lien upon any of their
respective Properties or assets whether now owned or hereafter acquired, except
for :

          (A) Liens for taxes, assessments or governmental charges or claims the
    payment of which is not at the time required by Section 10.2;
    
          (B) Statutory Liens of landlords, and Liens of carriers, warehousemen,
    mechanics, materialmen and other Liens imposed by law incurred in the
    ordinary course of business for sums not yet delinquent or being diligently
    contested in good faith, so long as a reserve or other appropriate
    provision, if any, shall have been made therefore;
    
          (C) Liens (other than any Lien imposed by ERISA) incurred or deposits
    made in the ordinary course of business in connection with obligations not
    due or delinquent with respect to workers compensation, unemployment
    insurance and other types of social security, or to secure the performance
    of tenders, statutory obligations, surety and appeal bonds, bids, leases,
    government contracts, performance and return-of-money bonds and other
    similar obligations (exclusive of obligations for the payment of borrowed
    money);
    
          (D) Any attachment or judgment Lien (including judgment or appeal
    bonds) which shall, within 30 days after the entry thereof, have been
    discharged or execution thereof stayed pending appeal, or which shall have
    been discharged within 30 days after the expiration of any such stay, or
    which is being diligently contested in good faith so long as a reserve or
    other appropriate provision, if any, as shall be required by GAAP shall have
    been made therefore; 

          (E) Easements, rights-of-way, restrictions and other similar rights in
    land which do not, individually or in the aggregate, materially detract from
    the value of such Property and do not interfere with the ordinary conduct of
    the business of Holdings, the Borrower or any of their Subsidiaries;
              
          (F) Liens securing Debt of a Subsidiary to the Borrower or Holdings;
    
          (G) Liens (other than Liens created pursuant to Capitalized Leases)
    existing on the date hereof and described in Schedule 4.8 attached hereto,
    securing Debt not exceeding $1,500,000 in the aggregate in principal amount;

                                      -29-

<PAGE>
 
          (H) Liens pursuant to Capitalized Leases existing on the Closing Date
    and Liens created following the Closing Date pursuant to Capitalized Leases
    so long as, with respect to Liens pursuant to Capitalized Leases created
    following the Closing Date, the Funded Debt represented by such Capitalized
    Leases is permitted pursuant to Section 11.2(C); and
    
          (I) Liens including Liens arising out of purchase money financing not
    otherwise permitted by the foregoing clauses of this Section 11.1 securing
    Debt (without duplication) of Holdings, the Borrower or any Subsidiary of
    Holdings or the Borrower, provided that the sum of (i) the principal amount
    of such Debt plus (ii) unsecured Debt (other than Additional Permitted
    Guarantees) of Subsidiaries of Holdings (other than the Borrower) and
    Subsidiaries of the Borrower not otherwise permitted under Section 11.4(A)
    does not exceed at any time 15% of Consolidated Tangible Net Worth.

The Liens referred to in Section 11.1(A) through (I) are herein collectively
referred to as "Permitted Liens," individually, a "Permitted Lien."

     Section 11.2.  Limitation on Funded Debt.  Holdings and the Borrower shall
not, and shall not permit (except to the extent permitted in Section 11.4) any
Subsidiary to, incur Funded Debt other than:
          
          (A) the Notes, the Guarantee of Holdings as set forth herein and the
    Subsidiary Guarantees and all Funded Debt of Holdings, the Borrower and
    their Subsidiaries existing as of the Closing Date, as set forth on Schedule
    4.8 attached hereto;

          (B) any replacement, refinancing or extension of any Funded Debt,
    provided that the aggregate principal amount of such Funded Debt (or, if
    such Funded Debt is issued with an original issue discount, the original
    issue price of such Funded Debt) does not exceed the then outstanding
    principal amount of the Funded Debt so replaced, refinanced or extended (or,
    if the Funded Debt being replaced, refinanced or extended was issued with an
    original issue discount, the original issue price plus the amortized portion
    of the original issue discount to the date that such Funded Debt is
    replaced, refinanced or extended); and

          (C) Additional Funded Debt of Holdings, the Borrower and their
    Subsidiaries, provided that after giving effect to such incurrence
    (including payment of interest and principal following such incurrence) and
    to the application of any proceeds thereof (i) the ratio of Consolidated
    Income Available for Fixed Charges to Fixed Charges would be not less than
    that ratio required to be maintained pursuant to Section 11.8 and (ii) the
    aggregate consolidated Funded Debt (without duplication) of Holdings, the
    Borrower and their Subsidiaries would not exceed 50% of Total
    Capitalization, measured in each case on a pro forma basis as of the most
    recently ended fiscal quarter as if such incurrence had occurred on the last
    day of such fiscal quarter.

                                      -30-

<PAGE>
 
     Section 11.3. Consolidated Tangible Net Worth. Holdings and its
Subsidiaries shall not permit Consolidated Tangible Net Worth at any time to be
less than the sum of $66,843,000 plus 50% of Consolidated Net Income (but only
if a positive number) on a cumulative basis from June 30, 1996, to and including
any date of determination hereunder.

     Section 11.4. Limitation on Debt of Subsidiaries. Holdings and the
Borrower shall not permit any of their Subsidiaries (other than the Borrower) to
incur any Debt other than:

          (A) Debt owed to Holdings or the Borrower or to a wholly-owned
Subsidiary of Holdings or the Borrower in each case by a direct or indirect
wholly-owned Subsidiary of the creditor thereunder; and

          (B) additional Debt (other than Additional Permitted Subsidiary
Guarantees), provided that the sum of the aggregate principal amount of such
Debt plus the aggregate principal amount of all other Debt (without duplication)
of Holdings, the Borrower and any of their Subsidiaries which is secured by
Liens not permitted by Sections 11.1(A) through (H) does not exceed 15% of
Consolidated Tangible Net Worth.

     Section 11.5. Restricted Payments; Restricted Investments. Holdings will
not, directly or indirectly, through any Subsidiary or otherwise, (a) pay or
declare any dividend on any class of its capital stock (but may declare and pay
dividends payable solely in capital stock or warrants, rights or options to
acquire capital stock) or make any other distribution on account of any class of
its capital stock; retire, redeem, purchase or otherwise acquire, directly or
indirectly, any shares of any class of its capital stock or any warrants, rights
or options to acquire any such shares (other than any such redemption,
retirement, purchase or other acquisition in which the consideration paid by
Holdings or such Subsidiary consists solely of shares of capital stock of
Holdings); or make or provide for any mandatory sinking fund payments required
in connection with any class of its capital stock (all of the foregoing being
called "Restricted Payments") or (b) make any Restricted Investment, unless
after giving effect to any Restricted Payment or Restricted Investment the
cumulative aggregate amount of all Restricted Payments and Restricted
Investments made by Holdings and its Subsidiaries after June 30, 1996 would not
exceed the sum of: (i) $28,843,000 plus (ii) 50% of cumulative Consolidated Net
Income from June 30, 1996 through the date of determination (or if Holdings and
its Subsidiaries on a consolidated basis have a cumulative Consolidated Net Loss
for such period, then minus 100% of such Consolidated Net Loss), plus (iii) the
net proceeds from the issuance or sale of any shares of any class of equity
securities of Holdings which are not mandatorily redeemable or otherwise subject
to repurchase, retirement, call, put or other reacquisition prior to or on the
maturity date of the Notes (and not subject to acceleration or redemption
repurchase, retirement, call, put or other reacquisition prior to the maturity
date of the Notes) received after June 30, 1996; provided that at the time of
any such Restricted Payment or Restricted Investment, both immediately before
and immediately after giving effect thereto, (a) no Default or Event of Default
shall have occurred and be continuing, and (b) Holdings, the Borrower and their
Subsidiaries shall be able to incur, pursuant to Section 11.2(C)(ii) above, at
least $1 of additional Funded Debt. So long as no Default or Event of Default
has occurred or would

                                      -31-

<PAGE>
 
be continuing after giving effect thereto, this Section 11.5 shall not prevent
(a) the payment of any dividend within 60 days after the date of its declaration
if the dividend would have been permitted on the date of its declaration, or (b)
the acquisition, repurchase, retirement, call, put or redemption of any shares
of capital stock of Holdings out of the proceeds of the substantially concurrent
sale (other than to a Subsidiary of Holdings) of, shares of capital stock of
Holdings, provided that any such acquisition, repurchase, retirement, call, put
or redemption shall be deemed to be a Restricted Payment for the purpose of
determining the ability of Holdings and its Subsidiaries to make future
Restricted Payments.

     Section 11.6. Sale of Assets. Holdings and the Borrower shall not, and
shall not permit any of their Subsidiaries to, effect a Disposition of any
assets unless (i) no Default or Event of Default has occurred (except in the
case of subclause (a) below) and is continuing, and (ii) one of the following
applies:

             (a) such Disposition is in the ordinary course of business,
     including, without limitation, (i) sales and leases of operating
     restaurants and (ii) financings in connection with asset securitization
     programs, each in accordance with the Borrower's ordinary course
     franchising or financing operations and made pursuant to the reasonable
     business judgment of the Borrower in accordance with past practice;

             (b) in each fiscal year, Holdings, the Borrower and their
     respective Subsidiaries may effect Dispositions (other than Qualifying
     Dispositions of Excepted Properties) of assets for Fair Market Value and
     which (A) have an aggregate Book Value, together with all other assets
     disposed of in that fiscal year (other than Dispositions permitted by
     clause (a), (c) or (d) of this Section 11.6), of less than 10% of Gross
     Assets on a consolidated basis determined as at the date of such sale; (B)
     generate, together with all other assets disposed of in that fiscal year
     (other than Dispositions permitted by clause (a), (c) or (d) of this
     Section 11.6), net income, which is less than 10% of the Consolidated Net
     Income (in each case, determined as of the end of the immediately preceding
     fiscal year); and (C) together with all assets previously disposed of since
     September 30, 1996 (other than Dispositions permitted by clause (a), (c) or
     (d) of this Section 11.6), have an aggregate Book Value of less than 25% of
     Gross Assets on a consolidated basis determined as at the date of such
     sale, provided that after giving effect to any Disposition described in
     this subsection (b), Holdings, the Borrower or any of their Subsidiaries
     could incur at least $1 of additional Funded Debt without being in default
     of their obligations under Section 11.2(C)(ii);

             (c) such Dispositions are made for Fair Market Value and the
     proceeds of such Disposition are used (i) within six months following such
     Disposition, to purchase assets ("Business Asset Acquisition") used in the
     operations of the Borrower or (ii) to repay Debt of Holdings or its
     Subsidiaries which is not junior in right of payment to the Notes; or
     
             (d) the assets disposed of were disposed of for Fair Market Value
     (taking into consideration the rental rate to be paid by the Borrower in
     connection with the

                                      -32-

<PAGE>
 
     Disposition and leaseback of the assets so disposed of) and were
     constructed or acquired following September 30, 1996 and are immediately
     leased back from the purchaser thereof by Holdings or any of its
     Subsidiaries; provided that no assets may be sold and leased back pursuant
     to this clause (d) following the third anniversary of the acquisition or
     construction of such assets by Holdings, the Borrower or any of their
     Subsidiaries.

     Section 11.7. Consolidation or Merger. Holdings and the Borrower covenant
that neither of them will, nor will they permit any of their respective
Subsidiaries to, enter into any transaction of merger or consolidation, whether
in one transaction or a series of related or unrelated transactions and whether
at the same time or over a period of time, provided that:
          
          (A) (i) the Borrower may merge with Holdings or any of Holdings other
Subsidiaries, (ii) Holdings may merge with the Borrower or any of Holdings other
Subsidiaries and (iii) any Subsidiary may merge with Holdings, the Borrower or
any other Subsidiary, so long as, with respect to any mergers of Holdings, the
Borrower or any Subsidiary Guarantor in which such party is not the surviving
Person, (a) the surviving Person of such transaction shall be a solvent U.S. or
Canadian corporation, and such surviving Person shall have assumed in writing
all of the obligations of the Borrower, Holdings or such Subsidiary Guarantor,
as the case may be, under this Agreement, the Notes and the Subsidiary
Guarantees, as the case may be, a copy of which writing shall be provided to you
and each holder of Notes not less than 10 Business Days prior to any such
transaction and which shall be acceptable in form and substance to the Majority
Holders, (b) at the time of, and immediately after giving effect to, any such
consolidation or merger, no Default or Event of Default shall have occurred and
be continuing, and (c) immediately after any such consolidation or merger, the
surviving Person could incur an additional $1 of Funded Debt pursuant to Section
11.2(C)(ii) hereof; and

         (B) Holdings or the Borrower may merge with any other Person so long
as (i) the surviving Person of such transaction shall be a solvent U.S. or
Canadian corporation, and such surviving Person shall have assumed in writing
all of the obligations of the Borrower under the Notes and this Agreement or of
Holdings under this Agreement, as the case may be, a copy of which writing shall
be provided to you and each holder of Notes not less than 10 Business Days prior
to any such transaction and which shall be acceptable in form and substance to
the Majority Holders, (ii) at the time of, and immediately after giving effect
to, any such consolidation or merger, no Default or Event of Default shall have
occurred and be continuing, and (iii) immediately after any such consolidation
or merger, the surviving or continuing Person could incur an additional $1 of
Funded Debt pursuant to Section 11.2(C)(ii) hereof.

     Section 11.8. Maintenance of Fixed Charge Coverage. Holdings and the
Borrower covenant that on the last day of any quarterly accounting period of
Holdings and its Subsidiaries, the ratio of Consolidated Income Available for
Fixed Charges to Fixed Charges

                                      -33-

<PAGE>
 
for the period consisting of any four of the immediately preceding five
quarterly accounting periods shall not be less than 1.5 to 1.

   Section 11.9. Transactions with Affiliates. Each of Holdings and the
Borrower covenants that it will not, and will not permit any of its Subsidiaries
to, directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
Property or the rendering of any service), with any Affiliate on terms that are
less favorable to Holdings, the Borrower or such Subsidiary, as the case may be,
than those that would be obtainable at the time in an arms length transaction
with any Person who is not such an Affiliate; provided, however, that this
Section shall not prohibit the payment of compensation and benefits to directors
and officers of Holdings, the Borrower and their Subsidiaries in the ordinary
course of business and consistent with past practices.
   
   Section 11.10. Acquisition of Margin Securities. Each of Holdings and the
Borrower covenants that it will not, and will not permit any of its Subsidiaries
to, own, purchase or acquire (or enter into any contract to purchase or acquire)
any "margin stock" as defined by any regulation of the Board of Governors of the
United States Federal Reserve System as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, the holders of the Notes shall have received an
opinion of counsel satisfactory to the holders of the Notes to the effect that
such purchase or acquisition will not cause this Agreement or the Notes to be in
violation of Regulation G or any other regulation of such Board then in effect.

     Section 11.11. Conduct of Business. Each of Holdings and the Borrower
covenants that it will not, and will not permit any of its Subsidiaries to,
engage in any business activity if, such business activity would result in a
substantial change in the general nature of the business of Holdings and its
Subsidiaries, taken as a whole, from that described in the Confidential
Memorandum.

Section 12.  Definitions

     (A) For the purposes of this Agreement, the following terms shall have the
following respective meanings:

     "Acceleration Price" is defined in Section 13.2(A) hereof.

     "Accountants" has the meaning specified in Section 8.

     "Additional Permitted Subsidiary Guarantees" shall mean those Guarantees
delivered by any Subsidiary Guarantor which guarantees Debt of the Borrower the
beneficiaries of which are or become a party to, and thereby agree to undertake
and perform the duties, rights and obligations of a party under, the
Intercreditor Agreement.

     "Affiliate" shall mean any Person (other than a Subsidiary) (i) which
directly or indirectly controls, or is controlled by, or is under common control
with, Holdings,

                                      -34-

<PAGE>
 
(ii) which beneficially owns or holds 10% or more of any class of the
Voting Stock of Holdings, (iii) 10% or more of the Voting Stock of which is
beneficially owned or held by Holdings or a Subsidiary of Holdings or (iv) any
officer or director of Holdings or any of its Subsidiaries.  For purposes of
this definition, "control" of a Person shall mean the power, direct or indirect,
(i) to vote or direct the voting of a majority of the Voting Stock of such
Person, or (ii) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.

     "Appropriate Officer" shall mean, with respect to any corporation, such
corporations President, Vice President, Chief Executive Officer, Chief Financial
Officer, Treasurer or Controller.

     "Audited Financial Statements" has the meaning specified in Section 4.5(a).

     "BA Credit Agreement" shall mean that certain Letter Agreement dated as of
June 30, 1993 among Bank of America Illinois, Holdings and the Borrower, as
amended by (i) a letter dated July 15, 1993, (ii) the First Amendment to the
Letter Agreement dated as of December 31, 1994, (iii) the Second Amendment to
the Letter Agreement dated as of March 11, 1996, (iv) the Third Amendment to the
Letter Agreement dated as of September 3, 1996, and (v) the Fourth Amendment to
the Letter Agreement dated as of November 1, 1996, providing for certain credit
facilities to the Borrower.

     "Board" means the Board of Directors of any corporation or a committee of
said corporation having authority to exercise, when the Board of Directors is
not in session, the powers of the Board of Directors (subject to any designated
limitations) in the management of the business and affairs of said corporation.

     "Book Value" of an asset of any Person means the value of such asset as
reported in the books and records of such Person in accordance with GAAP.
"Borrower" means International House of Pancakes, Inc., a Delaware corporation,
or any successor thereto.

     "Business Asset Acquisition" is defined in Section 11.6 hereof. "Business
Day" means any day except a Saturday, a Sunday or a legal holiday in Chicago,
Illinois.

     "Capitalized Lease" means a lease of Property which in accordance with GAAP
should be capitalized on the balance sheet of any Person.

     "Capitalized Lease Obligations" shall mean the aggregate rentals due and to
become due under all Capitalized Leases which any Person, as a lessee, would be
required to reflect as a liability on the consolidated balance sheet of such
Person in accordance with GAAP.

                                      -35-

<PAGE>
 
     "Certified" when used with respect to any financial information of any
Person to be certified by any of its officers, indicates that such information
is to be accompanied by a certificate to the effect that such financial
information has been prepared in accordance with GAAP consistently applied,
subject in the case of interim financial information to non-recurring material
year-end audit adjustments, and presents fairly the information contained
therein as at the dates and for the periods covered thereby.

     "Closing Date" has the meaning specified in Section 2.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Confidential Memorandum" has the meaning specified in Section 4.5(a).

     "Consolidated Income Available for Fixed Charges" means the sum of (a)
Consolidated Net Income, (b) consolidated income tax expense of Holdings and its
Subsidiaries determined in accordance with GAAP and (c) Fixed Charges.

     "Consolidated Net Income or Loss" shall mean the Net Income or Loss of
Holdings, the Borrower and their Subsidiaries, as determined on a consolidated
basis in accordance with GAAP.

     "Consolidated Tangible Net Worth" shall mean shareholders equity of
Holdings and its Subsidiaries less intangible assets booked after the Closing
Date, less Restricted Investments in excess of 10% of shareholders equity of
Holdings and its Subsidiaries at any date of determination, all as determined
for Holdings and its Subsidiaries on a consolidated basis in accordance with
GAAP.

     "Debt" with respect to any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the liability of such
Person created by granting a Lien to which the property or assets of such Person
are subject whether or not such Person has assumed or become legally liable for
the payment of any obligation (provided that, if such obligation has not been
assumed or become the legal liability of such Person, the amount of the
liability shall be deemed to be in an amount not to exceed the Fair Market Value
of the property to which the Lien relates, as determined in good faith by such
Person), (iii) Capitalized Lease Obligations of such Person, to the extent such
obligations exceed accounts receivable by such Person as lessor under direct
financing leases with franchisees so long as such direct financing leases are,
at the time of determination to the best knowledge of the lessor thereunder,
valid and enforceable against their lessees and are current as to payment and
not otherwise in default to the extent that there is a reasonable likelihood
that any such lease would be terminated by the lessor prior to its stated
expiration and (iv) the aggregate amount of all Guarantees given by such Person
with respect to any of the foregoing.

     "Default" means any event or condition which, with due notice or lapse of
time or both, would become an Event of Default. 

                                      -36-

<PAGE>
 
     "Disposition" shall mean any sale, transfer, assignment, lease, conveyance
or other disposition of any asset. 


     "Eligible Holder" has the meaning specified in Section 8.

     "Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 to 9675, the Resource
Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 to 6992, the Emergency
Planning and Community Right to Know Act, 42 U.S.C. (S)(S) 11001 to 11050, the
Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f to 300j-26, the Hazardous
Materials Transportation Act, 49 U.S.C.A. (S)(S) 1801 to 1819, the Clean Air
Act, 42 U.S.C. (S)(S) 7401 to 7671q, the Clean Water Act, 33 U.S.C. (S)(S) 1251
to 1387, the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)(S)
136 to 136y, the Noise Control Act, 42 U.S.C. (S)(S) 4901 to 4918, the
Occupational Safety and Health Act, 29 U.S.C.A. (S)(S) 651 to 678, the Toxic
Substances Control Act, 15 U.S.C. (S)(S) 2601 to 2671, any so-called "Superfund"
or "Superlien" law, any regulation promulgated under any of the foregoing or any
other Federal, state, or local statute, law, ordinance, code, rule, regulation,
order, decree, common law or other requirement of any Governmental Body
regulating or imposing liability or standards of conduct concerning the
environment, health and safety, or any Hazardous Material.

     "Environmental Matter" means any claim, investigation (known to Holdings or
the Borrower), litigation, administrative proceeding, whether pending or, to the
knowledge of Holdings or the Borrower, threatened, or judgment or Order,
relating to any Hazardous Materials, the release thereof, or any Environmental
Law.

     "ERISA" means the Employee Retirement Income Security Act of 1974, as from
time to time amended.

     "ERISA Affiliate" means any corporation or other Person which is a member
of the same controlled group (within the meaning of Section 414(b) of the Code)
of corporations or other Persons as Holdings or any of its Subsidiaries, or
which is under common control (within the meaning of Section 414(c) of the Code)
with Holdings or any of its Subsidiaries, or any corporation or other Person
which is a member of an affiliated service group (within the meaning of Section
414(m) of the Code) with Holdings or any of its Subsidiaries, or any corporation
or other Person which is required to be aggregated with Holdings or any of its
Subsidiaries pursuant to Section 414(o) of the Code or the regulations
promulgated thereunder.

     "Event of Default" has the meaning specified in Section 13.

     "Excepted Properties" means the real property of Holdings, the Borrower or
any of their Subsidiaries and the buildings and improvements constructed thereon
at each of the following locations: (1) Store #5, Hollywood, California; (2)
Store #471, Fairfax, Virginia; (3) Store #496, Leesburg, Virginia; (4) Store
#690, Santa Rosa, California; and (5) Store #1436, Houston, Texas.

                                      -37-

<PAGE>
 
     "Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar U.S. statute then in effect, and a reference to a particular section
thereof shall include a reference to the comparable section, if any, of any such
similar U.S. statute.

     "Fair Market Value" means what a willing buyer would pay to a willing
seller in an arms-length transaction.
 
     "Financial Statements" has the meaning specified in Section 4.5(a).

     "Fixed Charges" means the sum of (a) Interest Expense and (b) rental
expense under operating leases, all as determined for Holdings and its
Subsidiaries on a consolidated basis in accordance with GAAP.

     "Funded Debt" shall mean (i) all Debt of a Person (other than Guarantees)
having a final maturity of more than one year from the date of incurrence
thereof (or which is renewable or extendible at the option of the obligor for a
period or periods of more than one year from the date of incurrence), including
all payments in respect thereof that are required to be made within one year
from the date of any determination of Funded Debt, whether or not included in
current liabilities, (ii) in the case of Guarantees, all Guarantees of
obligations maturing more than one year after the date as of which the Guarantee
is incurred, and (iii) the recourse portion, if any, of obligations under sales
of notes or receivables programs.

     "GAAP" means generally accepted accounting principles in the United States
in effect from time to time.

     "Governmental Body" means any federal, state, Canadian provincial, county,
city, town, village, municipal or other governmental department, commission,
board, bureau, agency, authority or instrumentality, domestic or foreign.

     "Gross Assets" means the total assets and Properties of Holdings and its
Subsidiaries less accumulated depreciation, as indicated on the audited balance
sheets of Holdings and its Subsidiaries for the fiscal year end immediately
prior to the date of any determination.

     "Guarantee" means any guarantee or other contingent liability (other than
any endorsement for collection or deposit in the ordinary course of business),
direct or indirect, with respect to any obligations of another Person, through
an agreement or otherwise, including, without limitation, (a) any other
endorsement or discount with recourse or undertaking substantially equivalent to
or having economic effect similar to a guarantee in respect of any such
obligations and (b) any agreement (i) to purchase, or to advance or supply funds
for the payment or purchase of, any such obligations, (ii) to purchase, sell or
lease Property, products, materials or supplies, or transportation or services,
in respect of enabling such other Person to pay any such obligation or to assure
the owner thereof against loss regardless of the delivery or nondelivery of the
Property, products, materials or supplies or transportation or services or (iii)
to make any loan, advance or capital contribution to or other investment in, or
to otherwise provide funds to or for, such other 

                                      -38-

<PAGE>
 
Person in respect of enabling such Person to satisfy any obligation (including
any liability for a dividend, stock liquidation payment or expense) or to assure
a minimum equity, working capital or other balance sheet condition in respect of
any such obligation. The amount of liability of any Person attributable to any
Guarantee shall be equal to the maximum amount for which such Person could be
liable under such Guarantee.

     "Hazardous Material" and "Hazardous Materials" shall mean as follows:

         (1)  any "hazardous substance" as defined in, or for purposes of, the
     Comprehensive Environmental Response, Compensation and Liability Act, 42
     U.S.C.A. (S)(S) 9601 & 9602, as may be amended from time to time, or any
     other so-called "superfund" or "superlien" law and any judicial
     interpretation of any of the foregoing;

         (2)  any "regulated substance" as defined pursuant to 40 C.F.R. Part
     280;

         (3)  any "pollutant or contaminant" as defined in 42 U.S.C.A. (S)
     9601(33);

         (4)  any "hazardous waste" as defined in, or for purposes of, the
     Resource Conservation and Recovery Act;

         (5)  any "hazardous chemical" as defined in 29 C.F.R. Part 1910;

         (6)  any "hazardous material" as defined in, or for purposes of, the
     Hazardous Materials Transportation Act; and (7) any other substance,
     regardless of physical form, or form of energy or pathogenic agent that is
     subject to any Environmental Law.

     Without limiting the generality of the foregoing, the term "Hazardous
Material" thus includes, but is not limited to, any material, waste or substance
that contains petroleum or any fraction thereof, asbestos, or polychlorinated
biphenyls, or that is flammable, explosive or radioactive that is subject to any
Environmental Law.

     "Holdings" means IHOP Corp., a Delaware corporation, or any successor
thereto.

     "IHOP Properties" means IHOP Properties, Inc., a California corporation
which is a wholly-owned indirect Subsidiary of the Borrower.

     "IHOP Realty" means IHOP Realty Corp., a Delaware corporation which is a
wholly-owned Subsidiary of the Borrower.

     "IHOP Restaurants" means IHOP Restaurants, Inc., a Delaware corporation
which is a wholly-owned Subsidiary of the Borrower.

                                      -39-

<PAGE>
 
     "Intercreditor Agreement" means the Intercreditor Agreement dated as of
November 1, 1996 among the 1992 Noteholders (as defined therein), the
Purchasers, Bank of America Illinois and additional creditors which may become a
party thereto from time to time, substantially in the form attached hereto as
Exhibit H.

     "Interest Expense" shall mean interest expense, determined for Holdings and
its Subsidiaries on a consolidated basis in accordance with GAAP.

     "Interest Payment Date" shall mean any date on which the payment of
interest on any Note becomes due and payable.

     "Internal Revenue Service" means the United States Internal Revenue Service
and any successor or similar agency performing similar functions.

     "Investment" when used with reference to any investment of Holdings, the
Borrower or any of their Subsidiaries, means any investment so classified under
GAAP (and, specifically, shall not include trade receivables which are
classified as current assets under GAAP), and, whether or not so classified,
includes (a) any loan or advance made by Holdings, the Borrower or any of their
Subsidiaries to any other Person, and (b) any ownership or similar interest in
any other Person; and the amount of any Investment shall be the original
principal or capital amount thereof less all cash returns of principal or equity
thereof (and without adjustment by reason of the financial condition of such
other Person).

     "Lien" means any security interest, mortgage, pledge, lien, claim, charge,
encumbrance, conditional sale or title retention agreement, lessors interest
under a Capitalized Lease or analogous instrument, in, of or on any of a Persons
Property (whether held on the date hereof or hereafter acquired), or any signed
or filed financing statement which names such Person as the debtor, or the
execution of any security agreement or the like authorizing any other Person as
the secured party thereunder to file such a financing statement; provided that
neither (a) the interest of a lessee or a sublessee in its capacity as lessee or
sublessee under a lease or sublease entered into by Holdings, the Borrower or
any of their Subsidiaries in the ordinary course of business nor (b) the rights
of franchisees in their capacities as franchisees to use and possession of
certain properties and rights pursuant to franchise documentation entered into
by Holdings, the Borrower or any of their Subsidiaries in the ordinary course of
business shall be deemed to constitute a Lien for purposes hereof.

     "Majority Holders" means the holders of at least a majority in principal
amount of the Notes at the applicable time outstanding.

     "Material Adverse Effect" means any change or changes or effect or effects
that individually or in the aggregate are or are likely to be materially adverse
to (i) the assets, business, operations, income, prospects or condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole or
the Borrower and its Subsidiaries taken as a whole, (ii) the transactions
contemplated by this Agreement, or (iii) taken as a whole, the ability of 

                                      -40-

<PAGE>
 
the Borrower and Holdings to fulfill their respective obligations under this
Agreement and the Notes .

     "Material Contracts" means all supply agreements, requirements contracts,
leases, customer agreements, franchise agreements, license agreements,
distribution agreements, joint venture agreements, asset purchase agreements,
stock purchase agreements, merger agreements, agency or advertising agreements
and other contracts, agreements and commitments to which Holdings or any of its
Subsidiaries are parties, and which are material to the respective businesses,
assets or operations of Holdings and its Subsidiaries.

     "Multiemployer Plan" means a multiemployer plan as defined in Section 3(37)
or Section 4001(a)(3) of ERISA or Section 414(f) of the Code contributed to by
Holdings or any of its Subsidiaries or ERISA Affiliates.

     "Net Income" of any Person, with respect to any period, shall mean the net
income or net loss of such Person after excluding the sum of (i) any net loss or
any undistributed net income of any Person other than a Subsidiary of such
Person, (ii) the net income or net loss of any Subsidiary of such Person earned
or incurred prior to the date on which it became a Subsidiary of such Person,
(iii) the gain or loss (net of any tax effect) resulting from the sale of any
capital assets other than in the ordinary course of business, and (iv)
extraordinary or nonrecurring gains or losses (net of any tax effect), all as
determined for the relevant period in accordance with GAAP.

     "Note" has the meaning specified in Section 1.

     "Offering Circular" has the meaning specified in Section 4.25.

     "Officers Certificate" shall mean a certificate executed on behalf of
Holdings, the Borrower or any of their Subsidiaries, in each case by an
Appropriate Officer thereof.

     "Order" means any order, writ, injunction, decree, judgment, award,
determination or written direction or demand of any court, arbitrator or
Governmental Body.

     "Other Agreements" shall mean the agreements which are identical in all
respects with this Agreement (except for the respective principal amounts of the
Notes to be purchased) and executed and delivered to the other Purchasers named
in Schedule I hereto simultaneously with the execution and delivery of this
Agreement.

     "PBGC" means the Pension Benefit Guaranty Corporation, and any successor
agency or Governmental Body performing similar functions.

     "Pension Plan" means an employee pension benefit plan, as defined in
Section 3(2) of ERISA, excluding any Multiemployer Plans, maintained by or
contributed to by Holdings or any of its Subsidiaries or ERISA Affiliates.

     "Permitted Lien" is defined in Section 11.1.

                                      -41-

<PAGE>
 
     "Person" means and includes an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.

     "Plan" and "Plans" means any employee benefit plan as defined in Section
3(3) of ERISA, excluding a Multiemployer Plan, established or maintained for the
benefit of employees of Holdings or any of its Subsidiaries or ERISA Affiliates.

     "Present Value Amount" means at any time with respect to any Notes being
prepaid in whole or in part pursuant to Section 3.2 hereof or being declared or
becoming due and payable pursuant to Section 13.2(A) or (B) hereof, the sum of
the Present Values of (A) the aggregate amount of the principal being so prepaid
or being declared or becoming due and payable plus (B) each amount of interest
which would have been payable on the amount of such principal being prepaid or
being declared or becoming due and payable (assuming that all payments and
prepayments of principal and interest would have been made in accordance with
the terms of this Agreement and the Notes and that interest accrued and unpaid
on such principal to the date of prepayment or the date such principal is
declared or becomes due and payable has been paid). "Present Value," for any
amount of principal or interest, shall be computed on a semiannual basis at a
discount rate equal to the Treasury Yield plus 50 basis points. The "Treasury
Yield" shall be determined by reference to (i) the yields reported, as of 10:00
a.m. (New York City time) on the Business Day next preceding the prepayment date
or the date any such principal is declared or becomes due and payable, on the
display designated as "Page 500" on the Telerate Service (or such other display
as may replace Page 500 on the Telerate Service) for actively traded U.S.
Treasury securities having a constant maturity equal to the then remaining
Weighted Average Life to Maturity of the principal being prepaid or being
declared or becoming due and payable, or if such yields shall not be reported as
of such time or the yields reported as of such time shall not be ascertainable,
(ii) the most recent Federal Reserve Statistical Release H.15 (519) which has
become available not more than two Business Days prior to the date of prepayment
or the date such principal becomes or is declared due and payable (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data acceptable to the Majority Holders), and shall be the most
recent yield on actively traded U.S. Treasury securities adjusted to a constant
maturity equal to the then remaining Weighted Average Life to Maturity of the
principal being prepaid or being declared or becoming due and payable. If the
Weighted Average Life to Maturity (so computed) is not equal to the constant
maturity of a U.S. Treasury security for which a yield is given, the Treasury
Yield shall be obtained by linear interpolation (calculated to the nearest one-
twelfth of a year) from the yields of U.S. Treasury securities for which such
yields are given, except that if the Weighted Average Life to Maturity (so
computed) is less than one year, the yield on actively traded U.S. Treasury
securities adjusted to a constant maturity of one year shall be used.

     "Pro Rata Portion" shall mean with respect to any Noteholder, the ratio of
the principal balance outstanding on the Note or Notes held by that Noteholder
on the date of determination to the aggregate principal balance outstanding on
all the Notes on the date of determination.

                                      -42-

<PAGE>
 
     "Property" with respect to any Person, means any interest in any kind of
property or asset, whether real, personal or mixed, tangible or intangible, of
such Person.

     "Purchaser Affiliate" shall mean any Person (i) which directly or
indirectly controls, or is controlled by, or is under common control with, a
Purchaser, (ii) which beneficially owns or holds 5% or more of any class of the
Voting Stock of a Purchaser, or (iii) 5% or more of the Voting Stock of which is
beneficially owned or held by a Purchaser; provided, however, that a director,
officer or employee of a Purchaser shall not be deemed to control, to be
controlled by, or to be under common control with, a Purchaser for purposes
hereof solely by reason of such status. For purposes of this definition,
"control" of a Person shall mean the power, direct or indirect, (i) to vote or
direct the voting of a majority of the Voting Stock of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise. For the purposes of this Agreement, the
Purchasers shall not be deemed to be Affiliates of Holdings or any of its
Subsidiaries.

     "Qualified Holder" shall mean, as of any date of determination, any
original Purchaser or Purchaser Affiliate and any direct or indirect successor,
assign or transferee of any Purchaser or Purchaser Affiliate holding Notes
representing at least 10% of the aggregate principal amount of all Notes at the
time outstanding.

     "Qualifying Disposition" shall mean a sale and leaseback of an Excepted
Property; provided that (a) upon the sale thereof, the Excepted Property is
immediately leased back from the purchaser thereof by Holdings or any of its
Subsidiaries and (b) the Excepted Property must be sold and leased back within
the third anniversary of the original acquisition or construction thereof by
Holdings, the Borrower or any of their Subsidiaries.

     "quarterly accounting period" is defined in Section 8(A) hereof.

     "Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder for which the 30-day notice requirement
applies.

     "Restricted Investments" shall mean all Investments made by Holdings, the
Borrower or their Subsidiaries in or to any Person except (i) Investments in
notes of franchisees and receivables of franchisees in the ordinary course of
business other than notes and receivables held in settlement of franchise
obligations, and in Property of Holdings or its Subsidiaries to be used in the
ordinary course of business, (ii) Investments in Subsidiaries, (iii) Investments
in obligations issued or unconditionally guaranteed by the U.S. or any agency
thereof, in each case maturing within one year from the date of acquisition
thereof; (iv) Investments in obligations issued by any political subdivision of
the U.S. or any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Inc. or some other mutually agreeable rating system
if either of these entities no longer exists; (v) commercial paper maturing no
more than 270 days from the date of creation thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc. or some other
mutually agreeable rating system if either of these entities no longer exists;
(vi) certificates of deposit, repurchase agreements or bankers acceptances
maturing within one year from the date of acquisition thereof issued by
commercial banks which are rated "A-" or better by either Standard & Poor's
Corporation or Moody's

                                      -43-

<PAGE>
 
Investors Services, Inc. (or by some other mutually agreeable rating system if
either of these entities no longer exists) located in the U.S. and Canada and
have combined capital, surplus and undivided profits of not less than
$100,000,000; (vii) Investments in mutual funds and money market accounts, which
funds or accounts are traded on a national exchange or are managed by a
commercial bank and which invests solely in Investments which satisfy the
criteria set forth in the foregoing clauses (iii) through (vi); and (viii) other
Investments existing on the Closing Date and set forth on Schedule 12 hereto.

     "SEC" means the Securities and Exchange Commission and any succeeding
agency, authority, commission or Governmental Body.

     "SEC Reports" means, collectively, (a) the annual report on Form 10-K as
filed by Holdings with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act, for the fiscal year ended December 31, 1995 and (b) the quarterly reports
on Form 10-Q as filed by Holdings with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act, for the quarterly periods ended March 31, 1996, and June
30, 1996.

     "Securities Act" means, as of any date, the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall include a reference to the comparable section,
if any, of any such similar Federal statute.

     "Solvent" means, when used with respect to any Person, that:

          (a) the present fair salable value of such Persons assets is in excess
of the total amount of such Persons liabilities;

          (b) such Person is able to pay its debts as they become due; and

          (c) such Person does not have unreasonably small capital to carry on
such Persons business as theretofore operated and all businesses in which such
Person is about to engage.

     "Subsidiaries List" is defined in Section 4.6 hereof.

     "Subsidiary" shall mean, with respect to any Person, any corporation or
other entity (a) organized under the laws of the United States, the District of
Columbia or Canada or any state or political subdivision of any thereof, (b) all
or substantially all of whose assets and business operations are located or
conducted within the United States or Canada and (c) of which at least a
majority of the outstanding Voting Stock is at the time directly or indirectly
owned or controlled by such Person or by one or more of such Persons wholly-
owned Subsidiaries.

                                      -44-

<PAGE>
 
     "Subsidiary Guarantees" shall mean the Subsidiary Guarantees executed and
delivered by the Subsidiary Guarantors in the form of Exhibit D-1, Exhibit D-2
and Exhibit D-3.

     "Subsidiary Guarantors" shall mean collectively IHOP Realty, IHOP
Properties and IHOP Restaurants.

     "Total Capitalization" shall mean the sum of (i) Funded Debt of Holdings,
the Borrower and their Subsidiaries and (ii) Consolidated Tangible Net Worth.

     "Unaudited Financial Statements" has the meaning specified in Section
4.5(a).

     "U.S." means the United States of America.

     "Voting Stock" with respect to any Person shall mean capital stock of such
Person of any class or classes, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of members of the
Board (or Persons performing similar functions) of such Person.

     "Weighted Average Life to Maturity" means, with respect to any Debt, as at
any time of determination, the number of years obtained by dividing the then
Remaining Dollar-years of such Debt by the then outstanding principal balance of
such Debt (before giving effect to any prepayment to be made at the time of such
determination). For such purposes, the "Remaining Dollar-years" of any Debt
shall be determined by (1) multiplying (a) the amount of each required payment
of principal of such Debt (including each required installment payment or
mandatory prepayment thereof, if any, and payment of the principal balance
thereof at final maturity, but assuming no optional prepayments thereof are
made) by (b) the number of years (calculated to the nearest one-twelfth) which
will elapse between the time of determination and the date the respective
required payment or mandatory prepayment of principal is due, and (2) adding all
of the products so obtained.

     (B) Accounting Terms. All accounting terms used in this Agreement shall be
applied on a consolidated basis for Holdings, the Borrower and their
Subsidiaries, unless otherwise specifically indicated herein. Any accounting
terms not specifically defined herein shall have the meanings customarily given
them in accordance with GAAP.

Section 13.  Events of Default.

     Section 13.1.  Events of Default; Remedies.  If any of the following
events shall have occurred and be continuing (whatever the reason for such event
and whether it shall be voluntary or involuntary or by operation of law or
otherwise), it shall constitute an "Event of Default":

          (A) the Borrower shall default in the due and punctual payment or
prepayment of all or any part of the principal of, or prepayment charge (if any)
on, any Note when and as the same shall become due and payable, whether at
stated maturity, by acceleration, by notice of prepayment or otherwise;

                                      -45-

<PAGE>
 
          (B) the Borrower shall default in the due and punctual payment or
prepayment of any interest on any Note or any other sum or amount due under any
Note or this Agreement when and as such interest, sum or amount shall become due
and payable, and such default shall continue for a period of five (5) Business
Days;

          (C) the Borrower shall default in the performance or observance of any
covenant, agreement or condition contained in Section 8(E) and Sections 11.1
through 11.11 hereof, inclusive;

          (D) the Borrower shall default in the performance or observance of any
other covenant, agreement or condition contained in this Agreement and such
default shall continue for a period of 30 days following the earlier to occur of
(i) notice of such default from any holder of a Note or (ii) the date on which
any Authorized Officer of Holdings, the Borrower or any of their Subsidiaries
otherwise becomes aware of the existence of such default;

          (E) any event shall occur or any condition shall exist in respect of
any Debt of Holdings, the Borrower or their Subsidiaries in excess of $2,000,000
in the aggregate for all such Debt (other than the Funded Debt evidenced by this
Agreement and the Notes), which constitutes a breach, default or event of
default under any agreement or document securing or relating to any such Debt
(following all applicable notice or grace periods), the effect of which is to
cause, or to permit any holder or holders of such Debt or an agent or trustee to
cause, the acceleration of the maturity of such Debt;

          (F) final order, decree or judgment for the payment of money shall be
rendered by a court of competent jurisdiction against Holdings, the Borrower or
any of their Subsidiaries, and Holdings, the Borrower or such Subsidiary, as the
case may be, shall not discharge the same or provide for its discharge in
accordance with its terms, or procure a stay of execution thereof, within 60
days from the date of entry thereof and within said period of 60 days, or such
longer period during which execution of such order, decree or judgment shall
have been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal, and such order, decree or judgment together with all other
such orders, decrees or judgments then existing shall exceed in the aggregate
$3,000,000 (net of insurance proceeds actually received, if any);

          (G) any representation, warranty, certification or statement made by
or on behalf of the Borrower or Holdings in this Agreement or by or on behalf of
any Subsidiary Guarantor in the Subsidiary Guarantees or in any certificate,
instrument, financial statement or other document now or hereafter delivered
hereunder or thereunder or pursuant to or in connection with any provision
hereof or thereof shall prove to be false or incorrect or breached in any
material respect on the date as of which made;

                                      -46-

<PAGE>
 
          (H) a proceeding or case shall be commenced, without the application
or consent of Holdings, the Borrower or any of their Subsidiaries in any court
of competent jurisdiction, seeking (1) the liquidation, reorganization,
dissolution, winding up of any thereof or composition or readjustment of the
debts of any of them, or (2) similar relief in respect of Holdings, the Borrower
or any of their Subsidiaries under any law providing for the relief of debtors,
and such proceeding or case shall continue undismissed, or unstayed and in
effect, for a period of 90 days; or an order for relief shall be entered in an
involuntary case under the applicable bankruptcy laws against Holdings, the
Borrower or any of their Subsidiaries; or action under the laws of the
jurisdiction of organization of any of Holdings, the Borrower or any of their
Subsidiaries analogous to any of the foregoing shall be taken with respect to
any of Holdings, the Borrower or any of their Subsidiaries and shall continue
undismissed, or unstayed and in effect, for a period of 90 days;

          (I) Holdings, the Borrower or any of their Subsidiaries shall (1)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its Property, (2) be generally unable to pay its debts as such debts
become due, (3) make a general assignment for the benefit of its creditors, (4)
commence a voluntary case under the applicable bankruptcy laws (as now or
hereafter in effect), (5) file a petition seeking to take advantage of any other
law providing for the relief of debtors, (6) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under such bankruptcy laws, (7) admit in writing its
inability to pay its debts generally as such debts become due, (8) take any
action under the laws of its jurisdiction of organization analogous to any of
the foregoing, or (9) take any requisite action for the purpose of effecting any
of the foregoing;

          (J) a custodian, liquidator, trustee or receiver is appointed for
Holdings, the Borrower or any of their Subsidiaries or for all or a substantial
portion of the Property of any of them, without the application or consent of
Holdings or any such Subsidiary, and is not discharged within 90 days after such
appointment; or

          (K) if any of the Subsidiary Guarantees or the Guarantee of Holdings
contained in Section 16.14 hereof shall cease to be in full force and effect or
any of Holdings or the Subsidiary Guarantors or any Person acting by or on
behalf of either of them shall deny or disaffirm their respective obligations
under such Guarantees.

     Section 13.2.  Acceleration of Notes.  (A) Upon the occurrence of an Event
of Default described in Subsection (A) or (B) of Section 13.1 with respect to
any Note, the holder of any such Note may, by written notice to the Borrower,
declare such Note to be, and the same shall forthwith become, immediately due
and payable, at a price (the "Acceleration Price") equal to the sum of (i) the
greater of the principal amount being declared immediately due and payable or
the Present Value Amount, plus (ii) all accrued but unpaid interest on the
principal amount being declared immediately due and payable, all without
presentment, demand, notice, protest or other requirements of any kind, all of
which are hereby expressly 

                                      -47-

<PAGE>
 
waived. If any holder of any Note shall exercise the option specified in this
Subparagraph (A), the Borrower shall forthwith give written notice thereof to
the holders of all other outstanding Notes and each such holder may (whether or
not such notice is given or received), by written notice to the Borrower,
declare the principal of all Notes held by it to be, and the same shall
forthwith become, immediately due and payable, at a price equal to the
Acceleration Price.

          (B) Upon the occurrence of any Event of Default described in
Subsection 13.1(C), (D), (E), (F), (G) or (K) of Section 13.1, the Majority
Holders may, by written notice to the Borrower, declare all of the Notes to be,
and the same shall forthwith become, immediately due and payable, at a price
equal to the Acceleration Price, without any presentment, demand, notice,
protest or other requirement of any kind, all of which are hereby expressly
waived.
          (C) Upon the occurrence of an Event of Default described in
Subsections (H), (I) and (J) of Section 13.1, all of the Notes shall
automatically become immediately due and payable, at a price equal to the
Acceleration Price, without presentment, demand, notice, protest or other
requirements of any kind, all of which are hereby expressly waived.

     Section 13.3.  Rescission of Acceleration.  The provisions of Section 13.2
are subject, however, to the condition that if, at any time after any Note shall
have become due and payable pursuant to Section 13.2, (i) the Borrower shall pay
all arrears of interest on the Notes and all payments on account of the
principal of and, to the extent permitted by law, prepayment charge (if any) on
the Notes which shall have become due otherwise than by acceleration (with
interest on all such overdue principal and prepayment charge, if any, and, to
the extent permitted by law, on overdue payments of interest, at the applicable
rate per annum provided for in the Notes or this Agreement in respect of overdue
amounts of principal, prepayment charge and interest), and (ii) the Borrower
shall pay to the Noteholders all amounts that are then due and owing pursuant to
this Agreement, and (iii) all Events of Default (other than nonpayment of
principal of, prepayment charge (if any) and accrued interest on the Notes, due
and payable solely by virtue of acceleration) shall be remedied or waived by the
Majority Holders, and (iv) no judgment or decree has been entered by any court
for the payment of any amounts due and owing under the Notes or pursuant to this
Agreement or the Subsidiary Guarantees, then, and in every such case, the
Majority Holders, by written notice to the Borrower, may rescind and annul any
such acceleration and its consequences with respect to the Notes; but no such
action shall affect any subsequent Default or Event of Default or impair any
right consequent thereon.

     Section 13.4.  Suits for Enforcement.  If any Event of Default shall have
occurred and be continuing, the holder of any Note may proceed to protect and
enforce its rights, either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the exercise of any power granted in this Agreement,
and the holder of any Note may proceed to enforce the payment of all sums due
upon such Note, and such further amounts as shall be sufficient to cover the
costs and expenses of collection (including, without limitation, reasonable
counsel fees and disbursements), or to enforce any other legal or equitable
right of the holder of such Note.

                                      -48-

<PAGE>
 
     Section 13.5.  Remedies Cumulative.  No remedy herein conferred upon you
or the holder of any Note is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise.

     Section 13.6.  Remedies Not Waived.  No course of dealing between the
Borrower and you or the holder of any other Note and no delay or failure in
exercising any rights hereunder or under any Note in respect thereof shall
operate as a waiver of any of your rights or the rights of any holder of such
Note.

Section 14.  Registration, Exchange, and Transfer of Notes.

     The Borrower will keep at its principal executive office a register, in
which, subject to such reasonable regulations as it may prescribe, but at its
expense (other than transfer taxes, if any), the Borrower will provide for the
registration and transfer of Notes. Whenever any Note or Notes shall be
surrendered either at the principal executive office of the Borrower, or at the
place of payment named in the Note, for transfer or exchange, accompanied (if so
required by the Borrower) by a written instrument of transfer in form reasonably
satisfactory to the Borrower duly executed by the holder thereof or by such
holders attorney duly authorized in writing, the Borrower will execute and
deliver in exchange therefor a new Note or Notes in such denominations
(multiples of $100,000) as may be requested by such holder, of like tenor and in
the same aggregate unpaid principal amount as the aggregate unpaid principal
amount of the Note or Notes so surrendered. Any Note issued in exchange for any
other Note or upon transfer thereof shall carry the rights to unpaid interest
and interest to accrue which were carried by the Note so exchanged or
transferred, and neither gain nor loss of interest shall result from any such
transfer or exchange. Any transfer tax or governmental charge relating to such
transaction shall be paid by the holder requesting the exchange. The Borrower
and any of its agents may treat the Person in whose name any Note is registered
as the owner of such Note for the purpose of receiving payment of the principal
of, prepayment charge (if any) and interest and other amounts on such Note and
for all other purposes whatsoever, whether or not such Note be overdue.

Section 15.  Lost, Stolen, Damaged and Destroyed Notes.

     At the request of any holder of any Note, the Borrower will issue and
deliver at its expense, in replacement of any Note or Notes lost, stolen,
damaged or destroyed, upon surrender thereof, if mutilated, a new Note or Notes
in the same aggregate unpaid principal amount, and otherwise of the same tenor,
as the Note or Notes so lost, stolen, damaged or destroyed, duly executed by the
Borrower. The Borrower may condition the replacement of a Note or Notes reported
by the holder thereof as lost, stolen, damaged or destroyed, upon the receipt
from such holder of an indemnity or security reasonably satisfactory to the
Borrower; provided, that if such holder shall be you or your nominee or another
Eligible Holder or its nominee, your or such Eligible Holders unsecured
agreement of indemnity shall be sufficient for purposes of this Section.

                                      -49-

<PAGE>
 
Section 16.  Miscellaneous.

     Section 16.1.  Home Office Payment.  Notwithstanding anything to the
contrary in this Agreement or in the Notes, the Borrower agrees that, so long as
you or any nominee designated by you shall hold any Notes, the Borrower shall
cause all payments of principal, prepayment charge (if any) and interest on the
Notes to be made to you in the manner and to the address specified in Schedule I
hereto, or in such other manner or to such other address as you may designate in
writing. You agree that prior to the sale, transfer or disposition of any Note
you will make a notation thereon of the portion of the principal amount paid or
prepaid and the date to which interest has been paid thereon or surrender the
same in exchange for a new Note or Notes of the same tenor and of authorized
denominations in aggregate principal amount equal to the aggregate unpaid
principal amount of the Note or Notes so surrendered, duly executed by the
Borrower. Borrower shall enter into an agreement similar to that contained in
this Section with any other Eligible Holder (or nominee thereof).

     Section 16.2.  Amendment and Waiver.  (A) Any term, covenant agreement or
condition of this Agreement or of the Notes may, with the consent of the
Borrower, be amended, or compliance therewith may be waived (either generally or
in a particular instance and either retroactively or prospectively), by one or
more substantially concurrent written instruments signed by the Majority
Holders, except that

          (1) no such amendment or waiver shall (a) change the principal of, or
    the rate of interest on, any of the Notes, (b) change the time of payment of
    all or any portion of the principal of or interest on or any prepayment
    charge payable with respect to any of the Notes, (c) modify any of the
    provisions of this Agreement or of the Notes with respect to the payment or
    prepayment of the principal thereof or prepayment charge or interest
    thereon, (d) change the percentage of Notes required with respect to any
    such amendment or to effectuate any such waiver, (e) modify any provision of
    this Section or (f) modify any provision of Section 13.1 or 16.14 hereof or
    of any of the Subsidiary Guarantees, without in each case the specific prior
    written consent of the holders of all of the Notes at the time outstanding;
    and

          (2) no such waiver shall extend to or affect any obligation not
    expressly waived or impair any right consequent thereon.

    (B) Any amendment or waiver pursuant to Subsection (A) of this Section 16.2
shall apply equally to all holders of the Notes at the time outstanding and
shall be binding upon them, upon each future holder of any Note, and upon the
Borrower, in each case whether or not a notation thereof shall have been placed
on any Note.

    (C) Notwithstanding any other provision contained in this Section 16.2 or
elsewhere in this Agreement to the contrary, Notes which at any time are held by
Holdings, the Borrower or by any or their Subsidiaries or Affiliates shall not
be deemed outstanding for purposes of any vote, consent, approval, waiver or
other action required or permitted to be taken by the holders of Notes, or by
any of them, under the provisions of this Section 16.2 

                                      -50-

<PAGE>
 
or Section 13 of this Agreement, and none of Holdings, the Borrower or any such
Subsidiary or Affiliate shall be entitled to exercise any right as a holder of
Notes with respect to any such vote, consent, approval or waiver or to take or
participate in taking any such action at any time.

    (D) The parties hereto agree that no amendments or waivers pursuant to this
Section 16.2 shall be granted unless each holder of Notes has had the
opportunity to participate in conferences and discussions with respect to any
such amendments or waivers, and has received the same information, drafts,
notices, memoranda and other written communications pertaining to such amendment
or waiver as are received by any other Purchaser or Eligible Holder.

     Section 16.3.  Expenses.  The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to pay and save you
harmless against any and all liability for the payment of all reasonable out-of-
pocket expenses arising in connection with this Agreement, the Subsidiary
Guarantees and the other instruments and the transactions hereby contemplated,
including without limitation all such expenses incurred with respect to the
enforcement of any provision of any such agreement or instrument, any proposed
amendments or waivers (whether or not the same shall be signed or shall become
effective) under or in respect of any such agreement or instrument and the
consideration of any legal questions relevant thereto, all expenses incurred in
connection with the reproduction of such agreements and instruments and all
stamp and other similar taxes (together in each case with interest and
penalties, if any) which may be payable in respect of the execution and delivery
of such agreement or instruments, or the issuance, delivery or acquisition by
you of any Note or otherwise pursuant to this Agreement, the Subsidiary
Guarantees, and expenses incurred in obtaining a private placement number from
Standard & Poor's Corporation and a rating from the National Association of
Insurance Commissioners, and the fees and disbursements of Chapman and Cutler
and of any special or local counsel in connection with preparation of such
agreements and instruments and the transactions hereby and thereby contemplated
(including, without limitation, in connection with any such enforcement,
amendment, waiver or consideration of legal questions), and the fees and
disbursements of the Accountants. The obligations of the Borrower under this
Section 16.3 shall survive the payment or transfer of any Note, the enforcement
of any provision hereof or thereof, any such amendments or waivers and any such
consideration of legal questions.

     Section 16.4.  Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by or on
behalf of any party to this Agreement or otherwise in connection herewith, shall
(i) survive the execution and delivery of this Agreement and the delivery of the
Notes to you and shall continue in effect as long as any of the Notes is
outstanding and thereafter as provided in Section 16.3, and (ii) be deemed to be
material to your decision to enter into this transaction and to have been relied
upon by you, regardless of any investigation made by you or on your behalf.

     Section 16.5.  Successors and Assigns.  All representations, warranties,
covenants and agreements in this Agreement contained by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto 

                                      -51-

<PAGE>
 
whether so expressed or not, except that you shall not be obligated to purchase
any Note from any issuer other than the Borrower. The provisions of this
Agreement are intended to be for the benefit of all holders, from time to time,
of any Notes purchased pursuant hereto, and shall be enforceable by any such
holder, whether or not an express assignment to such holder of rights under this
Agreement has been made by you or your successor or assign.

     Section 16.6.  Notices.  All communications provided for hereunder shall
be in writing and delivered by hand or sent by first class mail or sent by telex
or telecopy (with such telex or telecopy to be confirmed promptly in writing
sent by first class mail), sent (i) if to you, to the address or telex or
telecopy number set forth by you for such communications on Schedule I hereto,
or to such other address or telex or telecopy number as you may have designated
to the Borrower in writing; (ii) if to any other holder of any Notes, to the
address or telex or telecopy number (if any) of such holder as set forth in the
register maintained pursuant to Section 15; and (iii) if to the Borrower or
Holdings, to IHOP Corp., 525 North Brand Boulevard, Glendale, California 91203-
1903, Attention: Mark D. Weisberger, Vice President -- Legal, Secretary and
General Counsel; facsimile # (818) 240-0270; or to such other address or
addresses or telex or telecopy number or numbers as the Borrower may most
recently have designated in writing to the holders of Notes by such notice. All
such communications shall be deemed to have been given or made when so delivered
by hand or sent by telex (answer back received) or telecopy, or three Business
Days after being so mailed.

     Section 16.7.  Governing Law.  This Agreement and the Notes shall be
construed in accordance with and shall be governed by the laws of the State of
Illinois (without giving effect to the choice of law principles of such state).

     Section 16.8.  Submission to Jurisdiction; Waiver of Service and
Venue.  (A)  Each of Holdings and the Borrower consents and agrees to the
jurisdiction of any state or federal court sitting in the County of Cook, State
of Illinois, and waives any objection based on venue or forum non conveniens
with respect to any action instituted therein, and agrees that any dispute
concerning the relationship between the Purchaser or holder of Notes, on the one
hand, and the Borrower or Holdings, on the other hand, or the conduct of any
party in connection with this Agreement or otherwise shall be only in the courts
described above.

       (B) Each of Holdings and the Borrower hereby waives personal service of
any and all process upon it and consents that all such service of process may be
made by hand delivery or mail to Holdings and the Borrower at its address set
forth in, and in accordance with, Section 16.6. Each of Holdings and the
Borrower hereby consents to service of process as aforesaid.

       (C) Nothing in this Section 16.8 shall affect the right of the Purchaser
or any holder of Notes to serve legal process in any other manner permitted by
law or affect the right of the Purchaser or any holder of Notes 

                                      -52-

<PAGE>
 
to bring any action or proceeding against Holdings or the Borrower or their
respective property in the courts of any other jurisdiction.

     Section 16.9.  Indemnification.  In consideration of the execution and
delivery of this Agreement by you, the Borrower and Holdings hereby agree,
jointly and severally, to defend, indemnify, exonerate and hold you and each of
your and its officers, directors, employees and agents (herein collectively
called the "Indemnitees") free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities and damages, and expenses
in connection therewith, including, without limitation, reasonable counsel fees
and disbursements (herein collectively called the "Indemnified Liabilities"),
incurred by the Indemnitees or any of them as a result of, or arising out of or
relating to:

          (A) any transaction financed or to be financed in whole or in part
     directly or indirectly with proceeds from the sale of any of the Notes, or

          (B) any Environmental Matter, any Environmental Law or the actual or
     alleged existence or release of any Hazardous Material, except for any such
     Indemnified Liabilities arising on account of any Indemnitees gross
     negligence or willful misconduct, and if and to the extent that the
     foregoing undertaking may be unenforceable for any reason, Holdings and the
     Borrower hereby agree to make the maximum contribution to the payment and
     satisfaction of each of the Indemnified Liabilities which is permissible
     under applicable law.

     In addition to the foregoing, all payments required to be made by the
Borrower or Holdings under this Agreement, by the Subsidiary Guarantors under
the Subsidiary Guarantees or by the Borrower under the Notes shall be made to
the holder of the Notes free and clear of, and without deduction for, any and
all present and future taxes, withholdings, levies, duties, interest, penalties
and other governmental charges of any nature whatsoever of Canada ("Withholding
Taxes"), excluding those Withholding Taxes which are imposed by any jurisdiction
or political subdivision thereof as a result of the relevant holder of the Notes
(a) carrying or deemed to be carrying on a trade or business thereof or having
or being deemed to have a permanent establishment therein, (b) being organized
under the laws of such jurisdiction or any political subdivision thereof, (c)
being or being deemed resident in such jurisdiction, or which would not have
been imposed but for a failure of such Person to satisfy relevant authority that
such Person was not a Person mentioned in (a), (b) or (c) above.

     If the Borrower or Holdings or any Subsidiary Guarantor is obligated to
make any such withholding or deduction from any such payment, it shall
simultaneously pay to the relevant holder of the Notes such additional amount or
amounts as shall be necessary to ensure that the payment that is made (including
all such additional amounts) equals the amount which would have been received or
receivable by the relevant holder of the Notes hereunder in the absence of such
withholding or deduction. Upon request by the holder of the Notes, the Borrower
or Holdings or any Subsidiary Guarantor shall furnish to such holder a receipt
for any such Withholding Taxes paid by the Borrower or Holdings or any
Subsidiary Guarantor pursuant to this Section, or, if no such Withholding Taxes
are payable 

                                      -53-

<PAGE>
 
with respect to any payments required to be made by the Borrower or Holdings
under this Agreement, by any Subsidiary Guarantor under the Subsidiary
Guarantees or by the Borrower under the Notes, either a certificate from each
appropriate taxing authority or an opinion of counsel, in either case stating
that such payment is exempt from or not subject to such Withholding Taxes. If
any such Withholding Taxes are paid by the holder of the Notes, the Borrower or
Holdings or any Subsidiary Guarantor will, upon demand of the holder of the
Notes, jointly and severally indemnify the holder of the Notes for such
payments, together with any interest, penalties and expenses in connection
therewith plus interest thereon at the rate specified in the Notes (calculated
as if such payments constituted overdue amounts of principal as of the date of
the making of such payments).

     The obligations of the Borrower and Holdings under this Section 16.9 shall
survive the payment or transfer of any Note and the enforcement of any provision
hereof or thereof.

     Section 16.10.  Integration and Severability.  This Agreement embodies the
entire agreement and understanding among you, the Borrower and Holdings, and
supersedes all prior agreements and understandings relating to the subject
matter hereof. In case any one or more of the provisions contained in this
Agreement or in any instrument contemplated hereby for such date, or any
application thereof, shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.

     Section 16.11.  Payments Due on Days not Business Days.  Whenever any
payment hereunder or under the Notes shall be stated to be due on a day other
than a Business Day, that payment shall be made on the next succeeding Business
Day and the extension of time shall be included in the computation of interest
due thereon.

     Section 16.12.  Further Assurances.  Each of the Borrower and Holdings
covenants that, so long as you shall hold any of the Notes, it shall, and shall
cause its Subsidiaries to, cooperate with you and execute such further
instruments and documents as you shall reasonably request to carry out to your
satisfaction the transactions contemplated by this Agreement.

     Section 16.13.  Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall together constitute one and the same instrument.

     Section 16.14.  Guarantee of Holdings.

          (a) Guarantees.  Holdings, in consideration of the Purchasers entering
into this Agreement and purchasing Notes, unconditionally and irrevocably
guarantees to the Purchaser and each and every holder from time to time of any
of the Notes the due and punctual payment of all sums which may become due or be
stated in the Notes or in this Agreement to become due under the terms and
provisions of the Notes and this Agreement in respect of the principal of and
prepayment charge, if any, and interest on the Notes 

                                      -54-

<PAGE>
 
(including interest on any overdue principal, prepayment charge, if any, and, to
the extent permitted by applicable law, on any overdue interest), whether at
stated maturity, by acceleration, by notice of prepayment or otherwise, and all
other sums which may become due from the Borrower or be stated to be or become
so due under the Notes or this Agreement. Holdings further guarantees to the
Purchasers and each holder as aforesaid the due performance and observance by
the Borrower of all covenants, agreements and conditions on the Borrower's part
to be performed under this Agreement and any other document from time to time
delivered by the Borrower pursuant to this Agreement. Holdings further
guarantees to the Purchasers and each holder as aforesaid payment of all other
amounts payable by the Borrower under this Agreement or the Notes, including
costs, expenses (including fees and expenses of counsel) and taxes (such
principal, prepayment charge, if any, interest and other obligations guaranteed
as aforesaid being hereinafter collectively called the "Obligations") and to the
extent lawful agrees to pay any and all expenses (including fees and expenses of
counsel) incurred by each holder of any Note in enforcing any rights in
connection with this Section.

          (b) Waiver of Notice of Acceptance, Etc.  Holdings hereby waives
notice of acceptance of this Agreement by any holder of a Note, of any action
taken or omitted in reliance hereon or of any default in the payment of any of
the Obligations or in the performance of any covenants and agreements of the
Borrower contained in this Agreement or the Notes, and any diligence,
presentment, demand, protest, dishonor or notice of any kind.

          (c) Guarantees Absolute.  The Guarantees of Holdings under this
Agreement constitute present and continuing Guarantees of payment and not of
collectibility of the Obligations, and shall be absolute, primary, present and
unconditional, and to the extent permitted by applicable law, the Obligations
shall not be subject to any counterclaim, setoff, reduction or defense based
upon any claim Holdings may have against the Borrower, or any other Person, and
shall remain in full force and effect without regard to, and shall not be
released, discharged or in any way affected or impaired by any thing, event,
happening, matter, circumstance or condition whatsoever (whether or not Holdings
shall have any knowledge or notice thereof or shall consent thereto), including,
without limitation:  (1) any amendment or other modification of or supplement to
any provision of this Agreement or the Subsidiary Guarantees or any of the
Notes, or any assignment or transfer thereof, including without limitation any
renewal or extension of the terms of payment of any of the Notes or the granting
of time in respect of any payment thereof, or any furnishing or acceptance of
security or any release of any security furnished or accepted for any of the
Notes or in respect of the Obligations of Holdings hereunder; (2) any waiver,
consent, extension, granting of time, forbearance, indulgence or other action or
inaction under or in respect of this Agreement or the Subsidiary Guarantees or
any of the Notes, or any exercise or nonexercise of any right, remedy or power
in respect hereof or thereof; (3) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceedings with
respect to Holdings, the Borrower, the Subsidiary Guarantors or any other
Person, or the properties or creditors of any of them; (4) the occurrence of any
Event of Default or event which, with the giving of notice and/or lapse of time,
would become an Event of Default, or any invalidity or any unenforceability of,
or any 

                                      -55-

<PAGE>
 
misrepresentation, irregularity or other defect in, this Agreement or any of the
Notes or any other agreement; (5) any transfer of any assets to or from
Holdings, any Subsidiary Guarantor or the Borrower, including without limitation
any transfer or purported transfer to Holdings, any Subsidiary Guarantor or the
Borrower from any Person, any invalidity, illegality of, or inability to
enforce, any such transfer or purported transfer, any consolidation or merger of
Holdings, any Subsidiary Guarantor or the Borrower with or into any other
corporation or entity, or any change whatsoever in the objects, capital
structure, constitution or business of Holdings, any Subsidiary Guarantor or the
Borrower or any Affiliate or Subsidiary of Holdings, any Subsidiary Guarantor or
the Borrower; (6) any disposition by Holdings of any capital stock of the
Borrower; (7) any failure on the part of the Borrower, any Subsidiary Guarantor
or any other Person to perform or comply with any term of the Notes, this
Agreement, any Subsidiary Guarantee or any other agreement; (8) any suit or
other action brought by any stockholder or creditor of, or by, Holdings, the
Borrower, any Subsidiary Guarantor or any other Person for any reason
whatsoever, including without limitation any suit or action in any way attacking
or involving any issue, matter or thing in respect of the Notes, this Agreement,
any Subsidiary Guarantee or any other agreement; (9) any lack or limitation of
status or power, incapacity or disability of Holdings or the Borrower or of any
officer, director or agent of Holdings or the Borrower or any of their
respective stockholders; (10) the cessation from any cause whatsoever (other
than payment of the Obligations) of liability of the Borrower; (11) the
termination of, or release or compromise of this Agreement, any of the Notes,
any Subsidiary Guarantee or any other agreement (other than as a result of
payment of the Obligations); (12) any lack or limitation of the genuineness,
validity, regularity or enforceability of the Notes, this Agreement, the Other
Agreements, any Subsidiary Guarantee any other documents and agreements executed
or delivered in connection therewith or pursuant thereto, or any other
agreement; (13) any failure by any holder of Notes to take any steps to preserve
their rights with respect to the Obligations; (14) any election by any holder of
Notes, in any proceeding instituted under Chapter 11 of Title 11 of the United
States Code (11 U.S.C. (S) 101 et seq.) (the "Bankruptcy Code"), of the
application of Section 1111(b)(2) of the Bankruptcy Code; (15) the disallowance,
under Section 502 of the Bankruptcy Code, of all or any portion of any of the
Holders claims for repayment of the Obligations; or (16) any other thing, event,
happening, matter, circumstance or condition whatsoever, not in any way limited
to the foregoing, which might otherwise constitute a legal or equitable
discharge or defense of a guarantor.

          (d) Obligations of the Borrower Independent.  The obligations of
Holdings and the Borrower under the Notes and the other Sections of this
Agreement (other than this Section 16.14) are independent of the Obligations of
Holdings under this Section 16.14, and a separate action or actions may be
brought or prosecuted against Holdings irrespective of whether action is brought
against the Borrower and/or any other Guarantor or whether the Borrower and/or
any other Guarantor is joined in any action or actions.

          (e) Waiver of Certain Rights.  Holdings expressly waives any right it
may have to require any Person seeking enforcement of its Obligations under this
Section 16.14 and the Guarantee in respect of any Note to (1) proceed against
the Borrower or any other Person, (2) proceed against or exhaust any security or
(3) pursue any other remedy in the power of 

                                      -56-

<PAGE>
 
the Person seeking such enforcement. The Borrower waives the right to have any
security first applied to the discharge of the Obligations. The Purchasers and
the other holders from time to time of the Notes may, at their election,
exercise any right or remedy they may have against the Borrower or Holdings or
the Company, including without limitation the right to foreclose upon any such
security by judicial or non-judicial sale, without affecting or limiting in any
way the liability of Holdings hereunder, except to the extent the Obligations
have been paid. Holdings waives any defense arising out of the absence,
impairment or loss of any right of reimbursement, contribution or subrogation or
any other rights or remedy of Holdings against the Borrower, or any such
security, whether resulting from such election by the holders of the Notes or
otherwise.

          (f) Reinstatement.  Holdings agrees that its obligations under this
Agreement shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of the Borrower or Holdings or any Subsidiary
Guarantor is rescinded or must be otherwise restored by any holder of any Note,
whether as a result of any proceedings in bankruptcy or reorganization or
otherwise.  Holdings further agrees that, without limiting the generality of
such obligations, if an Event of Default shall have occurred and be continuing
and you or the holder of any Note is prevented by applicable law from exercising
any remedy under this Agreement or under any of the Notes, the holders of the
Notes shall be entitled to receive from Holdings upon demand therefor, the sums
which would have otherwise been due from the Borrower had such remedies been
exercised.

          (g) Waiver of Subrogation.  Holdings waives and releases any claim
(within the meaning of 11 U.S.C. (S) 101) which it may have against the Borrower
and agrees not to assert or take advantage of any subrogation rights or any
right to proceed against the Borrower for reimbursement.  It is expressly
understood that the waivers and agreements of Holdings set forth above
constituted additional and cumulative benefits given to the Purchasers as
further inducement for the purchase of the Notes.

          (h) Waiver of Certain Rights.  Holdings hereby expressly waives any
and all benefits under California Civil Code Sections 2809, 2810, 2819, 2845,
2847, 2848, 2849, 2850, 2899 and 3433, and California Code of Civil Procedure
Sections 580(a), 580(b), 580(d) and 726.

     Section 16.15.  Waiver of Right to Trial by Jury;.  The Borrower, Holdings
and the Purchaser hereby waive any right to trial by jury of any claim, demand,
action or cause of action (i) arising under this Agreement or any other
instrument, document or agreement executed or delivered in connection herewith
or (ii) in any way connected with or related or incidental to the dealings of
the parties hereto or any of them in respect to this Agreement or any other
instrument, document or agreement executed or delivered in connection herewith
or the transactions related hereto, in each case whether now existing or
hereafter arising, and whether sounding in contract or tort or otherwise.
Holdings, the Borrower and the Purchaser hereby agree and consent that any such
claim, demand, action or cause of action shall be decided by court trial without
a jury and that any party may

                                      -57-

<PAGE>
 
file an original counterpart or a copy of this Agreement with any court as
written evidence of the consent of the parties hereto to the waiver of their
right to trial by jury.

                                      -58-

<PAGE>
 
     In Witness Whereof, the undersigned have signed their names this 8th day of
November, 1996.  



                                      International House of Pancakes, Inc.

                                      By:  /s/ Richard K. Herzer
                                         -------------------------
                                            Name: Richard K. Herzer
                                            Title: President


                                      IHOP Corp.

                                      By:  /s/ Richard K. Herzer
                                         -------------------------
                                            Name: Richard K. Herzer
                                            Title: President

                                      -59-

<PAGE>
 
     If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.

                                      Very truly yours,

                                      IHOP Corp.

                                      By:  /s/ Richard K. Herzer
                                         ----------------------------------
                                               Richard K. Herzer, President


 
                                      International House of Pancakes, Inc.

                                      By:  /s/ Richard K. Herzer
                                         ----------------------------------
                                               Richard K. Herzer, President


Accepted as of the date first
above written:

Jackson National Life Insurance Company
By: PPM AMERICA, INC., as Agent


By: /s/ David Brett
    -----------------------------
    Name: David Brett
    Title: V.P.

PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY

By: /s/ Keith D. Robbins
    -----------------------------
    Name: Keith D. Robbins
    Title: Vice President

UNITED OF OMAHA LIFE INSURANCE COMPANY

By: /s/ Edwin H. Garrison  Jr.
    -----------------------------
    Name: Edwin H. Garrison Jr.
    Title: First Vice President

SECURITY FIRST LIFE INSURANCE COMPANY

By: /s/ R.J. Ritchie
    -----------------------------
    Name: R.J. Ritchie
    Title: Director, U.S. Fixed Income

By: /s/ Ruth Ann McConkey
    ----------------------------
    Name: Ruth Ann McConkey
    Title: Manager, U.S. Fixed Income

                                      -60-

<PAGE>
 
                              MANNER OF PAYMENT AND
                          COMMUNICATIONS TO PURCHASERS

         This Schedule I shows the names and addresses of the Purchasers under
the foregoing Senior Note Purchase Agreement and the Other Agreements referred
to therein, and the respective principal amount of the Notes purchased, the name
under which the Notes will be registered and the purchase price thereof to be
purchased by each.


<TABLE> 
<CAPTION>  
                                                     Principal       Purchase
                          Registered Name            Amount of     Price of the
      Purchaser          Appearing on the Note        the Note         Note
<S>                      <C>                       <C>            <C> 
Jackson National Life     Jackson National Life     $21,000,000    $21,000,000
 Insurance Company         Insurance Company

Phoenix Home Life Mutual  Phoenix Home Life         $ 7,000,000    $ 7,000,000 
 Insurance Company         Mutual Insurance                                    
                           Company                                             
                                                                               
United of Omaha Life      United of Omaha Life      $ 4,000,000    $ 4,000,000 
 Insurance Company         Insurance Company                                   
                                                                               
Security First Life       Security First Life       $ 3,000,000    $ 3,000,000  
 Insurance Company         Insurance Company
</TABLE>
 


                                  SCHEDULE I
                      (to Senior Note Purchase Agreement)

<PAGE>
 
NAME OF NOTEHOLDER

JACKSON NATIONAL LIFE INSURANCE COMPANY
5901 Executive Drive
Lansing, Michigan 48909

Taxpayer I.D. Number:  38-1659835

MANNER OF PAYMENT

         All payments on account of the Note shall be made by bank wire or
transfer of immediately available funds (specifying International House of
Pancakes, Inc., 7.42% Senior Notes Due 2008, PPN 459668 A@ 8 and the application
of the payment as between interest, principal and premium) to:


         NORTHERN CHGO (ABA #0710-0015-2)
         26-91241 Jackson National Life Insurance Company
         for credit to: Jackson National Life Insurance Company
         Account Number 5186041000
         Ref: (IHOP Corp.)
         PVTOPL, Date of Payment, principal and interest breakdown.
         Attn: Sharon Stifter

ADDRESS FOR COMMUNICATIONS FOR NOTICES OF PAYMENTS AND CONFIRMATION OF WIRE
  TRANSFERS AND ALL OTHER COMMUNICATIONS

                  PPM America, Inc.

                  225 West Wacker Drive, Suite 1200

                  Chicago, Illinois 60606

                  Attention: Private Placements      (312) 634-2500

                                      -2-

<PAGE>
 
NAME OF NOTEHOLDER

PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
One American Row
Hartford, CT  06115

Taxpayer I.D. Number:  06-0493340


MANNER OF PAYMENT

     All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (specifying International House of Pancakes, Inc.,
7.42% Senior Notes Due 2008, PPN 459668 A@ 8 and the application of the payment
as between interest, principal and premium) to:


                  Chase Manhattan Bank, N.A.
                  ABA #021 000 021
                  New York, New York
                  Account Number: 900 9000 200
                  Account Name: Income Processing
                  Reference: Phoenix Home Life Account #G05143
                  OBI=IHOP Corp., PPN 459668 A@ 8, Rate=7.42%, Due=2008 (include
                  principal and interest breakdown and premium, if any)

ADDRESS FOR COMMUNICATIONS FOR NOTICES OF PAYMENTS AND CONFIRMATION OF WIRE
  TRANSFERS AND ALL OTHER COMMUNICATIONS

         Phoenix Home Life Mutual Insurance Company
         c/o Phoenix Duff & Phelps, Inc.
         56 Prospect Street
         P.O. Box 150480
         Hartford, CT  06115-0480
         Attention: Private Placements Division
         Telecopier Number: (860) 403-5451

                                      -3-

<PAGE>
 
NAME OF NOTEHOLDER

UNITED OF OMAHA LIFE INSURANCE COMPANY
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Division/Securities Accounting
Telefacsimile: (402) 351-2913
Confirmation: (402) 351-2583

Taxpayer I.D. Number: 47-0322111

MANNER OF PAYMENT

         All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (specifying International House of Pancakes, Inc.,
7.42% Senior Notes Due 2008, PPN 459668 A@ 8 and the application of the payment
as between interest, principal and premium) to:

               First Bank, N.A. (ABA #1040-0002-9)                              
               17th and Farnam Streets                                          
               Omaha, Nebraska                                                  
                                                                                
               For credit to: United of Omaha Life Insurance Company            
               Account Number 1-487-1447-0769


ADDRESS FOR COMMUNICATIONS FOR NOTICES OF PAYMENTS AND CONFIRMATION OF WIRE
  TRANSFERS AND ALL OTHER COMMUNICATIONS

         All notices to be addressed as first provided above.

                                      -4-

<PAGE>
 
NAME OF NOTEHOLDER

SECURITY FIRST LIFE INSURANCE COMPANY
c/o London Life Insurance Company
255 Dufferin Avenue
London, Ontario  N6A 4K1

Attention:  Manager U.S. Fixed Income (Private Placements)
            Securities Department

Taxpayer I.D. Number: 540696644

MANNER OF PAYMENT

     All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (specifying International House of Pancakes, Inc.,
7.42% Senior Notes Due 2008, PPN 459668 A@ 8 and the application of the payment
as between interest, principal and premium) to:


         Bank of New York
         1 Wall Street
         New York, New York  10286

         Re:  Account Name:  Security First Group Corporate Bond Account
              Account Number:  328175
              ABA #:  021000018

ADDRESS FOR COMMUNICATIONS FOR NOTICES OF PAYMENTS AND CONFIRMATION OF WIRE
TRANSFERS AND ALL OTHER COMMUNICATIONS

         All notices to be addressed as first provided above.

                                      -5-

<PAGE>
 
                                  SCHEDULE 4.5

                                 INTERIM CHANGES

1.   Additional Debt in the amount of $18,600,000 incurred pursuant to the BA
Credit Agreement.

<PAGE>
 
                                  SCHEDULE 4.6


                                   IHOP CORP.

                    LIST OF DIRECT AND INDIRECT SUBSIDIARIES


<TABLE>
<CAPTION>

                                                        OWNERSHIP                                         STATE OF 
            ENTITY                                      PERCENTAGE                                     INCORPORATION 
<S>                                                 <C>                                                  <C>           
International House of Pancakes, Inc.               100% owned by IHOP Corp.                               Delaware

IHOP Realty Corp.                                   100% owned by International House of                   Delaware
                                                    Pancakes, Inc.

IHOP Restaurants, Inc.                              100% owned by International House of                   Delaware
                                                    Pancakes, Inc.

III Industries of Canada, Inc.                      100% owned by International House of                    Canada
                                                    Pancakes, Inc.

Blue Roof Advertising                               100% owned by International House of                  California
                                                    Pancakes, Inc.

Copper Penny Corporation                            100% owned by International House of                   Delaware
                                                    Pancakes, Inc.

IHOP Properties, Inc.                               100% owned by Copper Penny Corporation                California
</TABLE>


<PAGE>
 
                                  SCHEDULE 4.7

                               LITIGATION SUMMARY

                                      NONE.

<PAGE>
 
                                  SCHEDULE 4.8

                   EXISTING CURRENT AND FUNDED DEBT AND LIENS


<TABLE>

<S>                                                                     <C>        
Mortgage Note by and between IHOP Realty Corp. and Pizza Hut of
America for Property in La Grange, Illinois (IHOP #1281)                $   396,891

Lease Agreement between IHOP Corp. and Hewlett-Packard for
Financial system                                                             21,303
                                                                                     
Lease Agreement between IHOP CORP. and Hewlett-Packard for                           
Financial system                                                             60,363
                                                                                     
Lease Agreement between IHOP CORP. and Hewlett-Packard for                           
Financial system                                                              8,428
                                                                                     
Lease Agreement between IHOP CORP. and Hewlett-Packard for                           
Financial system                                                             68,202
                                                                                     
Master Lease Agreement between IHOP CORP. and Forrest Financial             171,780    
Corporation and assignee:  First Bank, N.A. for Financial system                      
                                                                                     
Master Lease Agreement between IHOP CORP. and Forrest Financial             344,780    
Corporation and assignee:  First Bank, N.A. for Financial system                      
                                                                                  0    
Obligations Under Letters of Credit (Various)                                         
                                                                                     
Installment Payment Agreement between IHOP Corp. and Ed Beck &              299,500    
Associates and assignee:  Sterling Bank & Trust, FSB                                  
                                                                         32,000,000    
Senior Notes due November 2002                                                        
                                                                                     
Bank Revolving Credit Agreement due June 1999 (to be repaid from the   
proceeds from the sale and issuance of the Notes)                                 0      
                                                                        -----------  
                                         TOTAL                          $33,371,247  
                                                                        ===========                
</TABLE>


<PAGE>
 
                                  SCHEDULE 4.9

                             CONSENTS AND APPROVALS

                                      None.

<PAGE>
 
                                  SCHEDULE 4.11

                                      TAXES


<TABLE> 
<CAPTION> 
Current Audits:

<S>                           <C>                       <C> 
State of Wisconsin            1991-1994                 Income Taxes

State of Virginia             1992-1995                 Income Taxes

State of New York             1994-1995                 Income Taxes

County of Maricopa, AZ        1994-1996                 Personal Property Taxes

County of San Bernardino, CA  1990-1995                 Personal Property Taxes

County of Fresno, CA          1993-1996                 Personal Property Taxes
</TABLE>
 


CONSENTS TO WAIVER OR EXTENSION OF THE STATUTE OF LIMITATIONS:

State of Wisconsin            1991 - Extended 3/31/97

<PAGE>
 
                                 SCHEDULE 4.16

                                  LABOR MATTERS



         The Agreement between the Borrower and Hotel Employees Union Local 340
which relates to IHOP restaurant no. 648 expired by its terms on October 31,
1993. The Borrower and the Union representatives are currently negotiating a new
agreement on substantially similar terms.

<PAGE>
 
                                 SCHEDULE 4.17

                              ENVIRONMENTAL MATTERS

                                      None.

<PAGE>
 
                                  SCHEDULE 4.19

                              COMPLIANCE WITH ERISA



         San Mateo Hotel Employees and Restaurant Employees Trust, a health and
welfare benefit plan.

<PAGE>
 
                                  SCHEDULE 4.25

                                   FRANCHISES



            1.    License Agreement for All Japan

            2.    Area Franchise Agreement (Florida and Southern Counties of
                  Georgia)

            3.    License Agreement for British Columbia, Canada

<PAGE>
 
                                   SCHEDULE 12

                     RESTRICTED INVESTMENTS AT CLOSING DATE



<TABLE> 
<CAPTION> 

                DESCRIPTION                       AMOUNT
<S>                                             <C> 
Ex-Franchisee Notes Receivable (various)          $761,345
                                                          
Current Franchisee Note Receivable                 125,565
                                                  --------
Total Restricted Investments                      $886,910
                                                  ========
</TABLE>
 

<PAGE>
 
                                    EXHIBIT A

                                  FORM OF NOTE

                        THIS NOTE HAS NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
                        AND MAY NOT BE SOLD OR OTHERWISE
                       TRANSFERRED IN THE ABSENCE OF SUCH
                     REGISTRATION OR AN EXEMPTION THEREFROM.

                      INTERNATIONAL HOUSE OF PANCAKES, INC.

                                7.42% Senior Note

                              Due November 1, 2008


No. R-______                                                   Chicago, Illinois
                                                               November 8, 1996
$___________                                                   PPN:  459668 A@ 8

INTERNATIONAL HOUSE OF PANCAKES, INC., a company incorporated under the laws of
the State of Delaware (the "Borrower"), for value received, hereby promises to
pay to __________________ (the "Lender") or registered assigns, $_________,
payable in annual installments of $__________ (subject to adjustment pursuant to
Section 3 of the Note Agreement, as hereinafter defined) commencing on November
1, 2000, and on every November 1, thereafter through November 1, 2007 with a
final payment of the remaining outstanding principal balance payable at maturity
on November 1, 2008 and to pay interest (computed on the basis of a 360-day year
of twelve 30-day months) on the principal amount from time to time remaining
unpaid hereon at the rate of 7.42% per annum, from the date hereof until
maturity, payable semi-annually on the 8th day of each May and November in each
year commencing May 8, 1997, and at maturity. The Borrower agrees to pay
interest on overdue principal and prepayment charge, if any, and (to the extent
legally enforceable) on any overdue installment of interest, at a rate equal to
the greater of 9.42% or the rate of interest announced publicly from time to
time by Bank of America Illinois in Chicago, Illinois, as its "prime rate" after
the due date, whether by acceleration or otherwise, until paid. Both the
principal hereof and interest hereon are payable to the Lender in the manner and
pursuant to the instructions indicated on Schedule I to the Note Agreement, as
hereinafter defined, or in such other manner or pursuant to such other
instructions as shall be designated in writing in accordance with the terms of
the Note Agreement, in currency of the United States of America which at the
time of payment shall be legal tender for the payment of public and private
debts.

         This Note is issued pursuant to the terms and provisions of the Senior
Note Purchase Agreement, dated as of November 1, 1996 (the "Note Agreement"),
entered into by the 

<PAGE>
 
Borrower, IHOP Corp., a Delaware corporation of which the Borrower is a wholly-
owned Subsidiary ("Holdings"), and the Lender. Reference is hereby made to the
Note Agreement for a statement of such terms and provisions.

         This Senior Note is guaranteed by (i) Holdings, as set forth in Section
16.14 of the Note Agreement, (ii) IHOP Realty Corp., a Delaware corporation and
a wholly-owned indirect Subsidiary of the Borrower, pursuant to a Subsidiary
Guarantee of even date herewith, (iii) IHOP Properties, Inc., a California
corporation and a wholly-owned Subsidiary of the Borrower, pursuant to a
Subsidiary Guarantee of even date herewith, and (iv) IHOP Restaurants, Inc., a
Delaware corporation and a wholly-owned Subsidiary to the Borrower, pursuant to
a Subsidiary Guarantee of even date herewith.

         This Note may be declared due prior to its maturity date and certain
prepayments may be made thereon, in the events, on the terms and conditions, and
in the amounts set forth in the Note Agreement.

         This Note is not subject to prepayment or redemption at the option of
the Borrower prior to its maturity date except in the event, on the terms and
conditions, and in the amounts set forth in the Note Agreement.

         This Note is registered on the books of the Borrower and is
transferable only by surrender thereof at the principal office of the Borrower
at 525 North Brand Boulevard, Glendale, California 91203-1903, duly endorsed or
accompanied by a written instrument of transfer duly executed by the registered
holder of this Note or its attorney duly authorized in writing. Payment of or on
account of principal and interest on this Note shall be made only to or upon the
order in writing of the registered holder.

         The Note Agreement and this Note shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of Illinois.

                                      INTERNATIONAL HOUSE OF PANCAKES, INC.


                                      By____________________________
                                        Its_________________________

                                      A-2

<PAGE>
 
                                    EXHIBIT B


                                November 8, 1996


To the Parties listed on the 
  Schedule attached hereto:


         Re:             $35,000,000 7.42% Senior Notes
                                    Due 2008
                                       of
                      INTERNATIONAL HOUSE OF PANCAKES, INC.

Ladies and Gentlemen:

         We have acted as your special counsel in connection with your separate
purchases on the date hereof of $35,000,000 aggregate principal amount of the
7.42% Senior Notes due 2008 (the "Notes") of International House of Pancakes,
Inc., a Delaware corporation (the "Company"), issued under and pursuant to the
separate and several Senior Note Purchase Agreements each dated as of November
1, 1996 (collectively, the "Note Agreement"), among the Company, IHOP Corp., a
Delaware corporation ("Holdings") and each of you.

         In that connection, we have examined the following:

                  (a) The Note Agreement;

                  (b) A copy of the Certificate/Articles of Incorporation of
         each of the Company and Holdings and all amendments thereto certified
         by the Secretary of State of the State of Delaware and the Certificates
         of the Secretary of State of the State of Delaware evidencing that each
         of the Company and Holdings is in good standing in such state (the
         "Good Standing Certificate");

                  (c) A copy of the By-laws of each of the Company and Holdings,
         as amended to the date hereof, and a copy of the resolutions adopted by
         the Board of Directors of each of the Company and Holdings with respect
         to the authorization of the Note Agreement, the issuance, sale and
         delivery of the Notes and related matters, each as certified by the
         (Assistant) Secretary of the Company and of Holdings;

                  (d) The opinion of Skadden, Arps, Slate, Meagher, Flom,
         counsel to the Company and Holdings, dated the date hereof and
         delivered responsive to Section 6.3 of the Note Agreement;

                  (e) The Notes delivered on the date hereof;

<PAGE>
 
                  (f) Such certificates of officers of the Company, Holdings and
         of public officials as we have deemed necessary to give the opinions
         hereinafter expressed; and

                  (g) Such other documents and matters of law as we have deemed
         necessary to give the opinions hereinafter expressed.

         We believe that the opinion referred to in clause (d) above is
satisfactory in scope and form and that you are justified in relying thereon.
Our opinion as to matters referred to in paragraphs 1 and 2 below is based
solely upon an examination of the Certificate/Articles of Incorporation, the
By-laws and the Good Standing Certificate of each of the Company and Holdings
and the general business law of the State of Delaware. We have also relied, as
to certain factual matters, upon appropriate certificates of public officials
and officers of the Company and Holdings and upon representations of the
Company, Holdings and you delivered in connection with the issuance and sale of
the Notes.

         Based upon the foregoing, we are of the opinion that:

                    1. The Company is a corporation, validly existing and in
         good standing under the laws of the State of Delaware and has the
         corporate power and the corporate authority to execute and deliver the
         Note Agreement and to issue the Notes.

                    2. Holdings is a corporation, validly existing and in good
         standing under the laws of the State of Delaware and has the corporate
         power and the corporate authority to execute and deliver the Note
         Agreement.

                    3. The Note Agreement has been duly authorized by all
         necessary corporate action on the part of the Company, has been duly
         executed and delivered by the Company and constitutes the legal, valid
         and binding contract of the Company enforceable in accordance with its
         terms, subject to bankruptcy, insolvency, fraudulent conveyance and
         similar laws affecting creditors' rights generally, and general
         principles of equity (regardless of whether the application of such
         principles is considered in a proceeding in equity or at law).

                    4. The Note Agreement has been duly authorized by all
         necessary corporate action on the part of Holdings, has been duly
         executed and delivered by Holdings and constitutes the legal, valid and
         binding contract of Holdings enforceable in accordance with its terms,
         subject to bankruptcy, insolvency, fraudulent conveyance and similar
         laws affecting creditors' rights generally, and general principles of
         equity (regardless of whether the application of such principles is
         considered in a proceeding in equity or at law).

                    5. The Notes have been duly authorized by all necessary
         corporate action on the part of the Company, and the Notes being
         delivered on the date hereof have been duly executed and delivered by
         the Company and constitute the legal, valid and binding obligations of
         the Company enforceable in accordance with their terms, subject to
         bankruptcy, insolvency, fraudulent conveyance and similar laws
         affecting 

                                      B-2

<PAGE>
 
         creditors' rights generally, and general principles of equity
         (regardless of whether the application of such principles is considered
         in a proceeding in equity or at law).

               6. The issuance, sale and delivery of the Notes under the
         circumstances contemplated by the Note Agreement do not, under existing
         law, require the registration of the Notes under the Securities Act of
         1933, as amended, or the qualification of an indenture under the Trust
         Indenture Act of 1939, as amended.

         Our opinion is limited to the laws of the State of Illinois, the
general business corporation law of the State of Delaware and the Federal laws
of the United States and we express no opinion on the laws of any other
jurisdiction.

                             Respectfully submitted,

                                      B-3

<PAGE>
 
                               CHAPMAN AND CUTLER

                                   SCHEDULE I


Jackson National Life Insurance Company


Phoenix Home Life Mutual Insurance Company


United of Omaha Life Insurance Company


First Security Life Insurance Company

<PAGE>
 
                                    EXHIBIT C

                  [Opinion of counsel of Holdings, the Borrower
       and the Subsidiary Guarantors addressed to each of the Purchasers]

            1. Holdings, the Borrower and each of their Subsidiaries are
corporations duly incorporated, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation, and each has the
requisite corporate power and authority to own, lease and operate its respective
Properties and to carry on its respective businesses as presently owned and
conducted, and each is duly qualified and in good standing in the jurisdictions
in which the character of the Properties owned or leased by it or the nature of
the business transacted by it makes such qualification necessary.

            2. The Purchase Agreements, the Notes and the Subsidiary Guarantees
have been duly authorized, executed and delivered by Holdings, the Borrower and
the Subsidiary Guarantors, to the extent each is a party thereto and such
documents constitute the legal, valid and binding agreements of Holdings, the
Borrower and the Subsidiary Guarantors, to the extent each is a party thereto,
enforceable against Holdings, the Borrower and the Subsidiary Guarantors, to the
extent each is a party thereto, in accordance with their terms.

            3. The issuance and sale of the Notes, the execution and delivery
of, and performance by Holdings and the Borrower of their respective
contractually required obligations and undertakings under, the Purchase
Agreements and the execution and delivery of, and performance by the Subsidiary
Guarantors of their contractually required obligations and undertakings under,
the Subsidiary Guarantees, do not conflict with or result in any breach of any
provision of, constitute a default under, or result in the creation or
imposition of any Lien upon any of the respective Properties of Holdings, the
Borrower or the Subsidiary Guarantors or any of their Subsidiaries pursuant to
the provisions of the charter documents of any of them, or any agreement, order,
decree, indenture, judgment or other instrument or document to which any of them
is a party or by which any of them or their respective Properties may be bound.

            4. There are no proceedings pending or threatened against Holdings,
the Borrower or any of their Subsidiaries in any court or before any
Governmental Body or arbitration board or tribunal which could materially and
adversely affect the Properties, business, profits or condition (financial or
otherwise) of Holdings, the Borrower or any of their Subsidiaries or the ability
of Holdings or the Borrower to perform their respective obligations under the
Purchase Agreements or the Notes or the ability of the Subsidiary Guarantors to
perform their obligations under the Subsidiary Guarantees.

            5. The issuance, sale and delivery of the Notes and the Subsidiary
Guarantees under the circumstances contemplated by the Purchase Agreements
constitute an exempt transaction under the registration provisions of the
Securities Act of 1933, as amended, and do not under existing law require the
registration of the Notes or the Subsidiary Guarantee under the Securities Act
of 1933, as amended, or the qualification of an indenture in respect thereof
under the Trust Indenture Act of 1939, as amended.

<PAGE>
 
            6. Assuming that the proceeds of the issuance and sale of the Notes
are utilized as set forth in Section 4.26 of the Purchase Agreements, neither
the issuance of the Notes nor the use of the proceeds from the sale thereof will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto, including, without
limitation, Regulations G, T and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II.

            7. No consent, approval, authorization, or order of, or other action
by or filing with, any Governmental Body is required in connection with the
execution, delivery or performance of the Purchase Agreements or the Subsidiary
Guarantees, the issuance of the Notes or compliance by Holdings, the Borrower
and the Subsidiary Guarantors, to the extent each is a party thereto with the
terms and provisions thereof.

            8. None of Holdings, the Borrower nor any of their Subsidiaries is
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any franchising arrangement,
material lease, agreement, indenture or loan document to which it is a party,
and no condition exists which, with the giving of notice or the lapse of time or
both, would constitute such a default.

            9. None of Holdings, the Borrower nor any of their Subsidiaries is,
nor are any of them directly or indirectly controlled by or acting on behalf of
any Person which is, an "investment company" within the meaning of the
Investment Company Act of 1940, and none of Holdings, the Borrower nor any of
their Subsidiaries is subject to any law, statute, rule or regulation limiting
its ability to incur indebtedness for money borrowed.

           10. All of the shares of issued and outstanding capital stock of the
Borrower are owned of record and, to our knowledge, beneficially, by Holdings
and all of the shares of issued and outstanding capital stock of the Subsidiary
Guarantors are owned of record and, to our knowledge, beneficially, by the
Borrower, in each case free and clear of Liens.

                                      C-2

<PAGE>
 


================================================================================













           



            ------------------------------------------------------



                          THE GUARANTEE AGREEMENT OF


                       IHOP REALTY CORP. (EXHIBIT D-1 TO


                      THE SENIOR NOTE PURCHASE AGREEMENT)


                         IS CONTAINED IN ITS ENTIRETY 


                           AS DOCUMENT NO. 2 HEREIN.



            ------------------------------------------------------















================================================================================

<PAGE>
 




================================================================================
















            ------------------------------------------------------


                          THE GUARANTEE AGREEMENT OF


                     IHOP PROPERTIES, INC. (EXHIBIT D-2 TO


                      THE SENIOR NOTE PURCHASE AGREEMENT)


                         IS CONTAINED IN ITS ENTIRETY


                           AS DOCUMENT NO. 3 HEREIN.


            ------------------------------------------------------
















================================================================================

<PAGE>
 



===============================================================================







                








            ------------------------------------------------------


                          THE GUARANTEE AGREEMENT OF

                    IHOP RESTAURANTS, INC. (EXHIBIT D-3 TO

                      THE SENIOR NOTE PURCHASE AGREEMENT)

                         IS CONTAINED IN ITS ENTIRETY

                           AS DOCUMENT NO.4 HEREIN.


            ------------------------------------------------------
















===============================================================================









<PAGE>
 
                                                                    IHOP# ______

                                    EXHIBIT E


================================================================================





                                      LEASE

                                     between

                               IHOP REALTY CORP.,
                             a Delaware corporation,
                                     Lessor


                                       and


                     INTERNATIONAL HOUSE OF PANCAKES, INC.,
                             a Delaware corporation,
                                     Lessee





                             -----------------, ----



================================================================================

<PAGE>
 
                                      LEASE
                                     between
                               IHOP REALTY CORP.,

                         a Delaware corporation, Lessor,
                                       and
                     INTERNATIONAL HOUSE OF PANCAKES, INC.,
                         a Delaware corporation, Lessee

                                TABLE OF CONTENTS

<TABLE> 
<CAPTION> 

SECTION                             HEADING                                          PAGE
<S>                  <C>                                                            <C>  
ARTICLE I             DEMISED PREMISES; TERM..........................................1

       Section 1.1.          Demised Premises.........................................1
       Section 1.2.          Term.....................................................1
       Section 1.3.          Options to Extend Term...................................1
       Section 1.4.          Short Form of Lease......................................1 

ARTICLE II             RENT...........................................................2

       Section 2.1.          Minimum Monthly Rental...................................2
       Section 2.2.          Percentage Rent..........................................2
       Section 2.3.          Statements of Gross Sales................................3
       Section 2.4.          "Gross Sales" Defined....................................3
       Section 2.5           Verification of Gross Sales; Audit.......................3 

ARTICLE III            TAXES AND ASSESSMENTS..........................................3

       Section 3.1.           Taxes and Assessments...................................3 
       Section 3.2.           Installment Payments....................................4 
       Section 3.3.           Personal Property Taxes.................................4 
       Section 3.4.           Proration...............................................4 
       Section 3.5.           Contest.................................................4  

ARTICLE IV             CONSTRUCTION OF IMPROVEMENTS; REPAIR AND MAINTENANCE; 
                       ALTERATIONS AND IMPROVEMENTS'..................................4

       Section 4.1.           Construction of Improvements............................4 
       Section 4.2.           Repair and Maintenance..................................5 
       Section 4.3.           Alterations and Improvements............................5  

ARTICLE V              LIENS..........................................................5

       Section 5.1.           Discharge of Liens; Contest.............................5
</TABLE>
 

                                      -i-

<PAGE>
 

<TABLE> 
<S>                    <C>                                                           <C> 
ARTICLE VI             USE OF PREMISES................................................5

       Section 6.1.           Permitted Use...........................................5

ARTICLE VII            LIABILITY INSURANCE............................................6

       Section 7.1.           Lessee's Insurance......................................6

ARTICLE VIII           BANKRUPTCY.....................................................6

       Section 8.1.           Continuation of Lease...................................6

ARTICLE IX             ASSIGNMENT AND SUBLETTING......................................6

       Section 9.1.           Assignment..............................................6
       Section 9.2.           Subletting..............................................7

ARTICLE X              REMEDIES IN THE EVENT OF DEFAULT...............................7

       Section 10.1.           Remedies...............................................7

ARTICLE XI             PROPERTY INSURANCE.............................................8

       Section 11.1.          Lessee to Obtain "All Risk" Insurance...................8
       Section 11.2.          Blanket Policy..........................................9

ARTICLE XII            DAMAGE AND DESTRUCTION.........................................9

       Section 12.1.          Abatement of Rent.......................................9
       Section 12.2.          Restoration of Improvements -- Insured Loss.............9
       Section 12.3.          Restoration of Improvements -- Uninsured Loss...........9
       Section 12.4.          Extension of Lease......................................10

ARTICLE XIII           CONDEMNATION...................................................10

       Section 13.1.          Complete Taking.........................................10 
       Section 13.2.          Partial Taking..........................................10 
       Section 13.3.          Allocation of Condemnation Award........................10 
       Section 13.4.          Rent Reduction in Case of Partial Taking................11  

ARTICLE XIV            QUIET ENJOYMENT AND TITLE......................................11

       Section 14.1.          Covenant of Quiet Enjoyment.............................11 
       Section 14.2.          Right to Possession.....................................11 
       Section 14.3.          Superior Encumbrances...................................11 
       Section 14.4.          Ownership; Authority; Restrictions......................11  

ARTICLE XV             TRADE FIXTURES.................................................12

       Section 15.1.          Ownership; Removal......................................12
</TABLE>
 

                                     -ii-


<PAGE>
 

<TABLE> 
<S>                   <C>                                                             <C>     
ARTICLE XVI            SUBORDINATION..................................................12

       Section 16.1.          Subordination...........................................12

ARTICLE XVII           RIGHT OF FIRST REFUSAL.........................................13

       Section 17.1.          Purchase................................................13 
       Section 17.2.          Lease...................................................13 
       Section 17.3.          Incorporation in Short Form of Lease....................13  

ARTICLE XVIII          REMOVAL OF DISTINCTIVE FEATURES................................13

       Section 18.1.          Removal; Repairs........................................13

ARTICLE XIX            PROHIBITION AGAINST COMPETITION AND PROTECTION FOR 
                       EXPOSURE.......................................................14

       Section 19.1.          Lessor's Covenant.......................................14 
       Section 19.2.          Lessee's Remedies for Breach............................14 
       Section 19.3.          Incorporation in Short Form of Lease....................14  

ARTICLE XX             TITLE CONSIDERATIONS...........................................14

       Section 20.1.          CC&Rs; Lender's Lien....................................14

ARTICLE XXI            HAZARDOUS SUBSTANCE OR WASTE...................................15

       Section 21.1.          Mutual Indemnity........................................15

ARTICLE XXII           REAL ESTATE COMMISSIONS........................................15

       Section 22.1.          Payment; Mutual Indemnity...............................15

ARTICLE XXIII          NOTICES AND DEMANDS............................................15

       Section 23.1.          To Lessor...............................................15
       Section 23.2.          To Lessee...............................................16

ARTICLE XXIV           ATTORNEYS' FEES................................................16

       Section 24.1.          Paid to Prevailing Party................................16

ARTICLE XXV            GENERAL PROVISIONS.............................................16

       Section 25.1.          Binding on Successors...................................16 
       Section 25.2.          Severability............................................16 
       Section 25.3.          Entire Agreement........................................16 
       Section 25.4.          Captions................................................16 
       Section 25.5.          Gender and Number.......................................16 
       Section 25.6.          Approvals...............................................17 
       Section 25.7.          No Waiver...............................................17  
</TABLE>
 

                                     -iii-

<PAGE>
 

<TABLE> 
      <S>                    <C>                                                     <C>  
       Section 25.8.          Holdover................................................17 
       Section 25.9.          Time of Essence.........................................17 
       Section 25.10.         Governing Law...........................................17 
       Section 25.11.         Counterparts............................................17 
       Section 25.12.         No Third Party Rights...................................17 
       Section 25.13.         Unexecuted Lease........................................17 
       Section 25.14.         Lessor's Right of Entry.................................17   
       Section 25.15.         Estoppel Certificates...................................17 
       Section 25.16.         Due Authorization.......................................18 
       Section 25.17.         Relationship of Parties.................................18  
</TABLE>
 

EXHIBITS:

EXHIBIT "A"     --        Legal Description
EXHIBIT "B"     --        Permitted Exceptions

                                     -iv-

<PAGE>
 
                                                                  IHOP #________

                                      LEASE

         AGREEMENT OF LEASE, made this ______ day of __________________, 1992,
by and between IHOP REALTY CORP., a Delaware corporation, having its principal
place of business at 525 N. Brand Boulevard, Third Floor, Glendale, California
91203-1903 (hereinafter called "Lessor"), and INTERNATIONAL HOUSE OF PANCAKES,
INC., a Delaware corporation, having its principal place of business at 525 N.
Brand Boulevard, Third Floor, Glendale, California 91203-1903 (hereinafter
called "Lessee").

                                   WITNESSETH:

                                    ARTICLE I
                             DEMISED PREMISES; TERM

             Section 1.1. Demised Premises. For and in consideration of the
rents, taxes, insurance and other charges and expenses to be paid by Lessee, and
in consideration of the performance by Lessee of the covenants herein set forth,
Lessor does hereby grant, demise and lease to Lessee all that certain real
property consisting of approximately ___________________________________________
(________) square feet of land, together with the Improvements (as defined in
Article 4.1 hereinbelow) constructed thereon and the rights appurtenant thereto,
located and situate in the City of _____________, County of _______________,
State of ____________________, and more particularly described in Exhibit A
attached hereto and, by this reference, incorporated herein (hereinafter
referred to as the "Demised Premises").

             Section 1.2. Term. The term of this Lease shall commence on the
date of the first payment of rent pursuant to Article 2.1 hereinbelow and shall
terminate twenty-five (25) years thereafter.

             Section 1.3. Options to Extend Term. Provided it shall not then be
in default under this Lease (beyond any applicable cure period), Lessee shall
have the option to extend said term for an additional period of five (5) years
by giving notice to Lessor of its intention to exercise said option at least
ninety (90) days prior to the expiration of the original term. Provided it shall
not then be in default under this Lease (beyond any applicable cure period),
Lessee shall have the option to extend said term for an additional period of
five (5) years (less one day) by giving notice to Lessor of its intention to
exercise that option at least ninety (90) days prior to the expiration of the
first extended term. All of the terms and conditions of this Lease shall apply
during each of the aforedescribed extended terms, except those pertaining to the
initial construction of the Improvements (as defined in Article 4.1 hereinbelow)
and expired options to extend the term of this Lease.

             Section 1.4. Short Form of Lease. Upon the commencement date of the
term hereof in accordance with Article 1.2 hereinabove, the parties agree to
execute and record a short form of this Lease, which shall incorporate the
provisions of Articles XVII and XIX hereinbelow. In no event shall the parties
record a long form lease.

<PAGE>
 
                                   ARTICLE II
                                      RENT

             Section 2.1. Minimum Monthly Rental. Lessee agrees to pay to Lessor
during the full term hereof a minimum monthly rental of ________________________
Dollars ($________) (hereinafter referred to as the "Minimum Monthly Rental"),
payable in advance on the first day of each calendar month. Said Minimum Monthly
Rental shall commence thirty (30) days after the date of completion of the
Improvements (as defined in Article 4.1 hereinbelow) to be erected an the
Demised Premises or when Lessee opens for business, whichever date is earlier.
If the first day upon which rent becomes payable is other than the first day of
any calendar month, the rent for the balance of said month shall be payable by
Lessee at a daily rate based upon the Minimum Monthly Rental.

             Section 2.2. Percentage Rent. In addition to the Minimum Monthly
Rental agreed to be paid by Lessee, Lessee shall pay to Lessor, at the time and
in the manner specified in this Lease, an additional rental in an amount
(hereinafter referred to as "Percentage Rent") equal to five percent (5%) of the
amount of Lessee's gross sales made in, upon or from the business on the Demised
Premises during each calendar year of the term hereof, less (a) the aggregate
amount of the Minimum Monthly Rental previously paid by Lessee for said calendar
year, (b) all real property taxes and general and special assessments levied
against the Demised Premises as provided in Article 3.1 hereinbelow and paid by
Lessee or accrued, (c) all expenses for exterior maintenance and upkeep of the
building and adjacent walkways and landscape areas, (d) all premiums for
insurance required hereby, and (e) all similar costs and expenses, if any,
arising under the term of the CC&Rs (as defined in Article 20.1 hereinbelow). If
the amount of any such deductions in any year exceeds the amount of Percentage
Rent payable for said year, then such excess shall be carried forward and
applied to reduce the amount of Percentage Rent payable in any succeeding year
or portion thereof should this Lease terminate prior to the expiration of a full
year. The term "exterior maintenance and upkeep" is not to be construed to
include any janitorial or regular maintenance service which is to be provided by
Lessee or its assignee without deduction or offset, but rather is intended to
include repairs and maintenance for wear and tear. The Percentage Rent shall be
paid quarterly (as herein provided) based upon gross sales during such quarterly
period. In the event the quarterly payments of Percentage Rent do not in the
aggregate equal the Percentage Rent when calculated on an annual basis, then, in
such event, an adjustment shall be made within forty-five (45) days after the
end of each year of the term hereof, and the party owing money shall promptly
pay the amount owed to the other party. Percentage Rent shall be paid quarterly
on the twenty-fifth (25th) day of the month immediately following the quarterly
period in which the gross sales are made. Notwithstanding expiration or sooner
termination of this Lease, Lessee shall pay to Lessor the Percentage Rent on the
twenty-fifth (25th) day of the month immediately following expiration or sooner
termination for the last quarterly period of the term of this Lease or fraction
thereof. For the purposes of computing Percentage Rent for the first and last
quarterly periods of the term or extended term of this Lease, if either is less
than a full calendar quarter, the prorated Minimum Monthly Rental and other
expenses enumerated above for such fractional period shall be deducted from the
percentage of sales realized during such fractional period.

                                      E-2

<PAGE>
 
             Section 2.3. Statements of Gross Sales. Together with the quarterly
Percentage Rent, Lessee shall furnish to Lessor a statement in writing,
certified by Lessee to be correct, showing the total gross sales made in, upon
or from said restaurant during the said calendar quarter or portion thereof.

             Section 2.4. "Gross Sales" Defined. The term "gross sales" as used
herein shall include the entire receipts of each kind and nature from sales and
services made in, upon or from the said restaurant, whether upon credit or for
cash, whether operated by Lessee or by a sublessee or sublessees, or by a
concessionaire or concessionaires, excepting therefrom any rebates and/or
refunds to customers, and the amount of all sales tax or similar tax receipts
which have to be accounted for by Lessee or by any sublessee or concessionairo
to any government or governmental agency. Sales upon credit shall be deemed cash
sales and shall be included in the gross sales for the period during which the
merchandise is delivered to the customer, whether or not title to the
merchandise passes with delivery. The term "gross sales" shall not include sales
from coin operated vending machines.

              Section 2.5. Verification of Gross Sales; Audit. Lessee shall keep
full, complete and proper books, records and accounts of its daily gross sales,
both for cash and on credit, of each separate department and concession at any
time operated in the Demised Promises. Lessor and its agents and employees. upon
reasonable notice, shall have the right at any and all times, during regular
business hours, to examine and inspect all of the books and records of Lessee
(including any sales tax reports) pertaining to the business of Lessee conducted
in, upon or from the Demigod Promises, which Lassos shall produce upon demand by
Lessor or Lessor's agents for the purpose of investigating and verifying the
accuracy of any statement of gross sales. Lessor may once in any lease year
cause an audit of the gross sales of Lessee to be made by an independent
certified accountant of Lessor's selection, and if the statement of gross sales
previously made to Lessor by Lessee shall be found to be understated by more
than five percent (5%), Lessee shall immediately pay to Lessor the cost of such
audit, not to exceed Five Hundred Dollars ($500), as well as the additional
rental shown to be payable by Lessee to Lessor; otherwise the cost of such audit
shall be paid by Lessor. If the statement of gross sales previously made to
Lessor by Lessee shall otherwise be found to be incorrect, then the party found
to be owing money shall promptly pay over such sums to the other party. It is
understood and agreed that the Percentage Rent provisions apply only to sales
made in, upon or from the business to be operated upon the Demised Promises and
do not apply to sales of any other business.

                                   ARTICLE III
                              TAXES AND ASSESSMENTS

             Section 3.1. Taxes and Assessments. Lessee shall pay, as additional
rent, all real estate taxes and assessments (or installments thereof) coming due
during the term hereof under any general or special assessments created or
imposed during the term hereof, sewer rent and water charges, gas power,
electric current and all other taxes and charges in the same or similar
categories (sometimes hereinafter referred to collectively as "impositions" and
individually as "imposition") levied or imposed upon the Demised Premises or
improvements (as defined in Section 4.1 hereinbelow), or arising from the use
and 

                                      E-3

<PAGE>
 
occupancy or possession of the Demised Premises or the Improvements (as defined
in Section 4.1 hereinbelow), it being the intention of the parties that the
Minimum Monthly Rental to be received by Lessor shall be a net rental to Lessor
and not subject to any deductions whatsoever arising from the use and occupancy
of the Demised Premises by Lessee. Lessee shall pay such additional rent
directly to the taxing authorities, utility companies or other entities to whom
such charges may be payable, and shall, upon written request therefor, furnish
to Lessor reasonably satisfactory evidence of the payment of the same. In the
event that Lessee fails to make any such payment within the period (or grace
period) provided for the payment thereof, Lessor may, at its option, pay the
same, and Lessee shall immediately reimburse Lessor therefor.

             Section 3.2. Installment Payments. If any assessment is payable at
the option of a taxpayer in installments, Lessee may pay it in equal annual
installments as they respectively become due; provided, however, that in no
event shall Lessee be required to reimburse Lessor for any installments
attributable to any period after the expiration of the term of this Lease.

             Section 3.3. Personal Property Taxes. Lessee shall also pay all
personal property tax levied upon the personal property on the Demised Premises
during the term of this Lease.

             Section 3.4. Proration. All of the above impositions (except
utility or other charges attributable solely to Lessee's use) for the first year
of the term hereof shall be prorated between the parties as of the commencement
date hereof, and during the last year of the term hereof, shall be prorated as
of the termination date.

             Section 3.5. Contest. Lessee, at its own expense, may contest any
impositions in any manner permitted by law, in Lessee's name, and, whenever
necessary, in Lessor's name. Lessor will cooperate with Lessee and execute any
documents or pleadings required for such purpose. Such contest may include
appeals from any judgment(s), decree(s) or order(s) until a final determination
is made by a court or governmental department or authority having final
jurisdiction in the matter. Before commencing any such contest, Lessee shall
obtain a surety bond sufficient to cover the amount of the possible imposition
which would be due if the decision were adverse to Lessee.

                                   ARTICLE IV
              CONSTRUCTION OF IMPROVEMENTS; REPAIR AND MAINTENANCE;
                          ALTERATIONS AND IMPROVEMENTS

             Section 4.1. Construction of Improvements. Lessor has heretofore
constructed upon the Demised Premises, at Lessor's sole cost and expense, an air
conditioned restaurant together with a paved parking lot and a free-standing
sign in accordance with plans and specifications, as approved by all
governmental agencies having jurisdiction therefor, the master plans for which
have been heretofore approved by the parties hereto (hereinafter referred to as
the "Improvements").

                                      E-4

<PAGE>
 
             Section 4.2. Repair and Maintenance. Lessee agrees that during the
term hereof it will make, at its own expense, all necessary repairs to the
Improvements upon the Demised Premises, including all parking areas and
sidewalks, and that it will keep the Demised Premises and the Improvements
thereon in good condition and repair throughout the entire term of this Lease.

             Section 4.3. Alterations and Improvements. Lessee shall have the
right at any time and from time to time during the term of this Lease, at its
own expense, to make changes or alterations, structural or otherwise, to the
Improvements on the Demised Premises and to erect, construct or install upon the
Demised Premises buildings and improvements in addition to or in substitution
for those now or hereafter located thereon, and to demolish and remove the
Improvements or any other structures hereafter located on the Demised Premises
for the purposes of replacing the same; provided, however, that the fair market
value of all improvements on the Demised Premises following each such change,
alteration, construction or installation shall be at least equal to the fair
market value of all improvements on the Demised Premises immediately prier to
such change, alteration, construction or improvement. Lessee shall make no
structural changes or alterations at any given time of a cost in excess of Ten
Thousand Dollars ($10,000) without first having secured the consent of Lessor,
which consent shall not be unreasonably delayed or withheld.

                                    ARTICLE V
                                      LIENS

             Section 5.1. Discharge of Liens; Contest. Except as hereinafter
provided, Lessor reserves the fee in the Demised Premises and specifically does
not consent by virtue of this Lease that said fee or the remainder interest of
Lessor in the Demised Premises shall be subject to any lien for labor or
materials furnished to Lessee in the repair or improvement of the Demised
Premises. While the parties intend hereby that the interest of Lessor hereunder
cannot be subjected to any lien on account of Lessee's use of or actions with
respect to the Demised Premises and that any future modifications of law to the
contrary would constitute an impairment of vested rights hereunder,
nevertheless, should a court of competent jurisdiction hold that, or should a
valid statute be enacted whereby, any interest of Lessor in the Demised Premises
at any time hereafter shall be subjected to any such lien, then Lessee shall,
within thirty (30) days after written notice to Lessee of the existence and
perfection of said lien, cause said lien to be bonded or discharged and shall
otherwise save Lessor harmless on account thereof; provided, however, that if
Lessee desires in good faith to contest the validity or correctness of any such
lien, it may do so and Lessor shall cooperate to whatever extent shall be
necessary, provided only that Lessee must indemnify Lessor against any loss,
liability or damage on account thereof.

                                   ARTICLE VI
                                 USE OF PREMISES

             Section 6.1. Permitted Use. Lessee, its sublessees or assignees,
shall use the Demised Premises for the purpose of conducting thereon the
business of a restaurant or a coffee shop 

                                      E-5

<PAGE>
 
and for incidental purposes related thereto, or for any other legally
permissible business or commercial venture; provided, however, that Lessee shall
not use the Demised Premises in such manner as to knowingly violate the CC&Rs
(as defined in Section 20.1 hereinbelow) or any applicable law, rule, ordinance
or regulation of any governmental body.

                                   ARTICLE VII
                               LIABILITY INSURANCE

             Section 7.1. Lessee's Insurance. Lessee agrees that on or before
the commencement of the term of this Lease it will obtain for the mutual benefit
of Lessor and Lessee public liability insurance covering the Demised Premises
from an insurance company authorized (or admitted) to do business in the state
in which the Demised Premises are located. Said policy or policies shall be for
an amount of at least Two Million Dollars ($2,000,000) Combined Single Limit for
the death or injury to one (1) or more persons or property damage, which said
policy or policies of insurance shall name Lessor as an additional assured
thereunder, and Lessee agrees to maintain same at Lessee's sole cost and expense
in full force and effect during the entire term of this Lease. Lessee shall
furnish Lessor with a copy of such insurance coverage, or with a certificate of
the company issuing such insurance, certifying that the same is in full force
and effect. Lessee may, at its option, bring its obligations to insure hereunder
under any so-called blanket policy or policies of insurance; provided, however,
that the interests of Lessor shall be as fully protected thereby as if Lessee
obtained individual policies of insurance.

                                  ARTICLE VIII
                                   BANKRUPTCY

             Section 8.1. Continuation of Lease. If at any time during the term
hereof proceedings in bankruptcy, insolvency or other similar proceedings shall
be instituted by or against Lessee, whether or not such proceedings result in an
adjudication against Lessee, or should a receiver of the business or assets of
Lessee be appointed, such proceedings or adjudications shall not affect the
validity of this Lease, so long as the Minimum Monthly Rental and additional
rent reserved hereunder continues to be paid to Lessor and the other terms,
covenants and conditions of this Lease on the part of Lessee to be performed,
are performed, and in such event this Lease shall continue to remain in full
force and effect in accordance with the terms herein contained.

                                   ARTICLE IX
                            ASSIGNMENT AND SUBLETTING

             Section 9.1. Assignment. Lessee may not assign this Lease, in whole
or in part, without first obtaining the prior written consent of Lessor, which
consent shall not be unreasonably delayed or withheld; provided, however, that
Lessee may, without such consent, assign this Lease, in whole or in part, as
security or otherwise to any national or state chartered bank or lending
institution or corporation controlled by, controlling, or under common control
with Lessee, it being understood that Lessee shall remain liable 

                                      E-6

<PAGE>
 
hereunder, or to any surviving corporation resulting from a merger or
consolidation of Lessee with any other corporation, or to any corporation which
purchases or otherwise acquires all or substantially all of the assets of
Lessee. Any consent to any assignment shall not be deemed to be a consent to any
subsequent assignment. Any assignment by Lessee other than in accordance with
this Article IX shall be void.

             Section 9.2. Subletting. Lessee or its assignee shall have and is
hereby given the unqualified right and privilege, at its option, of subletting
the Demised Premises, in whole or in part, subject to all of the rents, terms
and conditions of this Lease. It is specifically understood and agreed by and
between Lessor and Lessee that any subletting which Lessee or its assignees
make, as permitted herein, shall in no event relieve Lessee of the obligations
of Lessee hereunder, and that the right of subletting shall be that of Lessee or
its assignees only, and shall not extend to any subtenant.

                                    ARTICLE X
                        REMEDIES IN THE EVENT OF DEFAULT

            Section 10.1. Remedies. In the event of any breach of this Lease by
Lessee which shall not have been cured within fifteen (15) days after Lessee
shall have received notice of such breach (or if such breach is not in payment
of money, if within such period Lessee shall not have commenced to cure said
breach and shall not thereafter continue its efforts with due diligence), then
Lessor may, at Lessor's option and without limiting Lessor in the exercise of
any other rights or remedies which Lessor may have at law or in equity by reason
of such default or breach, with or without notice of demand:

                   (A) without terminating this Lease, reenter the Demised
         Premises with or without process of law and take possession of the same
         and expel or remove Lessee and all other parties occupying the Demised
         Premises, and at any time and from time to time to relet the Demised
         Premises or any part thereof for the account of Lessee, for such term,
         upon such conditions and at such rental as Lessor may deem proper. In
         such event Lessor may receive and collect the rent from such reletting
         and apply it against any amounts due from Lessee hereunder (including,
         without limitation, such expenses as Lessor may have incurred in
         recovering possession of the Demised Premises, placing the same in good
         order and condition, altering or repairing the same for reletting, and
         all other expenses, commission and charges, including attorney's fees,
         which Lessor may have paid or incurred in connection with such
         repossession and reletting). Lessor may execute any Lease made pursuant
         hereto in Lessor's name or in the name of Lessee, as Lessor may see
         fit, and the lessee thereunder shall be under no obligation to see to
         the application by Lessor of any rent collected by Lessor, nor shall
         Lessee have any right to collect any rent thereunder. Whether or not
         the Demised Premises are relet, Lessee shall pay to Lessor all amounts
         required to be paid by Lessee up to the date of Lessor's reentry, and
         thereafter Lessee shall pay to Lessor, until the end of the term
         hereof, the amount of all rent and other charges required to be paid by
         Lessee hereunder, less the proceeds of such reletting as provided
         above. Such payments by Lessee shall be due at such times as are
         provided elsewhere in this Lease, and Lessor need not wait until the
         termination of this Lease to recover them by 

                                      E-7

<PAGE>
 
         legal action or otherwise. Lessor shall not, by any reentry or other
         act, be deemed to have terminated this Lease or the liability of Lessee
         for the total rent hereunder unless Lessor shall give Lessee written
         notice of Lessor's election to terminate this Lease.

                    (B) terminate this Lease by giving written notice to Lessee
              of Lessor's election to so terminate, reenter the Demised Premises
              with or without process of law and take possession of the same and
              expel or remove Lessee and all other parties occupying the Demised
              Premises. In such event, Lessor shall thereupon be entitled to
              recover from Lessee:

                         (i)   the worth at the time of award of any unpaid rent
                    which had been earned at the time of such termination; plus

                         (ii)  the worth at the time of award of the amount by
                    which (A), the unpaid rent which would have been earned
                    after termination until the time of award, exceeds (B), the
                    amount of such rental loss Lessee proves could have been
                    reasonably avoided; plus

                         (iii) the worth at the time of award of the amount by
                    which (A), the unpaid rent for the balance of the term after
                    the time of award, exceeds (B), the amount of such rental
                    loss that Lessee proves could be reasonably avoided; plus

                         (iv)  any other amount reasonably necessary to
                    compensate Lessor for all the detriment proximately caused
                    by Lessee's failure to perform its obligations under this
                    Lease or which, in the ordinary course of things, would be
                    likely to result therefrom.

                    As used in Subsections (i) and (ii) above, the "worth at the
            time of award" is computed by allowing interest at the rate of ten
            percent (10%) per annum. As used in Subsection (iii) above, the
            "worth at the time of award" is computed by discounting such amount
            at the discount rate of the Federal Reserve Bank of San Francisco at
            the time of award, plus one percent (1%).

                                   ARTICLE XI
                               PROPERTY INSURANCE

            Section 11.1. Lessee to Obtain "All Risk" Insurance. Lessee will, at
Lessee's own cost and expense, carry and maintain fire insurance with extended
coverage endorsement with an insurance company authorized (or admitted) to do
business in the state in which the Demised Premises are located, for the mutual
benefit of Lessee, Lessor, and its mortgagee, if any, on all buildings erected
upon the Demised Premises in an amount equal to at least one hundred percent
(100%) of the full replacement cost thereof, excluding foundation and excavating
costs. As often as any such policy or policies shall expire or terminate,
renewal or additional policies shall be procured by Lessee in like manner and to
like extent. Proceeds of any such policies, in the event of fire or other
casualty, shall be payable to Lessor and 

                                      E-8

<PAGE>
 
Lessee, as their respective interests may appear, and in accordance with the
terms of Article XII hereinbelow. Lessee shall furnish Lessor with a copy of
such insurance coverage, or with a certificate of the company issuing such
insurance, certifying that the same is in full force and effect.

            Section 11.2. Blanket Policy. Lessee may, at its option, bring its
obligations to insure under this Article XI within the coverage of any so-called
blanket policy or policies of insurance which it may now or hereafter carry, by
appropriate amendment, rider endorsement, or otherwise; provided, however, that
the interests of Lessor shall thereby be as fully protected as they would
otherwise be if this option to Lessee to use blanket policies were not
permitted.

                                   ARTICLE XII
                             DAMAGE AND DESTRUCTION

            Section 12.1. Abatement of Rent. Notwithstanding any statute or rule
of law of the state in which the Demised Premises are located to the contrary,
in the event of any damage or destruction to the Improvements, or any part
thereof, by fire or other casualty, this Lease shall continue in full force and
effect, except that until either such damage or destruction shall be repaired,
or in the alternative this Lease shall be terminated as hereinafter provided in
this Article XII, all rent, additional rent and other charges payable hereunder
by Lessee shall abate so that Lessee shall be required to pay only a fraction
thereof, the numerator of which shall be the fair rental value of the Demised
Premises and Improvements thereto after such damage or destruction, and the
denominator of which shall be the fair rental value of the Demised Premises and
Improvements thereto immediately prior to such damage or destruction; provided,
however, if the damage or destruction is such that Lessee's business at the
Demised Premises cannot reasonably or lawfully be continued after the date of
said damage or destruction, said rent, additional rent and other charges
hereunder shall abate entirely.

            Section 12.2. Restoration of Improvements -- Insured Loss. If the
damage or destruction of the Improvements was caused by a peril or perils
covered under a standard fire insurance policy, with "extended coverage"
endorsement, then Lessee shall proceed, within a reasonable period of time after
the date of the occurrence of such damage or destruction, to repair, restore and
replace said Improvements and shall have available to it any proceeds from the
property insurance to be maintained by Lessee pursuant to Section 11.1
hereinabove.

            Section 12.3. Restoration of Improvements -- Uninsured Loss. If the
damage or destruction of the Improvements was not caused by a peril or perils
covered under a standard fire insurance policy, with "extended coverage"
endorsement, then Lessor may, within thirty (30) days after the occurrence of
said damage or destruction, pay to Lessee such amount as shall be required by
Lessee to make such repair, restoration and replacement. Lessee shall then
proceed with due diligence to so repair, restore and replace said Improvements.
In the event Lessor shall elect not to pay such amount, Lessor shall give Lessee
written notice thereof within thirty (30) days after the occurrence of said
damage or 

                                      E-9

<PAGE>
 
destruction, and Lessee shall then have fifteen (15) days to elect to pay such
amount itself and to serve Lessor with written notice of its said election. In
the event Lessee elects to pay such amount, then, in such event, Lessee shall,
at its option, be permitted to extend the term hereof for a period sufficient,
if required, to result in Lessee having a minimum term, including any available
options to extend, of ten (10) years remaining after the date of completion of
the repairs, replacement or restoration; said extended term to be under the same
terms and conditions in effect just prior to the expiration of the preceding
term. In the event Lessee elects to extend said term pursuant to this Article
XII, it shall serve Lessor with written notice thereof within the same fifteen
(15) day period during which Lessee has the right to elect to pay the
aforementioned amount. In the event neither party shall elect to pay such
amount, then, upon the expiration of the fifteen (15) day period during which
Lessee has the right to elect to pay such amount, this Lease shall terminate.

            Section 12.4. Extension of Lease. In the event this Lease continues
in full force and effect and is not terminated or otherwise extended pursuant to
the provisions of this Article XII, and there has been an abatement of rent, the
then current term of this Lease shall be extended by the total number of months
during which there was such an abatement; however, in no event shall the
abatement of rent exceed six (6) months duration in connection with each
instance of damage or destruction during the term or extended term hereof.

                                  ARTICLE XIII
                                  CONDEMNATION

            Section 13.1. Complete Taking. If at any time during the term of
this Lease, or any extension thereof, the whole of the Demised Premises shall be
taken for any public or quasi-public purpose by any lawful power or authority by
the exercise of the right of condemnation or eminent domain, including any such
taking by "inverse condemnation," then this Lease shall terminate as of the date
that title shall vest in the condemnor, and the rent and additional rent payable
hereunder shall be adjusted and paid to the date of such termination.

            Section 13.2. Partial Taking. If at any time during the term of this
Lease, or any extension thereof, any part of the building, or twenty percent
(20%) or more of the designated parking spaces, or any part of a driveway or
other access way reasonably necessary for access to the business upon the
Demised Premises shall be so taken, Lessee shall have the right to terminate
this Lease as of the date that title shall vest in the condemnor, by giving
written notice of such termination to Lessor within ninety (90) days after
notice to Lessee of the date of such vesting. In such event, the rent and
additional rent payable hereunder shall be adjusted and paid to the date of such
termination.

            Section 13.3. Allocation of Condemnation Award. In the event of such
a condemnation of the whole or in part of the Demised Premises, Lessor shall
have the unqualified right to pursue its remedies against the condemnor for the
full value of Lessor's fee interest and other property interests in and to the
Demised Premises. Similarly, Lessee shall have the unqualified right to pursue
its remedies against the condemnor for the full 

                                     E-10

<PAGE>
 
value of Lessee's leasehold interest and other property interest in and to the
Demised Premises. If the laws of the state in which the Demised Premises are
located allow or require the recovery from the condemnor to be paid into a
common fund or to be paid to Lessor only, and if such recovery is so paid into
such common fund or to Lessor only, then in that event the recovery so paid
shall be apportioned between the parties according to the value of their
respective property interests as they existed on the date of such condemnation.
The provisions of this Article 13.3 shall survive any termination of this Lease
pursuant to the provisions of Articles 13.1 or 13.2 hereinabove.

            Section 13.4. Rent Reduction in Case of Partial Taking. If at any
time during the term of this Lease, or any extension thereof, a part of the
Demised Premises shall be taken by condemnation, and Lessee shall not be
entitled to or shall not exercise its right to terminate, this Lease shall
continue in full force and effect, except that the net Minimum Monthly Rental
shall be reduced as of the date of vesting in the condemnor so that Lessee shall
pay, for the remainder of the term, only such portion of the Minimum Monthly
Rental as the rental value of the part remaining after condemnation bears to the
rental value of the entire Demised Premises at the date of condemnation. Lessor
shall have the obligation to pay for the cost of and to perform the
construction, repair, alteration or restoration of the remaining part of the
Demised Premises so the same shall constitute a complete unit suitable for the
use made by Lessee immediately prior to said condemnation.

                                   ARTICLE XIV
                            QUIET ENJOYMENT AND TITLE

            Section 14.1. Covenant of Quiet Enjoyment. Lessee, subject to the
terms of this Lease, upon paying the Minimum Monthly Rental and additional rent
and performing the other terms, covenants and conditions of this Lease, shall
and may peaceably and quietly have, hold, occupy, possess and enjoy the Demised
Premises during the term of this Lease.

            Section 14.2. Right to Possession. Lessor covenants, warrants and
represents that the Demised Premises are now unoccupied and tenant-free, and
that absolute, tenant-free possession of the Demised Premises will be delivered
to Lessee on the date of the commencement of the term hereof.

            Section 14.3. Superior Encumbrances. Lessor further covenants,
warrants and represents that there are no liens, mortgages or encumbrances on
the Demised Premises superior to the rights of Lessee under this Lease, except
as set forth in Article 20.1 hereinbelow and for the lien of a first mortgage
which may have been heretofore or may hereafter be made by Lessor.

            Section 14.4. Ownership; Authority; Restrictions. Lessor further
covenants, warrants and represents that Lessor is the owner in fee of the
Demised Premises and alone has the full right to lease the Demised Premises for
the term and/or extended term as aforesaid; that there are no existing
restrictions or encumbrances affecting the Demised Premises which would prohibit
the use and occupancy thereof as a restaurant; and that the Demised Premises are
not subject to any zoning laws or regulations which would prohibit or restrict
the 

                                     E-11

<PAGE>
 
construction, maintenance and operation of a restaurant. It is expressly
understood and agreed that these covenants by Lessor constitute a warranty by
Lessor, and that in case Lessor is not the owner or has not the right aforesaid,
or in case there are any such restrictions, (a) this Lease, at the option of
Lessee, shall become null and void and no rent shall accrue for the term
aforesaid or for any part thereof, and (b) Lessee may pursue any remedy
available at law or in equity to recover damages or other relief.

                                   ARTICLE XV
                                 TRADE FIXTURES

            Section 15.1. Ownership; Removal. Lessor and Lessee acknowledge,
consent and agree that all furniture, fixtures, and equipment installed in or on
or located in or about the Improvements or other parts of the Demised Premises,
whether affixed to the Demised Premises or otherwise (hereinafter referred to as
the "Trade Fixtures"), are being leased by Lessor to Lessee under the terms of
that certain Equipment Master Lease of even date herewith between Lessor, as
lessor, and Lessee, as lessee, and the Trade Fixtures shall at all times remain
the property of Lessor and the same may not be removed by Lessee at any time
during the term hereof or upon the expiration or earlier termination of the term
hereof.

                                   ARTICLE XVI
                                  SUBORDINATION

            Section 16.1. Subordination. Provided that Lessor furnishes to
Lessee an agreement in writing and in recordable form from any present or future
mortgagee or holder of a deed of trust or other encumbrance with respect to the
Demised Premises, that:

                   (A) such person shall not for any reason disturb the
         possession, use or enjoyment of the Demised Premises by Lessee, its
         successors and assigns, so long as all of the obligations of Lessee are
         fully performed in accordance with the terms of this Lease; and

                   (B) such person shall permit application of the insurance
         proceeds and condemnation proceeds in accordance with Articles XII and
         XIII hereinabove, respectively, in the event of damage or destruction
         to the Improvements or condemnation of the improvements or any part of
         the Demised Premises,

Lessee agrees to subordinate its rights hereunder to the lien of such mortgage,
deed of trust or other encumbrance which may now or hereafter affect the Demised
Premises. Provided such agreement is obtained, Lessee shall, upon demand,
promptly execute and deliver to Lessor any instrument which may be necessary to
effectuate such subordination.

                                     E-12

<PAGE>
 
                                  ARTICLE XVII
                             RIGHT OF FIRST REFUSAL

            Section 17.1. Purchase. If at any time after the date of the mutual
execution of this Lease and prior to the date of the expiration of the term or
extended term of this Lease, Lessor shall desire to sell the Demised Premises or
the property of which the Demised Premises are a part, Lessee shall have the
right of first refusal as follows: Lessor shall give to Lessee a notice in
writing specifying the terms and conditions upon which it desires to sell the
Demised Premises and offering to sell same to Lessee upon said terms and
conditions. Within ten (10) days after receipt of said notice, Lessee shall
either accept or reject said offer. If Lessee shall reject said offer, then for
a period of ninety (90) days after the expiration of said ten (10) day period
Lessor shall be free to sell to any other person upon the terms and conditions
specified in said notice. If the sale is to be made on terms and conditions
other than so specified, then the right to purchase shall again be offered to
Lessee as set forth above. The rejections of any one or more such offers by
Lessee shall not affect its right of first refusal as to any other sales by
Lessor or its successors or assigns.

            Section 17.2. Lease. If at any time after the date of the mutual
execution of this Lease and prior to the date of the expiration of the term or
extended terms of this Lease, Lessor shall desire to lease the Demised Premises
for a term commencing after the expiration of the term or extended term hereof,
Lessee shall have the right of first refusal as follows: Lessor shall give to
Lessee a notice in writing specifying the terms and conditions upon which it
desires to lease the Demised Premises and offering to lease same to Lessee upon
said terms and conditions. Within ten (10) days after receipt of said notice,
Lessee shall either accept or reject said offer. If Lessee shall reject said
offer, then for a period of ninety (90) days after the expiration of said ten
(10) day period Lessor shall be free to lease to any other person upon the terms
and conditions specified in said notice. If the lease is to be made on terms and
conditions other than so specified, then the right to lease shall again be
offered to Lessee as set forth above. The rejections of any one or more such
offers by Lessee shall not affect its right of first refusal as to any other
proposed leases by Lessor or its successors or assigns.

            Section 17.3. Incorporation in Short Form of Lease. The provisions
of Articles 17.1 and 17.2 hereinabove shall be included in the short form of
this Lease provided in Article 1.4 hereinabove.

                                  ARTICLE XVIII
                         REMOVAL OF DISTINCTIVE FEATURES

            Section 18.1. Removal; Repairs. Lessor agrees that upon the
expiration of the term of this Lease, or any extension thereof, or upon the
earlier termination thereof as provided for herein, Lessee shall have the
unqualified right to remove from the Demised Premises and the Improvements
thereon all signs or other distinctive features of Lessee's operation. Lessee
shall, at its expense, repair any damage to the building caused by such removal.
In addition, Lessee, at its sole cost and expense, shall have the right, but not
the obligation, to paint the Improvements in a neutral color. Lessor agrees that
Lessor will not thereafter

                                     E-13

<PAGE>
 
cause, permit or suffer the Improvements to be painted the colors or combination
of colors associated with the operations of Lessee or its corporate affiliates.

                                   ARTICLE XIX
                         PROHIBITION AGAINST COMPETITION
                           AND PROTECTION FOR EXPOSURE

            Section 19.1. Lessor's Covenant. Lessor agrees that during the term
or extended term of this Lease it will not permit, lease, allow or use, either
by itself or any tenants thereof, directly or indirectly, any portion of the
property of which the Demised Premises are a part or any property within one (1)
mile of the Demised Premises now or hereafter owned or controlled by Lessor for
any kind of restaurant, diner, coffee shop, luncheonette or any other business
involving "on the premises consumption of food or beverage."

            Section 19.2. Lessee's Remedies for Breach. The covenant of Lessor
contained in Article 19.1 hereinabove is a material inducement for Lessee to
enter into this Lease, and upon any breach by Lessor of said covenant, which
breach is not cured within thirty (30) days after written notice thereof by
Lessee to Lessor, Lessee shall have the right to pursue all of its rights
available at law or in equity, including cancellation of this Lease, a suit for
damages, and/or a suit for injunctive relief (it being understood that the
enumeration of the foregoing rights and remedies shall not preclude the exercise
of any other rights or remedies which might be available at law or in equity).

            Section 19.3. Incorporation in Short Form of Lease. The provisions
of Articles 19.1 and 19.2 hereinabove shall be included in the short form of
this Lease provided in Article 1.4 hereinabove.

                                   ARTICLE XX
                              TITLE CONSIDERATIONS

            Section 20.1. CC&Rs; Lender's Lien. Lessee hereby acknowledges,
consents and agrees that the Demised Premises and this Lease shall be subject
and subordinate to all of those covenants, conditions, restrictions, easements
and other matters specified on Exhibit B attached hereto and, by this reference,
incorporated herein (hereinbefore and hereinafter collectively referred to as
the "CC&Rs"), as well as the lien of any mortgage, deed to secure debt, or deed
of trust, as the case may be, securing the obligations of Lessor under the terms
of any credit agreement between Lessor, as borrower, and any third party, as
lender, that may heretofore or hereafter be secured against the Demised
Premises. Additionally, Lessee hereby agrees to perform and abide by all of the
terms, covenants, conditions, obligations and undertakings of Lessor under the
CC&Rs.

                                     E-14

<PAGE>
 
                                   ARTICLE XXI
                          HAZARDOUS SUBSTANCE OR WASTE

            Section 21.1. Mutual Indemnity. Lessor hereby represents and
warrants that, to the best of its knowledge, there does not exist on, in or
under the Demised Premises (including the parking area) any "hazardous
substance" or "hazardous waste" as those term are used under the various federal
and state environmental laws (hereinafter referred to as the "Hazardous
Substance/Waste"); and in the event such Hazardous Substance/Waste is discovered
at any time during the term of this Lease or extensions thereof under
circumstances where it is reasonably clear that such Hazardous Substance/Waste
became present on or before the commencement of the term hereof, Lessor shall
indemnify, defend (with counsel reasonably satisfactory to Lessee), and hold and
save Lessee and its sublessees harmless from and against all claims,
liabilities, actions, judgments, responsibilities and damages of every kind and
nature arising from or related to the presence of said Hazardous
Substance/Waste; and in the event such Hazardous Substance/Waste is discovered
at any time during the term of this Lease or extensions thereof, or any time
thereafter, under circumstances where it is reasonably clear that such Hazardous
Substance/Waste became present at any time after the commencement of the term
hereof until the expiration or earlier termination of this Lease, Lessee shall
indemnify, defend (with counsel reasonably satisfactory to Lessor) and hold and
save Lessor harmless from and against all claims, liabilities, actions,
judgments, responsibilities and damages of every kind and nature arising from or
related to the presence of said Hazardous Substance/Waste during said period.

                                  ARTICLE XXII
                             REAL ESTATE COMMISSIONS

            Section 22.1. Payment; Mutual Indemnity. Each party represents to
the other party that it has not dealt with any real estate broker or other
person acting in a similar capacity who might be entitled to a commission or
finder's fee in this transaction; and each party hereby indemnifies the other
party and agrees to hold the other party harmless from any commission and/or
finder's fee claims arising through actions of the indemnifying party in
derogation of the representations contained herein.

                                  ARTICLE XXIII
                               NOTICES AND DEMANDS

            Section 23.1. To Lessor. Any notices or demands required or
permitted by law or any provisions of this Lease shall be in writing, and, if
the same is to be served upon Lessor, may be deposited in the United States
mail, registered or certified, with return receipt requested, postage prepaid,
and addressed to Lessor at the address first above stated or at such other
address as Lessor may designate in writing, or in lieu of mailing any such
notice or demand, the same may be personally delivered to said party at such
address. At all times, Lessor may designate in writing any person(s), firs(s) or
corporation(s) to receive all notices and demands, and service upon any one of
those persons, firms or corporations as so designated shall constitute
sufficient service upon Lessor.

                                     E-15

<PAGE>
 
            Section 23.2. To Lessee. Any such notice or demand to be served upon
Lessee shall be in writing and in duplicate, and shall be served either
personally to the attention of the Legal Department at 525 N. Brand Boulevard,
Third Floor, Glendale California 91203-1903, or by deposit in the United States
mail, registered or certified, return receipt requested, postage prepaid,
addressed to Lessee, attention of Legal Department, at P.O. Box 29018, Glendale,
California 91209-9018, or any other address that Lessee may designate in
writing.

                                  ARTICLE XXIV
                                 ATTORNEYS' FEES

            Section 24.1. Paid to Prevailing Party. In the event any action or
proceeding is commenced with respect to any claim or controversy by the parties
hereto arising from the breach, interpretation, or enforcement of this Lease or
the exhibits attached hereto, the prevailing party or parties in such action or
proceeding shall receive and be entitled to, in addition to any and all other
relief, all costs and expenses, including reasonable attorneys' fees, incurred
by it in such action or proceeding.

                                   ARTICLE XXV
                               GENERAL PROVISIONS

            Section 25.1. Binding on Successors. All of the covenants,
agreements, provisions and conditions of this Lease shall inure to the benefit
of and be binding upon the parties hereto, their successors, legal
representatives and assigns.

            Section 25.2. Severability. If any term or provision of this Lease
or the application thereof to any persons or circumstances shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.

            Section 25.3. Entire Agreement. This Lease and the exhibits attached
hereto contain the entire agreement between the parties and shall not be
modified in any manner except by an instrument in writing executed by the
parties hereto or their respective successors in interest.

            Section 25.4. Captions. The captions are inserted only as a matter
of convenience and for reference, and in no way define, limit or describe the
scope of this Lease or the intention of the parties hereto, nor do they in any
way affect this Lease.

            Section 25.5. Gender and Number. Words of any gender in this Lease
shall be held to include any other gender, and words in the singular number
shall be held to include the plural when the sense requires.

                                     E-16

<PAGE>
 
            Section 25.6. Approvals. Wherever Lessor's approval or consent is
required herein, such approval or consent shall not be unreasonably delayed or
withheld.

            Section 25.7. No Waiver. No waiver by Lessor or Lessee of any breach
of any provision of this Lessee shall be deemed a waiver of any breach of any
other provision hereof or of any subsequent breach by Lessee or Lessor of the
same or any other provision.

            Section 25.8. Holdover. In the event Lessee shall hold over after
the term of this Lease with the consent, express or implied, of Lessor, such
holding over shall be construed to be a tenancy only from month to month, and
Lessee shall pay the rent, additional rent and other sums as herein required for
such further time as Lessee may continue its occupancy. The foregoing does not
affect Lessor's right of reentry or any rights of Lessor hereunder or as
otherwise provided by law.

            Section 25.9. Time of Essence. Time is of the essence of this Lease
and the exhibits attached hereto and every provision herein and therein.

            Section 25.10. Governing Law. This agreement shall be governed by
and construed in accordance with the laws of the state in which the Demised
Premises are located.

            Section 25.11. Counterparts. This Lease may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same instrument.

           Section 25.12. No Third Party Rights. The terms and provisions of
this Lease shall not be deemed to confer any rights upon, nor obligate any
parties hereto to, any person or entity other than the parties hereto.

           Section 25.13. Unexecuted Lease. The submission of this Lease for
review or execution does not constitute a reservation of or option for the
rights conferred herein. This Lease shall become effective as a lease only upon
execution and delivery thereof by both Lessor and Lessee.

           Section 25.14. Lessor's Right of Entry. Lessor reserves the right to
enter upon the Demised Premises at any time during business hours to inspect
same or for the purpose of exhibiting same to prospective purchasers,
mortgagees, and, during the last six (6) months of the term hereof or any
extensions thereof, to prospective lessees. Lessor may post any customary sign
stating "for lease" or "for sale" during the last six (6) months of the term or
extended term hereof.

           Section 25.15. Estoppel Certificates. Lessor and Lessee agree that
within fifteen (15) days following the written request by either, or both, to
the other, to execute and deliver to the requesting party a certificate (a)
certifying that this Lease is unmodified and in full force and effect, or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect, and the date to which the
rent and other charges hereunder are paid in advance, if any, and (b)
acknowledging that there are not, to

                                     E-17

<PAGE>
 
the certifying party's knowledge, any uncured defaults hereunder on the part of
the requesting party, or so specifying such defaults, if any, as are claimed by
the certifying party.

           Section 25.16. Due Authorization. Each person executing this Lease on
behalf of Lessor and Lessee, respectively, warrants and represents that the
partnership, joint venture or corporation, as the case may be, for whom he or
she is acting, has duly authorized the transactions contemplated herein and the
execution of this Lease by him or her.

           Section 25.17. Relationship of Parties. Nothing contained in this
Lease shall be deemed to constitute a partnership or joint venture between
Lessor and Lessee, and Lessor and Lessee's relationship herein shall only be
deemed to be one of landlord and tenant.

                                     E-18

<PAGE>
 
            IN WITNESS WHEREOF, the parties have hereunto set their hands the
day and year first above written. 

                          Lessor:

                          IHOP REALTY CORP., a Delaware corporation


                          By:
                              ------------------------  

                              ------------------------
                              Its:  
                                   -------------------
                          Lessee:

                          INTERNATIONAL HOUSE OF PANCAKES, 
                            INC., a Delaware corporation



                          By:
                              ------------------------  

                              ------------------------
                              Its:  
                                   -------------------

                                     E-19

<PAGE>
 
                                                                      IHOP#_____

State of California                     )
                                        )
County of Los Angeles                   )

         On _______________, ____, before me, ___________________, personally
appeared _________________, _________ of IHOP REALTY CORP., personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to se that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.

         WITNESS my hand and official seal.



Signature ______________________________                               (Seal)



State of California                     )
                                        )
County of Los Angeles                   )

         On _______________,.____, before me, ___________________, personally
appeared ________________, _________ of INTERNATIONAL HOUSE OF PANCAKES, INC.,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument

         WITNESS my hand and official seal.



Signature ______________________________                                (Seal)

<PAGE>
 
                                   EXHIBIT F-1

                     FORM OF QUARTERLY COMPLIANCE STATEMENT

         THE UNDERSIGNED, __________________, _______________ of International
House of Pancakes, Inc., a Delaware corporation (the "Borrower"), and
___________________, _______________ of IHOP Corp., a Delaware corporation
("Holdings"), pursuant to Section 8(A)(2) of the several Senior Note Purchase
Agreements, dated as of November 19, 1992 (the "Purchase Agreements"), among the
Borrower, Holdings, and the Purchasers listed in Schedule I thereto, do hereby
certify as follows (capitalized terms used herein shall have the meanings
ascribed thereto in the Purchase Agreements):

                   (a) as at the end of the quarterly accounting period ending
         ______________, the financial covenants set forth in Sections 11.2
         through 11.8 of the Purchase Agreements, inclusive, have [have not]
         been met, and the maximum amount of dividends or distributions that
         could have been declared or paid pursuant to Section 11.5 of the
         Purchase Agreements is $_____________, and attached hereto as Exhibit A
         are computations and other pertinent information demonstrating the
         accuracy of the matters set forth in this clause (a);

                   (b) attached hereto as Exhibit B are calculations setting
         forth the maximum amount of Funded Debt that could have been incurred
         as at the end of the quarterly accounting period ending _____________,
         pursuant to Sections 11.2(B) and 11.2(C) of the Purchase Agreements;

                   (c) as at the end of the quarterly accounting period ending
         ______________, the Liens on Property or assets of Holdings or its
         Subsidiaries or securing Debt of Holdings or its Subsidiaries, as the
         case may be, do [do not] exceed the threshold set forth in Section
         11.1(I) of the Purchase Agreements, and attached hereto as Exhibit C
         are computations and other pertinent information demonstrating the
         accuracy of the matters set forth in this clause (c); and

                   (d) attached hereto as Exhibit D are calculations (and
         materials in support of the basis therefor) setting forth the maximum
         amount of additional Funded Debt secured by Liens that could have been
         incurred under Section 11.1(I) of the Purchase Agreements.

<PAGE>
 
         IN WITNESS WHEREOF, the undersigned have signed their names this ___
day of __________________, ______.

                                  INTERNATIONAL HOUSE OF PANCAKES, INC.


                                  By:______________________________________
                                       Name:_______________________________
                                       Title:______________________________



                                  IHOP CORP.


                                  By:______________________________________
                                       Name:_______________________________
                                       Title:______________________________


                                     F-1-2

<PAGE>
 
                                   EXHIBIT F-2

                         FORM OF COMPLIANCE CERTIFICATE

         THE UNDERSIGNED, ______________, _______________ of International House
of Pancakes, Inc., a Delaware corporation (the "Borrower"), and ______________,
_______________ of IHOP Corp., a Delaware corporation ("Holdings"), pursuant to
Section 8(C) of the several Senior Note Purchase Agreements, each dated as of
November 1, 1996 (the "Purchase Agreements"), among the Borrower, Holdings and
the Purchasers listed in Schedule I thereto, do hereby certify as follows
(capitalized terms used herein shall have the meanings ascribed thereto in the
Purchase Agreements):

         Based upon such examination or investigation and review of the Purchase
Agreements as in the opinion of the undersigned is necessary to enable the
undersigned to express an informed opinion with respect thereto, no Default or
Event of Default by Holdings, the Borrower or any of their Subsidiaries in the
fulfillment of any of the terms, covenants, provisions or conditions of the
Purchase Agreements exists or has existed during the period ending
______________ [, other than Default[s] or Event[s] of Default arising under
Section[s] ___________ of the Purchase Agreements, as more fully described on
Annex A hereto].*

         IN WITNESS WHEREOF, the undersigned have signed their names this ___
day of __________________, ______.

                                  INTERNATIONAL HOUSE OF PANCAKES, INC.


                                  By:_____________________________________
                                       Name:______________________________
                                       Title:_____________________________



                                  IHOP CORP.


                                  By:_____________________________________
                                       Name:______________________________
                                       Title:_____________________________

- --------
*        In the event such a Default or Event of Default exists or has existed,
         Annex A to this certificate shall specify the nature and period of
         existence thereof and what action Holdings, the Borrower or such
         Subsidiary, as the case may be, has taken, is taking or proposes to
         take with respect thereto.

<PAGE>
 
                                                                       EXHIBIT G


                                                                   IHOP#
                                                                        -------

                              FRANCHISE AGREEMENT

        THIS FRANCHISE AGREEMENT ("Agreement") is made and entered into as of 
this     day of                  , 199  , by and between INTERNATIONAL HOUSE OF 
    -----       -----------------     --
PANCAKES, INC. (hereinafter referred to as "Franchisor") and                   ,
                                                             ------------------
a                         (hereinafter referred to as "Franchisee") with 
  ------------------------
reference to the following facts:


        A.    Franchisor has developed and is continuing to develop certain
unique systems, products, methods, techniques and other trade secrets
(hereinafter referred to as the "Systems") for operating restaurants selling
pancakes and various other food products under the names "The International
House of Pancakes" and "International House of Pancakes Restaurant" (hereinafter
sometimes referred to as "IHOP"). The System, conducted in accordance with the
provisions of this Agreement and Franchisor's Operations Manual, Operations
Bulletins, and all notices, amendments and supplements relating thereto
(collectively referred to herein as "Operations Bulletins") will enable such
businesses to compete more effectively in their respective marketplaces;

        B.    Franchisor now owns and hereafter will develop or purchase
valuable trademarks, service marks, trade names, logotypes and other commercial
symbols used to identify the System (hereinafter referred to as the
"Trademarks"); and

        C.    Franchisee desires to obtain a franchise to use the System and the
Trademarks associated therewith in connection with the operation of a restaurant
(hereinafter referred to as the "Franchised Restaurant") under the names "The
International House of Pancakes" and "International House of Pancakes
Restaurant" at the Franchised Location, as hereinafter defined, and Franchisor
is willing to grant said franchise upon the terms and subject to the conditions
hereinafter set forth.

        WHEREFORE, IT IS AGREED:

                                       I
                              GRANT OF FRANCHISE

        1.01  Use of System.
              -------------
        Franchisor hereby grants to Franchisee and Franchisee hereby accepts a 
franchise for the operation of one Franchised Restaurant at the Franchised 
Location (as hereinafter defined and described) during the term hereof in 
accordance with the provisions of this Agreement and any ancillary documents 
pertaining hereto.

                                      II
                  FRANCHISED LOCATION AND EXCLUSIVE TERRITORY

        2.01  Franchised Location. 
              -------------------

        Franchisor hereby grants and Franchisee hereby accepts a franchise to 
operate one Franchised Restaurant at the following location (hereinafter the 
"Franchised Location"):


              ----------------------------------


              ----------------------------------

<PAGE>
 
Franchisee acknowledges and agrees that selection of the Franchised Location is
the sole responsibility of the Franchisee, and that if Franchisor shall have, in
its sole and absolute discretion, provided any assistance to Franchisee in 
evaluating or selecting the Franchised Location, such assistance shall not be 
construed as a warranty, guaranty or other assurance of any kind that such 
Franchise Location will necessarily be a successful or profitable site.

    2.02 Exclusive Territory.
         -------------------

    So long as Franchisee faithfully performs and observes each and all of the
obligations and conditions to be performed and observed by Franchisee under or
in connection with this Agreement, Franchisor, during the term of this
Agreement, shall not own, operate, franchise or license any "International House
of Pancakes" restaurant within that area which is either described in Exhibit 
"A" attached hereto or outlined on a map attached hereto as Exhibit "A"
(hereinafter "Franchised Area"). Franchisee acknowledges and agrees that
Franchisor, or its direct or indirect parent, subsidiary, or affiliated
corporations, may now or hereafter own, operate, franchise and license both
within and without the Franchised Area other restaurants under different
trademarks, and trade names, or service marks, including Copper Penny Family
Coffee Shop, and that such other restaurants offer products similar to those
which are or may be offered by the Franchised Restaurant.

                                      III
                               TERM AND RENEWAL

    3.01 Initial Term.
         ------------

    (a) If Franchisee is taking over the operation of a Restaurant operated or 
developed by Franchisor or Franchisor's parent corporation or any of its 
subsidiaries (each, an "Affiliate") or participating in the Novation Program, 
the expiration of the initial term of this Agreement (hereinafter referred to as
the "Initial Term") shall be:

    (Check One)

[ ] 25 years from the date hereof; or

[ ] From the date hereof, to and until ________________, which date is one day 
prior to the expiration of the lease (hereinafter referred to as the "Master 
Lease") between Franchisor or, if applicable, the Affiliate from which 
Franchisee is subleasing (the "Leasing Affiliate"), and Franchisor's or the 
Leasing Affiliate's landlord.

    (b) If Franchisee is constructing or converting the Franchised Restaurant 
pursuant to a lease between Franchisee and its master landlord, the expiration 
of the Initial Term shall be:

    (Check One)

[ ] 25 years from the date hereof; or

[ ] From the date hereof, to and until ________________, which date is one day 
prior to the expiration of Franchisee's lease with Franchisee's master landlord.

    (c) The Initial Term is subject to earlier termination pursuant to the 
provisions of this Agreement and is subject to the leasehold contingencies set 
forth in paragraph 3.04.  If Franchisee is participating in the

                                      -2-


<PAGE>
 
Conversion Program, Franchisee may have the option, if provided in paragraph 
5.01(b), to terminate this Franchise Agreement at an earlier date, provided that
Franchisee fulfills all conditions to such early termination set forth in 
Paragraph 5.01(b).

       3.02 Renewal Term.
            ------------

       Subject to the provisions of Paragraph 3.04, if there are fewer than ten 
years remaining on the term of the Master Lease for the Franchised Location, 
including any options to renew or extend the term thereof, at the time of 
Franchisee's execution of this Agreement, the franchise granted hereunder may be
renewed upon the expiration of the Initial Term at the option of Franchisee for 
one additional term (hereinafter the "Renewal Term") of a duration determined 
in accordance with Paragraph 3.02(f) upon and subject to the following terms and
conditions:

              (a) Franchisor or the Leasing Affiliate, as applicable, shall 
notify Franchisee within 30 days of Franchisor's or the Leasing Affiliate's 
acceptance of any renewal, extension or new Master Lease for the Franchised 
Location and shall submit with said notice a copy of a sublease or amendment to 
sublease conforming to the provisions of Paragraph 3.04(b);

              (b) Franchisee shall notify Franchisor or the Leasing Affiliate, 
as applicable, in writing of its intention to exercise the option for the
Renewal Term and shall execute and return, as applicable, to Franchisor or the
Leasing Affiliate the sublease or amendment to sublease within 15 days of
receipt of the notice and sublease or amendment to sublease pursuant to
Paragraph 3.02(a). If Franchisee fails or refuses to enter into such sublease or
amendment to sublease within 15 days of receipt of such notice and sublease or
amendment to sublease, this Agreement shall terminate upon the expiration of the
then effective sublease or the original Master Lease, whichever occurs first,
without giving effect to the exercise of any option or any renewal, extension or
new Master Lease pertaining to this paragraph 3.02.

              (c) At the time of Franchisee's election to renew said term and 
at the time of the commencement of the Renewal Term Franchisee shall have fully 
performed all of its obligations under this Agreement, all ancillary documents 
relating thereto and all other agreements which may then be in effect between 
Franchisee and Franchisor and/or each Affiliate;

              (d) Where applicable, Franchisee shall pay an additional Initial 
Franchise Fee pursuant to Paragraph 5.01(c)(ii);

              (e) Franchisee shall, at its sole expense, prior to the 
commencement of the Renewal Term, refurbish and remodel the Franchised 
Restaurant including expenditures for capital improvements, and otherwise bring 
it into conformity with the standards, as respects building design, furniture, 
fixtures, signs, equipment and color schemes, as may then be applicable for new 
franchises being granted by Franchisor for the operation of Franchised 
Restaurants, and provide evidence satisfactory to Franchisor or Franchisee's 
financial ability to refurbish and remodel the Franchised Restaurant;

              (f) The Renewal Team shall be for a period ending one day prior to
the expiration of, as applicable, Franchisor's or the Leasing Affiliate's 
renewal, extension or new Master Lease of the Franchised Location, but in no 
event shall the combined terms of the Initial Term and Renewal Term Exceed 25 
years.

                                      -3-

<PAGE>
 
     3.03 Option Term.
          -----------

     Subject to the provisions of Paragraph 3.04, the franchise granted 
hereunder may be renewed upon the expiration of the Initial Term or Renewal Term
(if applicable) at the option of Franchisee for one additional term of a 
duration determined in accordance with Paragraph 3.03(f)(hereinafter the Option 
Term") upon and subject to the following terms and conditions:

     (a) Franchisee shall notify Franchisor in writing of its wish and 
intention to renew the term of the franchise granted hereunder not less than 180
days and not more than 210 days prior to the expiration of the Initial Term or 
Renewal Term (if applicable);

     (b) At the time of Franchisee's election to renew said term and at the time
of the commencement of the Option Term Franchisee shall have fully performed all
of its obligations under this Agreement, all ancillary documents relating hereto
and all other agreements which may then be in effect between Franchisee and 
Franchisor and/or each Affiliate;

     (c) Prior to the expiration of the Initial Term or Renewal Term, if 
applicable, Franchisee shall execute the most recent form of agreement used by 
Fanchisor for granting franchises for the operation of Franchised Restaurants; 
except that, notwithstanding the terms of such agreement then being used by 
Franchisor, the initial franchise fee set forth in said agreement will be 
waived, and there will be no further right of renewal;

     (d) Franchisee shall execute and return to Franchisor or the Leasing 
Affiliate, as applicable, a sublease or amendment to sublease within 15 days of 
receipt thereof from Franchisor or the Leasing Affiliate; Franchisor or the 
Leasing Affiliate, as applicable, shall prepare such sublease or amendment to 
sublease conforming to the provisions of Paragraph 3.04(b) and submit same to 
Franchisee at the later of 30 days prior to the expiration of Franchisee's 
Initial Term (or Renewal Term if applicable) or 15 days after Franchisor's or 
the Leasing Affiliate's exercise of any option to renew or extend Franchisor's 
or the Leasing Affiliate's Master Lease or execution by Franchisor or the 
Leasing Affiliate of any renewal, extension or new Master Lease of the 
Franchised Location. If Franchisee fails or refuses to enter into such sublease
or amendment to sublease with 15 days of receipt thereof from Franchisor or the 
Leasing Affiliate, as applicable, this Agreement shall terminate upon the 
expiration of the then effective sublease or Master Lease, whichever occurs 
first, without giving effect to the exercise of any option or any renewal, 
extension or new Master Lease pertaining to this Paragraph 3.03.

     (e) Franchise shall, at its sole expense, prior to the commencement of the 
Option Term, refurbish and remodel the Franchised Restaurant, including 
expenditures for capital improvements, and bring the Franchised Restaurant into 
conformity with the standards, as respects building design, furniture, fixtures,
signs, equipment and color schemes, as may then be applicable for new franchises
being granted by Franchisor for the operation of Franchised Restaurants, and 
provide evidence satisfactory to Franchisor of Franchisee's financial ability to
refurbish and remodel the Franchised Restaurant.

     (f) The Option Term shall be for a period not to exceed ten years, ending 
one day prior to the expiration of, as applicable, Franchisor's, the Leasing 
Affiliate's or Franchisee's Master Lease or any renewal, extension or new Master
Lease of the Franchised Location, but in no event shall the combined terms of 
the Initial Term, Renewal Term (if applicable) and Option Term exceed 35 years.

                                      -4-


<PAGE>
 
        3.04 Lease Contingencies, Term Extension and Subordination.
             -----------------------------------------------------

        (a) Notwithstanding the Terms set forth in Paragraphs 3.01, 3.02 and 
3.03, this Agreement (and any other agreement entered into pursuant to the 
provisions of Paragraphs 3.01, 3.02 or 3.03) shall automatically terminate (1) 
upon the earlier termination of, as applicable, Franchisor's or the Leasing 
Affiliate's Master Lease, if any, or any lease or sublease, as applicable, for 
the Franchised Location, or (2) upon the occurrence of any event which prevents 
or prohibits Franchisee from occupying the Franchised Location or Franchised 
Restaurant; provided, however, that Franchisee shall not do anything which will 
cause such Master Lease, lease or sublease to be terminated or otherwise 
amended or modified without the prior written consent of Franchisor or the 
Leasing Affiliate, as applicable, which consent may be withheld for any reason 
in its sole discretion.

        (b)     (i) If Franchisee subleases the Franchised Location from 
Franchisor or the Leasing Affiliate, and the stated term of Franchisor's or the 
Leasing Affiliate's Master Lease expires at any time prior to or concurrently 
with the expiration of Franchisee's Initial Term, (or, if applicable, 
Franchisee's Renewal Term, if same has already come into effect), Franchisor or 
the Leasing Affiliate, as applicable, shall determine in its sole discretion 
whether to exercise any option to renew or extend Franchisor's or the Leasing 
Affiliate's Master Lease, if any renewal or extension option is available for 
exercise by Franchisor or the Leasing Affiliate. If, as applicable, no such 
renewal or extension option is available to Franchisor or the Leasing Affiliate 
under its Master Lease, but an opportunity to extend or renew the Master Lease 
or enter into a new Master Lease for the Franchised Location is available to
Franchisor or the Leasing Affiliate, Franchisor or the Leasing Affiliate shall 
determine in its sole discretion whether to accept any such renewal, extension 
or new Master Lease. In no event shall Franchisor or the Leasing Affiliate, as 
applicable, be obligated to exercise or accept any such option, renewal, 
extension or new Master Lease. Any such option (if exercised) or renewal, 
extension or new Master Lease (if accepted by Franchisor or the Leasing 
Affiliate, as applicable) shall hereinafter be referred to in this Paragraph 
3.04(b) as the "New Master Lease."

                (ii) Should Franchisor or the Leasing Affiliate, as applicable, 
as a condition to or in consideration for the New Master Lease, be required to 
or otherwise agree to increases in base rental, percentage rental, taxes and/or 
"other expenses" in excess of those previously required of Franchisee as lessee,
under the Master Lease, Franchisor or the Leasing Affiliate, as applicable, 
shall have the right to increase in a like dollar amount, any, all, or any 
combination of the base rental, percentage rental, taxes and/or "other 
expenses", respectively, to be paid by Franchisee to Franchisor or the Leasing
Affiliate pursuant to the sublease or amendment to sublease to be executed by 
Franchisee under Paragraphs 3.02(b) and 3.03(d), respectively. Any such 
increase(s) in Franchisee's base rental, percentage rental, taxes and/or "other 
expenses" shall be equal in dollar amount to the increase(s) therein required of
Franchisor or the Leasing Affiliate, as applicable, as lessee in connection with
the New Master Lease. By way of illustration, if the original Master Lease 
called for a minimum monthly rental of $1,000.00, and the New Master Lease 
called for a minimum monthly rental of $2,000.00, with no change in the amount 
of percentage rental, the Franchisee's Sublease minimum rental would increase by
$1,000.00 per month payable on a weekly basis. "Other expenses" may include, by 
way of example and without limitation, a onetime payment to Franchisor's or the 
Leasing Affiliate's Master Landlord in consideration for the New Master Lease, 
new or increased administrative fees or common area maintenance charges, and/or 
capital expenditures or expenses for remodeling, refurbishment, expansion, 
renovation, repair or decoration of the interior, exterior or surrounding areas 
of the Franchised Location. Any such obligations shall be in addition to those 
required under Paragraph 3.02(e) and 3.03(e) above; in the event of any conflict
between work to be performed under Paragraph 3.02(e) or 3.03(e), on the one 
hand, and this Paragraph 3.04(b), on the other hand, the resolution thereof 
shall be determined by Franchisor or the Leasing Affiliate, as applicable, in 
its sole discretion.

                                      -5-






<PAGE>
 
     (c)  Franchisee expressly agrees that any lease or sublease to which it is
a party with Franchisor or the Leasing Affiliate, as applicable, and
Franchisee's rights thereunder, shall be subject to all of the terms,
conditions, and covenants of any Master Lease, mortgages, deeds of trust, or any
other encumbrances now placed, charged or enforced against the Franchised
Location or any land, buildings or improvements included thereon, or of which
the Franchised Location is a part, or any portion or portions thereof and to any
first deed of trust encumbrance hereafter encumbering the Franchised Location or
any portion thereof or the use of said Franchised Location or any portion
thereof, provided, however, that (a) the beneficiary or beneficiaries of such
first deed of trust encumbrance are one or more banks, insurance companies,
savings and loan associations, real estate investment trusts or other similar
institutional lenders, (b) the aggregate amount of indebtedness the repayment of
which is secured by such first deed of trust encumbrance does not exceed ninety
percent (90%) of the fair market value of said premises as determined by the
lender or lenders providing such financing or refinancing, and (c) the repayment
of such indebtedness is amortized over a term not to exceed 40 years and is
repayable on any annual, semi-annual, quarterly or monthly basis. All other
terms of such indebtedness, including, but not by way of limitation, the precise
amount thereof and the interest rate with respect to thereto, shall be as
determined solely by Franchisor or the Leasing Affiliate or Franchisor's or the
Leasing Affiliate's Master Landlord, if applicable, and such beneficiary or
beneficiaries in their sole and absolute discretion. Franchisee shall execute
and deliver to Franchisor or the Leasing Affiliate, as applicable, such
documents and take such further action as Franchisor or the Leasing Affiliate in
its sole and absolute discretion may deem necessary or advisable to effect or
maintain such subordination within ten days after written request of Franchisor
or the Leasing Affiliate or such beneficiary or beneficiaries to do so.
Franchisee further shall execute at any time, and from time to time, such
documents as may be required to effectuate such subordination, and, as
applicable, upon Franchisee's or the Leasing Affiliate's failure to execute any
such documents at Franchisor's or the Leasing Affiliate's request, Franchisor or
the Leasing Affiliate shall be, and hereby is, appointed Franchisee's attorney-
in-fact to do so. This power of attorney granted by Franchisee is a special
power of attorney coupled with an interest and is irrevocable and shall survive
the death or disability of Franchisee.

     3.05 Notice of Expiration Required by Law.
          ------------------------------------

     If applicable law requires that Franchisor give notice to Franchisee prior 
to the expiration of the Initial Term, Renewal Term or Option Term, this
Agreement shall remain in effect on a month-to-month basis until the notice
requirements of such applicable law have been met.

                                      IV
                   RESTAURANT CONSTRUCTION AND REFURBISHING

     4.01 Standard Plans and Specifications.
          ---------------------------------

     (a)  If the Franchised Restaurant has not been constructed as of the date 
hereof and is to be constructed by Franchisee, Franchisor or its Affiliate shall
furnish to Franchisee, at no cost to Franchisee, Franchisor's standard plans and
specifications for the erection of a Restaurant and for equipment and signs but 
excluding site plans.  Franchisee shall, at its sole expense, make such 
modifications in such plans and prepare site plans so as to bring the plans and 
the Franchised Restaurant and the entire Franchised Location into compliance 
with such building codes and local zoning provisions as may be applicable and 
required from time to time.  No change or addition shall be made in or to the 
plans or specifications furnished by Franchisor or its Affiliate without 
Franchisor's or its Affiliate's, as applicable, prior written consent and 
approval, which consent and approval shall not be unreasonably withheld.

     (b)  If the Franchised Restaurant is to be converted to any International 
House of Pancakes restaurant by Franchisee, Franchisor or its Affiliate will 
furnish to Franchisee, at no cost to Franchisee, Franchisor's

                                      -6-

<PAGE>
 
specifications for the conversion of a restaurant.  Franchisee shall then 
develop plans, at its sole cost and expense, for submission to Franchisor or its
Affiliate for its written approval.  Any further modifications to the plans or 
deviations from the provided specifications are subject to the prior written 
approval of Franchisor or its Affiliate, as applicable.

     4.02 Construction.
          ------------

     (a)  If the Franchised Restaurant has not been constructed as of the date 
hereof and is to be constructed by Franchisee, Franchisee shall, at its sole 
cost and expense, acquire the Franchised Location through purchase or lease, and
promptly erect, or cause to be erected, a Restaurant on the Franchised Location 
in conformity with the plans and specifications furnished to Franchisee, 
pursuant to Paragraph 4.01. Franchisee shall break ground for construction of 
the Franchised Restaurant not later than six months after the execution of this 
Agreement by Franchisor, and shall thereafter use its best efforts to promptly 
complete construction and have all fixtures, furnishings, machinery and 
equipment installed, and parking areas completed, inventory delivered, business 
and other permits obtained and personnel employed and all other necessary things
attended to so that the Restaurant shall be open for business to the public as 
expeditiously as possible.

     (b)  If the Franchised Restaurant is to be converted to an International 
House of Pancakes restaurant by Franchisee, Franchisee shall, at its sole cost
and expense, acquire the Franchised Location through purchase or lease, and
promptly convert the restaurant building on the Franchised Location in
conformity with the specifications furnished to Franchisee, pursuant to
paragraph 4.01(b) above. Franchisee shall use its best efforts to promptly
complete the conversion of the Restaurant so that the same shall be open for
business to the public within 16 weeks after the execution of this Agreement.

     4.03 Maintaining and Refurbishing of Restaurant.
          ------------------------------------------

     (a)  Franchisee shall at all times during the term hereof maintain at its 
sole expense the interior and exterior of the Franchised Restaurant and the 
entire Franchised Location, including the parking lot, in fist class condition 
and repair, and in compliance with the Operations Bulletins and all local 
rules, ordinances and regulations; provided, however, that to the extent this 
provision is inconsistent with any preexisting lease or sublease between 
Franchisor or the Leasing Affiliate, as applicable, and Franchisee, the terms of
such lease or sublease shall be controlling.

     (b)  Every five years during the entire term hereof, at Franchisee's sole 
costs and expense, Franchisee shall refurbish, remodel and improve the 
Restaurant in accordance with Franchisor's then current standards as set forth 
in the Operations Bulletins then in effect. Franchisee shall commence the first 
such refurbishing, remodelling and improving on the anniversary date occurring 
five years from the date hereof.  Each subsequent refurbishing, remodelling and 
improving shall commence five years from the date on which the last such 
refurbishing, remodelling and improving was commenced. Franchisee shall complete
any such refurbishing, remodelling and improving as expeditiously as possible, 
but in any event within 30 days of commencing same.

     (c)  Franchisor or its Affiliate may, on one or more occasions, waive or 
defer for such period of time as Franchisor may deem appropriate, Franchisee's 
obligation to refurbish, remodel and improve any such Restaurant, if Franchisor 
or its Affiliate determines in its reasonable judgement that any such restaurant
or restaurants are, on the date scheduled for commencement of such 
refurbishing, remodelling or improving, substantially in conformity with
Franchisor's then current standards as aforesaid.

                                      -7-

<PAGE>
 
     4.04 Lease Requirements and Franchisor's Succession Rights.
          -----------------------------------------------------

     (a)  If Franchisee leases the Franchised Location or the Franchised 
Restaurant from a third party, the lease shall expressly provide, unless 
Franchisor waives these requirements in its sole discretion, that (i) in the 
event of any breach or claim by the Landlord thereunder of any breach by 
Franchisee, said Landlord shall be obligated to notify Franchisor in writing at
least 30 days prior to the termination of said lease, whereupon Franchisor or an
Affiliate shall have the right, but not the obligation, to cure such breach and 
succeed to Franchisee's rights thereunder, and (ii) in the event of the 
termination of this Agreement as a result of Franchisee's breach hereof, and 
upon Franchisor's or such Affiliate's written election to Franchisee to be made 
within ten days after the date of said termination, Franchisor or such Affiliate
shall have the right to succeed to Franchisee's rights under the lease. In the 
event Franchisor or such Affiliate elects to succeed to Franchisee's rights 
under the lease, as aforesaid, Franchisee shall assign to Franchisor or such 
Affiliate all of its right, title and interest in and to said lease, whereupon 
the Landlord thereunder shall attorn to Franchisor or such Affiliate as the 
tenant thereunder.  Franchisee shall execute and deliver to Franchisor or such 
Affiliate such assignment and take such further action as Franchisor or such 
Affiliate, as applicable, in its sole and absolute discretion, may deem 
necessary or advisable to effect such assignment, within ten days after written 
demand by Franchisor or such Affiliate to do so, and upon Franchisee's failure 
to do so, Franchisor or such Affiliate shall be, and hereby is, appointed 
Franchisee's attorney in fact to do so.  This power of attorney granted by 
Franchisee to Franchisor or such Affiliate is a special power of attorney
coupled with an interest and is irrevocable and shall survive the death or
disability of Franchisee. Any sum expended by Franchisor or such Affiliate to
cure Franchisee's breach of the lease shall be deemed additional sums due
Franchisor or its Affiliate hereunder and shall be paid by Franchisee to
Franchisor or its Affiliate upon demand. The covenants of Franchisee contained
in this Paragraph 4.04(a) shall survive the termination of this Agreement.

     (b)  Franchisee shall deliver the Franchisor a complete copy of such lease 
at least ten days prior to the execution thereof by Franchisee and the Landlord.


                                       V
                             INITIAL FRANCHISE FEE

     5.01 Initial Franchise Fee (check one):
          ---------------------------------

 [_] (a)  If Franchisee is constructing or has arranged for the construction of 
the Franchised Restaurant in connection with the execution of this Agreement, 
Franchisee shall pay to Franchisor, as an Initial Franchise Fee, the sum of 
Fifty Thousand Dollars ($50,000), payable as follows:

            $___________________________ of the Initial Franchise Fee shall be
            payable upon execution of this Agreement. The balance, if any, shall
            be payable in ________ equal weekly installments with interest
            computed at ________________ percent (____%) per annum, or the
            maximum rate allowed by law, whichever is lower, on the unpaid
            balance, evidenced by a promissory note. The first payment on the
            balance shall be due on the second Wednesday following the date the
            Franchised Restaurant opens for business with subsequent payments
            due on each succeeding Wednesday until paid in full.

 [_] (b)  If Franchisee is converting or has arranged to convert the Franchised 
Restaurant in connection with the execution of this agreement, Franchisee shall 
pay to Franchisor, as an Initial Franchise Fee, the sum of $50,000, payable as 
follows:

                                      -8-

<PAGE>
 
           $______________ of the Initial Franchise Fee shall be payable upon
           execution of this agreement. The balance, if any, shall be payable in
           _____ equal weekly installments with interest computed at the rate of
           ____________ percent (____%) per annum, or the maximum rate allowed
           by law, whichever is lower, on the unpaid balance, evidenced by a
           promissory note. The first payment on the balance shall be due on the
           second Wednesday following the date the Franchised Restaurant opens
           for business with subsequent payments due on each succeeding
           Wednesday until paid in full. Franchisee shall have the option to
           terminate this Franchise Agreement at the end of the first
           ____________ years of the Initial Term, upon written notice to
           Franchisor not less than 60 days prior to the expiration of the first
           ______ years of the Initial Term. As a condition to the exercise by
           Franchisee of such option to terminate this Franchise Agreement,
           Franchisee shall pay to Franchisor in full all sums due Franchisor
           from Franchisee, under this agreement or otherwise, as of the end of
           the first _____ years of the Initial Term, Franchisee shall convert
           the Franchised Restaurant from an International House of Pancakes
           restaurant to some other type of restaurant at Franchisee's sole cost
           and expense, and Franchisee shall comply fully with the provisions of
           Paragraph 15.01 below. Further, in the event Franchisee elects to
           exercise Franchisee's option to terminate this Franchise Agreement
           prior to the expiration of the Initial Term as herein provided and if
           Franchisee shall have fully performed all conditions to such early
           termination, Franchisor shall waive any portion of the Initial
           Franchise Fee remaining unpaid as of the date of termination for the
           period after the end of the first __________ years of the Initial
           Term.

    [_]    (c) (i) If Franchisee is taking over the operation of a Franchisor or
Affiliate operated or developed IHOP restaurant, Franchisee shall pay to 
Franchisor, as an Initial Franchise Fee, the sum of $_______________________,
payable as follows:

           $______________________ of the Initial Franchise Fee shall be payable
           upon execution of this Agreement. The balance, if any, shall be
           payable in _______ equal weekly installments, with interest computed
           at the rate of _____ percent (___%) per annum, or the maximum rate of
           interest allowed by law, whichever is lower, on the unpaid balance,
           evidenced by a Promissory Note. The first payment on the balance
           shall be due on the second Wednesday following the date hereof, with
           subsequent payments due on each succeeding Wednesday until paid in
           full.
           
    [_]    (ii) If there are fewer than ten years remaining on the term of the
Master Lease for the Franchised Location at the time of execution hereof, in the
event (1) Franchisor or the Leasing Affiliate, as applicable, accepts any 
renewal, extension or new Master Lease of the Franchised Location and (2) 
Franchisee exercises its option to extend the Initial Term of this Agreement 
pursuant to Paragraph 3.02, Franchisee shall pay to Franchisor for the Renewal 
Term an additional Franchise Fee of $______________________ for each year of 
said extended period not to exceed the additional total sum of $____________, 
payable as follows:

           $_________________________ shall be payable on the first day of the
           Renewal Term, and the balance, if any, shall be payable in _____
           equal weekly installments (or in the event the extension is for less
           than five years, for the number of weeks of the Renewal Term) with
           interest computed at the rate of _____ percent (_____%) per annum, or
           the maximum rate of interest allowed by law, whichever is lower, on
           the unpaid balance, evidenced by a Promissory Note. The first payment
           on the balance shall be due on the second Wednesday following

                                      -9-


<PAGE>
 
          _________________, the expiration date of the Initial Term, with
          subsequent payments due on each succeeding Wednesday until paid in
          full.

     [_]  (d)  If, prior to the execution hereof, Franchisee was a party to an 
executory IHOP franchise or license agreement relating to the Franchised 
Location, there shall be no Initial Franchise Fee payable pursuant to the 
execution of this Agreement, but any balance which remains unpaid in respect of 
the franchise fee previously incurred by Franchisee shall remain payable on the 
terms previously agreed, as shall Franchisee's general account balance and other
obligations to Franchisor.

     [_]  (e)  If Franchisee currently is a party to an executory IHOP Area 
Development Agreement pursuant to which the Franchised Location is in the
Exclusive Territory defined therein, there shall be no additional Initial
Franchise Fee payable pursuant to the execution of this Agreement, but any
balance which remains unpaid in respect of the franchise fee previously incurred
by Franchisee pursuant to the Area Development Agreement shall remain payable on
the terms previously agreed, as shall Franchisee's other obligations to
Franchisor.

                                      VI
                       CONTINUING ROYALTY, DEFINITION OF
                        GROSS SALES AND RECORD KEEPING

     6.01 Continuing Royalty.
          ------------------

     In addition to the Initial Franchise Fee required to be paid by Franchisee 
to Franchisor hereunder, Franchisee shall pay in United States Dollars to 
Franchisor a Continuing Royalty as follows:

     [_]  (a)  An amount equal to four and one-half percent (4.5%) of 
Franchisee's weekly Gross Sales, as hereinafter defined, or

     [_]  (b)  An amount equal to the percentage of Franchisee's weekly Gross 
Sales, as hereinafter defined, as set forth in the schedule attached hereto, for
a period of _______________________ weeks following the date hereof and 
thereafter an amount equal to four and one-half percent (4.5%) of Franchisee's 
Weekly Gross Sales for the balance of the term of this Franchise Agreement.

     6.02 Payments.
          --------

     Payments of said Continuing Royalty for each weekly period and the 
Advertising Fee provided for in Paragraph 7.01 shall be due on Wednesday of each
week following the end of the prior week in which such Gross Sales were earned. 
All such payments shall be accompanied by a statement in such form and detail as
shall be from time to time required by Franchisor from its Franchisees, showing 
how such Continuing Royalty was computed for such week, and accompanied by the 
cash register or all electronic point-of-sale system tapes of the Franchised 
Restaurant for such week and, on a monthly basis, by a copy of Franchisee's 
monthly sales tax reports.  Such weekly payments shall include, where 
applicable, any payments due pursuant to Paragraph 5.01.

     6.03 Definition of Gross Sales.
          -------------------------

     The term "Gross Sales", as used in this Agreement, shall mean the total 
revenues derived by Franchisee in and from the Franchised Restaurant, whether 
for cash sales of food and other merchandise or otherwise, or charge sales 
thereof, or revenues from any source arising out of the operation of the 
Franchised Restaurant, deducting therefrom:  (a) all refunds and allowances, if 
any; (b) any sales or excise taxes which are separately

                                     -10-

<PAGE>
 
stated and which Franchisee collects from customers and pays to any federal, 
state or local taxing authority; and (c) any amounts deposited in any vending 
machines or pay telephones which are located in or about the Franchised 
Restaurant, if said vending machines and/or pay telephones are leased and not 
owned by Franchisee, in which case only the commissions received by Franchisee 
in connection therewith shall be included in the total revenues.

     6.04 Records.
          -------

     (a)  Franchisee shall record all sales on individual pre-printed machine 
serial numbered guest checks with the IHOP logo purchased from a Franchisor 
approved, licensed vendor, and shall keep and maintain accurate records thereof.
Franchisee shall cause all such sales to be registered upon a non-resettable 
cash register or electronic point-of-sale system of a type specified by 
Franchisor, having a lock-in running total, and shall, at any time at 
Franchisor's sole discretion, provide to Franchisor or its authorized 
representatives, a key to permit reading of the running total of the cash 
register.  Any cash register or electronic point-of-sale system must at all 
times meet each and all of Franchisor's standard specifications and requirements
then in effect for same.

     (b)  Franchisee shall keep and preserve for a period of not less than 36 
months after the end of each calendar year or any longer period as may be 
required by applicable law, all business records, including cash register 
receipts, cash register tape readings, standardized numbered guest checks, sales
tax or other tax returns, bank books, duplicate deposit slips, and other
evidence of Gross Sales and business transactions in accordance with
Franchisor's requirements promulgated from time to time.  Franchisor or an
Affiliate shall have the right at any time, notwithstanding the terms contained
in paragraph 10.07, to enter Franchisee's premises to inspect (including the
right to inspect units and to take readings of all registers, documenters, pre-
checkers and point of sale systems at any time), audit, verify sales and make or
request copies of books of account, bank statements, documents, records, tax
returns, papers and files of Franchisee relating to gross sales and business
transacted and, upon request by Franchisor, Franchisee shall make any such
materials available for inspection by Franchisor or an Affiliate at Franchisee's
premises.  Such audit and/or sales verification may include the on-site presence
of one or more personnel of Franchisor or an Affiliate for seven full
consecutive days.  If Franchisor should cause an audit to be made and the gross
sales and business transacted as shown by Franchisee's statements should be
found to be understated by any amount, Franchisee shall immediately pay to
Franchisor or its Affiliate, if applicable, the additional amount payable as
shown by such audit, plus interest thereon at the highest rate of interest
allowed by law, and if they are found to be understated by two percent (2%) or
more, Franchisee shall also immediately pay to Franchisor the cost of such audit
shall be paid by Franchisor.  If Franchisee should at any time cause an audit of
Franchisee's business to be made by a public accountant, Franchisee shall
furnish Franchisor with a copy of said audit, without any cost or expense to
Franchisor.

     (c)  Franchisee shall allow Franchisor and any Affiliate access to the 
state, federal and local income tax returns of Franchisee and Franchisee hereby 
waives any privilege pertaining thereto.

     (d)  Within 30 days after the expiration of each three month period, 
Franchisee shall furnish Franchisor with a profit and loss statement of the 
Franchised Restaurant for such previous quarter and within 90 days after the end
of each calendar year, Franchisee shall furnish Franchisor with a profit and 
loss statement and balance sheet of the Franchised Restaurant for the previous 
calendar year.  All such financial statements shall be prepared in accordance 
with Generally Accepted Accounting Principles ("GAAP") consistently applied 
from applicable period to period and shall be certified by Franchisee's Chief 
Executive Officer or Chief Financial Officer, if Franchisee is a corporation, 
limited liability company, general partnership, limited partnership, liability 
partnership or other entity approved by Franchisor ("Business Entity"), as being
true and correct, and as being prepared in accordance with GAAP consistently 
applied period to period.  All such financial statements shall also comply with 
any specific requirements as Franchisor may from time to 

                                     -11-

<PAGE>
 
time designate.  Franchisee hereby irrevocably consents to the inspection of 
said financial statements by Franchisor or any Affiliate and to Franchisor's use
of said financial statements, at Franchisor's election, in Franchisor's offering
circular for the offer and sale of franchises.  Unless otherwise expressly
stated herein to the contrary, references herein to "Owner" shall include the
shareholders, general partners, limited partners, members, and other owners of
the Business Entity, as applicable, and references to "Stock" include all
corporate shares (whether common, preferred or otherwise) in the case of a
corporation, all membership interests in the case of a limited liability
company, all partner's interests in a partnership (whether general or limited),
and in all cases all voting rights in the Business Entity.

                                      VII
                                  ADVERTISING

     7.01 National Advertising Fee.
          ------------------------

     (a)  In addition to all other payments provided for herein, Franchisee 
shall pay in United States dollars a fee (hereinafter "National Advertising
Fee") to Franchisor in an amount equal to one percent (1%) of the weekly Gross
Sales of the Franchised Restaurant.

     (b)  The National Advertising Fee to be paid by Franchisee shall be placed 
in a National Advertising Fund which Franchisor shall create and shall 
administratively segregate on its books and records as hereinafter provided.  
The National Advertising Fund shall consist of the aggregate of:

               (i)    All payments made by all franchisees of National 
Advertising Fees as set forth in Paragraph 7.01(a);

               (ii)   Payments in a sum equal to one percent (1%) of Gross Sales
of Franchisor operated and Affiliate operated International House of Pancakes 
Restaurants; and

               (iii)  All Table Allowances (as that term is hereinafter defined)
received by Franchisor and any Affiliate.  As used herein, the term "Table 
Allowances" shall mean all rebates, allowances, discounts and other monetary 
compensation (hereinafter "Allowances") received by Franchisor or any Affiliate 
on account of the purchase of food items, supplies or services by all 
franchisees in consideration for the open display by all franchisees of a 
supplier's product, trademark or logo.  "Table Allowances" shall not include any
allowances granted on account of purchases by less than all Franchisees.

     (c)  From sums available in the National Advertising Fund, Franchisor shall
develop advertising, public relations, and promotional campaigns designed to 
promote and enhance the value of all IHOP restaurants.  In addition, should 
sufficient sums be available in the National Advertising Fund, Franchisor may, 
but is not obligated to, make expenditures from the National Advertising Fund 
for the purpose of paying for advertising, public relations and promotional 
campaigns designed to promote and enhance the value of all "IHOP" franchised and
company operated restaurants.  It is expressly agreed that in all phases of such
activities, including development, type, quantity, timing, placement, and choice
of media or agency, the decision of Franchisor shall be final. Franchisee shall
not engage in any such activities, nor shall it erect or display any sign or
notice of any kind without the prior written consent of Franchisor, whose
decision shall be final.

     (d)  Such advertising, public relations, and promotional services shall be
provided and administered as follows:

                                     -12-

<PAGE>
 
               (i)    Franchisor shall consult with franchisees at regularly 
scheduled meetings concerning the type, content, frequency, development and 
nature of proposed National Advertising Programs, and shall give due 
consideration to the views of franchisees.  The allocation of advertising 
expenditures from the National Advertising Fund shall be finally determined by 
Franchisor.

               (ii)   Franchisor shall disburse funds from the National
Advertising Fund for the purpose of paying for its actual administrative
expenses with respect to said Fund, its reimbursement of direct costs incurred
by its Affiliate in providing administrative services respecting the National
Advertising Fund and costs of Franchisor's internal Advertising Department,
including direct overhead and excluding any costs relating to Franchisor's
Franchise Sales Program. To the extent the Franchisor's Affiliate provides
administrative services for the direct benefit of the National Advertising Fund,
and incurs expenses as a result thereof, such expenses will be reimbursed from
the National Advertising Fund. Additionally, Franchisor shall disburse funds
from the National Advertising Fund for the purpose of paying for the other
expenses hereinabove set forth in paragraph 7.01(c).

               (iii)  Within a reasonable time after the expiration of each of 
Franchisor's fiscal years, Franchisor shall furnish franchisees an accounting
with respect to the receipt and expenditure of moneys by and from the National
Advertising Fund. Such accounting shall contain the following information:

                      (1)  The opening balance in such Fund at the beginning of 
such fiscal year;

                      (2)  The total amount of fees paid into the National 
Advertising Fund by all franchisees during such fiscal year;

                      (3)  The total amount of Table Allowances received by 
Franchisor or any Affiliate during such fiscal year;

                      (4)  A reasonably itemized breakdown and description of 
all disbursements from the National Advertising Fund during such preceding 
fiscal year, sufficient to indicate separately each of the various classes of 
expenditures made from such Fund and the amount of the expenditures made for 
each class thereof; and

                      (5)  The net balance, if any, remaining in the National 
Advertising Fund at the close of such fiscal year.

In the event Franchisor's National Advertising Fund expenditures in any one 
fiscal year shall exceed the total amount contributed to said Fund during said 
fiscal year, Franchisor shall have the right to be reimbursed to the extent of 
the excess of those amounts subsequently contributed to said Fund.  In the 
event the contributions to said Fund exceed the expenditures from such Fund in 
any fiscal year, such excess will be retained in said Fund for future 
advertising.

     7.02 Local and Regional Advertising Fee.
          ----------------------------------

     (a)  In addition to all other payments provided for herein, Franchisee 
shall pay in United States dollars a fee (hereinafter "Local Advertising Fee") 
to Franchisor in an amount equal to two percent (2%) of the weekly Gross Sales 
of the Franchise Restaurant.

     (b)  Franchisees or Franchisor may, from time to time, develop or assist in
the development of Regional Advertising cooperatives designed to promote and
enhance the value of all IHOP restaurants in each region.

                                     -13-

<PAGE>
 
Franchisor may establish and modify from time to time guidelines and procedures 
which shall govern the conduct and operation of the Regional Advertising 
Cooperatives. The geographical description of each region (hereinafter 
"Advertising Region") shall be designated by Franchisor in its sole subjective 
judgment, exercised in good faith, after consultation with franchisees in the 
proposed Advertising Region. If a majority of the Franchised Restaurants in the
Advertising Region (each IHOP restaurant being entitled to one vote) vote to 
establish or participate in a Regional Advertising Cooperative, Franchisee and 
all Franchisor operated and Affiliate operated IHOP restaurants in the 
Advertising Region shall participate therein and contribute thereto on an equal 
basis with all other franchisees who are obligated to, or if applicable, 
voluntarily elect to, participate in such Regional Advertising Cooperative. 
Each franchisee in the proposed Advertising Region shall be entitled to vote in
person at a meeting called for the purpose of considering formation of a
Regional Advertising Cooperative, or by ballot submitted to Franchisor in
writing within 30 days thereafter.

        (c) From Franchisee's Local Advertising Fee, but only to the extent that
such fee actually has been paid by Franchisee to Franchisor during Franchisor's 
fiscal year then in progress, Franchisor shall reimburse Franchisee or credit 
Franchisee's account with Franchisor, for: (i) Franchisee's local advertising 
expenses incurred during said fiscal year (after deducting any expenses that 
Franchisor has previously paid or is or may be required to pay on account of 
advertising run by, for, or on behalf of Franchisee), and, (ii) contributions 
made by Franchisee during said fiscal year (whether through payment to 
Franchisor or directly to a third party) to the Regional Advertising 
Cooperative, if any, of which Franchisee is a member, for advertising of the 
Franchised Restaurant up to an amount not to exceed the Local Advertising Fee 
actually paid by Franchisee; provided, however, that such right of reimbursement
shall be subject to the condition that Franchisee furnish Franchisor with 
appropriate verification, satisfactory to Franchisor, of such advertising 
expenditures and that the advertising resulting therefrom has been placed and 
paid for either by Franchisee or the Regional Advertising Cooperative of which 
Franchisee is a member and that no liability to any party exists or may exist 
with respect to such advertising. Local Advertising Fees which are contributed 
in a particular fiscal year of Franchisor, but which Franchisor is not required 
to reimburse or credit on account of advertising expenditures incurred by 
Franchisee during said fiscal year, shall become part of Franchisor's general 
operating funds.


                                     VIII
                                  TRADEMARKS


        8.01 Nature of Grant.
             ---------------

        Franchisor hereby grants to Franchisee, and Franchisee hereby accepts,
the right during the term hereof, upon the terms and conditions contained
herein, to use and display IHOP service marks, trademarks, trade names and
insignia and the labels and designs pertaining thereto (herein called the
"Trademarks"), and to use Franchisor's trade secrets, formulae, processes,
methods of operation and goodwill, but only in connection with the retail sale
at the Franchised Restaurant of those items contained on the standard menu of
IHOP restaurants as established in the Operations Bulletins from time to time.
Nothing herein shall give Franchisee any right, title or interest in or to said
service marks, trademarks, trade names, insignia, labels or designs, trade
secrets, formulae, processes, methods of operation or goodwill, or any of the
same except a mere privilege and license, during the term hereof, to display and
use the same according to the foregoing limitations and upon the terms,
covenants and conditions contained herein. Upon the expiration or termination of
this Agreement for any reason, Franchisee shall deliver and surrender up to
Franchisor or its Affiliate each and all manuals, Bulletins, instruction sheets,
forms, marks, devices, Trademarks, and the possession of any physical objects
bearing or containing any of said Trademarks, and shall not thereafter use any
of the same or any such trade secrets, formulae, processes, methods of
operation, goodwill, or any of them; provided Franchisor or its Affiliate shall
purchase from Franchisee at a price equal to Franchisee's book value, consisting
of Franchisee's cost therefor less depreciation computed in

                                     -14-


<PAGE>
 
accordance with GAAP, all signs, paper goods, dishes, and other items of 
personal property purchased by Franchisee in the ordinary course of its business
which are, in Franchisor's or its Affiliate's reasonable judgment, in good, 
usable condition and which bear any Trademarks of Franchisor. Franchisee 
acknowledges that the material and information now and hereafter provided or 
revealed pursuant to this Agreement are revealed in confidence and Franchisee 
expressly agrees to keep and respect the confidence so reposed. Franchisee shall
cause all of its Owners and employees, and others who may have access to the 
Operations Bulletins, to maintain such confidentiality and, at Franchisor's 
request, Franchisee shall cause such persons to execute confidentiality 
agreements on a form prescribed by Franchisor.

        Nothing herein contained shall be construed so as to require Franchisor 
to divulge any secret processes, formulae or ingredients. Franchisor expressly 
reserves all rights with respect to IHOP's goods, products, Trademarks, trade 
secrets, formulae, processes, ingredients and methods of operation, except as 
may be expressly granted to Franchisee herein.

        8.02 Acts in Derogation of Franchisor's Trademarks.
             ---------------------------------------------

        (a) Franchisee agrees that, as between Franchisor and Franchisee, the 
Trademarks of Franchisor are the sole and exclusive property of Franchisor and 
Franchisee now asserts no claim and will hereafter assert no claim to any 
goodwill, reputation or ownership thereof by virtue of Franchisee's licensed use
thereof. Franchisee agrees that it will not do or permit any act or thing to be 
done in derogation of any of Franchisor's rights in connection with the same, 
either during the term of this Agreement or thereafter, and that it will use 
same only for the uses and in the manner licensed hereunder and as herein 
provided.

        (b) Franchisee shall not use, or permit the use, as part of its name, 
the phrases "IHOP", "International House of Pancakes", "House of Pancakes", or 
any phrase or combination of words confusingly similar thereto.

        8.03 Prohibition Against Disputing Franchisor's Rights.
             -------------------------------------------------

        Franchisee agrees that it will not, during or after the term of this 
Agreement, in any way, dispute or impugn the validity of the Trademarks licensed
hereunder, or the rights of Franchisor thereto, or the right of Franchisor, its 
Affiliates, or other franchisees of Franchisor to use the same both during the 
term of this Agreement and thereafter.

        8.04 Use of Franchisor's Name.
             ------------------------

        Franchisee agrees that the restaurant herein franchised shall be named 
the "International House of Pancakes" or "International House of Pancakes 
Restaurant," as specified by Franchisor, without any suffix or prefix attached 
thereto and all signs, advertising and slogans will only bear the name 
"International House of Pancakes", or "International House of Pancakes 
Restaurant," or such other Trademarks as Franchisor may hereafter specify in its
Operations Bulletins. Franchisee shall maintain a plaque of reasonable and 
suitable size and design, as approved by Franchisor, behind the cash register on
the interior of the premises, designating Franchisee as proprietor of the 
Franchised Restaurant, and shall use Franchisee's correct name on all invoices, 
orders, vouchers, checks, letterheads, and other similar materials, identifying 
the franchise as being a franchise of Franchisor which is independently owned 
and operated by Franchisee.

        8.05 Relationship of Franchisee to Franchisor.
             ----------------------------------------

        It is expressly agreed that the parties intend by this Agreement to 
establish between Franchisor and Franchisee the relationship of franchisor and 
franchisee, and that it is not the intention of either party to undertake

                                     -15-

<PAGE>
 
a joint venture or to make Franchisee in any sense an agent, partner, employee 
or affiliate of Franchisor or any Affiliate.  It is further agreed that 
Franchisee has no authority to create or assume in Franchisor's or any 
Affiliate's name or on behalf of Franchisor or any Affiliate any obligation, 
express or implied, or to act or purport to act as agent or representative on 
behalf of Franchisor or any Affiliate for any purpose whatsoever.

                                      IX
                       FURTHER OBLIGATIONS OF FRANCHISOR

     9.01 Initial Training.
          ----------------

     If Franchisee or the proposed manager of the Franchised Restaurant has not 
previously undergone training conducted by Franchisor for the operation of an 
IHOP restaurant, Franchisor, itself or through its Affiliate, agrees:

     (a) To furnish Franchisee or the proposed manager of the Franchised 
Restaurant at no additional cost with seven weeks of training (hereinafter 
"Initial Training") in the operation of an IHOP restaurant. Said training shall 
be given at an IHOP restaurant or a training center designated from time to time
by Franchisor.  Neither Franchisor nor any Affiliate will pay any compensation 
for any services performed by trainee during such training period and all 
expenses incurred by Franchisee or said trainee in connection with such 
training, including air fare and other transportation costs, meals, lodging and 
other living expenses, shall be at the sole expense of Franchisee.  Franchisee 
or the proposed manager of the Franchised Restaurant shall pursue and complete 
such training to Franchisor's sole subjective satisfaction, unless waived by 
Franchisor in its sole subjective judgment, exercised in good faith, by reason 
of such person's prior training experience.  If the manager of the Franchised 
Restaurant is replaced by a new manager, such new manager must attend such 
Initial Training and complete same to Franchisor's sole subjective satisfaction 
(unless waived by Franchisor) provided, however, that Franchisee shall pay 
Franchisor a training fee of $5,000 and must bear all costs and expenses in 
connection therewith as described above.

     (b) At Franchisor's election, to furnish management seminars from time to 
time for the benefit of its franchises.  Franchisor shall have the right to 
require Franchisee, or the manager employed by Franchisee for the Franchised 
Restaurant, to attend at least one management seminar per year.  Said management
seminars shall be given at an IHOP restaurant, a training center, or such other 
place designated from time to time by Franchisor.  Notwithstanding the fact 
that Franchisor shall provide such management seminars at no additional cost to 
Franchisee, Franchisee shall bear all expenses incurred by Franchisee or said 
manager in connection with such seminar, including transportation costs, meals, 
lodging and other living expenses.

     9.02 Other Services.
          --------------

     Franchisor also shall furnish through its staff or that of its Affiliates 
Franchisee with:

     (a) On-location supervision, if paragraph 5.01(a), (b) or (c) has been 
checked above, for such period of time as Franchisor shall deem necessary, but 
not exceeding 30 days allocated at Franchisor's discretion between the time 
immediately prior to and after the opening of the Franchised Restaurant.

     (b) Promotional assistance, if paragraph 5.01(a), (b) or (c) has been 
checked above, at the time that the Franchised Restaurant opens.

     (c) Periodic supervision and assistance from field representatives who 
shall visit the Franchised Restaurant from time to time.

                                     -16-

<PAGE>
 
     (d) Ongoing availability at its home office for consultation and guidance
with respect to the operation and management of the Franchised Restaurant.

     (e) In addition to the foregoing, additional assistance from the staff of
Franchisor or its Affiliates upon Franchisee's request and subject to staff
availability, at the then prevailing price per person per day, as shall be
specified from time to time in the Operations Bulletins, plus reasonable
transportation and living expenses.

     9.03 Trademark Protection.
          --------------------

     In the event that any third party makes any claim, by suit or otherwise,
against Franchisee because of Franchisee's use in accordance with this Agreement
of the Trademarks, Franchisee shall immediately notify Franchisor in writing.
After receipt of said notice, Franchisor shall promptly take such action as may
be necessary to protect and defend Franchisee against any such claim, suit or
demand, and Franchisor shall protect, indemnify and save Franchisee harmless
from any loss, costs or expenses arising out of or relating to any such claim,
demand or suit.  Franchisee shall have no right to settle, compromise, or
litigate any such claim except in strict compliance with any specific directives
provided by Franchisor relating to such specific claim. Franchisor shall have
the right to defend, compromise, or settle any such claim at Franchisor's sole
cost and expense, using attorneys of its own choosing, and Franchisee shall
cooperate fully with Franchisor in connection with the defense of any such
claim.

                                        X
                         OTHER OBLIGATIONS OF FRANCHISEE

     10.01 Sales and Service of Food Products.
           ---------------------------------- 

     Franchisee shall sell, serve and dispense only those items and products as
shall be designated by Franchisor in the Operations Bulletins. In connection
therewith, the parties agree that Franchisor or its Affiliate may, from time to 
time, recommend or suggest those prices to be charged by Franchisee for each 
menu item sold or offered at IHOP restaurants; and, for purposes of economy and
cost-saving to those Franchisees who elect to follow such recommendations, may
cause the production of pre-priced menus and standardized numbered guest checks
which Franchisor or its Affiliate shall offer for sale to Franchisee. Such
recommended or suggested prices are not binding in any respect upon Franchisee,
and Franchisee is and shall be at all times, free to charge prices entirely of
its own choosing, regardless of whether the same do or do not conform to the
recommended or suggested prices. Franchisee shall not be required to use or to
purchase any pre-priced menus or pre-priced standardized numbered guest checks,
and shall be entirely free to procure menus and standardized numbered guest
checks with prices of its own choosing; provided however that such menus and
standardized numbered guest checks shall, in all respects except as to prices,
strictly comply with the specifications therefor contained in the Operations
Bulletins.

     10.02 Required Purchases of Proprietary Products.
           ------------------------------------------ 

     (a) Franchisee shall purchase only from Franchisor or its Affiliate (if
offered directly to Franchisees by Franchisor) or from Franchisor approved
distributors who have purchased such products from Franchisor or an Affiliate,
all of its requirements for buckwheat flour, waffle mix, egg batter, buttermilk
mix, Harvest Grain 'N Nut(R) mix and such other future products as may then be
required by Franchisor, all of which embody and shall embody secret formulas
owned by Franchisor (collectively referred to as "Required Products").

     (b) For purposes of insuring consistency and uniformity of product,
Franchisee shall purchase only from Franchisor or its Affiliate (if offered
directly to Franchisees by Franchisor or its Affiliate) or from


                                      -17-

<PAGE>
 
Franchisor-designated suppliers, all of its requirements for coffee. Further,
Franchisee shall purchase only such blends of coffee as Franchisor shall from
time to time designate.

     (c) Except as provided in Paragraphs 10.02 (a) and (b), Franchisee shall
purchase for use in the operation of the Franchised Restaurant certain products
which bear IHOP Trademarks that may include, as provided in the Operations
Bulletins, dishware, silverware, napkins, placemats, coasters and other items
(herein referred to as "Trademarked Products"). All such required Trademarked
Products shall comply with the specifications set forth in the Operations
Bulletins. Franchisee may purchase Trademarked Products from Franchisor or its
Affiliate, if made available by Franchisor or its Affiliate, suppliers
designated by Franchisor or its Affiliate, or suppliers chosen by Franchisee as
provided in paragraph 10.03 below, provided such suppliers execute a royalty-
free trademark license in a form reasonably satisfactory to Franchisor.

     10.03 Compliance with Franchisor's Specifications.
           ------------------------------------------- 

     (a) All food products, services, supplies, equipment, and materials,
including standardized numbered guest checks and menus, permitted or required to
be used in the operation of the Franchised Restaurant shall be in full
compliance with the specifications set forth in the Operations Bulletins and,
except only those items referred to in Paragraphs 10.02(a) and (b), shall be
purchased and procured by Franchisee from Franchisor or its Affiliate (if
offered by Franchisor or its Affiliate), from suppliers designated by Franchisor
or its Affiliate, or from suppliers selected by Franchisee and not disapproved
in writing by Franchisor or its Affiliate. With respect to each supplier
designated by Franchisor or its Affiliate, such suppliers shall only be those
who have demonstrated, to the reasonable satisfaction of Franchisor or its
Affiliate, (i) the ability to supply a product meeting the specifications of
Franchisor, (ii) reliability with respect to the quality of product or service,
and (iii) willingness and agreement to permit Franchisor or its Affiliate to
make periodic inspections, reasonable in respect of frequency, time and manner
of inspection, to assure continued conformity to specifications.

     (b) In the event that Franchisee should desire to procure any food product
other than those described in paragraphs 10.02(a) and (b), service, supply,
equipment, or material from any supplier other than Franchisor, its Affiliate,
or a supplier designated by Franchisor or its Affiliate, Franchisor or its
Affiliate shall, upon request of Franchisee, furnish to Franchisee
specifications, by established brand name wherever possible, for all such items.
Franchisee shall deliver written notice to Franchisor or its Affiliate of its
desire to do so, which notice shall identify the name and address of such
supplier and the items desired to be purchased from such supplier. Should
Franchisor or its Affiliate not deliver to Franchisee, within ten days after its
receipt of such notice, a written statement of disapproval with respect to such
supplier, it shall be deemed that such supplier is approved by Franchisor or its
Affiliate as a supplier of the goods described in the notice until such time as
Franchisor or its Affiliate may subsequently withdraw such approval. Franchisor
or its Affiliate shall be entitled to disapprove or to subsequently withdraw its
approval of any supplier selected by Franchisee only upon the ground that such
supplier has failed to meet one or more of the requirements hereinabove set
forth. Once Franchisee has delivered a notice of its desire to purchase the
specified items from any such supplier, it shall be entitled to purchase same
from such supplier until it shall have received a timely statement of
disapproval from Franchisor or its Affiliate; provided, however, that should
Franchisee designate a supplier in any such notice who shall previously have
been disapproved by Franchisor or its Affiliate, it shall not be permitted to
purchase from such supplier unless and until the ten day period from delivery of
such notice shall have expired without delivery from Franchisor or its Affiliate
of a statement of disapproval.

     (c) In some instances, Franchisor's specifications may be such that only a
single supplier or a limited number of suppliers can meet such specifications.
With respect to such products, Franchisee shall purchase such products only from
the source or sources designated by Franchisor or its Affiliate.

                                      -18-

<PAGE>
 
     10.04 Insurance.
           ---------

     (a) Subject to any other requirements set forth in the Sublease or 
Equipment Lease, Franchisee shall procure and maintain at Franchisee's expense 
during the term hereof policies of insurance meeting minimum standards, 
coverages, and limits and insuring Franchisee against the insurable risks 
prescribed in Franchisor's Operations Bulletins. All such policies of insurance 
shall name Franchisor, its Affiliate, if applicable, and such other parties as 
it may designate as additional insureds, as their interests may appear, and 
shall provide that Franchisor, its Affiliate, if applicable, and other parties 
shall receive at least ten days prior written notification of any cancellation, 
termination, amendment or modification thereof.

     (b) Franchisee shall provide Franchisor, its Affiliate, if applicable, and 
any other parties designated by Franchisor with Certificates of Insurance 
evidencing the required coverage at least ten days prior to the date on which 
the Franchised Restaurant opens for business to the public, ten (10) days prior 
to the date on which any insurance policy is scheduled to expire, and at such 
other times as Franchisor may reasonably require.

     (c) If Franchisee fails or refuses to procure and maintain insurance 
conforming to the requirements prescribed by the Operations Bulletins, or fails 
or refuses to provide Franchisor or any other party designated by Franchisor 
with a certificate of such insurance, Franchisor may but shall not be obligated 
to procure, through agents and insurance companies of its own choosing, such 
insurance as is necessary to meet such requirements, provided, however, such 
insurance need not name Franchisee as an insured or additional insured 
thereunder. Payments for such insurance shall be borne by Franchisee. Nothing 
herein shall be construed or deemed to impose any duty or obligation on 
Franchisor to procure such insurance or as an undertaking or representation by 
Franchisor that such insurance as may be procured by Franchisee or by Franchisor
for Franchisee will insure Franchisee against any or all insurable risks of loss
which may or can arise out of, or in connection with the Franchised Restaurant. 
Franchisee may obtain such other or additional insurance as Franchisee deems 
proper in connection with the operation of its business.

     10.05 Compliance with Laws and Operations Bulletins.
           ---------------------------------------------

     Franchisee shall operate the Franchised Restaurant in strict compliance 
with all applicable laws, rules and regulations of duly constituted governmental
authorities and in strict compliance with the standard procedures, policies, 
rules and regulations established by Franchisor and incorporated herein, or in 
Franchisor's Operations Bulletins. Such standard procedures, policies, rules and
regulations established by Franchisor may be revised from time to time as 
circumstances warrant, and Franchisee shall strictly comply with all such 
procedures as they may exist from time to time as through they were specifically
set forth in this Agreement and when incorporated in Franchisor's Operations 
Bulletins the same shall be deemed incorporated herein by reference. By way of 
illustration and without limitation, such standard procedures, policies, rules 
and regulations may or will specify accounting records and information, payment 
procedures, specifications for required supplies and purchases, including 
Trademarked Products, hours of operation (which may vary from location to 
location), advertising and promotion, cooperative programs, specifications 
regarding required insurance, minimum standards and qualifications for 
employees, design and color of uniforms, menu items, methods of production and 
food presentation, including the size and serving thereof, standards of 
sanitation, maintenance and repair requirements, specifications of furniture, 
fixtures and equipment, flue cleaning, and fire prevention service, appearance 
and cleanliness of the premises, accounting and inventory methods and controls, 
forms and reports, and in general will govern all matters that, in Franchisor's 
judgment, require standardization and uniformity in all IHOP restaurants. 
Franchisor or its Affiliate will furnish Franchisee with Franchisor's current 
Operations Bulletins upon the execution of this Agreement. Said Operations 
Bulletins and all notices, amendments and supplements relating thereto shall at 
all times remain the property of Franchisor or its Affiliate. Franchisee shall 
not reproduce any portion of such Operations Bulletins by any means, shall at 
all times maintain same in a secure 

                                     -19-

<PAGE>
 
place at the Franchised Location and, upon termination or expiration of this 
Agreement shall deliver said Operations Bulletins to Franchisor or its 
Affiliate. Franchisee further acknowledges that said Operations Bulletins 
contain trade secrets of Franchisor and Franchisee shall at all times maintain
as confidential the contents of said Operations Bulletins. Franchisee shall
cause all of its Owners and employees, and others who may have access to the
Operations Bulletins, to maintain such confidentiality and, at Franchisor's
request, Franchisee shall cause such persons to execute confidentiality
agreements on a form prescribed by Franchisor.

     10.06 Taxes.
           -----

     Franchisee shall pay in full any and all city, county, state and federal
taxes arising in connection with or levied or assessed by any of said
governmental bodies in connection with all or any part of this Agreement, or the
operation of the Franchised Business, or all or any of the merchandise and
assets being sold hereunder, promptly when due, and prior to any delinquency.

     10.07 Inspection by Franchisor.
           ------------------------

     Franchisee expressly authorizes Franchisor, or its representatives, or 
those of its Affiliate, to enter the Franchised Restaurant at any time it is 
open for business, without notice, to inspect the premises, fixtures,
furnishings and equipment therein, and to examine and inspect the operations in
all respects to determine compliance with this Agreement and with Franchisor's
standard operating procedures, policies, rules and regulations.

     10.08 Participation in Operation of Franchised Business.
           -------------------------------------------------

     Franchisee shall devote such of its time as is reasonably necessary for the
efficient operation of the Franchised Restaurant and the performance of its 
obligations under this Agreement, all ancillary documents relating hereto and 
all other agreements which may then be in effect between Franchisor and/or any 
Affiliate and Franchisee, or Franchisee may employ a manager to operate the 
Franchise Restaurant, who has previously successfully completed training 
conducted by Franchisor for the operation of an IHOP restaurant, subject to the 
prior approval of Franchisor, unless waived by Franchisor in its sole subjective
judgment, exercised in good faith, by reason of such person's prior training and
experience. Franchisee shall not divorce himself or herself from the active 
conduct of the operation of the Franchised Restaurant. Franchisee shall be 
entitled to engage in other, noncompetitive business activities (as defined in 
Paragraph 16.01 below) so long as same do not unreasonably interfere with the 
conduct of the operation of the Franchised Restaurant.

                                      XI
                                  ASSIGNMENT


     11.01 Assignment by Franchisor.
           ------------------------

     Franchisor shall have the right to assign this Agreement and all of its 
rights and privileges hereunder to any other person or Business Entity; provided
that, in respect to any assignment resulting in the subsequent performance by 
the assignee of the functions of Franchisor, (a) the assignee shall be 
financially responsible and economically capable of performing the obligations 
of Franchisor hereunder, and (b) the assignee shall expressly assume and agree 
to perform such obligations.

                                     -20-

<PAGE>
 
     11.02  Assignment by Franchisee.
            ------------------------

     During the term of this Agreement, Franchisee shall have the right to
assign, transfer or sell its interest in this Agreement, upon the terms and
conditions provided herein, and subject to the provisions contained in
Paragraphs 11.03, and 11.04. The terms "Assign" and "Assignment" shall include
any sale, assignment, transfer or other disposition, whether in a single
transaction or a series of transactions, which results, in the aggregate, in
more than forty-nine percent (49%) of the Stock of any Franchisee which is a
Business Entity being held other than by the same Owners who held such Stock on
the execution date hereof in the same proportions as presently constituted.
Notwithstanding the foregoing, Franchisee shall not have the right to pledge,
encumber, hypothecate or otherwise give any third party a security interest in
this Franchise Agreement or any of the rights of Franchisee hereunder, in any
manner whatsoever, without the express written permission of Franchisor, which
permission may be withheld for any reason whatsoever in Franchisor's sole
subjective judgment. In all events, Franchisor shall have the right, but not the
obligation, to furnish any prospective assignee with copies of all financial
statements which have been furnished by Franchisee to Franchisor in accordance
with this Agreement during the three year period prior to the date for which
approval of the proposed Assignment is sought. Franchisor's approval of such
proposed transaction shall not, however, be deemed a representation of guarantee
by Franchisor that the terms and conditions of the proposed transaction are
economically sound or that, if the transaction is consummated, the proposed
assignee will be capable of successfully conducting the Franchised Business and
no inference to such effect shall be made from such approval. Notwithstanding
anything to the contrary herein, in the event of the death or legal incapacity
of Franchisee or, in the case of a corporate franchisee, the stockholder holding
50% or more of the capital stock or voting power, the transfer of Franchisee's
or such stockholder's interest in this agreement to its heirs, personal
representatives or conservators, as applicable, shall not give rise to
Franchisor's right of first refusal hereunder, although such right shall apply
to any proposed Assignment by such heirs, personal representatives or
conservators.

     11.03  Conditions to Assignment by Franchisee.
            --------------------------------------

     (a)  Any Assignment by Franchisee shall be subject to the following 
conditions:

           (i)   Except in the case of Franchisee's death or legal incapacity, 
Franchisee shall serve upon Franchisor written notice of the proposed 
Assignment, setting forth all of its terms and conditions and all available 
information concerning the proposed assignee.

           (ii)  Franchisee shall obtain Franchisor's written consent, not to be
unreasonably withheld, of the proposed Assignment. The withholding of such
consent by Franchisor shall be reasonable if, by way of illustration and not by
limitation, the proposed assignee (1) is not financially responsible and
economically or otherwise capable of performing the obligations of Franchisee
hereunder; (2) does not meet the then-current standards set by Franchisor with
respect to its new franchisees; (3) fails to complete Franchisor's Initial
Training program in accordance with Franchisor's then current standards, (4) if
any of the assignee's Owners fail or refuse to execute a guaranty in form
satisfactory to Franchisor, or (5) if the assignee fails to designate a single
individual acceptable to Franchisor, in its sole discretion, with whom
Franchisor may primarily communicate.

           (iii) Franchisee, or Franchisee's heirs, personal representatives or
conservators in the case of Franchisee's death or incapacity, shall pay
Franchisor a fee which will be specified from time to time in the Operations
Bulletins, as defined in Paragraph 10.05 hereinabove (hereinafter "Transfer
Fee"). As of the date of this agreement consists of a $1,000 transfer fee and a
$5,000 training fee. Franchisor may waive all or part of the training fee to the
extent that Franchisor determines in its sole subjective judgment that the
assignee does not require training.

                                     -21-

<PAGE>
 
          (iv) As of the date of any such Assignment, Franchisee shall be in 
compliance with all of its obligations owing to Franchisor and any Affiliate 
whether pursuant to this Agreement, or any other agreements with Franchisor or 
an Affiliate, and shall pay in full all outstanding amounts owed to Franchisor 
and its Affiliates, and the remaining balance, if any, of the Initial Franchise 
Fee, unless waived by Franchisor in its sole discretion.

          (v) As a condition precedent to Franchisor's written consent, 
Franchisor itself, or through its Affiliate, shall have the right, at its sole 
discretion, to conduct an audit and/or sales verification prior to the proposed 
Assignment.

     (b) If Franchisee is an individual and not a Business Entity, he or she 
shall have the right, without complying with the provisions of Paragraph 
11.03(a)(iii) nor the provisions of Paragraph 11.04 to Assign this Agreement to 
a corporation formed by Franchisee for the purpose of owning and operating the 
Franchised Restaurant, after first complying with the following conditions:

          (i) Franchisee shall be together with said corporation, jointly and 
severally liable for all existing or subsequent breaches of this Agreement and
any other agreement entered into between Franchisor and any Affiliate and 
Franchisee, and for all obligations accrued or accruing thereunder. Franchisee 
shall waive notice or demand in the event of default, and will be bound by any 
modifications or supplemental agreements entered into between Franchisor and/or 
any Affiliate and the assignee Business Entity, as hereinafter set forth;

          (ii) The assignee Business Entity shall provide Franchisor with all 
charter or other documents, and execute an acceptance of such assignment, in 
the form prescribed by Franchisor which shall contain covenants agreeing to be 
bound by all of the terms and conditions herein contained;

          (iii) Franchisee shall be possessed of and retain at all times, legal
and beneficial ownership of not less than fifty one percent (51%) of all the
outstanding Stock of the assignee (including the voting power of such Stock),
unless otherwise agreed to in writing by Franchisor in its sole discretion;

          (iv) All of the Stock certificates or other evidence of Ownership
issued by assignee Business Entity shall have endorsed upon them the following
legend: "The transfer of this [Stock] is subject to the terms and conditions of
a Franchise Agreement, relating to an IHOP restaurant, dated ____________,
19__", and the date of this Agreement shall be inserted into such statement; and

          (v) When incorporation shall have been completed, Franchisee shall 
advise Franchisor and thereafter keep Franchisor advised of the names, addresses
and titles of the officers, directors, and resident agent of the assignee 
corporation, the names and addresses of the shareholders and the number of 
shares issued to each, and the address of the principal office of said 
corporation.

          (vi) No Assignment pursuant to this paragraph 11.03(b) shall be deemed
to be effective unless and until Franchisee shall have complied with all of the 
provisions hereunder.

     11.04 Franchisor's Right of First Refusal.
           -----------------------------------

     (a) Except with respect to an Assignment to a Business Entity as provided 
for in paragraph 11.03(b), or an Assignment to Franchisee's heirs, personal 
representatives or conservators in the case of Franchisee's death or legal 
incapacity, within 30 days after Franchisor's receipt of Franchisee's notice of 
its intent to assign its 

                                     -22-

<PAGE>
 
interest in this Agreement (or if Franchisor shall request additional 
information, within 30 days after receipt of such additional information), 
Franchisor may, at its option, accept the proposed Assignment to itself or its 
nominee, upon the terms and conditions specified in the notice.

Should Franchisor not exercise its option and Franchisee fails to consummate the
proposed Agreement within 90 days upon the same terms and with the same assignee
as disclosed in the notice to Franchisor, Franchisor's right of first refusal 
shall revive.

     11.05 Delegation by Franchisor.
           ------------------------

     Franchisor shall have the right to delegate to one or more of its 
Affiliates some or all of Franchisor's duties to Franchisee under this 
Agreement; provided, however, Franchisor shall remain fully responsible to 
Franchisee for the full and faithful performance of all its obligations to 
Franchisee hereunder.


                                      XII
                             DEFAULT BY FRANCHISEE

     12.01 Right of Termination After Notice of Default.
           --------------------------------------------

  Except as otherwise expressly provided for in this Agreement, Franchisor may 
terminate this Agreement prior to its expiration after providing written notice 
of Franchisee's Material Breach of this Agreement to Franchisee, if such 
Material Breach shall not be cured within seven days.  If any such Material 
Breach, except those relating to the nonpayment of money, by its nature cannot 
be cured within such seven day period, and Franchisee shall immediately commence
and diligently continue to cure such default, Franchisor shall allow Franchisee 
such additional reasonable period of time as Franchisor deems reasonably 
necessary to cure such Material Breach.  As used herein, the phrase "Material 
Breach" shall include, but not be limited to:

       (a) The express repudiation by Franchisee of any of its payment 
obligations under the agreements listed in paragraph 18.01 hereinbelow 
(hereinafter, "the agreements") or its stated or announced refusal thereafter to
meet any such payment obligations, which repudiation or refusal shall not be 
expressly withdrawn in writing by Franchisee within seven days after written 
notice from Franchisor so to do.

       (b) The failure or refusal by Franchisee to pay at least fifty percent 
(50%) of its payment obligations to Franchisor arising under the agreements 
during each of two or more weekly transmittal periods, either consecutive or 
nonconsecutive.  Such failure to pay will be deemed to have occurred whenever an
insufficient payment (less than 50%) shall accompany any transmittal or whenever
any transmittal shall not have been submitted by Franchisee within five days 
after same is due.

       (c) Any other failure to meet Franchisee's monetary obligations to 
Franchisor or its Affiliate, wherein any part of such unpaid obligations shall 
be more than 35 days past due.

       (d) Failure to keep the Franchised Restaurant open for business during 
ordinary business hours for a continuous period of more than three days, without
the prior written consent of Franchisor, (hereinafter "Voluntary Abandonment"), 
unless the Franchised Restaurant was closed by reason of: (1) government action,
not related to a breach by Franchisee of this Agreement, (2) the death or 
disability of Franchisee, or (3) force majeure not caused, directly or 
indirectly, by Franchisee's willful conduct.

                                     -23-

<PAGE>
 
    (e) Any default by Franchisee under any mortgage, deed of trust, lease or 
sublease, including any lease or sublease with Franchisor or an Affiliate, 
covering the premises in which the Franchised Restaurant is located, which 
results in Franchisee being unable to continue operations at the Franchised 
Restaurant.

    (f) Franchisee's insolvency (as revealed by its records or otherwise); or, 
if Franchisee files a voluntary petition and is adjudicated a bankrupt; or if an
involuntary petition is filed against it and such petition is not dismissed 
within 30 days; or if it shall make an assignment for the benefit of creditors; 
or if a receiver or trustee in bankruptcy or similar officer, temporary or 
permanent, be appointed to take charge of Franchisee's affairs or any of its 
property; or if dissolution be commenced by or against Franchisee or if any 
judgement against Franchisee remains unsatisfied or unbonded of record for 15 
days;

    (g) Franchisee's failure to comply with any other material obligation of 
Franchisee under the agreements, including a failure to comply with Franchisor's
Operations Bulletins as described in paragraph 10.05.

    12.02  Termination Without Notice
           --------------------------

           Franchisor shall have the right to terminate this Agreement 
immediately, without prior notice to Franchisee, upon the occurrence of any or 
all of the following events, each of which shall be deemed an incurable breach 
of this Agreement.

    (a) Franchisee's knowingly withholding the rendering or reporting of any of 
Franchisee's Gross Sales.

    (b) Franchisee's material misrepresentation to Franchisor with respect to 
any information provided in connection with its application to become an IHOP 
Franchisee, including any relevant credit information.

    (c) If Franchisee shall attempt to Assign this Agreement, without the prior 
written consent of Franchisor, or if an Assignment of this Agreement by 
Franchisee shall occur by operation of law, or by reason of judicial process.

    (d) If Franchisee shall attempt to Assign Franchisor's Trademarks, or the 
goodwill connected thereto, or if Franchisee shall use, or permit the use of 
said Trademarks, or the goodwill connected thereto in derogation of Franchisor's
rights pursuant to this Agreement, or if Franchisee shall use or permit the use 
of said Trademarks, or the goodwill annexed thereto in a manner, or at locations
not authorized by Franchisor pursuant to the terms of this Agreement.

    (e)  Conviction of Franchisee, or any of its principal shareholders, of a 
felony or any other criminal misconduct which is relevant to the operation of 
the franchise.

    12.03 Form of Notice.
          --------------

    Franchisor shall provide notice of default to Franchisee in accordance with 
the following:

    (a) With respect to the non-payment of financial obligations by Franchisee, 
said notice shall contain an accounting, taken from the books and records of 
Franchisor or its Affiliate, of the amounts of each of the unpaid obligations, 
the items for which such obligations are unpaid, and the dates upon which such 
obligations became due, as well as an allocation of credits made for partial 
payments, if any.

    (b) With respect to notice of default and of intent to terminate if said 
default is not cured, in respect of a breach of contract other than the 
non-payment of money, such notice shall contain the following:


                                     -24-

<PAGE>
 
           (i) The specific provision or provisions of the specific agreement or
standard operating procedures violated;

          (ii) The nature of the violation or violations;

         (iii) The date such violations were observed, and by whom they were 
observed and reported; and the date or dates, if any, that Franchisor had given 
any previous written notice of such violation or violations to Franchisee.

     (c) The curing of any breach within the time period specified in the notice
of default shall nullify Franchisor's right of termination for the causes stated
in said notice (but not for a recurrence of any such cause thereafter); 
provided, however, that if there shall be a course of conduct in bad faith 
followed by Franchisee over an extended period in providing good cause for 
termination and, subsequently, timely curing of deficiencies upon receipt of 
notice of default, such continued and repeated course of conduct shall itself be
good cause for immediate termination of the Agreement without further notice of 
intention to terminate.

     12.04 Conformity With Laws.
           --------------------

     If any law or regulation by any competent authority with jurisdiction over 
this Agreement shall limit Franchisor's rights of termination or require a 
longer or different notice than that specified in this Article XII, same shall 
be deemed amended to conform with the minimum requirements of such law or 
regulation.

                                     XIII
                           ARBITRATION AND REMEDIES

     13.01 Arbitration.
           -----------

     Any controversy or claim, except those described in paragraph 13.03, 
arising out of or relating to this Agreement, or any agreement relating thereto,
or any breach of this Agreement including any claim that this Agreement or any 
portion thereof is invalid, illegal or otherwise voidable, shall be submitted to
arbitration before and in accordance with the rules of the American Arbitration 
Association provided that the jurisdiction of the arbitrators shall be limited 
to a decision rendered pursuant to California common and statutory law and
judgment upon the award may be entered in any court having jurisdiction thereof;
provided, however, that this clause shall not limit Franchisor's or an
Affiliate's right to obtain any provisional remedy, including injunctive relief,
or to obtain writs of recovery of possession, or similar relief, from any court
of competent jurisdiction, as Franchisor or any Affiliate deems to be necessary
or appropriate in Franchisor's or such Affiliate's sole subjective judgment, to
compel Franchisee to comply, or to prohibit Franchisee's non-compliance, with
its obligations hereunder or under the Sublease, if applicable, or to obtain
possession of the Franchised Location, or to protect the Trademarks or other
property rights of Franchisor. Franchisor or such Affiliate may, as part of such
action or proceeding, seek damages, costs and expenses caused to or incurred by
it by reason of the act or action or non-action of Franchisee which caused
Franchisor or such Affiliate to institute such action or proceeding. The
institution of any such action or proceeding by Franchisor or an Affiliate shall
not be deemed a waiver on its part to institution of an arbitration proceeding
pursuant to the provisions of this Article. If Franchisee leases or subleases
the Franchised Restaurant or Franchised Location by or through Franchisor or an
Affiliate, in the event of an arbitration award which includes a determination
that this Agreement is or has expired or has been terminated by reason of
Franchisee's default thereof, Franchisee consents to the entry of a judgment by
a court of competent jurisdiction containing an appropriate writ for the
recovery of possession of the premises. The situs of arbitration proceedings
shall be in that city nearest the Franchised Location which has an American
Arbitration Association office and facilities for arbitration.

                                     -25-

<PAGE>
 
     13.02 Remedies of Franchisor.
           ----------------------

     (a) In the event of a Material Breach of this Agreement, Franchisor may, at
its election pursue the following remedies in addition to such other remedies as
may be available to it hereunder and at law or equity: (1) terminate this 
Agreement, and thereafter bring such action as it may deem proper to protect its
rights hereunder, in accordance with the provision of this Article XIII, and (2)
seek to recover such damages, including all sums due and owing pursuant to this
Agreement and any other agreement relating thereto, and the benefit of its
bargain hereunder, as Franchisor may, in its discretion, deem appropriate. In
computing such damages, it is agreed that the benefit of Franchisor's bargain
shall include Franchisor's average Continuing Royalty fee of four and one-half
percent (4.5%) of Franchisee's Gross Sales, computed on the basis of the last 26
weeks that Franchisee conducted business at its Franchised Restaurant (or if any
such Franchised Restaurant is open for less than 26 weeks, the entire period
that any such Franchised Restaurant is open for business) multiplied by the
number of weeks remaining under this Franchise Agreement, computed from the
effective date of the termination of this Agreement. Said sum shall thereupon be
"present valued" by discounting the same, on an annual basis, predicated upon
the prime rate charged by the Chase Manhattan Bank of New York City, on the
effective date of such termination.


     (b) Franchisor will not, nor will it threaten to or state or represent that
it has the right or intention to, exercise self help in regaining possession of
the Franchised Restaurant or premises or physically evict or attempt to evict
Franchisee from the Franchised Restaurant other than by due process of law. In
the event of termination, Franchisor will obtain possession of the premises only
through the voluntary surrender thereof by Franchisee, or pursuant to the legal
enforcement of a judgment of a court of competent jurisdiction or of an award of
an arbitration tribunal in accordance with Paragraph 13.01.

     13.03 Summary Possessory Actions.
           --------------------------

     (a) If Franchisee leases or subleases the Franchised Restaurant or 
Franchised Location from Franchisor or an Affiliate, Franchisor or such 
Affiliate shall be entitled to maintain actions in unlawful or forcible detainer
or other appropriate summary possessory action for recovery of the premises of 
said Franchised Restaurant or Location, in a court of competent jurisdiction 
without being required to resort to arbitration (except as provided in Paragraph
13.03(c)(ii) hereof), in respect of any uncured default by Franchisee in payment
of premises rental under the Sublease or by reason of any of the causes 
specified in Paragraphs 12.01 (a), (b) or (c), for a judgment which shall, if
Franchisor or such Affiliate shall prevail therein, include both an order for
restitution of the premises and any monetary relief incident thereto which may
by law be awarded in any such possessory action. In any such possessory action
by Franchisor or such Affiliate, Franchisee shall be entitled to assert
defenses, set offs and counterclaims, if any, which are permitted by applicable
law in such a possessory action, but no others; and, if Franchisee shall prevail
thereon, it may obtain any relief thereon which may by law be awarded in such
possessory action.

     (b) With respect to any such possesory actions provided and referred to in 
Paragraph 13.03(a), wherein such possessory action is based on monetary default,
neither Franchisor nor its Affiliate shall base any claim of monetary default
upon its having applied any Franchisee payments to it to the accelerated and
unaccrued portion of Franchisee's Initial Franchise Fee note or notes, if
applicable, at any time that such application would have left any other current
or past due obligations unpaid.

     (c) Should Franchisee deny or dispute the amount of the indebtedness 
described or referred to in the notice of default, it shall within the time 
specified for the cure of such default deliver to Franchisor or its Affiliate a 
written statement of the amount claimed by it to be the correct amount of the 
indebtedness and of the factual basis for such claim; and it shall either 
accompany such statement with its remittance of full payment of the

                                     -26-

<PAGE>
 
amount acknowledged by it to be owing or shall make such arrangements with
Franchisor for the payment of such amount as shall be satisfactory and
acceptable to Franchisor or its Affiliate. Should Franchisee have timely done
so, it will then be permitted to litigate any such dispute as to the amount, if
any, of the remaining indebtedness as follows:

              (i) In those states wherein litigation of such dispute is
permitted in possessory actions by law, stipulation or agreement of the parties,
such dispute shall be so litigated. It shall not be a ground for denial of a
judgment for possession to Franchisor or an Affiliate that the amount of the
indebtedness so determined may be less than or different from the amount claimed
by Franchisor or its Affiliate. Execution upon such judgment, however, shall be
stayed for seven days, during which time Franchisee may retain possession of the
Franchised Restaurant and obtain vacation of the judgment by (1) paying to
Franchisor or its Affiliate the full amount of the adjudicated and unpaid
indebtedness, plus the full amount of any and all subsequently accruing and
unpaid obligations to Franchisor or its Affiliate up to and including the date
of entry of such judgment, or by (2) making such arrangements with Franchisor or
its Affiliate for the payment of such amount as shall be satisfactory and
acceptable to Franchisor or its Affiliate, as applicable.

              (ii) In those states where litigation of the amount of such 
indebtedness is not permitted in such possessory actions, the possessory action 
may nonetheless be commenced and maintained by Franchisor or the applicable 
Affiliate. Disputes as to the amount of indebtedness will be concurrently 
submitted to arbitration. Following arbitration, Franchisee shall have the same 
rights of payment and cure of default, upon the same conditions, as are 
hereinabove provided in section (i) of this subparagraph (c).

              (iii) Nothing contained in this subparagraph (c) shall be deemed, 
construed or interpreted as allowing Franchisee in such possessory action to 
litigate any claims or defenses other than the issue of the correct computation 
of its indebtedness (exclusive of set offs or counterclaims) unless the 
litigation of such other claims or defenses is permitted in possessory actions 
by the applicable law of the subject state.

    13.04 Interest on Late Payments.
          -------------------------

    In addition to the other remedies available to Franchisor, in the event that
Franchisee shall fail or refuse to make any of the payments due under this 
Agreement, Franchisee shall pay interest at the highest rate permitted by law, 
or one and one half percent (1-1/2%) per month, whichever is less, of such late 
obligations to defray the cost of maintaining Franchisee's account in arrears, 
it being expressly understood that payment of this charge shall not forgive or 
excuse any arrearage.

                                      XIV
                            RIGHT TO CURE DEFAULTS

    14.01 General.
          -------
 
    In addition to all other remedies herein granted, if Franchisee shall
default in the performance of any of its obligations or breach any term or
condition of this Agreement or any related agreement, Franchisor or its
Affiliate may, at its election, immediately or at any time thereafter, without
waiving any claim for breach hereunder and without notice to Franchisee cure
such default for the account and on behalf of Franchisee, and the cost to
Franchisor or its Affiliate thereof shall be due and payable on demand and shall
be deemed to be additional compensation due to Franchisor or its Affiliate
hereunder and shall be added to the amount of compensation next accruing
hereunder, at the election of Franchisor or its Affiliate.

                                     -27-

<PAGE>
 
                                      XV
                         OBLIGATIONS UPON TERMINATION

     15.01 General.
           -------

     In the event of the termination or expiration of this Agreement for 
whatever reason, Franchisee shall forthwith discontinue the use of Franchisor's 
Trademarks and shall not thereafter operate or do business under any name or in 
any manner that might tend to give the general public the impression that it is
either directly or indirectly associated, affiliated, franchised or licensed by 
or related to, the IHOP restaurant system, and shall not, either directly or 
indirectly, use any name, logotype, symbol or format confusingly similar to the 
IHOP Trademarks or formats, at either the Franchised Location, the Franchised 
Restaurant or any other location not then franchised to Franchisee by 
Franchisor.  In addition, since Franchisor's restaurants have a distinctive 
color scheme, unless Franchisor exercises its right to cause an assignment of 
the lease for the Franchised Location or Franchised Restaurant pursuant to 
paragraph 4.04(a), Franchisee shall promptly upon demand by Franchisor or its 
Affiliate repaint the Franchised Restaurant in a different color scheme.  
Further, upon such expiration or termination, Franchisee shall not, either 
directly or indirectly, for any purpose whatsoever, use any of Franchisor's 
trade secrets, procedures, techniques or materials acquired by Franchisee by 
virtue of the relationship created by this Franchise Agreement, including, (a) 
recipes, formulae and descriptions of food products; (b) the Operations 
Bulletins and all manuals, Bulletins, instruction sheets, and supplements 
thereto; (c) all forms, advertising matter, marks, devices, insignias, slogans 
and designs used from time to time in connection with IHOP restaurants; and (d) 
all copyrights, Trademarks and patents now or hereafter applied for or granted 
in connection with the operation of IHOP restaurants.  The covenants of 
Franchisee contained in this paragraph 15.01 shall survive the termination of 
this Agreement.

                                      XVI
                                NON-COMPETITION

     16.01 General.
           -------

     Without Franchisor's prior written consent which may be withheld for any 
reason in Franchisor's sole subjective discretion, Franchisee shall not, during 
the term of this Agreement, or any extension or renewal thereof, directly or 
indirectly, own, operate, control or have any financial interest in any family 
style restaurant, pancake house or coffee shop, including but not limited to the
Village Inn, Bob's Big Boy, Shoney's, Denny's, Perkins', Waffle House, Baker's 
Square, Coco's, JB's, Allie's, Cracker Barrel, Marie Callendar's, Friendly's, 
Bob Evans' Farms, or any other food service operation that sells pancakes.  The 
foregoing prohibitions shall not apply to ownership by Franchisee of less than 
three percent (3%) of the issued and outstanding stock of any company whose 
shares are listed for trading over any public exchange or over-the-counter 
market and whose business includes the owning, operating, or franchising of 
family style restaurants, pancake houses, or coffee shops, provided Franchisee 
does not control any such company.  Franchisee also agrees that it will not at 
any time communicate, divulge, or use for the benefit of himself or herself or 
any other person or entity, other than in the course of conduct of the 
restaurant franchised hereunder, any information or knowledge which it may have 
acquired in connection with the operation of the Franchised Restaurant, and that
it will not do any act prejudicial or injurious to the business or goodwill of 
Franchisor, any of its Affiliates, or any other IHOP franchisee.

                                     -28-

<PAGE>
 
                                     XVII

                            INDEMNITY BY FRANCHISEE

    17.01 General.
          -------

    Franchisee shall defend, indemnify and hold Franchisor and each Affiliate 
harmless from and against any and all claims, demands, losses, damages, costs, 
liabilities and expenses (including attorneys' fees and costs of suit) of 
whatever kind or character, on account of any actual or alleged loss, injury or 
damage to any person, firm or corporation or to any property arising out of or 
in connection with the operation of the Franchised Restaurant.

                                     XVIII

                               ENTIRE AGREEMENT

    18.01 General.
          -------

    This Agreement contains all of the terms and conditions agreed upon by the 
parties hereto with reference to the specific subject matter hereof; provided, 
however, that for purposes of default, with respect to any other agreements 
relating hereto, including any lease or sublease for the Franchised Location or 
Franchised Restaurant, any equipment lease or sublease, any sign lease, or any 
purchase contracts for equipment or supplies which were entered into prior to, 
contemporaneously with, or subsequent to the date hereof between Franchisee and 
Franchisor or an Affiliate, or between Franchisee and third parties, or any 
Franchise Fee promissory Note, any material default thereof shall also be a 
material breach of this Agreement.  No officer or employee or agent of 
Franchisor has any authority to make any representation or promise not contained
in this Agreement, and Franchisee agrees that it has executed this Agreement 
without reliance upon any such representation or promise.  This Agreement cannot
be modified or changed except by written instrument expressly referring to this
Agreement, signed by all of the parties hereto.  All terms used in any one 
number or gender shall extend to mean and include any other number and gender as
the facts, context, or sense of this Agreement or any article or paragraph
hereof may require. As used in this Agreement, the words "include" or
"including" are used in a non-exclusive sense.

                                      XIX

                                 SEVERABILITY

    19.01 General.
          -------

    Nothing contained in this Agreement shall be construed as requiring the 
commission of any act contrary to law.  Whenever there is any conflict between 
any provisions of this Agreement or the Operations Bulletins and any present or 
future statute, law, ordinance, regulation, or judicial decision, contrary to 
which the parties have no legal right to contract, the latter shall prevail, but
in such event the provision of this Agreement or the Operations Bulletins thus 
affected shall be curtailed and limited only to the extent necessary to bring it
within the requirements of the law.  In the event that any part, Article, 
paragraph, sentence or clause of this Agreement or the Operations Bulletins 
shall be held to be indefinite, invalid or otherwise unenforceable, the 
indefinite, invalid or unenforceable provision shall be deemed deleted, and the 
remaining part of the Agreement shall continue in full force and effect, unless 
said provision pertains to the payment of fees, pursuant to Articles V, VI and 
VII hereof, in which case this Agreement shall, at Franchisor's option, 
terminate.


                                     -29-



<PAGE>
 
                                      XX
                               WAIVER AND DELAY

      20.01 General
            -------

      No waiver by Franchisor of any breach or series of breaches or defaults in
performance by Franchisee and no failure, refusal or neglect of Franchisor
either to exercise any right, power or option given to it hereunder or to insist
upon strict compliance with or performance of Franchisee's obligations under
this Agreement or the Operations Bulletins, shall constitute a waiver of the
provisions of this Agreement or the Operations Bulletins with respect to any
prior, concurrent or subsequent breach thereof or a waiver by Franchisor of its
rights at any time thereafter to require exact and strict compliance with the
provisions thereof.

                                      XXI
                             SURVIVAL OF COVENANTS

     21.01 General
           -------

     The covenants contained in this Agreement which by their terms require 
performance by the parties after the expiration or termination of this Agreement
shall be enforceable notwithstanding said expiration or other termination of 
this Agreement for any reason whatsoever.

                                     XXII
                            SUCCESSORS AND ASSIGNS

     22.01 General
           -------

     This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of Franchisor and shall be binding upon and inure to the
benefit of Franchisee and its or their respective heirs, executors,
administrators, successors and assigns, subject to the restrictions on
Assignment contained herein.

                                     XXIII
                          JOINT AND SEVERAL LIABILITY

     23.01 General
           -------

     If Franchisee consists of more than one person or entity, or a combination 
thereof, the obligations and liabilities of each such person or entity to 
Franchisor are joint and several.

                                     XXIV
                                 GOVERNING LAW

     24.01 General
           -------

     This Agreement and the legal relations among the parties hereto shall be 
governed by and construed in accordance with the laws of the state of California
without giving effect to conflict of laws.

     
                                     -30-

<PAGE>
 
                                      XXV
                                 COUNTERPARTS

     25.01 General.
           -------

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to
be one and the same instrument.

                                     XXVI
                               FEES AND EXPENSES

     26.01 General.
           -------

     Should any party hereto commence any action or proceeding for the purpose
of enforcing, or preventing the breach of, any provision hereof, whether by
arbitration, judicial or quasi-judicial action or otherwise, or for damages for
any alleged breach of any provision hereof, or for a declaration of such party's
rights or obligations hereunder, or commence any appeal therefrom, then the
prevailing party shall be reimbursed by the losing party for all costs and
expenses incurred in connection herewith, including, but not limited to,
reasonable attorneys' fees for the services rendered to such prevailing party.

                                     XXVII
                                    NOTICES

     27.01 General.
           -------

     All notices which Franchisor is required or may desire to give to
Franchisee under or in connection with this Agreement may be delivered to
Franchisee or may be sent by certified or registered mail, postage prepaid,
addressed to Franchisee at the Franchised Location. All notices which Franchisee
is required or may desire to give to Franchisor under or in connection with this
Agreement, must be sent by certified or registered mail, postage prepaid,
addressed to Franchisor as follows:

           General Counsel
           International House of Pancakes, Inc.
           525 N. Brand Boulevard, Third Floor
           Glendale, California 91203-1903

     The addresses herein given for notice may be changed at any time by either
party by written notice given to the other party as herein provided. Notices
shall be deemed effective five days after deposit in the United States mails.

                                    XXVIII
                             NOVATION COUNTERPART

     28.01 General.
           -------

     If Franchisee operates the Franchised Restaurant at the Franchised Location
pursuant to the terms of a franchise agreement executed prior to the date
hereof, this Agreement shall become effective only upon execution by Franchisee
of a Rider in the form attached hereto as Exhibit "B".

                                     -31-

<PAGE>
 
                                      XXIX
                             SUBMISSION OF AGREEMENT
        29.01 General.
             ------- 

     The submission of this Agreement does not constitute an offer, and this
Agreement shall become effective only upon the execution thereof by Franchisor
and Franchisee. THIS AGREEMENT SHALL NOT BE BINDING ON FRANCHISOR UNLESS AND
UNTIL IT SHALL HAVE BEEN ACCEPTED AND SIGNED BY AN AUTHORIZED OFFICER OF
FRANCHISOR. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE UNTIL AND UNLESS
FRANCHISEE SHALL HAVE RECEIVED A FRANCHISE OFFERING CIRCULAR IN SUCH FORM AND
MANNER AS MAY BE REQUIRED UNDER OR PURSUANT TO APPLICABLE LAW.

     IN WITNESS WHEREOF, Franchisor and Franchisee have caused this Agreement
to be executed as of the day and year first above written.

                         FRANCHISOR

                         INTERNATIONAL HOUSE OF PANCAKES, INC. 
                         a Delaware corporation

                         By:
                            -----------------------------------------
                                Richard K. Herzer, President

     I HEREBY ACKNOWLEDGE THAT AT MY FIRST PERSONAL MEETING WITH FRANCHISOR, AT
LEAST TEN BUSINESS DAYS PRIOR TO THE DATE THAT I HAVE EXECUTED THIS AGREEMENT,
OR HAVE PAID ANY CONSIDERATION THEREFOR, I RECEIVED, AND HAVE SINCE READ,
FRANCHISOR'S UNIFORM FRANCHISE OFFERING CIRCULAR; I HEREBY ALSO ACKNOWLEDGE THAT
I RECEIVED A COMPLETELY PREPARED COPY OF THIS AGREEMENT MORE THAN FIVE BUSINESS
DAYS PRIOR TO THE DATE I HAVE EXECUTED SAME.

                         FRANCHISEE

                         By:
                            -----------------------------------------
 
                                      -32-


<PAGE>
 
================================================================================




                      ------------------------------------

                          THE INTERCREDITOR AGREEMENT,

                          DATED AS OF NOVEMBER 1, 1996

                (EXHIBIT H TO THE SENIOR NOTE PURCHASE AGREEMENT)

                         IS CONTAINED IN ITS ENTIRETY 

                            AS DOCUMENT NO. 5 HEREIN

                      ------------------------------------



================================================================================

<PAGE>
 
                                                                [CONFORMED COPY]

                             SUBSIDIARY GUARANTEE

                               IHOP REALTY CORP.

     FOR VALUE RECEIVED and in consideration of the purchase by the Purchasers 
(as hereinafter defined) of those certain 7.42% Senior Notes Due 2008 (the 
"Notes") of International House of Pancakes, Inc., a Delaware corporation 
(herein called, together with its successors and assigns, the "Borrower"), 
pursuant to the several Senior Note Purchase Agreements, each dated as of 
November 1, 1996, by and among the several purchasers named in Schedule 1 
thereto (the "Purchasers"), IHOP Corp., a Delaware corporation ("Holdings"), and
the Borrower, which is the wholly-owned Subsidiary of Holdings (the "Purchase 
Agreements"), the undersigned (the "Guarantor"), a wholly-owned Subsidiary of 
the Borrower, unconditionally guarantees (a) the full and prompt payment, when 
due, whether at maturity or earlier by reason of acceleration or otherwise, and
at all times thereafter of all obligations of the Borrower with respect to 
payment of the principal of, prepayment charges (if any), and interest on the 
Notes (including interest on any overdue principal and prepayment charges, if 
any, and, to the extent permitted by law, on any overdue interest), and all 
other amounts due, and (b) the prompt and faithful performance, discharge and 
observance of all other obligations, covenants, agreements, conditions, 
representations, warranties, indemnities and liabilities of the Borrower and 
Holdings to be performed, discharged or observed by the Borrower and Holdings, 
under or pursuant to the Purchase Agreements and all agreements, instruments and
documents executed or delivered in connection therewith or pursuant thereto (all
such obligations of the Borrower and Holdings guaranteed by the Guarantor herein
being hereinafter called the "Obligations"). In the event the Borrower or
Holdings defaults in the payment or performance, when due, of any of the
Obligations (whether at their stated maturity, by acceleration, or otherwise),
the Guarantor shall pay to the unpaid holders of the Notes ("Holders"), on
demand, the full amount of such Obligations in immediately available funds at
the place provided in the applicable Purchase Agreements or shall, on demand,
fully perform such Obligations. The Guarantor further agrees to pay (a) all
costs and expenses including, without limitation, all court costs and reasonable
attorneys' fees and expenses paid or incurred by each of the Holders in
endeavoring to collect all or any part of the Obligations from, or in
prosecuting any action against, Holdings, the Borrower, the Guarantor, or any
other guarantor of all or any part of the Obligations, and (b) to the extent
permitted by law, interest on the Obligations and such costs and expenses at the
applicable per annum rate set forth in the Purchase Agreements. Unless otherwise
defined herein, the capitalized terms used herein which are defined in the
Purchase Agreements shall have the meanings specified therein.

     The Guarantor hereby represents and warrants that:

<PAGE>
 
         (a) The Guarantor has full power, authority and legal right to execute
     this Guarantee.

         (b) This Guarantee has been duly authorized, executed and delivered by
     the Guarantor and constitutes a legal, valid and binding obligation of the
     Guarantor enforceable in accordance with its terms.

         (c) No consent, approval or authorization of or filing with any
     Governmental Body or other Person on the part of the Guarantor is required
     in connection with this Guarantee.

         (d) The execution, delivery and performance of this Guarantee will not
     violate any provision of any applicable law or regulation or of any order,
     judgment, writ, award or decree of any court, arbitrator or Governmental
     Body, domestic or foreign, or of the charter or by-laws of the Guarantor or
     of any securities issued by the Guarantor or of any mortgage, indenture,
     lease, contract or loan agreement to which the Guarantor is a party, or any
     other agreement, instrument or undertaking to which the Guarantor is a
     party or which purports to be binding upon the Guarantor or upon any of its
     assets, and will not result in the creation or imposition of any Lien on
     any of the assets of the Guarantor except as contemplated by this
     Guarantee.

    The Guarantor hereby waives notice of acceptance of this Guarantee by any 
Holder, of any action taken or omitted in reliance hereon or of any default in 
the payment of any of the Obligations or in the performance of any covenants and
agreements of the Borrower contained in the Purchase Agreements or the Notes, 
and any diligence, presentment, demand, protest, dishonor or notice of any kind.

    This Guarantee constitutes a present and continuing Guarantee of payment and
performance and not of collectability of the Obligations, and shall be absolute,
primary, present and unconditional, and to the extent permitted by applicable 
law, shall not be subject to any counterclaim, setoff, reduction or defense 
based upon any claim the Guarantor may have against the Borrower, or any other 
Person, and shall remain in full force and effect without regard to, and shall 
not be released, discharged or in any way affected or impaired by any thing, 
event, happening, matter, circumstance or condition whatsoever (whether or not 
the Guarantor shall have any knowledge or notice thereof or shall consent 
thereto), including, without limitation:

          (i) any amendment or other modification of or supplement to any
     provision of the Purchase Agreements, any Subsidiary Guarantee, any other
     agreements or documents executed or delivered in connection therewith or
     pursuant thereto or any of the Notes or any assignment or transfer thereof,
     including without limitation any renewal or extension of the terms of
     payment of any of the Notes or the granting of time in respect of any
     payment thereof, or any furnishing or acceptance of security or any release
     of any security furnished or accepted for any of the Notes or in respect of
     the obligations of the Guarantor hereunder;

                                      -2-

<PAGE>
 
     (ii) any waiver, consent, extension, granting of time, forbearance,
indulgence or other action or inaction under or in respect of this Guarantee or
any of the Notes or any exercise or nonexercise of any right, remedy or power in
respect hereof or thereof;

     (iii)  any bankruptcy, insolvency, reorganization, arrangement, 
readjustment, composition, liquidation or similar proceedings with respect to 
the Guarantor, the Borrower, Holdings, the other Subsidiary Guarantors or any 
other Person, or the properties or creditors of any of them;

     (iv)   the occurrence of any Default or Event of Default, or any 
invalidity or unenforceability of, or any misrepresentation, irregularity or
other defect in, the Purchase Agreements, any Subsidiary Guarantee, any other
agreement or document executed or delivered in connection therewith or pursuant
thereto, any of the Notes or any other agreement;

     (v)    any transfer of any assets to or from the Guarantor, Holdings, any 
other Subsidiary Guarantor or the Borrower, including without limitation any 
transfer or purported transfer to the Guarantor, Holdings, any other Subsidiary 
Guarantor or the Borrower from any Person, any invalidity, illegality of, or 
inability to enforce, any such transfer or purported transfer, any consolidation
or merger of the Guarantor, Holdings, any other Subsidiary Guarantor or the 
Borrower with or into any other corporation or entity, or any change whatsoever 
in the objects, capital structure, constitution or business of the Guarantor, 
Holdings, any other Subsidiary Guarantor or the Borrower or any Affiliate or 
Subsidiary of the Guarantor, Holdings, any other Subsidiary Guarantor or of the 
Borrower;

     (vi)   any failure on the part of the Borrower or any other Person to 
perform or comply with any term of the Notes, the Purchase Agreements, any 
Subsidiary Guarantee or any other agreement;

     (vii)  any suit or other action brought by the Guarantor, Holdings, the 
Borrower, any other Subsidiary Guarantor or any other Person, or by any 
stockholder or creditor of any such Persons, for any reason whatsoever, 
including without limitation any suit or action in any way attacking or 
involving any issue, matter or thing in respect of the Notes, the Purchase 
Agreements, any Subsidiary Guaranty or any other agreement;

     (viii) any lack or limitation of status or power, incapacity or disability 
of the Guarantor, Holdings, any other Subsidiary Guarantor or the Borrower or of
any officer, director or agent of the Guarantor, Holdings, any other Subsidiary 
Guarantor or the Borrower or any of their respective stockholders;

     (ix)   the cessation from any cause whatsoever (other than payment of the 
Obligations) of liability of the Borrower;

                                      -3-

<PAGE>
 
        (x)    the termination of, or release or compromise of the Purchase 
Agreements, any other agreement or document executed or delivered in connection 
therewith or pursuant thereto, any of the Notes or any other agreement, 
including, without limitation, any other Subsidiary Guarantee and the Guarantee 
of Holdings set forth in Section 16.14 of the Purchase Agreements (other than as
a result of payment of the Obligations);

        (xi)   any lack or limitation of the genuineness, validity, regularity
or enforceability of the Notes, the Purchase Agreements, any other agreement or
document executed or delivered in connection therewith or pursuant thereto, or
any other agreement including without limitation any Subsidiary Guarantee;

        (xii)  any failure by any of the Holders to take any steps to perfect or
maintain their security interest (if any) in or Liens (if any) upon, or to
preserve their rights to, any security or collateral for the Obligations;

        (xiii) any election by any of the Holders, in any proceeding instituted 
under Chapter 11 of Title 11 of the United States Code (11 U.S.C. (S)101 et 
seq.) (the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the 
Bankruptcy Code;

        (xiv)  the disallowance, under Section 502 of the Bankruptcy Code, of 
all or any portion of any of the Holders' claims for repayment of the 
Obligations; or

        (xv)   any other thing, event, happening, matter, circumstance or 
condition whatsoever, not in any way limited to the foregoing, which might 
otherwise constitute a legal or equitable discharge or defense of a guarantor.

        The obligations of the Guarantor with respect to the guaranty and all 
other obligations under this Guarantee of the Guarantor are and shall continue 
to be direct and unsecured obligations of the Guarantor ranking pari passu as 
against the assets of the Guarantor and pari passu with all other present and 
future Debt of the Guarantor which is not expressed to be subordinate or junior 
in rank to any other Debt of the Guarantor (except to the extent that the 
foregoing is not true by virtue of, and solely by virtue of, Liens expressly 
permitted by the Purchase Agreements securing other Debt insofar as such Debt 
represents a prior claim in respect of the property or assets secured by such 
permitted Lien.

        The liability of the undersigned Guarantor under this Guarantee shall 
not exceed at any time the greater of (i) 95% of the Adjusted Net Assets (as 
hereinafter defined) of the Guarantor at the time of delivery hereof and (ii) 
95% of the Adjusted Net Assets of the Guarantor at the time of any payment 
hereunder. As used herein, the term "Adjusted Net Assets" means at any time the 
lesser of (x) the amount by which the fair market value of the assets of the 
Guarantor exceeds the total amount of liabilities (including, without 
limitation, contingent liabilities, but excluding liabilities under this 
Guarantee) of the Guarantor at such time, and (y) the amount by which the 
present fair market value of the assets of the Guarantor at such time exceeds
the amount that will be required to pay the probable liability

                                      -4-




<PAGE>
 
of the Guarantor on its debts (excluding debt in respect of this Guarantee), as
they become absolute and matured. Contingent liabilities of the Guarantor
(including, without limitation, liabilities in respect of guarantees, pension
and other employee benefit plans and pending or threatened litigation and
claims), shall be valued at amounts which, in light of all the facts and
circumstances existing at the time, represent amounts which can reasonably be
expected to become actual or matured liabilities.

     Notwithstanding anything to the contrary contained herein or in any other
agreement, document or instrument, the Guarantor hereby irrevocably waives all
rights of subrogation (whether such rights arise under common law, contract or
Federal law, including, without limitation, Section 509 of the Bankruptcy Code)
to the claims of the Holders against the Borrower, and waives all contractual,
statutory and common law rights of contribution, reimbursement, indemnification
and similar rights and claims (as such term is defined in the Bankruptcy Code)
against the Borrower which may arise in connection with, or as a result of, this
Guarantee.

     The Guarantor expressly waives any and all benefits under California Civil
Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433 and
California Code of Civil Procedure Sections 580(a), 580(b), 580(d) and 726.

     The Guarantor expressly waives any right it may have to require any Person
seeking enforcement of its obligations hereunder to (a) proceed against the
Borrower, Holdings, any other Subsidiary Guarantor or any other Person, (b)
proceed against or exhaust any security, or (c) pursue any other remedy in the
power of the Person seeking such enforcement, including, without limitation, its
remedies pursuant to any other Subsidiary Guarantee and the Holdings' Guarantee
set forth in Section 16.14 of the Purchase Agreements. The Holders from time to
time may, at their election, exercise any right or remedy they may have against
the Guarantor, including, without limitation, the right to foreclose upon any
such security by judicial or non-judicial sale, without affecting or limiting in
any way the liability of the Guarantor hereunder, except to the extent the
Obligations have been paid. The Guarantor waives any defense arising out of the
absence, impairment or loss of any right of reimbursement, contribution or
subrogation or any other right or remedy of the Guarantor against the Borrower,
Holdings, any other Subsidiary Guarantor or any such security, whether resulting
from such election by the Holders of the Notes or otherwise.

     The Guarantor agrees that its obligations hereunder shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of the Borrower, Holdings, any other Subsidiary Guarantor or the Guarantor is
rescinded or must be otherwise restored by any Holder of any Notes, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise. The
Guarantor further agrees that, without limiting the generality of the foregoing,
if an Event of Default shall have occurred and be continuing and the Holder is
prevented by applicable law from exercising any remedy under this Guarantee or
under any of the Notes, such Holder shall be entitled to receive from the
Guarantor upon demand therefor, the sums which would otherwise have been due
from the Borrower had such remedies been exercised.

                                       -5-

<PAGE>
 
     The Guarantor agrees that this Guarantee shall continue in full force and
effect and may not be terminated or otherwise revoked by the Guarantor until the
Obligations shall have been fully discharged.

     This Guarantee shall be binding upon the Guarantor and upon the successors
and assigns of the Guarantor and shall inure to the benefit of each of
the Purchasers and each other Holder and their respective successors and
assigns; all references herein to the Borrower, Holdings, other Subsidiary
Guarantors and to the Guarantor shall be deemed to include their respective
successors and assigns, including, without limitation, a receiver, trustee or
debtor-in-possession of or for the Borrower, Holdings, other Subsidiary
Guarantors or the Guarantor. All references to the singular shall be deemed to
include the plural where the context so requires.

     THIS GUARANTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES OF SUCH STATE).

     THE GUARANTOR CONSENTS AND AGREES TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT SITTING IN THE COUNTY OF COOK, STATE OF ILLINOIS, AND WAIVES
ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION
INSTITUTED THEREIN, AND AGREES THAT ANY DISPUTE CONCERNING THE RELATIONSHIP
BETWEEN ANY PURCHASER OR HOLDER OF NOTES, ON THE ONE HAND, AND THE GUARANTOR, ON
THE OTHER HAND, OR THE CONDUCT OF ANY PARTY IN CONNECTION WITH THIS GUARANTEE OR
OTHERWISE SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE.

     THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY HAND DELIVERY OR
MAIL TO THE GUARANTOR AT ITS ADDRESS SET FORTH BELOW. THE GUARANTOR HEREBY
CONSENTS TO SERVICE OF PROCESS AS AFORESAID.

     NOTHING IN THIS GUARANTEE SHALL AFFECT THE RIGHT OF ANY PURCHASER OR HOLDER
OF NOTES TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF ANY PURCHASER OR HOLDER OF NOTES TO BRING ANY ACTION OR PROCEEDING
AGAINST THE GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.

     Wherever possible each provision of this Guarantee shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Guarantee shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guarantee.

     THE GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER THIS GUARANTEE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN

                                       -6-

<PAGE>
 
CONNECTION HEREWITH OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE GUARANTOR IN RESPECT TO THIS GUARANTEE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THE
GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS GUARANTEE WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE GUARANTOR TO THE WAIVER OF ITS
RIGHT TO TRIAL BY JURY.

     IN WITNESS WHEREOF, this Guarantee has been duly executed by the Guarantor
as of the 8th day of November, 1996.

                                IHOP REALTY CORP.

                                By       /s/ Mark D. Weisberger
                                   ----------------------------------
                                         Vice President -- Legal

                                Address:

                                   525 North Brand Boulevard 
                                   Glendale, CA 91203

                                      -7-

<PAGE>
 
                                                                [CONFORMED COPY]

                              SUBSIDIARY GUARANTEE

                              IHOP PROPERTIES, INC.

     FOR VALUE RECEIVED and in consideration of the purchase by the Purchasers
(as hereinafter defined) of those certain 7.42% Senior Notes Due 2008 (the
"Notes") of International House of Pancakes, Inc., a Delaware corporation
(herein called, together with its successors and assigns, the "Borrower"),
pursuant to the several Senior Note Purchase Agreements, each dated as of
November 1, 1996, by and among the several purchasers named in Schedule I
thereto (the "Purchasers"), IHOP Corp., a Delaware corporation ("Holdings"), and
the Borrower, which is the wholly-owned Subsidiary of Holdings (the "Purchase
Agreements"), the undersigned (the "Guarantor"), a wholly-owned Subsidiary of
the Borrower, unconditionally guarantees (a) the full and prompt payment, when
due, whether at maturity or earlier by reason of acceleration or otherwise, and
at all times thereafter of all obligations of the Borrower with respect to
payment of the principal of, prepayment charges (if any), and interest on the
Notes (including interest on any overdue principal and prepayment charges, if
any, and, to the extent permitted by law, on any overdue interest), and all
other amounts due, and (b) the prompt and faithful performance, discharge and
observance of all other obligations, covenants, agreements, conditions,
representations, warranties, indemnities and liabilities of the Borrower and
Holdings to be performed, discharged or observed by the Borrower and Holdings,
under or pursuant to the Purchase Agreements and all agreements, instruments and
documents executed or delivered in connection therewith or pursuant thereto (all
such obligations of the Borrower and Holdings guaranteed by the Guarantor herein
being hereinafter called the "Obligations"). In the event the Borrower or
Holdings defaults in the payment or performance, when due, of any of the
Obligations (whether at their stated maturity, by acceleration, or otherwise),
the Guarantor shall pay to the unpaid holders of the Notes ("Holders"), on
demand, the full amount of such Obligations in immediately available funds at
the place provided in the applicable Purchase Agreements or shall, on demand,
fully perform such Obligations. The Guarantor further agrees to pay (a) all
costs and expenses including, without limitation, all court costs and reasonable
attorneys' fees and expenses paid or incurred by each of the Holders in
endeavoring to collect all or any part of the Obligations from, or in
prosecuting any action against, Holdings, the Borrower, the Guarantor, or any
other guarantor of all or any part of the Obligations, and (b) to the extent
permitted by law, interest on the Obligations and such costs and expenses at the
applicable per annum rate set forth in the Purchase Agreements. Unless otherwise
defined herein, the capitalized terms used herein which are defined in the
Purchase Agreements shall have the meanings specified therein.

     The Guarantor hereby represents and warrants that:

<PAGE>
 
          (a) The Guarantor has full power, authority and legal right to execute
     this Guarantee.

          (b) This Guarantee has been duly authorized, executed and delivered by
     the Guarantor and constitutes a legal, valid and binding obligation of the
     Guarantor enforceable in accordance with its terms.

          (c) No consent, approval or authorization of or filing with any
     Governmental Body or other Person on the part of the Guarantor is required
     in connection with this Guarantee.

          (d) The execution, delivery and performance of this Guarantee will not
     violate any provision of any applicable law or regulation or of any order,
     judgment, writ, award or decree of any court, arbitrator or Governmental
     Body, domestic or foreign, or of the charter or by-laws of the Guarantor or
     of any securities issued by the Guarantor or of any mortgage, indenture,
     lease, contract, or loan agreement to which the Guarantor is a party, or
     any other agreement, instrument or undertaking to which the Guarantor is a
     party or which purports to be binding upon the Guarantor or upon any of its
     assets, and will not result in the creation or imposition of any Lien on
     any of the assets of the Guarantor except as contemplated by this
     Guarantee.

     The Guarantor hereby waives notice of acceptance of this Guarantee by any
Holder, of any action taken or omitted in reliance hereon or of any default in
the payment of any of the Obligations or in the performance of any covenants and
agreements of the Borrower contained in the Purchase Agreements or the Notes,
and any diligence, presentment, demand, protest, dishonor or notice of any kind.

     This Guarantee constitutes a present and continuing Guarantee of payment
and performance and not of collectability of the Obligations, and shall be
absolute, primary, present and unconditional, and to the extent permitted by
applicable law, shall not be subject to any counterclaim, setoff, reduction or
defense based upon any claim the Guarantor may have against the Borrower, or any
other Person, and shall remain in full force and effect without regard to, and
shall not be released, discharged or in any way affected or impaired by any
thing, event, happening, matter, circumstance or condition whatsoever (whether
or not the Guarantor shall have any knowledge or notice thereof or shall consent
thereto), including, without limitation:

          (i) any amendment or other modification of or supplement to any
     provision of the Purchase Agreements, any Subsidiary Guarantee, any other
     agreements or documents executed or delivered in connection therewith or
     pursuant thereto or any of the Notes or any assignment or transfer thereof,
     including without limitation any renewal or extension of the terms of
     payment of any of the Notes or the granting of time in respect of any
     payment thereof, or any furnishing or acceptance of security or any release
     of any security furnished or accepted for any of the Notes or in respect of
     the obligations of the Guarantor hereunder;

                                      -2-

<PAGE>
 
          (ii) any waiver, consent, extension, granting of time, forbearance,
     indulgence or other action or inaction under or in respect of this
     Guarantee or any of the Notes or any exercise or nonexercise of any right,
     remedy or power in respect hereof or thereof;

          (iii) any bankruptcy, insolvency, reorganization, arrangement,
     readjustment, composition, liquidation or similar proceedings with respect
     to the Guarantor, the Borrower, Holdings, the other Subsidiary Guarantors
     or any other Person, or the properties or creditors of any of them;

          (iv) the occurrence of any Default or Event of Default, or any
     invalidity or unenforceability of, or any misrepresentation, irregularity
     or other defect in, the Purchase Agreements, any Subsidiary Guarantee, any
     other agreement or document executed or delivered in connection therewith
     or pursuant thereto, any of the Notes or any other agreement;

          (v) any transfer of any assets to or from the Guarantor, Holdings, any
     other Subsidiary Guarantor or the Borrower, including without limitation
     any transfer or purported transfer to the Guarantor, Holdings, any other
     Subsidiary Guarantor or the Borrower from any Person, any invalidity,
     illegality of, or inability to enforce, any such transfer or purported
     transfer, any consolidation or merger of the Guarantor, Holdings, any other
     Subsidiary Guarantor or the Borrower with or into any other corporation or
     entity, or any change whatsoever in the objects, capital structure,
     constitution or business of the Guarantor, Holdings, any other Subsidiary
     Guarantor or the Borrower or any Affiliate or Subsidiary of the Guarantor,
     Holdings, any other Subsidiary Guarantor or of the Borrower;

          (vi) any failure on the part of the Borrower or any other Person to
     perform or comply with any term of the Notes, the Purchase Agreements, any
     Subsidiary Guarantee or any other agreement;

          (vii) any suit or other action brought by the Guarantor, Holdings, the
     Borrower, any other Subsidiary Guarantor or any other Person, or by any
     stockholder or creditor of any of such Persons, for any reason whatsoever,
     including without limitation any suit or action in any way attacking or
     involving any issue, matter or thing in respect of the Notes, the Purchase
     Agreements, any Subsidiary Guaranty or any other agreement;

          (viii) any lack or limitation of status or power, incapacity or
     disability of the Guarantor, Holdings, any other Subsidiary Guarantor or
     the Borrower or of any officer, director or agent of the Guarantor,
     Holdings, any other Subsidiary Guarantor or the Borrower or any of their
     respective stockholders;

          (ix) the cessation from any cause whatsoever (other than payment of
     the Obligations) of liability of the Borrower;

                                      -3-

<PAGE>
 
          (x) the termination of, or release or compromise of the Purchase
     Agreements, any other agreement or document executed or delivered in
     connection therewith or pursuant thereto, any of the Notes or any other
     agreement, including, without limitation, any other Subsidiary Guarantee
     and the Guarantee of Holdings set forth in Section 16.14 of the Purchase
     Agreements (other than as a result of payment of the Obligations);

          (xi) any lack or limitation of the genuineness, validity, regularity
     or enforceability of the Notes, the Purchase Agreements, any other
     agreement or document executed or delivered in connection therewith or
     pursuant thereto, or any other agreement including without limitation any
     Subsidiary Guarantee;

          (xii) any failure by any of the Holders to take any steps to perfect
     or maintain their security interest (if any) in or Liens (if any) upon, or
     to preserve their rights to, any security or collateral for the
     Obligations;

          (xiii) any election by any of the Holders, in any proceeding
     instituted under Chapter 11 of Title 11 of the United States Code (11
     U.S.C. (S) 101 et seq.) (the "Bankruptcy Code"), of the application of
     Section 1111(b)(2) of the Bankruptcy Code;

          (xiv) the disallowance, under Section 502 of the Bankruptcy Code, of
     all or any portion of any of the Holders' claims for repayment of the
     Obligations; or

          (xv) any other thing, event, happening, matter, circumstance or
     condition whatsoever, not in any way limited to the foregoing, which might
     otherwise constitute a legal or equitable discharge or defense of a
     guarantor.

     The obligations of the Guarantor with respect to the guaranty and all other
obligations under this Guarantee of the Guarantor are and shall continue to be
direct and unsecured obligations of the Guarantor ranking pari passu as against
the assets of the Guarantor and pari passu with all other present and future
Debt of the Guarantor which is not expressed to be subordinate or junior in rank
to any other Debt of the Guarantor (except to the extent that the foregoing is
not true by virtue of, and solely by virtue of, Liens expressly permitted by the
Purchase Agreements securing other Debt insofar as such Debt represents a prior
claim in respect of the property or assets secured by such permitted Lien.

     The liability of the undersigned Guarantor under this Guarantee shall not
exceed at any time the greater of (i) 95% of the Adjusted Net Assets (as
hereinafter defined) of the Guarantor at the time of delivery hereof and (ii)
95% of the Adjusted Net Assets of the Guarantor at the time of any payment
hereunder. As used herein, the term "Adjusted Net Assets" means at any time the
lesser of (x) the amount by which the fair market value of the assets of the
Guarantor exceeds the total amount of liabilities (including, without
limitation, contingent liabilities, but excluding liabilities under this
Guarantee) of the Guarantor at such time, and (y) the amount by which the
present fair market value of the assets of the Guarantor at such time exceeds
the amount that will be required to pay the probable liability

                                      -4-

<PAGE>
 
of the Guarantor on its debts (excluding debt in respect of this Guarantee), as
they become absolute and matured. Contingent liabilities of the Guarantor
(including, without limitation, liabilities in respect of guarantees, pension
and other employee benefit plans and pending or threatened litigation and
claims), shall be valued amounts which, in light of all the facts and
circumstances existing at the time, represent amounts which can reasonably be
expected to become actual or matured liabilities.

     Notwithstanding anything to the contrary contained herein or in any other
agreement, document or instrument, the Guarantor hereby irrevocably waives all
rights of subrogation (whether such rights arise under common law, contract or
Federal law, including, without limitation, Section 509 of the Bankruptcy Code)
to the claims of the Holders against the Borrower, and waives all contractual,
statutory and common law rights of contribution, reimbursement, indemnification
and similar rights and claims (as such term is defined in the Bankruptcy Code)
against the Borrower which may arise in connection with, or as a result of, this
Guarantee.

     The Guarantor expressly waives any and all benefits under California Civil
Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433 and
California Code of Civil Procedure Sections 580(a), 580(b), 580(d) and 726. 

     The Guarantor expressly waives any right it may have to require any Person
seeking enforcement of its obligations hereunder to (a) proceed against the
Borrower, Holdings, any other Subsidiary Guarantor or any other Person, (b)
proceed against or exhaust any security, or (c) pursue any other remedy in the
power of the Person seeking such enforcement, including without limitation, its
remedies pursuant to any other Subsidiary Guarantee and the Holdings' Guarantee
set forth in Section 16.14 of the Purchase Agreements. The Holders from time to
time may, at their election, exercise any right or remedy they may have against
the Guarantor, including, without limitation, the right to foreclose upon any
such security by judicial or non-judicial sale, without affecting or limiting in
any way the liability of the Guarantor hereunder, except to the extent the
Obligations have been paid. The Guarantor waives any defense arising out of the
absence, impairment or loss of any right of reimbursement, contribution or
subrogation or any other right or remedy of the Guarantor against the Borrower,
Holdings, any other Subsidiary Guarantor or any such security, whether resulting
from such election by the Holders of the Notes or otherwise.

     The Guarantor agrees that its obligations hereunder shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of the Borrower, Holdings, any other Subsidiary Guarantor or the Guarantor is
rescinded or must be otherwise restored by any Holder of any Notes, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise. The
Guarantor further agrees that, without limiting the generality of the foregoing,
if an Event of Default shall have occurred and be continuing and the Holder is
prevented by applicable law from exercising any remedy under this Guarantee or
under any of the Notes, such Holder shall be entitled to receive from the
Guarantor upon demand therefor, the sums which would otherwise have been due
from the Borrower had such remedies been exercised.

                                      -5-

<PAGE>
 
     The Guarantor agrees that this Guarantee shall continue in full force and
effect and may not be terminated or otherwise revoked by the Guarantor until
the Obligations shall have been fully discharged.

     This Guarantee shall be binding upon the Guarantor and upon the successors
and assigns of the Guarantor and shall inure to the benefit of each of the
Purchasers and each other Holder and their respective successors and assigns;
all references herein to the Borrower, Holdings, other Subsidiary Guarantors and
to the Guarantor shall be deemed to include their respective successors and
assigns, including, without limitation, a receiver, trustee or
debtor-in-possession of or for the Borrower, Holdings, other Subsidiary
Guarantors or the Guarantor. All references to the singular shall be deemed to
include the plural where the context so requires.

     THIS GUARANTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES OF SUCH STATE).

     THE GUARANTOR CONSENTS AND AGREES TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT SITTING IN THE COUNTY OF COOK, STATE OF ILLINOIS, AND WAIVES ANY
OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION
INSTITUTED THEREIN, AND AGREES THAT ANY DISPUTE CONCERNING THE RELATIONSHIP
BETWEEN ANY PURCHASER OR HOLDER OF NOTES, ON THE ONE HAND, AND THE GUARANTOR, ON
THE OTHER HAND, OR THE CONDUCT OF ANY PARTY IN CONNECTION WITH THIS GUARANTEE OR
OTHERWISE SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE.

     THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY HAND DELIVERY OR
MAIL TO THE GUARANTOR AT ITS ADDRESS SET FORTH BELOW. THE GUARANTOR HEREBY
CONSENTS TO SERVICE OF PROCESS AS AFORESAID.

     NOTHING IN THIS GUARANTEE SHALL AFFECT THE RIGHT OF ANY PURCHASER OR HOLDER
OF NOTES TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF ANY PURCHASER OR HOLDER OF NOTES TO BRING ANY ACTION OR PROCEEDING
AGAINST THE GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.

     Wherever possible each provision of this Guarantee shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Guarantee shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guarantee.

     THE GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER THIS GUARANTEE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN

                                      -6-

<PAGE>
 
CONNECTION HEREWITH OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE GUARANTOR IN RESPECT TO THIS GUARANTEE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THE GUARANTOR
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS GUARANTEE WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE GUARANTOR TO THE WAIVER OF ITS RIGHT TO
TRIAL BY JURY.

     IN WITNESS WHEREOF, this Guarantee has been duly executed by the Guarantor
as of the 8th day of November, 1996.

                                IHOP PROPERTIES, INC.

                                By         /s/ Mark D. Weisberger
                                   --------------------------------------
                                           Vice President -- Legal

                                Address:

                                    525 North Brand Boulevard
                                    Glendale, CA 91203

                                      -7-

<PAGE>
 


                                                                [CONFORMED COPY]


                             SUBSIDIARY GUARANTEE

                            IHOP RESTAURANTS, INC.



     FOR VALUE RECEIVED and in consideration of the purchase by the Purchasers
(as hereinafter defined) of those certain 7.42% Senior Notes Due 2008 (the
"Notes") of International House of Pancakes, Inc., a Delaware corporation
(herein called, together with its successors and assigns, the "Borrower"),
pursuant to the several Senior Note Purchase Agreements, each dated as of
November 1, 1996, by and among the several purchasers named in Schedule I
thereto (the "Purchasers"), IHOP Corp., a Delaware corporation ("Holdings"), and
the Borrower, which is the wholly-owned Subsidiary of Holdings (the "Purchase
Agreements"), the undersigned (the "Guarantor"), a wholly-owned Subsidiary of
the Borrower, unconditionally guarantees (a) the full and prompt payment, when
due, whether at maturity or earlier by reason of acceleration or otherwise, and 
at all times thereafter of all obligations of the Borrower with respect to
payment of the principal of prepayment charges (if any), and interest on the
Notes (including interest on any overdue principal and prepayment charges, if
any, and, to the extent permitted by law, on any overdue interest), and all
other amounts due, and (b) the prompt and faithful performance, discharge and
observance of all other obligations, covenants, agreements, conditions,
representations, warranties, indemnities and liabilities of the Borrower and
Holdings to be performed, discharged or observed by the Borrower and Holdings,
under or pursuant to the Purchase Agreements and all agreements, instruments and
documents executed or delivered in connection therewith or pursuant thereto (all
such obligations of the Borrower and Holdings guaranteed by the Guarantor herein
being hereinafter called the "Obligations"). In the event the Borrower or
Holdings defaults in the payment or performance, when due, of any of the
obligations (whether at their stated maturity, by acceleration, or otherwise),
the Guarantor shall pay to the unpaid holders of the Notes ("Holders"), on
demand, the full amount of such Obligations in immediately available funds at
the place provided in the applicable Purchase Agreements or shall, on demand,
fully perform such Obligations. The Guarantor further agrees to pay (a) all
costs and expenses including, without limitation, all court costs and reasonable
attorneys' fees and expenses paid or incurred by each of the Holders in
endeavoring to collect all of any part of the Obligations from, or in
prosecuting any action against, Holdings, the Borrower, the Guarantor, or any
other guarantor of all or any part of the Obligations, and (b) to the extent
permitted by law, interest on the Obligations and such costs and expenses at the
applicable per annum rate set forth in the Purchase Agreements. Unless otherwise
defined herein, the capitalized terms used herein which are defined in the
Purchase Agreements shall have the meanings specified therein.

     The Guarantor hereby represents and warrants that:

<PAGE>
 
          (a)  The Guarantor has full power, authority and legal right to
     execute this Guarantee.

          (b)  This Guarantee has been duly authorized, executed and delivered
     by the Guarantor and constitutes a legal, valid and binding obligation of
     the Guarantor enforceable in accordance with its terms.

          (c)  No consent, approval or authorization of or filing with any 
     Governmental Body or other Person on the part of the Guarantor is required
     in connection with this Guarantee.

          (d)  The execution, delivery and performance of this Guarantee will
     not violate any provision of any applicable law or regulation or of any
     order, judgment, writ, award or decree of any court, arbitrator or
     Governmental Body, domestic or foreign, or of the charter or by-laws of the
     Guarantor or of any securities issued by the Guarantor or of any mortgage,
     indenture, lease, contract, or loan agreement to which the Guarantor is a
     party, or any other agreement, instrument or undertaking to which the
     Guarantor is a party or which purports to be binding upon the Guarantor or
     upon any of its assets, and will not result in the creation or imposition
     of any Lien on any of the assets of the Guarantor except as contemplated by
     this Guarantee.

     The Guarantor hereby waives notice of acceptance of this Guarantee by any 
Holder, of any action taken or omitted in reliance hereon or of any default in 
the payment of any of the Obligations or in the performance of any covenants and
agreements of the Borrower contained in the Purchase Agreements or the Notes, 
and any diligence, presentment, demand, protest, dishonor or notice of any kind.

     This Guarantee constitutes a present and continuing Guarantee of payment 
and performance and not of collectability of the Obligations, and shall be 
absolute, primary, present and unconditional, and to the extent permitted by 
applicable law, shall not be subject to any counterclaim, setoff, reduction or 
defense based upon any claim the Guarantor may have against the Borrower, or any
other Person, and shall remain in full force and effect without regard to, and 
shall not be released, discharged or in any way affected or impaired by any 
thing, event, happening, matter, circumstance or condition whatsoever (whether 
or not the Guarantor shall have any knowledge or notice thereof or shall consent
thereto), including, without limitation:

          (i)  any amendment or other modification of or supplement to any 
     provision of the Purchase Agreements, any Subsidiary Guarantee, any other
     agreements or documents executed or delivered in connection therewith or
     pursuant thereto or any of the Notes or any assignment or transfer thereof,
     including without limitation any renewal or extension of the terms of
     payment of any of the Notes or the granting of time in respect of any
     payment thereof, or any furnishing or acceptance of security or any release
     of any security furnished or accepted for any of the Notes or in respect of
     the obligations of the Guarantor hereunder;

                                      -2-

<PAGE>
 
     (ii)   any waiver, consent, extension, granting of time, forbearance, 
indulgence or other action or inaction under or in respect of this Guarantee or 
any of the Notes or any exercise or nonexercise of any right, remedy or power in
respect hereof or thereof;

     (iii)  any bankruptcy, insolvency, reorganization, arrangement, 
readjustment, composition, liquidation or similar proceedings with respect to 
the Guarantor, the Borrower, Holdings, the other Subsidiary Guarantors or any 
other Person, or the properties or creditors of any of them;

     (iv)   the occurrence or any Default or Event of Default, or any 
invalidity or unenforceability of, or any misrepresentation, irregularity or 
other defect in, the Purchase Agreements, any Subsidiary Guarantee, any other 
agreement or document executed or delivered in connection therewith or pursuant 
thereto, any of the Notes or any other agreement;

     (v)    any transfer of any assets to or from the Guarantor, Holdings, any 
other Subsidiary OSC Guarantor or the Borrower, including without limitation any
transfer or purported transfer to the Guarantor, Holdings, any other Subsidiary
Guarantor or the Borrower from any Person, any invalidity, illegality of, or
inability to enforce, any such transfer or purported transfer, any consolidation
or merger of the Guarantor, Holdings, any other Subsidiary Guarantor or the
Borrower with or into any other corporation or entity, or any change whatsoever
in the objects, capital structure, constitution or business of the Guarantor,
Holdings, any other Subsidiary Guarantor or the Borrower or any Affiliate or
Subsidiary of the Guarantor, Holdings, any other Subsidiary Guarantor or of the
Borrower;

     (vi)   any failure on the part of the Borrower or any other Person to 
perform or comply with any term of the Notes, the Purchase Agreements, any 
Subsidiary Guarantee or any other agreement;

     (vii)  any suit or other action brought by the Guarantor, Holdings, the 
Borrower, any other Subsidiary Guarantor or any other Person, or by any 
stockholder or creditor of any of such Persons, for any reason whatsoever, 
including without limitation any suit or action in any way attacking or 
involving any issue, matter or thing in respect of the Notes, the Purchase 
Agreements, any Subsidiary Guaranty or any other agreement;

     (viii) any lack or limitation of status or power, incapacity or disability 
of the Guarantor, Holdings, any other Subsidiary Guarantor or the Borrower or of
any officer, director or agent of the Guarantor, Holdings, any other Subsidiary 
Guarantor or the Borrower or any of their respective stockholders;

     (ix)   the cessation from any cause whatsoever (other than payment of the 
Obligations) of liability of the Borrower;

                                      -3-

<PAGE>
 
     (x)    the termination of, or release or compromise of the Purchase 
Agreements, any other agreement or document executed or delivered in connection 
therewith or pursuant thereto, any of the Notes or any other agreement, 
including, without limitation, any other Subsidiary Guarantee and the Guarantee 
of Holdings set forth in Section 16.14 of the Purchase Agreements (other than as
a result of payment of the Obligations);

     (xi)   any lack or limitation of the genuineness, validity, regularity 
or enforceability of the Notes, the Purchase Agreements, any other agreement or 
document executed or delivered in connection therewith or pursuant thereto, or 
any other agreement including without limitation any Subsidiary Guarantee;

     (xii)  any failure by any of the Holders to take any steps to perfect or
maintain their security interest (if any) in or Liens (if any) upon, or to 
preserve their rights to, any security or collateral for the Obligations;

     (xiii) any election by any of the Holders, in any proceeding instituted
under Chapter 11 of Title 11 of the United States Code (11 U.S.C. (S)101 et
seq.) (the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the
Bankruptcy Code;

     (xiv)  the disallowance, under Section 502 of the Bankruptcy Code, of 
all or any portion of any of the Holders' claims for repayment of the 
Obligations; or

     (xv)   any other thing, event, happening, matter, circumstance or 
condition whatsoever, not in any way limited to the foregoing, which might 
otherwise constitute a legal or equitable discharge or defense of a guarantor.

     The obligations of the Guarantor with respect to the guaranty and all other
obligations under this Guarantee of the Guarantor are and shall continue to be
direct and unsecured obligations of the Guarantor ranking pari passu as against
the assets of the Guarantor and pari passu with all other present and future
Debt of the Guarantor which is not expressed to be subordinate or junior in rank
to any other Debt of the Guarantor (except to the extent that the foregoing is
not true by virtue of, and solely by virtue of, Liens expressly permitted by the
Purchase Agreements securing other Debt insofar as such Debt represents a prior
claim in respect of the property or assets secured by such permitted Lien.

     The liability of the undersigned Guarantor under this Guarantee shall 
not exceed at any time the greater of (i) 95% of the Adjusted Net Assets (as 
hereinafter defined) of the Guarantor at the time of delivery hereof and (ii) 
95% of the Adjusted Net Assets of the Guarantor at the time of any payment 
hereunder. As used herein, the term "Adjusted Net Assets" means at any time the 
lesser of (x) the amount by which the fair market value of the assets of the 
Guarantor exceeds the total amount of liabilities (including, without 
limitation, contingent liabilities, but excluding liabilities under this 
Guarantee) of the Guarantor at such time, and (y) the amount by which the 
present fair market value of the assets of the Guarantor at such time exceeds 
the amount that will be required to pay the probable liability

                                      -4-





<PAGE>
 
of the Guarantor on its debts (excluding debt in respect of this Guarantee), as 
they become absolute and matured. Contingent liabilities of the Guarantor 
(including, without limitation, liabilities in respect of guarantees, pension 
and other employee benefit plans and pending or threatened litigation and 
claims), shall be valued at amounts which, in light of all the facts and 
circumstances existing at the time, represent amounts which can reasonably 
be expected to become actual or matured liabilities.

     Notwithstanding anything to the contrary contained herein or in any other 
agreement, document or instrument, the Guarantor hereby irrevocably waives all 
rights of subrogation (whether such rights arise under common law, contract or 
Federal law, including, without limitation, Section 509 of the Bankruptcy Code) 
to the claims of the Holders against the Borrower, and waives all contractual, 
statutory and common law rights of contribution, reimbursement, indemnification 
and similar rights and claims (as such term is defined in the Bankruptcy Code) 
against Borrower which may arise in connection with, or as a result of, this 
Guarantee.

     The Guarantor expressly waives any and all benefits under California Civil 
Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433 and 
California Code of Civil Procedure Sections 580(a), 580(b), 580(d) and 726.

     The Guarantor expressly waives any right it may have to require any Person 
seeking enforcement of its obligations hereunder to (a) proceed against the 
Borrower, Holdings, any other Subsidiary Guarantor or any other Person, (b) 
proceed against or exhaust any security, or (c) pursue any other remedy in the 
power of the Person seeking such enforcement, including without limitation, its 
remedies pursuant to any other Subsidiary Guarantee and the Holdings' Guarantee 
set forth in Section 16.14 of the Purchase Agreements. The Holders from time to 
time may, at their election, exercise any right or remedy they may have against 
the Guarantor, including, without limitation, the right to foreclose upon any 
such security by judicial or non-judicial sale, without affecting or limiting in
any way the liability of the Guarantor hereunder, except to the extent the 
Obligations have been paid. The Guarantor waives any defense arising out of the 
absence, impairment or loss of any right of reimbursement, contribution or 
subrogation or any other right or remedy of the Guarantor against the Borrower, 
Holdings, any other Subsidiary Guarantor or any such security, whether resulting
from such election by the Holders of the Notes or otherwise.

     The Guarantor agrees that its obligations hereunder shall be automatically 
reinstated if and to the extent that for any reason any payment by or on behalf 
of the Borrower, Holdings, any other Subsidiary Guarantor or the Guarantor is 
rescinded or must be otherwise restored by any Holder of any Notes, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise. The 
Guarantor further agrees that, without limiting the generality of the foregoing,
if an Event of Default shall have occurred and be continuing and the Holder is 
prevented by applicable law from exercising any remedy under this Guarantee or 
under any of the Notes, such Holder shall be entitled to receive from the 
Guarantor upon demand therefor, the sums which would otherwise have been due 
from the Borrower had such remedies been exercised.


                                      -5-

<PAGE>
 
     The Guarantor agrees that this Guarantee shall continue in full force and 
effect and may not be terminated or otherwise revoked by the Guarantor until the
Obligations shall have been fully discharged.

     This Guarantee shall be binding upon the Guarantor and upon the successors
and assigns of the Guarantor and shall inure to the benefit of each of the
Purchasers and each other Holder and their respective successors and assigns;
all references herein to the Borrower, Holdings, other Subsidiary Guarantors and
to the Guarantor shall be deemed to include their respective successors and
assigns, including, without limitation, a receiver, trustee or debtor-in-
possession of or for the Borrower, Holdings, other Subsidiary Guarantors or the
Guarantor. All references to the singular shall be deemed to include the plural
where the context so requires.

     THIS GUARANTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED 
BY THE LAWS OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPALS OF SUCH STATE).

     THE GUARANTOR CONSENTS AND AGREES TO THE JURISDICTION OF ANY STATE OR 
FEDERAL COURT SITTING IN THE COUNTY OF COOK, STATE OF ILLINOIS, AND WAIVES ANY 
OBJECTION BASED ON THE VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION 
INSTITUTED THEREIN, AND AGREES THAT ANY DISPUTE CONCERNING THE RELATIONSHIP 
BETWEEN ANY PURCHASER OR HOLDER OF NOTES, ON THE ONE HAND, AND THE GUARANTOR, ON
THE OTHER HAND, OR THE CONDUCT OF ANY PARTY IN CONNECTION WITH THIS GUARANTEE OR
OTHERWISE SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE.

     THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY HAND DELIVERY OR 
MAIL TO THE GUARANTOR AT ITS ADDRESS SET FORTH BELOW.  THE GUARANTOR HEREBY 
CONSENTS TO SERVICE OF PROCESS AS AFORESAID.

     NOTHING IN THIS GUARANTEE SHALL AFFECT THE RIGHT OF ANY PURCHASER OR HOLDER
OF NOTES TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT 
THE RIGHT OF ANY PURCHASER OR HOLDER OF NOTES TO BRING ANY ACTION OR PROCEEDING 
AGAINST THE GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.

     Wherever possible each provision of this Guarantee shall be interpreted in 
such manner as to be effective and valid under applicable law, but if any 
provision of this Guarantee shall be prohibited by or invalid under such law, 
such provision shall be ineffective to the extent of such prohibition or 
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guarantee.

     THE GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, 
DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER THIS GUARANTEE OR ANY OTHER 
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN 


                                      -6-

<PAGE>
 
CONNECTION HEREWITH OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL 
TO THE DEALINGS OF THE GUARANTOR IN RESPECT TO THIS GUARANTEE OR ANY OTHER 
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH 
OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE NOW EXISTING OR HEREAFTER 
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.  THE GUARANTOR 
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF 
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY 
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS GUARANTEE WITH ANY COURT AS 
WRITTEN EVIDENCE OF THE CONSENT OF THE GUARANTOR TO THE WAIVER OF ITS RIGHT TO 
TRIAL BY JURY.

     IN WITNESS WHEREOF, this Guarantee has been duly executed by the Guarantor 
as of the 8th day of November, 1996.

                                       IHOP RESTAURANTS, INC.      
                                                                   
                                                                   
                                                                   
                                       By  /s/ Mark D. Weisberger  
                                         ---------------------------
                                           Vice President -- Legal 
                                                                   
                                                                   
                                       Address:                    
                                                                   
                                         525 North Brand Boulevard 
                                         Glendale, CA  91203        


                                      -7-

<PAGE>
 
                                                                [CONFORMED COPY]

================================================================================


                            INTERCREDITOR AGREEMENT


                         Dated as of November 1, 1996


                                     Among


                           BANK OF AMERICA ILLINOIS


                                      And


                 THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
                    MONY LIFE INSURANCE COMPANY OF AMERICA
                   THE MANUFACTURERS LIFE INSURANCE COMPANY
                      THE FRANKLIN LIFE INSURANCE COMPANY
                       THE CANADA LIFE ASSURANCE COMPANY
                                      and
                           MODERN WOODMEN OF AMERICA


                                      And


                    JACKSON NATIONAL LIFE INSURANCE COMPANY
                  PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
                    UNITED OF OMAHA LIFE INSURANCE COMPANY
                                      and
                     SECURITY FIRST LIFE INSURANCE COMPANY


                                      And


                              Additional Lenders


================================================================================

<PAGE>
 
                               TABLE OF CONTENTS


<TABLE>
<CAPTION>

SECTION                            HEADING                                  PAGE
<S>                                                                          <C>
Parties.......................................................................1

Recitals......................................................................1

SECTION 1.          DEFINITIONS...............................................3
                                                   
SECTION 2.          SHARING OF RECOVERIES.....................................5
                                                   
SECTION 3.          AGREEMENTS AMONG THE CREDITORS............................6

   Section 3.1.         Independent Actions by Creditors......................6
   Section 3.2.         Relation of Creditors.................................6
   Section 3.3.         Acknowledgment of Guarantees..........................6
   Section 3.4.         Additional Lenders....................................6

SECTION 4.          MISCELLANEOUS.............................................6

   Section 4.1.         Entire Agreement......................................6
   Section 4.2.         Notices...............................................7
   Section 4.3.         Successors and Assigns................................7
   Section 4.4.         Consents, Amendment, Waivers..........................7
   Section 4.5.         Governing Law.........................................7
   Section 4.6.         Counterparts..........................................7
   Section 4.7.         Severability..........................................7
   Section 4.8.         Expenses..............................................7

Signature Page................................................................8

</TABLE>


                                       i




<PAGE>
 
                            INTERCREDITOR AGREEMENT

    INTERCREDITOR AGREEMENT dated as of November 1, 1996 among BANK OF AMERICA 
ILLINOIS (the "Lender"), THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, MONY 
LIFE INSURANCE COMPANY OF AMERICA, THE MANUFACTURERS LIFE INSURANCE COMPANY, THE
FRANKLIN LIFE INSURANCE COMPANY, THE CANADA LIFE ASSURANCE COMPANY and MODERN 
WOODMEN OF AMERICA (each institution is referred to herein as a "1992
Noteholder" and the institutions are collectively referred to as the "1992
Noteholders") and JACKSON NATIONAL LIFE INSURANCE COMPANY, PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY, UNITED OF OMAHA LIFE INSURANCE COMPANY and SECURITY
FIRST LIFE INSURANCE COMPANY (each institution is referred to herein as a "1996
Noteholder" and the institutions are collectively referred to herein as the
"1996 Noteholders"; the 1996 Noteholders, the 1992 Noteholders and the Lender
and each of the additional Persons, if any, that become a party hereto as
contemplated by (S)3.4 hereof (each such Person is referred to as an "Additional
Lender") are individually referred to herein as a "Creditor" and are
collectively referred to herein as the "Creditors").

                                   RECITALS:

     A.  Under and pursuant to the separate and several Senior Note Purchase 
Agreements each dated as of November 1, 1996 (collectively, the "1996 Note 
Agreements"), among International House of Pancakes, Inc., a Delaware 
corporation (the "Borrower"), IHOP Corp., a Delaware corporation ("Holdings") 
and each of the 1996 Noteholders, the Borrower has issued and sold to the 1996 
Noteholders $35,000,000 aggregate principal amount of its 7.42% Senior Notes, 
Due November, 2008 (the "1996 Notes").

     B.  Under and pursuant to the separate and several Senior Note Purchase 
Agreements each dated as of November 19, 1992 (collectively, as amended the 
"1992 Note Agreements"), among the Borrower, Holdings and each of the 1992 
Noteholders, the Borrower has issued and sold to the 1992 Noteholders 
$32,000,000 aggregate principal amount of its 7.79% Senior Notes, Due November, 
2002 (the "1992 Notes").

     C.  Under and pursuant to that certain Letter Agreement dated as of June 
30, 1993 (as such agreement may be modified, amended, renewed or replaced, 
including any increase in the amount thereof, the "Bank Credit Agreement") among
the Borrower, Holdings, and the Lender, the Lender has made available to the 
Borrower certain credit facilities in a current aggregate principal amount up to
$20,000,000 (all amounts outstanding in respect of said credit facilities being 
hereinafter collectively referred to as the "Loans").

    D.  In connection with the execution of the 1992 Note Agreements and as 
security for the 1992 Notes issued thereunder, IHOP Realty Corp., IHOP 
Properties, Inc. and IHOP Restaurants, Inc., (individually, a "Subsidiary 
Guarantor" and collectively, the "Subsidiary Guarantors") each of which is a 
wholly-owned subsidiary of the Borrower, have guaranteed to the 1992 Noteholders
the payment of the principal of, premium, if any, and interest on

<PAGE>
 
the 1992 Notes and payment and performance of all other obligations of the 
Borrower under the 1992 Note Agreements under the Subsidiary Guarantee dated as 
of November 19, 1992 executed by IHOP Realty Corp., the Subsidiary Guarantee 
dated as of December 29, 1993 executed by IHOP Properties, Inc., and the 
Subsidiary Guarantee dated as of December 29, 1993 executed by IHOP Restaurants,
Inc. (as such agreements may be modified, amended, renewed or replaced, 
including any increase in the amount thereof, individually, a "1992 Noteholder 
Guaranty" and collectively, the "1992 Noteholder Guarantees").

    E.  In connection with the execution of the Bank Credit Agreement and as 
support for the Loans made thereunder, the Subsidiary Guarantors have guaranteed
to the Lender the payment of the Loans and all other obligations of the Borrower
under the Bank Credit Agreement under the Subsidiary Guarantee dated as of June 
30, 1993 executed by IHOP Realty Corp., the Subsidiary Guarantee dated as of 
December 29, 1993 executed by IHOP Properties, Inc., and the Subsidiary 
Guarantee dated as of December 29, 1993 executed by IHOP Restaurants, Inc. (as 
such agreements may be modified, amended, renewed or replaced, including any 
increase in the amount thereof, individually, an "Lender Guaranty" and 
collectively, the "Lender Guarantees").

    F.  Each Subsidiary Guarantor is entering into a Guaranty Agreement 
(individually, a "1996 Noteholder Guaranty" and collectively, the "1996 
Noteholder Guarantees") dated as of the date hereof pursuant to which each 
Subsidiary Guarantor shall guarantee to the 1996 Noteholders the payment of the 
principal of, premium, if any, and interest on the 1996 Notes and the payment 
and performance of all other obligations of the Borrower under the 1996 Note 
Agreements.  The Lender Guarantees, the 1992 Noteholder Guarantees, the 1996 
Noteholder Guarantees and the Additional Permitted Subsidiary Guarantees, if 
any, are each hereinafter referred to individually, as a "Subsidiary Guaranty" 
and collectively, as the "Subsidiary Guarantees."

    G.  Each of the Creditors desires to provide for their respective rights in 
respect of the Subsidiary Guarantees and certain collections from the Subsidiary
Guarantors and to make certain other commitments and undertakings in connection
with the 1992 Note Agreements, the Bank Credit Agreement, the 1996 Note 
Agreements, the Additional Debt Facility Agreements, if any, the Subsidiary  
Guarantees, the obligations incurred by the Subsidiary Guarantors under such 
agreements and the rights of the Creditors under such agreements.

    H.  The 1992 Noteholders, the Lender, and the 1996 Noteholders hereby 
contemplate that in the event that any of the Subsidiary Guarantors execute and 
deliver an Additional Permitted Subsidiary Guarantee, the beneficiary of such 
Additional Permitted Subsidiary Guarantee shall become a party to this Agreement
upon compliance with the terms and conditions set forth in (S)3.4 hereof.

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


                                      -2-

<PAGE>
 
SECTION 1.  DEFINITIONS.

     The following terms shall have the meanings assigned to them below in this 
(S)1 or in the provisions of this Agreement referred to below:

     "Additional Debt Facility" shall mean Debt of the Borrower which is 
guaranteed by an Additional Permitted Subsidiary Guarantee.

     "Additional Debt Facility Agreement" shall mean the agreement executed and 
delivered by the Borrower and the Additional Lenders evidencing the Additional 
Debt Facility.

     "Additional Lender" shall have the meaning assigned thereto in the 
introductory paragraph hereto.

     "Additional Permitted Subsidiary Guarantees" shall mean those Guarantees 
delivered by any Subsidiary Guarantor which guarantees any of the Borrower's 
Guaranteed Obligations the beneficiaries of which are or become a party to, and 
thereby agree to undertake and perform the duties, rights and obligations of a 
party under, the Intercreditor Agreement.

     "Bank Credit Agreement" shall have the meaning assigned thereto in the 
Recitals hereof.

     "Bankruptcy Proceeding" shall mean, with respect to any person, a general 
assignment of such person for the benefit of its creditors, or the institution 
by or against such person of any proceeding seeking relief as debtor, or seeking
to adjudicate such person as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of such person or its debts, under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for such person or for any substantial part of its property.

     "Borrower" shall have the meaning assigned thereto in the Recitals hereof.

     "Borrower's Guaranteed Obligations" shall mean all principal of, premium,
if any, and interest on, the 1996 Notes, the 1992 Notes, the Loans and the
Additional Debt Facilities, if any, and all other obligations of the Borrower
under or in respect of the 1996 Notes, the 1992 Notes, the Loans and the
Additional Debt Facilities, if any, under the 1996 Note Agreements, the 1992
Note Agreements, the Bank Credit Agreement and the Additional Debt Facility
Agreements and any other obligations of the Borrower to the Creditors which are
guaranteed by the Subsidiary Guarantees; provided that any amount of such
Borrower's Guaranteed Obligations which is not allowed as a claim enforceable
against the Borrower in a Bankruptcy Proceeding under applicable law shall be
excluded from the computation of "Borrower's Guaranteed Obligations" hereunder.

                                      -3-

<PAGE>
 
     "Creditor" shall have the meaning assigned thereto in the introductory 
paragraph hereto.

     "Excess Guaranty Payment" shall mean as to any Creditor an amount equal to
the Guaranty Payment received by such Creditor less the Pro Rata Share of
Guaranty Payments to which such Creditor is then entitled.

     "Guaranty Payment" shall have the meaning assigned thereto in (S)2.

     "Lender" shall have the meaning assigned thereto in the introductory 
paragraph hereto.

     "Lender Guaranty" and "Lender Guarantees" shall have the meanings assigned 
thereto in the Recitals hereof.

     "Loans" shall have the meaning assigned thereto in the Recitals hereof.

     "1992 Note Agreements" shall have the meaning assigned thereto in the 
Recitals hereof.

     "1996 Note Agreements" shall have the meaning assigned thereto in the 
Recitals hereof.

     "1992 Noteholder" shall have the meaning assigned thereto in the 
introductory paragraph hereto.

     "1996 Noteholder" shall have the meaning assigned thereto in the 
introductory paragraph hereto.

     "1992 Noteholder Guaranty" and "1992 Noteholder Guarantees" shall have the 
meanings assigned thereto in the Recitals hereof.

     "1996 Noteholder Guaranty" and "1996 Noteholder Guarantees" shall have the 
meanings assigned thereto in the Recitals hereof.

     "1992 Notes" shall have the meaning assigned thereto in the Recitals
hereof.

     "1996 Notes" shall have the meaning assigned thereto in the Recitals 
hereof.

     "Pro Rata Share of Guaranty Payments" shall mean as of the date of any 
Guaranty Payment to a Creditor under any Subsidiary Guaranty an amount equal to 
the product obtained by multiplying (x) the amount of all Guaranty Payments made
by the Subsidiary Guarantors to all Creditors concurrently with the payments to 
such Creditor less all reasonable costs incurred by such Creditors in connection
with the collection of such Guaranty Payments by (y) a fraction, the numerator 
of which shall be the Specified Amount owing to such Creditor, and the 
denominator of which is the aggregate amount of all

                                      -4-

<PAGE>
 
outstanding Borrower's Guaranteed Obligations (without giving effect in the 
denominator to the application of any such Guaranty Payments).

     "Receiving Creditor" shall have the meaning assigned thereto in (S)2.

     "Specified Amount" shall mean as to any Creditor the aggregate amount of 
the Borrower's Guaranteed Obligations owed to such Creditor.

     "Subsidiary Guarantor" and "Subsidiary Guarantors" shall have the meanings 
assigned thereto in the Recitals hereof.

     "Subsidiary Guaranty" and "Subsidiary Guarantees" shall have the meanings 
assigned thereto in the Recitals hereof.

SECTION 2.   SHARING OF RECOVERIES.

     Each Creditor hereby agrees with each other Creditor that payments
(including payments made through setoff of deposit balances or otherwise or
payments or recoveries from any security interest granted to any Creditor) made
pursuant to the terms of any Subsidiary Guaranty (a "Guaranty Payment") (x)
within 90 days prior to the commencement of a Bankruptcy Proceeding with respect
to any Subsidiary Guarantor or the Borrower or (y) following the acceleration of
the 1996 Notes, the 1992 Notes or the Loans or the acceleration of any other
Borrower's Guaranteed Obligation, shall be shared so that each Creditor shall 
receive its Pro Rata Share of Guaranty Payments.  Accordingly, each Creditor 
hereby agrees that in the event (a) an event described in clauses (x) or (y) 
above shall have occurred, (b) any Creditor shall receive a Guaranty Payment (a
"Receiving Creditor"), and (c) any other Creditor shall not concurrently receive
its Pro Rata Share of Guaranty Payments from the same Subsidiary Guarantor, then
the Receiving Creditor shall promptly remit the Excess Guaranty Payment to each 
other Creditor who shall then be entitled thereto so that after giving effect to
such payment (and any other payments then being made by any other Receiving
Creditor pursuant to this (S)2) each Creditor shall have received its Pro Rata
Share of Guaranty Payments.

     Any such payments shall be deemed to be and shall be made in consideration 
of the purchase for cash at face value, but without recourse, ratably from the 
other Creditors such amount of 1996 Notes, 1992 Notes, Loans or Additional Debt 
Facility, if any, as the case may be, to the extent necessary to cause such 
Creditor to share such Excess Guaranty Payment with the other Creditors as 
hereinabove provided; provided, however, that if any such purchase or payment
is made by any Receiving Creditor and if such Excess Guaranty Payment or part 
thereof is thereafter recovered from such Receiving Creditor by any Subsidiary 
Guarantor (including, without limitation, by any trustee in bankruptcy of any 
Subsidiary Guarantor or any creditor thereof), the related purchase from the 
other Creditors shall be rescinded ratably and the purchase price restored as to
the portion of such Excess Guaranty Payment so recovered, but without interest; 
and provided further nothing herein contained shall obligate any Creditor to 
resort to any setoff, application of deposit balance or other means of payment 
under any Subsidiary Guaranty or avail itself of any

                                      -5-

<PAGE>
 
recourse by resort to any property of the Borrower or any Subsidiary Guarantor, 
the taking of any such action to remain within the absolute discretion of such 
Creditor without obligation of any kind to the other Creditors to take any such 
action.

SECTION 3.   AGREEMENTS AMONG THE CREDITORS.

    Section 3.1.  Independent Actions by Creditors. Nothing contained in this 
Agreement shall prohibit any Creditor from accelerating the maturity of, or 
demanding payment from any Subsidiary Guarantor on, any Borrower's Guaranteed 
Obligation of the Borrower to such Creditor or from instituting legal action 
against the Borrower or any Subsidiary Guarantor to obtain a judgement or other 
legal process in respect of such Borrower's Guaranteed Obligation, but any funds
received from any Subsidiary Guarantor in connection with any recovery therefrom
shall be subject to the terms of this Agreement.

    Section 3.2. Relation of Creditors. This Agreement is entered into solely
for the purposes set forth herein, and no Creditor assumes any responsibility to
any other party hereto to advise such other party of information known to such
other party regarding the financial condition of the Borrower or any Subsidiary
Guarantor or of any other circumstances bearing upon the risk of nonpayment of
any Borrower's Guaranteed Obligation. Each Creditor specifically acknowledges
and agrees that nothing contained in this Agreement is or is intended to be for
the benefit of the Borrower or any Subsidiary Guarantor and nothing contained
herein shall limit or in any way modify any of the obligations of the Borrower
or any Subsidiary Guarantor to the Creditors.

    Section 3.3.  Acknowledgement of Guarantees.  The Lender hereby expressly 
acknowledges the existence of the 1992 Noteholder Guarantees and the 1996 
Noteholder Guarantees.  The 1992 Noteholders hereby expressly acknowledge the 
existence of the Lender Guarantees and the 1996 Noteholder Guarantees.  The 1996
Noteholders hereby expressly acknowledge the existence of the Lender Guarantees 
and the 1992 Noteholder Guarantees.

    Section 3.4.  Additional Lenders.  Additional Persons may become "Creditors"
hereunder by executing and delivering to each of the then existing Creditors (i)
a copy of this Agreement so executed and (ii) a copy of the agreement or 
documents pursuant to which such Person becomes a creditor of the Borrower and 
of any Subsidiary Guarantor.  Accordingly, upon the execution and delivery of 
such copy of this Agreement by any such Person, such Person shall, upon the 
acknowledgement of the then existing Creditors, thereinafter become a Creditor 
for all purposes of this Agreement.

Section 4.  MISCELLANEOUS.

    Section 4.1.  Entire Agreement.  This Agreement represents the entire 
Agreement among the Creditors and, except as otherwise provided, this Agreement 
may not be altered, amended or modified except in a writing executed by all the 
parties to this Agreement.


                                      -6-

<PAGE>
 
     Section 4.2. Notices. Notices hereunder shall be given to the Creditors at
their addresses as set forth in the 1996 Note Agreements, the 1992 Note
Agreements, the Bank Credit Agreement or the Additional Debt Facility
Agreements, as the case may be, or at such other address as may be designated by
each in a written notice to the other parties hereto.

     Section 4.3. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of each of the Creditors and their respective
successors and assigns, whether so expressed or not, and, in particular, shall
inure to the benefit of and be enforceable by any future holder or holders of
any Borrower's Guaranteed Obligations, and the term "Creditor" shall include any
such subsequent holder of Borrower's Guaranteed Obligations, wherever the
context permits.

     Section 4.4.  Consents, Amendment, Waivers.  All agreements, waivers or 
consents of any provision of this Agreement shall be effective only if the same 
shall be in writing and signed by all of the Creditors.

     Section 4.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.

     Section 4.6. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one Agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart.

     Section 4.7. Severability. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not in any way be affected or impaired thereby.

     Section 4.8.  Expenses.  In the event of any litigation to enforce this 
Agreement, the prevailing party shall be entitled to its reasonable attorney's 
fees (including the allocated costs of in-house counsel).

                                      -7-

<PAGE>
 
       IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement 
to be executed as of the date first above written.

                                       BANK OF AMERICA ILLINOIS, this Lender


                                       By /s/ Gina M. West
                                          ----------------
                                            Vice President

            
                                       THE MUTUAL LIFE INSURANCE COMPANY OF
                                         NEW YORK, a 1992 Noteholder


                                       By /s/ Suzanne E. Walton
                                          ---------------------
                                            Managing Director


                                       MONY LIFE INSURANCE COMPANY OF
                                         AMERICA, a 1992 Noteholder


                                       By /s/ Suzanne E. Walton
                                          ---------------------
                                            Authorized Agent


                                       THE MANUFACTURERS LIFE INSURANCE
                                         COMPANY, a 1992 Noteholder


                                       By /s/ Richard R. Davis
                                          --------------------
                                            Portfolio Manager - 
                                            High Yield Securities


                                       THE FRANKLIN LIFE INSURANCE COMPANY,
                                         a 1992 Noteholder


                                       By /s/ Julia S. Tucker
                                          -------------------
                                            Investment Officer

                                      -8-

<PAGE>
 
                                       THE CANADA LIFE ASSURANCE COMPANY, a
                                         1992 Noteholder                  
                                                                          
                                                                          
                                       By      /s/ Brian J. Lynch         
                                         ----------------------------------
                                               Associate Treasurer        
                                                                          
                                                                          
                                       MODERN WOODMEN OF AMERICA, a 1992  
                                         Noteholder                       
                                                                          
                                                                          
                                       By       /s/ G. E. Stoefen         
                                         ----------------------------------
                                                Director, Treasurer        
                                              and Investment Manager      
                                                                          
                                                                          
                                       JACKSON NATIONAL LIFE INSURANCE    
                                         COMPANY, a 1996 Noteholder       
                                                                          
                                       By: PPM AMERICA, INC., as Agent    
                                                                          
                                                                          
                                           By        /s/ David Brett      
                                             ------------------------------
                                                     Vice President       
                                                                          
                                                                          
                                                                          
                                       PHOENIX HOME LIFE MUTUAL INSURANCE 
                                         COMPANY, a 1996 Noteholder       
                                                                          
                                                                          
                                       By        /s/ Keith Robbins        
                                         ----------------------------------
                                                   Vice President  

                                      -9-

<PAGE>
 
                                       UNITED OF OMAHA LIFE INSURANCE
                                        COMPANY, a 1996 Noteholder


                                       By   /s/ Edwin H. Garrison, Jr.
                                         ---------------------------------------
                                            First Vice President



                                       SECURITY FIRST LIFE INSURANCE COMPANY,
                                        a 1996 Noteholder


                                       By   /s/ R.J. Ritchie
                                         ---------------------------------------
                                            Director -- U.S. Fixed Income


                                       By   /s/ Ruth Ann McConkey
                                         ---------------------------------------
                                            Manager -- U.S. Fixed Income



                                       [ADDITIONAL LENDER]


                                       By_______________________________________

                                            Its_________________________________



   The undersigned hereby acknowledge and agree to the foregoing Agreement.


                                       INTERNATIONAL HOUSE OF PANCAKES, INC.


                                       By   /s/ Mark D. Weisberger
                                         ---------------------------------------
                                            Vice President -- Legal


                                       IHOP CORP.


                                       By   /s/ Mark D. Weisberger
                                         ---------------------------------------
                                            Vice President -- Legal

                                     -10-

<PAGE>
 
                                            IHOP REALTY CORP.


                                            By   /s/ Mark D. Weisberger
                                              ----------------------------------
                                                 Vice President -- Legal



                                            IHOP PROPERTIES, INC.


                                            By   /s/ Mark D. Weisberger
                                              ----------------------------------
                                                 Vice President -- Legal



                                            IHOP RESTAURANTS, INC.


                                            By   /s/ Mark D. Weisberger
                                              ----------------------------------
                                                 Vice President -- Legal

                                     -11-



<PAGE>
 
                                                                    EXHIBIT 10.1
 
                                   IHOP CORP
                            EXECUTIVE INCENTIVE PLAN

                                      1

<PAGE>
 
EFFECTIVE DATE
The Executive Incentive Plan is effective January 1, 1997, and supersedes all
previously implemented plans.

MODIFICATION OF THE PLAN
IHOP CORP reserves the right to modify, terminate or make exceptions to the
Executive Incentive Plan at any time without prior notice.  The Plan will be
reviewed on an annual basis allowing for updates or revisions to be considered.
The Plan and this Plan Document do not constitute or imply an employment
contract, and participants accrue no interest, right or any benefit in the Plan,
except as specifically set forth in this document.

ELIGIBILITY
The Plan includes the President, Vice Presidents and all director level reports
to the Vice Presidents or President, including legal counsels of the IHOP
Corporation and its subsidiaries; except those otherwise covered by another
plan.  Any director level employee not qualifying to the previous conditions may
become eligible with the written approval of the President.  Participants must
be actively employed with IHOP Corp. and its subsidiaries through the plan year
of the bonus plan.  The last day worked is the last day an employee is
considered active.
  In the case of termination, vacation or other payments can
not be used to extend the last day worked.

The incentive calculations are based on the position held at the end of the
fiscal year the incentive was earned, unless otherwise stated below.

NEW HIRES/RE-HIRES
New hires and re-hires eligible for the Plan will have the incentive amount
prorated based on the number of whole months worked in the fiscal year.  If the
participant begins work on the first calendar or workday of the month, they will
be credited for a whole month worked.  In the event an eligible employee is
terminated and re-hired in the same fiscal year, the re-hire date will be used
to determine the number of whole months to be prorated for the given year.  For
re-hired participants, incentive will not consider any time worked prior to the
re-hire date.

PROMOTIONS
Any employee promoted to an eligible position during the fiscal year will have
an incentive prorated  based on the number of whole months in the fiscal year.
If the participant is promoted on the first calendar or workday of the month,
they will be credited for a whole month worked. The effective date of the
promotion will be used to determine the number of whole months worked.

DEMOTIONS
When an employee is demoted from one eligible position to another the incentive
will be calculated using the base pay at the end of the fiscal year.  The
percentage multiplier will be derived from the factor that relates to the
specific job at the end of the fiscal year.  Therefore, the calculations for the
incentive will be based on the attributes of the current job.  There will be no
prorated incentives for individuals demoted during the fiscal year to an
eligible position.

JOB CHANGE TO A NON-ELIGIBLE POSITION
Any employee changing from an eligible position to a non-eligible position
during the fiscal year will have an incentive prorated  based on the number of
whole months in the fiscal year.  The effective date of the job change will be
used to determine the number of whole months worked.  If the participant changed
positions on the first calendar or workday of the month, the previous month will
be used to determine the last whole month worked.

                                       2

<PAGE>
 
SHORT-TERM OR LONG-TERM DISABILITY, WORKERS' COMPENSATION AND OTHER LEAVES OF
ABSENCE
Any participant on leave of absence, or otherwise not actively working during
the fiscal year will have an incentive prorated excluding the period on leave.
The date the leave is effective and the date ending leave will be used to
calculate the number of whole months worked in the fiscal year.  This incentive
will only be paid upon the employees returning to active duty.

TERMINATION DUE TO DEATH OR RETIREMENT
Any incentive earned will be prorated for the fiscal year earned and awarded
with the normal distribution of incentives.  The incentive amount will be based
on the number of whole months worked in the fiscal year earned.

PLAN DESCRIPTION
The Executive Incentive Plan is an annual incentive based on the profitability
growth of IHOP Corp. and on the achievement of specific individual business
objectives of the participants.

DETERMINING INCENTIVE
The incentive award is a percentage of base salary which is dependent on the
position of the participant (see "Bonus Allocation Table").  The Target Payout %
multiplied by the participants base salary on the last day of the fiscal year is
the Target Incentive in dollars.  Any eligible participant that is not an
Officer will have an incentive based on the Directors Target Payout as a
percentage of Base Salary.  The incentive weighting for the CEO is solely based
on Company Performance.  The incentive weighting  for Executive Vice President,
and Vice Presidents is 40% Individual Business Objectives and 60% Company
Performance. The incentive weighting for the Directors is 60% Individual
Business Objectives and 40% Company Performance.

 
                            BONUS ALLOCATION TABLE

<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------
                                CEO     EXECUTIVE         VICE        DIRECTORS
                                          VICE         PRESIDENTS
                                        PRESIDENT
- -------------------------------------------------------------------------------
<S>                             <C>       <C>             <C>          <C>
 TARGET PAYOUT 
 AS A % OF
 BASE SALARY                    60%        50%             35%          20%
 
- -------------------------------------------------------------------------------
</TABLE>


INCENTIVE PAYOUT CALCULATION
The incentive payout is based solely on performance, therefore no limiting
factors will be used in calculating the incentive. The Level of Performance is
always based on the last whole percentage actually achieved.

Examples of incentive calculations in various scenarios are attached to the Plan
Document.

COMPANY PERFORMANCE
The Company Performance is based on a comparison of the actual profit before
taxes and extraordinary items to the budgeted figure for the Plan Year.  To
determine the Profit Achievement for the organization divide the actual profit
before taxes and extraordinary items by the budgeted profit.  Refer to the
"Company Payout Table" to determine the bonus achieved for Company portion of
the incentive.  The bonus achieved is multiplied by the percentage weighting for
the respective position (see "Determining Incentive") and then multiplied by the
individual's base salary to determine the company portion of the payout.

                                       3

<PAGE>
 

 
              COMPANY PAYOUT TABLE

<TABLE>
<CAPTION>
- -------------------------------------------------
 ACTUAL PROFIT ACHIEVED     % OF BONUS ACHIEVED
- -------------------------------------------------
<S>                                        <C>
     Less than 90 %                  0 %
- -------------------------------------------------
          90 %                     75.0%
- -------------------------------------------------
          91 %                     77.5%
- -------------------------------------------------
          92 %                     80.0%
- -------------------------------------------------
          93 %                     82.5%
- -------------------------------------------------
          94 %                     85.0%
- -------------------------------------------------
          95 %                     87.5%
- -------------------------------------------------
          96 %                     90.0%
- -------------------------------------------------
          97 %                     92.5%
- -------------------------------------------------
          98 %                     95.0%
- -------------------------------------------------
          99 %                     97.5%
- -------------------------------------------------
          100 %                   100.0%
- -------------------------------------------------
          101 %                   105.0%
- -------------------------------------------------
          102 %                   110.0%
- -------------------------------------------------
          103 %                   115.0%
- -------------------------------------------------
          104 %                   120.0%
- -------------------------------------------------
          105 %                   125.0%
- -------------------------------------------------
          106 %                   130.0%
- -------------------------------------------------
          107 %                   135.0%
- -------------------------------------------------
          108 %                   140.0%
- -------------------------------------------------
          109 %                   145.0%
- -------------------------------------------------
          110 %                   150.0%
- -------------------------------------------------
          111 %                   155.0%
- -------------------------------------------------
          112 %                   160.0%
- -------------------------------------------------
          113 %                   165.0%
- -------------------------------------------------
      114 % or more               170.0%
- -------------------------------------------------
</TABLE>


INDIVIDUAL BUSINESS OBJECTIVES
Annually, each eligible participant in the plan sets individual business
objectives in conjunction with his or her immediate supervisor in December of
each year.  During this process challenging, measurable objectives that
significantly impact the Company business objectives are to be mutually
determined.

After the fiscal year, a percentage of Achievement is then established by the
immediate supervisor and approved by the CEO.  This percentage of Achievement is
multiplied by the percentage weighting for the respective position (see
"Determining Incentive") and then multiplied by the individual's base salary to
determine the individual portion of the payout.  For all participants to be
eligible for this payout the Earnings Per Share Growth must be 10% or greater
for the fiscal year.

                                       4

<PAGE>
 
In addition to the calculated individual portion of the incentive, an award may
be granted at the discretion of  the President to individuals exceeding expected
levels of performance.

PAYMENT DISTRIBUTION
Incentive payouts will be distributed as soon as possible following the closing
of the fiscal year.  Payouts will be paid in a separate check from the regular
payroll check, and is subject to normal withholding deductions.

PLAN ADMINISTRATION
The  Executive Incentive plan is administered by the IHOP Human Resources
Department.  This Plan Document and its provisions regulate all plan guidelines
and participant eligibility.  Any special circumstances must be submitted in
writing to the Human Resources Department and approved by the President.

                                       5

<PAGE>
 
                        INCENTIVE CALCULATION SCENARIOS
                        -------------------------------

                                       6

<PAGE>
 
EXAMPLE #1: LOW INDIVIDUAL ACHIEVER & LOW COMPANY

Assume a Vice President has a Base Salary of $170,000.

INDIVIDUAL COMPONENT
- --------------------
The Individual Performance was reviewed and found 1 out of 4 goals were
achieved. Assuming each goal was weighted equally, the Individual Component is
25%. Assume the EPS growth for the fiscal year was 11%.

COMPANY COMPONENT
- -----------------
Profit Before Taxes and Extraordinary Items for the year is 95% of the Target
Amount. Therefore, the Bonus Achieved is 87.5% for the Company Component (see
"Company Payout Table" on page 4 of the Plan).

Step # 1  - Target  Payout
- --------------------------
Base Salary * Target Payout % = Target Payout

$170,000 * (35%)  =  $59,500
 
Step # 2 - Individual Payout
- ----------------------------
Individual   *   Weighted as 40%     =   Individual Payout
 Component       of Target Payout
 
25%          *   (40% * $59,500)     =   $5,950
 
Step # 3 - Company Payout
- -------------------------
Company      *    Weighted as 60%    =   Company Target
 Component        of Target
 
87.5%        *    (60% * $59,500)    =   $31,237.50
 
Step # 4 - Incentive Payout
- ---------------------------
Individual Payout + Company Payout   =   Incentive Payout

$5,950       +    $31,237.50         =   $37,187.50

                                       7

<PAGE>
 
EXAMPLE #2: HIGH INDIVIDUAL ACHIEVER & HIGH COMPANY

Assume a Vice President has a Base Salary of $170,000.

INDIVIDUAL COMPONENT
- --------------------
The Individual Performance was reviewed and found 4 out of 4 goals were
achieved. Assuming each goal was weighted equally, the Individual Component is
100%. Assume the EPS growth for the fiscal year was 17%.

COMPANY COMPONENT
- -----------------
Profit Before Taxes and Extraordinary Items for the year is 108% of the Target
Amount. Therefore, the Bonus Achieved is 140% for the Company Component (see
"Company Payout Table" on page 4 of the Plan).

Step # 1  - Target  Payout
- --------------------------
Base Salary * Target Payout % = Target Payout
 
$170,000 * (35%)    =      $59,500
 
Step # 2 - Individual Payout
- ----------------------------
Individual     *   Weighted as 40%     =     Individual Payout
 Component        of Target Payout
 
100%           *  (40% * $59,500)      =     $23,800
 
Step # 3 - Company Payout
- -------------------------
Company        *   Weighted as 60%     =     Company Target
 Component         of Target
 
 
140%           *   (60% * $59,500)     =     $49,980
 
Step # 4 - Incentive Payout
- ---------------------------
Individual Payout  +  Company Payout   =  Incentive Payout
 
$23,800     +    $49,980               =      $73,780
 

                                       8



<PAGE>
 
                                                                    EXHIBIT 10.6

                              EMPLOYMENT AGREEMENT


        This Employment Agreement (the "Agreement") is entered into on May 28,
1996 (the "Effective Date"), between IHOP CORP., a Delaware corporation (the 
"Company"), and RAND MICHAEL FERRIS (the "Employee").

        WHEREAS, the Company desires to hire Employee as its Division Vice 
President-Operations, West; and

        WHEREAS, the parties desire to enter into an Employment Agreement 
setting forth the terms and conditions for the employment relationship of the 
Employee with the Company; and

        WHEREAS, the Board of Directors of the Company (the "Board") has 
approved and authorized the Company to enter into this Agreement with the 
Employee.

        NOW, THEREFORE, in consideration of the promises and mutual covenants 
and agreements herein contained and intending to be legally bound hereby, the 
Company and the Employee hereby agree as follows:

        1.      Employment.  The Employee is employed as Division Vice 
                ----------
President-Operations, West of the Company from the Effective Date through the 
Term of this Agreement (as defined in Section 2 hereof).  In this capacity, the
Employee shall have such duties and responsibilities as may be designated to 
him by the Board from time to time and as are not inconsistent with the 
Employee's position
 with the Company, including the performance of duties with 
respect to any subsidiaries of the Company, as may be designated by the Board.

        2.      Term.  The "initial term" of this Agreement shall be for the 
                ----
period commencing on the Effective Date and ending on the second anniversary of
the Effective Date; provided, however, that on the second anniversary of the 
                    -----------------
Effective Date, and on each subsequent anniversary date thereafter, the 
term of this Agreement shall automatically be extended for one additional year 
unless, not later than 90 days prior to such applicable anniversary date, the 
Company or the Employee shall give notice not to extend this Agreement; and 
provided further, however, that, if a Change in Control (as defined in Section 
- -------------------------
10(g)) occurs prior to the expiration of the Term of this Agreement, this 
Agreement shall remain in full force and effect and shall not expire prior to 
the last day of the 24th month following the date of such Change in Control.  
The "Term of this Agreement" or "Term" shall mean, for purposes of this 
Agreement, both the "initial term" (as hereinbefore described) and any 
additional term (created by extension, as described above), and the Term of 
this Agreement shall not be affected by the Employee's termination of 
employment.

        3.      Salary.  Subject to the further provisions of this Agreement, 
                ------
the Company shall pay the Employee during the Term of this Agreement a salary 
at an annual rate equal to $140,000.00, 

<PAGE>
 
with such salary to be increased at such times, if any, and in such amounts as
determined by the Board, which increases shall be consistent with the historical
business practices of the Company and the salary adjustments for other senior
executives of the Company. Such salary shall be payable by the Company to the
Employee not less frequently than monthly and shall not be decreased at any time
during the Term of this Agreement. Participation in deferred compensation,
discretionary bonus, retirement, and other employee benefit plans and in fringe
benefits shall not reduce the salary payable to the Employee under this 
Section 3.

        4.      Participation in Bonus, Retirement and Employee Benefit Plans.  
                -------------------------------------------------------------
The Employee shall be entitled to participate equitably with other senior 
executives in any plan of the Company relating to bonuses, stock options, stock 
purchases, pension, thrift, profit sharing, life insurance, medical coverage, 
education, or other retirement or employee benefits that the Company has adopted
or may adopt for the benefit of its senior executives.

        5.      Fringe Benefits; Automobile.  The Employee shall be entitled to 
                ---------------------------
receive all other fringe benefits which are now or may be provided to the 
Company's senior executives.  In addition, the Company shall provide the 
Employee during the Term of this Agreement with his choice of a car or a car 
allowance in accordance with the Company's general policy on providing cars to 
senior executives.  Notwithstanding the foregoing, the benefits provided under 
this Section 5 shall cease upon the Employee's Date of Termination (as defined 
in Section 10(d)).

        6.      Vacations.  The Employee shall be entitled to an annual paid 
                ---------
vacation as determined in accordance with the Company's general policy for 
senior executives.

        7.      Business Expenses.   During such time as the Employee is 
                -----------------
rendering services hereunder, the Employee shall be entitled to incur and be 
reimbursed for all reasonable business expenses and be provided allowances as 
are furnished to the Company's most senior executives under the Company's then 
current policies.  The Company agrees that it will reimburse the Employee for 
all such expenses upon the presentation by the Employee, from time to time, of 
an itemized account of such expenditures, setting forth the date, the purposes 
for which incurred, and the amounts thereof, together with such receipts showing
payments in conformity with the Company's established policies.  Reimbursement 
shall be made within a reasonable period after the Employee's submission of an 
itemized account.

        8.      Insurance and Indemnity.    The Employee shall be added as an 
                -----------------------
additional named insured under all appropriate insurance policies now in force 
or hereafter obtained covering any officers or directors of the Company.  The 
Company shall indemnify and hold the Employee harmless from any cost, expense 
or liability arising out of or relating to any acts or decisions made by the 
Employee on behalf of or in the course of performing services for the Company 
to the same extent the Company indemnifies and holds harmless other senior 
executive officers and directors of the Company and in accordance with the 
Company's established policies.

                                      -2-

<PAGE>
 
        9.      Legal and Accounting Advice.   The Employee shall be entitled to
                ---------------------------
reimbursement by the Company for expenses incurred by him for personal legal, 
accounting, investment or estate planning services in an amount to be determined
by the Board, but in no event greater than $5,000 annually (or a pro rata 
portion of such amount for any period of employment less than a full year); 
provided, however, that no reimbursement shall be made for any such expenses 
- --------  ------
incurred by the Employee after such Employee's Date of Termination.

        10.     Termination.
                -----------

                (a)     Disability.    If, as a result of the Employee's 
                        ----------
incapacity due to physical or mental illness, he shall have been absent from the
full-time performance of his duties with the Company for 90 consecutive days or 
180 days within any 12-month period, his employment may be terminated by the 
Company for "Disability."

                (b)     Cause.    Subject to the notice provisions set forth 
                        -----
below, the Company may terminate the Employee's employment for "Cause" at any 
time.  "Cause" shall mean termination upon:  (1) the willful failure by the 
Employee to substantially perform his duties with the Company (other than any 
such failure resulting from his incapacity due to physical or mental illness), 
after a written demand for substantial performance is delivered to him by the 
Board, which demand specifically identifies the manner in which the Board 
believes that he has not substantially performed his duties; (2) the Employee's
willful misconduct that is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (3) the Employee's commission of such acts of 
dishonesty, fraud, misrepresentation or other acts of moral turpitude as would 
prevent the effective performance of his duties.  For purposes of this 
subsection (b), no act, or failure to act, on the Employee's part shall be 
deemed "willful" unless done, or omitted to be done, by him not in good faith 
and without the reasonable belief that his action or omission was in the best 
interest of the Company.  Notwithstanding the foregoing, the Employee shall not 
be deemed to have been terminated for Cause unless and until there shall have 
been delivered to him a copy of a resolution duly adopted by the affirmative 
vote of a majority of the non-employee members of the Board at a meeting of 
such members (after reasonable notice to him and an opportunity for him, 
together with his counsel, to be heard before such members of the Board), 
finding that he has engaged in the conduct set forth above in this subsection 
(b) and specifying the particulars thereof in detail.

                (c)     Notice of Termination.  Any termination of the 
                        ---------------------
Employee's employment by the Company or by the Employee shall be communicated by
written Notice of Termination to the other party hereto in accordance with 
Section 14.  "Notice of Termination" shall mean a notice that indicates the 
specific termination provision in this Agreement relied upon and sets forth in 
reasonable detail the facts and circumstances claimed to provide a basis for the
termination of the Employee's employment under the provision so indicated.

                (d)     Date of Termination.  "Date of Termination" shall mean:
                        -------------------
(1) if the Employee's employment is terminated by his death, the date of his 
death; (2) if the Employee's employment is terminated for Disability, 30 days 
after Notice of Termination is given; and (3) if the 

                                      -3-

<PAGE>
 
Employee's employment is terminated for any other reason, the date specified in
the Notice of Termination.

                (e)     Dispute Concerning Termination.    If within the later 
                        ------------------------------
of (i) 15 days after Notice of Termination is given, or (ii) 15 days prior to 
the Date of Termination (as determined without regard to this Section 10(e), the
party receiving such Notice of Termination notifies the other party that a 
dispute exists concerning a termination by the Employee for Good Reason (as 
defined in Section 10(h)) following a Change in Control (as defined in Section 
10(g)), the Date of Termination shall be the earlier of the expiration date of 
the Agreement, or the date on which the dispute is finally resolved, either by 
mutual written agreement of the parties or by a final judgment, order or decree 
of a court of competent jurisdiction (which is not appealable or with respect 
to which the time for appeal therefrom has expired and no appeal has been 
perfected); provided, however, that the Date of Termination shall be extended 
by a notice of dispute only if such notice is given in good faith and the party 
giving such notice pursues the resolution of such dispute with reasonable 
diligence.

                (f)     Compensation During Dispute.  If a purported termination
                        ---------------------------
by the Employee for Good Reason occurs following a Change in Control and during
the Term of this Agreement, and such termination is disputed in accordance with
Section 10(e) hereof, the Company shall continue to pay the Employee the full 
compensation in effect when the notice giving rise to the dispute was given 
(including, but not limited to, salary) and continue the Employee as a 
participant in all compensation, benefit and insurance plans in which the 
Employee was participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with Section 10(e) hereof 
or, if earlier, the expiration date of the Agreement.  Amounts paid under this 
Section 10(f) are in addition to all other amounts due under this Agreement 
(other than those due under Section 11(b) hereof) and shall not be offset 
against or reduce any other amounts payable under this Agreement.

                (g)     Change in Control.  A "Change in Control" shall be 
                        -----------------
deemed to have occurred if the conditions set forth in any one of the following 
paragraphs shall have been satisfied:

                        (i)     any "person" (as such term is used in Sections 
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the 
"Exchange Act")) (other than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; or any company owned,
directly or indirectly, by the stockholders of the Company in substantially the 
same proportions as their ownership of the stock of the Company) is or becomes 
after the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company (not 
including in the securities beneficially owned by such person any securities 
acquired directly from the Company or its affiliates) representing 25% or more 
of the combined voting power of the Company's then outstanding securities; or 

                        (ii)    during any period of two consecutive years 
(not including any period prior to the Effective Date), individuals who at the 
beginning of such period constitute the Board 

                                      -4-

<PAGE>
 
and any new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction described in
subsection (i), (iii) or (iv) of this Section 10(g)) whose election by the Board
or nomination for election by the Company's stockholders was approved by a vote
of at least 2/3 of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or
                        (iii)    the stockholders of the Company approve a 
merger or consolidation of the Company with any other corporation, other than 
(A) a merger or consolidation which would result in the voting securities of 
the Company outstanding immediately prior thereto continuing to represent 
(either by remaining outstanding or by being converted into voting securities of
the surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at 
least 75% of the combined voting power of the voting securities of the Company 
or such surviving entity outstanding immediately after such merger or 
consolidation, or (B) a merger or consolidation effected to implement a 
recapitalization of the Company (or similar transaction) in which no person 
acquires more than 50% of the combined voting power of the Company's then 
outstanding securities; or

                        (iv)    the stockholders of the Company approve a plan 
of complete liquidation of the Company or an agreement for the sale or 
disposition by the Company of all or substantially all the Company's assets.

                (h)     Good Reason.  At any time following a Change in Control,
                        -----------
the Employee may terminate his employment hereunder for "Good Reason."  "Good 
Reason" shall mean the occurrence (without the Employee's express written 
consent) of any material breach of this Agreement, including, without 
limitation, any one of the following acts by the Company, or failures by the 
Company to act, unless, in the case of any act or failure to act described in 
subsections (i), (iv), (v), (vi) or (vii) below, such act or failure to act is 
corrected prior to the Date of Termination specified in the Notice of 
Termination given in respect thereof:

                        (i)     the assignment to the Employee of any duties 
inconsistent with the Employee's status as a senior executive of the Company or
a substantially adverse alteration in the nature or status of the Employee's 
responsibilities from those in effect immediately prior to the Change in 
Control;

                        (ii)    a reduction by the Company in the Employee's 
annual base salary as in effect on the date hereof or as the same may be 
increased from time to time;

                        (iii)   the relocation of the Company's principal 
offices to a location outside Southern California (or, if different, the 
metropolitan area in which such offices are located immediately prior to the 
Change in Control) or the Company's requiring the Employee to be based anywhere
other than the Company's principal executive offices, except for required travel
on the 

                                      -5-

<PAGE>
 
Company's business to an extent substantially consistent with the Employee's
present business travel obligations;

                        (iv)    the failure by the Company to pay to the 
Employee any portion of the Employee's current compensation, or to pay to the 
Employee any portion of an installment of deferred compensation under any 
deferred compensation program of the Company, within seven days of the date such
compensation is due;

                        (v)     the failure by the Company to continue in effect
any compensation plan in which the Employee participates immediately prior to
the Change in Control which is material to the Employee's total compensation, 
unless an equitable arrangement (embodied in an ongoing substitute or 
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue the Employee's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in terms of
the amount of benefits provided and the level of the Employee's participation
relative to other participants, as existed immediately prior to the Change in 
Control;

                        (vi)    the failure by the Company to continue to
provide the Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Employee was participating
immediately prior to the Change in Control; the taking of any action by the
Company which would directly or indirectly materially reduce any of such
benefits or deprive the Employee of any material fringe benefit enjoyed by the
Employee immediately prior to the Change in Control; or the failure by the
Company to provide the Employee with the number of paid vacation days to which 
the Employee is entitled on the basis of years of service with the Company in
accordance with the Company's general vacation policy in effect immediately
prior to the Change in Control;

                        (vii)    any purported termination of the Employee's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective; or

                        (viii)    any failure by the Company to comply with and
satisfy Section 12(b) of this Agreement.

        The Employee's right to terminate the Employee's employment for Good
Reason shall not be affected by the Employee's incapacity due to physical or
mental illness.  The Employee's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.

                (i)     Voluntary Termination.   The Employee may terminate his
                        ---------------------
employment hereunder ("Voluntary Termination") upon a material breach of this
Agreement by the Company, unless the Company shall fully correct such breach
within 30 days of the Employee's Notice of Termination given in respect thereof.

                                      -6-

<PAGE>
 
        11.     Compensation Upon Termination or During Disability.   The
                --------------------------------------------------
Employee shall be entitled to the following benefits during a period of
disability, or upon termination of his employment, as the case may be, provided
that such period or termination occurs during the Term of this Agreement:

                (a)     During any period that the Employee fails to perform his
full-time duties with the Company as a result of incapacity due to physical or
mental illness, he shall continue to receive his base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to him under the Company's disability plan or program or other similar
plan during such period, until his employment is terminated pursuant to Section
10(a) hereof.  Thereafter, or in the event the Employee's employment shall be
terminated by reason of his death, his benefits shall be determined under the
Company's retirement, insurance and other compensation programs then in effect 
in accordance with the terms of such programs.

                (b)     If at any time the Employee's employment shall be
terminated:  (i) by the Company for Cause or Disability or (ii) by him for any
reason (other than in a Voluntary Termination or for Good Reason following the
occurrence of a Change in Control), the Company shall pay him his full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, plus all other amounts to which he is entitled through
the Date of Termination under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further obligations to him
under this Agreement.

                (c)     If the Employee's employment should be terminated:  (1)
by reason of his death, (2) by the Company other than for Cause or Disability or
(3) by the Employee in a Voluntary Termination, he shall be entitled to the
benefits provided below: 

                        (i)     the Company shall pay to the Employee or the
appropriate payee (as determined in accordance with Section 12(c)) (A) his full
base salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given; plus (B)(x) in the case of death or a Voluntary
Termination all salary and bonus payments that would have been payable to the
Employee pursuant to this Agreement for the remaining Term of this Agreement, or
(y) in all other cases, all salary and bonus payments that would have been
payable to the Employee had the Employee continued to be employed for a period
of 12 months, assuming for the purpose of such payments that his salary for such
remaining period is equal to his salary at the Date of Termination and that his
annual bonus for such remaining Term is equal to the average of the annual
bonuses paid to him by the Company with respect to the three fiscal years ended
immediately prior to the fiscal year in which the Date of termination occurs;
plus (C) all other amounts to which he is entitled under any compensation 
plan of the Company, in cash in a lump sum no later than the 15th day following
the Date of Termination;

                        (ii)    for a 12-month period after the Date of
Termination, the Company shall arrange to provide the Employee with life,
disability, accident and health insurance benefits

                                      -7-

<PAGE>
 
substantially similar to those which the Employee and his covered family members
are receiving immediately prior to the Notice of Termination (without giving
effect to any reduction in such benefits subsequent to a Change in Control);
provided, however, that such continued benefits shall be reduced to the extent 
- -----------------
comparable benefits are actually received by or made available to the Employee
without cost during the 12-month period following the Employee's termination of
employment (and the Employee agrees that he shall promptly report any such
benefits actually received to the Company); and

                        (iii)    the Company shall continue in effect for the
benefit of the Employee all insurance or other provisions for indemnification
and defense of officers or directors of the Company which are in effect on the
date the Notice of Termination is sent to the Employee with respect to all of
his acts and omissions while an officer or director as fully and completely as
if such termination had not occurred, and until the final expiration or running
of all periods of limitation against actions which may be applicable to such
acts or omissions.

                (d)     If the Employee's employment should be terminated by
the Employee for Good Reason following a Change in Control, he shall be entitled
to the benefits provided below:

                        (i)     the Company shall pay to the Employee or the
appropriate payee (as determined in accordance with Section 12(c)) (A) his full
base salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given; plus (B) all salary and bonus payments that
would have been payable to the Employee had the Employee continued to be
employed for a period of 24 months, assuming for the purpose of such payments
that his salary for such remaining period is equal to his salary at the Date of
Termination and that his annual bonus for such remaining Term is equal to the
average of the annual bonuses paid to him by the Company with respect to the 
three fiscal years ended immediately prior to the fiscal year in which the Date
of termination occurs; plus (C) all other amounts to which he is entitled under
any compensation plan of the Company, in cash in a lump sum no later than the
15th day following the Date of Termination;

                        (ii)    for a 24-month period after the Date of
Termination, the Company shall arrange to provide the Employee with life,
disability, accident and health insurance benefits substantially similar to
those which the Employee and his covered family members are receiving
immediately prior to the Notice of Termination (without giving effect to any
reduction in such benefits subsequent to a Change in Control); provided,
                                                               --------
however, that such continued benefits shall be reduced to the extent comparable
- -------
benefits are actually received by or made available to the Employee without 
cost during the 24-month period following the Employee's termination of
employment (and the Employee agrees that he shall promptly report any such
benefits actually received to the Company); and 

                        (iii)    the Company shall continue in effect for the
benefit of the Employee all insurance or other provisions for indemnification
and defense of officers or directors of the Company which are in effect on the
date the Notice of Termination is sent to the Employee with 

                                      -8-

<PAGE>
 
respect to all of his acts and omissions while an officer or director as fully
and completely as if such termination had not occurred, and until the final
expiration or running of all periods of limitation against actions which may be
applicable to such acts or omissions.

                (e)     Notwithstanding any other provisions of this Agreement,
in the event that any payment or benefit received or to be received by the
Employee in connection with the termination of the Employee's employment
(whether such benefit is pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, and all such payments and
benefits being hereinafter called "Total Payments") would not be deductible (in
whole or part), by the Company as a result of the application of Section 280G of
the Internal Revenue Code of 1986, as amended ("Code"), then, to the extent
necessary to make the nondeductible portion of the Total Payments deductible,
(i) the cash payments under this Agreement shall first be reduced (if necessary,
to zero), and (ii) all other non-cash payments under this Agreement shall next
be reduced (if necessary, to zero).

                (f)     If it is established as described in the preceding
subsection (e) that the aggregate benefits paid to or for the Employee's benefit
are in an amount that would result in any portion of such "parachute payments"
not being deductible by reason of Section 280G of the Code, then the Employee
shall have an obligation to pay the Company upon demand an amount equal to the 
sum of:  (i) the excess of the aggregate "parachute payments" paid to or for the
Employee's benefit over the aggregate "parachute payments" that could have been
paid to or for the Employee's benefit without any portion of such "parachute
payments" not being deductible by reason of Section 280G of the Code; and (ii)
interest on the amount set forth in clause (i) of this sentence at the rate
provided in Section 1274(b)(2)(B) of the Code from the date of the Employee's
receipt of such excess until the date of such payment.

                (g)     The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise.

                (h)     If the employment of the Employee is terminated by the
Company without Cause or the Employee's employment is terminated by the Employee
under conditions entitling him to payment hereunder and the Company fails to
make timely payment of the amounts then owed to the Employee under this
Agreement, the Employee shall be entitled to interest on such amounts at the
rate of 3% above the prime rate (defined as the base rate on corporate loans at
large U.S. money center commercial banks as published by the Wall Street
Journal), compounded monthly, for the period from the date such amounts were
otherwise due until payment is made to the Employee (which interest shall be in
addition to all rights which the Employee is otherwise entitled to under this
Agreement).

                                      -9-

<PAGE>
 
        12.     Assignment. 
                ----------

                (a)     This Agreement is personal to each of the parties
hereto.  No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto, except
that this Agreement shall be binding upon and inure to the benefit of any 
successor corporation to the Company.

                (b)     The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.  As used in this Agreement, "Company" shall mean the Company
as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes this Agreement by operation of law, or otherwise.

                (c)     This Agreement shall inure to the benefit of and be
enforceable by the Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.  If the Employee should die while any amount would still be payable to
him hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is no such designee, to his
estate.

        13.     (a)     Confidential Information.  During the Term of this
                        ------------------------
Agreement and thereafter, the Employee shall not, except as may be required to
perform his duties hereunder or as required by applicable law, disclose to
others for use, whether directly or indirectly, any Confidential Information
regarding the Company.  "Confidential Information" shall mean information about
the Company, its subsidiaries and affiliates, and their respective clients and
customers that is not available to the general public and that was learned by
the Employee in the course of his employment by the Company, including (without
limitation) any data, formulae, information, proprietary knowledge, trade
secrets and client and customer lists and all papers, resumes, records and the
documents containing such Confidential Information.  The Employee acknowledges
that such Confidential Information is specialized, unique in nature and of great
value to the Company, and that such information gives the Company a competitive
advantage.  Upon the termination of his employment, the Employee will promptly
deliver to the Company all documents (and all copies thereof) containing any 
Confidential Information.   

                (b)     Noncompetition.  The Employee agrees that during the
                        --------------
Term of this Agreement, and for a period of one year thereafter, he will not,
directly or indirectly, without the prior written consent of the Company,
provide consultative service with or without pay, own, manage, operate, join,
control, participate in, or be connected as a stockholder, partner, or
otherwise with any business, individual, partner, firm, corporation, or other
entity which is then in competition with the Company or any present affiliate
of the Company; provided, however, that the "beneficial ownership" by the
Employee, either individually or as a member of a "group," as such terms are

                                      -10-

<PAGE>
 
used in Rule 13d of the General Rules and Regulations under the Exchange Act,
of not more than 1% of the voting stock of any publicly held corporation shall
not be a violation of this Agreement.  It is further expressly agreed that the
Company will or would suffer irreparable injury if the Employee were to compete
with the Company or any subsidiary or affiliate of the Company in violation of
this Agreement and that the Company would by reason of such competition be
entitled to injunctive relief in a court of appropriate jurisdiction, and the
Employee further consents and stipulates to the entry of such injunctive relief
in such a court prohibiting the Employee from competing with the Company or any
subsidiary or affiliate of the Company in violation of this Agreement.

                (c)     Right to Company Materials.  The Employee agrees that
                        --------------------------
all styles, designs, recipes, lists, materials, books, files, reports,
correspondence, records, and other documents ("Company Material") used,
prepared, or made available to the Employee, shall be and shall remain the
property of the Company.  Upon the termination of his employment or the
expiration of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or retain any copies
thereof.

                (d)     Antisolicitation.  The Employee promises and agrees that
                        ----------------
during the Term of this Agreement, and for a period of one year thereafter, he
will not influence or attempt to influence customers, franchisees, landlords, or
suppliers of the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary or affiliate of the Company.

        14.     Notice.  For the purpose of this Agreement, notices and all
                ------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt:

                                      -11-

<PAGE>
 
                Company:        IHOP Corp.
                                525 North Brand Blvd.
                                Glendale, California  91203-1903
                                to the attention of the Board;

                with a
                copy to:        the Secretary of the Company

                Employee:       Rand Michael Ferris
                                2953 Mi Elana Circle
                                Walnut Creek, CA 94598

        15.     Amendments or Additions.  No amendments or additions to this
                -----------------------
Agreement shall be binding unless in writing and signed by both parties hereto.

        16.     Section Headings.  The section headings used in this Agreement
                ----------------
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.

        17.     Severability.  The provisions of this Agreement shall be deemed
                ------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

        18.     Counterparts.  This Agreement may be executed in counterparts,
                ------------
each of which shall be deemed to be an original, but both of which together
will constitute one and the same instrument.

        19.     Arbitration.  Any dispute or controversy arising under or in
                -----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in 
effect.  Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Employee shall be entitled to seek
              -----------------
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in 
connection with this Agreement.

        20.     Attorneys' Fees.  The Company shall pay to the Employee all
                ---------------
out-of-pocket expenses, including attorneys' fees, incurred by the Employee in
connection with any claim, legal action or proceeding involving this Agreement
in which the Employee prevails in whole or in part, whether brought by the
Employee or by or on behalf of the Company or by another party.  The Company
shall pay prejudgment interest on any money judgment obtained by the Employee
calculated at 3% above the prime rate (defined as the base rate on corporate
loans at large U.S. money center commercial banks as published by the Wall
                                                                      ----
Street Journal), from the date that payment(s) to the Employee should have been
- --------------
made under this Agreement.

                                      -12-

<PAGE>
 
        21.     Miscellaneous.  No provision of this Agreement may be modified,
                -------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Employee and such officer as may be specifically
designated by the Board.  No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.  No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement and this
agreement shall supersede any prior understanding or agreement either written
or oral, with respect to the subject matter hereto.  The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to its conflicts of law
principles.  All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections.

        Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law.  The obligations of the
Company under Section 12 and Section 21 and the obligations of the Employee
under Section 13 and Section 21 shall survive the expiration of the Term of this
Agreement.

        IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement on the date first indicated above.  

                                        IHOP CORP.

ATTEST:


/s/ Mark D. Weisberger                  By: /s/ Richard K. Herzer
- ------------------------------             -------------------------------
Mark D. Weisberger                         Richard K. Herzer
Secretary                                  President

                                        EMPLOYEE

                                        /s/ Rand Michael Ferris
                                        ---------------------------------
                                           Rand Michael Ferris

                                      -13-



<PAGE>
 
                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT


        This Employment Agreement (the "Agreement") is entered into as of
November 1, 1996 (the "Effective Date"), between IHOP CORP., a Delaware
corporation (the "Company"), and SUSAN HENDERSON-HERNANDEZ (the "Employee").

        WHEREAS, the Company desires to promote Employee to the position of Vice
President, Marketing; and

        WHEREAS, the parties desire to enter into an Employment Agreement
setting forth the terms and conditions for the employment relationship of the
Employee with the Company; and

        WHEREAS, the Board of Directors of the Company (the "Board") has
approved and authorized the Company to enter into this Agreement with the
Employee.

        NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements herein contained and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:

        1.      Employment.  The Employee is employed as Vice President,
                ----------
Marketing, of the Company from the Effective Date through the Term of this
Agreement (as defined in Section 2 hereof).  In this capacity, the Employee
shall have such duties and responsibilities as may be designated to her 
by the Board from time to time and as are not inconsistent with the Employee's
position
 with the Company, including the performance of duties with respect to
any subsidiaries of the Company, as may be designated by the Board.

        2.      Term.  The "initial term" of this Agreement shall be for the
                ----
period commencing on the Effective Date and ending on the second anniversary of
the Effective Date; provided, however, that on the second anniversary of the
                    --------  -------
Effective Date, and on each subsequent anniversary date thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than 90 days prior to such applicable anniversary date, the Company or
the Employee shall give notice not to extend this Agreement; and provided
                                                                 --------
further, however, that, if a Change in Control (as defined in Section 10(g))
- -------  -------
occurs prior to the expiration of the Term of this Agreement, this Agreement
shall remain in full force and effect and shall not expire prior to the last day
of the 24th month following the date of such Change in Control.  The "Term of
this Agreement" or "Term" shall mean, for purposes of this Agreement, both the
"initial term" (as hereinbefore described) and any additional term 

<PAGE>
 
(created by extension, as described above), and the Term of this Agreement shall
not be affected by the Employee's termination of employment.

        3.      Salary.  Subject to the further provisions of this Agreement,
                ------
the Company shall pay the Employee during the Term of this Agreement a salary at
an annual rate equal to $155,000.00, with such salary to be increased at such
times, if any, and in such amounts as determined by the Board, which increases
shall be consistent with the historical business practices of the Company and
the salary adjustments for other senior executives of the Company.  Such salary
shall be payable by the Company to the Employee not less frequently than monthly
and shall not be decreased at any time during the Term of this Agreement. 
Participation in deferred compensation, discretionary bonus, retirement, and
other employee benefit plans and in fringe benefits shall not reduce the salary
payable to the Employee under this Section 3.

        4.      Participation in Bonus, Retirement and Employee Benefit Plans. 
                -------------------------------------------------------------
The Employee shall be entitled to participate equitably with other senior
executives in any plan of the Company relating to bonuses, stock options, stock
purchases, pension, thrift, profit sharing, life insurance, medical coverage,
education, or other retirement or employee benefits that the Company has adopted
or may adopt for the benefit of its senior executives.

        5.      Fringe Benefits; Automobile.  The Employee shall be entitled to
                ---------------------------
receive all other fringe benefits which are now or may be provided to the
Company's senior executives.  In addition, the Company shall provide the
Employee during the Term of this Agreement with her choice of a car or a car
allowance in accordance with the Company's general policy on providing cars to
senior executives.  Notwithstanding the foregoing, the benefits provided under
this Section 5 shall cease upon the Employee's Date of Termination (as defined
in Section 10(d)).

        6.      Vacations.  The Employee shall be entitled to an annual paid
                ---------
vacation as determined in accordance with the Company's general policy for
senior executives.

        7.      Business Expenses.   During such time as the Employee is
                -----------------
rendering services hereunder, the Employee shall be entitled to incur and be
reimbursed for all reasonable business expenses and be provided allowances as
are furnished to the Company's most senior executives under the Company's then
current policies.  The Company agrees that it will reimburse the Employee for
all such expenses upon the presentation by the Employee, from time to time, of
an itemized account of such expenditures, setting forth the date, the purposes
for which incurred, and the amounts thereof, together with such receipts showing
payments in conformity with the Company's established policies.  Reimbursement
shall be made within a reasonable period after the Employee's submission of an 
itemized account.

                                      -2-

<PAGE>
 
        8.      Insurance and Indemnity.    The Employee shall be added as an
                -----------------------
additional named insured under all appropriate insurance policies now in force
or hereafter obtained covering any officers or directors of the Company.  The
Company shall indemnify and hold the Employee harmless from any cost, expense or
liability arising out of or relating to any acts or decisions made by the
Employee on behalf of or in the course of performing services for the Company to
the same extent the Company indemnifies and holds harmless other senior
executive officers and directors of the Company and in accordance with the
Company's established policies.

        9.      Legal and Accounting Advice.   The Employee shall be entitled to
                ---------------------------
reimbursement by the Company for expenses incurred by her for personal legal,
accounting, investment or estate planning services in an amount to be determined
by the Board, but in no event greater than $5,000 annually (or a pro rata
portion of such amount for any period of employment less than a full year); 
provided, however, that no reimbursement shall be made for any such expenses
- --------  -------
incurred by the Employee after such Employee's Date of Termination.

        10.     Termination.  
                -----------

                (a)     Disability.    If, as a result of the Employee's
                        ----------
incapacity due to physical or mental illness, she shall have been absent from
the full-time performance of her duties with the Company for 90 consecutive days
or 180 days within any 12-month period, her employment may be terminated by the
Company for "Disability."

                (b)     Cause.    Subject to the notice provisions set forth
                        -----
below, the Company may terminate the Employee's employment for "Cause" at any
time.  "Cause" shall mean termination upon:  (1) the willful failure by the
Employee to substantially perform her duties with the Company (other than any
such failure resulting from her incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to her by the
Board, which demand specifically identifies the manner in which the Board
believes that she has not substantially performed her duties; (2) the Employee's
willful misconduct that is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (3) the Employee's commission of such acts of
dishonesty, fraud, misrepresentation or other acts of moral turpitude as would
prevent the effective performance of her duties.  For purposes of this
subsection (b), no act, or failure to act, on the Employee's part shall be 
deemed "willful" unless done, or omitted to be done, by her not in good faith
and without the reasonable belief that her action or omission was in the best
interest of the Company.  Notwithstanding the foregoing, the Employee shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to her a copy of a resolution duly adopted by the affirmative
vote of a majority of the non-employee members of the Board at a meeting of such
members (after reasonable notice to her and an opportunity for her, together
with her counsel, to be heard before such 

                                      -3-

<PAGE>
 
members of the Board), finding that she has engaged in the conduct set forth
above in this subsection (b) and specifying the particulars thereof in detail.

                (c)     Notice of Termination.  Any termination of the
                        ---------------------
Employee's employment by the Company or by the Employee shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 14.  "Notice of Termination" shall mean a notice that indi-cates the
specific termination provision in this Agreement relied upon and sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for the
termination of the Employee's employment under the provision so indicated.

                (d)     Date of Termination.  "Date of Termination" shall mean:
                        -------------------
(1) if the Employee's employment is terminated by her death, the date of her
death; (2) if the Employee's employment is terminated for Disability, 30 days
after Notice of Termination is given; and (3) if the Employee's employment is
terminated for any other reason, the date specified in the Notice of
Termination.

                (e)     Dispute Concerning Termination.    If within the later
                        ------------------------------
of (i) 15 days after Notice of Termination is given, or (ii) 15 days prior to
the Date of Termination (as determined without regard to this Section 10(e), the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning a termination by the Employee for Good Reason (as
defined in Section 10(h)) following a Change in Control (as defined in Section
10(g)), the Date of Termination shall be the earlier of the expiration date of
the Agreement, or the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); provided, however, that the Date of Termination shall be extended by
            --------  -------
a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence.

                (f)     Compensation During Dispute.  If a purported termination
                        ---------------------------
by the Employee for Good Reason occurs following a Change in Control and during
the Term of this Agreement, and such termination is disputed in accordance with
Section 10(e) hereof, the Company shall continue to pay the Employee the full
compensation in effect when the notice giving rise to the dispute was given 
(including, but not limited to, salary) and continue the Employee as a
participant in all compensation, benefit and insurance plans in which the
Employee was participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with Section 10(e) hereof
or, if earlier, the expiration date of the Agreement.  Amounts paid under this
Section 10(f) are in addition to all other amounts due under this Agreement
(other than those due under Section 11(b) hereof) and shall not be offset
against or reduce any other amounts payable under this Agreement.

                                      -4-

<PAGE>
 
                (g)     Change in Control.  A "Change in Control" shall be
                        -----------------
deemed to have occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:

                        (i)     any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (other than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; or any company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the Company) is or becomes
after the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding securities; or 

                        (ii)    during any period of two consecutive years (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board and any new director (other than
a director designated by a person who has entered into an agreement with the
Company to effect a transaction described in subsection (i), (iii) or (iv) of
this Section 10(g)) whose election by the Board or nomination for election by 
the Company's stockholders was approved by a vote of at least 2/3 of the
directors then still in office who either were directors at the beginning 
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or 

                        (iii)   the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or

                        (iv)    the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.

                                      -5-

<PAGE>
 
                (h)     Good Reason.  At any time following a Change in Control,
                        -----------
the Employee may terminate her employment hereunder for "Good Reason."  "Good
Reason" shall mean the occurrence (without the Employee's express written
consent) of any material breach of this Agreement, including, without
limitation, any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
subsections (i), (iv), (v), (vi) or (vii) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:

                        (i)     the assignment to the Employee of any duties
inconsistent with the Employee's status as a senior executive of the Company or
a substantially adverse alteration in the nature or status of the Employee's
responsibilities from those in effect immediately prior to the Change in
Control;

                        (ii)    a reduction by the Company in the Employee's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time;

                        (iii)   the relocation of the Company's principal
offices to a location outside Southern California (or, if different, the
metropolitan area in which such offices are located immediately prior to the
Change in Control) or the Company's requiring the Employee to be based anywhere
other than the Company's principal executive offices, except for required travel
on the Company's business to an extent substantially consistent with the
Employee's present business travel obligations;

                        (iv)    the failure by the Company to pay to the
Employee any portion of the Employee's current compensation, or to pay to the
Employee any portion of an installment of deferred compensation under any
deferred compensation program of the Company, within seven days of the date such
compensation is due;

                        (v)     the failure by the Company to continue in effect
any compensation plan in which the Employee participates immediately prior to
the Change in Control which is material to the Employee's total compensation,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue the Employee's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in terms of
the amount of benefits provided and the level of the Employee's participation
relative to other participants, as existed immediately prior to the Change in 
Control;

                        (vi)    the failure by the Company to continue to
provide the Employee with benefits substantially similar to those enjoyed by the
Employee under 

                                      -6-

<PAGE>
 
any of the Company's pension, life insurance, medical, health and accident, or
disability plans in which the Employee was participating immediately prior to
the Change in Control; the taking of any action by the Company which would
directly or indirectly materially reduce any of such benefits or deprive the
Employee of any material fringe benefit enjoyed by the Employee immediately
prior to the Change in Control; or the failure by the Company to provide the
Employee with the number of paid vacation days to which the Employee is entitled
on the basis of years of service with the Company in accordance with the
Company's general vacation policy in effect immediately prior to the Change in
Control;

                        (vii)   any purported termination of the Employee's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective; or

                        (viii)  any failure by the Company to comply with and
satisfy Section 12(b) of this Agreement.

        The Employee's right to terminate the Employee's employment for Good
Reason shall not be affected by the Employee's incapacity due to physical or
mental illness.  The Employee's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.

                (i)     Voluntary Termination.   The Employee may terminate her
                        ---------------------
employment hereunder ("Voluntary Termination") upon a material breach of this
Agreement by the Company, unless the Company shall fully correct such breach
within 30 days of the Employee's Notice of Termination given in respect thereof.

        11.     Compensation Upon Termination or During Disability.   The
                --------------------------------------------------
Employee shall be entitled to the following benefits during a period of
disability, or upon termination of her employment, as the case may be, provided
that such period or termination occurs during the Term of this Agreement:

                (a)     During any period that the Employee fails to perform her
full-time duties with the Company as a result of incapacity due to physical or
mental illness, she shall continue to receive her base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to her under the Company's disability plan or program or other similar
plan during such period, until her employment is terminated pursuant to Section
10(a) hereof.  Thereafter, or in the event the Employee's employment shall be
terminated by reason of her death, her benefits shall be determined under the
Company's retirement, insurance and other compensation programs then in effect 
in accordance with the terms of such programs.

                                      -7-

<PAGE>
 
                (b)     If at any time the Employee's employment shall be
terminated:  (i) by the Company for Cause or Disability or (ii) by her for any
reason (other than in a Voluntary Termination or for Good Reason following the
occurrence of a Change in Control), the Company shall pay her her full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, plus all other amounts to which she is entitled through
the Date of Termination under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further obligations to her
under this Agreement.

                (c)     If the Employee's employment should be terminated:  (1)
by reason of her death, (2) by the Company other than for Cause or Disability or
(3) by the Employee in a Voluntary Termination, she shall be entitled to the
benefits provided below: 

                        (i)     the Company shall pay to the Employee or the
appropriate payee (as determined in accordance with Section 12(c)) (A) her full
base salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given; plus (B)(x) in the case of death or a Voluntary
Termination all salary and bonus payments that would have been payable to the 
Employee pursuant to this Agreement for the remaining Term of this Agreement, or
(y) in all other cases, all salary and bonus payments that would have been
payable to the Employee had the Employee continued to be employed for a period
of 12 months, assuming for the purpose of such payments that her salary for such
remaining period is equal to her salary at the Date of Termination and that her
annual bonus for such remaining Term is equal to the average of the annual
bonuses paid to her by the Company with respect to the three fiscal years ended
immediately prior to the fiscal year in which the Date of termination occurs;
plus (C) all other amounts to which she is entitled under any compensation plan
of the Company, in cash in a lump sum no later than the 15th day following the 
Date of Termination;

                        (ii)    for a 12-month period after the Date of
Termination, the Company shall arrange to provide the Employee with life,
disability, accident and health insurance benefits substantially similar to
those which the Employee and her covered family members are receiving
immediately prior to the Notice of Termination (without giving effect to any
reduction in such benefits subsequent to a Change in Control); provided,
                                                               --------
however, that such continued benefits shall be reduced to the extent comparable
- -------
benefits are actually received by or made available to the Employee without 
cost during the 12-month period following the Employee's termination of
employment (and the Employee agrees that she shall promptly report any such
benefits actually received to the Company); and 

                        (iii)   the Company shall continue in effect for the
benefit of the Employee all insurance or other provisions for indemnification
and defense of officers 

                                      -8-

<PAGE>
 
or directors of the Company which are in effect on the date the Notice of
Termination is sent to the Employee with respect to all of her acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation against actions which may be applicable to such acts or
omissions.

                (d)     If  the Employee's employment should be terminated by
the Employee for Good Reason following a Change in Control, she shall be
entitled to the benefits provided below:

                        (i)     the Company shall pay to the Employee or the
appropriate payee (as determined in accordance with Section 12(c)) (A) her full
base salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given; plus (B) all salary and bonus payments that
would have been payable to the Employee had the Employee continued to be
employed for a period of 24 months, assuming for the purpose of such payments
that her salary for such remaining period is equal to her salary at the Date of
Termination and that her annual bonus for such remaining Term is equal to the
average of the annual bonuses paid to her by the Company with respect to the
three fiscal years ended immediately prior to the fiscal year in which the Date
of termination occurs; plus (C) all other amounts to which she is entitled under
any compensation plan of the Company, in cash in a lump sum no later than the
15th day following the Date of Termination;

                        (ii)    for a 24-month period after the Date of
Termination, the Company shall arrange to provide the Employee with life,
disability, accident and health insurance benefits substantially similar to
those which the Employee and her covered family members are receiving
immediately prior to the Notice of Termination (without giving effect to any
reduction in such benefits subsequent to a Change in Control); provided,
                                                               --------
however, that such continued benefits shall be reduced to the extent comparable
- -------
benefits are actually received by or made available to the Employee without 
cost during the 24-month period following the Employee's termination of
employment (and the Employee agrees that she shall promptly report any such
benefits actually received to the Company); and 

                        (iii)   the Company shall continue in effect for the
benefit of the Employee all insurance or other provisions for indemnification
and defense of officers or directors of the Company which are in effect on the
date the Notice of Termination is sent to the Employee with respect to all of 
her acts and omissions while an officer or director as fully and completely as
if such termination had not occurred, and until the final expiration or running
of all periods of limitation against actions which may be applicable to such
acts or omissions.

                                      -9-

<PAGE>
 
                (e)     Notwithstanding any other provisions of this Agreement,
in the event that any payment or benefit received or to be received by the
Employee in connection with the termination of the Employee's employment
(whether such benefit is pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, and all such payments and
benefits being hereinafter called "Total Payments") would not be deductible (in
whole or part), by the Company as a result of the application of Section 280G of
the Internal Revenue Code of 1986, as amended ("Code"), then, to the extent
necessary to make the nondeductible portion of the Total Payments deductible,
(i) the cash payments under this Agreement shall first be reduced (if necessary,
to zero), and (ii) all other non-cash payments under this Agreement shall next
be reduced (if necessary, to zero).

                (f)     If it is established as described in the preceding
subsection (e) that the aggregate benefits paid to or for the Employee's benefit
are in an amount that would result in any portion of such "parachute payments"
not being deductible by reason of Section 280G of the Code, then the Employee
shall have an obligation to pay the Company upon demand an amount equal to the 
sum of:  (i) the excess of the aggregate "parachute payments" paid to or for the
Employee's benefit over the aggregate "parachute payments" that could have been
paid to or for the Employee's benefit without any portion of such "parachute
payments" not being deductible by reason of Section 280G of the Code; and (ii)
interest on the amount set forth in clause (i) of this sentence at the rate
provided in Section 1274(b)(2)(B) of the Code from the date of the Employee's
receipt of such excess until the date of such payment.

                (g)     The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise.

                (h)     If the employment of the Employee is terminated by the
Company without Cause or the Employee's employment is terminated by the Employee
under conditions entitling her to payment hereunder and the Company fails to
make timely payment of the amounts then owed to the Employee under this
Agreement, the Employee shall be entitled to interest on such amounts at the
rate of 3% above the prime rate (defined as the base rate on corporate loans at
large U.S. money center commercial banks as published by the Wall Street
                                                             ---- ------
Journal), compounded monthly, for the period from the date such amounts were
- -------
otherwise due until payment is made to the Employee (which interest shall be in
addition to all rights which the Employee is otherwise entitled to under this
Agreement).

                                      -10-

<PAGE>
 
        12.     Assignment. 
                ----------

                (a)     This Agreement is personal to each of the parties
hereto.  No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto, except
that this Agreement shall be binding upon and inure to the benefit of any 
successor corporation to the Company.

                (b)     The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.  As used in this Agreement, "Company" shall mean the Company
as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes this Agreement by operation of law, or otherwise.

                (c)     This Agreement shall inure to the benefit of and be
enforceable by the Employee and her personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.  If the Employee should die while any amount would still be payable to
her hereunder had she continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to her devisee, legatee or other designee or, if there is no such designee, to
her estate.

        13.     (a)     Confidential Information.  During the Term of this
                        ------------------------
Agreement and thereafter, the Employee shall not, except as may be required to
perform her duties hereunder or as required by applicable law, disclose to
others for use, whether directly or indirectly, any Confidential Information
regarding the Company.  "Confidential Information" shall mean information about
the Company, its subsidiaries and affiliates, and their respective clients and
customers that is not available to the general public and that was learned by
the Employee in the course of her employment by the Company, including (without
limitation) any data, formulae, information, proprietary knowledge, trade
secrets and client and customer lists and all papers, resumes, records and the
documents containing such Confidential Information.  The Employee acknowledges
that such Confidential Information is specialized, unique in nature and of great
value to the Company, and that such information gives the Company a competitive
advantage.  Upon the termination of her employment, the Employee will promptly
deliver to the Company all documents (and all copies thereof) containing any 
Confidential Information.   

                (b)     Noncompetition.  The Employee agrees that during the
                        --------------
Term of this Agreement, and for a period of one year thereafter, she will not,
directly or indirectly, without the prior written consent of the Company,
provide consultative service 

                                      -11-

<PAGE>
 
with or without pay, own, manage, operate, join, control, participate in, or be
connected as a stockholder, partner, or otherwise with any business, individual,
partner, firm, corporation, or other entity which is then in competition with
the Company or any present affiliate of the Company; provided, however, that the
                                                     --------  -------
"beneficial ownership" by the Employee, either individually or as a member of a
"group," as such terms are used in Rule 13d of the General Rules and Regulations
under the Exchange Act, of not more than 1% of the voting stock of any publicly
held corporation shall not be a violation of this Agreement. It is further
expressly agreed that the Company will or would suffer irreparable injury if the
Employee were to compete with the Company or any subsidiary or affiliate of the
Company in violation of this Agreement and that the Company would by reason of
such competition be entitled to injunctive relief in a court of appropriate
jurisdiction, and the Employee further consents and stipulates to the entry of
such injunctive relief in such a court prohibiting the Employee from competing
with the Company or any subsidiary or affiliate of the Company in violation of
this Agreement.

                (c)     Right to Company Materials.  The Employee agrees that
                        --------------------------
all styles, designs, recipes, lists, materials, books, files, reports,
correspondence, records, and other documents ("Company Material") used,
prepared, or made available to the Employee, shall be and shall remain the
property of the Company.  Upon the termination of her employment or the
expiration of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or retain any copies
thereof.

                (d)     Antisolicitation.  The Employee promises and agrees that
                        ----------------
during the Term of this Agreement, and for a period of one year thereafter, she
will not influence or attempt to influence customers, franchisees, landlords, or
suppliers of the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary or affiliate of the Company.

        14.     Notice.  For the purpose of this Agreement, notices and all
                ------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt:

                                      -12-

<PAGE>
 
                Company:        IHOP Corp.
                                525 North Brand Blvd.
                                Glendale, California  91203-1903
                                to the attention of the Board;

                with a
                copy to:        the Secretary of the Company

                Employee:       Susan Henderson-Hernandez
                                26307 Woodlark Lane
                                Valencia, California 91355

        15.     Amendments or Additions.  No amendments or additions to this
                -----------------------
Agreement shall be binding unless in writing and signed by both parties hereto.

        16.     Section Headings.  The section headings used in this Agreement
                ----------------
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.

        17.     Severability.  The provisions of this Agreement shall be deemed
                ------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

        18.     Counterparts.  This Agreement may be executed in counterparts,
                ------------
each of which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.

        19.     Arbitration.  Any dispute or controversy arising under or in
                -----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in 
effect.  Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Employee shall be entitled to seek
              --------  -------
specific performance of her right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.

        20.     Attorneys' Fees.  The Company shall pay to the Employee all
                ---------------
out-of-pocket expenses, including attorneys' fees, incurred by the Employee in
connection with any claim, legal action or proceeding involving this Agreement
in which the Employee prevails in whole or in part, whether brought by the
Employee or by or on behalf of the Company or by another party.  The Company
shall pay prejudgment interest on any money judgment obtained by the Employee
calculated at 3% above the prime rate (defined as the base rate on corporate
loans at large U.S. money center 

                                      -13-

<PAGE>
 
commercial banks as published by the Wall Street Journal), from the date that 
                                     ---- ------ -------
payment(s) to the Employee should have been made under this Agreement.

        21.     Miscellaneous.  No provision of this Agreement may be modified,
                -------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Employee and such officer as may be specifically
designated by the Board.  No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.  No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement and this
agreement shall supersede any prior understanding or agreement either written or
oral, with respect to the subject matter hereto.  The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without regard to its conflicts of law principles.  All
references to sections of the Exchange Act or the Code shall be deemed also to 
refer to any successor provisions to such sections.

        Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law.  The obligations of the
Company under Section 12 and Section 21 and the obligations of the Employee
under Section 13 and Section 21 shall survive the expiration of the Term of this
Agreement.

        IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement on the date first indicated above.  

                                             IHOP CORP.

ATTEST:


/s/ Mark D. Weisberger                       By: /s/ Richard K. Herzer
- --------------------------------                --------------------------------
Mark D. Weisberger                               Richard K. Herzer
Secretary                                        President


                                             EMPLOYEE

                                             /s/ Susan Henderson-Hernandez
                                             -----------------------------------
                                             Susan Henderson-Hernandez

                                      -14-



<PAGE>
 
                                                                    EXHIBIT 10.8

                              EMPLOYMENT AGREEMENT

        This Employment Agreement (the "Agreement") is entered into on 
April 29, 1996, and shall become effective on July 8, 1996 (the "Effective 
Date"), between IHOP CORP., a Delaware corporation (the "Company"), and RICHARD
K. HERZER (the "Employee").

        WHEREAS, Company and Employee are parties to an Employment Agreement
dated July 8, 1991, which terminates on July 7, 1996; 

        WHEREAS, the parties desire to enter into a new Employment Agreement
setting forth the terms and conditions for the continuing employment
relationship of the Employee with the Company; and

        WHEREAS, the Board of Directors of the Company (the "Board") has
approved and authorized the Company to enter into this Agreement with the
Employee.

        NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements herein contained and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:

        1.      Employment.  The Employee is employed as President and Chief
                ----------
Executive Officer of the Company from the Effective Date through the Term of
this Agreement (as defined in Section 2 hereof).  In this capacity, the Employee
shall have such duties and responsibilities as may be designated to him by the
Board
 from time to time and as are not inconsistent with the Employee's position
with the Company, including the performance of duties with respect to any
subsidiaries of the Company, as may be designated by the Board.  During the
Employee's period of employment hereunder, the Employee shall be based in the
principal offices of the Company in Southern California, and shall not be
required to relocate outside of Southern California to perform services
hereunder, except for travel as reasonably required in the performance of his
duties hereunder.

        2.      Term.  The "initial term" of this Agreement shall be for the
                ----
period commencing on the Effective Date and ending on the first anniversary of
the Effective Date; provided, however, that on the first anniversary of the
                    --------  -------
Effective Date, and on each subsequent anniversary date thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than 90 days prior to such applicable anniversary date, the Company or
the Employee shall give notice not to extend this Agreement; and provided
                                                                 --------
further, however, that, if a Change in Control (as defined in Section 10(g))
- -------  -------
occurs prior to the expiration of the Term of this 

<PAGE>
 
Agreement, this Agreement shall remain in full force and effect and shall not
expire prior to the last day of the 36th month following the date of such Change
in Control. The "Term of this Agreement" or "Term" shall mean, for purposes of
this Agreement, both the "initial term" (as hereinbefore described) and any
additional term (created by extension, as described above), and the Term of this
Agreement shall not be affected by the Employee's termination of employment.

        3.      Salary.  Subject to the further provisions of this Agreement,
                ------
the Company shall pay the Employee during the Term of this Agreement a salary at
an annual rate equal to $481,250.00, with such salary to be increased at such
times, if any, and in such amounts as determined by the Board, which increases
shall be consistent with the historical business practices of the Company and
the salary adjustments for other senior executives of the Company.  Such salary
shall be payable by the Company to the Employee not less frequently than monthly
and shall not be decreased at any time during the Term of this Agreement. 
Participation in deferred compensation, discretionary bonus, retirement, and
other employee benefit plans and in fringe benefits shall not reduce the salary
payable to the Employee under this Section 3.

        4.      Participation in Bonus, Retirement and Employee Benefit Plans. 
                -------------------------------------------------------------
The Employee shall be entitled to participate equitably with other senior
executives in any plan of the Company relating to bonuses, stock options, stock
purchases, pension, thrift, profit sharing, life insurance, medical coverage,
education, or other retirement or employee benefits that the Company has adopted
or may adopt for the benefit of its senior executives.

        5.      Fringe Benefits; Automobile.  The Employee shall be entitled to
                ---------------------------
receive all other fringe benefits which are now or may be provided to the
Company's senior executives.  In addition, the Company shall provide the
Employee during the Term of this Agreement with his choice of a car or a car
allowance in accordance with the Company's general policy on providing cars to
senior executives.  Notwithstanding the foregoing, the benefits provided under
this Section 5 shall cease upon the Employee's Date of Termination (as defined
in Section 10(d)).

        6.      Vacations.  The Employee shall be entitled to an annual paid
                ---------
vacation as determined in accordance with the Company's general policy for
senior executives.

        7.      Business Expenses.  During such time as the Employee is
                -----------------
rendering services hereunder, the Employee shall be entitled to incur and be
reimbursed for all reasonable business expenses and be provided allowances as
are furnished to the Company's most senior executives under the Company's then
current policies.  The Company agrees that it will reimburse the Employee for
all such expenses upon the presentation by the Employee, from time to time, of
an itemized account of such expenditures, setting forth the date, the purposes
for which incurred, and the amounts 

                                      -2-

<PAGE>
 
thereof, together with such receipts showing payments in conformity with the
Company's established policies. Reimbursement shall be made within a reasonable
period after the Employee's submission of an itemized account.

        8.      Insurance and Indemnity.  The Employee shall be added as an
                -----------------------
additional named insured under all appropriate insurance policies now in force
or hereafter obtained covering any officers or directors of the Company.  The
Company shall indemnify and hold the Employee harmless from any cost, expense or
liability arising out of or relating to any acts or decisions made by the
Employee on behalf of or in the course of performing services for the Company to
the same extent the Company indemnifies and holds harmless other senior
executive officers and directors of the Company and in accordance with the
Company's established policies.

        9.      Legal and Accounting Advice.  The Employee shall be entitled to
                ---------------------------
reimbursement by the Company for expenses incurred by him for personal legal,
accounting, investment or estate planning services in an amount to be determined
by the Board, but in no event greater than $5,000 annually (or a pro rata
portion of such amount for any period of employment less than a full year);
provided, however, that no reimbursement shall be made for any such expenses
incurred by the Employee after such Employee's Date of Termination.

        10.     Termination.  
                -----------

                (a)     Disability.  If, as a result of the Employee's
                        ----------
incapacity due to physical or mental illness, he shall have been absent from the
full-time performance of his duties with the Company for 90 consecutive days or
180 days within any 12-month period, his employment may be terminated by the
Company for "Disability."

                (b)     Cause.    Subject to the notice provisions set forth
                        -----
below, the Company may terminate the Employee's employment for "Cause" at any
time.  "Cause" shall mean termination upon:  (1) the willful failure by the
Employee to substantially perform his duties with the Company (other than any
such failure resulting from his incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to him by the
Board, which demand specifically identifies the manner in which the Board 
believes that he has not substantially performed his duties; (2) the Employee's
willful misconduct that is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (3) the Employee's commission of such acts of
dishonesty, fraud, misrepresentation or other acts of moral turpitude as would
prevent the effective performance of his duties.  For purposes of this
subsection (b), no act, or failure to act, on the Employee's part shall be
deemed "willful" unless done, or omitted to be done, by him not in good faith
and without the reasonable belief that his action or omission was in the best
interest of theCompany.  Notwithstanding the foregoing, the Employee shall not
be deemed to have been 

                                      -3-

<PAGE>
 
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of a majority of the
non-employee members of the Board at a meeting of such members (after reasonable
notice to him and an opportunity for him, together with his counsel, to be heard
before such members of the Board), finding that he has engaged in the conduct
set forth above in this subsection (b) and specifying the particulars thereof in
detail.

                (c)     Notice of Termination.  Any termination of the
                        ---------------------
Employee's employment by the Company or by the Employee shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 14.  "Notice of Termination" shall mean a notice that indicates the
specific termination provision in this Agreement relied upon and sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for the
termination of the Employee's employment under the provision so indicated.

                (d)     Date of Termination.  "Date of Termination" shall mean:
                        -------------------
(1) if the Employee's employment is terminated by his death, the date of his
death; (2) if the Employee's employment is terminated for Disability, 30 days
after Notice of Termination is given; and (3) if the Employee's employment is
terminated for any other reason, the date specified in the Notice of
Termination.

                (e)     Dispute Concerning Termination.  If within the later of
                        ------------------------------
(i) 15 days after Notice of Termination is given, or (ii) 15 days prior to the
Date of Termination (as determined without regard to this Section 10(e), the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning a termination by the Employee for Good Reason (as
defined in Section 10(h)) following a Change in Control (as defined in Section
10(g)), the Date of Termination shall be the earlier of the expiration date of
the Agreement, or the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); provided, however, that the Date of Termination shall be extended by
a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence.

                (f)     Compensation During Dispute.  If a purported termination
                        ---------------------------
by the Employee for Good Reason occurs following a Change in Control and during
the Term of this Agreement, and such termination is disputed in accordance with
Section 10(e) hereof, the Company shall continue to pay the Employee the full
compensation in effect when the notice giving rise to the dispute was given 
(including, but not limited to, salary) and continue the Employee as a
participant in all compensation, benefit and insurance plans in which the
Employee was participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with 

                                      -4-

<PAGE>
 
Section 10(e) hereof or, if earlier, the expiration date of the Agreement.
Amounts paid under this Section 10(f) are in addition to all other amounts due
under this Agreement (other than those due under Section 11(b) hereof) and shall
not be offset against or reduce any other amounts payable under this Agreement.

                (g)     Change in Control.  A "Change in Control" shall be
                        -----------------
deemed to have occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:

                        (i)     any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (other than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; or any company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the Company) is or becomes
after the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding securities; or 

                        (ii)    during any period of two consecutive years (not
including any period prior to the Effective Date), individuals who at the 
beginning of such period constitute the Board and any new director (other than a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in subsection (i), (iii) or (iv) of
this Section 10(g)) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least 2/3 of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or 

                        (iii)   the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or

                                      -5-

<PAGE>
 
                        (iv)    the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.

                (h)     Good Reason.  At any time following a Change in Control,
                        -----------
the Employee may terminate his employment hereunder for "Good Reason."  "Good
Reason" shall mean the occurrence (without the Employee's express written
consent) of any material breach of this Agreement, including, without
limitation, any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
subsections (i), (iv), (v), (vi) or (vii) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:

                        (i)     the assignment to the Employee of any duties
inconsistent with the Employee's status as a senior executive of the Company or
a substantially adverse alteration in the nature or status of the Employee's
responsibilities from those in effect immediately prior to the Change in
Control;

                        (ii)    a reduction by the Company in the Employee's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time;

                        (iii)   the relocation of the Company's principal
offices to a location outside Southern California (or, if different, the
metropolitan area in which such offices are located immediately prior to the
Change in Control) or the Company's requiring the Employee to be based anywhere
other than the Company's principal executive offices, except for required travel
on the Company's business to an extent substantially consistent with the
Employee's present business travel obligations;

                        (iv)    the failure by the Company to pay to the
Employee any portion of the Employee's current compensation, or to pay to the
Employee any portion of an installment of deferred compensation under any
deferred compensation program of the Company, within seven days of the date such
compensation is due;

                        (v)     the failure by the Company to continue in
effect any compensation plan in which the Employee participates immediately
prior to the Change in Control which is material to the Employee's total
compensation, unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or the failure by
the Company to continue the Employee's participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the 

                                      -6-

<PAGE>
 
level of the Employee's participation relative to other participants, as existed
immediately prior to the Change in Control;

                        (vi)    the failure by the Company to continue to
provide the Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Employee was participating
immediately prior to the Change in Control; the taking of any action by the
Company which would directly or indirectly materially reduce any of such
benefits or deprive the Employee of any material fringe benefit enjoyed by the
Employee immediately prior to the Change in Control; or the failure by the
Company to provide the Employee with the number of paid vacation days to which 
the Employee is entitled on the basis of years of service with the Company in
accordance with the Company's general vacation policy in effect immediately
prior to the Change in Control;

                        (vii)   any purported termination of the Employee's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective; or

                        (viii)  any failure by the Company to comply with and
satisfy Section 12(b) of this Agreement.

        The Employee's right to terminate the Employee's employment for Good
Reason shall not be affected by the Employee's incapacity due to physical or
mental illness.  The Employee's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.

                (i)     Voluntary Termination.  The Employee may terminate his
                        ---------------------
employment hereunder ("Voluntary Termination") upon a material breach of this
Agreement by the Company, unless the Company shall fully correct such breach
within 30 days of the Employee's Notice of Termination given in respect thereof.

        11.     Compensation Upon Termination or During Disability.  The
                --------------------------------------------------
Employee shall be entitled to the following benefits during a period of
disability, or upon termination of his employment, as the case may be, provided
that such period or termination occurs during the Term of this Agreement:

                (a)     During any period that the Employee fails to perform his
full-time duties with the Company as a result of incapacity due to physical or
mental illness, he shall continue to receive his base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to him under the Company's disability plan or program or other similar
plan during such period, until his 

                                      -7-

<PAGE>
 
employment is terminated pursuant to Section 10(a) hereof. Thereafter, or in the
event the Employee's employment shall be terminated by reason of his death, his
benefits shall be determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the terms of such
programs.

                (b)     If at any time the Employee's employment shall be
terminated:  (i) by the Company for Cause or Disability or (ii) by him for any
reason (other than in a Voluntary Termination or for Good Reason following the
occurrence of a Change in Control), the Company shall pay him his full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, plus all other amounts to which he is entitled through
the Date of Termination under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further obligations to him
under this Agreement.

                (c)     If the Employee's employment should be terminated:  (1)
by reason of his death, (2) by the Company other than for Cause or Disability or
(3) by the Employee in a Voluntary Termination, he shall be entitled to the
benefits provided below: 

                        (i)     the Company shall pay to the Employee or the
appropriate payee (as determined in accordance with Section 12(c)) (A) his full
base salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given; plus (B)(x) in the case of death or a Voluntary
Termination all salary and bonus payments that would have been payable to the
Employee pursuant to this Agreement for the remaining Term of this Agreement, or
(y) in all other cases, all salary and bonus payments that would have been
payable to the Employee had the Employee continued to be employed for a period
of 12 months, assuming for the purpose of such payments that his salary for such
remaining period is equal to his salary at the Date of Termination and that his
annual bonus for such remaining Term is equal to the average of the annual
bonuses paid to him by the Company with respect to the three fiscal years ended
immediately prior to the fiscal year in which the Date of termination occurs;
plus (C) all other amounts to which he is entitled under any compensation plan
of the Company, in cash in a lump sum no later than the 15th day following the
Date of Termination;

                        (ii)    for a 12-month period after the Date of
Termination, the Company shall arrange to provide the Employee with life,
disability, accident and health insurance benefits substantially similar to
those which the Employee and his covered family members are receiving
immediately prior to the Notice of Termination (without giving effect to any
reduction in such benefits subsequent to a Change in Control); provided,
however, that such continued benefits shall be reduced to the extent comparable
benefits are actually received by or made available to the Employee without cost
during the 12-month period following the Employee's termination of 

                                      -8-

<PAGE>
 
employment (and the Employee agrees that he shall promptly report any such
benefits actually received to the Company); and

                        (iii)   the Company shall continue in effect for the
benefit of the Employee all insurance or other provisions for indemnification
and defense of officers or directors of the Company which are in effect on the
date the Notice of Termination is sent to the Employee with respect to all of 
his acts and omissions while an officer or director as fully and completely as
if such termination had not occurred, and until the final expiration or running
of all periods of limitation against actions which may be applicable to such
acts or omissions.

                (d)     If  the Employee's employment should be terminated by
the Employee for Good Reason following a Change in Control, he shall be entitled
to the benefits provided below:

                        (i)     the Company shall pay to the Employee or the
appropriate payee (as determined in accordance with Section 12(c)) (A) his full
base salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given; plus (B) all salary and bonus payments that
would have been payable to the Employee had the Employee continued to be
employed for a period of 36 months, assuming for the purpose of such payments
that his salary for such remaining period is equal to his salary at the Date of
Termination and that his annual bonus for such remaining Term is equal to the
average of the annual bonuses paid to him by the Company with respect to the 
three fiscal years ended immediately prior to the fiscal year in which the Date
of termination occurs; plus (C) all other amounts to which he is entitled under
any compensation plan of the Company, in cash in a lump sum no later than the
15th day following the Date of Termination;

                        (ii)    for a 36-month period after the Date of
Termination, the Company shall arrange to provide the Employee with life,
disability, accident and health insurance benefits substantially similar to
those which the Employee and his covered family members are receiving
immediately prior to the Notice of Termination (without giving effect to any
reduction in such benefits subsequent to a Change in Control); provided,
                                                               --------
however, that such continued benefits shall be reduced to the extent comparable
- -------
benefits are actually received by or made available to the Employee without cost
during the 36-month period following the Employee's termination of employment
(and the Employee agrees that he shall promptly report any such benefits
actually received to the Company); and 

                        (iii)   the Company shall continue in effect for the
benefit of the Employee all insurance or other provisions for indemnification
and defense of officers or directors of the Company which are in effect on the
date the Notice of Termination is sent to the Employee with respect to all of
his acts and omissions while an officer or 

                                      -9-

<PAGE>
 
director as fully and completely as if such termination had not occurred, and
until the final expiration or running of all periods of limitation against
actions which may be applicable to such acts or omissions.

                (e)     Notwithstanding any other provisions of this Agreement,
in the event that any payment or benefit received or to be received by the
Employee in connection with the termination of the Employee's employment
(whether such benefit is pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, and all such payments and
benefits being hereinafter called "Total Payments") would not be deductible (in
whole or part), by the Company as a result of the application of Section 280G of
the Internal Revenue Code of 1986, as amended ("Code"), then, to the extent
necessary to make the nondeductible portion of the Total Payments deductible,
(i) the cash payments under this Agreement shall first be reduced (if necessary,
to zero), and (ii) all other non-cash payments under this Agreement shall next
be reduced (if necessary, to zero).

                (f)     If it is established as described in the preceding
subsection (e) that the aggregate benefits paid to or for the Employee's benefit
are in an amount that would result in any portion of such "parachute payments"
not being deductible by reason of Section 280G of the Code, then the Employee
shall have an obligation to pay the Company upon demand an amount equal to the 
sum of:  (i) the excess of the aggregate "parachute payments" paid to or for the
Employee's benefit over the aggregate "parachute payments" that could have been
paid to or for the Employee's benefit without any portion of such "parachute
payments" not being deductible by reason of Section 280G of the Code; and (ii)
interest on the amount set forth in clause (i) of this sentence at the rate
provided in Section 1274(b)(2)(B) of the Code from the date of the Employee's
receipt of such excess until the date of such payment.

                (g)     The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise.

                (h)     If the employment of the Employee is terminated by the
Company without Cause or the Employee's employment is terminated by the Employee
under conditions entitling him to payment hereunder and the Company fails to
make timely payment of the amounts then owed to the Employee under this
Agreement, the Employee shall be entitled to interest on such amounts at the
rate of 3% above the prime rate (defined as the base rate on corporate loans at
large U.S. money center commercial banks as published by the Wall Street
                                                             ---- ------
Journal), compounded monthly, for the period from the date such amounts were
- -------
otherwise due until payment is made to the Employee (which interest shall be in
addition to all rights which the Employee is otherwise entitled to under this
Agreement).

                                      -10-

<PAGE>
 
        12.     Assignment.
                ----------

                (a)     This Agreement is personal to each of the parties
hereto.  No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto, except
that this Agreement shall be binding upon and inure to the benefit of any 
successor corporation to the Company.

                (b)     The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.  As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes this Agreement by operation of law, or otherwise.

                (c)     This Agreement shall inure to the benefit of and be
enforceable by the Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.  If the Employee should die while any amount would still be payable to
him hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is no such designee, to his
estate.

        13.     (a)     Confidential Information.  During the Term of this
                        ------------------------
Agreement and thereafter, the Employee shall not, except as may be required to
perform his duties hereunder or as required by applicable law, disclose to
others for use, whether directly or indirectly, any Confidential Information
regarding the Company.  "Confidential Information" shall mean information about
the Company, its subsidiaries and affiliates, and their respective clients and
customers that is not available to the general public and that was learned by
the Employee in the course of his employment by the Company, including (without
limitation) any data, formulae, information, proprietary knowledge, trade
secrets and client and customer lists and all papers, resumes, records and the
documents containing such Confidential Information.  The Employee acknowledges
that such Confidential Information is specialized, unique in nature and of great
value to the Company, and that such information gives the Company a competitive
advantage.  Upon the termination of his employment, the Employee will promptly
deliver to the Company all documents (and all copies thereof) containing any
Confidential Information.

                (b)     Noncompetition.  The Employee agrees that during the 
                        --------------
Term of this Agreement, and for a period of one year thereafter, he will not,
directly or indirectly, without the prior written consent of the Company,
provide consultative service 

                                      -11-

<PAGE>
 
with or without pay, own, manage, operate, join, control, participate in, or be
connected as a stockholder, partner, or otherwise with any business, individual,
partner, firm, corporation, or other entity which is then in competition with
the Company or any present affiliate of the Company; provided, however, that the
                                                     --------  -------
"beneficial ownership" by the Employee, either individually or as a member of a
"group," as such terms are used in Rule 13d of the General Rules and Regulations
under the Exchange Act, of not more than 1% of the voting stock of any publicly
held corporation shall not be a violation of this Agreement. It is further
expressly agreed that the Company will or would suffer irreparable injury if the
Employee were to compete with the Company or any subsidiary or affiliate of the
Company in violation of this Agreement and that the Company would by reason of
such competition be entitled to injunctive relief in a court of appropriate
jurisdiction, and the Employee further consents and stipulates to the entry of
such injunctive relief in such a court prohibiting the Employee from competing
with the Company or any subsidiary or affiliate of the Company in violation of
this Agreement.

                (c)     Right to Company Materials.  The Employee agrees that
                        --------------------------
all styles, designs, recipes, lists, materials, books, files, reports,
correspondence, records, and other documents ("Company Material") used,
prepared, or made available to the Employee, shall be and shall remain the
property of the Company.  Upon the termination of his employment or the
expiration of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or retain any copies
thereof.

                (d)     Antisolicitation.  The Employee promises and agrees that
                        ----------------
during the Term of this Agreement, and for a period of one year thereafter, he
will not influence or attempt to influence customers, franchisees, landlords, or
suppliers of the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary or affiliate of the Company.

        14.     Notice.  For the purpose of this Agreement, notices and all
                ------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt:

                                      -12-

<PAGE>
 
                Company:        IHOP Corp.
                                525 North Brand Blvd.
                                Glendale, California  91203-1903
                                to the attention of the Board;

                with a
                copy to:        the Secretary of the Company

                Employee:       Richard K. Herzer
                                4411 Woodleigh Lane
                                La Canada - Flintridge, California 91011

        15.     Amendments or Additions.  No amendments or additions to this
                -----------------------
Agreement shall be binding unless in writing and signed by both parties hereto.

        16.     Section Headings.  The section headings used in this Agreement
                ----------------
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.

        17.     Severability.  The provisions of this Agreement shall be deemed
                ------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

        18.     Counterparts.  This Agreement may be executed in counterparts,
                ------------
each of which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.

        19.     Arbitration.  Any dispute or controversy arising under or in
                -----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in
effect.  Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Employee shall be entitled to seek
              --------  -------
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.

        20.     Attorneys' Fees.  The Company shall pay to the Employee all
                ---------------
out-of-pocket expenses, including attorneys' fees, incurred by the Employee in
connection with any claim, legal action or proceeding involving this Agreement
in which the Employee prevails in whole or in part, whether brought by the
Employee or by or on behalf of the Company or by another party.  The Company
shall pay prejudgment interest on any money judgment obtained by the Employee
calculated at 3% above the 

                                      -13-

<PAGE>
 
prime rate (defined as the base rate on corporate loans at large U.S. money
center commercial banks as published by the Wall Street Journal), from the date
                                            ---- ------ -------
that payment(s) to the Employee should have been made under this Agreement.

        21.     Miscellaneous.  No provision of this Agreement may be modified,
                -------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Employee and such officer as may be specifically
designated by the Board.  No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.  No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement and this
agreement shall supersede any prior understanding or agreement either written or
oral, with respect to the subject matter hereto.  The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without regard to its conflicts of law principles.  All
references to sections of the Exchange Act or the Code shall be deemed also to 
refer to any successor provisions to such sections.

        Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law.  The obligations of the
Company under Section 12 and Section 21 and the obligations of the Employee
under Section 13 and Section 21 shall survive the expiration of the Term of this
Agreement.

        IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement on the date first indicated above.  

                                            IHOP CORP.

ATTEST:


/s/ Elayne Berg-Wilion                      By: /s/ Mark D. Weisberger
- -------------------------------                 ---------------------------
Elayne Berg-Wilion                              Mark D. Weisberger
Assistant Secretary                             Vice President, Legal

                                            EMPLOYEE


                                            /s/ Richard K. Herzer
                                            -------------------------------
                                            Richard K. Herzer

                                      -14-



<PAGE>
 
                                                                    EXHIBIT 10.9

                              EMPLOYMENT AGREEMENT
                              --------------------


        THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 
4th day of December, 1995 (the "Effective Date"), between IHOP CORP., a Delaware
corporation (the "Company"), and DENNIS M. LEIFHEIT (the "Employee").

        WHEREAS, the Board of Directors of the Company (the "Board") has 
approved and authorized the entry into this Agreement with the Employee; and 

        WHEREAS, the parties desire to enter into this Agreement setting forth 
the terms and conditions for the employment relationship of the Employee with 
the Company.

        NOW, THEREFORE, in consideration of the promises and mutual covenants 
and agreements herein contained and intending to be legally bound hereby, the 
Company and the Employee hereby agree as follows:

        1.      Employment.  The Employee is employed as Executive Vice 
                ----------
President-Operations and Chief Operating Officer of the Company from the 
Effective Date through the Term of this Agreement (as defined in Section 2 
hereof).  In this capacity, the Employee shall have such duties and 
responsibilities as may be designated to him by the Board from time to time and
as are not inconsistent with the Employee's position with the Company, including
the performance of duties with respect to
 any subsidiaries of the Company, as 
may be designated by the Board.  During the Employee's period of employment
hereunder, the Employee shall be based in the principal offices of the Company 
in Southern California, and shall not be required to relocate outside of 
Southern California to perform services hereunder, except for travel as 
reasonably required in the performance of his duties hereunder.

        2.      Term.  The "initial term" of this Agreement shall be for the 
                ----
period commencing on the Effective Date and ending on the second anniversary of
the Effective Date; provided, however, that on the second anniversary of the 
                    --------  -------
Effective Date, and on each subsequent anniversary date thereafter, the term of 
this Agreement shall automatically be extended for one additional year unless, 
not later than 90 days prior to such applicable anniversary date, the Company or
the Employee shall give notice not to extend this Agreement; and provided 
                                                                 --------
further, however, that, if a Change in Control (as defined in Section 11(g)) 
- -------  -------
occurs prior to the expiration of the Term of this Agreement, this Agreement 
shall remain in full force and effect and shall not expire prior to the last day
of the 24th month following the date of such Change in Control.  The "Term of
this Agreement" or "Term" shall mean, for purposes of this Agreement, both the 
"initial term" (as hereinbefore described) and any additional term (created 
by extension, as described 

<PAGE>
 
above), and the Term of this Agreement shall not be affected by the Employee's
termination of employment.

        3.      Salary.  Subject to the further provisions of this Agreement,
                ------
the Company shall pay the Employee during the Term of this Agreement a salary 
at an annual rate equal to $250,000, with such salary to be increased at such 
times, if any, and in such amounts as determined by the Board, which increases 
shall be consistent with the historical business practices of the Company and 
the salary adjustments for other senior executives of the Company.  Such salary 
shall be payable by the Company to the Employee not less frequently than monthly
and shall not be decreased at any time during the Term of this Agreement.  
Participation in deferred compensation, discretionary bonus, retirement, and 
other employee benefit plans and in fringe benefits shall not reduce the salary 
payable to the Employee under this Section.

        4.      Participation in Bonus, Retirement and Employee Benefit Plans. 
                -------------------------------------------------------------
The Employee shall be entitled to participate equitably with other senior 
executives in any plan of the Company relating to bonuses, stock options, stock 
purchases, pension, thrift, profit sharing, life insurance, medical coverage, 
education, or other retirement or employee benefits that the Company has adopted
or may adopt for the benefit of its senior executives.  For purposes of the 
Company's Executive Incentive Plan, Employee's target bonus will be 50% of his 
base pay.

        5.      Hiring Incentives.
                -----------------

                (a).    Upon the Effective Date, or as soon as practicable 
thereafter, Employee shall receive a restricted stock award in the amount of 
13,030 shares of IHOP Corp. common stock.  Such restricted stock award shall be
subject to the terms of the IHOP Corp. 1991 Stock Incentive Plan, as amended, 
and a Restricted Stock Award Agreement setting forth, among other things, the 
conditions for release of the restrictions on the shares.

                (b).    Upon the Effective Date, or as soon as practicable 
thereafter, Employee shall be paid a Sign-On Bonus in the amount of 
$75,000.00, less all applicable withholdings and taxes.

                (c).    Upon the Effective Date, or as soon as practicable 
thereafter, Employee shall receive an option to purchase a total of 50,000 
shares of IHOP Corp. common stock.  Such stock option shall be subject to the 
terms of the IHOP Corp. 1991 Stock Incentive Plan, as amended, and a Stock 
Option Agreement setting forth, among other things, the option exercise vesting
schedule and option exercise price.

                (d).    The Company agrees to loan Employee, interest free, a 
sum equal to ten percent (10%) of the purchase price of his new home, up to a 
maximum of $80,000 (the Home Loan).  The Home Loan will be due upon the 
earliest to occur of:

                                      -2-

<PAGE>
 
                        (i)     36 months after the loan is made;  or

                        (ii)    immediately upon the termination (for any 
reason) of Employee's employment with the Company.  Employee agrees to execute 
a promissory note evidencing the Home Loan on a form satisfactory to Company at
the time the Home Loan is made.

        6.      Fringe Benefits; Automobile.  The Employee shall be entitled to 
                ---------------------------
receive all other fringe benefits which are now or may be provided to the 
Company's senior executives. In addition, the Company shall provide the Employee
during the Term of this Agreement with a car allowance of $1,000 per month, plus
reimbursement of all automobile expenses such as gasoline, maintenance, 
insurance and vehicle registration, in accordance with the Company's general 
policy on providing cars to senior executives.  Notwithstanding the foregoing, 
the benefits provided under this Section 6 shall cease upon the Employee's Date 
of Termination (as defined in Section 11(d)).

        7.      Vacations.  The Employee shall be entitled to an annual paid 
                ---------
vacation as determined in accordance with the Company's general policy for 
senior executives.

        8.      Business Expenses.  During such time as the Employee is 
                -----------------
rendering services hereunder, the Employee shall be entitled to incur and be 
reimbursed for all reasonable business expenses and be provided allowances as 
are furnished to the Company's most senior executives under the Company's then 
current policies.  The Company agrees that it will reimburse the Employee for 
all such expenses upon the presentation by the Employee, from time to time, of 
an itemized account of such expenditures, setting forth the date, the purposes 
or which incurred, and the amounts thereof, together with such receipts showing 
payments in conformity with the Company's established policies.  Reimbursement 
shall be made within a reasonable period after the Employee's submission of an 
itemized account.

        9.      Insurance and Indemnity.  The Employee shall be added as an
                -----------------------
additional named insured under all appropriate insurance policies now in force 
or hereafter obtained covering any officers or directors of the Company.  The 
Company shall indemnify and hold the Employee harmless from any cost, expense 
or liability arising out of or relating to any acts or decisions made by the 
Employee on behalf of or in the course of performing services for the Company to
the same extent the Company indemnifies and holds harmless other senior 
executive officers and directors of the Company and in accordance with the 
Company's established policies.

        10.     Legal and Accounting Advice.  The Employee shall be entitled to
                ---------------------------
reimbursement by the Company for expenses incurred by him for personal legal, 
accounting, investment or estate planning services in an amount to be determined
by the Board, but in no event greater than $5,000 annually (or a pro rata 
portion of such amount for any period of 

                                      -3-

<PAGE>
 
employment less than a full year); provided, however, that no reimbursement
                                   --------  -------
shall be made for any such expenses incurred by the Employee after such
Employee's Date of Termination.

        11.     Termination. 
                -----------

                (a)     Disability.  If, as a result of the Employee's 
                        ----------
incapacity due to physical or mental illness, he shall have been absent from the
full-time performance of his duties with the Company for 90 consecutive days or 
180 days within any 12-month period, his employment may be terminated by the 
Company for "Disability."

                (b)     Cause.  Subject to the notice provisions set forth 
                        -----
below, the Company may terminate the Employee's employment for "Cause" at any 
time.  "Cause" shall mean termination upon:  (1) the willful failure by the 
Employee to substantially perform his duties with the Company (other than any 
such failure resulting from his incapacity due to physical or mental illness), 
after a written demand for substantial performance is delivered to him by the 
Board, which demand specifically identifies the manner in which the Board 
believes that he has not substantially performed his duties; (2) the Employee's 
willful misconduct that is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (3) the Employee's commission of such acts of 
dishonesty, fraud, misrepresentation or other acts of moral turpitude as would 
prevent the effective performance of his duties.  For purposes of this 
subsection (b), no act, or failure to act, on the Employee's part shall be 
deemed "willful" unless done, or omitted to be done, by him not in good faith 
and without the reasonable belief that his action or omission was in the best 
interest of the Company.  Notwithstanding the foregoing, the Employee shall not 
be deemed to have been terminated for Cause unless and until there shall have 
been delivered to him a copy of a resolution duly adopted by the affirmative 
vote of a majority of the non-employee members of the Board at a meeting of such
members (after reasonable notice to him and an opportunity for him, together 
with his counsel, to be heard before such members of the Board), finding that he
has engaged in the conduct set forth above in this subsection (b) and specifying
the particulars thereof in detail.

                (c)     Notice of Termination.  Any termination of the 
                        ---------------------
Employee's employment by the Company or by the Employee shall be communicated by
written Notice of Termination to the other party hereto in accordance with 
Section 15.  "Notice of Termination" shall mean a notice that indicates the 
specific termination provision in this Agreement relied upon and sets forth in 
reasonable detail the facts and circumstances claimed to provide a basis for the
termination of the Employee's employment under the provision so indicated.

                (d)     Date of Termination.  "Date of Termination" shall mean:
                        -------------------
(1) if the Employee's employment is terminated by his death, the date of his 
death; (2) if the Employee's employment is terminated for Disability, 30 days 
after Notice of Termination is given; and (3) if the Employee's employment is 
terminated for any other reason, the date specified in the Notice of 
Termination.

                                      -4-

<PAGE>
 
                (e)     Dispute Concerning Termination.  If within the later of:
                        ------------------------------

                         (i)    Fifteen (15) days after Notice of Termination is
given, or

                         (ii)   Fifteen (15) days prior to the Date of 
Termination (as determined without regard to this Section 11(e), the party 
receiving such Notice of Termination notifies the other party that a dispute 
exists concerning a termination by the Employee for Good Reason (as defined in 
Section 11(h)) following a Change in Control (as defined in Section 11(g)), the 
Date of Termination shall be the earlier of the expiration date of the 
Agreement, or the date on which the dispute is finally resolved, either by 
mutual written agreement of the parties or by a final judgment, order or decree 
of a court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been 
perfected); provided, however, that the Date of Termination shall be extended by
            --------  -------
a notice of dispute only if such notice is given in good faith and the party 
giving such notice pursues the resolution of such dispute with reasonable 
diligence.

                (f)     Compensation During Dispute.  If a purported termination
                        --------------------------
by the Employee for Good Reason occurs following a Change in Control and during 
the Term of this Agreement, and such termination is disputed in accordance with 
Section 11(e) hereof, the Company shall continue to pay the Employee the full 
compensation in effect when the notice giving rise to the dispute was given 
(including, but not limited to, salary) and continue the Employee as a 
participant in all compensation, benefit and insurance plans in which the 
Employee was participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with Section 11(e) hereof 
or, if earlier, the expiration date of the Agreement.  Amounts paid under this 
Section 11(f) are in addition to all other amounts due under this Agreement 
(other than those due under Section 12(b) hereof) and shall not be offset 
against or reduce any other amounts payable under this Agreement.

                (g)     Change in Control.  A "Change in Control" shall be 
                        -----------------
deemed to have occurred if the conditions set forth in any one of the following 
paragraphs shall have been satisfied:

                        (i)     any "person" (as such term is used in Sections 
14(d) and 15(d) of the Securities Exchange Act of 1934, as amended (the 
"Exchange Act")) (other than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; or any Company owned, 
directly or indirectly, by the stockholders of the Company in substantially the 
same proportions as their ownership of the stock of the Company) is or becomes 
after the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under 
the Exchange Act), directly or indirectly, of securities of the Company (not 
including in the securities beneficially owned by such person any securities 
acquired directly from the Company or its affiliates) representing 25% or more 
of the combined voting power of the Company's then outstanding securities; or 

                                      -5-

<PAGE>
 
                        (ii)    during any period of two consecutive years (not
including any period prior to the Effective Date), individuals who at the 
beginning of such period constitute the Board and any new director (other than a
director designated by a person who has entered into an agreement with the 
Company to effect a transaction described in subparagraph (i), (iii) or (iv) of
this Section 11(g)) whose election by the Board or nomination for election by 
the Company's stockholders was approved by a vote of at least 2/3 of the 
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved, 
cease for any reason to constitute a majority thereof; or 

                        (iii)   the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than (A) a 
merger or consolidation which would result in the voting securities of the 
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the 
surviving entity), in combination with the ownership of any trustee or other 
fiduciary holding securities under an employee benefit plan of the Company, at 
least 75% of the combined voting power of the voting securities of the Company 
or such surviving entity outstanding immediately after such merger or 
consolidation, or (B) a merger or consolidation effected to implement a 
recapitalization of the Company (or similar transaction) in which no person 
acquires more than 50% of the combined voting power of the Company's then 
outstanding securities; or

                        (iv)    the stockholders of the Company approve a plan 
of complete liquidation of the Company or an agreement for the sale or 
disposition by the Company of all or substantially all the Company's assets.

                (h)     Good Reason.  At any time following a Change in Control,
                        -----------
the Employee may terminate his employment hereunder for "Good Reason."  "Good 
Reason" shall mean the occurrence (without the Employee's express written 
consent) of any material breach of this Agreement, including, without 
limitation, any one of the following acts by the Company, or failures by the 
Company to act, unless, in the case of any act or failure to act described in 
subsections (i), (iv), (v), (vi) or (vii) below, such act or failure to act is 
corrected prior to the Date of Termination specified in the Notice of 
Termination given in respect thereof:

                        (i)     the assignment to the Employee of any duties 
inconsistent with the Employee's status as a senior executive of the Company or 
a substantially adverse alteration in the nature or status of the Employee's 
responsibilities from those in effect immediately prior to the Change in 
Control;

                        (ii)    a reduction by the Company in the Employee's 
annual base salary as in effect on the date hereof or as the same may be 
increased from time to time;

                                      -6-

<PAGE>
 
                        (iii)   the relocation of the Company's principal 
offices to a location outside Southern California (or, if different, the 
metropolitan area in which such offices are located immediately prior to the 
Change in Control) or the Company's requiring the Employee to be based anywhere 
other than the Company's principal executive offices, except for required travel
on the Company's business to an extent substantially consistent with the 
Employee's present business travel obligations;

                        (iv)    the failure by the Company to pay to the 
Employee any portion of the Employee's current compensation, or to pay to the 
Employee any portion of an installment of deferred compensation under any 
deferred compensation program of the Company, within seven days of the date such
compensation is due;

                        (v)     the failure by the Company to continue in effect
any compensation plan in which the Employee participates immediately prior to 
the Change in Control which is material to the Employee's total compensation, 
unless an equitable arrangement (embodied in an ongoing substitute or 
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue the Employee's participation therein (or in such substitute 
or alternative plan) on a basis not materially less favorable, both in terms of
the amount of benefits provided and the level of the Employee's participation 
relative to other participants, as existed immediately prior to the Change in 
Control;

                        (vi)    the failure by the Company to continue to 
provide the Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Employee was participating 
immediately prior to the Change in Control; or the taking of any action by the 
Company which would directly or indirectly materially reduce any of such 
benefits or deprive the Employee of any material fringe benefit enjoyed by the 
Employee immediately prior to the Change in Control;

                        (vii)   any purported termination of the Employee's 
employment which is not effected pursuant to a Notice of Termination satisfying 
the requirements of this Agreement; for purposes of this Agreement, no such 
purported termination shall be effective; or

                        (viii)  any failure by the Company to comply with and 
satisfy Section 13(b) of this Agreement.

                (i)     The Employee's right to terminate the Employee's 
employment for Good Reason shall not be affected by the Employee's incapacity 
due to physical or mental illness.  The Employee's continued employment shall 
not constitute consent to, or a waiver of rights with respect to, any act or 
failure to act constituting Good Reason hereunder.

                                      -7-

<PAGE>
 
                        (i)     Voluntary Termination.  The Employee may 
                                ---------------------
terminate his employment hereunder ("Voluntary Termination") upon a material 
breach of this Agreement by the Company, unless the Company shall fully correct 
such breach within 30 days of the Employee's Notice of Termination given in 
respect thereof.  

        12.     Compensation Upon Termination or During Disability.  The 
                --------------------------------------------------
Employee shall be entitled to the following benefits during a period of 
disability, or upon termination of his employment, as the case may be, provided 
that such period or termination occurs during the Term of this Agreement:

                (a)     During any period that the Employee fails to perform his
full-time duties with the Company as a result of incapacity due to physical or 
mental illness, he shall continue to receive his base salary at the rate in 
effect at the commencement of any such period, together with all compensation 
payable to him under the Company's disability plan or program or other similar 
plan during such period, until his employment is terminated pursuant to Section 
11 hereof.  Thereafter, or in the event the Employee's employment shall be 
terminated by reason of his death, his benefits shall be determined under the 
Company's retirement, insurance and other compensation programs then in effect 
in accordance with the terms of such programs.

                (b)     If at any time the Employee's employment shall be 
terminated: (i) by the Company for Cause or Disability or (ii) by him for any 
reason (other than in a Voluntary Termination or for Good Reason following the 
occurrence of a Change in Control), the Company shall pay him his full base 
salary through the Date of Termination at the rate in effect at the time Notice 
of Termination is given, plus all other amounts to which he is entitled through 
the Date of Termination under any compensation plan of the Company at the time 
such payments are due, and the Company shall have no further obligations to him 
under this Agreement.

                (c)     If the Employee's employment should be terminated:  (1) 
by reason of his death, (2) by the Company other than for Cause or Disability or
(3) by the Employee in a Voluntary Termination, he shall be entitled to the 
benefits provided below: 

                        (i)     the Company shall pay to the Employee or the 
appropriate payee (as determined in accordance with Section 13(c)) (A) his full 
base salary through the Date of Termination at the rate in effect at the time 
Notice of Termination is given; plus (B)(x) in the case of death or a Voluntary 
Termination all salary and bonus payments that would have been payable to the 
Employee pursuant to this Agreement for the remaining Term of this Agreement, or
(y) in all other cases, all salary and bonus payments that would have been 
payable to the Employee had the Employee continued to be employed for a period 
of 12 months, assuming for the purpose of such payments that his salary for such
remaining period is equal to his salary at the Date of Termination and that his 
annual bonus for such remaining Term is equal to the average of the annual 
bonuses paid to him by the Company with respect to the three fiscal years ended 
immediately prior to the fiscal year in which the Date of termination occurs; 
plus (C) all other 

                                      -8-

<PAGE>
 
amounts to which he is entitled under any compensation plan of the Company, in
cash in a lump sum no later than the 15th day following the Date of Termination;

                        (ii)    for a 12-month period after the Date of 
Termination, the Company shall arrange to provide the Employee with life, 
disability, accident and health insurance benefits substantially similar to 
those which the Employee and his covered family members are receiving 
immediately prior to the Notice of Termination (without giving effect to any 
reduction in such benefits subsequent to a Change in Control); provided, 
                                                               --------
however, that such continued benefits shall be reduced to the extent comparable
- ------- 
benefits are actually received by or made available to the Employee without cost
during the 12-month period following the Employee's termination of employment 
(and the Employee agrees that he shall promptly report any such benefits 
actually received to the Company); and 

                        (iii)   the Company shall continue in effect for the 
benefit of the Employee all insurance or other provisions for indemnification 
and defense of officers or directors of the Company which are in effect on the 
date the Notice of Termination is sent to the Employee with respect to all of 
his acts and omissions while an officer or director as fully and completely as 
if such termination had not occurred, and until the final expiration or running 
of all periods of limitation against actions which may be applicable to such 
acts or omissions.

                (d)     If the Employee's employment should be terminated by the
Employee for Good Reason following a Change in Control, he shall be entitled to 
the benefits provided below:

                        (i)     the Company shall pay to the Employee or the 
appropriate payee (as determined in accordance with Section 13(c)) (A) his full 
base salary through the Date of Termination at the rate in effect at the time 
Notice of Termination is given; plus (B)(x) in the case of death or a Voluntary 
Termination all salary and bonus payments that would have been payable to the 
Employee pursuant to this Agreement for the remaining Term of this Agreement, or
(y) in all other cases, all salary and bonus payments that would have been 
payable to the Employee had the Employee continued to be employed for a period 
of 24 months, assuming for the purpose of such payments that his salary for such
remaining period is equal to his salary at the Date of Termination and that his 
annual bonus for such remaining Term is equal to the average of the annual 
bonuses paid to him by the Company with respect to the three fiscal years ended 
immediately prior to the fiscal year in which the Date of termination occurs; 
plus (C) all other amounts to which he is entitled under any compensation plan 
of the Company, in cash in a lump sum no later than the 15th day following the 
Date of Termination;

                        (ii)    for a 24-month period after the Date of 
Termination, the Company shall arrange to provide the Employee with life, 
disability, accident and health insurance benefits substantially similar to 
those which the Employee and his covered family members are receiving 
immediately prior to the Notice of Termination (without giving effect to 

                                      -9-

<PAGE>
 
any reduction in such benefits subsequent to a Change in Control); provided, 
                                                                   --------
however, that such continued benefits shall be reduced to the extent comparable 
- -------
benefits are actually received by or made available to the Employee without cost
during the 24-month period following the Employee's termination of employment 
(and the Employee agrees that he shall promptly report any such benefits 
actually received to the Company); and 

                        (iii)    the Company shall continue in effect for the 
benefit of the Employee all insurance or other provisions for indemnification 
and defense of officers or directors of the Company which are in effect on the 
date the Notice of Termination is sent to the Employee with respect to all of 
his acts and omissions while an officer or director as fully and completely as 
if such termination had not occurred, and until the final expiration or running 
of all periods of limitation against actions which may be applicable to such 
acts or omissions.

                (e)     Notwithstanding any other provisions of this Agreement, 
in the event that any payment or benefit received or to be received by the 
Employee in connection with the termination of the Employee's employment 
(whether such benefit is pursuant to the terms of this Agreement or any other 
plan, arrangement or agreement with the Company, and all such payments and 
benefits being hereinafter called "Total Payments") would not be deductible 
(in whole or part), by the Company as a result of the application of Section 
280G of the Internal Revenue Code of 1986, as amended ("Code"), then, to the 
extent necessary to make the nondeductible portion of the Total Payments 
deductible, (i) the cash payments under this Agreement shall first be reduced 
(if necessary, to zero), and (ii) all other non-cash payments under this 
Agreement shall next be reduced (if necessary, to zero).

                (f)     If it is established as described in the preceding 
subsection (d) that the aggregate benefits paid to or for the Employee's 
benefit are in an amount that would result in any portion of such "parachute 
payments" not being deductible by reason of Section 280G of the Code, then the 
Employee shall have an obligation to pay the Company upon demand an amount equal
to the sum of:  (i) the excess of the aggregate "parachute payments" paid to or 
for the Employee's benefit over the aggregate "parachute payments" that could 
have been paid to or for the Employee's benefit without any portion of such 
"parachute payments" not being deductible by reason of Section 280G of the Code;
and (ii) interest on the amount set forth in clause (i) of this sentence at the 
rate provided in Section 1274(b)(2)(B) of the Code from the date of the 
Employee's receipt of such excess until the date of such payment.

                (g)     The Employee shall not be required to mitigate the 
amount of any payment provided for in this Agreement by seeking other employment
or otherwise.

                (h)     If the employment of the Employee is terminated by the 
Company without Cause or the Employee's employment is terminated by the Employee
under conditions entitling him to payment hereunder and the Company fails to 
make timely payment of the amounts then owed to the Employee under this 
Agreement, the Employee shall be entitled to 

                                      -10-

<PAGE>
 
interest on such amounts at the rate of 1% above the prime rate (defined as the
base rate on corporate loans at large U.S. money center commercial banks as
published by the Wall Street Journal), compounded monthly, for the period from
                 -------------------
the date such amounts were otherwise due until payment is made to the Employee
(which interest shall be in addition to all rights which the Employee is
otherwise entitled to under this Agreement).

        13.     Assignment. 
                ----------

                (a)     This Agreement is personal to each of the parties 
hereto.  No party may assign or delegate any rights or obligations hereunder 
without first obtaining the written consent of the other party hereto, except 
that this Agreement shall be binding upon and inure to the benefit of any 
successor corporation to the Company.

                (b)     The Company shall require any successor (whether direct 
or indirect, by purchase, merger, consolidation or otherwise) to all or 
substantially all of the business and/or assets of the Company to expressly 
assume and agree to perform this Agreement in the same manner and to the same 
extent that the Company would be required to perform it if no such succession 
had taken place.  As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as 
aforesaid which assumes this Agreement by operation of law, or otherwise.

                (c)     This Agreement shall inure to the benefit of and be 
enforceable by the Employee and his personal or legal representatives, 
executors, administrators, successors, heirs, distributees, devisees and 
legatees.  If the Employee should die while any amount would still be payable to
him hereunder had he continued to live, all such amounts, unless otherwise 
provided herein, shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is no such designee, to his 
estate.

        14.     (a)     Confidential Information.  During the Term of this 
                        ------------------------
Agreement and thereafter, the Employee shall not, except as may be required to 
perform his duties hereunder or as required by applicable law, disclose to 
others for use, whether directly or indirectly, any Confidential Information 
regarding the Company.  "Confidential Information" shall mean information about 
the Company, its subsidiaries and affiliates, and their respective clients and 
customers that is not available to the general public and that was learned by 
the Employee in the course of his employment by the Company, including (without 
limitation) any data, formulae, information, proprietary knowledge, trade 
secrets and client and customer lists and all papers, resumes, records and the 
documents containing such Confidential Information.  The Employee acknowledges 
that such Confidential Information is specialized, unique in nature and of great
value to the Company, and that such information gives the Company a competitive 
advantage.  Upon the termination of his employment, the Employee will promptly 
deliver to the Company all documents (and all copies thereof) containing any 
Confidential Information. 

                                      -11-

<PAGE>
 
                (b)     Noncompetition.  The Employee agrees that during the 
                        --------------
Term of this Agreement, and for a period of one year thereafter, he will not, 
directly or indirectly, without the prior written consent of the Company, 
provide consultative service with or without pay, own, manage, operate, join, 
control, participate in, or be connected as a stockholder, partner, or otherwise
with any business, individual, partner, firm, corporation, or other entity which
is then in competition with the Company or any present affiliate of the Company;
provided, however, that the "beneficial ownership" by the Employee, either 
- --------  -------
individually or as a member of a "group," as such terms are used in Rule 13d of
the General Rules and Regulations under the Exchange Act, of not more than 1% of
the voting stock of any publicly held corporation shall not be a violation of 
this Agreement.  It is further expressly agreed that the Company will or would 
suffer irreparable injury if the Employee were to compete with the Company or 
any subsidiary or affiliate of the Company in violation of this Agreement and 
that the Company would by reason of such competition be entitled to injunctive 
relief in a court of appropriate jurisdiction, and the Employee further consents
and stipulates to the entry of such injunctive relief in such a court 
prohibiting the Employee from competing with the Company or any subsidiary or 
affiliate of the Company in violation of this Agreement.

                (c)     Right to Company Materials.  The Employee agrees that 
                        --------------------------
all styles, designs, recipes, lists, materials, books, files, reports, 
correspondence, records, and other documents ("Company Material") used, 
prepared, or made available to the Employee, shall be and shall remain the 
property of the Company.  Upon the termination of his employment or the 
expiration of this Agreement, all Company Materials shall be returned 
immediately to the Company, and Employee shall not make or retain any copies 
thereof.

                (d)     Antisolicitation.  The Employee promises and agrees that
                        ----------------
during the Term of this Agreement, and for a period of one year thereafter, he 
will not influence or attempt to influence customers, franchisees, landlords, or
suppliers of the Company or any of its present or future subsidiaries or 
affiliates, either directly or indirectly, to divert their business to any 
individual, partnership, firm, corporation or other entity then in competition 
with the business of the Company, or any subsidiary or affiliate of the Company.

        15.     Notice.  For the purpose of this Agreement, notices and all 
                ------
other communications provided for in this Agreement shall be in writing and 
shall be deemed to have been duly given when delivered or mailed by United 
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other 
addresses as either party may have furnished to the other in writing in 
accordance herewith, except that notice of a change of address shall be 
effective only upon actual receipt:

                Company:        IHOP Corp.
                                525 North Brand Blvd.
                                Glendale, California  91203-1903
                                to the attention of the Board;

                                      -12-

<PAGE>
 
         with a copy to:        the Secretary of the Company

                Employee:       Dennis M. Leifheit
                                525 North Brand Boulevard
                                Glendale  California  91203.

        15.     Amendments or Additions.  No amendments or additions to this 
                -----------------------
Agreement shall be binding unless in writing and signed by both parties hereto.

        16.     Section Headings.  The section headings used in this Agreement 
                ----------------
are included solely for convenience and shall not affect, or be used in 
connection with, the interpretation of this Agreement.

        17.     Severability.  The provisions of this Agreement shall be deemed
                ------------
severable and the invalidity or unenforceability of any provision shall not 
affect the validity or enforceability of the other provisions hereof.

        18.     Counterparts.  This Agreement may be executed in counterparts, 
                ------------
each of which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.

        19.     Arbitration.  Any dispute or controversy arising under or in 
                -----------
connection with this Agreement shall be settled exclusively by arbitration, 
conducted before a panel of three arbitrators in Los Angeles, California, in 
accordance with the rules of the American Arbitration Association then in 
effect.  Judgment may be entered on the arbitrator's award in any court having 
jurisdiction; provided, however, that the Employee shall be entitled to seek 
              --------  -------
specific performance of his right to be paid until the Date of Termination 
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.

        20.     Attorneys' Fees.  The Company shall pay to the Employee all 
                ---------------
out-of-pocket expenses, including attorneys' fees, incurred by the Employee in 
connection with any claim, legal action or proceeding involving this Agreement 
in which the Employee prevails in whole or in part, whether brought by the 
Employee or by or on behalf of the Company or by another party.  The Company 
shall pay prejudgment interest on any money judgment obtained by the Employee 
calculated at 3% above the prime rate (defined as the base rate on corporate 
loans at large U.S. money center commercial banks as published by the Wall 
                                                                      ----
Street Journal), from the date that payment(s) to the Employee should have been 
- ------ -------
made under this Agreement.

        21.     Miscellaneous.  No provision of this Agreement may be modified,
                -------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Employee and such officer as may be specifically 
designated by the Board.  No waiver by either party hereto at any time of any 
breach by the other party hereto of, or compliance with, any 

                                      -13-

<PAGE>
 
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement and this agreement shall supersede any prior understanding or
agreement either written or oral, will respect to the subject matter hereto. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of California without regard to its
conflicts of law principles. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor provisions to such
sections.

        Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law.  The obligations of the 
Company under Section 12 and Section 21 and the obligations of the Employee 
under Section 14 and Section 21 shall survive the expiration of the Term of this
Agreement.

        IN WITNESS WHEREOF, each of the parties hereto has executed this 
Agreement on the date first indicated above.  


                                             IHOP CORP.:
ATTEST:


/s/ Elayne Berg-Wilion                       By: /s/ Richard K. Herzer
- --------------------------------                 -------------------------------
Elayne Berg-Wilion                               Richard K. Herzer
Assistant Secretary                              President


                                             EMPLOYEE:


                                             /s/ Dennis M. Leifheit
                                             -----------------------------------
                                             Dennis M. Leifheit

                                      -14-



<PAGE>
 
                                                                   EXHIBIT 10.10

                             EMPLOYMENT AGREEMENT


     This Employment Agreement (the "Agreement") is entered into on November
___, 1996, and shall become effective on March 14, 1997 (the "Effective Date"),
between IHOP CORP., a Delaware corporation (the "Company"), and NAOMI K. SHIVELY
(the "Employee").

     WHEREAS, Company and Employee are parties to an Employment Agreement dated
March 14, 1994, which terminates on March 13, 1997;

     WHEREAS, the parties desire to enter into a new Employment Agreement
setting forth the terms and conditions for the continuing employment
relationship of the Employee with the Company; and

     WHEREAS, the Board of Directors of the Company (the "Board") has approved
and authorized the Company to enter into this Agreement with the Employee.

     NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements herein contained and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:

     1.  Employment.  The Employee is employed as Vice President, Human
         ----------
Resources of the Company from the Effective Date through the Term of this
Agreement (as defined in Section 2 hereof).  In this capacity, the Employee
shall have such duties and responsibilities as may be designated to her by the

Board from time to time and as are not inconsistent with the Employee's position
with the Company, including the performance of duties with respect to any
subsidiaries of the Company, as may be designated by the Board.  During the
Employee's period of employment hereunder, the Employee shall be based in the
principal offices of the Company in Southern California, and shall not be
required to relocate outside of Southern California to perform services
hereunder, except for travel as reasonably required in the performance of her
duties hereunder.

     2.  Term.  The "initial term" of this Agreement shall be for the period
         ----
commencing on the Effective Date and ending on the first anniversary of the
Effective Date; provided, however, that on the first anniversary of the
                --------  -------
Effective Date, and on each subsequent anniversary date thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than 90 days prior to such applicable anniversary date, the Company or
the Employee shall give notice not to extend this Agreement; and provided
                                                                 --------
further, however, that, if a Change in Control (as defined in Section 10(g))
- -------  -------
occurs prior to the expiration of the Term of this Agreement, this 

<PAGE>
 
Agreement shall remain in full force and effect and shall not expire prior to
the last day of the 24th month following the date of such Change in Control. The
"Term of this Agreement" or "Term" shall mean, for purposes of this Agreement,
both the "initial term" (as hereinbefore described) and any additional term
(created by extension, as described above), and the Term of this Agreement shall
not be affected by the Employee's termination of employment.

     3.  Salary.  Subject to the further provisions of this Agreement, the
         ------
Company shall pay the Employee during the Term of this Agreement a salary at an
annual rate equal to $168,000.00, with such salary to be increased at such
times, if any, and in such amounts as determined by the Board, which increases
shall be consistent with the historical business practices of the Company and
the salary adjustments for other senior executives of the Company.  Such salary
shall be payable by the Company to the Employee not less frequently than monthly
and shall not be decreased at any time during the Term of this Agreement.
Participation in deferred compensation, discretionary bonus, retirement, and
other employee benefit plans and in fringe benefits shall not reduce the salary
payable to the Employee under this Section 3.

     4.  Participation in Bonus, Retirement and Employee Benefit Plans.  The
         -------------------------------------------------------------
Employee shall be entitled to participate equitably with other senior executives
in any plan of the Company relating to bonuses, stock options, stock purchases,
pension, thrift, profit sharing, life insurance, medical coverage, education, or
other retirement or employee benefits that the Company has adopted or may adopt
for the benefit of its senior executives.

     5.  Fringe Benefits; Automobile.  The Employee shall be entitled to receive
         ---------------------------
all other fringe benefits which are now or may be provided to the Company's
senior executives.  In addition, the Company shall provide the Employee during
the Term of this Agreement with her choice of a car or a car allowance in
accordance with the Company's general policy on providing cars to senior
executives.  Notwithstanding the foregoing, the benefits provided under this
Section 5 shall cease upon the Employee's Date of Termination (as defined in
Section 10(d)).

     6.  Vacations.  The Employee shall be entitled to an annual paid vacation
         ---------
as determined in accordance with the Company's general policy for senior
executives.

     7.  Business Expenses.   During such time as the Employee is rendering
         -----------------
services hereunder, the Employee shall be entitled to incur and be reimbursed
for all reasonable business expenses and be provided allowances as are furnished
to the Company's most senior executives under the Company's then current
policies.  The Company agrees that it will reimburse the Employee for all such
expenses upon the presentation by the Employee, from time to time, of an
itemized account of such expenditures, setting forth the date, the purposes for
which incurred, and the amounts 

                                      -2-

<PAGE>
 
thereof, together with such receipts showing payments in conformity with the
Company's established policies. Reimbursement shall be made within a reasonable
period after the Employee's submission of an itemized account.

     8.  Insurance and Indemnity.    The Employee shall be added as an
         -----------------------
additional named insured under all appropriate insurance policies now in force
or hereafter obtained covering any officers or directors of the Company.  The
Company shall indemnify and hold the Employee harmless from any cost, expense or
liability arising out of or relating to any acts or decisions made by the
Employee on behalf of or in the course of performing services for the Company to
the same extent the Company indemnifies and holds harmless other senior
executive officers and directors of the Company and in accordance with the
Company's established policies.

     9.  Legal and Accounting Advice.   The Employee shall be entitled to
         ---------------------------
reimbursement by the Company for expenses incurred by her for personal legal,
accounting, investment or estate planning services in an amount to be determined
by the Board, but in no event greater than $5,000 annually (or a pro rata
portion of such amount for any period of employment less than a full year);
provided, however, that no reimbursement shall be made for any such expenses
- --------  -------
incurred by the Employee after such Employee's Date of Termination.

     10.  Termination.
          -----------

          (a)  Disability.    If, as a result of the Employee's incapacity due
               ----------
to physical or mental illness, she shall have been absent from the full-time
performance of her duties with the Company for 90 consecutive days or 180 days
within any 12-month period, her employment may be terminated by the Company for
"Disability."

          (b)  Cause.    Subject to the notice provisions set forth below, the
               -----
Company may terminate the Employee's employment for "Cause" at any time.
"Cause" shall mean termination upon:  (1) the willful failure by the Employee to
substantially perform her duties with the Company (other than any such failure
resulting from her incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to her by the Board,
which demand specifically identifies the manner in which the Board believes that
she has not substantially performed her duties; (2) the Employee's willful
misconduct that is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (3) the Employee's commission of such acts of
dishonesty, fraud, misrepresentation or other acts of moral turpitude as would
prevent the effective performance of her duties.  For purposes of this
subsection (b), no act, or failure to act, on the Employee's part shall be
deemed "willful" unless done, or omitted to be done, by her not in good faith
and without the reasonable belief that her action or omission was in the best
interest of the Company.  Notwithstanding the foregoing, the Employee shall not
be deemed to have been 

                                      -3-

<PAGE>
 
terminated for Cause unless and until there shall have been delivered to her a
copy of a resolution duly adopted by the affirmative vote of a majority of the
non-employee members of the Board at a meeting of such members (after reasonable
notice to her and an opportunity for her, together with her counsel, to be heard
before such members of the Board), finding that she has engaged in the conduct
set forth above in this subsection (b) and specifying the particulars thereof in
detail.

          (c)  Notice of Termination.  Any termination of the Employee's
               ---------------------
employment by the Company or by the Employee shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 14.
"Notice of Termination" shall mean a notice that indicates the specific
termination provision in this Agreement relied upon and sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for the
termination of the Employee's employment under the provision so indicated.

          (d)  Date of Termination.  "Date of Termination" shall mean:  (1) if
               -------------------
the Employee's employment is terminated by her death, the date of her death; (2)
if the Employee's employment is terminated for Disability, 30 days after Notice
of Termination is given; and (3) if the Employee's employment is terminated for
any other reason, the date specified in the Notice of Termination.

          (e)  Dispute Concerning Termination.   If within the later of (i) 15
               ------------------------------
days after Notice of Termination is given, or (ii) 15 days prior to the Date of
Termination (as determined without regard to this Section 10(e), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning a termination by the Employee for Good Reason (as defined in
Section 10(h)) following a Change in Control (as defined in Section 10(g)), the
Date of Termination shall be the earlier of the expiration date of the
Agreement, or the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); provided, however, that the Date of Termination shall be extended by
            --------  -------
a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence.

          (f)  Compensation During Dispute.  If a purported termination by the
               ---------------------------
Employee for Good Reason occurs following a Change in Control and during the
Term of this Agreement, and such termination is disputed in accordance with
Section 10(e) hereof, the Company shall continue to pay the Employee the full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, salary) and continue the Employee as a
participant in all compensation, benefit and insurance plans in which the
Employee was participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with 

                                      -4-

<PAGE>
 
Section 10(e) hereof or, if earlier, the expiration date of the Agreement.
Amounts paid under this Section 10(f) are in addition to all other amounts due
under this Agreement (other than those due under Section 11(b) hereof) and shall
not be offset against or reduce any other amounts payable under this Agreement.

          (g)  Change in Control.  A "Change in Control" shall be deemed to
               -----------------
have occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:

               (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(other than the Company; any trustee or other fiduciary holding securities under
an employee benefit plan of the Company; or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of the stock of the Company) is or becomes after
the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding securities; or

               (ii) during any period of two consecutive years (not including
any period prior to the Effective Date), individuals who at the beginning of
such period constitute the Board and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in subsection (i), (iii) or (iv) of this Section
10(g)) whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least 2/3 of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or

               (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or

                                      -5-

<PAGE>
 
               (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.

          (h)  Good Reason.  At any time following a Change in Control, the
               -----------
Employee may terminate her employment hereunder for "Good Reason."  "Good
Reason" shall mean the occurrence (without the Employee's express written
consent) of any material breach of this Agreement, including, without
limitation, any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
subsections (i), (iv), (v), (vi) or (vii) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:

               (i) the assignment to the Employee of any duties inconsistent
with the Employee's status as a senior executive of the Company or a
substantially adverse alteration in the nature or status of the Employee's
responsibilities from those in effect immediately prior to the Change in
Control;

               (ii) a reduction by the Company in the Employee's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;

               (iii) the relocation of the Company's principal offices to a
location outside Southern California (or, if different, the metropolitan area in
which such offices are located immediately prior to the Change in Control) or
the Company's requiring the Employee to be based anywhere other than the
Company's principal executive offices, except for required travel on the
Company's business to an extent substantially consistent with the Employee's
present business travel obligations;

               (iv) the failure by the Company to pay to the Employee any
portion of the Employee's current compensation, or to pay to the Employee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven days of the date such
compensation is due;

               (v) the failure by the Company to continue in effect any
compensation plan in which the Employee participates immediately prior to the
Change in Control which is material to the Employee's total compensation, unless
an equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company to
continue the Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the 

                                      -6-

<PAGE>
 
level of the Employee's participation relative to other participants, as existed
immediately prior to the Change in Control;

               (vi) the failure by the Company to continue to provide the
Employee with benefits substantially similar to those enjoyed by the Employee
under any of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Employee was participating
immediately prior to the Change in Control; the taking of any action by the
Company which would directly or indirectly materially reduce any of such
benefits or deprive the Employee of any material fringe benefit enjoyed by the
Employee immediately prior to the Change in Control; or the failure by the
Company to provide the Employee with the number of paid vacation days to which
the Employee is entitled on the basis of years of service with the Company in
accordance with the Company's general vacation policy in effect immediately
prior to the Change in Control;

               (vii) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective; or

               (viii) any failure by the Company to comply with and satisfy
Section 12(b) of this Agreement.

     The Employee's right to terminate the Employee's employment for Good Reason
shall not be affected by the Employee's incapacity due to physical or mental
illness.  The Employee's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any act or failure to act constituting
Good Reason hereunder.

          (i)  Voluntary Termination.   The Employee may terminate her
               ---------------------
employment hereunder ("Voluntary Termination") upon a material breach of this
Agreement by the Company, unless the Company shall fully correct such breach
within 30 days of the Employee's Notice of Termination given in respect thereof.

     11.  Compensation Upon Termination or During Disability.   The Employee
          --------------------------------------------------
shall be entitled to the following benefits during a period of disability, or
upon termination of her employment, as the case may be, provided that such
period or termination occurs during the Term of this Agreement:

          (a) During any period that the Employee fails to perform her full-time
duties with the Company as a result of incapacity due to physical or mental
illness, she shall continue to receive her base salary at the rate in effect at
the commencement of any such period, together with all compensation payable to
her under the Company's disability plan or program or other similar plan during
such period, until 

                                      -7-

<PAGE>
 
her employment is terminated pursuant to Section 10(a) hereof. Thereafter, or in
the event the Employee's employment shall be terminated by reason of her death,
her benefits shall be determined under the Company's retirement, insurance and
other compensation programs then in effect in accordance with the terms of such
programs.

          (b) If at any time the Employee's employment shall be terminated:  (i)
by the Company for Cause or Disability or (ii) by her for any reason (other than
in a Voluntary Termination or for Good Reason following the occurrence of a
Change in Control), the Company shall pay her her full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given, plus all other amounts to which she is entitled through the Date of
Termination under any compensation plan of the Company at the time such payments
are due, and the Company shall have no further obligations to her under this
Agreement.

          (c) If the Employee's employment should be terminated:  (1) by reason
of her death, (2) by the Company other than for Cause or Disability or (3) by
the Employee in a Voluntary Termination, she shall be entitled to the benefits
provided below:

              (i) the Company shall pay to the Employee or the appropriate
payee (as determined in accordance with Section 12(c)) (A) her full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given; plus (B)(x) in the case of death or a Voluntary
Termination all salary and bonus payments that would have been payable to the
Employee pursuant to this Agreement for the remaining Term of this Agreement, or
(y) in all other cases, all salary and bonus payments that would have been
payable to the Employee had the Employee continued to be employed for a period
of 12 months, assuming for the purpose of such payments that her salary for such
remaining period is equal to her salary at the Date of Termination and that her
annual bonus for such remaining Term is equal to the average of the annual
bonuses paid to her by the Company with respect to the three fiscal years ended
immediately prior to the fiscal year in which the Date of termination occurs;
plus (C) all other amounts to which she is entitled under any compensation plan
of the Company, in cash in a lump sum no later than the 15th day following the
Date of Termination;

              (ii) for a 12-month period after the Date of Termination, the
Company shall arrange to provide the Employee with life, disability, accident
and health insurance benefits substantially similar to those which the Employee
and her covered family members are receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such benefits subsequent
to a Change in Control); provided, however, that such continued benefits shall
                         --------  -------
be reduced to the extent comparable benefits are actually received by or made
available to the Employee without cost during the 12-month period following the
Employee's termination of 

                                      -8-

<PAGE>
 
employment (and the Employee agrees that she shall promptly report any such
benefits actually received to the Company); and

              (iii) the Company shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and defense of
officers or directors of the Company which are in effect on the date the Notice
of Termination is sent to the Employee with respect to all of her acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation against actions which may be applicable to such acts or
omissions.

          (d) If the Employee's employment should be terminated by the Employee
for Good Reason following a Change in Control, she shall be entitled to the
benefits provided below:

              (i) the Company shall pay to the Employee or the appropriate payee
(as determined in accordance with Section 12(c)) (A) her full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given; plus (B) all salary and bonus payments that would have
been payable to the Employee had the Employee continued to be employed for a
period of 24 months, assuming for the purpose of such payments that her salary
for such remaining period is equal to her salary at the Date of Termination and
that her annual bonus for such remaining Term is equal to the average of the
annual bonuses paid to her by the Company with respect to the three fiscal years
ended immediately prior to the fiscal year in which the Date of termination
occurs; plus (C) all other amounts to which she is entitled under any
compensation plan of the Company, in cash in a lump sum no later than the 15th
day following the Date of Termination;

              (ii) for a 24-month period after the Date of Termination, the
Company shall arrange to provide the Employee with life, disability, accident
and health insurance benefits substantially similar to those which the Employee
and her covered family members are receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such benefits subsequent
to a Change in Control); provided, however, that such continued benefits shall
                         --------  -------
be reduced to the extent comparable benefits are actually received by or made
available to the Employee without cost during the 24-month period following the
Employee's termination of employment (and the Employee agrees that she shall
promptly report any such benefits actually received to the Company); and

              (iii) the Company shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and defense of
officers or directors of the Company which are in effect on the date the Notice
of Termination is sent to the Employee with respect to all of her acts and
omissions while an officer or 

                                      -9-

<PAGE>
 
director as fully and completely as if such termination had not occurred, and
until the final expiration or running of all periods of limitation against
actions which may be applicable to such acts or omissions.

          (e) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Employee in
connection with the termination of the Employee's employment (whether such
benefit is pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, and all such payments and benefits
being hereinafter called "Total Payments") would not be deductible (in whole or
part), by the Company as a result of the application of Section 280G of the
Internal Revenue Code of 1986, as amended ("Code"), then, to the extent
necessary to make the nondeductible portion of the Total Payments deductible,
(i) the cash payments under this Agreement shall first be reduced (if necessary,
to zero), and (ii) all other non-cash payments under this Agreement shall next
be reduced (if necessary, to zero).

          (f) If it is established as described in the preceding subsection (e)
that the aggregate benefits paid to or for the Employee's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by reason of Section 280G of the Code, then the Employee shall have
an obligation to pay the Company upon demand an amount equal to the sum of:  (i)
the excess of the aggregate "parachute payments" paid to or for the Employee's
benefit over the aggregate "parachute payments" that could have been paid to or
for the Employee's benefit without any portion of such "parachute payments" not
being deductible by reason of Section 280G of the Code; and (ii) interest on the
amount set forth in clause (i) of this sentence at the rate provided in Section
1274(b)(2)(B) of the Code from the date of the Employee's receipt of such excess
until the date of such payment.

          (g) The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise.

          (h) If the employment of the Employee is terminated by the Company
without Cause or the Employee's employment is terminated by the Employee under
conditions entitling her to payment hereunder and the Company fails to make
timely payment of the amounts then owed to the Employee under this Agreement,
the Employee shall be entitled to interest on such amounts at the rate of 3%
above the prime rate (defined as the base rate on corporate loans at large U.S.
money center commercial banks as published by the Wall Street Journal),
                                                  ---- ------ -------
compounded monthly, for the period from the date such amounts were otherwise due
until payment is made to the Employee (which interest shall be in addition to
all rights which the Employee is otherwise entitled to under this Agreement).

                                      -10-

<PAGE>
 
     12.  Assignment.
          ------------

          (a) This Agreement is personal to each of the parties hereto.  No
party may assign or delegate any rights or obligations hereunder without first
obtaining the written consent of the other party hereto, except that this
Agreement shall be binding upon and inure to the benefit of any successor
corporation to the Company.

          (b) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.  As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes this Agreement by operation of law, or otherwise.

          (c) This Agreement shall inure to the benefit of and be enforceable by
the Employee and her personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If the
Employee should die while any amount would still be payable to her hereunder had
she continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to her devisee, legatee
or other designee or, if there is no such designee, to her estate.

     13.  (a) Confidential Information.  During the Term of this Agreement and
              ------------------------
thereafter, the Employee shall not, except as may be required to perform her
duties hereunder or as required by applicable law, disclose to others for use,
whether directly or indirectly, any Confidential Information regarding the
Company.  "Confidential Information" shall mean information about the Company,
its subsidiaries and affiliates, and their respective clients and customers that
is not available to the general public and that was learned by the Employee in
the course of her employment by the Company, including (without limitation) any
data, formulae, information, proprietary knowledge, trade secrets and client and
customer lists and all papers, resumes, records and the documents containing
such Confidential Information.  The Employee acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the Company,
and that such information gives the Company a competitive advantage.  Upon the
termination of her employment, the Employee will promptly deliver to the Company
all documents (and all copies thereof) containing any Confidential Information.

          (b) Noncompetition.  The Employee agrees that during the Term of this
              --------------
Agreement, and for a period of one year thereafter, she will not, directly or
indirectly, without the prior written consent of the Company, provide
consultative service 

                                      -11-

<PAGE>
 
with or without pay, own, manage, operate, join, control,
participate in, or be connected as a stockholder, partner, or otherwise with any
business, individual, partner, firm, corporation, or other entity which is then
in competition with the Company or any present affiliate of the Company;
provided, however, that the "beneficial ownership" by the Employee, either
- --------  -------
individually or as a member of a "group," as such terms are used in Rule 13d of
the General Rules and Regulations under the Exchange Act, of not more than 1% of
the voting stock of any publicly held corporation shall not be a violation of
this Agreement.  It is further expressly agreed that the Company will or would
suffer irreparable injury if the Employee were to compete with the Company or
any subsidiary or affiliate of the Company in violation of this Agreement and
that the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction, and the Employee further consents
and stipulates to the entry of such injunctive relief in such a court
prohibiting the Employee from competing with the Company or any subsidiary or
affiliate of the Company in violation of this Agreement.

          (c) Right to Company Materials.  The Employee agrees that all styles,
              --------------------------
designs, recipes, lists, materials, books, files, reports, correspondence,
records, and other documents ("Company Material") used, prepared, or made
available to the Employee, shall be and shall remain the property of the
Company.  Upon the termination of her employment or the expiration of this
Agreement, all Company Materials shall be returned immediately to the Company,
and Employee shall not make or retain any copies thereof.

          (d) Antisolicitation.  The Employee promises and agrees that during
              ----------------
the Term of this Agreement, and for a period of one year thereafter, she will
not influence or attempt to influence customers, franchisees, landlords, or
suppliers of the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary or affiliate of the Company.

     14.  Notice.  For the purpose of this Agreement, notices and all other
          ------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt:

                                      -12-

<PAGE>
 
          Company:  IHOP Corp.
                    525 North Brand Blvd.
                    Glendale, California  91203-1903
                    to the attention of the Board;

          with a
          copy to:  the Secretary of the Company

          Employee: Naomi K. Shively
                    24390 La Homa
                    Yorba Linda, California 92687


     15.  Amendments or Additions.  No amendments or additions to this Agreement
          -----------------------
shall be binding unless in writing and signed by both parties hereto.

     16.  Section Headings.  The section headings used in this Agreement are
          ----------------
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.

     17.  Severability.  The provisions of this Agreement shall be deemed
          ------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

     18.  Counterparts.  This Agreement may be executed in counterparts, each of
          ------------
which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.

     19.  Arbitration.  Any dispute or controversy arising under or in
          -----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in
effect.  Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Employee shall be entitled to seek
              --------  -------
specific performance of her right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.

     20.  Attorneys' Fees.  The Company shall pay to the Employee all out-of-
          ---------------
pocket expenses, including attorneys' fees, incurred by the Employee in
connection with any claim, legal action or proceeding involving this Agreement
in which the Employee prevails in whole or in part, whether brought by the
Employee or by or on behalf of the Company or by another party.  The Company
shall pay prejudgment interest on any money judgment obtained by the Employee
calculated at 3% above the 

                                      -13-

<PAGE>
 
prime rate (defined as the base rate on corporate loans at large U.S. money
center commercial banks as published by the Wall Street Journal), from the date
                                            ---- ------ -------
that payment(s) to the Employee should have been made under this Agreement.

     21.  Miscellaneous.  No provision of this Agreement may be modified, waived
          -------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Employee and such officer as may be specifically
designated by the Board.  No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.  No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement and this
agreement shall supersede any prior understanding or agreement either written or
oral, with respect to the subject matter hereto.  The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without regard to its conflicts of law principles.  All
references to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections.

     Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law.  The obligations of the
Company under Section 12 and Section 21 and the obligations of the Employee
under Section 13 and Section 21 shall survive the expiration of the Term of this
Agreement.

     IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
on the date first indicated above.

                                             IHOP CORP.
ATTEST:


/s/ Mark D. Weisberger                       By: /s/ Richard K. Herzer
- --------------------------------                 -------------------------------
Mark D. Weisberger                               Richard K. Herzer
Secretary                                        President


                                             EMPLOYEE:


                                             /s/ Naomi K. Shively
                                             -----------------------------------
                                             Naomi K. Shively

                                      -14-



<PAGE>
 
                                                                   EXHIBIT 10.11

                                  EMPLOYMENT AGREEMENT


     This Employment Agreement (the "Agreement") is entered into on April 29,
1996, and shall become effective on July 8, 1996 (the "Effective Date"), between
IHOP CORP., a Delaware corporation (the "Company"), and FREDERICK G. SILNY (the
"Employee").

     WHEREAS, Company and Employee are parties to an Employment Agreement dated
July 8, 1991, which terminates on July 7, 1996;

     WHEREAS, the parties desire to enter into a new Employment Agreement
setting forth the terms and conditions for the continuing employment
relationship of the Employee with the Company; and

     WHEREAS, the Board of Directors of the Company (the "Board") has approved
and authorized the Company to enter into this Agreement with the Employee.

     NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements herein contained and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:

     1.  Employment.  The Employee is employed as Vice President - Finance,
         ----------
Treasurer and Chief Financial Officer of the Company from the Effective Date
through the Term of this Agreement (as defined in Section 2 hereof).  In this
capacity, the Employee shall have such duties and responsibilities as may be

designated to him by the Board from time to time and as are not inconsistent
with the Employee's position with the Company, including the performance of
duties with respect to any subsidiaries of the Company, as may be designated by
the Board.  During the Employee's period of employment hereunder, the Employee
shall be based in the principal offices of the Company in Southern California,
and shall not be required to relocate outside of Southern California to perform
services hereunder, except for travel as reasonably required in the performance
of his duties hereunder.

     2.  Term.  The "initial term" of this Agreement shall be for the period
         ----
commencing on the Effective Date and ending on the first anniversary of the
Effective Date; provided, however, that on the first anniversary of the
                --------  -------
Effective Date, and on each subsequent anniversary date thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than 90 days prior to such applicable anniversary date, the Company or
the Employee shall give notice not to extend this Agreement; and provided
                                                                 --------
further, however, that, if a Change in Control (as defined in Section 10(g))
- -------  -------
occurs prior to the expiration of the Term of this 

<PAGE>
 
Agreement, this Agreement shall remain in full force and effect and shall not
expire prior to the last day of the 24th month following the date of such Change
in Control. The "Term of this Agreement" or "Term" shall mean, for purposes of
this Agreement, both the "initial term" (as hereinbefore described) and any
additional term (created by extension, as described above), and the Term of this
Agreement shall not be affected by the Employee's termination of employment.

     3.  Salary.  Subject to the further provisions of this Agreement, the
         ------
Company shall pay the Employee during the Term of this Agreement a salary at an
annual rate equal to $214,000.00, with such salary to be increased at such
times, if any, and in such amounts as determined by the Board, which increases
shall be consistent with the historical business practices of the Company and
the salary adjustments for other senior executives of the Company.  Such salary
shall be payable by the Company to the Employee not less frequently than monthly
and shall not be decreased at any time during the Term of this Agreement.
Participation in deferred compensation, discretionary bonus, retirement, and
other employee benefit plans and in fringe benefits shall not reduce the salary
payable to the Employee under this Section 3.

     4.  Participation in Bonus, Retirement and Employee Benefit Plans.  The
         -------------------------------------------------------------
Employee shall be entitled to participate equitably with other senior executives
in any plan of the Company relating to bonuses, stock options, stock purchases,
pension, thrift, profit sharing, life insurance, medical coverage, education, or
other retirement or employee benefits that the Company has adopted or may adopt
for the benefit of its senior executives.

     5.  Fringe Benefits; Automobile.  The Employee shall be entitled to receive
         ---------------------------
all other fringe benefits which are now or may be provided to the Company's
senior executives.  In addition, the Company shall provide the Employee during
the Term of this Agreement with his choice of a car or a car allowance in
accordance with the Company's general policy on providing cars to senior
executives.  Notwithstanding the foregoing, the benefits provided under this
Section 5 shall cease upon the Employee's Date of Termination (as defined in
Section 10(d)).

     6.  Vacations.  The Employee shall be entitled to an annual paid vacation
         ---------
as determined in accordance with the Company's general policy for senior
executives.

     7.  Business Expenses.   During such time as the Employee is rendering
         -----------------
services hereunder, the Employee shall be entitled to incur and be reimbursed
for all reasonable business expenses and be provided allowances as are furnished
to the Company's most senior executives under the Company's then current
policies.  The Company agrees that it will reimburse the Employee for all such
expenses upon the presentation by the Employee, from time to time, of an
itemized account of such expenditures, setting forth the date, the purposes for
which incurred, and the amounts 

                                      -2-

<PAGE>
 
thereof, together with such receipts showing payments in conformity with the
Company's established policies. Reimbursement shall be made within a reasonable
period after the Employee's submission of an itemized account.

     8.  Insurance and Indemnity.    The Employee shall be added as an
         -----------------------
additional named insured under all appropriate insurance policies now in force
or hereafter obtained covering any officers or directors of the Company.  The
Company shall indemnify and hold the Employee harmless from any cost, expense or
liability arising out of or relating to any acts or decisions made by the
Employee on behalf of or in the course of performing services for the Company to
the same extent the Company indemnifies and holds harmless other senior
executive officers and directors of the Company and in accordance with the
Company's established policies.

     9.  Legal and Accounting Advice.   The Employee shall be entitled to
         ---------------------------
reimbursement by the Company for expenses incurred by him for personal legal,
accounting, investment or estate planning services in an amount to be determined
by the Board, but in no event greater than $5,000 annually (or a pro rata
portion of such amount for any period of employment less than a full year);
provided, however, that no reimbursement shall be made for any such expenses
- --------  -------
incurred by the Employee after such Employee's Date of Termination.

     10.  Termination.
          -----------

          (a)  Disability.    If, as a result of the Employee's incapacity due
               ----------
to physical or mental illness, he shall have been absent from the full-time
performance of his duties with the Company for 90 consecutive days or 180 days
within any 12-month period, his employment may be terminated by the Company for
"Disability."

          (b)  Cause.    Subject to the notice provisions set forth below, the
               -----
Company may terminate the Employee's employment for "Cause" at any time.
"Cause" shall mean termination upon:  (1) the willful failure by the Employee to
substantially perform his duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to him by the Board,
which demand specifically identifies the manner in which the Board believes that
he has not substantially performed his duties; (2) the Employee's willful
misconduct that is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (3) the Employee's commission of such acts of
dishonesty, fraud, misrepresentation or other acts of moral turpitude as would
prevent the effective performance of his duties.  For purposes of this
subsection (b), no act, or failure to act, on the Employee's part shall be
deemed "willful" unless done, or omitted to be done, by him not in good faith
and without the reasonable belief that his action or omission was in the best
interest of the Company.  Notwithstanding the foregoing, the Employee shall not
be deemed to have been 

                                      -3-

<PAGE>
 
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of a majority of the
non-employee members of the Board at a meeting of such members (after reasonable
notice to him and an opportunity for him, together with his counsel, to be heard
before such members of the Board), finding that he has engaged in the conduct
set forth above in this subsection (b) and specifying the particulars thereof in
detail.

          (c)  Notice of Termination.  Any termination of the Employee's
               ---------------------
employment by the Company or by the Employee shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 14.
"Notice of Termination" shall mean a notice that indicates the specific
termination provision in this Agreement relied upon and sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for the
termination of the Employee's employment under the provision so indicated.

          (d)  Date of Termination.  "Date of Termination" shall mean:  (1) if
               -------------------
the Employee's employment is terminated by his death, the date of his death; (2)
if the Employee's employment is terminated for Disability, 30 days after Notice
of Termination is given; and (3) if the Employee's employment is terminated for
any other reason, the date specified in the Notice of Termination.

          (e)  Dispute Concerning Termination.    If within the later of (i) 15
               ------------------------------
days after Notice of Termination is given, or (ii) 15 days prior to the Date of
Termination (as determined without regard to this Section 10(e), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning a termination by the Employee for Good Reason (as defined in
Section 10(h)) following a Change in Control (as defined in Section 10(g)), the
Date of Termination shall be the earlier of the expiration date of the
Agreement, or the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); provided, however, that the Date of Termination shall be extended by
            --------  -------
a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence.

          (f)  Compensation During Dispute.  If a purported termination by the
               ---------------------------
Employee for Good Reason occurs following a Change in Control and during the
Term of this Agreement, and such termination is disputed in accordance with
Section 10(e) hereof, the Company shall continue to pay the Employee the full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, salary) and continue the Employee as a
participant in all compensation, benefit and insurance plans in which the
Employee was participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with 

                                      -4-

<PAGE>
 
Section 10(e) hereof or, if earlier, the expiration date of the Agreement.
Amounts paid under this Section 10(f) are in addition to all other amounts due
under this Agreement (other than those due under Section 11(b) hereof) and shall
not be offset against or reduce any other amounts payable under this Agreement.

          (g)  Change in Control.  A "Change in Control" shall be deemed to
               -----------------
have occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:

               (i)  any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(other than the Company; any trustee or other fiduciary holding securities under
an employee benefit plan of the Company; or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of the stock of the Company) is or becomes after
the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding securities; or

               (ii) during any period of two consecutive years (not including
any period prior to the Effective Date), individuals who at the beginning of
such period constitute the Board and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in subsection (i), (iii) or (iv) of this Section
10(g)) whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least 2/3 of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or

               (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or

                                      -5-

<PAGE>
 
               (iv)  the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.

          (h)  Good Reason.  At any time following a Change in Control, the
               -----------
Employee may terminate his employment hereunder for "Good Reason."  "Good
Reason" shall mean the occurrence (without the Employee's express written
consent) of any material breach of this Agreement, including, without
limitation, any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
subsections (i), (iv), (v), (vi) or (vii) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:

               (i)  the assignment to the Employee of any duties inconsistent
with the Employee's status as a senior executive of the Company or a
substantially adverse alteration in the nature or status of the Employee's
responsibilities from those in effect immediately prior to the Change in
Control;

               (ii) a reduction by the Company in the Employee's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;

               (iii) the relocation of the Company's principal offices to a
location outside Southern California (or, if different, the metropolitan area in
which such offices are located immediately prior to the Change in Control) or
the Company's requiring the Employee to be based anywhere other than the
Company's principal executive offices, except for required travel on the
Company's business to an extent substantially consistent with the Employee's
present business travel obligations;

               (iv) the failure by the Company to pay to the Employee any
portion of the Employee's current compensation, or to pay to the Employee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven days of the date such
compensation is due;

               (v)  the failure by the Company to continue in effect any
compensation plan in which the Employee participates immediately prior to the
Change in Control which is material to the Employee's total compensation, unless
an equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company to
continue the Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the 

                                      -6-

<PAGE>
 
level of the Employee's participation relative to other participants, as existed
immediately prior to the Change in Control;

               (vi) the failure by the Company to continue to provide the
Employee with benefits substantially similar to those enjoyed by the Employee
under any of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Employee was participating
immediately prior to the Change in Control; the taking of any action by the
Company which would directly or indirectly materially reduce any of such
benefits or deprive the Employee of any material fringe benefit enjoyed by the
Employee immediately prior to the Change in Control; or the failure by the
Company to provide the Employee with the number of paid vacation days to which
the Employee is entitled on the basis of years of service with the Company in
accordance with the Company's general vacation policy in effect immediately
prior to the Change in Control;

               (vii) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective; or

               (viii) any failure by the Company to comply with and satisfy
Section 12(b) of this Agreement.

     The Employee's right to terminate the Employee's employment for Good Reason
shall not be affected by the Employee's incapacity due to physical or mental
illness.  The Employee's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any act or failure to act constituting
Good Reason hereunder.

          (i)  Voluntary Termination.   The Employee may terminate his
               ---------------------
employment hereunder ("Voluntary Termination") upon a material breach of this
Agreement by the Company, unless the Company shall fully correct such breach
within 30 days of the Employee's Notice of Termination given in respect thereof.

     11.  Compensation Upon Termination or During Disability.   The Employee
          --------------------------------------------------
shall be entitled to the following benefits during a period of disability, or
upon termination of his employment, as the case may be, provided that such
period or termination occurs during the Term of this Agreement:

          (a) During any period that the Employee fails to perform his full-time
duties with the Company as a result of incapacity due to physical or mental
illness, he shall continue to receive his base salary at the rate in effect at
the commencement of any such period, together with all compensation payable to
him under the Company's disability plan or program or other similar plan during
such period, until his 

                                      -7-

<PAGE>
 
employment is terminated pursuant to Section 10(a) hereof. Thereafter, or in the
event the Employee's employment shall be terminated by reason of his death, his
benefits shall be determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the terms of such
programs.

          (b) If at any time the Employee's employment shall be terminated:  (i)
by the Company for Cause or Disability or (ii) by him for any reason (other than
in a Voluntary Termination or for Good Reason following the occurrence of a
Change in Control), the Company shall pay him his full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given, plus all other amounts to which he is entitled through the Date of
Termination under any compensation plan of the Company at the time such payments
are due, and the Company shall have no further obligations to him under this
Agreement.

          (c) If the Employee's employment should be terminated:  (1) by reason
of his death, (2) by the Company other than for Cause or Disability or (3) by
the Employee in a Voluntary Termination, he shall be entitled to the benefits
provided below:

              (i)  the Company shall pay to the Employee or the appropriate
payee (as determined in accordance with Section 12(c)) (A) his full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given; plus (B)(x) in the case of death or a Voluntary
Termination all salary and bonus payments that would have been payable to the
Employee pursuant to this Agreement for the remaining Term of this Agreement, or
(y) in all other cases, all salary and bonus payments that would have been
payable to the Employee had the Employee continued to be employed for a period
of 12 months, assuming for the purpose of such payments that his salary for such
remaining period is equal to his salary at the Date of Termination and that his
annual bonus for such remaining Term is equal to the average of the annual
bonuses paid to him by the Company with respect to the three fiscal years ended
immediately prior to the fiscal year in which the Date of termination occurs;
plus (C) all other amounts to which he is entitled under any compensation plan
of the Company, in cash in a lump sum no later than the 15th day following the
Date of Termination;

             (ii) for a 12-month period after the Date of Termination, the
Company shall arrange to provide the Employee with life, disability, accident
and health insurance benefits substantially similar to those which the Employee
and his covered family members are receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such benefits subsequent
to a Change in Control); provided, however, that such continued benefits shall
                         --------  -------
be reduced to the extent comparable benefits are actually received by or made
available to the Employee without cost during the 12-month period following the
Employee's termination of 

                                      -8-

<PAGE>
 
employment (and the Employee agrees that he shall promptly report any such
benefits actually received to the Company); and

             (iii) the Company shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and defense of
officers or directors of the Company which are in effect on the date the Notice
of Termination is sent to the Employee with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation against actions which may be applicable to such acts or
omissions.

          (d) If the Employee's employment should be terminated by the Employee
for Good Reason following a Change in Control, he shall be entitled to the
benefits provided below:

              (i) the Company shall pay to the Employee or the appropriate payee
(as determined in accordance with Section 12(c)) (A) his full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given; plus (B) all salary and bonus payments that would have
been payable to the Employee had the Employee continued to be employed for a
period of 24 months, assuming for the purpose of such payments that his salary
for such remaining period is equal to his salary at the Date of Termination and
that his annual bonus for such remaining Term is equal to the average of the
annual bonuses paid to him by the Company with respect to the three fiscal years
ended immediately prior to the fiscal year in which the Date of termination
occurs; plus (C) all other amounts to which he is entitled under any
compensation plan of the Company, in cash in a lump sum no later than the 15th
day following the Date of Termination;

              (ii) for a 24-month period after the Date of Termination, the
Company shall arrange to provide the Employee with life, disability, accident
and health insurance benefits substantially similar to those which the Employee
and his covered family members are receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such benefits subsequent
to a Change in Control); provided, however, that such continued benefits shall
                         --------  -------
be reduced to the extent comparable benefits are actually received by or made
available to the Employee without cost during the 24-month period following the
Employee's termination of employment (and the Employee agrees that he shall
promptly report any such benefits actually received to the Company); and

              (iii) the Company shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and defense of
officers or directors of the Company which are in effect on the date the Notice
of Termination is sent to the Employee with respect to all of his acts and
omissions while an officer or 

                                      -9-

<PAGE>
 
director as fully and completely as if such termination had not occurred, and
until the final expiration or running of all periods of limitation against
actions which may be applicable to such acts or omissions.

          (e) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Employee in
connection with the termination of the Employee's employment (whether such
benefit is pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, and all such payments and benefits
being hereinafter called "Total Payments") would not be deductible (in whole or
part), by the Company as a result of the application of Section 280G of the
Internal Revenue Code of 1986, as amended ("Code"), then, to the extent
necessary to make the nondeductible portion of the Total Payments deductible,
(i) the cash payments under this Agreement shall first be reduced (if necessary,
to zero), and (ii) all other non-cash payments under this Agreement shall next
be reduced (if necessary, to zero).

          (f) If it is established as described in the preceding subsection (e)
that the aggregate benefits paid to or for the Employee's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by reason of Section 280G of the Code, then the Employee shall have
an obligation to pay the Company upon demand an amount equal to the sum of:  (i)
the excess of the aggregate "parachute payments" paid to or for the Employee's
benefit over the aggregate "parachute payments" that could have been paid to or
for the Employee's benefit without any portion of such "parachute payments" not
being deductible by reason of Section 280G of the Code; and (ii) interest on the
amount set forth in clause (i) of this sentence at the rate provided in Section
1274(b)(2)(B) of the Code from the date of the Employee's receipt of such excess
until the date of such payment.

          (g) The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise.

          (h) If the employment of the Employee is terminated by the Company
without Cause or the Employee's employment is terminated by the Employee under
conditions entitling him to payment hereunder and the Company fails to make
timely payment of the amounts then owed to the Employee under this Agreement,
the Employee shall be entitled to interest on such amounts at the rate of 3%
above the prime rate (defined as the base rate on corporate loans at large U.S.
money center commercial banks as published by the Wall Street Journal),
                                                  ---- ------ -------
compounded monthly, for the period from the date such amounts were otherwise due
until payment is made to the Employee (which interest shall be in addition to
all rights which the Employee is otherwise entitled to under this Agreement).

                                      -10-

<PAGE>
 
     12.  Assignment.
          ----------

          (a) This Agreement is personal to each of the parties hereto.  No
party may assign or delegate any rights or obligations hereunder without first
obtaining the written consent of the other party hereto, except that this
Agreement shall be binding upon and inure to the benefit of any successor
corporation to the Company.

          (b) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.  As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes this Agreement by operation of law, or otherwise.

          (c) This Agreement shall inure to the benefit of and be enforceable by
the Employee and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If the
Employee should die while any amount would still be payable to him hereunder had
he continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to his devisee, legatee
or other designee or, if there is no such designee, to his estate.

     13.  (a)  Confidential Information.  During the Term of this Agreement and
               ------------------------
thereafter, the Employee shall not, except as may be required to perform his
duties hereunder or as required by applicable law, disclose to others for use,
whether directly or indirectly, any Confidential Information regarding the
Company.  "Confidential Information" shall mean information about the Company,
its subsidiaries and affiliates, and their respective clients and customers that
is not available to the general public and that was learned by the Employee in
the course of his employment by the Company, including (without limitation) any
data, formulae, information, proprietary knowledge, trade secrets and client and
customer lists and all papers, resumes, records and the documents containing
such Confidential Information.  The Employee acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the Company,
and that such information gives the Company a competitive advantage.  Upon the
termination of his employment, the Employee will promptly deliver to the Company
all documents (and all copies thereof) containing any Confidential Information.

          (b) Noncompetition.  The Employee agrees that during the Term of this
              --------------
Agreement, and for a period of one year thereafter, he will not, directly or
indirectly, without the prior written consent of the Company, provide
consultative service 

                                      -11-

<PAGE>
 
with or without pay, own, manage, operate, join, control, participate in, or be
connected as a stockholder, partner, or otherwise with any business, individual,
partner, firm, corporation, or other entity which is then in competition with
the Company or any present affiliate of the Company; provided, however, that the
                                                     --------  -------
"beneficial ownership" by the Employee, either individually or as a member of a
"group," as such terms are used in Rule 13d of the General Rules and Regulations
under the Exchange Act, of not more than 1% of the voting stock of any publicly
held corporation shall not be a violation of this Agreement. It is further
expressly agreed that the Company will or would suffer irreparable injury if the
Employee were to compete with the Company or any subsidiary or affiliate of the
Company in violation of this Agreement and that the Company would by reason of
such competition be entitled to injunctive relief in a court of appropriate
jurisdiction, and the Employee further consents and stipulates to the entry of
such injunctive relief in such a court prohibiting the Employee from competing
with the Company or any subsidiary or affiliate of the Company in violation of
this Agreement.

          (c) Right to Company Materials.  The Employee agrees that all styles,
              --------------------------
designs, recipes, lists, materials, books, files, reports, correspondence,
records, and other documents ("Company Material") used, prepared, or made
available to the Employee, shall be and shall remain the property of the
Company.  Upon the termination of his employment or the expiration of this
Agreement, all Company Materials shall be returned immediately to the Company,
and Employee shall not make or retain any copies thereof.

          (d) Antisolicitation.  The Employee promises and agrees that during
              ----------------
the Term of this Agreement, and for a period of one year thereafter, he will not
influence or attempt to influence customers, franchisees, landlords, or
suppliers of the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary or affiliate of the Company.

     14.  Notice.  For the purpose of this Agreement, notices and all other
          ------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt:

                                      -12-

<PAGE>
 
          Company:  IHOP Corp.
                    525 North Brand Blvd.
                    Glendale, California  91203-1903
                    to the attention of the Board;

          with a
          copy to:  the Secretary of the Company

          Employee: Frederick G. Silny
                    2247 W. Silver Lake Drive
                    Los Angeles  CA  91355


     15.  Amendments or Additions.  No amendments or additions to this Agreement
          -----------------------
shall be binding unless in writing and signed by both parties hereto.

     16.  Section Headings.  The section headings used in this Agreement are
          ----------------
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.

     17.  Severability.  The provisions of this Agreement shall be deemed
          ------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

     18.  Counterparts.  This Agreement may be executed in counterparts, each of
          ------------
which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.

     19.  Arbitration.  Any dispute or controversy arising under or in
          -----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in
effect.  Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Employee shall be entitled to seek
              --------  -------
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.

     20.  Attorneys' Fees.  The Company shall pay to the Employee all out-of-
          ---------------
pocket expenses, including attorneys' fees, incurred by the Employee in
connection with any claim, legal action or proceeding involving this Agreement
in which the Employee prevails in whole or in part, whether brought by the
Employee or by or on behalf of the Company or by another party.  The Company
shall pay prejudgment interest on any money judgment obtained by the Employee
calculated at 3% above the 

                                      -13-

<PAGE>
 
prime rate (defined as the base rate on corporate loans at large U.S. money
center commercial banks as published by the Wall Street Journal), from the date
                                            ---- ------ -------
that payment(s) to the Employee should have been made under this Agreement.

     21.  Miscellaneous.  No provision of this Agreement may be modified, waived
          -------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Employee and such officer as may be specifically
designated by the Board.  No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.  No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement and this
agreement shall supersede any prior understanding or agreement either written or
oral, with respect to the subject matter hereto.  The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without regard to its conflicts of law principles.  All
references to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections.

     Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law.  The obligations of the
Company under Section 12 and Section 21 and the obligations of the Employee
under Section 13 and Section 21 shall survive the expiration of the Term of this
Agreement.

     IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
on the date first indicated above.

                                            IHOP CORP.

ATTEST:


/s/ Mark D. Weisberger                      By: /s/ Richard K. Herzer
- -------------------------------                 ---------------------------
Mark D. Weisberger                              Richard K. Herzer
Secretary                                       President

                                            EMPLOYEE


                                            /s/ Frederick G. Silny
                                            -------------------------------
                                            Frederick G. Silny

                                      -14-



<PAGE>
 
                                                                   EXHIBIT 10.12

                                  EMPLOYMENT AGREEMENT


     This Employment Agreement (the "Agreement") is entered into on April 29,
1996, and shall become effective on July 8, 1996 (the "Effective Date"), between
IHOP CORP., a Delaware corporation (the "Company"), and ANNA G. ULVAN (the
"Employee").

     WHEREAS, Company and Employee are parties to an Employment Agreement dated
July 8, 1991, which terminates on July 7, 1996;

     WHEREAS, the parties desire to enter into a new Employment Agreement
setting forth the terms and conditions for the continuing employment
relationship of the Employee with the Company; and

     WHEREAS, the Board of Directors of the Company (the "Board") has approved
and authorized the Company to enter into this Agreement with the Employee.

     NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements herein contained and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:

     1.  Employment.  The Employee is employed as Vice President, Franchise of
         ----------
the Company from the Effective Date through the Term of this Agreement (as
defined in Section 2 hereof).  In this capacity, the Employee shall have such
duties and responsibilities as may be designated to him by the Board from time
to
 time and as are not inconsistent with the Employee's position with the
Company, including the performance of duties with respect to any subsidiaries of
the Company, as may be designated by the Board.  During the Employee's period of
employment hereunder, the Employee shall be based in the principal offices of
the Company in Southern California, and shall not be required to relocate
outside of Southern California to perform services hereunder, except for travel
as reasonably required in the performance of his duties hereunder.

     2.  Term.  The "initial term" of this Agreement shall be for the period
         ----
commencing on the Effective Date and ending on the first anniversary of the
Effective Date; provided, however, that on the first anniversary of the
                --------  -------
Effective Date, and on each subsequent anniversary date thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than 90 days prior to such applicable anniversary date, the Company or
the Employee shall give notice not to extend this Agreement; and provided
                                                                 --------
further, however, that, if a Change in Control (as defined in Section 10(g))
- -------  -------
occurs prior to the expiration of the Term of this 

<PAGE>
 
Agreement, this Agreement shall remain in full force and effect and shall not
expire prior to the last day of the 24th month following the date of such Change
in Control. The "Term of this Agreement" or "Term" shall mean, for purposes of
this Agreement, both the "initial term" (as hereinbefore described) and any
additional term (created by extension, as described above), and the Term of this
Agreement shall not be affected by the Employee's termination of employment.

     3.  Salary.  Subject to the further provisions of this Agreement, the
         ------
Company shall pay the Employee during the Term of this Agreement a salary at an
annual rate equal to $178,000.00, with such salary to be increased at such
times, if any, and in such amounts as determined by the Board, which increases
shall be consistent with the historical business practices of the Company and
the salary adjustments for other senior executives of the Company.  Such salary
shall be payable by the Company to the Employee not less frequently than monthly
and shall not be decreased at any time during the Term of this Agreement.
Participation in deferred compensation, discretionary bonus, retirement, and
other employee benefit plans and in fringe benefits shall not reduce the salary
payable to the Employee under this Section 3.

     4.  Participation in Bonus, Retirement and Employee Benefit Plans.  The
         -------------------------------------------------------------
Employee shall be entitled to participate equitably with other senior executives
in any plan of the Company relating to bonuses, stock options, stock purchases,
pension, thrift, profit sharing, life insurance, medical coverage, education, or
other retirement or employee benefits that the Company has adopted or may adopt
for the benefit of its senior executives.

     5.  Fringe Benefits; Automobile.  The Employee shall be entitled to receive
         ---------------------------
all other fringe benefits which are now or may be provided to the Company's
senior executives.  In addition, the Company shall provide the Employee during
the Term of this Agreement with his choice of a car or a car allowance in
accordance with the Company's general policy on providing cars to senior
executives.  Notwithstanding the foregoing, the benefits provided under this
Section 5 shall cease upon the Employee's Date of Termination (as defined in
Section 10(d)).

     6.  Vacations.  The Employee shall be entitled to an annual paid vacation
         ---------
as determined in accordance with the Company's general policy for senior
executives.

     7.  Business Expenses.   During such time as the Employee is rendering
         -----------------
services hereunder, the Employee shall be entitled to incur and be reimbursed
for all reasonable business expenses and be provided allowances as are furnished
to the Company's most senior executives under the Company's then current
policies.  The Company agrees that it will reimburse the Employee for all such
expenses upon the presentation by the Employee, from time to time, of an
itemized account of such expenditures, setting forth the date, the purposes for
which incurred, and the amounts 

                                      -2-

<PAGE>
 
thereof, together with such receipts showing payments in conformity with the
Company's established policies. Reimbursement shall be made within a reasonable
period after the Employee's submission of an itemized account.

     8.  Insurance and Indemnity.    The Employee shall be added as an
         -----------------------
additional named insured under all appropriate insurance policies now in force
or hereafter obtained covering any officers or directors of the Company.  The
Company shall indemnify and hold the Employee harmless from any cost, expense or
liability arising out of or relating to any acts or decisions made by the
Employee on behalf of or in the course of performing services for the Company to
the same extent the Company indemnifies and holds harmless other senior
executive officers and directors of the Company and in accordance with the
Company's established policies.

     9.  Legal and Accounting Advice.   The Employee shall be entitled to
         ---------------------------
reimbursement by the Company for expenses incurred by him for personal legal,
accounting, investment or estate planning services in an amount to be determined
by the Board, but in no event greater than $5,000 annually (or a pro rata
portion of such amount for any period of employment less than a full year);
provided, however, that no reimbursement shall be made for any such expenses
- --------  -------
incurred by the Employee after such Employee's Date of Termination.

     10.  Termination.
          -----------

          (a)  Disability.    If, as a result of the Employee's incapacity due
               ----------
to physical or mental illness, he shall have been absent from the full-time
performance of his duties with the Company for 90 consecutive days or 180 days
within any 12-month period, his employment may be terminated by the Company for
"Disability."

          (b)  Cause.    Subject to the notice provisions set forth below, the
               -----
Company may terminate the Employee's employment for "Cause" at any time.
"Cause" shall mean termination upon:  (1) the willful failure by the Employee to
substantially perform his duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to him by the Board,
which demand specifically identifies the manner in which the Board believes that
he has not substantially performed his duties; (2) the Employee's willful
misconduct that is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (3) the Employee's commission of such acts of
dishonesty, fraud, misrepresentation or other acts of moral turpitude as would
prevent the effective performance of his duties.  For purposes of this
subsection (b), no act, or failure to act, on the Employee's part shall be
deemed "willful" unless done, or omitted to be done, by him not in good faith
and without the reasonable belief that his action or omission was in the best
interest of the Company.  Notwithstanding the foregoing, the Employee shall not
be deemed to have been 

                                      -3-

<PAGE>
 
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of a majority of the
non-employee members of the Board at a meeting of such members (after reasonable
notice to him and an opportunity for him, together with his counsel, to be heard
before such members of the Board), finding that he has engaged in the conduct
set forth above in this subsection (b) and specifying the particulars thereof in
detail.

          (c)  Notice of Termination.  Any termination of the Employee's
               ---------------------
employment by the Company or by the Employee shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 14.
"Notice of Termination" shall mean a notice that indicates the specific
termination provision in this Agreement relied upon and sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for the
termination of the Employee's employment under the provision so indicated.

          (d)  Date of Termination.  "Date of Termination" shall mean:  (1) if
               -------------------
the Employee's employment is terminated by his death, the date of his death; (2)
if the Employee's employment is terminated for Disability, 30 days after Notice
of Termination is given; and (3) if the Employee's employment is terminated for
any other reason, the date specified in the Notice of Termination.

          (e)  Dispute Concerning Termination.    If within the later of (i) 15
               ------------------------------
days after Notice of Termination is given, or (ii) 15 days prior to the Date of
Termination (as determined without regard to this Section 10(e), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning a termination by the Employee for Good Reason (as defined in
Section 10(h)) following a Change in Control (as defined in Section 10(g)), the
Date of Termination shall be the earlier of the expiration date of the
Agreement, or the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); provided, however, that the Date of Termination shall be extended by
            --------  -------
a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence.

          (f)  Compensation During Dispute.  If a purported termination by the
               ---------------------------
Employee for Good Reason occurs following a Change in Control and during the
Term of this Agreement, and such termination is disputed in accordance with
Section 10(e) hereof, the Company shall continue to pay the Employee the full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, salary) and continue the Employee as a
participant in all compensation, benefit and insurance plans in which the
Employee was participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with 

                                      -4-

<PAGE>
 
Section 10(e) hereof or, if earlier, the expiration date of the Agreement.
Amounts paid under this Section 10(f) are in addition to all other amounts due
under this Agreement (other than those due under Section 11(b) hereof) and shall
not be offset against or reduce any other amounts payable under this Agreement.

          (g)  Change in Control.  A "Change in Control" shall be deemed to
               -----------------
have occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:

               (i)  any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(other than the Company; any trustee or other fiduciary holding securities under
an employee benefit plan of the Company; or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of the stock of the Company) is or becomes after
the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding securities; or

               (ii)  during any period of two consecutive years (not including
any period prior to the Effective Date), individuals who at the beginning of
such period constitute the Board and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in subsection (i), (iii) or (iv) of this Section
10(g)) whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least 2/3 of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or

               (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or

                                      -5-

<PAGE>
 
               (iv)  the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.

          (h)  Good Reason.  At any time following a Change in Control, the
               -----------
Employee may terminate his employment hereunder for "Good Reason."  "Good
Reason" shall mean the occurrence (without the Employee's express written
consent) of any material breach of this Agreement, including, without
limitation, any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
subsections (i), (iv), (v), (vi) or (vii) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:

               (i)  the assignment to the Employee of any duties inconsistent
with the Employee's status as a senior executive of the Company or a
substantially adverse alteration in the nature or status of the Employee's
responsibilities from those in effect immediately prior to the Change in
Control;

               (ii)  a reduction by the Company in the Employee's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;

               (iii) the relocation of the Company's principal offices to a
location outside Southern California (or, if different, the metropolitan area in
which such offices are located immediately prior to the Change in Control) or
the Company's requiring the Employee to be based anywhere other than the
Company's principal executive offices, except for required travel on the
Company's business to an extent substantially consistent with the Employee's
present business travel obligations;

               (iv)  the failure by the Company to pay to the Employee any
portion of the Employee's current compensation, or to pay to the Employee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven days of the date such
compensation is due;

               (v)  the failure by the Company to continue in effect any
compensation plan in which the Employee participates immediately prior to the
Change in Control which is material to the Employee's total compensation, unless
an equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company to
continue the Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the 

                                      -6-

<PAGE>
 
level of the Employee's participation relative to other participants, as existed
immediately prior to the Change in Control;

               (vi)  the failure by the Company to continue to provide the
Employee with benefits substantially similar to those enjoyed by the Employee
under any of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Employee was participating
immediately prior to the Change in Control; the taking of any action by the
Company which would directly or indirectly materially reduce any of such
benefits or deprive the Employee of any material fringe benefit enjoyed by the
Employee immediately prior to the Change in Control; or the failure by the
Company to provide the Employee with the number of paid vacation days to which
the Employee is entitled on the basis of years of service with the Company in
accordance with the Company's general vacation policy in effect immediately
prior to the Change in Control;

               (vii) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective; or

               (viii) any failure by the Company to comply with and satisfy
Section 12(b) of this Agreement.

     The Employee's right to terminate the Employee's employment for Good Reason
shall not be affected by the Employee's incapacity due to physical or mental
illness.  The Employee's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any act or failure to act constituting
Good Reason hereunder.

          (i)  Voluntary Termination.   The Employee may terminate his
               ---------------------
employment hereunder ("Voluntary Termination") upon a material breach of this
Agreement by the Company, unless the Company shall fully correct such breach
within 30 days of the Employee's Notice of Termination given in respect thereof.

     11.  Compensation Upon Termination or During Disability.   The Employee
          --------------------------------------------------
shall be entitled to the following benefits during a period of disability, or
upon termination of his employment, as the case may be, provided that such
period or termination occurs during the Term of this Agreement:

          (a) During any period that the Employee fails to perform his full-time
duties with the Company as a result of incapacity due to physical or mental
illness, he shall continue to receive his base salary at the rate in effect at
the commencement of any such period, together with all compensation payable to
him under the Company's disability plan or program or other similar plan during
such period, until his 

                                      -7-

<PAGE>
 
employment is terminated pursuant to Section 10(a) hereof. Thereafter, or in the
event the Employee's employment shall be terminated by reason of his death, his
benefits shall be determined under