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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Check One)

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

For The Fiscal Year Ended June 27, 2004

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

For the transition period from ___ to ___

Commission File Number:000-22639

CHAMPPS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)

303-804-1333
(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share

          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 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 Resolution S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K: [X]

          Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): YES [X] NO [ ]

           The aggregate market value of Common Stock held by non-affiliates of the Registrant as of September 1, 2004, based on the closing price of the Common Stock as reported by the Nasdaq National Market on September 1, 2004 of $8.34 per share, was $74,372,042. Solely for purposes of this computation, shares held by all officers, directors and 10% or more beneficial owners of the registrant have been excluded. Such exclusion should not be deemed a determination or an admission that such officers, directors or 10% or more beneficial owners are, in fact, affiliates of the registrant.

           Number of shares of Common Stock, $.01 par value, outstanding at August 31, 2004: 12,821,423

DOCUMENTS INCORPORATED BY REFERENCE

           Certain portions of the Company’s definitive proxy statement to be used in connection with its 2004 Annual Meeting of Stockholders and to be filed within 120 days of June 27, 2004 are incorporated by reference into Part III, Items 10-14, of this report on Form 10-K.

           Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to the reports will be provided without charge upon written request addressed to: Investor Relations, Champps Entertainment, Inc., 10375 Park Meadows Drive, Suite 560, Littleton, Colorado 80124 and will also be available on our web site at www.champps.com under the heading "Investor Relations," as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Code of Business Conduct and Ethics is available on our website under the heading "The Company."

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FORM 10-K INDEX

PART I

PART II

PART III

PART IV

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FORWARD-LOOKING STATEMENTS

           This Annual Report on Form 10-K and the documents incorporated by reference into the Annual Report on Form 10-K include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We use words such as “may,” “believe,” “estimate,” “expect,” “plan,” “intend,” “project,” “anticipate” and similar expressions to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events, activities or developments. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Forward-looking statements include, without limitations, statements relating to, among other things:

           These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us, including the factors described under “Item 1. Business — Risk Factors.” The forward-looking events we discuss in this Annual Report on Form 10-K might not occur in light of these risks, uncertainties and assumptions. We undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and, therefore, readers should not place undue reliance on these forward-looking statements.

           Unless otherwise provided in this Annual Report on Form 10-K, references to “the Company,” “Champps,” “we,” “us” and “our” refer to Champps Entertainment, Inc. and our consolidated subsidiaries. Our fiscal years ended June 27, 2004, June 29, 2003 and June 30, 2002 are referred to as fiscal 2004, 2003 and 2002, respectively. Fiscal 2004, 2003 and 2002 each contained 52 weeks.

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PART I

Item 1.           Business.

Overview

           Champps offers an energetic, upscale casual dining experience with uncompromising service and an extensive menu of freshly prepared items, set in a comfortable atmosphere that promotes social interaction among our guests. As of September 1, 2004, we owned and operated 48 restaurants in 18 states and had 12 additional restaurants operating under franchise or license agreements in five states under the names Champps Americana, Champps Restaurant and Champps Restaurant and Bar. We operate and franchise in a total of 22 states. Our menu is comprised of approximately 90 items, primarily made from scratch on the premises. We typically include a selection of 15 appetizers, 11 main plate salads, 30 high-end sandwiches, specialty burgers and wraps and 26 entrée selections, along with an additional five to eight regularly changing specials. Our menu selection includes not only traditional American favorites such as Champp’s Baby Back Ribs and Grilled Salmon, but also a variety of ethnic cuisine such as our Mongolian Egg Rolls and Shanghai Steamer. This diversity is designed to provide our guests with appropriate choices to meet their dining preference throughout our four distinct day-parts: lunch, after-work, dinner and late night. We believe that our enticing offerings and generous portions, combined with an average check per dining room guest of approximately $13.27 in fiscal 2004, excluding alcoholic beverages, offer our guests exceptional value.

           Our restaurants are designed to create an engaging and socially interactive dining experience. Through the use of multiple levels and other design elements such as ceramic Italian style tile, slate style floors and extensive wood accents, we are able to create a variety of dining atmospheres to satisfy a wide range of diners including families with children, business professionals, couples and singles, as well as sports fans of all ages. Our restaurants range in size from approximately 7,500 to nearly 12,100 square feet and seat 217 to 360 guests. We position multiple video walls and large televisions strategically throughout each restaurant to create an energetic and participatory dining experience. Our bar area, which is located away from the main dining area, creates a focal gathering point for our guests to socialize. We offer music, television broadcasts and special promotional events to increase guest traffic and promote repeat visits. During fiscal 2004, the average unit sales of our restaurants opened for the entire 12 months was approximately $4.7 million, which is among the highest in the casual dining industry.

           We locate our restaurants in areas that have a combination of commercial office space, residential housing and high traffic areas such as shopping malls or multi-screen movie theaters to attract guests during all of our day-parts. Our restaurants principally rely on frequent visits and loyalty from our guests who work, reside or shop nearby, rather than tourist traffic. Typically, our restaurants are located within large metropolitan areas that draw fan interest in professional and collegiate sport teams to allow us to promote the broadcasting of these sporting events in our restaurants.

           We opened seven restaurants in fiscal 2004. We expect to open six restaurants in fiscal 2005 primarily by expanding our presence in existing markets. We have increased our number of company-owned restaurants from 18 in fiscal 1999 to 48 restaurants in fiscal 2004, representing a compounded annual growth rate of 27.8%. We believe that the flexibility of our day-part model, the diversity and quality of our freshly prepared menu items, our unique entertainment and excellent service have created an attractive, high sales volume restaurant model that provides us with considerable growth opportunities to develop our brand nationwide.

           Our financial results for the year ended June 27, 2004 included:

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Business strategy

           Our objectives are to build our brand awareness and guest loyalty and provide our guests with exceptional food, uncompromising service and an exciting ambiance during each of our four day-parts. To achieve our objectives, we have developed the following strategies:

           Offer a comprehensive menu featuring enticing foods and beverages. We offer an extensive and varied menu in each of our four day-parts. Our menu is designed to suit a wide variety of dining occasions that broadens our consumer appeal and keeps the menu fresh for our frequent diners. In contrast to many competing restaurant operations, substantially all of our menu items are prepared on the premises from scratch using high quality, fresh ingredients and proprietary recipes. Champps is recognized by our guests for providing exceptional value by offering generous food portions at moderate prices. Our sophisticated, full service bar offers approximately 18 selections of wine, 20 domestic and imported bottled and draft beers, as well as premium liquor and specialty drinks. For fiscal 2004, sales of alcoholic beverages represented approximately 28.2% of our total food and beverage sales.

           Provide service that “WOWs” our guests. We strive to personalize the dining experiences of our guests by instilling both high standards and a sense of urgency among our associates to exceed each guest’s dining expectations. We position associates to greet guests when they enter our restaurants and train our managers to interact with guests. We also encourage our bartenders to introduce themselves to each patron at the bar, and our servers typically are responsible for no more than three to four tables at a time. Our entire staff is dedicated to executing our standard of delivering orders within 12 minutes of being placed. We encourage a strong, team-oriented atmosphere among our associates that we believe creates uncompromising guest service and a sense of pride in the Champps brand.

           Create a fun, high energy, social dining and entertainment experience. Our distinct dining experience features extensive entertainment and socially interactive activities designed to encourage guest frequency and attract guests outside of normal peak dining hours. For example, we increase guest traffic in our late night day-part by encouraging guest participation in a variety of promotional events we offer, such as the “Big Bike Give-Away” and Karaoke. Our special design elements, multiple dining levels, patio areas and sizable bar area allow us to comfortably serve guests seeking different dining experiences and further promote frequent visits. Our two to three video walls and ten to 12 televisions located throughout our restaurants, as well as our state-of-the-art audio systems, enable us to provide an exciting and socially interactive environment to view major sporting events. Our open display kitchens afford our guests the opportunity to observe our kitchen staff in action.

           Capitalize on our proven multiple day-part model. Champps restaurants generally are open seven days a week from 11:00 a.m. to 1:00 a.m. We serve our guests during lunch, after work, during dinner and after dinner during our late night periods. For fiscal 2004, we generated 33.9% of our sales during lunch, 60.7% after work and during dinner and 5.4% during late night, demonstrating the versatility of our concept and our ability to serve guests for a variety of occasions such as professional lunches and everyday dining, as well as social and special occasions. We adjust our ambiance throughout the day by changing the lighting and choice of programming for each day-part. According to a market research study of over 1,100 of our guests completed during fiscal 2002, on average our guests visit Champps 2.7 times per month while 10.0% of our guests visit our restaurants on an average of 11 times per month. By operating in multiple day-parts, we are able to maximize revenue and leverage both development and operating costs. We believe the versatility of our operating strategy has allowed us to build strong guest loyalty with a high percentage of repeat business.

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           Deliver strong unit economics. We believe our company-owned restaurants provide strong unit level economics. Our company-owned restaurants open throughout fiscal 2004 generated average restaurant sales of approximately $4.7 million and restaurant level operating cash flows of approximately $748,000, or 15.9% of average annual restaurant sales. The average cash investment cost net of tenant improvement allowances received from landlords for all of our restaurants opened since the beginning of fiscal 2001 was approximately $1.8 million, excluding pre-opening expense, which averaged approximately $0.4 million per restaurant. Although the reporting of restaurant level operating cash flows is a non-GAAP measure of our performance, we believe it provides investors with a useful industry comparative and is a measure used by management to assess the financial performance of our Company. We believe inclusion of restaurant level operating cash flows will assist investors to better understand the economic model of Champps and assist in making an informed investment decision. Reconciliation of restaurant operating cash flows to the most comparable GAAP measure, income from operations, is provided in footnote 1 below.

           Build awareness of the Champps brand. We believe that the Champps name has achieved substantial brand recognition among our guests and has become well known within our markets for our high quality, innovative menu items, generous portions, uncompromising service and a fun, engaging dining experience. We have a first time guest program that is intended to strengthen our brand loyalty by educating our first time guests about the Champps concept. In addition, we believe the most effective way to build brand awareness is to consistently deliver a dining experience that exceeds our guests’ expectations.

Growth strategy

           We adhere to a disciplined growth strategy and believe that there are significant opportunities to expand our concept in existing and new markets throughout the United States. The future development of Champps restaurants will be accomplished primarily through the development of company-owned restaurants in existing markets. Opening multiple units in existing markets enables us to leverage costs and gain efficiencies associated with regional supervision, marketing, purchasing and hiring. We believe opening new restaurants in our existing markets reduces the risks involved with opening new restaurants because we better understand the existing competitive conditions, consumer tastes, demographics and discretionary spending patterns. In addition, our ability to hire and train qualified associates is enhanced in markets in which we are well known and we are able to utilize existing associates in new restaurants and capitalize on our brand awareness. We plan to open approximately 80% of our new restaurants in existing markets.

           Our current expansion plans do not include adding new franchisees. Although our existing franchisees do not have the right to open additional restaurants, under certain circumstances we may permit our existing franchisees to open additional restaurants. A new franchised Champps restaurant opened in Des Moines, Iowa in August 2004. Although we have no obligation to do so, in the future we may seek to acquire some or all of our 12 franchised restaurants from our franchisees. This may require additional capital.

(1) Average restaurant level operating cash flow for 2004 in 000's

           Restaurant level operating cash flow is not a measure of financial performance or liquidity under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered in isolation or construed as a substitute for net income or other operations data or cash flow data prepared in accordance with GAAP for purposes of analyzing our profitability or liquidity. Restaurant level operating cash flow, as calculated, may not be comparable to similarly titled measures reported by other companies.

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           In fiscal 2002, fiscal 2003 and fiscal 2004, we opened six, seven and seven new restaurants, respectively. We plan to open six restaurants in fiscal 2005. As of September 1, 2004, we have begun construction on three restaurants that will open in fiscal 2005. In addition, we have identified other sites for our growth objectives for fiscal 2005.

           We believe that our site selection strategy is critical to our success and we devote substantial effort to evaluating each potential site at the highest levels within our organization. Our chief executive officer, chief operating officer, regional vice presidents of operations, and the respective regional directors of operations must approve each restaurant site that is presented by our real estate professional. Our site selection criteria focuses on locating suitable facilities within larger metropolitan areas with an average household income of at least $75,000 and population density in excess of 75,000 within a three mile radius. In addition, site visibility, traffic patterns, accessibility, adequate parking, competitive restaurants, associate availability, proximity to entertainment activities, as well as areas near a combination of commercial office space, residential housing and high traffic areas, influence our site selection criteria. Potential sites are also evaluated by our vice president of construction and development to insure we meet our construction obligations and capital expenditure projections, our legal counsel to insure we negotiate favorable terms in our leases and our chief financial officer to insure we meet our profit and investment return objectives.

Unit level economics and day-part allocation

           Our current restaurants range in size from approximately 7,500 to 12,100 square feet and have approximately 207 to 360 indoor seats and approximately 42 additional patio seats on average. We lease 47 of our restaurants and own one. During fiscal 2004, our base of restaurants opened for the entire 12-month period, generated average sales of approximately $4.7 million and restaurant level operating cash flows, as defined, of approximately $748,000, or 15.9% of restaurant sales. Based on the Company’s average net cash investment to build a restaurant of approximately $1.8 million, our restaurants opened for the entire 12-month period generated a cash-on-cash return of over 40.0%.

           Our current prototype restaurant is approximately 7,800 to 8,800 square feet in size depending on patio configurations and has seating for approximately 250 to 320 guests. The average net cash investment for our restaurants varies depending on whether we lease the restaurant or complete the restaurant through a build-to-suit transaction, the terms of the lease entered into, the amount of tenant improvement allowance we receive and whether we enter into an operating lease for any equipment. The average cash investment to construct a restaurant based on all of our restaurants opened since the beginning of fiscal 2001 was approximately $1.8 million, net of tenant improvement allowances and excluding an average pre-opening expense of $0.4 million.

           Our success in our four distinct day-parts demonstrates the strength of our concept. The following table depicts the dollar amount and percentage of overall company-owned restaurant sales during fiscal 2004 attributable to each of our day-parts. During this period, our food and alcoholic beverage sales as a ratio of total food and beverage sales was 71.8% and 28.2%, respectively. In fiscal 2004, our bar area generated approximately 18.0% of our total restaurant sales, 62.7% of which are generated from 4:00 p.m. to 10:00 p.m., signifying our strong after work and happy hour business. Champps merchandise and other sales totaled $333,000 and were 0.2% of overall sales in fiscal 2004 and are not included below.

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Sales By Day Part—Fiscal 2004(in 000‘s)

Restaurant design and ambiance

           Our restaurants have an ambiance enhanced by a layout that encourages social interaction and promotes a high-energy environment. All of our restaurants have multiple levels that enable us to seat our guests towards a specific location depending upon their dining preferences while also creating an open atmosphere and the ability for guests to have a panoramic view of the entire restaurant. Our restaurants have large bar areas typically located on the first level. The bar’s numerous angles and bends provide our guests with a place to meet and socialize. We place large video walls and additional televisions strategically throughout each restaurant, which together with a state of the art sound system, provide a source of entertainment for our guests. We monitor the selection of our broadcasts, music and volume in each dining area to create the appropriate dining environment. We also use plasma televisions to incorporate the latest technologies and keep our restaurants up to date.

           Our restaurant interiors utilize a combination of dark cherry stained wood and brick throughout the dining area, Italian style ceramic tile in the kitchen and bathrooms, slate style tile in the bar area and noise reducing carpet in the dining room. Our bars are generally stainless steel and we use accented black granite or wood trim at our specially designed hostess stands to enhance our contemporary feel. The majority of our restaurants include an indoor patio area with a large fireplace and several have outdoor patios, all of which provide our guests with multiple settings to choose from. Our display kitchens are presented behind a floor-to-ceiling glass wall to provide a focal point for the dining room. We use a variety of directional lighting and chandeliers to create a warm environment in our dining rooms and bar area.

           The exterior of our restaurants typically employ brick, stone and stucco to create a highly visible restaurant that features a well-lit, large Champps sign and logo. We extensively landscape our restaurants and where appropriate, vary the exterior design to coordinate with the surrounding area. Lighted trees, directional lighting on our buildings and large entries further increase our visual appeal.

Menu

           We offer our guests a comprehensive selection of approximately 90 items, primarily made on the premises from scratch, which typically includes a selection of 15 appetizers, 11 main plate salads, 30 high-end sandwiches, specialty burgers and wraps and 26 entrée selections. Our menu selection includes not only traditional American favorites such as Champp’s Baby Back Ribs and Grilled Salmon, but also a variety of ethnic cuisine such as Mongolian Egg Rolls and Shanghai Steamer. For example, one of our most popular entrees is the Parmesan Crusted Chicken that is created with three large chicken breasts crusted with an Italian herb mix and shredded parmesan cheese before pan frying in olive oil and accompanied by tender angel hair noodles, our freshly prepared traditional marinara sauce and fresh garlic buttered toasted crostini. We continuously experiment with food and beverage items to develop proprietary recipes with high flavor profiles to ensure that our menu is imaginative and exciting to our guests. We also feature five to eight specials that change regularly, allowing us to continually refine our menu offerings and keep our selections fresh for our frequent users. We believe that the broad range of our menu provides multiple dining options during each of our day-parts.

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           We emphasize freshness and quality in our food preparation and focus on maintaining our reputation for creative and high quality menu offerings. Our fresh sauces, salad dressings, batters and mixes are prepared daily in our restaurants using high-quality and fresh ingredients.

           The food items on our menu range from $5.95 to $13.45 for appetizers, $7.95 to $14.45 for burgers and sandwiches, and $7.95 to $21.95 for dinner salads and entrees. For fiscal 2004, our average guest check in our dining room was approximately $13.27, excluding alcoholic beverages. Our sophisticated, full service bar offers approximately 18 selections of wine, most of which are available by the glass, 20 draft and bottled domestic and imported beers, as well as premium liquor and specialty drinks. Sales of alcoholic beverages represented approximately 28.2% of total food and beverage sales during fiscal 2004.

Food preparation and quality control

           We believe our food quality and control standards are among the highest in the industry. Our systems are designed to provide freshly prepared items based on the specifications set by our corporate executive chef and overseen at each of our restaurants by an assistant general manager and up to three management assistants. We invest substantial time in training and testing of our kitchen associates to adhere to our strict standards and preparation guidelines to maintain our quality control. The design of our facilities enables us to ensure food is maintained in accordance with the requirements of the Food and Drug Administration. We audit our sanitary conditions at each restaurant and train all of our management associates regarding safe handling practices of all perishable food products.

Guest loyalty

           We believe our restaurants generate higher than average repeat visits due to our four day-part offerings of lunch, after work, dinner and late night, as well as the increased guest traffic generated from the broadcasting of major sporting events. Based upon a market research study of over 1,100 of our guests completed during fiscal 2002, we determined that on average our guests visit Champps 2.7 times per month as compared to approximately 1.9 visits per month for the casual dining industry, while 10.0% of our guests visit our restaurants on average 11 times per month. The social interaction that is created within our restaurants also provides our guests with a comfortable setting to meet family, friends and co-workers. We rely on frequent visits and loyalty from our guests to generate the high volume of sales in our restaurants.

Marketing and advertising

           Historically, we have relied primarily on guest referrals rather than external marketing initiatives to promote our brand. Within our restaurants we continually promote special events and upcoming entertainment activities as well as special menu items or drinks to drive guest frequency and sales. We have implemented a first time guest program that is intended to strengthen our brand loyalty by educating our first time guests about the Champps concept. During fiscal 2004, 2003 and fiscal 2002, our expenditures for advertising and promotions were less than 1.5% of total restaurant sales.

           Our associates are integral to the success of our in-store marketing strategy. Our hosts introduce our specials to our guests upon seating, and at the end of each dining experience, our wait staff is instructed to inform our guests of upcoming special or promotional events. We communicate special events to our guests with poster stanchions or special displays, as well as table displays. Finally, when exiting our restaurants, the greeters thank each guest for coming to Champps and invite them to come back soon.

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           On occasion, we engage in paid advertising for individual restaurant locations, including newspaper and radio advertisements and have tested cable television advertising in select markets. We utilize a variety of printed marketing materials, including restaurant location brochures, hotel concierge cards, take-out menus and direct and electronic mailings.

Operations

           Restaurant management. As of September 1, 2004, we had ten directors of operations who typically oversee approximately four to six restaurants each and supervises the general managers at each restaurant in their area. Each director of operations reports to one of two regional vice presidents. Due to the complexity of our operations and to ensure our high level of guest service, our restaurant management is divided into three areas, the general manager, front-of-house managers and back-of-house managers, each of whom are supported by additional staff members. Our managers are frequently promoted from within Champps to encourage continuity and opportunities for development, as well as enhance our corporate culture. We compensate our management team through a combination of base salary and bonuses based on achieving established performance levels for revenue, profit and guest service.

           Restaurant associates and service. We believe that our uncompromising service is one of our differentiating factors. Our service is based on a team concept to ensure that guests are made to feel that any associate can help them and that they are never left unattended. To maintain these high standards, we seek to hire and train personnel who believe in our philosophy and are passionate about guest service. We strive to personalize the dining experiences of our guests by instilling both high standards and a sense of urgency among our associates. All associates meet with their managers at two daily pre-shift motivational and informational meetings in which service standards, restaurant promotions, specials and quality control are reviewed. We frequently reward individual and restaurant achievement through several recognition programs intended to build and maintain associate morale. For example, our “Pin Program” rewards and recognizes the efforts of associates with pins that are worn proudly on uniforms to publicly acknowledge their commitment to guest service.

           Training.The restaurant management team is provided with an intensive ten-week training program to ensure they have appropriate knowledge to excel in their position. All members of management are required to receive kitchen training to understand the importance of the food preparation process and how the quality of our menu is a significant driver of repeat guest visits. We also host an annual general managers’ conference focusing on strategic issues in addition to conducting other training classes. This conference also serves as a platform to recognize the general managers who exceeded our expectations.

           We provide all new associates with complete orientation and training for their positions to ensure they are able to meet our high standards and understand our company policies. For servers, we require a minimum of six days training on how to serve our food, the composition and preparation techniques for each menu item, direction on how to treat and serve our guests and ways to promote our business. Our food preparation staff undergoes an intensive five-day hands-on training program for their respective positions, which includes a review of our safety procedures. The training encompasses classroom instruction, on-the-job training programs for each position, and testing of the new associate’s progress at pre-determined stages within the training schedule.

           When we open a new restaurant, we provide an extensive and varied level of training to associates in each position to ensure the smooth and efficient operation of the restaurant from the first day it opens to the public. We believe this training helps provide our guests with a quality dining experience from opening day on. Our training programs enable us to promote existing associates and managers as new restaurants open. We believe that we can support our expansion strategy since we have a large manager base in existing restaurants that can be promoted or transferred to new restaurants, combined with our thorough training programs and hiring of outside personnel.

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Restaurant franchise and licensing agreements

           As of September 1, 2004, we had 12 franchised restaurants that began operations between 1991 and 2004. A new franchised location opened in Des Moines, Iowa in August 2004. The franchises in Duluth, Minnesota and Charlotte, North Carolina were closed by franchisees in July 2002 and July 2004, respectively. Seven of our current franchised restaurants are located in the Minneapolis, Minnesota area. We also have one franchised restaurant in Des Moines, Iowa, Sioux City, South Dakota, Omaha, Nebraska, and two in Milwaukee, Wisconsin. Three franchisees own nine of the 12 franchised restaurants.

           Our revenue from current franchisee agreements represented approximately 0.3% of our revenue in fiscal 2004. The franchisee is responsible for all direct costs involved in the construction and maintenance of their restaurants. We provide menu development and marketing support on a limited basis. Franchisees are required to provide periodic financial reports and annual financial statements to our corporate office for performance measurement and fee calculations. Currently, we are not actively seeking additional franchisees. Although our existing franchisees do not have the right to open additional restaurants, under certain circumstances we may permit our existing franchisees to open additional restaurants. Although we have no obligation to do so, we may seek to acquire one or more of our existing franchised restaurants if they meet our acquisition criteria.

Accounting and management information systems

           We use an automated data processing system and standardized reporting procedures to provide each of our company-owned restaurants with centralized financial and management controls. Our management information system tracks each restaurant’s weekly sales reports, vendor invoices, payroll information and other operating information which is connected to our centralized accounting and management information systems at our corporate headquarters in real time. By having a system where data can be input remotely and controlled centrally, our overhead functions are streamlined and administrative expenses are reduced.

           While we continue to monitor our computer hardware and financial software for potential upgrades, we believe our existing management information systems are sufficient to support our long-term expansion plans.

Purchasing

           We endeavor to obtain high quality menu ingredients and other supplies and services for our operations from reliable sources at competitive prices. We rely on SYSCO Corporation, a national food distributor, as the primary supplier of our food. In August 2003, we entered into a new five-year distribution agreement with SYSCO. By utilizing a distribution company with a national presence, we are able to ensure consistent application of menu specifications throughout the country at a pre-negotiated price. We also periodically enter into selective short-term agreements for the products we use most extensively. This helps us to consistently maintain our product costs. We believe that all essential food and beverage products are available from several qualified suppliers at competitive prices should an alternative source be required.

           To maximize purchasing efficiencies and to provide for the freshest ingredients for our menu items, each restaurant’s management determines the quantities of food and supplies required. Our centralized purchasing staff, under the direction of our chief operating officer, specifies the products to be used at our restaurants, designates the vendors, from whom to purchase these products, and provides suppliers with detailed ingredient specifications.

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Competition

           The restaurant industry is highly competitive. We compete with other national and international restaurant chains as well as local and regional operations. Competition within the industry is based principally on the quality, variety and price of food products served. Changes in consumer preferences, economic conditions, environmental conditions, demographic trends and the location and number of, and type of food served by, competing restaurants could adversely affect our business as could the availability of experienced management and hourly associates. We believe that the flexibility of our multiple day-part model, the diversity and quality of our freshly prepared menu items and our unique entertainment and excellent service have created an attractive, high sales volume restaurant model that provides us with considerable growth opportunities to develop our brand nationwide.

Associates

           As of September 1, 2004, we had approximately 5,400 associates on the Champps team, approximately 418 of which were restaurant management and field support personnel and 44 whom worked at our corporate headquarters. We do not have any collective bargaining agreements. We consider our associate relations to be good.

History

           The original Champps concept began operations in 1984 and grew to eight restaurants by December 1995. In 1996, William H. Baumhauer, chief executive officer and president of DAKA International, Inc. ("DAKA"), a large publicly traded food service management and restaurant company, led DAKA’s purchase of Champps to add to its portfolio of restaurant concepts. As part of a corporate restructuring in 1997, DAKA's food service businesses were spun off and the shareholders retained ownership of the restaurant businesses, which included Champps, Fuddruckers, the Great Bagel & Coffee Company, Casual Dining Ventures and Restaurant Consulting Service. The new company was named Unique Casual Restaurants, Inc. At the end of 1998 and early 1999, Fuddruckers and Restaurant Consulting Services were sold to separate buyers. In June 1999, Unique Casual Restaurants closed Great Bagel & Coffee Company and Casual Dining Ventures and changed its name to Champps Entertainment, Inc.

           Shortly thereafter, Mr. Baumhauer, who had left the DAKA organization in May 1998, was recruited back to Champps as president and chief executive officer. Upon his return, Mr. Baumhauer set in motion a series of strategic initiatives that included hiring a new management team, consolidating our headquarters, improving our operational and financial reporting procedures, standardizing the purchasing process and establishing new associate training and retention practices. As a result of these efforts, our restaurant level operating profit margin increased from 7.6% in 1999 to 10.6% in fiscal 2004. In addition, our income from continuing operations increased from a negative $14.1 million in fiscal 1999 to a positive $6.2 million in fiscal 2004. We have also implemented a disciplined expansion strategy and have added 34 restaurants since Mr. Baumhauer’s return.

Operating locations

           We lease all but one of our restaurants. The leases for our restaurants expire at varying times commencing in 2009. Nearly all of our leases are for fifteen to twenty year terms with renewal options extending our leases from five to twenty additional years. Currently, our leases, with option periods, expire between 2010 and 2041.

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The following table sets forth data regarding our 48 company-operated restaurants at June 27, 2004. All restaurants are leased except the restaurant located in Lombard, Illinois, which the Company owns.

Company-operated restaurants

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Restaurants to open

           As of September 1, 2004, we had begun construction on restaurants located in Cleveland, Ohio and two locations in Philadelphia, Pennsylvania. The Philadelphia restaurants are expected to open in the second quarter of fiscal 2005 while the Cleveland restaurant is expected to open in the third quarter of fiscal 2005. We anticipate opening a total of six restaurants in fiscal 2005.

Franchised restaurants

           As of September 1, 2004, we had 12 franchised restaurants, seven of which are located in the Minneapolis, Minnesota area, two in Milwaukee, Wisconsin, and one in each of Des Moines, Iowa, Sioux City, South Dakota and Omaha, Nebraska. Franchises located in Charlotte, North Carolina and Duluth, Minnesota were closed by franchisees in July 2004 and July 2002, respectively.

Trademarks

           Through our operating subsidiaries, we have registered a number of trademarks and service marks with the United States Patent and Trademark Office and with certain states, including, but not limited to the trade names: “Champ’s,” “Champps,” and “Champps Americana.”

           Pursuant to a Master Agreement dated February 1, 1994, whereby Champps acquired the “Champ’s” and “Champps” service marks, trademarks and trade names, we agreed to pay the seller an annual fee. For fiscal 2004, the maximum fee was equal to the lesser of $322,422 or one-quarter percent (0.25%) of the gross sales of certain Champps restaurants excluding two of our oldest restaurants and we paid the maximum amount payable under this agreement. The maximum fee payable is increased annually by the lesser of the increase in the consumer price index or 4.0%.

Government regulation

           Our business is subject to various federal, state and local laws, including health, sanitation and safety standards, federal and state labor laws, zoning restrictions and state and local licensing. We are also subject to federal and state laws regulating franchise operations and sales, which impose registration and disclosure requirements on franchisors in the offer and sale of franchises or impose substantive standards on the relationship between franchisor and franchisee.

           Our restaurants are subject to state and local licensing and regulation with respect to selling and serving alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause. The failure to receive or retain, or a delay in obtaining, a liquor license in a particular location would adversely affect ours, or a franchisee’s, operation in that location.

           In addition, our restaurants are subject to “dram shop” statutes in certain states, which generally give a person injured by an intoxicated person the right to recover damages from the establishment that has wrongfully served alcoholic beverages to the intoxicated person. We carry liquor liability coverage in the amount of $1.0 million per occurrence subject to an aggregate annual policy limit of $5.0 million, with a $0.25 million deductible per occurrence.

           The Americans with Disabilities Act (the "ADA") prohibits discrimination on the basis of disability in public accommodations and employment. The ADA , which mandates accessibility standards for individuals with physical disabilities, may increase the cost of construction of new restaurants and of remodeling older restaurants.

           We are also subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime, and other working conditions. A significant portion of our food service personnel are paid at rates related to federal or state minimum wage rates, and accordingly, increases in any such minimum wage will increase our labor costs.

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Risk factors related to our business

Our growth strategy depends on our ability to open new restaurants, and we may not be able to achieve our planned unit expansion

           Our ability to expand our operations through the opening of new restaurants is important to our future financial success. Since fiscal 1997 through fiscal 2004, we have expanded our operations from 12 company-owned restaurants in nine states to 48 company-owned restaurants in 18 states. We expect to open an additional six restaurants in fiscal 2005. We have experienced delays in restaurant openings from time to time and may experience delays in the future. We cannot guarantee that we will be able to achieve our expansion goals or that new restaurants will be operated profitably. Further, we cannot assure that any restaurant we open will obtain operating results similar to those of our existing restaurants or will not adversely affect the results of other Champps restaurants in the same market. The success of our planned expansion will depend upon numerous factors, many of which are beyond our control, including the following:

           In addition, we may enter new markets in which we have no operating experience. These new markets may have different demographic characteristics, competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause the new restaurants to be less successful in these new markets than in our existing markets.

           Our growth strategy may strain our management, financial and other resources. For instance, our existing systems and procedures, restaurant management systems, financial controls, information systems, management resources and human resources may be inadequate to support our planned expansion of new restaurants. We may not be able to respond on a timely basis to all of the changing demands that the planned expansion will impose on our infrastructure and other resources.

The inability to develop and construct our restaurants within budget and projected time periods will adversely affect our business and financial condition

           Critical to our success is our ability to construct our restaurants within budget and on a timely basis. Many factors may affect the costs associated with the development and construction of our restaurants, including:

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           If we are unable to develop new restaurants within anticipated budget or time periods, our revenue will not meet our expectations and pre-opening costs may exceed our projections. In addition, returns on our investments may be impaired and the amount of capital available for other new restaurants may not be available.

The failure of our existing or new restaurants to perform as anticipated could adversely affect our business

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