-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N9OeqJv71R8AJu0WKhKPpiI9ARz597IXA80valpK95Cw4WMcOmviUF75O78HBF37 Wm9cQ79jtoEp5LGDdDLwDQ== 0000703799-00-000004.txt : 20000202 0000703799-00-000004.hdr.sgml : 20000202 ACCESSION NUMBER: 0000703799-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VICORP RESTAURANTS INC CENTRAL INDEX KEY: 0000703799 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 840511072 STATE OF INCORPORATION: CO FISCAL YEAR END: 1026 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12343 FILM NUMBER: 511072 BUSINESS ADDRESS: STREET 1: 400 W 48TH AVE CITY: DENVER STATE: CO ZIP: 80216 BUSINESS PHONE: 3032962121 10-K 1 1999 ANNUAL/10-K UNITED STATES SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________________________________________ Commission file number 0-12343 ------- VICORP Restaurants, Inc. _____________________________________________________ (Exact name of registrant as specified in its charter) Colorado 84-0511072 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 West 48th Avenue, Denver, Colorado 80216 ---------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 296-2121 ________________ Securities registered pursuant to Section 12(b) of the Act: None ________________ Securities registered pursuant to Section 12(g) of the Act: Title of each class Common Stock $.05 par value 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 (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 filer pursuant to Item 405 of Regulation 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 this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of 6,446,523 shares of the registrant's common stock held by non-affiliates on January 20, 2000 was approximately $102,338,552. At January 20, 2000 there were 6,777,443 shares of the Company's Common Stock $.05 par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Notice of Annual Meeting of Shareholders and Proxy Statement pertaining to the 1999 Annual Meeting of Shareholders ("the Proxy Statement") are incorporated herein by reference into Parts I and III. PART I Item 1. Business. VICORP Restaurants, Inc., the registrant, is referred to herein as "VICORP" or the "Company." The Company was incorporated in 1959 and is headquartered in Denver, Colorado. VICORP operates family style restaurants under the names "Bakers Square" and "Village Inn," and franchises restaurants under the Village Inn brandname. At October 31, 1999, VICORP operated two hundred fifty-two Company-owned restaurants in thirteen states. Of the two hundred fifty-two Company-owned restaurants, one hundred fifty were Bakers Squares and one hundred two were Village Inns, with an additional one hundred sixteen franchised Village Inn restaurants in twenty-one states. The Company-owned and franchised restaurants are concentrated in Arizona, California, Florida, the Rocky Mountain region and the upper Midwest. The Company operates a pie manufacturing division to support the restaurants, which operates under the name VICOM. VICOM has three production facilities located in Santa Fe Springs, California, Oak Forest, Illinois and Mounds View, Minnesota. Company Operations The Village Inn concept is focused on breakfast food, offering homestyle entrees for breakfast, lunch and dinner. Bakers Square emphasizes lunch and dinner with signature fresh baked pies in twenty-two, plus flavors. Each concept offers a relatively standard core menu supplemented with daily and monthly entree and pie specials with an average guest check of six to eight dollars. Store management typically consists of a general manager and two assistant managers. The store managers are supported by regional managers, regional vice-presidents and the corporate office. Incentives are provided to encourage store and regional managers to maximize store sales and monitor controllable costs. The Company believes the principal measure of success for the restaurants is the ability to provide the customer with a satisfying experience. Attracting and retaining the best people, continuous employee development, regular communication of expectations, and constant performance feedback are central factors to ensure customer satisfaction. Training programs are designed to meet these objectives and focus on outcome-based training, emphasizing the acquisition of basic skills and behavior that result in desired performance for specific positions. Cost effective procurement of quality products is also critical to providing a satisfying customer experience. The Company makes centralized purchasing decisions for basic menu ingredients to gain favorable prices and ensure uniform quality specifications. Management does not anticipate any difficulty in obtaining food products of adequate quantity or quality at acceptable prices. The Company utilizes advertising to promote the restaurant concepts and gain market share. Expenditures for marketing were 2.66% of Company-operated restaurant sales in the current fiscal year. The Company-operated restaurants utilize point-of-sale and back-of-house computer systems. These systems capture sales information, payroll data, and provide restaurant managers with analytical and reporting tools. During fiscal 1999, the Company opened seven new restaurants and closed four restaurants, of which three were converted to franchise operations and one closed due to the expiration of the lease. The Company intends to open eight to ten Company-operated restaurants during fiscal year 2000, with emphasis on the Village Inn concept. Franchise Operations The initial term of a Village Inn Franchise Agreement is twenty-five years. An initial franchise fee of $35,000 is due upon the grant of a franchise and ongoing royalty fees are 4% of gross sales. The Company supports its franchisees with regular visits to the restaurants by Quality Assurance Consultants to help ensure the Company's high quality service and cleanliness standards are upheld. A franchise advisory board, consisting of seven franchisees elected by their peers every two years, meets with Company management four times per year. The meetings provide a forum for the exchange of ideas, which will enable the Company and the franchisees to maximize growth, sales and profits. During fiscal year 1999, the Company established eight new franchised Village Inn locations in Florida, Arkansas, Nevada, Oklahoma and Colorado; and two restaurants were closed. The Company plans to pursue franchise development as a source of providing a continued profitable revenue stream, as well as to gain market share, thus promoting the advancement of the Village Inn brandname. The Company expects to develop from five to ten franchised units during fiscal 2000. Trademarks and Service Marks The Company owns the right to use the trademarks and service marks, which have been registered with various state and federal patent and trademark offices. The Company considers the trademarks and service marks important to the business and actively defends and enforces them. Competition The restaurant industry is highly competitive with regards to quality, value, location, service and price, and is often affected by changes in consumer tastes, local and national economic and real estate conditions, traffic patterns and demographic trends. The Company competes directly and indirectly with all types of restaurants from national and regional chains to local establishments. Competitors include corporations much larger than the Company, which have greater capital resources and ability to withstand adverse business trends. Research and Development No material amounts were spent on Company sponsored research activities relating to the development or enhancement of products, services or techniques. Regulation The Company is subject to various federal, state and local laws governing the sale and preparation of food, zoning, sanitation, health and safety, minimum wage requirements, overtime, construction, environmental and sale of alcoholic beverages. The Federal Trade Commission, as well as state laws regulate franchise operations, including laws imposing registration and disclosure requirements for franchisors during the offer and sale of franchises and, in certain cases, applying substantive standards to the relationship between the Company and the franchisee. Employees As of October 31, 1999 the Company had approximately 11,880 employees. None of the Company's employees are represented by a labor union or are the subject of a collective bargaining agreement. Executive Officers of the Company The following table sets forth the names, ages, position and business experience of the executive officers of the Company. Executive officers are appointed by the Board of Directors on an annual basis. There are no family relationships between the executive officers. Name Age Position - ---- --- ------- Charles R. Frederickson 62 Chairman of the Board and Chief Executive Officer Joseph F. Trungale 58 President VICORP Restaurants, Inc./ Bakers Square Robert E. Kaltenbach 54 President Village Inn Richard E. Sabourin 49 Executive Vice President/Chief Financial Officer Charles R. Frederickson has been a director of the Company since 1968, and Chairman of the Board since November 1986. Joseph F. Trungale was appointed President of the Company on November 1, 1999, after serving as the President of the Bakers Square concept since August 1998. Previously, Mr. Trungale served in various positions with operational responsibility over the Company's Bakers Square restaurants. Prior to joining the Company, Mr. Trungale operated a family-owned real estate business from September 1995 through July 1997. For eight years preceding that, he was Vice President of Operations for Whataburger, Inc. Robert E. Kaltenbach was appointed President of Village Inn in December 1994 after serving as Vice President of Franchise Operations since July 1988. Richard E. Sabourin was appointed Executive Vice President and Chief Financial Officer in August 1996. From 1989 to August 1996, Mr. Sabourin was employed by Bestop, Inc. in various positions including President, Chief Operating Officer, and Chief Executive Officer. Item 2. Properties. The Company owns the corporate office complex located in Denver, Colorado and the bakery facility in Oak Forest, Illinois. The land and buildings at the Santa Fe Springs, California and Mounds View, Minnesota bakeries are leased. Company operated Village Inn restaurants are concentrated in the Rocky Mountain region, Arizona and Florida, while Bakers Square restaurants are located primarily in California and the upper Midwest. The Company considers existing restaurant properties and equipment to be in good working condition. The Company intends to lease, sublease or sell seven idle restaurant properties. On October 28, 1999, the Company completed the sale and leaseback of the real estate related to twenty-one restaurant properties. The idle bakery facility in Denver, Colorado was sold on November 12, 1999. The following table sets forth properties owned in fee, buildings owned on leased land, and leased locations as of October 31, 1999:
Village Bakers Inn Square Other Total ------- ------ ----- ----- Company-operated restaurants: Properties owned in fee 15 35 -- 50 Buildings owned on leased land 5 10 -- 15 Leased locations 82 105 -- 187 --- --- --- --- 102 150 -- 252 === === === === Properties leased to others: Properties owned in fee 3 -- 1 4 Buildings owned on leased land -- -- 1 1 Leased locations 22 -- 23 45 --- --- --- --- 25 -- 25 50 === === === === Properties held for disposal: Properties owned in fee -- -- 4 4 Buildings owned on leased land -- -- -- -- Leased locations -- -- 3 3 --- --- --- --- -- -- 7 7 === === === ===
Item 3. Legal Proceedings. On September 28, 1998, two class actions were commenced in the Superior Court of Los Angeles County, California. The first, Kirk v. VICORP Restaurants, Inc., Case No. BC-198202, was brought by a former manager of a California Bakers Square restaurant. Allegations in the amended complaint assert violations by VICORP of California wage and hour laws and regulations concerning overtime wages. The Plaintiff is seeking class certification, injunctive relief, damages in an unspecified amount, statutory penalties, interest, costs, and attorneys' fees. The second, Schroeder v. VICORP Restaurants, Inc., Case No. BC-198203, was brought by a former server at a California Bakers Square restaurant. The Plaintiff alleges VICORP has violated California statutes and regulations concerning the payment of wages, tip pooling, reimbursement for uniform expenses, failure to remit tips, and the improper charging of walkouts to servers. Class certification is requested, as well as injunctive relief, damages in an unspecified amount, statutory penalties, interest, costs, and attorneys' fees. On December 28, 1998, a third action was commenced in the Superior Court of Los Angeles County, California, Ontiveros v. VICORP Restaurants, Inc., Case No. BC-202962. This action was brought by a former manager of a California Bakers Square restaurant. The Plaintiff is seeking damages, statutory penalties, declaratory relief, interest, attorneys' fees, and costs for alleged violations of California statutes and regulations concerning the payment of wages. The Company believes the legal actions described above are similar to plaintiff actions recently brought against other multi-location restaurant operators in the state of California. Resolution of these matters may require a significant period of time and is subject to substantial uncertainties common to the judicial process for class actions in general. The Company believes it has not violated California statutes and regulations and has meritorious defenses to each of the claims in these actions. While the Company intends to vigorously defend against the allegations, it is possible that the Company will not prevail, or that decisions made in other similar cases may result in interpretations of the California statutes that are adverse to the Company's position. The cost of defense for these actions is being recognized as incurred. No provision has been made for any judgements or settlements that might ultimately result. While a contingency exists that any such judgement or settlement could be material to the results of operations of the Company for some future period or periods, the Company currently believes that resolution of these amounts will not have a material adverse effect on the Company's financial position. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to the Company's security holders during the fourth quarter ended October 31, 1999. PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. The Company's common stock is traded on the over-the-counter market and is quoted on the National Association of Securities Dealers (NASDAQ) National Market System under the symbol "VRES". As of January 20, 2000, the Company had 391 shareholders of record. The following table sets forth for the high and low closing sales quotations per share of common stock as reported by NASDAQ during each of the Company's fiscal quarters: [CAPTION] Fiscal Quarter First Second Third Fourth - ----------------------------------------------------------------------------- 1999 High $16 $16 3/4 $18 5/16 $18 3/8 Low 13 3/8 14 3/8 15 3/16 15 11/16 1998 High $17 1/2 $19 1/4 $16 3/4 $15 5/8 Low 15 3/8 15 1/2 14 1/2 13
The range of high and low closing sales quotations contained in the foregoing table reflects inter-dealer prices, without retail mark-up, markdown or commissions, and may not represent actual transactions. The Company has not paid cash dividends on common stock since 1986. Future common stock dividend payments are dependent upon operating results, loan agreement restrictions and other financial and business considerations. Item 6. Selected Financial Data.
(dollars in thousands, except per share data) 1999 1998 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- Results of operations System-wide sales including franchise sales $500,566 $482,506 $450,534 $456,352 $496,300 $529,982 $542,986 Restaurant sales 355,781 342,654 322,188 339,937 370,116 409,297 425,139 Total revenues 359,046 346,173 325,527 343,280 373,838 412,644 428,505 Net income(loss) 17,327* 9,120 6,899 (929)* (4,532) (6,638)* 16,524* - ----------------------------------------------------------------------------------------------------- Operating analysis Restaurant operating profit analysis as a percentage of restaurant sales Costs and expenses: Food 30.1% 30.8% 31.4% 32.9% 33.5% 30.1% 29.8% Labor 32.8% 32.7% 32.4% 32.0% 33.7% 30.2% 28.5% Other operating 24.6% 25.4% 25.9% 26.7% 28.3% 28.2% 27.5% Restaurant operating profit 12.5% 11.1% 10.3% 8.3% 4.4% 11.4% 14.2% General and administrative expense as a percentage of revenues 8.1% 7.5% 7.4% 7.3% 7.0% 8.7% 7.8% Interest expense as a percentage of revenues .3% .5% .8% 1.2% 1.0% .9% .9% Income before income taxes as a percentage of revenues 5.2%* 4.2% 3.3% .9%* (2.4%) 2.5%* 6.3%* Effective income tax rate 6.5% 36.5% 36.0% 64.0% 50.0% 37.5% 36.2% - ------------------------------------------------------------------------------------------------------ Balance sheet data Total assets $228,271 $199,670 $194,990 $203,946 $228,161 $249,023 $254,031 Long-term debt and capitalized lease obligations 4,588 5,783 19,465 33,585 42,179 42,554 40,008 Common shareholders' equity 151,848 138,007 129,919 122,269 123,098 134,866 148,318 Debt to total capitalization 2.9% 4.0% 13.0% 21.5% 25.5% 24.0% 21.2% - ------------------------------------------------------------------------------------------------------ Cash flow data Cash provided by operations $ 29,405 $ 42,222 $ 28,568 $ 17,847 $ 7,309 $ 34,094 $ 50,870 As a percentage of revenues 8.2% 12.2% 8.8% 5.2% 2.0% 8.3% 11.9% Investment in property and equipment $ 32,996 $ 21,054 $ 16,410 $ 7,922 $ 13,234 $ 28,733 $ 42,426 - ------------------------------------------------------------------------------------------------------ Per common share Earnings (loss) $ 1.93 $ .98 $ .75 $ (.10) $ (.49) $ (.69) $ 1.62 Book value 17.06 15.18 14.18 13.50 13.61 14.18 14.96 Market price at year-end 16 7/8 14 1/8 15 1/2 14 1/2 11 16 3/4 20 3/4 Weighted average common and dilutive common stock equivalents (000's omitted) 8,958 9,262 9,145 9,050 9,246 9,656 10,189 - ------------------------------------------------------------------------------------------------------ Number of restaurants at year-end Bakers Square 150 150 150 154 160 189 187 Company-operated Village Inn 102 99 97 98 99 112 126 Franchised Village Inn 116 110 108 108 106 107 104 Other Company-operated -- -- -- 1 5 6 -- - ------------------------------------------------------------------------------------------------------ Total 368 359 355 361 370 414 417 - ------------------------------------------------------------------------------------------------------
* An asset impairment of $746,000 was included in results of operations for 1999. * A one-time tax benefit of approximately $5,400,000 from adjusting the valuation allowance relating to certain deferred tax assets was included in net income for 1999. * An asset disposal charge of $5,800,000 was included in results of operations for 1996. * An asset disposal, impairment and restructuring charge of $23,000,000 and income of $1,918,000 from settlement of litigation were included in results of operations for 1994. * A restructuring charge of $1,300,000 was included in results of operations for 1993. * Fiscal 1999 consisted of 364 days, while fiscal years 1998, 1997, 1996, 1995, 1994, 1993, consisted of 366 days, 365 days, 366 days, 366 days, 364 days, and 371 days, respectively. * The Company has not paid dividends on common stock during the last seven years. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following analysis should be read in conjunction with the Selected Financial Data (Item 6 of Part II) and the Financial Statements and Supplementary Data (Item 8 of Part II). Results of Operations The following table sets forth selected operating statistics for the last three fiscal years (in thousands except restaurants at year end).
1999 1998 1997 ------ ------ ------ Bakers Square Restaurant sales $ 215,431 $ 207,251 $ 192,538 Average sales per restaurant 1,441 1,387 1,276 Restaurant operating profit 21,034 14,712 11,740 Restaurant operating profit % 9.8% 7.1% 6.1% Divisional administrative costs 5,653 5,320 4,987 Divisional operating profit 15,381 9,392 6,753 Restaurants at year-end 150 150 150 Village Inn Restaurant sales $ 140,350 $ 135,403 $ 128,586 Average sales per restaurant 1,401 1,394 1,326 Restaurant operating profit 23,570 23,314 21,566 Restaurant operating profit % 16.8% 17.2% 16.8% Franchise income 3,265 3,519 3,339 Divisional administrative costs 4,623 4,942 3,788 Divisional operating profit 22,212 21,891 21,117 Restaurants at year-end 102 99 97 Angel's Restaurant sales $ -- $ -- $ 1,064 Average sales per restaurant -- -- -- Restaurant operating profit/(loss) -- -- (19) Restaurant operating profit/(loss) % -- -- (1.8%) Divisional administrative costs -- -- 12 Divisional operating profit/(loss) -- -- (31) Restaurants at year-end -- -- -- Consolidated Restaurant sales $ 355,781 $ 342,654 $ 322,188 Food cost % 30.1% 30.8% 31.4% Labor cost % 32.8% 32.7% 32.4% Other operating cost % 24.6% 25.4% 25.9% Restaurant operating profit % 12.5% 11.1% 10.3% Restaurant operating profit 44,604 38,026 33,287 Franchise income 3,265 3,519 3,339 Divisional general and administrative costs 10,276 10,262 8,787 ------------------------------------------- Divisional operating profit 37,593 31,283 27,839 ------------------------------------------- Unallocated general and administrative costs 18,716 15,756 15,110 ------------------------------------------- Operating profit $ 18,877 $ 15,527 $ 12,729 ============================================
Before asset impairment charge of $746,000 in 1999. The year ended October 31, 1999 compared to the year ended November 1, 1998 - --------------------------------------------------------------------------- Consolidated restaurant sales increased 3.8% in 1999 versus 1998. This was a result of operating an additional three Village Inn restaurants in the current year (seven new restaurants were opened while three existing restaurants were converted to franchise operations and one was closed due to expiration of the lease), as well as experiencing a comparable same store sales increase of 3.2%. The Bakers Square concept registered a 4.6% increase in same store sales and a 1.3% increase in customer counts compared to 1998. Restaurant remodel programs to enhance the dining experience, broadened advertising coverage, special incentive programs at the local level, strengthened management ranks in the Midwest and Westcoast, and continued improved execution of the Bakers Square concept contributed to the improvement in sales. Village Inn same store sales increased .9% and customer counts decreased 1.5% over the prior year. The decrease in customer counts is partially attributable to the opening of new stores in established market areas, as well as highly successful promotional programs in 1998 which drove large increases in customer traffic. Consolidated restaurant operating profit increased 17.3% in 1999 versus 1998. Bakers Square's restaurant operating profit increased 43.0% over the prior year, while restaurant operating profit as a percent of sales increased to 9.8% in 1999 from 7.1% in 1998. Improved Bakers Square operating profit is due to higher same store sales, and programs developed to improve efficiencies, control food costs and minimize controllable operating costs. Village Inn's restaurant operating profit increased 1.1%, while profit as a percent of sales decreased from 17.2% in 1998 to 16.8% in 1999 due to start-up costs associated with the seven new stores opened in 1999. Net franchise income decreased 7.2% between 1999 and 1998 primarily as a result of increased general and administrative expenses associated with franchise operations. General and administrative expenses as a percent of restaurant sales, increased .6% in 1999 to 8.1%. The increase was attributed to increased divisional management expenses, higher incentive compensation payouts due to improved profitability, an increased investment in store manager training, and increased depreciation and other costs associated with the Enterprise Resource Planning (ERP) system implementation. Other income for 1999 increased 272% from 1998 due to a $859,000 gain on the sale of a restaurant property. Interest expense declined 34.6%, or $535,000 between 1999 and 1998 due to a substantial reduction in long-term debt in 1998. The year ended November 1, 1998 compared to the year ended October 31, 1997 - --------------------------------------------------------------------------- Consolidated restaurant sales increased 6.4% in 1998 compared to 1997. Comparable consolidated same store sales increased 6.7%, reflecting a 4.3% increase for Village Inn and an 8.3% increase for Bakers Square. Village Inn and Bakers Square comparable sales increases were due to a combination of higher customer counts and increased average customer expenditures. Same store customer counts increased 2.6% at Village Inn and 4.5% at Bakers Square. Consolidated restaurant operating profit increased 14.2% in 1998 versus 1997. Bakers Square accounted for the majority of the improvement as a result of increased sales coupled with programs to control waste and gain efficiencies. Village Inn's restaurant operating profit improved due largely to reduced food costs. Franchise income increased 5.4% in 1998 versus 1997 due to four new franchise units offset partially by the closing of two franchise units. General and administrative expense was 7.5% of revenues in 1998 and 7.4% in 1997. The increase of $2,121,000 or 8.9%, was largely due to higher bonus payouts to operating management as the result of improved operating results. Other income for 1998 decreased 38.3% from 1997 due to disposal of subleased units and lower interest earned on notes receivable. Interest expense decreased 39.8% for 1998 versus 1997 due to significantly reduced levels of borrowing and reduced capital lease interest. Asset Disposal, Impairment and Related Costs - -------------------------------------------- The Company recorded a pre-tax charge of $746,000 in fiscal 1999 for the write down of certain restaurant properties. Management assessed various factors relevant to the assets, including projected negative cash flows and concluded the historical performance trends were unlikely to improve materially, therefore an impairment of the assets was recognized. In 1996, the Company determined the strategy of using the Angel's Diner restaurants concept to invigorate underperforming restaurant properties was not economically viable and recorded a $5,800,000 asset disposal charge. The charge reduced the carrying values of related assets to net realizable value and provided for closure and carrying costs. In 1994, the Company recorded a $23,000,000 charge related primarily to a plan to close and dispose of underperforming restaurants and discontinue a portion of the Company's manufacturing and distribution activities. Also, included was the recognition of the impairment of the carrying values on four properties and an accrual for other costs directly related to the restructuring. During 1999, the Company disposed of eight properties; five through sublease and three through lease termination. Closure and carrying costs of $336,000 were charged against the established reserve. Additional units closed that were not included in the disposal plan included one in 1999, one in 1998 and six in 1997. Operating results for the closed restaurants for the past three fiscal years were as follows:
1999 1998 1997 ---- ---- ---- Bakers Square Sales $ -- $ -- $ 1,276,000 Restaurant operating profit/(loss) -- -- (215,000) Village Inn Sales $ 2,133,000 $ 3,912,000 $ 5,607,000 Restaurant operating profit/(loss) (13,000) 225,000 462,000 Angel's Sales $ -- $ -- $ 1,064,000 Restaurant operating profit/(loss) -- -- (19,000) Total Sales $ 2,133,000 $ 3,912,000 $ 7,947,000 Restaurant operating profit/(loss) (13,000) 225,000 228,000
As of October 31, 1999, the Company had $2,996,000 remaining to provide for the disposal of seven properties. The reserves consisted of $2,238,000 to reduce the disposal properties to realizable value and $758,000 to provide for carrying costs and sublease losses. The Company believes these reserves are adequate to cover the remaining costs and losses associated with the remaining disposal properties. The Company closed the bakery facilities in Denver, Colorado and Orlando, Florida in 1996 and subsequently sold the Denver, Colorado bakery facility on November 12, 1999 for $690,000, with a resulting loss of $614,000 applied against the disposal reserve. Effective Tax Rates - ------------------- The effective income tax rates used for financial reporting were 6.5% in 1999, 36.5% in 1998, and 36.0% in 1997. The decrease in the effective tax rate in 1999 is due to a one-time benefit of approximately $5,400,000 from adjusting the valuation allowance relating to certain deferred tax assets. Liquidity and Capital Resources - ------------------------------- The Company's principal source of funds is internally generated cash from operations. In 1999, $29,405,000 of cash was provided by operations compared to $42,222,000 in 1998. The decrease in cash flow from operations was a result of changes in working capital accounts. Cash provided from operations in 1998 totaled $42,222,000, an increase of $13,654,000 over 1997. The increase was primarily due to increased profitability and changes in working capital accounts. In 1999, the Company utilized $1,954,000 in investing activities compared to $18,588,000 in 1998. Although the net result is a $16,634,000 decrease, capital expenditures actually increased to $32,996,000 in 1999. This was offset by $30,608,000 in proceeds from the disposition of assets. Included in this amount was $28,700,000 relating to a sale leaseback transaction on twenty-one properties entered into by the Company. Cash used in investing activities in 1998 totaled $18,588,000 compared to $15,309,000 in 1997. The increase in cash used in investing activities in 1998 was due to higher capital expenditures. Cash used for financing activities in 1999, excluding the purchase of common stock, decreased $11,035,000 to $889,000 compared to $11,924,000 in 1998. The decrease is due to a substantial reduction of debt during 1998 and limited advances under the Company's bank credit facility during 1999. In 1998, total cash used in financing activities, excluding the purchase of common stock, was $11,924,000 compared to $12,981,000 in 1997, for a decrease of $1,057,000. The decrease was a result of proceeds received from the exercise of stock options. In December 1997, the Company executed an amended and restated credit agreement, which provides for an available credit limit of $40,000,000 in the aggregate with a sublimit of $10,000,000 on letters of credit. The credit agreement expires on February 28, 2001. In 1999, 1998,and 1997, 232,925, 213,700 and 20,000 shares of the Company's common stock were repurchased for $3,637,000, $2,912,000 and $220,000, under authorizations approved by the Board of Directors. At October 31, 1999, authorization to repurchase an additional 453,375 common shares was available. Future purchases may be made in the open market or through privately negotiated transactions and are dependent upon various business and financial considerations. At October 31, 1999, the Company was actively attempting to dispose of seven properties. Four of these properties were owned in fee and the remainder were leased. The Company intends to sell the fee properties over the next year and approximately $2,100,000 of proceeds are expected to be realized from the sale. The Company does not anticipate significant proceeds from the disposition of the leased properties. The majority of the leased properties will be disposed of through sublease over the next six to eighteen months. Cash carrying costs of approximately $758,000 are expected to be incurred during that period. The Company expects to sublease two of the properties at rentals lower than the Company's obligations under the prime leases. Those sublease losses will be funded over the remaining years of the leases with an immaterial affect on the Company's liquidity. Capital expenditures in 1999 totaled $32,996,000, which consisted of $15,902,000 for new restaurants, $9,352,000 for improvements to existing restaurants, $6,250,000 for information systems, and $1,492,000 for other support related projects. The Company accounts for the cost of its information systems in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires capitalization of external and internal costs incurred during the application development stage. Costs incurred during the preliminary project stage, post-implementation stage, training and application maintenance are expensed as incurred. In 1998 and 1997 capital expenditures totaled $21,054,000 and $16,410,000, respectively. Anticipated capital expenditures of $29,600,000 are planned for fiscal year 2000, including the opening of eight to ten additional restaurants. As of October 31, 1999, the Company had federal net operating loss ("NOL") carryforwards totaling $27,491,000 which expire $6,146,000 in 2001, $17,588,000 in 2010 and $3,757,000 in 2011. The Company also has investment tax credit ("ITC") carryforwards totaling $1,601,000, which expire in 2000. The Company has established a valuation allowance for the deferred tax assets related to the ITC carryforward as it is not expected to be realized. On October 28, 1999, the Company completed the sale and leaseback of the real estate related to twenty-one restaurant properties. The Company received $28,700,000 in net proceeds with a resulting deferred gain of $16,500,000, which will be amortized to reduce future rent expenses over the terms of the operating leases. The transaction allowed the Company to realize net operating loss carryforwards that were due to expire, as well as partially fund the tender offer discussed below. On November 23, 1999 the Company commenced a tender offer to purchase up to 2,000,000 shares of the Company's outstanding common stock for $19.00 per share. The tender offer concluded on December 22, 1999, whereby 2,000,000 shares were purchased. The tender offer was funded through cash proceeds realized from the sale leaseback and a $4,000,000 draw on the $40,000,000 available line of credit. VICORP guaranteed certain leases for twenty-five restaurant properties sold in 1986 and sixteen restaurant leases of certain franchisees. Minimum future rental payments remaining under these leases were approximately $5,300,000 and $7,300,000 as of October 31, 1999 and November 1, 1998, respectively. These guarantees are included in the definition of financial instruments with off-balance-sheet risk of accounting loss. The Company took possession of one of these properties, which has since been subleased, and settled on a defaulted lease in the amount of $57,000 as a result of a sublessee bankruptcy filing. The Company has no reason to believe that any material liability exists and believes it is impracticable to estimate the fair value of these financial guarantees (e.g., amounts the Company could pay to remove the guarantees). The Company believes anticipated cash flow from operations, as well as the availability of funds under the $40,000,000 line of credit, and other financing sources will provide sufficient capital to meet current foreseeable cash needs, including working capital and capital expenditures. Y2K - --- In 1997 the Company completed a review of the existing computer systems which resulted in a decision to replace a large portion of the existing systems. The principal purpose of implementing the new systems installed was to upgrade and integrate the Company's information systems. The Company believes the new systems are Year 2000 compliant. As of January 4, 1999, the Company implemented a Year 2000 compliant system at corporate headquarters. These new ERP (Enterprise Resource Planning) systems have been designed to provide the infrastructure to support corporate and field-based operations. The Company completed a successful system-wide rollout of the new back-of- house point-of-sale system, as well as Year 2000 compliant modifications to the front-of-house systems in October 1999. End-to-end testing was completed, including vendor interfaces, which required minor modifications. The modifications were completed as of December 15, 1999. The Company conducted a review of its physical facilities in order to identify potential areas of embedded technology (heating, lighting, fixtures, equipment, communications systems, waste treatment, emergency backup systems, etc.) that may not be Year 2000 compliant. The Company believes exposure is limited in this area and has formulated plans to address any issues that may surface. With respect to third parties, the Company contacted and prepared written communications to all third parties considered critical to the Company's ongoing operations. Communications requested written confirmation from mission critical third parties of reasonable assurance that plans are being developed to ensure Year 2000 readiness. Reasonable assurance included verification that critical third-party vendors have a plan in place for review of Year 2000 readiness for their supplier base. To the extent that critical third-party vendors did not provide the Company with satisfactory evidence of readiness, contingency plans were developed and will be implemented by the Company if necessary. The Company sent written notice to franchisees regarding the need for Year 2000 readiness. Approximately one-half of the Company's franchise restaurant based systems were replaced in conjunction with the Company's system wide rollout of the new back-of-house point-of-sale system and front- of-house modifications. The Company does not believe the costs related to the Year 2000 readiness project are material to its financial position or results of operations. As of January 21, 2000, the Company has not experienced any material Year 2000 computer system related issues. Management Outlook - ------------------ The mid-scale segment of the restaurant industry remains extremely competitive. Improvements in future operating performance will be primarily dependent upon the Company's ability to increase comparable sales, especially given the significant profit impact associated with incremental sales at existing restaurants. Cost controls will also play a significant factor in future profit growth. In addition, numerous external factors could have a significant impact on future performance, including, but not limited to, food costs, labor availability, site availability, the economy, weather and government initiatives such as minimum wage rates, mandated benefits and taxes. Historically, the Company has mitigated the effects of inflation through cost controls and periodic price increases. Management believes it will be able to minimize the effects of future inflation through similar measures, although such price increases will be subject to competitive constraints and other business considerations. Certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those currently anticipated. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward- looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. New Accounting Pronouncements - ----------------------------- In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 which delayed the effective date of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), until fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires all derivatives to be recognized as assets or liabilities on the balance sheet and measured at fair value. Changes in the fair value of derivatives should be recognized in either net income or other comprehensive income, depending on the designated purpose of the derivative. At present the Company is investigating the effect the adoption of this statement will have on the Company's results of operations, financial position and cash flows, if any. Item 8. Financial Statements and Supplementary Data. Management's Report on Financial Statements TO OUR SHAREHOLDERS: The preparation and integrity of the financial statements of VICORP Restaurants, Inc. are the responsibility of its management. This responsibility includes the selection of accounting procedures and practices which conform with generally accepted accounting principles considered appropriate in the circumstances. Informed judgments and estimates which the Company believes to be reasonable are required in the determination of certain data used in the accounting and reporting process. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are executed in accordance with management's authorization and properly recorded in all material respects. Adequate communication of Company policies to its employees, segregation of responsibilities for the authorization and execution of transactions, and proper accountability for the Company's assets are essential elements of the system. Each year the Board of Directors appoints an Audit Committee comprised of directors who are not employees of the Company. The principal responsibilities of this Committee are to recommend an independent auditor for the Company and to periodically meet with representatives of the independent auditors and with management to obtain reasonable assurances that the auditors are properly discharging their responsibilities and that the Company's financial reporting to stockholders and others is adequate and appropriate. Arthur Andersen LLP has conducted an independent examination in order to render their opinion on the Company's financial statements. Charles R. Frederickson Richard E. Sabourin Chief Executive Officer Executive Vice President and and Chairman of the Board Chief Financial Officer Report of Independent Public Accountants TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF VICORP RESTAURANTS, INC.: We have audited the accompanying balance sheets of VICORP Restaurants, Inc. (a Colorado corporation) as of October 31, 1999 and November 1, 1998, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1999. 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 financial position of VICORP Restaurants, Inc. as of October 31, 1999 and November 1, 1998, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, December 22, 1999. VICORP Restaurants, Inc. BALANCE SHEETS
October 31, November 1, (in thousands) 1999 1998 - ---------------------------------------------------------------------------------------- ASSETS Cash $ 33,187 $ 10,262 Receivables(Note 3) 5,801 3,655 Inventories 9,989 7,501 Deferred income taxes(Note 10) 7,059 3,617 Prepaid expenses and other 1,253 2,192 - --------------------------------------------------------------------------------------- Total current assets 57,289 27,227 - --------------------------------------------------------------------------------------- Property and equipment, net(Note 4) 128,753 128,648 Deferred income taxes(Note 10) 33,303 35,547 Long-term receivables(Note 3) 1,204 869 Other assets 7,722 7,379 - --------------------------------------------------------------------------------------- Total assets $ 228,271 $ 199,670 ======================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current maturities of long-term debt and capitalized lease obligations(Notes 5 and 6) $ 1,582 $ 1,711 Accounts payable, trade 18,054 21,847 Accrued compensation 7,616 6,013 Accrued taxes 11,008 8,629 Accrued insurance(Note 12) 2,246 3,354 Other accrued expenses 6,528 5,208 - --------------------------------------------------------------------------------------- Total current liabilities 47,034 46,762 - --------------------------------------------------------------------------------------- Long-term debt(Note 6) 40 87 Capitalized lease obligations(Note 5) 4,548 5,696 Non-current accrued insurance(Note 12) 2,757 3,199 Other non-current liabilities and credits 22,044 5,919 Commitments and contingencies Shareholders' equity(Note 7) Series A Junior Participating Preferred Stock, $.10 par value, 200,000 shares authorized, no shares issued -- -- Common Stock, $.05 par value, 20,000,000 shares authorized, 8,845,581 and 9,067,699 shares issued and outstanding 444 455 Paid-in capital 80,673 84,148 Retained earnings 70,731 53,404 - ---------------------------------------------------------------------------------------- Total shareholders' equity 151,848 138,007 - ---------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 228,271 $ 199,670 ========================================================================================
The accompanying notes are an integral part of these financial statements. VICORP Restaurants, Inc. STATEMENTS OF OPERATIONS
Year ended ----------------------------------------------------- October 31, November 1, October 31, (in thousands, except per share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Revenues(Note 2) Restaurant operations $355,781 $342,654 $322,188 Franchise operations 3,265 3,519 3,339 - ------------------------------------------------------------------------------------------------ 359,046 346,173 325,527 - ------------------------------------------------------------------------------------------------ Costs and expenses Restaurant operations Food 106,991 105,416 101,152 Labor 116,571 112,047 104,371 Other operating 87,615 87,165 83,378 General and administrative 28,992 26,018 23,897 Asset disposal, impairment, restructuring and related costs(Notes 2 and 9) 746 -- -- - ------------------------------------------------------------------------------------------------ Operating profit 18,131 15,527 12,729 Interest expense (1,012) (1,547) (2,569) Other income, net 1,422 382 619 - ------------------------------------------------------------------------------------------------ Income before income taxes 18,541 14,362 10,779 Provision for income taxes(Note 10) 1,214 5,242 3,880 - ------------------------------------------------------------------------------------------------ Net income $ 17,327 $ 9,120 $ 6,899 ================================================================================================ Earnings per share(Note 2) Basic $ 1.94 $ .99 $ .76 Diluted $ 1.93 $ .98 $ .75 ================================================================================================
The accompanying notes are an integral part of these financial statements. VICORP Restaurants, Inc. STATEMENTS OF CASH FLOWS
Year ended -------------------------------------------- October 31, November 1, October 31, (in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------- Operations Net income $ 17,327 $ 9,120 $ 6,899 Reconciliation to cash provided by operations: Depreciation and amortization 19,647 19,486 19,746 Deferred income tax provision(benefit) (1,198) 4,457 2,705 Asset disposal, restructuring and related costs 746 269 490 Gain on disposition of assets (850) -- -- Other, net (701) (491) (286) Changes in assets and liabilities: Receivables (2,983) 170 (171) Inventories (2,488) (750) (234) Accounts payable, trade (4,068) 7,764 2,952 Other current assets and liabilities 4,415 1,325 (511) Non-current accrued insurance (442) 872 (3,022) - -------------------------------------------------------------------------------------------- Cash provided by operations 29,405 42,222 28,568 - -------------------------------------------------------------------------------------------- Investing activities Purchase of property and equipment (32,996) (21,054) (16,410) Sale (purchase) of other assets (938) 125 (329) Disposition of property 30,608 1,005 881 Collection of non-trade receivables 1,080 1,336 549 Other, net 292 -- -- - -------------------------------------------------------------------------------------------- Cash used for investing activities (1,954) (18,588) (15,309) - -------------------------------------------------------------------------------------------- Financing activities Proceeds from issuance of debt -- 1,300 2,100 Payments of debt and capital lease obligations (1,004) (15,186) (16,240) Purchase of common stock (3,637) (2,912) (220) Issuance of common stock 115 1,846 439 Other, net -- 116 720 - -------------------------------------------------------------------------------------------- Cash used for financing activities (4,526) (14,836) (13,201) - -------------------------------------------------------------------------------------------- Increase in cash 22,925 8,798 58 Cash at beginning of year 10,262 1,464 1,406 - -------------------------------------------------------------------------------------------- Cash at end of year $ 33,187 $ 10,262 $ 1,464 ============================================================================================ Supplemental information Cash paid during the year: Interest (net of amount capitalized) $ 1,020 $ 1,589 $ 2,535 Income taxes 2,998 382 369 - --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. VICORP Restaurants, Inc. NOTES TO FINANCIAL STATEMENTS Note 1. Description of Business VICORP ("the Company") operates family style restaurants under the names "Bakers Square" and "Village Inn," and franchises restaurants under the Village Inn brandname. At October 31, 1999, VICORP operated two hundred fifty-two Company-owned restaurants in thirteen states. Of the two hundred fifty-two Company-owned restaurants, one hundred fifty were Bakers Squares and one hundred two were Village Inns, with an additional one hundred sixteen franchised Village Inn restaurants in twenty-one states. The Company-owned and franchised restaurants are concentrated in Arizona, California, Florida, the Rocky Mountain region and the upper Midwest. The Company operates a pie manufacturing division to support the restaurants, which operates under the name VICOM. VICOM has three production facilities located in Santa Fe Springs, California, Oak Forest, Illinois and Mounds View, Minnesota. Note 2. Summary of Significant Accounting Policies Fiscal Year - ----------- Effective fiscal 1999, the Company adopted reporting on a 52/53 week fiscal year ending on the last Sunday in October. In conjunction with that change, the Company's last fiscal quarter of 1999 consisted of sixteen weeks and all other quarters consisted of twelve weeks. Prior to 1999, the Company utilized a fiscal year which, ended on the last day in October. Fiscal quarters in 1998 and 1997 consisted of three months. Estimates - --------- The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents consist of cash on hand and highly liquid instruments with original maturities of three months or less. Inventories - ----------- Inventories are stated at the lower of cost (first-in, first-out) or market and consist of food, paper, products and supplies. Inventories consisted of the following (in thousands):
October 31, November 1, 1999 1998 ---------- ---------- Inventories at production facilities and third party storage locations: Raw materials $ 2,401 $ 2,476 Finished goods 5,192 2,837 ------- ------- 7,593 5,313 Restaurant inventories 2,396 2,188 ------- ------- $ 9,989 $ 7,501 ======= =======
Prepaid Expenses - ---------------- Prepaid expenses consist primarily of prepaid rent, supplies, prepaid contracts and prior to fiscal year 1999 restaurant pre-opening costs. Pre- opening costs consisted of salaries and other direct expenses incurred in connection with the set-up and stocking of stores, employee training and general store management costs incurred prior to the opening of new stores. Effective November 2,1998, the Company early adopted the provisions of AICPA Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). All pre-opening expenses were expensed as incurred in accordance with SOP 98-5. Prepaid pre-opening costs capitalized at October 31, 1999 and November 1, 1998 are $0 and $67,000, respectively, so the cumulative effect of the change in accounting principle was not significant to the Company's financial position or results of operations. Property and Equipment - ---------------------- Property and equipment is stated at cost, less accumulated depreciation and amortization. The provision for depreciation and amortization has been calculated using the straight-line method. The useful lives of assets range from twenty to forty years for buildings and three to ten years for equipment and improvements. Leasehold improvements and leasehold rights are amortized over the lesser of the useful life or the lease term. Property and equipment additions include acquisitions of building and equipment and costs incurred in the development and construction of new stores. Expenditures for maintenance and repairs are charged to expense as incurred. The Company accounts for the cost of its information systems in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires capitalization of external and internal costs incurred during the application development stage. Costs incurred during the preliminary project stage, post-implementation stage, training and application maintenance are expensed as incurred. Goodwill - -------- The excess purchase price over net assets acquired is included in other assets and amortized over twenty-five years. Revenue Recognition - ------------------- Revenue from Company stores is recognized in the period during which related food and beverage products are sold. Initial franchise fees are recognized as income upon commencement of the franchise operation and completion of all material services and conditions by the Company. Continuing service fees are calculated as a percentage of the franchisee gross sales and recognized in the period the sales are generated. Property rental income is recognized on a straight-line basis over the life of the lease. Interest income on franchisee notes receivable and equipment sales is recognized when earned. If collectibility is in doubt, revenue recognition is deferred until cash receipt. Net franchise operations consisted of the following (in thousands):
1999 1998 1997 ---- ---- ---- Continuing service fees $ 4,060 $ 3,979 $ 3,828 Initial and renewal fees 145 63 111 Property rental income 116 184 316 Interest income on franchisee notes 147 167 202 Equipment sales income 93 18 14 Administrative expense (1,296) (892) (1,132) ------- ------- ------ Net franchise operations $ 3,265 $ 3,519 $ 3,339 ======= ======= =======
Advertising Costs - ----------------- Advertising costs for television, radio, newspapers, direct mail and point- of-purchase materials are expensed in the period incurred. Production costs are expensed upon initial usage of the advertising. Advertising expense for 1999, 1998 and 1997 was $9,454,000, $7,982,000 and $5,788,000, respectively. At October 31, 1999 and November 1, 1998, $146,000 and $0 were reported as prepaid expenses. Fair Value of Financial Instruments - ----------------------------------- The carrying value of cash and cash equivalents approximates fair value due to the length of maturity. Notes receivable is valued at estimated fair market value based on the respective facts and circumstances of each non- publicly traded instrument. The fair value of long-term debt approximates carrying value due to the variable, market-based interest rate feature. Income Taxes - ------------ Deferred income tax assets and liabilities are recognized for the expected future income tax consequences of carryforwards and temporary differences between the GAAP and tax basis of assets and liabilities. Valuation allowances are established for deferred tax assets that are deemed unrealizable. Earnings Per Share - ------------------ Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of potentially dilutive common stock using the treasury stock method. The number of potentially issuable shares as of October 31, 1997 has been restated to conform with Statement of Financial Accounting Standards No.128 "Earnings Per Share."
Weighted average common shares outstanding 1999 1998 1997 --------- --------- --------- Basic 8,930,045 9,209,628 9,096,628 Effect of dilutive common stock equivalents 28,097 52,521 48,075 --------- --------- --------- Diluted 8,958,142 9,262,149 9,144,703 ========= ========= =========
Recoverability of Long-Lived Assets - ----------------------------------- The Company evaluates long-lived assets to be held and used in the business for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. An impairment is determined by comparing estimated undiscounted future operating cash flows to the carrying amounts of assets. Assets are assessed on a restaurant by restaurant basis. If an impairment exists, the asset will be recorded at the lesser of its fair value or the estimated discounted future cash flows related to that asset. New Accounting Pronouncements - ----------------------------- In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 which delayed the effective date of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), until fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires all derivatives to be recognized as assets or liabilities on the balance sheet and measured at fair value. Changes in the fair value of derivatives should be recognized in either net income or other comprehensive income, depending on the designated purpose of the derivative. At present the Company is investigating the effect the adoption of this statement will have on the Company's results of operations, financial position and cash flows, if any. Note 3. Receivables Receivables represent billings to outside bakery sales customers and franchisee billings for continuing royalty service fees, initial and renewal fees, equipment sales, and property rental for franchisees and other sublessees. The trade receivables are generally unsecured while notes receivable are typically secured by the property that gave rise to the transaction. Year-end receivables consisted of the following:
October 31, November 1, (in thousands) 1999 1998 - ---------------------------------------------------------- Trade receivables $5,910 $3,094 Notes receivable 1,581 2,141 Discounts on notes receivable (14) (68) Allowance for doubtful accounts (472) (643) - --------------------------------------------------------- Receivables, net 7,005 4,524 Current portion 5,801 3,655 - --------------------------------------------------------- Long-term portion $1,204 $ 869 - ---------------------------------------------------------
Note 4. Property and Equipment Property and equipment consisted of the following:
October 31, November 1, (in thousands) 1999 1998 - ------------------------------------------------------------------------ Property and equipment used in operations: Land $ 24,555 $ 22,540 Buildings and improvements 115,499 126,935 Equipment 120,885 111,376 Construction in progress 7,525 10,051 Restaurant property leased to others 7,329 7,947 Less: accumulated depreciation (151,266) (154,629) - ----------------------------------------------------------------------- Net property and equipment used in operations 124,527 124,220 - ----------------------------------------------------------------------- Capitalized lease buildings 8,514 8,514 Less: accumulated amortization (5,469) (4,849) - ----------------------------------------------------------------------- Net capitalized lease buildings 3,045 3,665 - ----------------------------------------------------------------------- Properties held for disposal, net 3,419 3,119 Less: allowance for loss on disposal (2,238) (2,356) - ----------------------------------------------------------------------- Net properties held for disposal 1,181 763 - ----------------------------------------------------------------------- Property and equipment, net $128,753 $128,648 =======================================================================
Depreciation and amortization expense was $18,635,000 in 1999, $18,790,000 in 1998, and $19,222,000 in 1997. At October 31, 1999, all fee owned properties were free of mortgages, pledges or other liens. Note 5. Leases The Company is the prime lessee under various land, building and equipment leases for Company-owned and franchised restaurants, bakery facilities and other non-Company operated locations. The leases have initial terms ranging from fifteen to thirty-five years and, in certain instances, provide for renewal options ranging from five to twenty years. Many leases provide for purchase options at the end of the lease term and escalation clauses, either predetermined or based upon inflation. Leases may also include additional rental payments contingent upon restaurant sales volume. Under most leases, the Company is responsible for occupancy costs including taxes, insurance and maintenance. Subleases to franchisees or other non-Company operators generally provide for similar terms as the prime lease, as well as an obligation for occupancy costs. Implicit interest rates range from 7.2% to 13.8% on capital leases. The following summarizes future minimum lease payments under capital and operating leases having an initial or remaining non-cancelable term of one year or more as of October 31, 1999:
Lease and Capital Operating sublease (in thousands) leases leases rentals - ------------------------------------------------------------------------- 2000 $ 2,281 $ 16,882 $ (2,273) 2001 2,038 16,190 (2,016) 2002 1,617 12,220 (1,580) 2003 758 10,443 (1,015) 2004 479 9,472 (769) Later years 665 58,408 (2,668) - ------------------------------------------------------------------------ Total minimum lease payments $ 7,838 $123,615 $(10,321) ================================ Less amount representing interest 1,764 - ----------------------------------------------- Present value of minimum lease payments 6,074 Current maturities of capitalized lease obligations 1,526 - ----------------------------------------------- Capitalized lease obligations $ 4,548 ===============================================
Net rental expense consisted of the following:
(in thousands) 1999 1998 1997 - ------------------------------------------------------------------------ Restaurant land and buildings: Minimum rentals $13,591 $13,956 $13,892 Contingent rentals 2,537 2,556 2,357 Equipment 222 85 66 - ------------------------------------------------------------------------ Gross rental expense 16,350 16,597 16,315 Less: lease and sublease rental income 3,212 3,368 3,271 - ------------------------------------------------------------------------ Net rental expense $13,138 $13,229 $13,044 ========================================================================
On October 28, 1999, the Company completed the sale and leaseback of the real estate related to twenty-one restaurant properties. The Company received $28,700,000 in net proceeds with a resulting deferred gain of $16,500,000, which will be amortized to reduce future rent expenses over the terms of the operating leases in accordance with SFAS 98, "Accounting for Leases." Note 6. Debt Long-term debt consisted of the following:
October 31, November 1, (in thousands) 1999 1998 - ----------------------------------------------------------------- Other long-term debt $ 96 $ 234 Current maturities 56 147 - ----------------------------------------------------------------- Long-term debt $ 40 $ 87 =================================================================
On December 19, 1997, the Company executed an amended and restated credit agreement, which provides for an available credit limit of $40,000,000 in the aggregate with a sublimit of $10,000,000 on letters of credit. The credit agreement expires on February 28, 2001. Advances under the amended and restated agreement bear interest at the higher of the Federal Funds rate plus 1/2 of 1% or the lender's Prime Rate, or the Company may elect to borrow at the lender's Eurodollar rate plus 1% to 1 5/8%. In addition, the Company is required to pay fees equal to 1/4 to 3/8 of 1% per annum on unused portions of the commitment, and 1% to 1 5/8% per annum on issued letters of credit. The unused commitment and letter of credit fees and the margin on Eurodollar borrowings are adjusted based on the Company's debt-to-capitalization ratio and fixed charge coverage ratio. At the time of the closing of the amended and restated agreement, the Company qualified for minimum rates and fees provided in the agreement. On October 28, 1999, the Company completed the sale and leaseback of the real estate related to twenty-one restaurant properties. In conjunction with the transaction the Company received a waiver letter dated October 22, 1999, under which the lender waived any default caused by the sale leaseback transaction, and agreed not to enforce their rights or remedies under the loan document. In consideration of the waiver, the Company agreed not to purchase any of its shares of common stock or exchange shares of one class of capital stock for another in excess of the lesser of $30,000,000 or the net proceeds of the sale leaseback transaction without the prior written consent of the lender through the maturity date of the loan agreement. The waiver does not constitute a waiver of any present or future violation of or noncompliance with any provision of the loan document. Subsequent to year- end, the Company commenced a tender offer to purchase 2,000,000 shares of the outstanding common stock for $19.00 per share as described in Note 13. The Company received a waiver letter dated November 22, 1999 from the lender consenting to the transaction and amending certain covenants. During 1999, the largest aggregate outstanding balance under the Company's bank facilities was $650,000. The average balance outstanding was $3,022 with an average interest rate of 7.59%. At October 31, 1999, the Company had placed letters of credit totaling $1,850,000 in connection with its insurance programs and carried no outstanding debt under its credit agreement. The credit agreement contains various restrictive covenants which include, among others, maintenance of certain financial ratios, maintenance of a minimum balance of tangible net worth and limitations on annual capital expenditures, indebtedness, dividends, dispositions and acquisitions and franchise guarantees. Principal amounts of other long-term debt outstanding as of October 31, 1999 due during each of the five succeeding fiscal years were, $56,000 in the year 2000, $40,000 in 2001, and none in the years 2002, 2003 and 2004. The Company incurred $1,012,000, $1,553,000, and $2,573,000, of interest charges in 1999, 1998, and 1997, respectively. Of these amounts, $0, $6,000 and $4,000 were capitalized in 1999, 1998, and 1997, respectively. Deferred loan fees were $23,000 and $141,000 net of amortization at October 31, 1999 and November 1, 1998, respectively. These amounts are included in other assets and are amortized over the three-year loan commitment period using the straight-line method. Note 7. Shareholders' Equity The Company's authorized preferred stock consists of 5,000,000 $.10 par value shares issuable in series. The rights of each series are to be determined by the Company's Board of Directors. Since August 1992, the Company's Board of Directors has authorized the repurchase of shares of the Company's common stock. During 1999, the Company repurchased 232,925 shares at an aggregate cost of $3,637,000. An additional 453,375 common shares remained available for repurchase under the existing authorizations. Future purchases may be made in the open market or through privately negotiated transactions and will be dependent upon various business and financial considerations. Under Colorado law, repurchased shares of capital stock are considered authorized and unissued shares and have the same status as shares which have never been issued. Under the most restrictive covenants of the Company's bank credit agreement, approximately $30,000,000 and $33,796,000 was unrestricted at October 31, 1999, as to the repurchase of the Company's common stock and to declaration of cash dividends, respectively. The following table summarizes shareholders' equity activity:
Total Common stock Paid-in Retained shareholders' (in thousands, except share data) Shares Amount capital earnings equity - ---------------------------------------------------------------------------------------------- Balances at October 31, 1996 9,055,026 $453 $84,431 $37,385 $122,269 Net income -- -- -- 6,899 6,899 Common stock options exercised including income tax benefit 82,900 5 797 -- 802 Employee Stock Purchase Plan 14,860 1 168 -- 169 Purchase of common shares (20,000) (1) (219) -- (220) - ------------------------------------------------------------------------------------------- Balances at October 31, 1997 9,132,786 458 85,177 44,284 129,919 Net income -- -- -- 9,120 9,120 Common stock options exercised including income tax benefit 139,001 7 1,741 -- 1,748 Employee Stock Purchase Plan 9,612 1 131 -- 132 Purchase of common shares (213,700) (11) (2,901) -- (2,912) - ------------------------------------------------------------------------------------------- Balances at November 1, 1998 9,067,699 455 84,148 53,404 138,007 Net income -- -- -- 17,327 17,327 Common stock options exercised including income tax benefits 2,000 -- 27 -- 27 Common Stock issued under The Directors Stock Plan 305 -- 6 -- 6 Employee Stock Purchase Plan 8,502 1 117 -- 118 Purchase of common shares (232,925) (12) (3,625) -- (3,637) - ------------------------------------------------------------------------------------------- Balances at October 31, 1999 8,845,581 $444 $80,673 $70,731 $151,848 ===========================================================================================
Note 8. Stock Option, Stock Purchase, Profit-sharing Plan, Deferred Compensation Plan and Directors' Stock Plan Under terms of the Company's stock option plans, officers and certain other employees may be granted options to purchase the Company's common stock at exercise prices not less than the market value of the common stock on the date of the grant. Options generally vest over three years and expire ten years after the date of grant or three months after employment termination, whichever occurs first. The Company has elected to account for its stock-based compensation plans using the intrinsic value based method under APB No. 25. For pro forma disclosure purposes, the Company has computed the value of all options granted during 1999, 1998, and 1997 using the Black-Scholes option pricing model and the following assumptions:
1999 1998 1997 ---- ---- ---- Risk-free weighted average interest rate....... 5.4% 4.9% 6.7% Expected dividend yield........................ 0% 0% 0% Expected weighted average lives............... 6.50 yrs 6.28 yrs 6.25 yrs Expected volatility.......................... 40.7% 44.3% 44.7%
The aggregate estimated fair value of stock options granted in 1999, 1998 and 1997 was $100,000, $1,208,000 and $73,000, respectively. For purposes of pro forma disclosure, the estimated fair value of options is amortized over the options' vesting period and previously recognized compensation expense is reversed for current year forfeitures of unvested options. If the Company had accounted for its employee stock compensation plans in accordance with SFAS No. 123, the Company's net income and pro forma net income per share would have been reported as follows:
Years Ended October 31, November 1, October 31, 1999 1998 1997 ---- ---- ---- Net Income: As Reported $17,327 $ 9,120 $ 6,899 Pro Forma 16,616 8,966 6,472 Net Income per Common and Common Equivalent Share: As Reported $1.93 $ 0.98 $ 0.75 Pro Forma 1.85 0.97 0.71
Following is a summary of the Company's stock option plans at October 31, 1999, November 1, 1998 and October 31, 1997:
Years Ended October 31, November 1, October 31, 1999 1998 1997 ---- ---- ---- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ---------------------------------------------------------- Outstanding at beginning of year 444,000 $15.68 641,518 $13.96 868,300 $12.72 Grants 16,000 $15.75 164,000 $15.81 14,000 $12.25 Exercised (52,000)* $16.86 (139,001) $12.37 (122,900)* $ 5.82 Canceled (10,000) $17.00 (222,517) $12.87 (117,882) $13.08 ------- ------- ------- Outstanding at end of year 398,000 $15.50 444,000 $15.68 641,518 $13.96 ======= ======= =======
* For 1999, includes 50,000 shares exercised by presenting 49,097 previously owned shares. For 1997, includes 40,000 shares exercised by presenting 14,285 previously owned shares. The issuance of 903 and 25,715 incremental shares to the employee was deferred in 1999 and 1997, respectively. These shares are held in trust for the benefit of the employee under the terms of the Company's Deferred Compensation Plan described below. The following table summarizes information about the stock options outstanding and exercisable as of October 31, 1999:
Options Outstanding Options Exercisable ------------------- ------------------- Weighted Number Average Weighted Exercisable Weighted Remaining Average At Average Range of Options Contractual Exercise October 31, Exercise Exercise Prices Outstanding Life Price 1999 Price - --------------- ----------- ---- ----- ---- ----- $11.50 100,000 6.80 years $11.50 75,000 $11.50 $12.25 14,000 7.46 years $12.25 14,000 $12.25 $14.25 100,000 8.92 years $14.25 33,332 $14.25 $14.50-$18.25 142,000 6.95 years $16.67 117,000 $16.33 $20.00-$26.00 42,000 2.19 years $25.14 42,000 $25.14 ------- ------- $11.50-$26.00 398,000 6.92 years $15.50 281,332 $15.91 ======= =======
In October 1996, the Company adopted an Employee Stock Purchase Plan (the "Plan") under which eligible employees completing twelve months of employment may contribute up to $25,000 of their annual earnings toward the quarterly purchase of the Company's common stock at 85% of the quarter-end market value. There are no charges or credits to income in connection with the Plan. The Company has reserved 500,000 common shares for issuance under the Plan, which terminates on September 30, 2001. Under the Plan 8,502, 9,612 and 14,860 shares were issued in fiscal 1999, 1998 and 1997, respectively. The Company has an Outstanding Common Stock Purchase Plan (the "Plan") under which eligible participants may elect to utilize incentive compensation that otherwise would be paid in cash to purchase the Company's common stock in the open market at prevailing prices. If the participant owns these shares and is employed by the Company after two years from the purchase of the common shares, a cash bonus equal to 25% of the incentive compensation used to purchase the shares will be paid to the participant. The Plan expired on October 31, 1999. No material expense under this Plan was incurred during the last three fiscal years. The Company has an Employees' Profit-sharing Plan, established under Section 401(k) of the Internal Revenue Code of 1986, which provides for annual contributions by the Company in the amount of 2% of the aggregate compensation of participants. Full-time and part-time employees and part-time employee meeting a one thousand hour service requirement are eligible to participate. The Company contributed $651,000, $531,000 and $515,000 in 1999, 1998 and 1997, respectively. The Company has a Deferred Compensation Plan (the "Plan") that allows officers of the Company to voluntarily defer compensation. All benefits under the Plan are unfunded obligations of the Company. Compensation expense is recorded for cash compensation deferred and a related liability is recognized. Participants may elect designated investment options for the notional investment of their deferred compensation. The recorded obligations and expense are adjusted for deemed income or loss related to the investments selected. The Company accounts for deferred cash compensation under EITF 97-14. On October 31, 1999 and November 1, 1998, the accrued obligation for deferred cash compensation and deemed earnings thereon was $1,553,000 and $874,000, respectively. The Plan provides that participants who hold stock options may irrevocably elect to exercise the stock options and have their Plan account credited with a number of shares equal in value to the incremental difference between the exercise price and the closing price of the Company's common stock on the surrender date. Under EITF 97-5, if the option holder presents "mature" shares (held for at least six months) that are deemed tendered for the exercise price, and the ultimate payment to the employee is limited to the number of shares deferred, no compensation expense is recognized at the time of exercise, or subsequently. If the employee has the right to receive cash or other considerations from the Plan, the intrinsic value of the options at the date of exercise would be expensed as well as subsequent changes in the fair value of the shares held by the Company for the benefit of the employee, until finally distributed. To date, no compensation expense has been recognized related to the deferred issuance of Company shares. Common shares held in trust by the Company totaled 29,495 in 1999 and 28,592 in 1998. These shares are accounted for in a manner similar to treasury stock, and consequently, under Colorado law, are treated as authorized but unissued shares. Upon eligibility for retirement or termination of a participant's employment, the participant shall have a 100% vested interest in their Plan account. Distributions of the participant's account shall be made in single lump sum payments or equal installments over a period of no less than two and no more than fifteen years. The Company has a common stock award plan for non-employee directors ("Directors Plan") under which the maximum number of shares of common stock which may be granted during the term of the Directors Plan will be 150,000 shares. Under the terms of the Directors Plan, on the last day of each calendar quarter effective July 1, 1999, the Company will automatically grant a number of shares of common stock equal to $5,000 to each director. The fair market value is equal to the average of the closing price on the common stock for the five business days immediately preceding the grant date. A director may elect to defer receipt of the common stock until the expiration of five years from the date of such grant or the termination of the director's status as a director. Compensation expense is recognized for the fair value of the shares at the date of grant and adjusted for subsequent changes in their fair value until issued. As of October 31, 1999, 2,440 shares were granted at an option price of $16.38, of which 305 were issued and 2,135 were deferred for a total compensation expense of $41,068. Note 9. Asset Disposal, Impairment and Related Costs The Company recorded a pre-tax charge of $746,000 in fiscal 1999 for the write down of certain restaurant properties. Management assessed various factors relevant to the assets, including projected negative cash flow losses and concluded the historical performance trends were unlikely to improve materially, therefore an impairment of the assets was recognized. In 1996, the Company determined the strategy of using the Angel's Diner restaurants concept to invigorate underperforming restaurant properties was not economically viable and recorded a $5,800,000 asset disposal charge. The charge reduced the carrying values of related assets to net realizable value and provided for closure and carrying costs. In 1994, the Company recorded a $23,000,000 charge related primarily to a plan to close and dispose of underperforming restaurants and discontinue a portion of the Company's manufacturing and distribution activities. Also, included was the recognition of the impairment of the carrying values on four properties and an accrual for other costs directly related to the restructuring. During 1999, the Company disposed of eight properties; five through sublease and three through lease termination. Closure and carrying costs of $336,000 were charged against the established reserve. Additional units closed that were not included in the disposal plan included one in 1999, one in 1998 and six in 1997. Operating results for the closed restaurants for the past three fiscal years were as follows (in thousands):
1999 1998 1997 ---- ---- ---- Sales $2,133 $3,912 $7,947 Restaurant operating profit/(loss) (13) 225 228
As of October 31, 1999, the Company had $2,996,000 remaining to provide for the disposal of seven properties. The reserves consisted of $2,238,000 to reduce the disposal properties to realizable value and $758,000 to provide for carrying costs and sublease losses. The Company believes these reserves are adequate to cover the remaining costs and losses associated with the remaining disposal properties. The Company closed the bakery facilities in Denver, Colorado and Orlando, Florida in 1996 and subsequently sold the Denver, Colorado bakery facility on November 12, 1999 for $690,000, with a resulting loss of $614,000 applied against the disposal reserve. Note 10. Income Taxes The total provisions for income taxes consisted of the following:
(in thousands) 1999 1998 1997 - ----------------------------------------------------------------------- Current Federal $ 668 $ 254 $ 109 States 1,742 527 733 - ----------------------------------------------------------------------- 2,410 781 842 - ----------------------------------------------------------------------- Deferred Federal 224 4,008 2,082 States (1,422) 449 623 - ----------------------------------------------------------------------- (1,198) 4,457 2,705 - ----------------------------------------------------------------------- Total provision for income taxes $ 1,212 $ 5,238 $ 3,547 =======================================================================
The components of the provision for income taxes included in the Company's statements of operations were as follows:
(in thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------- Current Taxes on income before carryforwards $14,531 $ 6,064 $ 3,876 Less: benefit of loss carryforwards utilized (12,789) (5,537) (3,143) AMT Payable 668 254 109 ---------------------------------------------------------------------------------- 2,410 781 842 - ----------------------------------------------------------------------------------- Deferred Tax effect of net change in temporary differences (12,458) 126 125 Utilization of (addition to) tax net operating loss carryforward 12,789 5,537 3,141 FICA tax credit (924) (698) (815) AMT credit (666) (254) (109) Expiration of net operating loss carryforwards 29,575 19,792 -- Expiration of tax credit carryforwards 781 1,009 363 Change in valuation allowance (30,295) (21,055) -- - ----------------------------------------------------------------------------------- (1,198) 4,457 2,705 - ----------------------------------------------------------------------------------- Tax effect of deduction for exercised stock options credited to paid-in capital 2 4 333 - ----------------------------------------------------------------------------------- Income tax expense $ 1,214 $ 5,242 $ 3,880 ===================================================================================
Income tax expense differs from the amounts computed by applying the federal income tax rate to income before income taxes as follows:
(in thousands) 1999 % 1998 % 1997 % - -------------------------------------------------------------------------------------------- Computed federal income taxes using statutory rate $6,489 35.0% $5,027 35.0% $3,773 35.0% FICA tax credit (924) (5.0) (698) (4.9) (815) (7.5) State income taxes net of federal income tax effect 1,565 8.4 1,003 6.9 881 8.1 Expiration of tax credit carryforwards 781 4.2 1,009 7.0 363 3.4 Expiration of tax NOL 29,575 159.5 19,792 137.9 -- -- Recognition of previously reserved assets (5,754) (31.0) -- -- -- -- Change in valuation allowance (30,295) (163.4) (21,055) (146.6) -- -- Other (223) (1.2) 164 1.2 (322) (3.0) - --------------------------------------------------------------------------------------------- $1,214 6.5% $5,242 36.5% $3,880 36.0% =============================================================================================
The Company had federal taxable income for tax purposes and book income before income taxes as follows:
(in thousands) 1999 1998 1997 - --------------------------------------------------------------- Federal taxable income $33,803 $14,051 $6,894 Book income before income taxes 18,541 14,362 10,779
The difference between federal taxable income and book income is due to state income taxes and temporary differences. The components of the net deferred tax assets were as follows:
(in thousands) 1999 1998 - ------------------------------------------------------------------------- Deferred tax assets Tax effect of net operating loss carryforwards $10,273 $52,639 Tax credit carryforwards 2,053 2,835 FICA tax credit 4,965 4,041 Alternative minimum tax credits 3,269 2,603 Accrued insurance claims not yet deductible 1,862 2,432 Leasing transactions 7,128 2,552 Property and equipment 7,877 1,688 Other 4,649 3,915 ------------------------------------------------------------------------ 42,076 72,705 Valuation allowance (1,650) (31,945) - ------------------------------------------------------------------------- Deferred tax assets, net of allowance 40,426 40,760 - ------------------------------------------------------------------------- Deferred tax liabilities (64) (1,596) - ------------------------------------------------------------------------- Net deferred tax assets 40,362 39,164 Current portion 7,059 3,617 - ------------------------------------------------------------------------- Long-term portion $33,303 $35,547 =========================================================================
As of October 31, 1999, the Company had federal net operating loss ("NOL") carryforwards totaling $27,491,000 which expire $6,146,000 in 2001, $17,588,000 in 2010 and $3,757,000 in 2011. The Company also has investment tax credit ("ITC") carryforwards totaling $1,601,000, which expire in 2000. The Company has established a valuation allowance for the deferred tax assets related to these carryforwards because the ITC carryforwards are not expected to be realized. Note 11. Operating Segments In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. The Company has adopted SFAS 131 for the year ended October 31, 1999. The Company has three reportable segments; Village Inn, Bakers Square, and Franchising. All amounts not attributed to segments relate to administrative functions and other non-reportable segments. Financial data related to the Company's reportable segments is as follows (in thousands):
Bakers Square Village Inn Franchising Other Total ------------- ----------- ----------- ----- ----- Net sales: 1999 $215,431 $140,350 $ -- $ -- $355,781 1998 207,251 135,403 -- -- 342,654 1997 192,538 128,586 -- 1,064 322,188 Operating profit/(loss): 1999 $ 20,288 $ 23,570 $ 3,265 $(28,992) $ 18,131 1998 14,712 23,314 3,519 (26,018) 15,527 1997 11,740 21,566 3,339 (23,916) 12,729 Total assets: 1999 $ 72,449 $ 50,819 $ 5,602 $ 99,401 $228,271 1998 84,328 41,529 4,061 69,752 199,670 1997 89,681 38,262 5,380 61,667 194,990
Note 12. Commitments and Contingencies Prior to fiscal 1998, the Company retained a significant portion of certain insurable risks in the medical, dental, workers' compensation, general liability and property areas. Stop-loss coverage was obtained in order to limit exposure to any significant claims. Provisions for losses expected under these programs were recorded based upon the Company's estimates of liabilities for claims incurred, including those not yet reported, the Company's historical performance and actuarial assumptions followed in the insurance industry. Beginning in 1998, the Company obtained traditional insurance coverage for insurable risks other than medical and dental while maintaining stop-loss coverage for medical loss exposure. The Company has provided letters of credit totaling $1,850,000 in connection with certain of these insurance programs. The Company is involved in various lawsuits and claims arising from the conduct of its business and has guaranteed certain indebtedness and leases of its franchisees and others. Management believes the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. On September 28, 1998, two class actions were commenced in the Superior Court of Los Angeles County, California. The first, Kirk v. VICORP Restaurants, Inc., Case No. BC-198202, was brought by a former manager of a California Bakers Square restaurant. Allegations in the amended complaint assert violations by VICORP of California wage and hour laws and regulations concerning overtime wages. The Plaintiff is seeking class certification, injunctive relief, damages in an unspecified amount, statutory penalties, interest, costs, and attorneys' fees. The second, Schroeder v. VICORP Restaurants, Inc., Case No. BC-198203, was brought by a former server at a California Bakers Square restaurant. The Plaintiff alleges VICORP has violated California statutes and regulations concerning the payment of wages, tip pooling, reimbursement for uniform expenses, failure to remit tips, and the improper charging of walkouts to servers. Class certification is requested, as well as injunctive relief, damages in an unspecified amount, statutory penalties, interest, costs, and attorneys' fees. On December 28, 1998, a third action was commenced in the Superior Court of Los Angeles County, California, Ontiveros v. VICORP Restaurants, Inc., Case No. BC-202962. This action was brought by a former manager of a California Bakers Square restaurant. The Plaintiff is seeking damages, statutory penalties, declaratory relief, interest, attorneys' fees, and costs for alleged violations of California statutes and regulations concerning the payment of wages. The Company believes the legal actions described above are similar to plaintiff actions recently brought against other multi-location restaurant operators in the state of California. Resolution of these matters may require a significant period of time and is subject to substantial uncertainties common to the judicial process for class actions in general. The Company believes it has not violated California statutes and regulations and has meritorious defenses to each of the claims in these actions. While the Company intends to vigorously defend against the allegations, it is possible that the Company will not prevail, or that decisions made in other similar cases may result in interpretations of the California statutes that are adverse to the Company's position. The cost of defense for these actions is being recognized as incurred. No provision has been made for any judgements or settlements that might ultimately result. While a contingency exists that any such judgement or settlement could be material to the results of operations of the Company for some future period or periods, the Company currently believes that resolution of these amounts will not have a material adverse effect on the Company's financial position. VICORP guaranteed certain leases for twenty-five restaurant properties sold in 1986 and sixteen restaurant leases of certain franchisees. Minimum future rental payments remaining under these leases were $5,300,000 and $7,300,000 as of October 31, 1999 and November 1, 1998, respectively. These guarantees are included in the definition of financial instruments with off- balance-sheet risk of accounting loss. The Company took possession of one of these properties, which has since been subleased, and settled on a defaulted lease in the amount of $57,000 as a result of a sublessee bankruptcy filing. The Company has no reason to believe that any material liability exists and believes it is impracticable to estimate the fair value of these financial guarantees (e.g., amounts the Company could pay to remove the guarantees). Contractual obligations for restaurant construction amounted to approximately $2,487,000 as of October 31, 1999. On September 1, 1999, the Company entered into an operating agreement with Pies, Inc. to operate a bakery facility for a term of five months and purchase the facility at the completion of the operating term. At the present time, management foresees purchasing the facility on February 1, 2000 at a cost of $2,600,000. This facility will replace an existing facility whose lease is due to expire. Note 13. Subsequent Events On November 23, 1999 the Company commenced a tender offer to purchase up to 2,000,000 shares of the outstanding common stock for $19.00 per share. The tender offer concluded on December 22, 1999, whereby 2,000,000 shares were purchased. Note 14. Quarterly Financial Data (unaudited) In conjunction with the change in the fiscal year, the Company determined that a significant amount of estimation would be required to restate quarterly 1998 operating results to correspond with the twelve week quarterly reporting. Therefore, restatements of results were not made and the quarterly results for 1999 and 1998 are not comparable. The following table highlights the differences in time periods:
Fiscal 1999 Fiscal 1998 ----------------------------------- ---------------------------------- Time Period Days Time Period Days --------------------------- --------------------------- 1st Quarter Nov 2, 1998 - Jan 24, 1999 84 Nov 1, 1997 - Jan 31, 1998 92 2nd Quarter Jan 25, 1999 - Apr 18, 1999 84 Feb 1, 1998 - Apr 30, 1998 89 3rd Quarter Apr 19, 1999 - Jul 11, 1999 84 May 1, 1998 - July 31, 1998 92 4th Quarter July 12, 1999 - Oct 31, 1999 112 Aug 1, 1998 - Nov 1, 1998 93 --- -- 364 366 === ===
The Company's quarterly results of operations are summarized as follows (in thousands, except per share data):
Quarter ended ----------------------------------------------------- January 24, April 18, July 11, October 31, 1999 1999 1999 1999 (84 days) (84 days) (84 days) (112 days) - ---------------------------------------------------------------------------------------- Revenues $84,093 $81,854 $83,709 $109,390 Restaurant operating profit 10,435 9,774 10,903 13,492 Net income 3,032 2,329 3,147 8,819 Net income per share-diluted .33 .26 .35 .99 ======================================================================================== Quarter ended ----------------------------------------------------- January 31, April 30, July 31, November 1, 1998 1998 1998 1998 (92 days) (89 days) (92 days) (93 days) - ---------------------------------------------------------------------------------------- Revenues $87,377 $82,946 $88,179 $87,671 Restaurant operating profit 9,316 8,659 10,406 9,645 Net income 2,291 1,899 2,787 2,143 Net income per share-diluted .25 .21 .30 .23 ========================================================================================
An asset impairment of $746,000 was included in net income for the fourth quarter ended October 31, 1999. Item 9. Disagreements on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. Item 13. Certain Relationships and Related Transactions. The Company will file a definitive proxy statement pursuant to Regulation 14A for its 1999 Annual Meeting of Shareholders. Such statement will be filed no later than 120 days after the close of the fiscal year covered by this Form 10-K. Except for certain information concerning executive officers of the Company which is included in Part I of this Form 10-K, the information called for by the above items will be included in such definitive proxy statement under "Election of Directors", "Certain Transactions", "Compensation of Directors and Executive Officers" and "Voting Securities and Principal Holders Thereof", which is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) The following Financial Statements of VICORP Restaurants, Inc. are filed as part of this report: Management's Report on Financial Statements. Report of Independent Public Accountants. Balance Sheets - October 31, 1999 and November 1, 1998. Statements of Operations - Years ended October 31, 1999, November 1, 1998, and October 31, 1997. Statements of Cash Flows - Years ended October 31, 1999, November 1, 1998, and October 31, 1997. Statements of Shareholders' Equity - Years ended October 31, 1999, November 1, 1998, and October 31, 1997 as presented in Note 7 of Notes to Financial Statements. (a)(2) The following financial statement schedule for VICORP Restaurants, Inc., as listed in the Index below, is included herein beginning on page 36. Report of Independent Public Accountants on Financial Statement Schedule. Schedule II - Valuation and Qualifying Accounts for the years ended October 31, 1999, November 1, 1998, and October 31, 1997. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a)(3) The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index on Page 36. For the purpose of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's currently effective Registration Statements on Form S-8: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to any statute, charter provisions, bylaws, contract, or other arrangements, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceedings) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) Reports on Form 8-K filed in fourth quarter of 1999: The Company filed a report on Form 8-K dated November 9, 1999, reporting a disposition of assets under Item 2. On October 28, 1999, the Company completed the sale and the leaseback of the real estate related to twenty-one restaurant properties. The Company received $28,700,000 in net proceeds from the sale. (c) Exhibits filed with this report are attached hereto. (d) Financial statement schedules filed with this report follow: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited, in accordance with generally accepted auditing standards, the financial statements of VICORP Restaurants, Inc. included in this Form 10-K and have issued our report thereon dated December 22, 1999. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index above is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Denver, Colorado, December 22, 1999.
VICORP Restaurants, Inc. Schedule II - VALUATION AND QUALIFYING ACCOUNTS For the Three Years Ended October 31, 1999 (in thousands) Column A Column B Column C Column D Column E - -------- -------- -------- -------- -------- Additions ------------------------ Balance at Charged Charged Balance beginning to costs to other at end Description of period and expenses accounts Deductions of period - ----------- --------- ------------ -------- ---------- --------- Year ended October 31, 1999: Allowance for doubtful accounts $ 643 $ -- $ 189 $ 360 $ 472 Discounts and deferred gains 68 (17) -- 37 14 Allowance for loss on disposal 2,488 330 -- 579 2,239 ------- ------- ------- ------- ------- $ 3,199 $ 313 $ 189 $ 976 $ 2,725 ======= ======= ======= ======= ======= Year ended November 1, 1998: Allowance for doubtful accounts $ 676 $ 22 $ 220 $ 275 $ 643 Discounts and deferred gains 660 46 -- 638 68 Allowance for loss on disposal 4,800 -- -- 2,312 2,488 ------- ------- -------- ------- ------- $ 6,136 $ 68 $ 220 $ 3,225 $ 3,199 ======= ======= ======== ======= ======= Year ended October 31, 1997: Allowance for doubtful accounts $ 704 $ 42 $ 175 $ 245 $ 676 Discounts and deferred gains 687 (39) 12 -- 660 Allowance for loss on disposal 5,806 -- -- 1,006 4,800 ------- ------- -------- ------- ------- $ 7,197 $ 3 $ 187 $ 1,251 $ 6,136 ======= ======= ======== ======= =======
Charges to the accounts for purposes for which the reserves were established. Recognition of deferred gain. Establishment of reserves by charges directly to income. Year-end balances are reflected in the Balance Sheets as follows:
October 31, November 1, 1999 1998 ----------- ----------- Deducted from current receivables $ 391 $ 562 Deducted from property and equipment 2,239 2,488 Deducted from long-term receivables 95 149 -------- -------- $ 2,725 $ 3,199 ======== ========
EXHIBIT INDEX The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified below by an asterisk (*). For each such exhibit, there is shown below the filing and exhibit number of the document in the previous filing. The registration statements were filed by the Company unless otherwise indicated. Exhibits which are not required for this report are omitted. Exhibit Description of Document - ------- ----------------------- 3 - * (i) Articles of Incorporation, as Amended - Form 10-K for the year ended October 29, 1989. - *(ii) Bylaws - Form 10-K for the year ended October 29, 1989. 4 - * (i) Specimen Stock Certificate - Form 10-K for the year ended October 30, 1988. 10 - Material Contracts *(i) Franchise Operating Agreement - Registration Statement 2- 83326, Exhibit 10(b). *(ii) U. S. $40,000,000 Amended and Restated Credit Agreement dated December 19, 1997 between VICORP Restaurants, Inc. and NationsBank of Texas, N.A. and U. S. Bank National Association as amended on November 18, 1998; October 22, 1999; and November 22, 1999 - Schedule 13E4 dated November 23, 1999, Exhibit 99.B. (iii) Form of Purchase Agreement relating to the Sale and Leaseback of 21 restaurant properties on October 28, 1999. (iv) Form of Lease relating to the Sale and Leaseback of 21 restaurant properties on October 28, 1999. (v) Executive Compensation Plans and Arrangements *(a) VICORP Restaurants, Inc. Outstanding Stock Purchase Plan (1989) - Registration Statement 33-32608, Exhibit 4(h). *(b) VICORP Restaurants, Inc. Stock Purchase Plan - Registration Statement 333-11003, Form S-8 dated August 28, 1996. *(c) Deferred Compensation Plan of VICORP Restaurants, Inc. dated May 1, 1996 - Form 10-Q/A for the quarter ended July 31, 1996, Exhibit 10(iii). *(d) Deferred Stock Plan for Directors - Form 10-Q for the quarter ended July 11, 1999, Exhibit 10. *(e) Severance Agreement Charles R. Frederickson - Form 10-K for the year ended October 31, 1993, Exhibit 10(vi). *(f) Employment Agreement for Richard E. Sabourin dated July 25, 1996 - Form 10-Q for the quarter ended July 31, 1996, Exhibit 10(ii)(b). *(g) Stock Option Agreement for Richard E. Sabourin dated August 19, 1996 - Form 10-Q for the quarter ended July 31, 1996, Exhibit 10(ii)(d). *(h) Amended and Restated 1982 Stock Option Plan - Form 10-K for the year ended October 31, 1997, Exhibit 10(iii)(j). *(i) Amended and Restated 1983 Stock Option Plan - Form 10-K for the year ended October 31, 1997, Exhibit 10(iii)(b). *(j) Form Severance Agreement (Executive Officers excluding Frederickson)-Form 10-Q for the quarter ended July 31, 1998, Exhibit 10(iii)(i). *(k) Stock Option Agreement for Robert E. Kaltenbach dated April 9, 1998 - Form 10-K for the year ended November 1, 1998, Exhibit 10(iii)(j). *(l) Stock Option Agreement for Robert E. Kaltenbach dated October 2, 1998 - Form 10-K for the year ended November 1, 1998, Exhibit 10 (iii)(k). *(m) Stock Option Agreement for Joseph F. Trungale dated October 2, 1998 - Form 10-K for the year ended November 1, 1998, Exhibit 10 (iii)(l). *(n) Incentive Program Document Defined Positions of Officers and Directors dated December 4, 1998, Form 10-K for the year ended November 1, 1998, Exhibit 10(iii)(m). *(o) Incentive Program Document for President/Bakers Square dated December 14, 1998, Form 10-K for the year ended November 1, 1998, Exhibit 10(iii)(n). *(p) Incentive Program Document for President/Village Inn dated December 14, 1998, Form 10-K for the year ended November 1, 1998, Exhibit 10(iii)(o). (q) Stock Option Agreement for Joseph F. Trungale date November 1, 1999. (r) Incentive Program Document Defined Positions of Officers and Directors dated December 9, 1999. (s) Stock Option Agreement for Charles R. Frederickson dated December 9, 1999. 23 - Consents of Accountants 24 - Power of Attorney 27 - Financial Data Schedule 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 the 21st day of January, 2000. VICORP Restaurants, Inc. (Registrant) By /s/ Charles R. Frederickson --------------------------- Charles R. Frederickson, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on January 21, 2000 on behalf of the registrant and in the capacities indicated. Signature Title --------- ----- /s/ Charles R. Frederickson - ---------------------------- Chairman of the Board and (Charles R. Frederickson) Chief Executive Officer /s/ Richard E. Sabourin - ----------------------- Executive Vice President and (Richard E. Sabourin) Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Charles R. Frederickson - --------------------------- (Charles R. Frederickson)* * Charles R. Frederickson, as attorney-in-fact for Joseph F. Trungale, Carole Lewis Anderson, Bruce B. Brundage, John C. Hoyt, Robert T. Marto, Dudley C. Mecum, Dennis B. Robertson, Hunter Yager, and Arthur Zankel, constituting a majority of the Board of Directors of the registrant. EX-10 2 PURCHASE AGREEMENT PURCHASE AGREEMENT ------------------ THIS PURCHASE AGREEMENT is made as of October 28, 1999, by and between (See Exhibit "A") ("Buyer"), whose address is 400 East South Street, Suite 500 Orlando, Florida 32801-2878 and VICORP RESTAURANTS, INC., a Colorado corporation, whose address is 480 West 48th Avenue, Denver, Colorado 80216. PRELIMINARY STATEMENT WHEREAS, (See Exhibit "A") ("Buyer") and Seller have entered into that certain Commitment (the "Commitment") dated July 28, 1999 given by Buyer and accepted by Seller on July 30, 1999, as amended on August 12, 1999, for the purchase, sale and leaseback of certain properties; and WHEREAS, Seller is the owner of that certain parcel of real estate described on Exhibit "A" attached hereto (hereinafter referred to as the "Property"), which Buyer desires to purchase and to lease to Seller pursuant to the Commitment and that certain Lease Agreement described therein (hereinafter referred to as the "Lease"), and Buyer and Seller have entered into this Agreement for such purchase and as a part of the obligations of Buyer and Seller under the Commitment. AGREEMENT In consideration of the mutual covenants and provisions of this Agreement, Buyer and Seller agree as follows: 1. Commitment. In the event of a conflict between the terms of this Purchase Agreement and the Commitment, the terms of the Commitment shall prevail. In the event of any conflict between the terms of the Commitment and the Lease, the Lease shall prevail. 2. Definitions. The following terms shall have the following meanings for all purposes of this Agreement. "Buyer" means (See Exhibit "A"), and/or its affiliates. "Closing Date" means the date specified in Section 5. "Commitment" means that certain Commitment dated July 28, 1999, as amended, given by CNL and accepted by Seller on July 30, 1999. "Escrow Agent" means First American Title Insurance Company. "Lease" means the Lease Agreement in the form approved pursuant to the terms of the Commitment Letter. "Property" means the parcel of real estate described on Exhibit "A" attached hereto, together with all buildings, fixtures and other improvements now located thereon or to be constructed thereon but specifically not including any items described on Exhibit "B" attached hereto. "Purchase Price" means the amount set forth in Section 4 of this Agreement. "Seller" means VICORP RESTAURANTS, INC., a Colorado corporation. "Title Company" means Lawyers Title Insurance Corporation, First American Title Insurance Company, or another national title insurance company acceptable to Buyer. "Title Commitment" means the title insurance commitment for the Property provided to Buyer from Title Company, in accordance with the terms of the Commitment. 3. Purchase and Sale of the Property. On the terms and subject to the conditions set forth in this Agreement, Seller shall sell and Buyer shall purchase the Property, and Buyer and Seller shall enter into a Lease by which Buyer shall lease to Property to Seller. 4. Purchase Price. The Purchase Price for the Property shall be (total purchase price all locations $29,390,906.00), plus closing adjustments in accordance with the Commitment, which shall be payable in cash or via wire transfer on the Closing Date. 5. Closing Date. The Closing Date for this Agreement shall be on or before thirty (30) days following the date of last execution hereof by Buyer and Seller. 6. Condition of Title. Buyer shall be provided with the Title Commitment from the Title Company in the form and at or prior to the time required by the Commitment, together with copies of all exceptions and requirements listed therein. Buyer shall be satisfied with the condition of title to the Property, as determined in its reasonable discretion. 7. Seller's Delivery of Certain Documents. As a condition to Buyer's obligation to purchase the Property, Seller shall have performed all obligations required of it pursuant to the terms of the Commitment and Buyer shall have determined, in its reasonable discretion, that the Property complies with the terms of the Commitment. 8. Closing. On or before the Closing Date: A. Seller's Closing Documents. With respect to each Property, Seller shall deliver to Title Company or Buyer, as may be appropriate: (i) a Special Warranty Deed, duly executed by Seller, free of all liens, encumbrances, restrictions, encroachment and easements, except for any exceptions permitted by Buyer; (ii) an executed and acknowledged Lease; (iii) an executed and acknowledged Memorandum of Lease; (iv) written confirmation to Title Company directing it to close this transaction; and (v) such other documents and affidavits as Buyer or the Title Company may reasonably require or as may be required by the terms of the Commitment, including without limitation, appropriate corporate certificates of status and authorizing resolutions for Seller. B. Buyer. (i) Deposit of Funds. Buyer shall deposit the Purchase Price in escrow with Title Company, together with any other amounts required to be paid by Buyer pursuant to the terms of this Agreement. (ii) Buyer's Closing Documents. Buyer shall deliver to Title Company or Seller, as may be appropriate: (a) an executed and acknowledged Lease; (b) an executed and acknowledged Memorandum of Lease; (c) written instructions to Title Company directing it to close this transaction; and (d) such other documents as Seller or the Title Company may reasonably require or as may be required by the terms of the Commitment. All closing documents shall be dated as of the Closing Date. 9. Costs and Expenses. Seller and Buyer agree to pay their respective costs as specified in the Commitment, including without limitation, title insurance premiums and fees, survey costs, recording fees, stamp taxes and transfer fees. Taxes, assessments and other charges shall not be prorated as of the Closing Date but shall be borne by Seller, as Lessee, under the Lease. 10. Escrow Agent. Seller and Buyer hereby employ Title Company to act as escrow agent in connection with this transaction upon the following terms and conditions: A. Seller and Buyer will deliver to Title Company all documents, pay to Title Company all sums and do or cause to be done all other things necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable it to comply herewith and to enable any title insurance policy provided for herein to be issued. B. Title Company is authorized to pay from any funds held by it for Buyer's or Seller's respective credit all amounts necessary to procure the delivery of such documents and to pay, on their behalf, all charges and obligations payable by them respectively. Seller and Buyer will each pay all charges payable by them to Title Company. C. Buyer and Seller will indemnify and save harmless Title Company against all costs, damages, attorney's fees, expenses and liabilities, which it may incur or sustain in connection with these instructions or the escrow or any court action arising therefrom and will pay the same upon demand. D. Payment of any funds into escrow on or prior to the Closing Date shall be made by wire transfer. Disbursement of any funds from the closing for the benefit of Seller shall be made as directed by Seller. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which deposited that such check or draft has been honored. E. Title Company is authorized to act upon any statement furnished by the holder or payee, or a collection agent for the holder or payee, of any lien on or charge or assessment in connection with a Property, concerning the amount of such charge or assessment or the amount secured by such lien without liability or responsibility for the accuracy of such statement. F. The employment of Title Company, as escrow agent, shall not affect any rights of subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof. 11. Conditions of Closing for Buyer. The obligations of Buyer are subject to the fulfillment or waiver of each of the following conditions set forth below: A. Closing Documents. At or prior to the Closing Date, Seller shall have executed and delivered Seller's closing documents in accordance with Paragraph 8 of this Agreement. B. Compliance with Commitment. At the Closing Date, Seller shall be in compliance with its obligations under the Commitment. 12. Conditions of Closing for Seller. The obligations of Seller are subject to the fulfillment or waiver of each of the following conditions set forth below: A. Closing Documents. At or prior to the Closing Date, Buyer shall have executed and delivered Buyer's closing documents in accordance with Paragraph 8 of this Agreement. B. Compliance with Commitment. At the Closing Date, Buyer shall be in compliance with its obligations under the Commitment. 13. Representations and Warranties of Buyer. Buyer represents and warrants to Seller as follows: A. Buyer is duly organized, validly existing and in good standing under the laws of its state of its registration and qualified to do business in the jurisdiction in which the Property is located. All necessary action has been taken to authorize the execution, delivery and performance of this Agreement and of the other documents, instruments and agreements provided for herein. B. The person or persons who have executed this Agreement on behalf of Buyer are duly authorized to do so. 14. Representation and Warranties of Seller. Seller represents and warrants to Buyer as follows: A. Seller is a corporation duly organized, validly existing and in good standing under the laws of its state of formation and qualified to do business in the jurisdiction in which the Property is located. All necessary corporate action has been taken to authorize the execution, delivery and performance of this Agreement and of the other documents, instruments and agreements provided for herein. B. The person or persons who have executed this Agreement on behalf of Seller are duly authorized to do so. C. The Property and the existing use thereof and the condition thereof will not violate any applicable deed restrictions, zoning or subdivision regulations, urban redevelopment plans, local, state or federal environmental law or regulation or any building or fire code applicable to the Property. D. There is no pending or, to Seller's knowledge, threatened litigation or other proceeding affecting the title to or the use or operation of the Property. E. Seller is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and Seller shall certify its taxpayer identification number at Closing. F. To the best of Seller's knowledge, there are no federal, state, county or municipal plans to restrict or change access from any highway or road to the Property. G. The Property is a separate parcel for real estate tax assessment purposes. H. To the best of Seller's knowledge, all of the information furnished to Buyer pursuant to the terms of the Commitment regarding the Property is true, complete and correct. All of the representations, warranties and agreements of Seller set forth herein and elsewhere in this Agreement shall be true upon the execution of this Agreement and shall be reaffirmed and repeated in writing at and as of the Closing Date, but not subsequent to the Closing Date, and shall survive the Closing Date. 15. Assignment. Buyer may assign in whole or in part its rights under this Agreement without Seller's prior written consent to an affiliate of Buyer, but Buyer agrees to give Seller notice thereof prior to Closing. 16. Miscellaneous Provisions. A. Notices. All notices, consents, approvals, or other instruments required or permitted to be given by either party shall be in writing and shall be deemed to have been properly given if sent by registered or certified mail, return receipt requested, Federal Express, Airborne, Emery, DHL, Express Mail, or by other recognized overnight courier service, postage and other charges prepaid, to the parties at the addresses set forth in the first Paragraph hereof or to such other address as either party may give notice pursuant to this section from time to time. All notices shall be deemed received when delivered to the address specified. B. Risk of Loss. Seller shall assume the risk of loss, damage or destruction of the Property or any part thereof prior to the Closing Date. Following the Closing Date, risk of loss shall be determined as provided in the Lease. C. Condemnation. In the event of a taking of any part or all of the Property prior to closing, Buyer at its option shall have the right to either (i) receive the proceeds of any condemnation award and proceed to close with respect to the Property or (ii) terminate this Agreement. D. Real Estate Commission. Buyer and Seller shall not be obligated to pay any commission or finder's fee to any broker, real estate broker or agent in connection with this transaction. To the extent Seller or Buyer has engaged the services of any such broker, real estate broker or agent, Seller or Buyer, as the case may be, hereby indemnify and agree to hold the other harmless from and against any and all costs, expense, loss, and damage, including but not limited to attorney's fees and court costs, arising or resulting directly or indirectly out of any claim by any broker, real estate broker or agent in connection with this transaction. E. Amendment and Waiver. Upon execution by the parties, this Agreement may not be altered or amended. Waiver of any matter by either party shall not be deemed a waiver of the same or any other matter on any future occasion. F. Other Documents. Each of the parties agrees to sign such other and further documents as may be appropriate to carry out the intentions expressed in this Agreement. G. Attorney's Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees in addition to any other relief to which it may be entitled. H. Entire Agreement. This Agreement, together with the Commitment and any other instruments or agreements referred to herein constitute the entire agreement between the parties with respect to the Property. I. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. [Signatures on Next Page] IN WITNESS WHEREOF, Seller and Buyer have entered into this Agreement as of the date shown hereinabove. Signed, sealed and delivered "SELLER" in the presence of: VICORP RESTAURANTS, INC., a Colorado corporation By: /s/Charles R. Frederickson -------------------------- Name: /s/ Stanley Ereckson, Jr. Name: Charles R. Frederickson -------------------------- ----------------------- Stanley Ereckson, Jr. As Its: President --------- Name: /s/ Gary F. Burke ------------------ Gary F. Burke STATE OF COLORADO COUNTY OF DENVER The foregoing instrument was acknowledged before me this 25th day of October, 1999, by Charles R. Frederickson, as President of VICORP RESTAURANTS, INC., a Colorado corporation, on behalf of the corporation. /s/ Toni A. Schreivogel ----------------------- (NOTARY SEAL) Notary Public, State of Colorado Printed Name:Toni A. Schreivogel ------------------- Notary Commission No. n/a --- My Commission Expires: 8/25/2002 --------- "BUYER" CNL APF PARTNERS, LP, a Delaware limited partnership BY: CNL APF GP Corp., a Delaware corporation, as general partner By:/s/ John T. Walker ------------------ Name: /s/ Lisa M. Fannin John T. Walker, as President ------------------- Lisa M. Fannin Name: /s/ Stephanie J. Newell ------------------------ Stephanie J. Newell STATE OF FLORIDA COUNTY OF ORANGE The foregoing instrument was acknowledged before me this 25 day of October, 1999, by John T. Walker, as President of CNL APF GP CORP., a Delaware corporation, as General Partner of CNL APF PARTNERS, LP, a Delaware limited partnership, on behalf of the limited partnership. /s/ Kay Cooksey --------------- (NOTARY SEAL) Notary Public, State of Florida Printed Name: Notary Commission No. My Commission Expires: Attachments: - ------------ Exhibit "A" - Property Description Exhibit "B" - Building, Fixtures and Other Improvements "BUYER" CNL-BB CORP., a Florida corporation By:/s/ Robert A. Bourne -------------------- Name: /s/ Lisa M. Fannin Robert A. Bourne, as President ------------------- Lisa M. Fannin Name: /s/ Bonnie P. Burgess ---------------------- Bonnie P. Burgess STATE OF FLORIDA COUNTY OF ___________ The foregoing instrument was acknowledged before me this _____ day of October, 1999, by Robert A. Bourne, as President of CNL-BB CORP., a Florida corporation, on behalf of the corporation. /s/ Stephanie J. Newell ----------------------- (NOTARY SEAL) Notary Public, State of Florida Printed Name: Notary Commission No. My Commission Expires: Attachments: - ------------ Exhibit "A" - Property Description Exhibit "B" - Building, Fixtures and Other Improvements EXHIBIT "A" Property Description -------------------- Buyer Buyer - ---------------- ---------------- CNL APF Partners, L.P. CNL-BB Corp. - ---------------------- ------------ 4839 West 111th Street 3000 Oak Grove Road Alsip, IL 60658 Downers Grove, IL 60515 4849 West 79th Street 18849 Dixie Highway Burbank, IL 60459 Homewood, IL 60430 7105 Cherryvale North Boulevard 942 South LaGrange Road Cherry Valley, IL 61016 LaGrange, IL 60525 560 Waukegan Road 1195 South Milwaukee Avenue Deerfield, IL 60015 Libertyville, IL 60048 3545 Ridge Road 8584 Dempster Street Lansing, IL 60438 Niles, IL 60714 4721 Lincoln Mall Drive 270 East Northwest Highway Matteson, IL 60443 Palatine, IL 60067 6431 - 127th Street 200 Skokie Boulevard Palos Heights, IL 60463 Wilmette, IL 60091 1510 East Main Street St. Charles, IL 60174 420 East Ogden Avenue Westmont, IL 60559 7409 South Kingery Highway Willowbrook, IL 60521 8140 Mississippi Street Merrillville, IN 46410 12951 Riverdale Crossing Coon Rapids, MN 55448 1861 Madison Avenue Mankato, MN 56001 5425 "L" Street Omaha, NE 68117 EXHIBIT "B" Property Not Purchased by Buyer ------------------------------- All furniture, trade fixtures, equipment, and other personal property, together with replacements thereof from time to time added to the Premises, regardless of the methods in which the trade fixtures and personalty are affixed to the Premises. For the purposes hereon, trade fixtures and equipment shall include all restaurant equipment but shall not include flooring, interior or exterior walls, doors and windows, plumbing, gas, electrical, heating, air conditioning, ventilating, lighting, communication, and other utility systems. EX-10 3 LEASE AGREEMENT LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into as of October 28, 1999, by and between: (i) See Exhibit "A" ("Landlord"), and (ii) VICORP RESTAURANTS, INC., a Colorado corporation, With a mailing address of 400 West 48th Avenue, Denver, Colorado 80216 ("Tenant"). WITNESSETH: Landlord leases to Tenant, for the purpose of operating a Bakers Square Restaurant and for such other purpose as is specifically authorized in paragraph 12(b) of this Lease (but for no other use or purpose whatsoever) and subject to the terms and conditions of the Rent Addendum attached hereto, and Tenant rents from Landlord the properties described in Exhibit "A" attached hereto and made a part thereof, together with all rights and privileges in and about the Premises as may be necessary or convenient to Tenant's business, inclusive of all easements benefiting the real property described in Exhibit "A". Premises shall include all improvements and structures whether now existing or hereafter constructed thereon. The following additional stipulations are thereby declared to be covenants of this Lease and shall, unless otherwise expressly stated, be applicable at all times throughout the term of this Lease and any extension or renewal thereof: 1. DEFINITIONS For purposes of this Lease, the following terms are hereby defined to mean: "Effective Date" shall mean the first date set forth at the beginning of this Lease. "Landlord" shall mean (see Exhibit "A"), its successors and assigns. "Lease" shall include this Lease Agreement and all amendments hereto, if any, entered into from time to time hereafter. "Lease Year" shall mean a fiscal period beginning on the Effective Date (and each anniversary thereof) and expiring twelve (12) months thereafter. "Rent" shall mean the Rent payable under this Lease as set forth in the Rent Addendum attached hereto and incorporated herein, and shall include Annual Rent (all as defined in the Rent Addendum). 2. TERM AND RENT (a) The term of this Lease shall begin on the Effective Date and shall expire on a date fifteen (15) years thereafter unless previously terminated or renewed or extended as provided herein. (b) Rent shall be due and payable as provided in the Rent Addendum attached hereto and incorporated herein. 3. ALTERATIONS AND IMPROVEMENTS, INVESTMENT TAX CREDIT, MECHANIC'S LIENS, LANDLORD'S DISCLAIMER (a) Alterations and Improvements (i) Tenant's Property. Tenant shall be permitted to install, use on and about, and remove from the Premises at any time and from time to time all trade fixtures and other personal property (exclusive of lighting, electrical, heating and air conditioning improvements) which are not a component of the building located or to be located on the Premises (hereinafter referred to as the "Tenant's Property"), all of which at all times shall remain the property of Tenant with the right of removal (subject to paragraph (d) below) at the expiration of this Lease. Trade fixtures shall include: (1) removable decor items and office equipment; (2) building lettering, signs, signposts and sign standards; (3) unattached food and customer service equipment; and (4) food and customer service equipment attached to the building by bolts and screws and/or by utility connections, including without limitation, walk-in refrigerators and freezers, remote refrigeration systems, exhaust systems and hoods. (ii) Subsequent Improvements. Tenant shall also have the right to make any additions, alterations, changes and improvements, structural and nonstructural, including but not limited to construction of additional buildings and additions to the then existing buildings, as Tenant shall desire; provided, however, (i) Tenant shall submit plans of all structural changes to Landlord at least thirty (30) days in advance of the proposed construction date, which plans shall be subject to the Landlord's reasonable approval. (ii)Tenant shall provide Landlord with evidence of Tenant's financial ability to pay for such changes, (iii) if the cost of structural changes exceeds FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) for the Premises, Tenant shall post payment and performance bonds for such work naming Landlord and Tenant as dual obligees, (iv) all such construction shall be completed in a workmanlike manner and in full compliance with all building laws and ordinances applicable thereto, at Tenant's expense, and (v) such additions, alterations, changes and improvements shall not reduce the fair market value of the Premises. Notwithstanding the foregoing provisions of paragraph 3(a)(ii)(ii), no payment or performance bonds shall be required, provided, however: Tenant meets the minimum cash flow and net worth requirements set forth in paragraph 4(h) of this Lease; and (ii) Tenant has no more than One Million Dollars ($1,000,000.00) of contracts for construction or renovation relating to the premises identified in Exhibit "B" attached hereto at any one time. (iii) Improvements Upon Termination, Subletting or Assignment. Tenant shall have the right, at its option and expense, to redecorate or otherwise remodel the Premises upon any termination hereof or upon subletting or assignment in such manner as will, without reducing the fair market value thereof, avoid the appearance of the Bakers Square Restaurant operated under this Lease; provided, however, Tenant shall not impair the structural condition of the Premises or reduce the size thereof. All such Subsequent Improvements, Improvements upon Termination, Subletting or Assignment, or other additions, alterations, changes and improvements of any type shall be deemed to be a part of the Premises. (b) Investment Tax Credit. Landlord hereby grants Tenant the right and privilege of applying for and receiving all investment tax credits, if any, under the Internal Revenue Code which may be available with respect to the building and other improvements to be constructed. To this end, Landlord agrees to execute all such further documents and supply such additional information as may be required to make such election effective. (c) Mechanic's Liens. Tenant shall not do or suffer anything to be done whereby the Premises, or any part thereof, may be encumbered by a mechanic's lien or similar lien, and, if, whenever and as often as any mechanic's lien or similar lien is filed against the Premises, or any part thereof, purporting to be for or on account of any labor done, materials or services furnished in connection with any work in or about the Premises, done by, for or under the authority of Tenant, or anyone claiming by, through or under Tenant, Tenant shall discharge the same of record within thirty (30) days after service upon Tenant notice of the filing thereof or such longer period as agreed to by Landlord, in its sole discretion, (provided, however, Tenant is diligently and in good faith attempting to discharge such lien) or within ten (10) days after written request of Landlord, Whichever is earlier; provided, however, Tenant shall have the right to remove the lien by bonding same in accordance with applicable law and to contest any such lien; provided further that Tenant shall diligently prosecute any such contest, at all times effectively staying or preventing any official or judicial sale of the Premises under execution or otherwise, and, if unsuccessful, satisfy any final judgment against Tenant adjudging or enforcing such lien or, if successful, procuring record satisfaction or release thereof. (d) Landlord's Disclaimer. All of Tenant's Property placed in or upon the Premises by Tenant shall remain the property of Tenant with the right to remove the same at any time during the Term of this Lease. Landlord, if requested by Tenant, agrees to execute such documentation subordinating its lien rights (vis a vis any equipment lender or landlord) to Tenant's personalty and to all rights of levy for distraint for rent against same as shall be reasonably required by any equipment lender or lessor of Tenant; provided any damage caused by, or resulting from the removal of any trade fixtures, equipment or other personal property shall be promptly repaired by Tenant or the party entitled to remove same. 4. DESTRUCTION OF PREMISES; INSURANCE (a) If the Premises are damaged or destroyed by fire, flood, tornado or other element, or by any other casualty and such damage or destruction does not occur within the last twenty-four (24) months of the original or of any extended or renewed term of this Lease, this Lease shall continue in full force and effect and Tenant shall, as promptly as possible, restore, repair, rebuild the Premises to substantially the same condition as it existed before the damage or destruction, including any improvements or alterations required to be made by any governmental body, county or city agency, due to any changes in code or building regulations. Tenant shall for this purpose use all, or such part as may be necessary, of the insurance proceeds received from insurance policies carried on the Premises under the provision of subparagraph 4(b) here in below. If such insurance proceeds are not sufficient to pay such costs, Tenant shall pay such deficit. Should the Premises be damaged or destroyed by any of the foregoing described casualties within the last twenty-four (24) months of the original term or of any extended or renewed term of this Lease, to the extent that they are untenantable or unsuitable, in Tenant's opinion for continued use in the normal conduct of Tenant's business, Tenant shall have the right, exercisable by written notice to Landlord given within sixty (60) days after the date of such damage or destruction, of terminating this Lease effective upon the date of such damage or destruction. If Tenant terminates this Lease as thus provided Landlord shall be entitled to all of the insurance proceeds on the Premises, but not to the proceeds of insurance carried by Tenant on Tenant's Property; provided, however, Tenant shall not have the right to terminate this Lease unless (1) the damage or destruction of the Premises was caused by a peril which was insured against by the provisions of subparagraph 4(b) of this Lease; (ii) at the time of such damage and destruction the said insurance policies plus any Tenant deductibles to be carried by Tenant were in the amount of the full replacement cost of such improvements and in full force and effect; and (iii) the insurer has confirmed coverage and its obligation to pay. The foregoing sixty (60) day period may be extended in the reasonable discretion of the Landlord in the event the insurer (notwithstanding the due diligence of the Tenant) has not yet confirmed coverage or its obligation to pay as required in paragraph 4(a)(iii) above. If Tenant defaults in its obligation to carry insurance in the amount required under subparagraph 4(b), then, prior to a Tenant termination of this Lease, Tenant shall be obligated to pay toward said reconstruction or to Landlord the difference between the amount actually carried and the amount required to be carried under this paragraph. (b) Tenant, at its expense and as additional rent hereunder, shall throughout the term of this Lease and any extension or renewal thereof, keep the Premises insured with "all risk" coverage, including code changes, glass breakage, vandalism and malicious mischief coverage, and builders risk (if the Premises are to be constructed)("all risk" as such term is used in the insurance industry) for the full replacement value, with any deductible in excess of One Hundred Thousand Dollars ($100,000.00) to be approved by Landlord (and without any co-insurance provision (Agreed Value endorsement)). The reference to "code changes" herein shall mean that Tenant shall carry "Ordinance and Law Coverage" with limits of not less than the building value for Coverage A (loss to the undamaged portion of the building), limits of not less than fifteen percent (15%) of the building value for Coverage B (Demolition Cost Coverage), and limits not less than fifteen percent (15%) of the building value for Coverage C (Increased Cost of Construction Coverage). If Tenant serves alcoholic beverages, or if the Premises are located in a flood or earthquake zone (as defined in subparagraphs "(e)" and "(f)" below), then additional coverage shall be obtained by Tenant in amounts and in form acceptable to Landlord. (c) Tenant shall maintain, at its own expense and as additional Rent, public liability insurance (including product and liquor liability) covering the Premises, for the joint benefit of and insuring Tenant and Landlord, each with coverage of not less than One Million Dollars ($1,000,000.00) per occurrence, with a Two Million Dollars ($2,000,000.00) general aggregate limit, and with umbrella liability coverage (including product and liquor liability or "following form insurance") of not less than Ten Million Dollars ($10,000,000.00) per occurrence/aggregate, with any deductible in excess of One Hundred Thousand Dollars ($100,000.00) to be approved by Landlord. Landlord (and if Landlord is either a general or limited partnership, all general partners) shall be named as an additional insured. (d) Tenant shall maintain, at its own expense, rental value insurance covering risk of loss due to the occurrence of any of the hazards insured against under Tenants' "all risk" coverage insurance and providing coverage in an amount sufficient to permit the payment of rents payable hereunder for a period (in such case) of not less than six (6) months. (e) In the event the Premises are located in an area identified by the National Flood Insurance Program as an area having "special flood hazards" (zones beginning with "A" or "V," Tenant shall maintain flood insurance for the full replacement value of the Premises, with any deductible in excess of One Hundred Thousand Dollars ($100,000.00) to be approved by Landlord. (f) In the event the Premises are located in a major earthquake damage area and earthquake insurance is available, Tenant shall maintain earthquake insurance for the full replacement value of the Premises, with any deductible in excess of One Hundred Thousand Dollars ($100,000.00) to be approved by Landlord. (g) Upon mutual agreement of the Landlord and Tenant, in writing, all stated deductibles or self insured retentions may be increased; provided, however, Tenant's EBITDA (as defined in subparagraph (h) below) and audited net worth thresholds are reasonably acceptable to the Landlord. All insurance companies providing the coverage required under this Paragraph 4 shall (unless prior written consent has been obtained by Landlord) be selected by Tenant; (ii) rated A minus (A-)(ix) or better by Best's Insurance Rating Service; (iii) licensed to write insurance policies in the state in which the Premises is located; and (iv) acceptable to Landlord in Landlord's reasonable discretion. Tenant shall provide Landlord with copies of all policies or certificates of such coverage for the insurance coverages referenced in this Paragraph 4, and all commercial general liability and umbrella liability policies shall name Landlord and any mortgagee designated by Landlord as an additional insured. All property insurance policies shall name the Landlord as a loss payee as their interests may appear, and shall provide that all losses shall be payable as herein provided. All such property insurance policies of insurance shall provide that the amount thereof shall not be reduced and that none of the provisions, agreements or covenants contained therein shall be modified or canceled by the insuring company or companies without thirty (30) days prior written notice being given to Landlord; and that all property insurance proceeds shall be paid by check jointly payable to Landlord and Tenant. Such policy or policies of insurance may also cover loss or damage to Tenant's Property, and the insurance proceeds applicable to Tenant's Property shall not be paid to Landlord or any mortgagee but shall accrue and be payable solely to Tenant. In the event of a casualty, Tenant shall be responsible for any deficiency between the replacement cost of the Premises and the amount actually paid by the insurance company. (h) Notwithstanding the foregoing, Tenant shall have the ongoing right during the term of this Lease to self insure (including the right to increase all stated deductibles) for all or a portion of the insurance required hereunder, subject, however, to the following: (i) Tenant's earnings before interest, taxes, depreciation and amortization ("EBITDA") shall, for Tenant's prior fiscal year, equal or exceed the sum of Fifteen Million Dollars ($15,000,000.00) and (ii) Tenant's net worth shall at all times equal or exceed the sum of Thirty Million Dollars ($30,000,000.00). 5. MAINTENANCE AND REPAIR; CONDITION OF PREMISES (a) Tenant shall maintain the Premises and all buildings and improvements thereon (interior and exterior, structural and otherwise) in good order and repair and, subject to the provisions of paragraph 4(a) with respect to damage within the last twenty-four (24) months of the Lease, and paragraph 6 herein, return the Premises and all buildings and improvements thereon at the expiration of the term of this Lease or any extension thereof in as reasonably as good condition as when received, ordinary wear and tear excepted. (b) Tenant agrees that Landlord shall have no obligation under this Lease to make any repairs or replacements (including the replacement of obsolete components) to the Premises or the buildings or improvements thereon, or any alteration, addition, change, substitution or improvement thereof or thereto, whether structural or otherwise. The terms "repair" and "replacement" include the replacement of any portions of the Premises which have outlived their useful life during the term of the Lease (or any extensions thereof). Landlord and Tenant intend that the rent received by Landlord shall be free and clear of any expense to Landlord for the construction, care, maintenance (including common area maintenance charges and charges accruing under easements or other agreements relating to the Premises), operation, repair, replacement, alteration, addition, change, substitution and improvement of or to the Premises and any building and improvement thereon. Upon the expiration or earlier termination of this Lease, Tenant shall remain responsible for, and shall pay to Landlord, any cost, charge or expense for which Tenant is otherwise responsible for hereunder attributable to any period (prorated on a daily basis) prior to the expiration or earlier termination of this Lease. (c) Tenant acknowledges and agrees that the Premises is and shall be leased by Landlord to Tenant in its present "AS IS" condition, and that Landlord makes absolutely no representations or warranties whatsoever with respect to the Premises or the condition thereof. Tenant acknowledges that Landlord has not investigated and does not warrant or represent to Tenant that the Premises is fit for the purposes intended by Tenant or for any other purpose or purposes whatsoever, and Tenant acknowledges that the Premises is to be leased to Tenant in their existing condition, i.e., "AS IS", on and as of the Effective Date. 6. CONDEMNATION (a) In the event that (i) any part of the building on the Premises or (ii) such a material portion of the land constituting a portion of the Premises (for purposes hereof, "material" shall mean 40% or more of the land constituting a portion of the Premises) or (iii) a material portion of the parking (where Landlord is unable within fourteen (14) days prior to the date of surrender to provide suitable replacement parking facilities adjacent to the Premises) shall be taken during the term of this Lease or any extension or renewal thereof for any public or quasi- public use under any governmental law, ordinance, regulation or by right of eminent domain, or shall be sold to the condemning authority under threat of condemnation, with the result occurring from (i), (ii) or (iii) above being that the Premises cannot continue to be operated as the type of restaurant contemplated herein, or if reasonable access to the adjacent roadways from the existing or comparable curb cuts shall be taken (any of such events being hereinafter referred to as a "taking"), Tenant shall have the option of terminating this Lease as of a date no earlier than the date of such taking, such termination date to be specified in a notice of termination to be given by Tenant to Landlord not fewer than fourteen (14) days prior to the date on which possession of the Premises, or part thereof, must be surrendered to the condemning authority or its designee. (b) In the event of any taking which does not give rise to an option to terminate or in the Event of a taking which does give rise to an option to terminate and Tenant does not elect to terminate, Landlord shall make its award available to Tenant and Tenant shall, to the extent of the award from such taking (which word "award" shall mean the net proceeds after deducting expenses of any settlement, or net purchase price under a sale in lieu of condemnation), promptly restore or repair the Premises and all improvements thereon (except the items which Tenant is entitled to remove) to the same condition as existed immediately prior to such taking insofar as is reasonably possible. If the estimated cost of restoration or repair shall exceed the amount of Landlord's award, Tenant shall deposit with Landlord the amount of such excess. The award and any excess shall be held in trust by Landlord and used, to the extent required, for the purpose of such restoration or repair. A just and proportionate part of the Rent payable hereunder shall be abated from the date of such taking until ten (10) days after Tenant has restored same and thereafter the Rent shall be reduced in proportion to the reduction in the then rental value of the Premises after the taking in comparison with the rental value prior to the taking. If the award shall exceed the amount spent or to be spent promptly to effect such restoration, repair or replacement, such excess shall unconditionally belong to Landlord and shall be paid to Landlord. (c) In the event of any partial taking where this Lease is not terminated, Tenant shall not be entitled (except for use in reconstruction) to any part of the compensation or award given Landlord for the taking of the fee of the Premises, but Tenant shall have the right to recover from the condemning authority such compensation as is specifically awarded to Tenant (i) to reimburse Tenant for any cost which Tenant may incur in removing Tenant's Property from the Premises and (ii) for loss of Tenant's business. (d) If this Lease is terminated by reason of a taking, then Landlord shall be entitled to receive the entire award in any such condemnation or eminent domain proceedings or purchase in lieu thereof and Tenant hereby assigns to Landlord all of its right, title and interest in and to all and any part of such award, provided, however, Tenant shall be entitled to receive any award specifically made to reimburse Tenant. 7. TAXES AND ASSESSMENTS Tenant shall pay prior to delinquency all taxes and assessments which may be levied upon or assessed against the Premises and all taxes and assessments of every kind and nature whatsoever (excluding Landlord's income tax, if any) arising in any way from the use, occupancy or possession of the Premises or assessed against the improvements situated thereon, together with all taxes levied upon or assessed against Tenant's Property. To that end, Landlord shall not be required to pay any taxes or assessments whatsoever which relate to or may be assessed against this Lease, the Rent and other amounts due hereunder, the Premises, improvements and Tenant's Property. Provided, however, that any taxes or assessments which may be levied or assessed against the Premises for a period ending after the termination hereof shall be prorated between Landlord and Tenant as of such date. Within thirty (30) days after Tenant receives the paid receipted tax bills, Tenant shall furnish Landlord with copies of a paid receipt for such tax bills. Tenant may, at its option, contest in good faith and by appropriate and timely legal proceedings any such tax and assessment; provided, however, that Tenant shall indemnify and hold harmless Landlord from any loss or damage resulting from any such contest, and all expenses of same (including, without limitation, all attorneys' fees, court and other costs) are paid solely by Tenant. 8. COMPLIANCE, UTILITIES, SURRENDER (a) Tenant at its expense shall promptly comply with all governmental requirements, whether or not compliance therewith shall require structural changes in the Premises; will procure and maintain all permits, licenses and other authorizations required for the use of the Premises or any part thereof then being made and for the lawful and proper installation, operation and maintenance of all equipment and appliances necessary or appropriate for the operation and maintenance of the Premises, and shall comply with all easements, restrictions, reservations and other instruments of record applicable to the Premises, including without limitation, the procuring and maintaining of insurance required to be maintained by the owner or occupant of the Premises. Tenant shall indemnify and save Landlord harmless from all expenses and damages by reason of any notices, orders, violations or penalties filed against or imposed upon the Premises, or against Landlord as owner thereof, because of Tenant's failure to comply with this paragraph. (b) Tenant shall pay all charges for heat, water, gas, sewage, electricity and other utilities used or consumed on the Premises and shall contract for the same in its own name. Landlord shall not be liable for any interruption or failure in the supply of any such utility service to the Premises. (c) Tenant shall peacefully surrender possession of the Premises, the buildings and other improvements thereon, to Landlord at the expiration, or earlier termination, of the original term or any extended or renewed term of this Lease. 9. QUIET ENJOYMENT Landlord covenants and warrants that Landlord has full power and authority to make this Lease, and that Tenant shall have and enjoy full, quiet and peaceful possession of the Premises, their appurtenances and all rights and privileges incidental thereto during the term hereof and any renewals or extensions, subject to the provisions of this Lease and any easements, restrictions, reservations and other instruments of record applicable to the Premises and in existence at the time of the conveyance of the Premises to Landlord by Tenant. 10. OPTION TO RENEW Tenant Shall have one (1) successive ten (10) year and two (2) successive five (5) year options (to be exercised in the order stated) to extend this Lease for up to an additional twenty (20) years upon the same terms, covenants, conditions and rental as set forth herein provided that Tenant is not in default hereunder at the commencement of such option period. Tenant may exercise each such five (5) year option by giving written notice to Landlord not less than six (6) months prior to the expiration of the then current term of this Lease. Should Tenant fail to give Landlord such timely written notice during the required period, all remaining rights of renewal shall automatically expire. 11. FIRST RIGHT OF REFUSAL TO PURCHASE; ECONOMIC INFEASIBILITY (a) So long as Tenant is not in default under this Lease, Tenant shall have the right to purchase the Premises in accordance with the terms of this paragraph. If Landlord receives and desires to accept a bona fide offer to purchase (excluding any transfer to an affiliate of Landlord) the Premises during the term of this Lease or any extension or renewal thereof, Landlord shall serve a notice on Tenant stating the name of such offeror with a copy of the terms and conditions of such offer attached and Tenant shall have the right to purchase the Premises on the same terms and conditions set forth in Landlord's notice, provided Tenant delivers written notice to Landlord of its election to do so within twenty (20) days after receipt of such notice from Landlord. If Tenant does not elect to exercise its right to purchase as aforesaid, Landlord may sell the Premises, provided the sale is consummated with the offeror and on the terms and conditions set forth in Landlord's notice to Tenant. The foregoing preemptive right shall remain in existence notwithstanding its non-exercise in respect to any sale and shall be binding upon Landlord's successors in title. (b) In the event the Tenant determines in its reasonable business discretion, exercised in good faith, that the Premises is inadequate or unprofitable for the purposes for which the same are then used pursuant to the Lease, then Tenant may, at Tenant's option, during the term of the Lease or any extensions thereof, give written notice to the Landlord of its intention to substitute another improved property having a Village Inn or Bakers Square located thereon, which shall have a value no less than the greater of the following: (1) the then current value of the Premises as established by a qualified independent appraiser (who is a member of the American Institute of Real Estate Appraisers); or (2) Landlord's original Purchase Price for the Premises. Such other restaurant shall be subject to Landlord's approval and shall be subject to the approval of any then mortgagee having an interest in the Premises. The terms of the related lease for such substitute property shall be identical to this Lease, except that the term shall be for the then remainder of the term of this Lease (considering renewal options). Tenant shall pay all reasonable costs associated with the closing to effect the substitution. Upon Landlord's and any mortgagee's approval of the substitution of the Premises, a closing of title shall take place as soon as reasonably practical thereafter, but in no event later than sixty (60) days after Tenant is notified that the Landlord has approved the substitution. If the Landlord and the Landlord's mortgagee (if any) do not approve such substitute property, Tenant may submit other properties to the Landlord for the Landlord's (and the Landlord's mortgagee, if any) approval. 12. NONCOMPETE; CONDUCT OF BUSINESS (a) Tenant shall not own an interest in, or operate, another Bakers Square Restaurant within a Three (3) mile radius of the Premises. The foregoing restriction shall not preclude Tenant from: (i) selling its products in supermarkets and other similar stores; (ii) operating kiosks or counters from which its food products will be sold; or (iii) operating another Bakers Square concept within such three (3) mile radius provided such concept (a) does not use the word "Restaurant" in its name or advertising or promotional materials and ( b) is not larger than two thousand five hundred (2,500) total square feet in size and (c) has limited table service. Violation of this covenant shall constitute a default hereunder and, because the parties agree that damages would not be an adequate remedy, Tenant hereby agrees that Landlord shall be entitled to equitable relief, including injunctive relief and specific performance in addition to any remedy available at law. (b) The use of the Premises shall be limited to the operation of a Bakers Square Restaurant or an "Approved Concept" as defined in paragraph 17(a), and Tenant shall continuously operate such restaurant on the Premises except for temporary closure due to repairs, Acts of God and similar matters. The Tenant shall at all times maintain the Premises and operate its business in compliance with all applicable regulations and requirements of all county, municipal, state, federal and other governmental authorities, and instruments of record affecting the Premises which are now in force or which are enacted during the term of the Lease. 13. DEFAULT (a) If any one or more of the following events occur, said event or events shall hereby be classified as a "Default": (i) If Tenant fails to pay Interim Rent (if applicable), Annual Rent, any additional rent, or any other charges required hereunder or in the event there is a payment or monetary default in any other lease for a property identified on Exhibit "A" attached hereto between Tenant and Landlord or an affiliate of Landlord with the (x) payment amount in default at any one time exceeding Fifty Thousand Dollars ($50,000.00) or (y) the aggregate of payment or monetary defaults at any one time exceeding Fifty Thousand Dollars ($50,000.00) when same shall become due and payable, and such failure continues for ten (10) days after written notice from Landlord. (ii) If Tenant shall fail to perform or observe any term, condition, covenant, agreement, or obligation of this Lease and such failure continues for fifteen (15) days after written notice from Landlord (except that such fifteen (15) day period shall be automatically extended for such additional period of time as is reasonably necessary to cure such Default, if such Default cannot be cured within such period, provided Tenant is in the process of diligently curing the same). (iii) [INTENTIONALLY DELETED] (iv) If Tenant fails to continuously operate its business within the premises except temporary periods of closure caused by casualty, or (ii) temporary and reasonable periods of remodeling (not to exceed ninety (90) days in any Lease Year without first obtaining Landlord's written approval). (v) If Tenant shall make an assignment for the benefit of creditors or file a petition, in any federal or state court, in bankruptcy, reorganization, composition, or make an application in any such proceedings for the appointment of a trustee or receiver for all or any portion of its property. (vi) If any petition shall be filed under federal or state law against Tenant in any bankruptcy, reorganization, or insolvency proceedings, and said proceedings shall not be dismissed or vacated within one hundred and twenty (120) days after such petition is filed. (vii) If a receiver or trustee shall be appointed under federal or state law for Tenant, or any guarantor of Tenant's obligations hereunder, for all or any portion of the property of either of them, and such receivership or trusteeship shall not be set aside within one hundred and twenty (120) days after such appointment. (b) Landlord will have the remedies set forth in subparagraphs (c) and (d) below if Tenant commits a default. (c) Landlord can terminate this Lease and recover possession of the Premises by (i) notifying Tenant that Landlord elects to terminate this Lease, or (ii) terminating Tenant's right to possession of the Premises. For purposes hereof, reletting the Premises or denying Tenant access to the Premises will constitute a termination of Tenant's right to possession of the Premises; provided, however, that acts of maintenance, efforts to the Premises, or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease will not constitute a termination of Tenant's right to possession. Upon any termination, Landlord has the right to recover from Tenant: (1) The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this Lease; plus (2) The worth, at the time of the award, of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time the award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; plus (3) The worth, at the time of the award, of the amount by which unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; plus (4) Any other amount, including court costs, and including but not limited to, allocable overhead, alterations to the building, leasing, construction, architectural, legal and accounting fees necessary to compensate Landlord for all detriment proximately caused by Tenant's default. The phrase "worth, at the time of the award" as used in (1) and (2) above is to be computed by allowing interest at the rate of eighteen percent (18%) per annum, or, if less, the highest rate allowable by law. The same phrase as used in (3) above is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award. (d) Landlord can continue this Lease in full force and effect, and Landlord will have the right to collect rent when due, as long as Landlord does not terminate this Lease as set forth in paragraph 13(c). (e) If this Lease shall terminate as provided hereinabove, Landlord may re-enter the Premises and remove Tenant, its agents and sub-tenants, together with all or any of Tenant's Property, by suitable action at law, or by force. Tenant waives any right to the service of any notice of Landlord's intention to re-enter and Landlord shall not be liable in any way in connection with any action it takes pursuant to this paragraph. Notwithstanding such re-entry or removal, Tenant's liability under the provision of this Lease shall survive and continue. (f) The rights and remedies of Landlord set forth herein shall be in addition to any other right and remedy now or hereinafter provided by law, and all such rights and remedies shall be cumulative. No action or inaction by Landlord shall constitute a waiver of Default, and no waiver of Default shall be effective unless it is in writing, signed by Landlord. 14. HOLDING OVER In the event Tenant remains in possession of the Premises after the expiration of this Lease, without executing a new lease, Tenant shall occupy the Premises as a tenant from month to month subject to all the terms hereof, but such possession shall not limit Landlord's rights and remedies by reason thereof nor constitute a holding over. 15. WAIVER OF SUBROGATION Notwithstanding anything in this Lease to the contrary, other than Tenant's obligations to repair, restore or rebuild described in paragraph 4 hereinabove, neither party shall be liable to the other for any damage or destruction of the property of the other resulting from fire or other casualty covered by insurance required of either party hereunder, whether or not such loss, damage or destruction of property is caused by or results from the negligence of such party (which term includes such party's officers, employees, agents and invitees), and each party hereby expressly releases the other from all total liability for or on account of any said loss, damage or destruction, whether or not the party suffering the loss is insured against such loss, and if insured whether fully or partially. Each party shall procure all endorsements of insurance policies carried by it necessary to protect the other from any right of subrogation and/or liability in the event of such loss. 16. LIEN FOR RENTS [INTENTIONALLY DELETED] 17. ASSIGNMENT AND SUBLETTING (a) The Tenant shall not have the right, without first obtaining the Landlord's prior written consent, to assign or sublet any part or all the Premises to any party for any purpose. Landlord's consent will not be unreasonably withheld, provided, however, (1) the Tenant remain fully liable for its obligations under the Lease; (2) the assignee or sublessee shall be "An Approved Tenant" (as defined below); and (3) the Premises shall be operated as an "Approved Concept" (as defined below). The Landlord, in its sole and absolute discretion, may withhold its approval if the aforementioned requirements are not satisfied. For purposes of this Lease, the term "Approved Tenant" shall mean an assignee or sublessee who (i) has a minimum net worth of not less than Ten Million Dollars ($10,000,000.00) at the time of assignment or subletting; and (ii) operates not less than four (4) full service restaurants or ten (10) fast food or "quick serve" restaurant concepts which are Approved Concepts. For purposes of this Lease, the term "Approved Concept" shall mean a restaurant concept which (i) is listed in the "Top 200 Restaurant Chains" as ranked in the most recently published edition of the Nation's Restaurant News or similar publication selected by Landlord at the time of such assignment; (ii) is an approved restaurant concept by Landlord according to Landlord's then current underwriting and credit guidelines; and (iii) does not violate Landlord's then current concentration requirements. Notwithstanding the foregoing, Tenant shall have the right (subject to Landlord's prior written approval, which approval shall not be unreasonably withheld) to sublet (but not assign) the Premises to any entity operating a full service, sit-down restaurant concept with not more than fifty percent (50%) of its gross sales derived from the sale of liquor, provided: (i) Tenant sublets the Premises within the first ten (10) Lease Years (after which period this right shall automatically terminate); (ii) the total number of such sublettings by Tenant (inclusive of the Premises) does not exceed two (2) for those properties identified on Exhibit "A" attached hereto; and (iii) the use of the Premises is not "Noxious or Offensive," as hereinafter defined. "Noxious or Offensive" shall be defined to mean a dance hall, off-track betting business, billiard or pool hall, bingo parlor, massage parlor, video game arcade, blood bank, night club, or adult book or adult video store (which are defined as stores in which any part of the inventory is not available for sale or rental to children under eighteen (18) years old, because such inventory explicitly deals with or depicts human sexuality). No assignment or subletting shall operate to release Tenant from its obligations under the Lease unless Tenant is specifically released by virtue of a separate written instrument executed by Landlord, which may be withheld in Landlord's sole discretion. Landlord's consent is not required for Tenant to assign this Lease or sublet the Premises to any entity which (i) is Tenant's parent organization, (ii) is any corporation a majority of whose voting stock is owned, directly or indirectly, by Tenant or Tenant's parent organization, (iii) as a result of consolidation, merger, or other reorganization with Tenant or Tenant's parent organization, will own all or substantially all of the voting stock of Tenant or Tenant's parent corporation, or (iv) acquires all or substantially all of the voting stock of Tenant or all or substantially all of the assets of Tenant; provided, however, that the Premises shall only be used as an Approved Concept (as defined above), and provided further that such assignee or sublessee shall execute and deliver to the Landlord a full and unconditional guaranty of the obligations of Tenant. (b) In the event of the subletting or assignment of this Lease, any monetary consideration obtained from an assignee or transferee (excluding, however, any monetary consideration paid solely for Tenant's Property, as defined in paragraph 3(a)(i) of this Lease) upon such subletting or assignment shall be paid to Landlord. In the event of the subletting or assignment of this Lease, if Tenant derives funds or rental income greater than what it is paying to Landlord under this Lease, the Annual Rent provided for herein shall be increased to that amount received by Tenant from sublessee or assignee of this Lease. In the event of the cessation of any such subletting or assignment, Annual Rent shall return to the amount provided for in the Rent Addendum. (c) Prior to any assignment allowed hereunder, Tenant shall deliver to Landlord (i) a copy of the assignment documents (including copies of any recorded documents), and (ii) the name, address and telephone number of such assignee and a designated contact person for such assignee, and (iii) a new insurance policy and binder complying with the terms of this Lease and naming such assignee as the tenant of the Premises. Notwithstanding anything herein to the contrary, in the event of any assignment of this Lease or subletting of the Premises, Tenant shall not be released from its obligations under this Lease unless specifically released by virtue of a separate written instrument executed by Landlord, which may be withheld in Landlord's sole discretion. (d) The Landlord shall have the right without limitation (subject to paragraph 11 hereof) to sell, convey, transfer or assign its interest in the Premises or its interest in this Lease, and upon such conveyance being completed all covenants and obligations of Landlord under this Lease accruing thereafter shall cease, but such covenants and obligations shall run with the land and shall be binding upon the subsequent landlord or owners of the Premises or of this Lease. 18. SUBORDINATION, NON-DISTURBANCE, ATTORNMENT, ESTOPPEL CERTIFICATE. (a) Upon written request of the holder of any mortgage (which term "mortgage" shall also include deeds of trust) now or hereafter relating to the Premises, Tenant will subordinate its rights under this Lease to the lien thereof and to all advances made or hereafter to be made upon the security thereof, and Tenant shall execute, acknowledge and deliver an instrument in the form customarily used by such encumbrance holder to effect such subordination; provided, however, as a condition of all such subordinations, the holder of such mortgage shall be first required to agree with Tenant that, notwithstanding the foreclosure or other exercise of rights under any such first or other mortgage, Tenant's possession and occupancy of the Premises and the improvements and its leasehold estate shall not be disturbed or interfered with nor shall Tenant's rights and obligations under this Lease be altered or adversely affected thereby so long as Tenant is not in default hereunder. (b) Notwithstanding anything set out in subparagraph (a) above to the contrary, in the event the holder of any such mortgage elects to have this Lease be superior to its mortgage, then upon Tenant's being notified to that effect by such encumbrance holder, this Lease shall be deemed prior to the lien of said mortgage, whether this Lease is dated prior or subsequent to the date of said mortgage, and Tenant shall execute, acknowledge and deliver an instrument, in the form customarily used by such encumbrance holder, effecting such priority. (c) In the event proceedings are brought for the foreclosure of, or in the event of the exercise of the power of sale under any mortgage made by Landlord covering the Premises, or in the event of delivery of a deed in lieu of foreclosure under such a mortgage Tenant will attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as Landlord under this Lease, and upon the request of the purchaser, Tenant shall execute, acknowledge and deliver an instrument, in form and substance satisfactory to such purchaser, evidencing such attornment. (d) Each party agrees, within fourteen (14) days after written request by the other, to execute, acknowledge and deliver to and in favor of any proposed mortgagee or purchaser of the Premises, an estoppel certificate, in the form customarily used by such proposed mortgagee or purchaser, stating, among other things (i) whether his Lease is in full force and effect, (ii) whether this Lease has been modified or amended and, if so, identifying and describing any such modification or amendment, (iii) the date to which Rent and other charges have been paid, and (iv) whether the party furnishing such certificate knows of any default on the part of the other party or has any claim against such party and, if so, specifying the nature of such default or claim. (e) Upon written demand by the holder of any mortgage covering the Premises, Tenant shall forthwith execute, acknowledge and deliver an agreement in favor of and in the form customarily used by such encumbrance holder, by the terms of which Tenant will agree to give prompt written notice to such encumbrance holder in the event of any casualty damage to the Premises or in the event of any default on the part of Landlord under this Lease, and will agree to allow such encumbrance holder a reasonable length of time after notice to cure or cause the curing of such default before exercising Tenant's rights under this Lease, or terminating or declaring a default under this Lease. 19. COOPERATION (a) Landlord shall fully cooperate with Tenant throughout the term of this Lease to secure or maintain proper zoning, building and other permits and compliance with all applicable laws. Landlord shall execute any petitions, requests, applications and the like as Tenant shall reasonably request in order to obtain any permit, license, variances and approvals which, in the reasonable judgment of Tenant, are necessary for the lawful construction and/or operation of Tenant's business on the Premises, provided, however, that Tenant shall indemnify and save Landlord harmless from any and all expenses, costs, charges, liabilities, losses, obligations, damages and claims of any type which may be imposed upon, asserted against or incurred by Landlord by reason of same. (b) In the event that Tenant elects to purchase the Premises pursuant to the terms and conditions of paragraph 11 hereof, Landlord shall have the right, in Landlord's sole discretion, to enter into an exchange agreement (the "Exchange Agreement") with a qualified intermediary (the "Intermediary") in order to effectuate a like-kind exchange of the Premises for one or more other properties (the "Replacement Property"). In that event, Landlord shall assign to the Intermediary all of Landlord's right, title and interest in the written contract for purchase and sale of the Premises entered into between Landlord and Tenant as required by paragraph 11 hereof (the "Purchase Contract"), and any deposit paid by Tenant in connection with the purchase of the Premises shall be placed directly with the Intermediary, subject to the terms and conditions of the Purchase Contract and the Exchange Agreement. Landlord and Tenant agree that, at Landlord's option (provided that Tenant shall incur no expense and that there shall be no adverse effect upon the interest in the Premises being purchased by Tenant), Tenant shall cooperate with Landlord in effecting a like-kind exchange of the Premises by Landlord pursuant to and in accordance with the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder, which cooperation shall include, without limitation, Tenant's consent to Landlord's assignment of its interest in the Purchase Contract to the Intermediary and Tenant receiving or taking title to the Premises from the Intermediary or another third party utilized in the transaction in order to facilitate the like-kind exchange on behalf of Landlord. 20. NOTICES All notices and other communications required or permitted to be given hereunder shall be in writing and shall be delivered by a nationally recognized overnight courier or mailed by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to Landlord: CNL APF PARTNERS, LP / CNL-BB Corp. 400 East South Street Suite 500 Orlando, Florida 32801 with copy to: Dale A. Burket, Esquire Lowndes, Drosdick, Doster, Kantor, & Reed, P.A. 215 North Eola Drive Post Office Box 2809 Orlando, Florida 32802 If to Tenant: Stan Ereckson VICORP RESTAURANTS, INC., a Colorado corporation 400 West 48th Avenue Denver, Colorado 80216 Any party may change its address for notices by written notice in like manner as provided in this paragraph and such change of address shall be effective seven (7) days after the date notice of such change of address is given. Notice for purposes of this Lease shall be deemed given at the date or time of receipt or attempted delivery, as indicated on the return receipt or the courier's records. 21. INDEMNIFICATION Tenant does hereby indemnify and exonerate Landlord against and from all liabilities, losses, obligations, damages, penalties, claims, costs, charges and expenses, including reasonable architects' and attorneys' fees, which may be imposed upon or asserted against or incurred by Landlord by reason of any of the following occurring: (a) any work or thing done in respect of construction of, in or to the Premises or any part of the improvements now or hereafter constructed on the Premises; (b) any use, possession, occupation, operation, maintenance or management of the Premises or any part hereof; (c) any failure to, or to properly, use, possess, occupy, operate, maintain or manage the Premises or any part thereof; (d) the condition, including environmental conditions, of the Premises or any part thereof; (e) any negligence on the part of Tenant or any of its agents, contractors, servants, employees, licensees or invitees; (f) any accident, injury or damage to any person or property occurring in, on or about the Premises or any part thereof including any sidewalk adjacent thereto; or (g) any failure on the part of Tenant to perform or comply with any of the covenants, agreements, terms or conditions contained in this Lease on its part to be performed or complied with. 22. HOLD HARMLESS Tenant agrees to hold Landlord harmless against any and all claims, damages, accidents and injuries to persons or property caused by or resulting from or in connection with anything in or pertaining to or upon the Premises during the term of this Lease or while Tenant is occupying the Premises, except if such claim, damage, accident or injury shall be caused by the negligence of Landlord or its agents. Landlord shall not be liable to Tenant, Tenant's employees, agents, invitees, licensees or any other person whomsoever for any injury to person or damage to property on or about the Premises caused by the negligence or misconduct of Tenant, its agents, servants or employees or of any other person entering the building under expressed or implied invitation by Tenant or due to any other cause whatsoever, unless caused by the negligence or neglect of Landlord, its employees or its authorized representatives. 23. LANDLORD'S LIABILITIES The term "Landlord" as used in this Lease means the owner from time to time of the Premises. Neither Landlord nor any partner, shareholder or beneficiary thereof shall have any personal liability with respect to any of the provisions of this Lease and if Landlord is in default with respect to its obligations hereunder Tenant shall look solely to the equity of Landlord in the Premises. 24. SUCCESSORS The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, legal representatives, successors and assigns. 25. ENTIRE AGREEMENT/MEMORANDUM OF LEASE This Lease contains the entire agreement between the parties hereto and may not be modified in any manner other than in writing signed by the parties hereto or their successors in interest. A memorandum of this Lease shall be executed by the parties and shall be recorded in the official records of the county where the Premises are located. 26. GENDER Whenever the context hereof permits or requires, words in the singular may be regarded as in the plural and vice-versa, and personal pronouns may be read as masculine, feminine and neuter. 27. BROKERAGE FEES It is understood and agreed that neither party has incurred any real estate brokerage fees or commissions arising out of this Lease and each party agrees to hold the other harmless from and against all such fees and commissions incurred, and costs related thereto including legal fees, as a result of its own conduct or alleged conduct. 28. CAPTIONS The captions of this Lease are for convenience only, and do not in any way define, limit, disclose, or amplify terms or provisions of this Lease or the scope or intent thereof. 29. LANDLORD'S RIGHT TO CURE In the event Tenant shall fail, refuse or neglect to perform, observe or comply with any term, condition, covenant, agreement or obligation contained in the Lease on its part to be performed or complied with, then Landlord may, at its sole option, after expiration of any applicable notice and cure period (except in case of an emergency) enter upon the Premises, if deemed necessary by Landlord in its reasonable discretion, and/or do whatever may be deemed necessary by Landlord in its reasonable discretion to cure such failure by Tenant. Tenant shall pay to Landlord within five (5) days of Landlord's request, all costs incurred by Landlord in connection with Landlord's curing of such failure by Tenant including, but not limited to, reasonable attorney and paralegal fees whether or not judicial proceedings are involved. In addition to the above costs, in the event Landlord does not receive payment from Tenant when due hereunder, interest at the rate of eighteen percent (18%) per annum or, if less, the highest rate allowable by law shall be due and payable with respect to such payment from the due date thereof until Landlord receives such payment. 30. COMMITMENT LETTER [INTENTIONALLY DELETED] 31. NOT A SECURITY ARRANGEMENT The parties hereto agree and acknowledge that this transaction is not intended as a security arrangement or financing secured by real property, but shall be construed for all purposes as a true lease. 32. NET LEASE It is the intention of the parties hereto that this Lease is and shall be treated as a triple net lease. Any present or future law to the contrary notwithstanding, this Lease shall not terminate (except as expressly provided in paragraph 4(a)) nor shall Tenant be entitled to any abatement, suspension, deferment, reduction (except as expressly provided in paragraph 6(b) hereof), set-off, counterclaim, or defense with respect to the rent, nor shall the obligations of Tenant hereunder be affected by reason of: any damage to or destruction of the Premises or any part thereof; any taking of any Premises or any part thereof or interest therein by Condemnation or otherwise (except as expressly provided in paragraph 6(b) hereof); any prohibition, limitation, restriction or prevention of Tenant's use, occupancy or enjoyment of the Premises or any part thereof (except to the extent caused solely by the intentional wrongful conduct of Landlord), or any interference with such use, occupancy or enjoyment by any person or for any other reason; any title defect or encumbrance or any matter affecting title to the Premises or any part thereof; any eviction by paramount title or otherwise; any default by Landlord hereunder; any proceeding relating to Landlord; the impossibility or illegality of performance by Landlord, Tenant or both; any action of governmental authority; any breach of warranty or misrepresentation; any defect in the condition, quality or fitness for use of the Premises or any part thereof; or any other cause whether similar or dissimilar to the foregoing and whether or not Tenant shall have notice or knowledge of any of the foregoing. The parties intend that the obligations of Tenant hereunder shall be separate and independent covenants and agreements and shall continue unaffected unless such obligations shall have been modified or terminated in accordance with an express provision of this Lease. 33. WAIVER No waiver by Landlord of any provision hereof shall be deemed a wavier of any other provision hereof or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. The acceptance of rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 34. TIME OF THE ESSENCE Landlord and Tenant agree that time shall be of the essence of all terms and provisions of this Lease. 35. GOVERNING LAW This Lease shall be construed in accordance with the laws of the state in which the Premises is located. [Signatures on Next Page] IN WITNESS WHEREOF, Seller and Buyer have entered into this Agreement as of the date shown hereinabove. Signed, sealed and delivered "TENANT" in the presence of: VICORP RESTAURANTS, INC., a Colorado corporation By: /s/Charles R. Frederickson -------------------------- Name: /s/ Stanley Ereckson Jr. Name: Charles R. Frederickson ------------------------- ----------------------- Stanley Ereckson, Jr. As Its: President --------- Name: /s/ Gary F. Burke ------------------ Gary F. Burke STATE OF COLORADO COUNTY OF DENVER The foregoing instrument was acknowledged before me this 25th day of October 1999, by Charles R. Frederickson, as President of VICORP RESTAURANTS, INC., a Colorado corporation, on behalf of the corporation. /s/ Toni A. Schreivogel ----------------------- (NOTARY SEAL) Notary Public, State of Colorado Printed Name: Toni A. Schreivogel ------------------- Notary Commission No. n/a --- My Commission Expires: 8/25/2002 --------- Exhibit "A" - Legal Description Exhibit "B" - List of Properties for Cross-Default "LANDLORD" CNL APF PARTNERS, LP, a Delaware limited partnership BY: CNL APF GP Corp., a Delaware corporation, as general partner By: /s/ John T. Walker ------------------- Name: /s/ Lisa M. Fannin John T. Walker, as President ------------------- Lisa M. Fannin Name: /s/ Stephanie J. Newell ------------------------ Stephanie J. Newell STATE OF FLORIDA COUNTY OF ORANGE The foregoing instrument was acknowledged before me this 25 day of October, 1999, by John T. Walker, as President of CNL APF GP CORP., a Delaware corporation, as General Partner of CNL APF PARTNERS, LP, a Delaware limited partnership, on behalf of the limited partnership. /s/ Kay Cooksey --------------- (NOTARY SEAL) Notary Public, State of Florida Printed Name: Notary Commission No. My Commission Expires: "LANDLORD" CNL-BB CORP., a Florida corporation By: /s/ Robert A.Bourne Name: /s/ Lisa M. Fannin -------------------- ------------------- Robert A. Bourne, as Lisa M. Fannin President Name: /s/ Bonnie P. Burgess ---------------------- Bonnie P. Burgess STATE OF FLORIDA COUNTY OF ORANGE The foregoing instrument was acknowledged before me this 26th day of October 1999, by Robert A. Bourne, as President of CNL-BB CORP., a Florida corporation, on behalf of the corporation. /s/ Stephanie J. Newell ----------------------- (NOTARY SEAL) Notary Public, State of Florida Printed Name: Notary Commission No. My Commission Expires: EXHIBIT "A" Property Description -------------------- Landlord Landlord - ---------------- ---------------- CNL APF Partners, L.P. CNL-BB Corp. - ---------------------- ------------ 4839 West 111th Street 3000 Oak Grove Road Alsip, IL 60658 Downers Grove, IL 60515 4849 West 79th Street 18849 Dixie Highway Burbank, IL 60459 Homewood, IL 60430 7105 Cherryvale North Boulevard 942 South LaGrange Road Cherry Valley, IL 61016 LaGrange, IL 60525 560 Waukegan Road 1195 South Milwaukee Avenue Deerfield, IL 60015 Libertyville, IL 60048 3545 Ridge Road 8584 Dempster Street Lansing, IL 60438 Niles, IL 60714 4721 Lincoln Mall Drive 270 East Northwest Highway Matteson, IL 60443 Palatine, IL 60067 6431 - 127th Street 200 Skokie Boulevard Palos Heights, IL 60463 Wilmette, IL 60091 1510 East Main Street St. Charles, IL 60174 420 East Ogden Avenue Westmont, IL 60559 7409 South Kingery Highway Willowbrook, IL 60521 8140 Mississippi Street Merrillville, IN 46410 12951 Riverdale Crossing Coon Rapids, MN 55448 1861 Madison Avenue Mankato, MN 56001 5425 "L" Street Omaha, NE 68117 RENT ADDENDUM TO LEASE AGREEMENT THIS RENT ADDENDUM dated October 28, 1999, by and between CNL-PARTNERS, a Delaware limited partnership and CNL-BB CORP., A Florida corporation as "Landlord", and VICORP RESTAURANTS, a Colorado corporation, as "Tenant", for properties described on Exhibit "A", is attached to and made a part of that certain Lease Agreement by and between Landlord and Tenant of even date herewith (the "Lease"). Notwithstanding any other provision to the contrary which maybe contained in said Lease, it is specifically agreed by and between Landlord and Tenant as follows: (a) Commencement of Rent. On the date thereof, Landlord has simultaneously entered into the Lease with Tenant pursuant to which Tenant has agreed to lease from Landlord the Premises and all improvements now for thereafter constructed thereon. Payment of Interim Rent (if applicable), and Annual Rent shall commence as of the Effective Date as provided herein, notwithstanding that the improvements may not be constructed or complete at that time. (b) Interim Rent [INTENTIONALLY DELETED] (c) Annual Rent (i) Beginning on the Effective Date, Tenant covenants and agrees to pay to Landlord annual rent ("Annual Rent") in the annual amount $2,865,615 for all locations, payable to Landlord in equal monthly installments in the amount $238,801 for all locations monthly in advance, on the first (1st) day of each month (ii) Increases in Annual Rent. Commencing at the end of the fifth (5th) Lease Year after the Effective Date, and on each fifth (5th) anniversary of such date thereafter during the term of this Lease (and any extension thereof), Annual Rent shall be increased by an amount equal to ten percent (10%) of the Annual Rent payable during the immediately preceding Lease Year. (iii) Partial Months. If the date on which Annual Rent shall be first due and payable shall fall on any other than the first day of a calendar month, then rent for the partial rental month shall be prorated on a per diem basis on the first annual Rent payment and shall be paid by Tenant to Landlord for such month. (c) Percentage Rent [INTENTIONALLY DELETED] (d) Reporting. Tenant shall, during the term of this Lease and any extensions thereto: keep books and records reflecting its financial condition including, but not limited to, the operation of the Premises in accordance with generally accepted accounting principles consistently applied. Tenant shall provide Landlord with unaudited year end financial statements including operating statements and balance sheets and Form 10 K's and Form 10Q's within ten (10) days after they are generated for Tenant. Landlord shall have the right, at its sole cost and expense, from time to time during normal business hours and at times reasonably convenient to Tenant, to examine such books, records and accounts at the offices of Tenant or other entity as is maintaining such books, records and accounts, and to make such copies or extracts thereof as Landlord shall desire. (e) Sales/Use Tax. Tenant shall also pay to Landlord any sales and use tax imposed on any Rents payable hereunder from time to time by state law or any other governmental entity, which sums are due monthly as to monthly rent payments on the due date of the rent payment under this Lease. (f) Late Charges. In the event any installment of rent due hereunder (including Interim Rent and Annual Rent) is not received by Landlord within ten (10) days of its respective due date, there shall be an automatic late charge due to Landlord from Tenant in the amount of five percent (5%) of such delinquent installment of rent. All such late charges due hereunder shall be deemed additional Rent, and are not penalties but rather are charges attributable to administrative and collection costs arising out of such delinquency. In addition to such late charge, in the event Landlord does not receive Rent within ten (10) days after the due date, interest shall be due at the lesser of eighteen percent (18%) per annum or the maximum rate allowable by law with respect to such payment from the due date thereof until Landlord receives such payment. (g) Payments of Rents. Except as provided in the following sentence, all rent payments shall be made by check payable to the order of Landlord and shall be sent to 400 East South Street, Suite 500, Orlando, Florida 32801,or to such other place or places Landlord or its successors or assigns, respectively, may from time to time designate in writing. In the event Tenant is late in the payment of Interim or Annual Rent on three (3) or more occasions, and if Landlord shall so request, Tenant shall establish arrangements whereby Rent is transferred by wire or other means directly from Tenant's bank account to such account as Landlord may designate. (h) No Abatement. Unless otherwise stated in the Lease, no abatement, offset, diminution or reduction (a) of Rent, charges or other compensation, or (b) of Tenant's other obligations under this Lease shall be allowed to Tenant or any person claiming under Tenant, under any circumstances or for any reason whatsoever. Initialed for Identification: By Landlord: /s/ John T. Walker, /s/ Robert A. Bourne ----------------------------------------- By Tenant: /s/ Charles R. Frederickson --------------------------- EX-10 4 OPTION AGREEMENT J TRUNGALE OPTION AGREEMENT This agreement is entered into this first day of November, 1999, by and between VICORP Restaurants, Inc. (the Corporation), and Joseph F. Trungale (Optionee). WHEREAS, the Corporation has adopted the Amended and Restated 1982 Stock Option Plan ("Plan"), which Plan is in full force and effect; and WHEREAS, pursuant to Article VIII of the Plan, the Committee of Non-Employee Directors is to notify the recipient of the grant of any option in a writing delivered in duplicate either in person or by mail. NOW, THEREFORE, the parties hereto acknowledge and agree as follows: I. GRANT: ------ Optionee is hereby granted a non-qualified option to purchase under the terms of the plan 50,000 shares of the Corporation's common stock (par value $0.05 per share) for an exercise price of $16.75 per share. The options shall be vested according to the following schedule: 16,666 shares vest on November 1, 1999 16,667 shares will vest on November 1, 2000 16,667 shares will vest on November 1, 2001 II. TERM: ----- Each option granted shall expire ten years from the date of grant, unless canceled or terminated earlier in accordance with the terms of the Plan. III. EXERCISE OF OPTIONS: -------------------- Only options which are vested may be exercised. IV. MANNER OF EXERCISE: ------------------- (a) Notice to the Corporation: Each exercise of an option shall be made by the delivery by the Optionee of written notice of such election to the Corporation, either in person or by mail, stating the number of shares with respect to which the option is being exercised and specifying a date on which the shares will be taken and payment made therefor. The date shall be at least fifteen (15) days after the giving of such notice, unless an earlier date shall have been mutually agreed upon. (b) Issuance of Stock: Subject to any law or regulation of the Securities and Exchange Commission or other body having jurisdiction requiring an action to be taken in connection with the shares specified in a notice of election before the shares can be delivered to the Optionee, on the date specified in the notice of election, the Corporation shall deliver, or cause to be delivered to the Optionee stock certificates for the number of shares with respect to which the option is being exercised, against payment therefor (including payment of any tax required to be withheld). In the event of any failure to take and pay, on the date stated, for the full number of shares specified in the notice of election, the option shall become inoperative only as to those shares which are not taken or paid for, but shall continue with respect to any remaining shares subject to the option as to which exercise has not yet been made. V. ASSIGNMENT: ----------- Any option granted under the Plan shall not be assigned, pledged, or hypothecated in any way, shall not be subject to execution, and shall not be transferable other than by will or the laws of descent and distribution. Any attempted assignment or other prohibited disposition shall be null and void. VI. TERMINATION: ------------ (a) Termination Other Than At Death Or Disability: If the Optionee terminates his position as an Employee of the Corporation for any reason other than death or disability, any unexpired and unexercised granted options shall be canceled three months after the effective date of the Optionee's termination. (b) Termination At Death Or Disability: In the event of the death of the Optionee, any option held by him at the time of his death shall be transferred as provided in his will or by the laws of descent and distribution, and may be exercised by such transferee at any time within twelve months after the date of death, to the extent the option is exercisable on the date of death, and provided it is exercised within the time prescribed in the Plan. In the event of the disability of the Optionee, any option held by him may be exercised in whole or in part, by the Optionee or his personal representative at any time within twelve months after the date of disability, to the extent the option is exercisable on the date of disability, and provided that it is exercised within the time prescribed in the Plan. Disability and time of disability shall be determined by the Committee. VII. CHANGES IN CAPITAL STRUCTURE: ----------------------------- The number of shares granted to Optionee will be subject to adjustment in the case of stock splits, combinations, stock dividends, reorganization and similar events. VIII. SUBSTITUTION OR CANCELLATION UPON ACQUISITION: ---------------------------------------------- As used in this article, "Acquisition Event" means (1) any sale or other disposition of all or substantially all of the assets of the Corporation or of any participating subsidiary pursuant to a plan which provides for the liquidation of the Corporation or the participating subsidiary, (2) any exchange by the holders of all of the outstanding shares of Common Stock for securities issued by another entity, or in whole or in part for cash or other property, pursuant to a plan of exchange approved by the holders of a majority of such outstanding shares, or (3) any transaction to which 425(a) of the Internal Revenue Code of 1954, as amended, applies and to which the Corporation or any participating subsidiary is a party in connection with any Acquisition Event and upon such terms and conditions as the Board may establish: (a) The Committee may waive any limitation applicable to any option or right granted to the Optionee by this Agreement under the Plan so that such option and right, from and after a date prior to the Acquisition Event that is specified by the Committee, shall be exercisable in full. (b) If the Committee so determines, the Optionee may be given the opportunity to make a final settlement for the entire unexercised portion of any option and any right granted by this Agreement under the Plan, including any portion not then currently exercisable, in any one or more of the following matters: (i) Surrender such unexercised portion for cancellation in exchange for the payment in cash of an amount not less than the difference between the value per share of Common Stock as measured by the value to be received by the holders of the outstanding shares of Common Stock pursuant to the terms of the Acquisition Event, as determined by the Committee in its discretion, and the price at which such option and right is or would become exercisable, multiplied by the number of shares represented by such unexercised portion. (ii) Exercise such option and right, including any portion not then otherwise currently exercisable, prior to the Acquisition Event so that the Optionee would be entitled, with respect to shares thereby acquired, to participate in the Acquisition Event as a holder of Common Stock. (iii) Surrender such option and right for cancellation in exchange for a substitute option, with or without a related stock appreciation right, providing substantially equal benefits and granted or to be granted by an employer corporation, or a parent or subsidiary of such an employer corporation, that after the Acquisition Event is expected to continue to conduct substantially the same business as that acquired from the Corporation or a participating subsidiary pursuant to the Acquisition Event. If the Optionee is given one or more of such opportunities with respect to the entire unexercised portion of any option and right granted by this Agreement, the option and right may be canceled by the Corporation upon the occurrence of the Acquisition Event and thereafter the Optionee will be entitled only to receive the appropriate benefit pursuant to clause (i), (ii), or (iii) above, whichever may be applicable. The provisions of this article are not intended to be exclusive of any other arrangements that the Board might approve for settlement of any or all outstanding options and rights in connection with an Acquisition Event or otherwise. IX. ADMINISTRATION: --------------- The Plan is administered by a committee of non-employee directors appointed by the Board of Directors of the Corporation ("Committee") to whom all correspondence shall be directed. X. MISCELLANEOUS: -------------- (a) Interpretation: Any inconsistencies between the provisions of this Option Agreement and the Plan shall be governed by the terms and provisions of the Plan. Optionee is referred to the Plan to determine all of his rights and obligations, only a portion of which have been set forth in this Agreement. (b) Acknowledgment: By execution of this Agreement, Optionee acknowledges receipt of a duplicate copy of the same as notification of his grant of options and that Optionee agrees in consideration of such option he will abide by all the terms and conditions of the Plan. IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the day and year first above-written. VICORP Restaurants, Inc. By /s/ Charles R. Frederickson ____________________________________ Charles R. Frederickson, Chairman /s/ Joseph F. Trungale ______________________________________ Joseph F. Trungale, Optionee This is Page 4 of a 4-page Option Agreement between VICORP Restaurants, Inc. and Joseph F. Trungale dated November 1, 1999. EX-10 5 OPTION AGREEMENT C FREDERICKSON OPTION AGREEMENT This agreement is entered into this ninth day of December, 1999, by and between VICORP Restaurants, Inc. (the Corporation), and Charles R. Frederickson (Optionee). WHEREAS, the Corporation has adopted the Amended and Restated 1982 Stock Option Plan ("Plan"), which Plan is in full force and effect; and WHEREAS, pursuant to Article VIII of the Plan, the Committee of Non-Employee Directors is to notify the recipient of the grant of any option in a writing delivered in duplicate either in person or by mail. NOW, THEREFORE, the parties hereto acknowledge and agree as follows: I. GRANT: ------ Optionee is hereby granted a fully vested option to purchase under the terms of the plan 50,000 shares of the Corporation's common stock (par value $0.05 per share) for an exercise price of $17.44 per share. II. TERM: ----- Each option granted shall expire ten years from the date of grant, unless canceled or terminated earlier in accordance with the terms of the Plan. III. EXERCISE OF OPTIONS: -------------------- Only options which are vested may be exercised. IV. MANNER OF EXERCISE: ------------------- (a) Notice to the Corporation: Each exercise of an option shall be made by the delivery by the Optionee of written notice of such election to the Corporation, either in person or by mail, stating the number of shares with respect to which the option is being exercised and specifying a date on which the shares will be taken and payment made therefor. The date shall be at least fifteen (15) days after the giving of such notice, unless an earlier date shall have been mutually agreed upon. (b) Issuance of Stock: Subject to any law or regulation of the Securities and Exchange Commission or other body having jurisdiction requiring an action to be taken in connection with the shares specified in a notice of election before the shares can be delivered to the Optionee, on the date specified in the notice of election, the Corporation shall deliver, or cause to be delivered to the Optionee stock certificates for the number of shares with respect to which the option is being exercised, against payment therefor (including payment of any tax required to be withheld). In the event of any failure to take and pay, on the date stated, for the full number of shares specified in the notice of election, the option shall become inoperative only as to those shares which are not taken or paid for, but shall continue with respect to any remaining shares subject to the option as to which exercise has not yet been made. V. ASSIGNMENT: ----------- Any option granted under the Plan shall not be assigned, pledged, or hypothecated in any way, shall not be subject to execution, and shall not be transferable other than by will or the laws of descent and distribution. Any attempted assignment or other prohibited disposition shall be null and void. VI. TERMINATION: ------------ (a) Termination Other Than At Death Or Disability: If the Optionee terminates his position as an Employee of the Corporation for any reason other than death or disability, any unexpired and unexercised granted options shall be canceled three months after the effective date of the Optionee's termination. (b) Termination At Death Or Disability: In the event of the death of the Optionee, any option held by him at the time of his death shall be transferred as provided in his will or by the laws of descent and distribution, and may be exercised by such transferee at any time within twelve months after the date of death, to the extent the option is exercisable on the date of death, and provided it is exercised within the time prescribed in the Plan. In the event of the disability of the Optionee, any option held by him may be exercised in whole or in part, by the Optionee or his personal representative at any time within twelve months after the date of disability, to the extent the option is exercisable on the date of disability, and provided that it is exercised within the time prescribed in the Plan. Disability and time of disability shall be determined by the Committee. VII. CHANGES IN CAPITAL STRUCTURE: ----------------------------- The number of shares granted to Optionee will be subject to adjustment in the case of stock splits, combinations, stock dividends, reorganization and similar events. VIII. SUBSTITUTION OR CANCELLATION UPON ACQUISITION: ---------------------------------------------- As used in this article, "Acquisition Event" means (1) any sale or other disposition of all or substantially all of the assets of the Corporation or of any participating subsidiary pursuant to a plan which provides for the liquidation of the Corporation or the participating subsidiary, (2) any exchange by the holders of all of the outstanding shares of Common Stock for securities issued by another entity, or in whole or in part for cash or other property, pursuant to a plan of exchange approved by the holders of a majority of such outstanding shares, or (3) any transaction to which 425(a) of the Internal Revenue Code of 1954, as amended, applies and to which the Corporation or any participating subsidiary is a party in connection with any Acquisition Event and upon such terms and conditions as the Board may establish: (a) The Committee may waive any limitation applicable to any option or right granted to the Optionee by this Agreement under the Plan so that such option and right, from and after a date prior to the Acquisition Event that is specified by the Committee, shall be exercisable in full. (b) If the Committee so determines, the Optionee may be given the opportunity to make a final settlement for the entire unexercised portion of any option and any right granted by this Agreement under the Plan, including any portion not then currently exercisable, in any one or more of the following matters: (i) Surrender such unexercised portion for cancellation in exchange for the payment in cash of an amount not less than the difference between the value per share of Common Stock as measured by the value to be received by the holders of the outstanding shares of Common Stock pursuant to the terms of the Acquisition Event, as determined by the Committee in its discretion, and the price at which such option and right is or would become exercisable, multiplied by the number of shares represented by such unexercised portion. (ii) Exercise such option and right, including any portion not then otherwise currently exercisable, prior to the Acquisition Event so that the Optionee would be entitled, with respect to shares thereby acquired, to participate in the Acquisition Event as a holder of Common Stock. (iii) Surrender such option and right for cancellation in exchange for a substitute option, with or without a related stock appreciation right, providing substantially equal benefits and granted or to be granted by an employer corporation, or a parent or subsidiary of such an employer corporation, that after the Acquisition Event is expected to continue to conduct substantially the same business as that acquired from the Corporation or a participating subsidiary pursuant to the Acquisition Event. If the Optionee is given one or more of such opportunities with respect to the entire unexercised portion of any option and right granted by this Agreement, the option and right may be canceled by the Corporation upon the occurrence of the Acquisition Event and thereafter the Optionee will be entitled only to receive the appropriate benefit pursuant to clause (i), (ii), or (iii) above, whichever may be applicable. The provisions of this article are not intended to be exclusive of any other arrangements that the Board might approve for settlement of any or all outstanding options and rights in connection with an Acquisition Event or otherwise. IX. ADMINISTRATION: --------------- The Plan is administered by a committee of non-employee directors appointed by the Board of Directors of the Corporation ("Committee") to whom all correspondence shall be directed. X. MISCELLANEOUS: -------------- (a) Interpretation: Any inconsistencies between the provisions of this Option Agreement and the Plan shall be governed by the terms and provisions of the Plan. Optionee is referred to the Plan to determine all of his rights and obligations, only a portion of which have been set forth in this Agreement. (b) Acknowledgment: By execution of this Agreement, Optionee acknowledges receipt of a duplicate copy of the same as notification of his grant of options and that Optionee agrees in consideration of such option he will abide by all the terms and conditions of the Plan. IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the day and year first above-written. VICORP Restaurants, Inc. By /s/ Joseph F. Trungale ____________________________________ Joseph F. Trungale, President /s/ Charles R. Frederickson ______________________________________ Charles R. Frederickson, Optionee This is Page 4 of a 4-page Option Agreement between VICORP Restaurants, Inc. and Charles R. Frederickson dated December 9, 1999. EX-10 6 INCENTIVE PLAN FOR OFFICERS & DIRECTORS INCENTIVE PROGRAM DOCUMENT Defined Positions of Officers and Directors APPROVALS --------- /s/ Buck Frederickson ______________________________________ Buck Frederickson, Chairman Date Effective: November 1, 1999 Supersedes: All previous stated and/or implied compensation and incentive plans. This compensation plan is applicable to all Corporate (or non-operating) Officer-level positions and select Director- level positions within VICORP Restaurants, Inc. (hereafter referred to as VICORP). Attachment A to this Plan Document details the defined positions. This plan defines the method of compensation for the period beginning November 1, 1999 and ending October 29, 2000. BASE COMPENSATION A. Base compensation is defined as that compensation paid bi-weekly. Where applicable, vacation and holiday pay will be predicated upon the base compensation rate. B. Base compensation will be determined based upon using the approved salary wage ranges as a guideline. C. Participants in this program will be reviewed on an annual basis and any adjustments to the base rate will be based upon overall performance and wage range placement. Any merit increase approved must be such that the resulting salary is within the wage range for the position. The Compensation Committee of VICORP's Board of Directors must approve officer compensation. BONUS PROGRAM A. General. Participants are eligible by virtue of assignment to an officer or director level position that is not eligible for any other Incentive Program (i.e., field). A list of approved bonus eligible positions for FY'00 is detailed on Attachment A. The bonus program is predicated upon achievement of overall VICORP performance against a set baseline Earnings Before Interest and Taxes (E.B.I.T.) target. NOTE: E.B.I.T. will be computed in accordance with Generally Accepted Accounting Principles. B. Bonus. The bonus plan is established based upon attainment of E.B.I.T. For Fiscal Year 2000, Target E.B.I.T. is $21,947,000 (which is before payment of bonuses). C. Distribution of Bonus Eligible individuals participate in the bonus based upon: 1. The target bonus percentage assigned to the position; and, 2. The attainment of the E.B.I.T. Target. The following chart summarizes the method of payout.
Payout % % Of E.B.I.T. % OF Target -------- Target Attained Payout Level 1 Level 2 Level 3 Level 4 - --------------- ----------- ------- ------- ------- ------- 80% 25% 8.75% 7.5% 6.25% 3.75% 85% 45% 15.75% 13.5% 11.25% 6.75% 90% 65% 22.75% 19.5% 16.25% 9.75% 95% 85% 29.75% 25.5% 21.25% 12.75% 100% 100% 35% 30% 25% 15% 105% 110% 38.5% 33% 27.5% 16.5% 110% 120% 42% 36% 30% 18% 115% 130% 45.5% 39% 32.5% 19.5% 120% - 140% 49% 42% 35% 21% or greater
The targeted bonus percentages assigned to positions are as follows: Corporate Executive Vice Presidents and higher 35% Sr. Vice Presidents 30% Vice President 25% Defined Director-level Positions 15% These percentages are applied to the incumbent's base salary for the fiscal year 2000. Individual participants will be advised of their eligibility and their target %. PAYMENT OF BONUSES A. Bonus payments will be made within 90 days following the end of the fiscal year close. Payments are subject to normal tax withholding and are paid via the payroll system. Bonus eligible participants must be actively employed at the end of the fiscal year to be eligible for payment. GENERAL CONDITIONS A. This Plan does not constitute a contract of employment and does not in any way diminish or limit VICORP Restaurants, Inc. to terminate the employment of any individual at will, at any time, and at its sole discretion. B. Management may, at its discretion and at any time, change, modify, amend or discontinue this Plan without advance notification. C. Neither this, nor any other document, is intended to be construed as a guarantee of employment nor a guarantee base or incentive compensation. Compensation targets are often expressed in terms of annual dollars for ease of communication. In no way should annualized salary targets be construed as "promises to pay" or entitlements. D. The Corporation's audited financial statements serve as the documents against which bonus is earned and computed. E. Initial participation (by virtue of assignment to a bonus-eligible position) will be pro-rated based upon the number of full months the incumbent is in a bonus-eligible position. F. Transfers from a bonus-eligible position to a non-bonus eligible position during the course of the fiscal year will result in no bonus consideration for that fiscal year. G. Should there be an extraordinary event such as an acquisition, merger, divestiture, extraordinary expenses, etc. that positively, negatively, or materially affects E.B.I.T., the E.B.I.T. threshold numbers will be reevaluated. EX-23 7 CONSENT FROM ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to incorporation by reference of our reports included in this Form 10-K, into the Company's previously filed Registration Statements, File Nos. 33-26650, 33-32608, 33-34447, 33-48205, 33-43889, 33-49166, 33-11003, 333-55919 and 333-84325. ARTHUR ANDERSEN LLP Denver, Colorado January 21, 2000 EX-24 8 POWER OF ATTORNEY POWER OF ATTORNEY The undersigned, Carole Lewis Anderson, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson or Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set her hand and seal this ninth day of December, 1999. /s/ Carole Lewis Anderson ------------------------- Carole Lewis Anderson Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came Carole Lewis Anderson, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that she executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Bruce B. Brundage, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson or Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this ninth day of December, 1999. /s/ Bruce B. Brundage --------------------- Bruce B. Brundage Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came Bruce B. Brundage, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Charles R. Frederickson, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this ninth day of December, 1999. /s/ Charles R. Frederickson --------------------------- Charles R. Frederickson Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came Charles R. Frederickson, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, John C. Hoyt, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson or Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this ninth day of December, 1999. /s/ John C. Hoyt ----------------- John C. Hoyt Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came John C. Hoyt, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Robert T. Marto, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson or Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this ninth day of December, 1999. /s/ Robert T. Marto ------------------- Robert T. Marto Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came Robert T. Marto, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Dudley C. Mecum, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson or Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this ninth day of December, 1999. /s/ Dudley C. Mecum ------------------- Dudley C. Mecum Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came Dudley C. Mecum, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Dennis B. Robertson, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson or Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this ninth day of December, 1999. /s/ Dennis B. Robertson ----------------------- Dennis B. Robertson Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came Dennis B. Robertson, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Joseph F. Trungale, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this ninth day of December, 1999. /s/ Joseph F. Trungale ---------------------- Joseph F. Trungale Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came Joseph F. Trungale, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Hunter Yager, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson or Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this ninth day of December, 1999. /s/ Hunter Yager ---------------- Hunter Yager Director STATE OF COLORADO ) ) ss. CITY AND COUNTY OF DENVER ) This ninth day of December, 1999, before me came Hunter Yager, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires 8/25/2002. WITNESS my hand and official seal. /s/ Toni Schreivogel -------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Arthur Zankel, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson or Joseph F. Trungale with full power of substitution, as the undersigned's attorney-in-fact with authority to execute on behalf of the undersigned, in the undersigned's capacity as a Director of the Company, the Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, and all amendments thereto, which Report is to be filed with the Securities and Exchange Commission on or before February 1, 2000. The undersigned hereby ratifies and confirms all that said attorney may do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand and seal this 18th day of January, 2000. /s/ Arthur Zankel ----------------- Arthur Zankel Director STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK ) This 18th day of January, 2000, before me came Arthur Zankel, known to me to be the individual described herein, and executed the foregoing Power of Attorney, and acknowledged that he executed the same. My commission expires May 13, 2001. WITNESS my hand and official seal. /s/ Neal K. Stearns ------------------- Notary Public {SEAL} EX-27 9 FINANCIAL DATA SCHEDULE- 1999
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VICORP RESTAURANTS, INC. BANANCE SHEETS AND STATEMENTS OF OPERATIONS AS OF OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS YEAR OCT-31-1999 OCT-31-1999 33,187 0 5,801 0 9,989 57,289 291,198 162,445 228,271 47,034 4,588 0 0 444 151,403 228,271 355,781 359,046 106,991 106,991 204,186 0 1,012 18,541 1,214 17,327 0 0 0 17,327 1.94 1.93
-----END PRIVACY-ENHANCED MESSAGE-----