-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PzDZJ3elAonuT+WtMTpZK/qwUsiA5DjDIzTsIq5ds8whBgHg1wZQAsozRrxslxXr vA5cifwUZDrYaFMGJVGNVw== 0000703799-95-000003.txt : 19950608 0000703799-95-000003.hdr.sgml : 19950608 ACCESSION NUMBER: 0000703799-95-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941030 FILED AS OF DATE: 19950125 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VICORP RESTAURANTS INC CENTRAL INDEX KEY: 0000703799 STANDARD INDUSTRIAL CLASSIFICATION: 5812 IRS NUMBER: 840511072 STATE OF INCORPORATION: CO FISCAL YEAR END: 1026 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12343 FILM NUMBER: 95502758 BUSINESS ADDRESS: STREET 1: 400 W 48TH AVE CITY: DENVER STATE: CO ZIP: 80216 BUSINESS PHONE: 3032962121 10-K 1 1994 ANNUAL/10-K 1 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 30, 1994 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 8,052,111 shares of the registrant's common stock held by non-affiliates on January 17, 1995 was approximately $ 144,938,000. At January 17, 1995, there were 9,515,093 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 1995 Annual Meeting of Shareholders ("the Proxy Statement") are incorporated herein by reference into Parts I and III. 2 PART I ITEM 1. BUSINESS. VICORP Restaurants, Inc., the registrant, together with its subsidiary, 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 "Village Inn" and "Bakers Square" and franchises restaurants under the Village Inn name. The Company is also evaluating a third concept, "Angel's Diner and Bakery". At October 30, 1994, VICORP operated 307 restaurants in 14 states, of which 112 were Village Inns, 189 were Bakers Squares and six were Angel's. On that date, there were 107 franchised Village Inn restaurants in 19 states. The Company has a pie manufacturing and food distribution division supporting its restaurants, which operates under the name VICOM. VICOM has six facilities located in those areas where the Company has major concentrations of its restaurants. During fiscal 1994, six new company-operated restaurants were opened, 10 locations were closed and two locations that previously had been operated by the Company were franchised. Also during fiscal 1994, three new franchise restaurants were opened and two existing franchise restaurants were closed. Company Operations In the fourth quarter of 1994, the Company adopted a plan to close and/or dispose of 50 of its restaurants over the next year, of which 18 are Village Inn restaurants and 32 are Bakers Square restaurants. This decision was predicated upon a reevaluation of the Company's business and competitive position in order to identify strategies to re-establish growth and improve profitability and return on investment. The locations identified for disposal were restaurants that had both declining sales and operating cash flows and are in trade areas that are no longer considered appropriate for the Company's existing concepts. The Company recorded a $23.0 million pretax charge in the fourth quarter primarily to reduce the assets of the targeted disposal locations to estimated net realizable value and to accrue for expected carrying costs of closed units and sublease losses. All of the Company's restaurant concepts serve breakfast, lunch and dinner with a guest check average between $4 and $7. Village Inn is primarily known for its breakfast foods while Bakers Square emphasizes lunch and dinner and features fresh baked pies as signature items, for internal consumption or for carryout. The Angel's restaurants exhibit a diner motif and feature cakes as signature items. The Company has converted eight of its restaurants to the Angel's concept, including two which opened in early fiscal 1995. The appeal of the Angel's concept stems from the potential to significantly increase sales at marginal locations through increased ambiance, larger food portions and a high level of service, albeit at a higher relative cost structure and conversion costs approximating $500,000 per location. The Company does not plan to further expand the concept unless the existing Angel's can provide attractive returns. Store management typically consists of a general manager and two associate/assistant managers. This management team has primary responsibility for the efficient and profitable operation of their restaurant and are provided incentives to do so. Additionally, the Company employs area directors who each oversee approximately nine restaurants and work closely with the restaurant general managers in helping them meet the Company's objectives. Each area director in turn reports to a vice- president of operations who is responsible for a specific region of the country within each concept. The Company believes the principal measure of success for its restaurants is the ability to provide each customer with a satisfying experience. Hiring and retaining the right people, making certain that employees are adequately trained to do their jobs, clearly communicating the specific results expected from each employee and providing relevant feedback of performance are central factors in ensuring 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. 3 Cost effective procurement and distribution 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. It does not anticipate any difficulty in obtaining food products of adequate quantity or quality at acceptable prices. The Company utilizes advertising where market penetration allows. Expenditures for advertising were 3.7% of company-operated restaurant sales in fiscal 1994. During 1994, Village Inn introduced an extended line of breakfast skillets, new burgers and new dinner entrees, each supported with advertising. Bakers Square advertising in 1994 included support of holiday pie sales and select menu items and introduction and testing of a repositioning to a broadened bakery focus. New point-of-sale computer systems, designed specifically for VICORP's concepts, were installed in all of the Company's restaurants by the end of fiscal 1994. Also, a new reporting system was completed to provide daily restaurant performance information to each restaurant, as well as field and corporate management. Plans for 1995 include enhancing the existing performance reporting system and developing other systems to free up store management time spent on manual transcription tasks, providing on-line profit and loss reports and developing marketing support systems to facilitate menu analysis and promotional effectiveness. In November 1994, the Company settled a lawsuit against its directors and officers liability insurance carriers. See Item 3 of Part I, Legal Proceedings. Franchise Operations The Village Inn restaurants franchised under the Company's current franchise program generally operate for an initial term of 20 years and require payments to the Company of an initial franchise fee of $30,000, a continuing royalty fee of four percent of the franchisee's revenues and a marketing fee of four-tenths of one percent of such revenues. In addition, franchisees are required to spend an amount equal to 1.6 percent of gross sales on local advertising and promotional activities. In support of its franchising activities, the Company employs field consultants who visit the franchise restaurants regularly to ensure that the franchisees maintain compliance with certain standards of operations and make recommendations for improvements. A Franchise Advisory Board, consisting of seven franchisees who are elected by their peers every two years, meets regularly with Company personnel to discuss facets of operations that affect the Company's franchise community. The net number of Village Inn franchise restaurants in operation over the last five years has not changed significantly. However, as franchising provides a profitable revenue stream and at the same time leverages the strength of the Village Inn brand into new markets, the Company continues to pursue franchising opportunities with qualified applicants. Four to six new franchise units are expected to open in fiscal 1995. Management and Administrative Changes In fiscal 1994, the Company made significant management changes. In August 1994, J. Michael Jenkins, an industry veteran with over 25 years of experience in the restaurant business, joined the Company as President, Co- Chief Executive Officer and a member of the Board of Directors. Also, the Company completed an organizational restructuring, whereby its Bakers Square administrative office in Matteson, Illinois was closed. The functions performed at that office were transferred and combined where possible with similar functions performed at its Denver, Colorado headquarters. In addition, the Company eliminated 27 other administrative positions that were deemed redundant or non-essential to ongoing operations. These actions are intended to streamline coordination of programs and processes, make support functions more responsive to the restaurants' management, and should reduce administrative costs in the future. 4 Trademarks and Service Marks The Company has acquired the right to use the marks which it considers important to its business through various federal and state registrations. VICORP has no reason to believe that there are any conflicting rights that might materially impair the use of the Company's marks. Working Capital Items The Company is not required to maintain significant levels of working capital because its revenues are primarily derived from cash sales while restaurant inventories are purchased on credit and rapidly converted to cash. Competition The restaurant industry is highly competitive and is often affected by changes in taste and eating habits of the public, by local and national economic conditions affecting spending habits, and by population and traffic patterns. The Company competes directly or indirectly with all types of restaurants, from national and regional chains to local establishments. Some of its competitors are corporations much larger than the Company, having at their disposal greater capital resources and greater ability to withstand adverse business trends. Research and Development No material amount was spent on Company sponsored research and development activities during the last fiscal year. Additionally, no material amounts were spent by the Company on customer sponsored research activities relating to the development of new products, services or techniques or the improvement of existing products, services or techniques. Regulation The Company is subject to various federal, state and local laws affecting its business. Restaurants generally are required to comply with a variety of regulatory provisions relating to zoning of restaurant sites, sanitation, health and safety. With respect to the restaurants operated by the Company which serve alcoholic beverages, VICORP is governed by the laws regulating the sale of liquor, wine and beer. The Company is subject to a substantial number of state laws regulating franchise operations and sales. Those laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and, in certain cases, also apply substantive standards to the relationship between franchisor and franchisee. The Company also must adhere to the Federal Trade Commission regulations governing disclosure requirements in the sale of franchises. Various federal and state labor laws govern the Company's relationship with its employees, including such matters as minimum wage requirements, overtime, and other working conditions. Environmental requirements have not had a material effect on the operations of the Company or those of its franchisees. Employees At October 30, 1994, the Company employed approximately 14,400 persons. 5 Executive Officers of the Company The following sets forth certain data concerning the executive officers of the Company, all of whom are appointed on an annual basis. There is no family relationship between any of the executive officers.
Name Age Position ------ ----- ----------- Charles R. Frederickson 58 Chairman of the Board and Co-Chief Executive Officer J. Michael Jenkins 48 Director, President and Co-Chief Executive Officer James F. Caruso 40 President/Bakers Square Robert E. Kaltenbach 49 President/Village Inn Dennis L. Kuper 47 Executive Vice President/Finance
Charles R. Frederickson has been a director of the Company since 1968, and Chairman of the Board since November 1986. J. Michael Jenkins was appointed President in August 1994. From February 1992 until his appointment with the Company, he served as Chief Executive Officer and Chairman of the Board for El Chico Restaurants, Inc. Mr. Jenkins served as President and Chief Executive Officer of Metromedia Steakhouses, Inc. from May 1989 to February 1992. James F. Caruso was appointed President/Bakers Square in December 1994. Prior to that time, he served as Executive Vice President in charge of Bakers Square operations, after serving in the same capacity for the Village Inn division since September 1990 when he joined the Company. For the two years preceding his employment with the Company, Mr. Caruso was obtaining his Masters in Economics degree from the University of Missouri where he also served as a graduate teaching assistant. Robert E. Kaltenbach was appointed President/Village Inn in December 1994 after serving as Vice President/Franchise Operations since July 1988. Dennis L. Kuper was appointed Executive Vice President/Finance in November 1986. 6 ITEM 2. PROPERTIES. The following table provides information as of October 30, 1994, concerning the land and buildings at restaurant locations owned, leased, under development or held for sale by the Company.
Village Bakers Inn Square Angel's Other Total -------- -------- -------- ------- ------ Company-operated restaurants: Properties owned in fee 7 55 3 -- 65 Buildings owned on leased land 3 9 -- -- 12 Leased locations 86 95 3 -- 184 -------- -------- -------- ------ ------ 96 159 6 -- 261 ======== ======== ======== ====== ====== Properties leased to others: Properties owned in fee 3 -- -- 4 7 Buildings owned on leased land -- -- -- 1 1 Leased locations 29 -- -- 18 47 -------- -------- -------- ------ ------ 32 -- -- 23 55 ======== ======== ======== ====== ====== Leased properties under development -- -- 2 -- 2 ======== ======== ======== ====== ====== Properties held for sale: Properties owned in fee 1 1 -- 4 6 Buildings owned on leased land -- 1 -- -- 1 Leased locations 15 28 -- 12 55 -------- -------- -------- ------ ------ 16 30 -- 16 62 ======== ======== ======== ====== ======
The Company considers its existing operating restaurant properties and equipment to be in good condition. The restaurants operated by the Company are located primarily in Arizona, California, Florida, the Rocky Mountain region, and the upper Midwest. The Company intends to lease, sublease or sell the 16 properties which are currently idle. Additionally, over the next fiscal year, the Company plans to dispose of another 46 properties which were operating at October 30, 1994. For additional information concerning the Company's leases see Note 5 of Notes to Consolidated Financial Statements which is included in Item 8 of Part II. The Company owns its home office complex in Denver, consisting of approximately 5.25 acres of land, a 90,000 square foot office building and a 5,000 square foot restaurant building. VICORP also owns the land and buildings comprising its bakery facilities in Oak Forest, Illinois and Denver, Colorado. It leases the land and buildings which comprise its bakery facilities in Santa Fe Springs, California, Orlando, Florida, Phoenix, Arizona, Mounds View, Minnesota, and distribution facility in Oak Forest, Illinois. 7 ITEM 3. LEGAL PROCEEDINGS. On November 30, 1994, VICORP Restaurants, Inc. v. Federal Insurance Company & Cigna Insurance Company, United States District Court for the District of Colorado, Civil Case No. 92-C-751 was dismissed with prejudice as a result of a settlement entered into between the parties. Pursuant to the terms of the confidential settlement agreement, the Defendant insurance companies paid VICORP an amount in excess of the net receivable previously recorded for this claim and a gain of approximately $1.9 million was recognized as of October 30, 1994. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to the Company's security holders during the 12 week period ended October 30, 1994. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The Company's common stock is traded in 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 17, 1995, the Company had 590 shareholders of record. The following table sets forth for the periods indicated the high and low closing sales quotations per share of common stock as reported by NASDAQ: Fiscal Quarter First Second Third Fourth ----------------------------------- 1994 High $ 21 1/2 $ 21 $ 15 1/2 $ 17 1/4 Low 17 3/4 15 1/4 14 14 3/8 1993 High $ 26 1/4 $ 27 $ 27 1/2 $ 20 3/4 Low 20 1/4 23 18 1/2 16 1/4 The range of high and low closing sales quotations contained in the foregoing table reflects inter-dealer prices, without retail mark-up, mark- down or commissions, and may not represent actual transactions. The Company has not paid cash dividends on its common stock since 1986. Future common stock dividend payments will be dependent upon operating results, loan agreement restrictions and other financial and business considerations. 8 ITEM 6. SELECTED FINANCIAL DATA.
(dollars in thousands, except per share data) 1994 1993 1992 1991 1990 ---------------------------------------------------------- RESULTS OF OPERATIONS System-wide sales including franchise sales $ 529,982 $ 542,986 $ 527,817 $ 524,231 $ 489,444 Restaurant sales 409,297 425,139 414,324 417,808 389,105 Total revenues 412,644 428,505 417,518 421,232 392,523 Income (loss) before extraordinary item (6,638) 16,524 15,522 7,182 10,821 Net income (loss) (6,638) 16,524 14,940 6,375 10,821 ---------------------------------------------------------- OPERATING ANALYSIS Restaurant operating profit analysis as a percentage of restaurant sales Costs and expenses Food 30.1% 29.8% 30.9% 32.7% 33.7% Labor 30.2% 28.5% 27.8% 27.8% 28.0% Other operating 28.2% 27.5% 27.2% 26.4% 25.2% Operating profit 11.4% 14.2% 14.1% 13.1% 13.1% General and administrative expense as a percentage of revenues 8.7% 7.8% 7.5% 7.0% 7.1% Interest expense as a percentage of revenues .9% .9% 1.3% 1.9% 2.4% Income before income taxes and extraordinary and unusual items as a percentage of revenues 2.5% 6.3% 6.1% 4.9% 4.6% Effective income tax rate 37.5% 36.2% 39.5% 40.4% 39.7% ---------------------------------------------------------- BALANCE SHEET DATA Total assets $ 249,023 $ 254,031 $ 241,958 $ 234,251 $ 237,430 Long-term debt and capitalized lease obligations 42,554 40,008 43,736 53,259 63,877 Preferred stock liquidation preference -- -- -- -- 11,062 Common shareholders' equity 134,866 148,318 135,445 119,932 100,138 Preferred stock and debt to total capitalization 24.0% 21.2% 24.4% 30.8% 42.8% ---------------------------------------------------------- CASH FLOW DATA Net income (loss) $ (6,638) $ 16,524 $ 14,940 $ 6,375 $ 10,821 Depreciation and amortization 26,133 23,381 20,242 17,758 15,511 Deferred income tax provision (5,414) 5,932 8,145 2,911 5,814 Write-offs, extraordinary item, and other 24,113 4,397 2,645 12,405 3,010 ---------------------------------------------------------- Subtotal 38,194 50,234 45,972 39,449 35,156 Change in current assets and liabilities (4,100) 636 8,196 (1,570) 646 ---------------------------------------------------------- Cash provided by operations 34,094 50,870 54,168 37,879 35,802 As a percentage of revenues 8.3% 11.9% 13.0% 9.0% 9.1% Investment in property and equipment 28,733 42,426 41,509 36,339 27,610 ---------------------------------------------------------- PER COMMON SHARE Earnings (loss) before extraordinary item $ (.69) $ 1.60 $ 1.48 $ .70 $ 1.00 Earnings (loss) (.69) 1.60 1.42 .62 1.00 Book value 14.18 14.96 13.58 11.99 10.72 Market price at year-end 16 3/4 20 3/4 22 1/4 21 1/8 14 Weighted average common and dilutive common equivalent shares (000's omitted) 9,656 10,301 10,519 10,304 9,765 ---------------------------------------------------------- NUMBER OF RESTAURANTS AT YEAR-END Bakers Square 189 187 181 179 167 Company-operated Village Inn 112 126 122 122 124 Franchised Village Inn 107 104 105 106 104 Angel's 6 -- -- -- -- ---------------------------------------------------- Total 414 417 408 407 395 ----------------------------------------------------------
9 . An asset disposal 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. . Fiscal 1993 consisted of 53 weeks while the remainder of the fiscal years presented consisted of 52 weeks. A restructuring charge of $1,300,000 was included in results of operations for 1993. . Pretax extraordinary debt extinguishment costs of $963,000 were included in results of operations for 1992. . A receivable write-off of $8,683,000 and pretax extraordinary debt extinguishment costs of $1,354,000 were included in results of operations for 1991. . The Company has not paid dividends on its common stock during the last five 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 Consolidated Financial Statements (Item 8 of Part II). RESULTS OF OPERATIONS The following table sets forth selected operating statistics for the Company's two primary operating concepts and consolidated information for the last three fiscal years. All average sales are presented on a 52 week basis. 1994 1993 1992 Village Inn Restaurant sales $145,410,000 $150,660,000 $140,886,000 Average sales per restaurant 1,192,000 1,182,000 1,174,000 Store operating profit 12.3% 13.9% 13.6% Restaurants at year-end 112 126 122 Bakers Square Restaurant sales $260,110,000 $274,479,000 $273,438,000 Average sales per restaurant 1,364,000 1,475,000 1,528,000 Store operating profit 11.1% 14.4% 14.4% Restaurants at year-end 189 187 181 Consolidated Restaurant sales $409,297,000 $425,139,000 $414,324,000 Food cost 30.1% 29.8% 30.9% Labor cost 30.2% 28.5% 27.8% Other operating cost 28.2% 27.5% 27.2% Store operating profit 11.4% 14.2% 14.1% Restaurant sales decreased 3.7% in 1994 compared to 1993, despite the addition of six new restaurants in 1994 and full year inclusion of eleven restaurants opened in 1993. Contributing to the sales decrease was an extra week of operations in 1993 under the Company's 52/53 week accounting year convention. However, the principal reason for the decline was a decrease in comparable restaurant sales of 5.7% resulting primarily from lower customer counts. The customer count decreases were most predominant in the Company's Bakers Square concept where customer counts decreased for the third consecutive year. These declines were the result of various operational, demographic and competitive issues and led to substantial organizational changes during 1994. The disruptive effects of these changes further exacerbated the sales declines in 1994, but are expected to produce improving trends in future years. Menu price changes had no appreciable effect on sales volumes in 1994. The sales increase of 2.6% in 1993 over 1992 resulted largely from the net addition of eleven restaurants during the year, price increases approximating 2% and the inclusion of the additional week in fiscal year 1993. Comparable sales, however, decreased 3.5% due to lower customer counts primarily in the Bakers Square concept. 10 Restaurant operating profit decreased in 1994 compared to 1993, both in total and as a percentage of sales. The inability to correspondingly decrease the fixed portion of labor costs and other fixed costs in relationship to declines in comparable restaurant sales was principally responsible for this decline. Partially offsetting this decline were incremental profits from operating new units, reduced insurance expense and lower marketing costs for Bakers Square. Restaurant operating profit modestly increased in 1993 compared to 1992. The improvement resulted largely from decreased food and advertising costs and additional operating income from new restaurants. These improvements were partially offset by the effect of lower comparable sales in relationship to fixed costs. General and administrative expense increased in 1994 compared with 1993 due primarily to a $1,000,000 sign-up bonus for the Company's new president, litigation costs and lower capitalization of overhead as a result of a slowdown in construction activity. General and administrative expense in 1993 increased over 1992 due largely to additional field administration and training costs associated with new store openings. Other income/expense in 1994 included $1,918,000 of income related to settlement of litigation against certain of the Company's insurance carriers. Interest expense was essentially unchanged in 1994 after declining in 1993. The decrease in 1993 versus 1992 was due largely to the conversion and redemption of the Company's 13 1/2% convertible subordinated debentures which resulted in the extraordinary debt extinguishment charge in 1992. In the fourth quarter of 1994, the Company recorded a $23,000,000 charge related primarily to adopting a plan to dispose of 50 underperforming restaurants over the next fiscal year. The charge reduced the carrying amounts of the assets associated with the disposal properties to estimated net realizable value. Also, included were accruals for expected carrying costs following closure and sublease losses. Included in the charge was $2,287,000 to write-down carrying values on four properties with projected cash flows inadequate to recover the remaining investments, and $1,291,000 of restructuring costs consisting primarily of severance associated with the elimination of 27 positions late in 1994. Twelve of the targeted restaurants were closed late in fiscal 1994 or early fiscal 1995. The remaining restaurants will remain open until either disposed or economics dictate closure. The Company does not anticipate that disposition proceeds or costs for these properties will materially affect the Company's liquidity. In the fourth quarter of 1993, the Company recorded a $1,300,000 charge related to the decision to close its Matteson, Illinois regional office and relocate or combine most of the functions performed there with similar functions at its Denver, Colorado headquarters. The charge consisted primarily of severance and moving expenses. The reorganization was completed during 1994. The Company's reported tax rate is not indicative of actual tax payments because of net operating loss (NOL) carryforwards available to offset taxable income. The effective income tax rates used for financial reporting were 37.5% in 1994, 36.2% in 1993 and 39.5% in 1992. The 1994 rate was also affected by the FICA tipped income tax credit that took effect January 1, 1994. The lower effective tax rate for 1993 was due to the increase in the top federal rate from 34% to 35% enacted in August of 1993, which increased the Company's net deferred tax asset $1,200,000 and reduced income tax expense accordingly. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of funds is cash provided by operations. Cash flow from operations decreased in 1994 due primarily to lower operating income. Cash flow from operations decreased in 1993 primarily as a result of the timing and payment of certain components of working capital. 11 The Company's working capital is generally in a deficit position because, like most restaurant businesses, substantially all sales are for cash, while credit is received from trade suppliers. Furthermore, the Company has not maintained large excess cash balances, but rather has utilized available cash for capital spending, repayment of borrowings or the repurchase of its common stock. The Company supplements cash provided by operations with bank borrowings and occasional lease financing. At October 30, 1994, the Company had $28,250,000 of outstanding borrowings under its bank credit facility, with approximately $39,700,000 available for additional direct advances. In 1992, the Company, retired through conversion and redemption, all $18,400,000 of its 13 1/2% convertible subordinated debentures then outstanding. The redemption was funded primarily with bank borrowings. Over the last three years, 891,500 shares of the Company's common stock was repurchased under authorizations approved by the Board of Directors. At October 30, 1994, authorization to repurchase an additional 508,500 common shares was available. Future purchases with respect to this authorization may be made from time to time in the open market or through privately negotiated transactions and will be dependent upon various business and financial considerations. Capital expenditures in 1994 totaled approximately $28,700,000 and consisted of $2,400,000 for new restaurants, $15,200,000 for remodeling and refurbishing existing restaurants, $3,700,000 for converting restaurants to the Angel's concept, and $7,400,000 for other support related projects, including an addition to the corporate office. Capital expenditures of $17,000,000 are expected for 1995. No new restaurants are planned during 1995 as the Company will focus on improving existing operations before resuming growth. Cash flow from operations and funds available under the Company's bank credit facility are expected to be adequate for planned capital projects and any repurchases of common stock authorized by the Board. MANAGEMENT OUTLOOK Improvements in future operating performance will be dependent upon the Company's ability to reverse comparable sales trends, especially given the significant operating leverage associated with negative incremental sales at existing restaurants. The Company believes that management changes initiated in 1994, a refocusing on its core business strengths, the disposal of underperforming restaurants, and a significant reduction in general and administrative costs resulting from the restructuring of administrative functions, will lead to improvements in sales and operating trends. Although national health-care reform legislation, including employer mandated contributions, was not enacted during 1994, the Company continues to monitor legislative efforts regarding health-care reform. The significance of health-care reform to the restaurant industry with its large part-time employee work force is substantial. Uncertainties related to food commodity costs, labor availability in certain regions, other government initiatives, the economy and the weather pose additional risks to the Company's business. 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. 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index to Consolidated Financial Statements Page 13 Management's report on financial statements Page 13 Report of independent public accountants Page 14 Consolidated balance sheets at October 30, 1994 and October 31, 1993 Page 15 Consolidated statements of operations for each of the three years in the period ended October 30, 1994 Page 16 Consolidated statements of cash flows for each of the three years in the period ended October 30, 1994 Pages 17-30 Notes to consolidated financial statements Page 30 Quarterly financial data (unaudited) 13 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. /s/ Charles R. Frederickson /s/ J. Michael Jenkins /s/ Dennis L. Kuper Charles R. Frederickson J. Michael Jenkins Dennis L. Kuper Chairman of the Board and President and Co-Chief Executive Vice President Co-Chief Executive Officer Executive Officer Finance and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF VICORP RESTAURANTS, INC.: We have audited the accompanying consolidated balance sheets of VICORP Restaurants, Inc. (a Colorado corporation) and subsidiary as of October 30, 1994 and October 31, 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended October 30, 1994. 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. and subsidiary as of October 30, 1994 and October 31, 1993, and the results of their operations and their cash flows for the three years in the period ended October 30, 1994, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Denver, Colorado, December 6, 1994. 14 VICORP RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS October 30, October 31, (in thousands) 1994 1993 ---------- ---------- ASSETS Cash (Note 1) $ 6,123 $ 5,288 Receivables (Notes 1 and 3) 9,801 4,326 Inventories (Note 1) 10,585 11,825 Deferred income taxes (Notes 1 and 9) 6,000 8,059 Prepaid expenses and other (Note 1) 2,592 2,158 ---------- --------- Total current assets 35,101 31,656 ---------- --------- Property and equipment, net (Notes 1 and 4) 165,802 177,720 Deferred income taxes (Notes 1 and 9) 33,550 26,077 Long-term receivables (Notes 1 and 3) 3,998 7,150 Other assets (Note 1) 10,572 11,428 ---------- --------- Total assets $249,023 $254,031 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current maturities of long-term debt and capitalized lease obligations (Notes 1, 5 and 6) $ 1,796 $ 1,738 Accounts payable, trade 19,246 20,669 Accrued compensation 5,965 6,229 Accrued taxes 9,979 9,212 Accrued insurance (Note 10) 6,537 6,830 Other accrued expenses 6,930 5,566 --------- --------- Total current liabilities 50,453 50,244 --------- --------- Long-term debt (Notes 1 and 6) 28,573 23,643 Capitalized lease obligations (Note 5) 13,981 16,365 Non-current accrued insurance (Note 10) 7,750 8,433 Other non-current liabilities and credits 13,400 7,028 Commitments and contingencies (Notes 5, 6 and 10) 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, 9,509,426 and 9,911,563 shares issued 476 496 Paid-in capital 91,544 98,338 Retained earnings 42,846 49,484 --------- -------- Total shareholders' equity 134,866 148,318 --------- -------- Total liabilities and shareholders' equity $249,023 $254,031 ========= ======== The accompanying notes are an integral part of the financial statements. 15 VICORP RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended -------------------------------------------- October 30, October 31, October 25, (in thousands, except per share data) 1994 1993 1992 ---------- ---------- ---------- Revenues Restaurant operations $409,297 $425,139 $414,324 Franchise operations (Note 1) 3,347 3,366 3,194 ---------- ---------- ---------- 412,644 428,505 417,518 ---------- ---------- ---------- Costs and expenses Restaurant operations Food 123,280 126,647 128,095 Labor 123,718 121,273 115,010 Other operating 115,591 116,795 112,609 General and administrative 35,752 32,991 31,388 Interest 3,867 3,878 5,321 Other (income) expense, net (Note 3) (1,944) (289) (562) Asset disposal, restructuring and related costs (Note 2) 23,000 1,300 -- --------- --------- ---------- 423,264 402,595 391,861 --------- --------- ---------- Income (loss) before income taxes and extraordinary item (10,620) 25,910 25,657 Provision for income taxes (Note 9) (3,982) 9,386 10,135 --------- --------- ---------- Income (loss) before extraordinary item (6,638) 16,524 15,522 Extraordinary loss on early extinguishment of debt (less applicable income taxes of $381,000) (Note 6) -- -- (582) --------- --------- ---------- Net income (loss) $ (6,638) $ 16,524 $ 14,940 ========= ========= ========== Earnings (loss) per common and dilutive common equivalent share (Note 1) Before extraordinary item $ (.69) $ 1.60 $ 1.48 Extraordinary item -- -- (.06) --------- --------- --------- Net income (loss) $ (.69) $ 1.60 $ 1.42 ========= ========= =========
The accompanying notes are an integral part of the financial statements. 16 VICORP RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended -------------------------------------------- October 30, October 31, October 25, (in thousands) 1994 1993 1992 ---------- ---------- ---------- OPERATIONS Net income (loss) $ (6,638) $16,524 $14,940 Reconciliation to cash provided by operations Depreciation and amortization 26,133 23,381 20,242 Deferred income tax provision (5,414) 5,932 8,145 Asset disposal, restructuring and related costs 24,788 2,787 1,900 Extraordinary debt extinguishment costs -- -- 963 Other, net (675) 1,610 (218) ---------- ---------- ---------- 38,194 50,234 45,972 Change in assets and liabilities Trade receivables (1,855) (164) 1,149 Inventories 1,240 (1,404) 3,008 Accounts payable, trade (1,423) 2,739 1,760 Other current assets and liabilities (1,379) (1,099) 1,983 Non-current accrued insurance (683) 564 296 ---------- ---------- ---------- Cash provided by operations 34,094 50,870 54,168 ---------- ---------- ---------- INVESTING ACTIVITIES Purchase of property and equipment (28,733) (42,426) (41,509) Purchase of other assets (1,568) (580) (1,011) Disposition of property (16) 255 387 Additions to non-trade receivables (1,088) -- (3,999) Collection of non-trade receivables 1,617 694 1,181 ---------- ---------- ---------- Cash used for investing activities (29,788) (42,057) (44,951) ---------- ---------- ---------- FINANCING ACTIVITIES Proceeds from issuance of debt 17,750 6,750 37,700 Payments of debt and capital lease obligations including premiums (14,471) (10,060) (43,900) Purchase of common stock (7,282) (5,449) (3,508) Other, net 532 394 323 ---------- ---------- ---------- Cash used for financing activities (3,471) (8,365) (9,385) ---------- ---------- ---------- Increase (decrease) in cash 835 448 (168) Cash at beginning of year 5,288 4,840 5,008 ---------- ---------- ---------- Cash at end of year (Note 1) $ 6,123 $ 5,288 $ 4,840 ========== ========== ========== SUPPLEMENTAL INFORMATION Cash paid during the year for Interest (net of amount capitalized) $ 3,792 $ 3,828 $ 5,887 Income taxes 1,217 2,228 1,249
The accompanying notes are an integral part of the financial statements. 17 VICORP RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of VICORP and its wholly-owned subsidiary. All significant intercompany transactions and accounts have been eliminated. Reclassifications Certain accounts have been reclassified in prior year's consolidated financial statements to be consistent with the 1994 presentation. Fiscal year The Company utilizes a 52/53 week fiscal year, which ends on the last Sunday in October. Fiscal year 1993 was 53 weeks and fiscal years 1994 and 1992 were each 52 weeks. Inventories Inventories, which generally consist of food products, are valued at the lower of first-in, first-out cost or market value. Prepaid expenses Prepaid expenses consist primarily of supplies and restaurant preopening costs. Preopening costs are amortized over a one-year period, commencing with the first full four week accounting period of operation. Unamortized preopening costs totaled $386,000 and $209,000 at the end of 1994 and 1993, respectively. Depreciation and amortization Depreciation and amortization of property and equipment are provided using principally the straight-line method at rates based upon estimated useful lives of the assets, ranging from 20 to 40 years for buildings and 3 to 15 years for equipment and improvements. Amortization of leasehold rights and excess of cost over net assets acquired in purchase transactions is provided using the straight-line method, primarily over the remaining lives of location leases or assets acquired, generally 5 to 25 years. Franchise revenues Initial franchise fees are deferred when received and recognized as income when the franchisee has commenced operations and the Company has performed all material services and conditions related to the sale of the franchise. Continuing service fees, which are a percentage of the gross sales of franchised operations, are accrued as income when earned except for situations in which collectibility is in doubt. In those situations, continuing service fees and rental income are recognized when received, and gains on property sales are recorded using the cost recovery method. Net franchise revenues consisted of the following (in thousands): 1994 1993 1992 ------ ------ ------ Continuing service fees $3,968 $3,607 $3,502 Initial and renewal fees 166 125 28 Property rental income 319 630 585 Interest income on franchisee notes 263 299 379 Equipment sales income 64 115 85 Administrative expense (1,433) (1,410) (1,385) ------ ------ ------ Franchise revenues $3,347 $3,366 $3,194 ====== ====== ====== 18 Fair value of financial instruments The Company has notes receivable carried on its balance sheets at values approximating estimated fair market value. Because these instruments are not publicly traded, the Company estimates the value based on the respective facts and circumstances of each instrument. The fair value of the Company's long-term debt approximates carrying value because of its variable, market-based interest rate feature. Income taxes Based on enacted tax laws, deferred income tax assets and liabilities are recognized for the expected future income tax consequences of temporary differences between the financial reporting and tax bases of assets, liabilities and carryforwards. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits which, more likely than not based on current circumstances, are not expected to be realized. Earnings per common and common equivalent share Earnings per common and common equivalent share is based upon earnings attributable to common shareholders and the weighted average number of common and dilutive common equivalent shares for stock options outstanding during the year. Common equivalent shares for fiscal 1994 were anti- dilutive due to the net loss recorded in that year. The weighted average number of common and common equivalent shares used for the 1994, 1993 and 1992 calculations were as follows: 1994 1993 1992 ---------- ---------- ---------- Weighted average common shares outstanding 9,656,094 10,007,907 10,086,439 Common equivalent shares outstanding -- 292,793 432,612 ---------- ---------- ---------- 9,656,094 10,300,700 10,519,051 ========== ========== ========== Statements of cash flows The Company considers all highly liquid investments and debt instruments with original maturities of three months or less to be cash equivalents. 19 NOTE 2. ASSET DISPOSAL, RESTRUCTURING AND RELATED COSTS In 1994, a $23,000,000 charge was recorded to reduce the value of certain assets, accrue carrying costs of closed restaurants, and provide for severance costs associated with dispositions and the restructuring of administrative functions. The principal portion of that charge related to a plan to dispose of 50 restaurants that have both declining sales and profits, and are in trade areas that are no longer considered appropriate for the Company's operating concepts. Four of the 50 disposal restaurants were closed in October 1994 and eight were closed in the first part of fiscal 1995. The remaining restaurants will be operated until a satisfactory sale or sublease can be negotiated or until unit economics dictate closure. Most of the identified locations are expected to be disposed of in 1995 through sale or sublease. If subleased, it is anticipated many of these agreements will have lower sublease rental rates than the Company's obligation under the prime lease. The charge includes an estimated accrual for such differences until the end of the primary lease term. In addition to the planned dispositions, four restaurant properties with projected cash flows insufficient to recover remaining investments were written down. The disposition plan also includes a portion of the Company's manufacturing and distribution operations which are no longer economical to operate. The disposal properties had net assets totaling $15,140,000 immediately prior to the write-down. In total, the charge for disposal, restructuring and related costs consisted of the following (in thousands): Reduction of disposal property and equipment to estimated net realizable value $ 9,622 Reduction of other disposal assets to estimated net realizable value 1,053 Accrual of estimated carrying costs on closures 3,855 Accrual of estimated sublease losses 4,892 ------- Total related to asset disposal 19,422 Asset impairment 2,287 Organizational restructuring costs (primarily severance) 1,291 ------- Total charge $23,000 ======= Operating results for the 50 locations for the past three fiscal years were as follows (in thousands): 1994 1993 1992 ------- ------- ------- Sales $37,709 $41,354 $44,334 Store operating profit (loss) (1,040) 171 1,256 The restructuring of administrative functions occurred late in 1994 and involved the elimination of 27 positions that were redundant or non- essential to ongoing operations. In the fourth quarter of 1993, the Company recorded a $1,300,000 restructuring charge for the closure of its Matteson, Illinois administrative office and consolidation of functions at its Denver, Colorado headquarters. The charge consisted primarily of severance and moving expenses. The consolidation was completed in October 1994. Approximately 70 employees resigned or were terminated as a result of the office closure. 20 NOTE 3. RECEIVABLES Receivables consisted of the following: October 30, October 31, (in thousands) 1994 1993 ---------- ---------- Trade receivables $ 3,751 $ 3,477 Notes receivable 7,755 7,175 Insurance receivable 6,500 6,500 Discounts (1,170) (1,019) Allowance for doubtful accounts (3,037) (4,657) ---------- ---------- Receivables, net 13,799 11,476 Current portion 9,801 4,326 ---------- ---------- Long-term portion $ 3,998 $ 7,150 ========== ========== In November 1994, the Company settled a lawsuit against certain of its insurance carriers. The litigation arose in April 1992 when the Company claimed the defendants breached their contract of insurance by withholding payments to fund a $6,500,000 court approved settlement arising from prior litigation against the Company. The Company recorded income of $1,918,000 in the fourth quarter of 1994, representing the excess recovery over the net carrying value of the receivable. The Company's receivables, excluding the insurance receivable, arose primarily from contracts and property transactions with its franchisees and other sublessees. The ability of these parties to honor their obligations is largely dependent on cash flows generated from their restaurant operations. The trade receivables are generally unsecured but the related contracts are cancelable if the debtor fails to perform. Under Company policy, the notes receivable are generally secured with security agreements on the property that gave rise to the transaction. 21 NOTE 4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: October 30, October 31, (in thousands) 1994 1993 ---------- ---------- Property and equipment used in operations Land $ 22,692 $ 18,552 Buildings and improvements 128,791 120,581 Equipment 116,520 108,984 Construction in progress 8,671 14,690 Restaurant property leased to others 3,811 6,492 Accumulated depreciation (110,771) (98,456) ---------- ---------- 169,714 170,843 ---------- ---------- Capitalized lease buildings 13,868 16,750 Accumulated amortization (6,406) (7,258) ---------- ---------- 7,462 9,492 ---------- ---------- Allowance for loss on disposal (11,374) (2,615) ---------- ---------- Property and equipment, net $165,802 $177,720 ========== ========== Depreciation and amortization expense charged to operations for property and equipment was $25,509,000 in 1994, $22,763,000 in 1993 and $19,616,000 in 1992. In 1994, the Company increased the allowance for loss on disposal for the disposition of certain properties as more fully discussed in Note 2. 22 NOTE 5. LEASES The Company is the prime lessee under various land and building leases for restaurants operated by it and certain of its franchisees. Additionally, the Company leases administrative office space and certain bakery and distribution facilities in market areas where the Company has a concentration of restaurants. The leases have initial terms generally ranging from 15 to 35 years and in certain instances, provide for renewal options ranging from 5 to 20 years. Some of the leases contain purchase options at the end of the lease terms. Many of the leases contain escalation clauses, either predetermined or based upon inflation. Most of the leases require additional (contingent) rental payments by the Company if sales volumes at the related restaurants exceed specified levels. Most of the agreements require payment of taxes, insurance and maintenance costs. The Company is also obligated under various equipment and other leases having initial terms ranging from 3 to 7 years. The implicit interest rates range from 7.2% to 15.6% for capitalized building leases. The Company as prime lessee has entered into sublease agreements with franchisees and others on certain locations that are not operated by the Company. These leases generally have terms similar to the prime lease with the sublessee assuming the Company's obligations to pay taxes, insurance and maintenance costs. Following is a summary as of October 30, 1994, of future minimum lease payments under capital and operating leases having an initial or remaining non-cancelable term of one year or more: Lease and Capital Operating sublease (in thousands) leases leases rentals ------- --------- --------- 1995 $ 3,554 $ 16,283 $ (2,420) 1996 3,405 15,387 (2,332) 1997 3,181 14,065 (2,250) 1998 2,935 13,240 (2,062) 1999 2,748 12,731 (1,746) Later years 8,744 64,566 (7,076) ------- -------- --------- Total minimum lease payments 24,567 $136,272 $ (17,886) ======== ========= Less amount representing interest 8,859 ------- Present value of minimum lease payments 15,708 Current maturities of capitalized lease obligations 1,727 ------- Capitalized lease obligations $13,981 ======= 23 Net rental expense consisted of the following: (in thousands) 1994 1993 1992 -------- -------- -------- Restaurant land and buildings Minimum rentals $15,243 $15,154 $15,013 Contingent rentals 2,922 3,522 3,859 Equipment 3,293 3,362 3,763 -------- ------- -------- Rental expense 21,458 22,038 22,635 Less lease and sublease rental income 3,152 3,829 4,095 -------- ------- -------- Net rental expense $18,306 $18,209 $18,540 ======== ======= ======== NOTE 6. DEBT Long-term debt consisted of the following: October 30, October 31, (in thousands) 1994 1993 ---------- ---------- Advances under bank credit agreement $28,250 $23,250 Other long-term debt 392 458 ---------- ---------- 28,642 23,708 Current maturities 69 65 ---------- ---------- Long-term debt $28,573 $23,643 ========== ========== The Company's bank credit agreement provides up to $75,000,000 for direct advances and letters of credit with a sublimit of $25,000,000 on letters of credit. Advances bear interest at the lenders' prime rate or, if elected, at LIBOR (London Interbank Offering Rate) plus 1 1/8%. The Company is required to pay a commitment fee of 3/8% per annum on the unused commitment plus a quarterly agents' fee of $12,500 and 1 1/8% per annum on issued letters of credit. The agreement expires on June 30, 1996, when it becomes a term facility payable in equal quarterly installments through June 30, 1998. The largest outstanding balance under the facility during 1994 was $31,750,000. The average balance outstanding was $24,460,000 and the average annual interest rate was 5.1%. As of October 30, 1994, the Company had placed letters of credit totaling $7,061,000 in connection with its insurance programs. The 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. In February 1992, the Company called for redemption all of its then outstanding 13 1/2% convertible subordinated debentures at a price of 102.7% of the principal amount. In connection with that call, $4,079,000 of the debentures were converted into 161,827 common shares and $14,315,000 were redeemed for cash which was funded primarily by the Company's bank credit facility. The Company recorded a pretax extraordinary debt extinguishment charge of $963,000, consisting of the $387,000 premium and the write-off of unamortized issuance costs associated with the redeemed debentures. At October 30, 1994, principal amounts of long-term debt due during each of the five succeeding fiscal years were $69,000 in 1995, $3,605,000 in 1996, $14,203,000 in 1997, $10,677,000 in 1998 and $88,000 in 1999. The Company incurred $3,956,000, $4,179,000 and $5,543,000 of interest charges in 1994, 1993 and 1992, respectively. Of these amounts, $89,000, $301,000 and $222,000 were capitalized in each respective year. 24 NOTE 7. SHAREHOLDERS' EQUITY The Company's authorized preferred stock consists of 5,000,000 $.10 par value shares to be issued in series. The rights of each series are to be determined by the Company's Board of Directors. The Company has outstanding one right for each outstanding common share of the Company. When exercisable, each right will entitle its holder to buy 1/100th of a share of the Company's Series A Junior Participating Preferred Stock at an exercise price of $40. If, among other things, the Company is acquired in a merger or other business combination transaction, including one in which the Company is the surviving corporation, each right will entitle its holder to purchase, at the then current exercise price of the right, that number of shares of common stock of the surviving company which at the time of such transaction would have a market value of twice the exercise price of the right. The rights are exercisable only if, without the Company's prior consent, a party acquires, or obtains the right to acquire, 25% or more of the Company's outstanding voting securities or announces a tender offer which would result in such ownership. At the Company's option, the rights are redeemable at two cents per right at any time before a 25% position has been acquired and under limited circumstances thereafter. The rights expire May 26, 1997. In August 1992, June 1993, and June 1994, the Company's Board of Directors authorized the purchase of up to 400,000, 500,000 and 500,000 shares of its common stock, respectively. Pursuant to these authorizations, the Company purchased 891,500 shares of common stock over the last three years. At October 30, 1994, authorization to purchase an additional 508,500 common shares was available. Under Colorado law enacted in July 1994, 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 $8,300,000 of consolidated retained earnings were unrestricted at October 30, 1994, as to the declaration of cash dividends and the acquisition of the Company's common stock. 25 The following table summarizes shareholders' equity activity:
Common stock Total ---------------- Paid-in Retained shareholders' (in thousands, except share data) Shares Amount capital earnings equity -------------------------------------------------------- Balances at October 27, 1991 10,003,330 $ 500 $ 101,412 $ 18,020 $ 119,932 Net income -- -- -- 14,940 14,940 Common stock options exercised including income tax benefit 11,252 -- 166 -- 166 Purchase of common shares (200,194) (10) (3,498) -- (3,508) Conversion of subordinated debentures into common shares 161,827 8 3,907 -- 3,915 -------------------------------------------------------- Balances at October 25, 1992 9,976,215 498 101,987 32,960 135,445 Net income -- -- -- 16,524 16,524 Common stock options exercised including income tax benefit 244,685 13 3,163 -- 3,176 Purchase of common shares (309,337) (15) (6,812) -- (6,827) -------------------------------------------------------- Balances at October 31, 1993 9,911,563 496 98,338 49,484 148,318 Net loss -- -- -- (6,638) (6,638) Common stock options exercised including income tax benefit 39,513 2 466 -- 468 Purchase of common shares (441,650) (22) (7,260) -- (7,282) -------------------------------------------------------- Balances at October 30, 1994 9,509,426 $ 476 $ 91,544 $ 42,846 $ 134,866 ========================================================
26 NOTE 8. STOCK OPTION AND PROFIT-SHARING PLANS The Company has stock option plans which generally provide for the granting of options to all employees and non-employee directors of the Company at exercise prices not less than the market value of the common stock on the date of the grant. The options generally vest over three years and expire ten years after the date of grant or three months after employment termination, whichever occurs first. In August 1994, the Company entered into a stock option agreement with J. Michael Jenkins, a Director, Co-Chief Executive Officer and President of the Company. Under the agreement, Mr. Jenkins was granted an option to purchase 300,000 shares of the Company's stock. The optioned shares are divided into 50,000 share increments with exercise prices ranging from $15.00 to $30.17. The options are scheduled to vest on October 1, 1999 and are exercisable until October 1, 2004, unless accelerated under certain conditions. The following table summarizes stock option activity: Shares Option price -------- -------------- Outstanding at October 27, 1991 (650,116 shares exercisable) 772,951 $ 5.63 - 25.50 Granted 67,500 16.25 - 24.50 Exercised (11,252) 5.63 - 15.50 Canceled -- -- - - -------------------------------------------------------------------- Outstanding at October 25, 1992 (758,365 shares exercisable) 829,199 5.63 - 25.50 Granted 58,000 22.75 - 26.00 Exercised (244,685) 5.63 - 15.75 Canceled (7,000) 24.50 - - -------------------------------------------------------------------- Outstanding at October 31, 1993 (554,516 shares exercisable) 635,514 5.63 - 26.00 Granted 338,809 14.25 - 30.17 Exercised (39,513) 5.63 - 14.75 Canceled (87,500) 5.63 - 23.50 - - -------------------------------------------------------------------- Outstanding at October 30, 1994 (508,336 shares exercisable) 847,310 $ 5.63 - 30.17 ==================================================================== 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 to be determined by the Board of Directors. The Company's annual contribution, if the Company is profitable (as defined in the plan), must be equal to at least 2% and may not exceed 15% of the aggregate compensation of the participants while participating. Any full-time employee 21 years of age or older who has completed one year of service with the Company is eligible to participate. Assets of the profit-sharing plan can be invested in the Company's common stock, or among several other alternatives. The Company's expenses related to contributions to the plan in 1994, 1993, and 1992 were $829,000, $861,000 and $825,000, respectively. 27 NOTE 9. INCOME TAXES The total provisions for income taxes consisted of the following: (in thousands) 1994 1993 1992 --------------------------- Current Federal $ 414 $ 560 $ 560 States 929 1,311 983 --------------------------- 1,343 1,871 1,543 Deferred Federal (3,613) 6,416 7,780 States (1,801) (484) 365 --------------------------- (5,414) 5,932 8,145 --------------------------- $(4,071) $ 7,803 $ 9,688 =========================== Such provisions are reflected in the financial statements as follows: (in thousands) 1994 1993 1992 --------------------------- Attributable to: Income before extraordinary items $(3,982) $ 9,386 $10,135 Extraordinary items -- -- (381) --------------------------- Net income tax expense (3,982) 9,386 9,754 Tax effect of deduction for exercised stock options credited to paid-in capital (89) (1,583) (66) --------------------------- Total provisions for income taxes $(4,071) $ 7,803 $ 9,688 =========================== 28 The components of income tax expense attributable to income before extraordinary items were as follows:
(in thousands) 1994 1993 1992 --------------------------- Current Taxes on income before carryforwards $ 6,177 $ 9,398 $ 9,574 Less benefit of loss carryforwards utilized (4,834) (7,527) (7,650) --------------------------- 1,343 1,871 1,924 Deferred Tax effect of net change in temporary differences (9,659) (409) 495 Utilization of tax net operating loss carryforward 4,834 7,527 7,650 FICA tax credit (749) -- -- Expiration of tax credit carryforwards 2,160 -- -- Change in valuation allowance (2,000) 1,000 -- Tax effect of change in federal tax rate -- (2,186) -- --------------------------- (5,414) 5,932 8,145 Tax effect of deduction for exercised stock options credited to paid-in capital 89 1,583 66 --------------------------- Income tax expense (benefit) attributable to income before extraordinary items $(3,982) $ 9,386 $10,135 ===========================
The provisions for income taxes differ from the amounts computed by applying the federal income tax rate to income from continuing operations before income taxes as follows: (in thousands) 1994 % 1993 % 1992 % ----------------------------------------------- Computed federal income taxes using statutory rate $ (3,717) (35.0%) $9,024 34.8% $8,723 34.0% FICA tax credit (749) (7.0) -- -- -- -- State income taxes net of federal income tax benefit (567) (5.3) 1,341 5.2 1,206 4.7 Expiration of tax credit carryforwards 2,160 20.3 -- -- -- -- Change in valuation allowance (2,000) (18.8) 1,000 3.8 -- -- Tax effect of change in federal tax rate -- -- (2,186) (8.4) -- -- Other 891 8.4 207 0.8 206 0.8 ----------------------------------------------- $ (3,982) (37.5%) $9,386 36.2% $10,135 39.5% =============================================== In August 1993, the Omnibus Budget Reconciliation Act of 1993 was enacted which increased the top federal corporate tax rate from 34% to 35%. This increase was retroactively applied to January 1, 1993, and was prorated for fiscal tax years overlapping the effective date. The increase in rate had the effect of increasing the deferred tax asset related to the Company's net operating loss carryforwards. The Act also instituted a general business credit for FICA taxes paid by employers on tips received by foodservice employees, effective January 1994. 29 The Company had taxable income for federal income tax purposes and book income (loss) before income taxes as follows: (in thousands) 1994 1993 1992 ----------------------------- Federal taxable income $14,589 $23,436 $20,085 Book income (loss) before income taxes (10,620) 25,910 24,694 Federal taxable income is generally less than book income before income taxes due to state income taxes, differences in depreciation rates, and employee stock option exercises. In 1994, such differences were more than offset by the asset disposal charge of $23,000,000 a majority of which was not deductible for tax purposes in that year. The components of the net deferred tax asset were as follows: (in thousands) 1994 1993 ------------------ Deferred tax assets Tax effect of net operating loss carryforwards $71,659 $76,172 Tax credit carryforwards 3,922 6,024 FICA tax credit 749 -- Alternative minimum tax credits 2,147 1,754 Accrued insurance claims not yet deductible 5,430 6,245 Leasing transactions 3,889 4,701 Property and equipment 3,359 -- Other 5,526 5,577 ------------------ 96,681 100,473 Valuation allowance (53,000) (55,000) ------------------ Deferred tax asset, net 43,681 45,473 ------------------ Deferred tax liabilities Property and equipment -- (6,905) Other (4,131) (4,432) ------------------ Deferred tax liability (4,131) (11,337) ------------------ Net deferred tax asset 39,550 34,136 Current portion 6,000 8,059 ------------------ Long-term portion $33,550 $26,077 ================== As of October 30, 1994, the Company had federal net operating loss carryforwards totaling $190,674,000 which expire $72,600,000 in 1998, $112,880,000 in 1999 and $5,194,000 in 2001. The Company also had investment tax credit carryforwards of $3,506,000 expiring from 1997 through 2000. The Company has established a valuation allowance due to the uncertainty that the full amount of those credits and operating loss carryforwards will be applied against future taxable income. This allowance was reduced by $2,000,000 in 1994 due to the expiration of investment tax credits to which a portion of the allowance applied. Management emphasized past performance rather than projections of taxable income when determining the valuation allowance. Annual taxable income of approximately $12,500,000 will be sufficient to realize the net deferred tax asset before expiration of the net operating loss carryforwards. Future adjustments to the valuation allowance deemed appropriate due to changed circumstances will be recognized as a separate component of the provision for income taxes. 30 NOTE 10. COMMITMENTS AND CONTINGENCIES The Company retains a significant portion of certain insurable risks primarily in the medical, dental, workers' compensation, general liability and property areas. Traditional insurance coverage is obtained for catastrophic losses. Provisions for losses expected under these programs are recorded based upon the Company's estimates of liabilities for claims incurred, including those not yet reported. Such estimates utilize prior Company history and actuarial assumptions followed in the insurance industry. The Company has provided letters of credit totaling $7,061,000 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. At October 30, 1994, the Company had contractual commitments for restaurant construction of approximately $680,000. NOTE 11. QUARTERLY FINANCIAL DATA (UNAUDITED) The Company's quarterly results of operations are summarized as follows (in thousands, except per share data): Quarter ended --------------------------------------------- February 20, May 15, August 7, October 30, 1994 (a) 1994 1994 1994 --------------------------------------------- Revenues $130,826 $97,045 $93,583 $91,190 Restaurant operating income 16,343 12,104 10,586 7,675 Net income (loss) 3,620 2,427 1,515 (14,200)(b) Net income (loss) per common and dilutive common equivalent share .36 .25 .16 (1.49) ============================================= Quarter ended --------------------------------------------- February 14, May 9, August 1, October 31, 1993 (a) 1993 1993 1993 (a) --------------------------------------------- Revenues $130,479 $99,646 $96,931 $101,449 Restaurant operating income 19,714 14,884 12,764 13,062 Net income 5,427 4,626 3,244 3,227(c) Net income per common and dilutive common equivalent share .52 .45 .32 .32 ============================================= (a) The quarterly periods ended February 20, 1994, and February 14, 1993 were comprised of sixteen weeks each, while the remainder of the Company's quarterly periods were comprised of twelve weeks each, except for the fourth quarter of 1993 which was thirteen weeks. (b) Includes pre-tax asset disposal, restructuring and related cost charge of $23,000,000 (see Note 2) and $1,918,000 income from settlement of litigation (see Note 3). (c) Includes pre-tax restructuring charge of $1,300,000 (see Note 2) and income tax expense reduction due to a change in the federal rate (see Note 9). 31 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 1995 Annual Meeting of Shareholders. Such statement will be filed not 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. (1) The following financial statement schedule for VICORP Restaurants, Inc., as listed in the Index below, is included herein beginning on page 32. Report of Independent Public Accountants on Financial Statement Schedule. Schedule VIII - Valuation and Qualifying Accounts for the years ended October 30, 1994, October 31, 1993 and October 25, 1992. 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. (2) The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index on Page 35. 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. 32 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of VICORP Restaurants, Inc. and subsidiary included in this Form 10-K and have issued our report thereon dated December 6, 1994. 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. /s/ Arthur Andersen LLP Arthur Andersen LLP Denver, Colorado, December 6, 1994. 33 VICORP Restaurants, Inc. Schedule VIII - VALUATION AND QUALIFYING ACCOUNTS For the Three Years Ended October 30, 1994 (in thousands)
Column A Column B Column C Column D Column E - - ----------- ---------- ----------------------- --------- ---------- Additions ----------------------- Balance at Charged to Charged Balance beginning costs and to other at end Description of period expenses accounts Deductions of period - - ----------- --------- ----------- --------- ----------- --------- Year ended October 30, 1994: Allowance for doubtful accounts $ 4,657 $ 185 $ 295 (4) $ 2,100 (1) $ 3,037 Discounts 1,019 (115) 266 (2) -- 1,170 Allowance for loss on disposal 2,615 10,675 -- 863 (1) 12,427 Accumulated amortization 5,549 813 -- 147 (3) 6,215 --------- ---------- ------ -------- --------- $ 13,840 $ 11,558 $ 561 $ 3,110 $ 22,849 ========= ========== ====== ======== ========= Year ended October 31, 1993: Allowance for doubtful accounts $ 5,018 $ 410 $ 248 (4) $ 1,019 (1) $ 4,657 Discounts 93 (20) 946 (2) -- 1,019 Allowance for loss on disposal 2,733 -- -- 118 (1) 2,615 Accumulated amortization 4,820 900 -- 171 (3) 5,549 --------- ---------- ------ -------- --------- $ 12,664 $ 1,290 $1,194 $ 1,308 $ 13,840 ========= ========== ====== ======== ========= Year ended October 25, 1992: Allowance for doubtful accounts $ 1,839 $ 2,746 $ 504 (4) $ 71 (1) $ 5,018 Discounts 403 (15) -- 295 (5) 93 Allowance for loss on disposal 2,514 375 -- 156 (1) 2,733 Accumulated amortization 5,030 904 -- 1,114 (3) 4,820 --------- ---------- ------ -------- --------- $ 9,786 $ 4,010 $ 504 $ 1,636 $ 12,664 ========= ========== ====== ======== =========
(1) Charges to the accounts for purposes for which the reserves were created. Deductions to the allowance for doubtful accounts in 1994 includes $1,918,000 reversal of previously established allowance due to settlement of litigation in excess of the net receivable previously recognized for the claim. (2) Establishment of discounts on receivables. (3) Asset dispositions and write-offs of fully amortized assets. (4) Establishment of reserves by charges directly to income. (5) Recognition of deferred gains. 34 Year-end balances are reflected in the Consolidated Balance Sheets as follows: October 30, October 31, 1994 1993 ----------- ----------- Deducted from current receivables $ 1,480 $ 561 Deducted from property and equipment 11,374 2,615 Deducted from long-term receivables 2,727 5,115 Deducted from other assets 7,268 5,549 ----------- ----------- $ 22,849 $ 13,840 =========== =========== 35 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. - *(ii) Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of VICORP Restaurants, Inc. - Current Report of VICORP Restaurants, Inc. on Form 8-K dated May 26, 1987. - *(iii) Rights Agreement dated as of May 12, 1987 between VICORP Restaurants, Inc. and Bank of America National Trust & Savings Association as Rights Agent - Current Report of VICORP Restaurants, Inc. on Form 8-K dated May 26, 1987. 10 - Material Contracts *(i) Franchise Operating Agreement - Registration Statement 2-83326, Exhibit 10(b). *(ii) Amended & Restated Credit Agreement dated April 19, 1991 between VICORP Restaurants, Inc. and Citibank, N.A. ("Amended & Restated Credit Agreement"). - Form 10-K for the year ended October 27, 1991, Exhibit 10(viii). *(iii) Equipment Lease Agreement dated as of August 15, 1991 between Citicorp Leasing, Inc. and VICORP Restaurants, Inc. - Form 10-K for the year ended October 27, 1991, Exhibit 10(ix). *(iv) Assignment and Acceptance dated October 10, 1991 between Citibank N.A. and NCNB Texas National Bank - Form 10-K for the year ended October 27, 1991, Exhibit 10(x). *(v) Amendment No. 2 dated February 10, 1992 to Amended & Restated Credit Agreement - Form 10-K for the year ended October 25, 1992, Exhibit 10(xi). (vi) Executive Compensation Plans and Arrangements *(a) 1982 Incentive Stock Option Plan - Registration Statement 2-78250, Exhibit 10(c). *(b) Amendment to 1982 Incentive Stock Option Plan - Form 10-Q for the quarter ended May 10, 1987, Exhibit 10(i). *(c) Amendment to 1982 Incentive Stock Option Plan - Form 10-Q for the quarter ended August 2, 1987, Exhibit 10. *(d) Amendment to 1982 Incentive Stock Option Plan - Form 10-Q for the quarter ended May 8, 1988, Exhibit 10. *(e) Amendment to 1982 Incentive Stock Option Plan, Form 10-K for the year ended October 25, 1992, Exhibit 10(ix). *(f) 1983 Non-Qualified Stock Option Plan - Registration Statement 2-83326, Exhibit 10(c). *(g) Amendment to 1983 Non-Qualified Stock Option Plan - Form 10-Q for the quarter ended May 10, 1987, Exhibit 10(ii). *(h) Amendment to 1983 Non-Qualified Stock Option Plan - Form 10-K for the year ended October 25, 1992, Exhibit 10(x). *(i) VICORP Restaurants, Inc. Outstanding Stock Purchase Plan (1989) - Registration Statement 33-32608, Exhibit 4(h). *(j) Deferred Compensation Plan of VICORP Restaurants, Inc. as amended - Form 10-K for the year ended October 31, 1993, Exhibit 10(vi)(1). *(k) Form Severance Agreement (Executive Officers excluding Frederickson and Jenkins) - Form 10-K for the year ended October 31, 1993, Exhibit 10(vi). *(l) Severance Agreement Charles R. Frederickson - Form 10-K for the year ended October 31, 1993, Exhibit 10(vi). (m) Employment Severance and Release Agreement - Robert S. Benson. (n) Employment Agreement of J. Michael Jenkins dated August 26, 1994. (o) Stock Option Agreement for J. Michael Jenkins dated August 26, 1994. 23 - Consents of Accountants 24 - Power of Attorney 27 - Financial Data Schedule 36 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 23rd day of January, 1995. VICORP RESTAURANTS, INC. (Registrant) By /s/ Charles R. Frederickson Charles R. Frederickson, Chairman of the Board and Co-Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on January 23, 1995 on behalf of the registrant and in the capacities indicated. Signature Title --------- ----- /s/ Charles R. Frederickson Chairman of the Board and Co-Chief Executive (Charles R. Frederickson) Officer /s/ J. Michael Jenkins Director, President and Co-Chief Executive (J. Michael Jenkins) Officer /s/ Dennis L. Kuper Executive Vice President/Finance (Dennis L. Kuper) (Principal Financial and Accounting Officer) /s/ Charles R. Frederickson (Charles R. Frederickson)* * Charles R. Frederickson, as attorney-in-fact for Carole Lewis Anderson, Bruce B. Brundage, John C. Hoyt, Robert T. Marto, Dudley C. Mecum, Dennis B. Robertson, and Arthur Zankel, constituting a majority of the Board of Directors of the registrant. EX-10 2 EMPLOYMENT SEVERANCE & RELEASE AGREEMENT-ROBERT S. BENSON 1 June 28, 1994 Robert S. Benson 32177 Highway 103 Evergreen, Colorado 80439 Re: Employment Severance and Release Agreement Dear Mr. Benson: The purpose of this letter is to put into written form the agreement with respect to your resignation of employment with VICORP Restaurants, Inc. ("VICORP"). The agreement is: Employment: Your last day as an officer and director of VICORP is June 28, 1994. As of that date, you are relieved of any further duties with VICORP. Your last day of employment with VICORP is July 15, 1994. Your status as an employee shall end on that date. Salary: VICORP shall pay you your base salary through July 15, 1994, plus any accrued and unused vacation through that date. Federal and state withholding and other authorized deductions shall be taken from those amounts. Such payments shall be made to you by no later than July 15, 1994. Benefits: Your entitlement to participate in the benefits offered by VICORP shall cease as of July 15, 1994. Any rights accrued under those plans to the date of termination shall be governed by the provisions of the respective plans. Notwithstanding that fact, however, you will be provided continuation rights with respect to medical and dental benefits as required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). For the period July 16, 1994 through July 15, 1995, should you elect to receive medical and dental benefits as provided under COBRA, you agree to pay the Employee portion of the cost for VICORP's Select Medical ($1,000 deductible) and Dental family plans. For the same period, VICORP agrees to pay the Employer portion for such coverages plus an amount equal to the taxes incurred by you as the result of the Employee portion being paid with after-tax dollars, rather than with pre-tax dollars. The current Employee portion for such coverages is $1,248 annually ($832 medical and $416 dental). For the period July 16, 1995 through January 15, 1996, you shall be responsible for the entire cost of the COBRA coverage should you elect to continue receipt of those benefits. Subject to the exhaustion of your rights under COBRA (as opposed to your voluntary discontinuance of the same) and in the event as of January 16, 1996, you have been unable to obtain family medical and dental coverages substantially similar to those then being offered under VICORP's Select Medical ($1,000 deductible) and Dental family plans, at the same or lesser cost to you than what VICORP is charging its employees for such coverages under COBRA ("COBRA Cost"), VICORP will pay any costs in excess of the COBRA Cost for such coverages for the period January 16, 1996 through January 15, 1997 or whenever you obtain such coverages at a cost to you equal to or lower than the COBRA Cost, whichever is earlier. 2 Stock Options: VICORP confirms your right to exercise until July 15, 1995 any options which were granted to you to purchase VICORP's common stock and which are vested as of July 15, 1994. Severance: VICORP shall pay to you $300,000.00, less appropriate federal and state withholding, as severance pay in recognition of your service to VICORP and in consideration for your execution of the release set forth in this agreement. The payment shall be made to you in 26 biweekly installments. The first of such payments shall be made to you on the first payday for executives of VICORP subsequent to the expiration of the revocation period provided for in this agreement. All subsequent payments shall be paid pursuant to VICORP's normal payroll cycle for its executives. Confidential Information: In the course of your employment, you have been exposed to trade secrets and other information which is of vital importance to VICORP's business. All non-public information, whether written or not, regarding VICORP's business, is confidential. You agree that you will not, directly or indirectly, at any time disclose any trade secrets or confidential information of VICORP which you have obtained during the course of your employment with VICORP. Nothing in this agreement shall prevent you from using your general knowledge, skill and experience, including general knowledge, skill, and experience in the food service business, in employment by a third party subsequent to your termination from VICORP. Return of Documents: VICORP will provide to you for use by you and your immediate family through July 15, 1995 complimentary dining charge cards for use at any restaurants operated by VICORP. You have agreed to return to VICORP by July 15, 1994 any and all other keys, charge cards, company documents, and any and all other items of VICORP which are in your possession, other than documents pertinent to your tenure as a Director of VICORP and your continuing responsibility for your actions while serving in that capacity. Continued Assistance: You have agreed to continue to cooperate with VICORP as needed with regard to any legal action which may necessitate your involvement and which arose during your tenure with VICORP. Any out-of-pocket expenses incurred by you in connection with your involvement shall be paid by VICORP. Out-Placement Assistance: VICORP will reimburse you for up to $15,000.00 in documented costs for out-placement services, retraining, education, and/or travel costs incurred in conjunction with your seeking new employment. In furtherance of your efforts to gain new employment, you may also utilize the already paid registration fee to attend the 1994 MUFSO Conference. Mutual Release: Except for any obligations described in this letter, you hereby release VICORP and its officers, directors, shareholders, and employees; and VICORP hereby releases you from any and all claims, agreements, promises, actions, and obligations that each may have against the other. This release covers claims and obligations, even if they are unknown at this time, including but not limited to any contract or tort claims and any claims based on rights under the Age Discrimination in Employment Act of 1967, 29 U.S.C. 621. This release is to be broadly construed and interpreted and any question or ambiguities should be resolved in favor of release. VICORP and you also agree as to any such claim neither VICORP nor you will start or pursue any complaint or proceeding against the other before any court, tribunal or governmental agency. 3 Miscellaneous: You are entering into this agreement freely and voluntarily and acknowledge that you have been advised of your right to consult legal counsel and that you have had an opportunity to do so. In the event any term of this agreement is unenforceable, then such unenforceable term would be altered so as to be enforceable. If that is not possible, then it will be deleted from this agreement and the remaining part of the agreement will remain in effect. This agreement constitutes the entire agreement between the parties with respect to this matter and supersedes any prior agreements, whether oral or written. Any change or modification of this agreement to be valid must be in writing signed by each of us and the terms and provisions of this agreement shall be binding upon our respective successors, assigns, heirs, executors, administrators, and representatives. All controversies, claims and matters of difference in any way related to this Agreement shall be submitted to final and binding arbitration in Denver, Colorado according to the rules and practices of the American Arbitration Association from time to time in force, except that if such rules and practices conflict with the Colorado Rules of Civil procedure or any other provisions of Colorado law then in force, such Colorado rules and provisions shall govern. This submission and agreement to arbitrate shall be specifically enforceable. This agreement shall be construed in accordance with the laws of the State of Colorado. Revocation Period: You (a) shall have a period of twenty-one (21) days from the date of delivery of this agreement to accept the agreement, and (b) shall have seven (7) days following your execution of this agreement during which you may revoke the agreement by providing VICORP written notice of your revocation. If this agreement is not revoked by you during said seven (7) day period, it shall be deemed accepted. Except with respect to the date of termination, which shall be July 15, 1994, this agreement shall not be effective or enforceable until the revocation period has expired. Sincerely, /s/ Charles R. Frederickson Accepted and agreed to Charles R. Frederickson Chairman SE/ts /s/ Robert S. Benson ------------------------- Robert S. Benson 7/14/94 ------------ Date EX-10 3 EMPLOYMENT AGREEMENT-J. MICHAEL JENKINS 1 EMPLOYMENT AGREEMENT This Agreement is made as of the 26th day of August, 1994, by and between VICORP Restaurants, Inc., a Colorado corporation (the "Company"), and J. Michael Jenkins, a resident of Dallas, Texas (the "Executive"). WHEREAS, simultaneously herewith, Executive has agreed to become a member of the Board of Directors, Co-Chief Executive Officer and President of the Company, and he and the Company have made it a condition thereto that the Executive enter into this Employment Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants, terms and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are specifically acknowledged, the parties hereto hereby agree as follows: Section 1. Employment. Company hereby employs the Executive, and the Executive hereby accepts employment from the Company. Section 2. The Executive's Duties. (a) The Executive hereby agrees to serve Company faithfully and honestly and to use his best efforts and ability on behalf of Company in the position of Co-Chief Executive Officer, President and as member of the Board of Directors of the Company, to discharge the duties of said offices and to perform such duties and services of an executive, administrative and managerial nature as shall be specified and designated from time to time by the Board of Directors of the Company in connection with the business and activities of the Company. (b) The Executive agrees to devote his entire time, energy and skill during regular business hours to such employment. (c) The Executive agrees to observe and comply with all lawful written rules, regulations, policies and practices adopted by Company as they now exist and as they may be duly and properly adopted or modified from time to time. Section 3. Compensation and Benefits. (a) In consideration for all services rendered by the Executive to Company, including services as an officer, director, member of any committee or in the performance of other like duties assigned to him by the Board of Directors of the Company, Company hereby agrees to pay compensation to the Executive as follows: (i) Immediately upon the execution of this Agreement, Company agrees to pay the Executive a signing bonus of $1,000,000 in cash. (ii) Executive's base salary beginning on the date this Employment Agreement is signed and continuing for three (3) years thereafter shall be $350,000 per year payable in equal bi-weekly installments in arrears. Executive's base salary beginning on the date three (3) years from the execution of this Agreement and continuing until the date five (5) years from execution of this Agreement shall be $450,000 per annum. 2 (iii) The Company's fiscal year ends the last Sunday of October of each year. Within sixty (60) days after the end of each fiscal year of the Company beginning with the fiscal year beginning on October 31, 1994, Company shall pay to Executive an incentive bonus of twenty percent (20%) of EBIT (as hereinafter defined) over $25,000,000 for the fiscal years of the Company beginning in 1994, 1995 and 1996, and twenty percent (20%) of EBIT over $32,000,000 for the fiscal years beginning in 1997 and 1998. The payment of the incentive bonus for any one fiscal year shall not exceed $1,500,000; however, if the bonus formula calculation for any fiscal year would result in a payment in excess of $1,500,000, the amount in excess of $1,500,000 shall be carried forward and paid for subsequent fiscal years in which the bonus to be paid for that fiscal year is less than $1,500,000. In addition, the maximum cumulative incentive bonus that can be paid on behalf of the Executive's services during the period beginning October 31, 1994 and ending the end of the Company's fiscal year on approximately October 31, 1999 shall not exceed a maximum of $4,000,000. Notwithstanding the foregoing, the incentive bonus for the fiscal year beginning approximately November 1, 1998 will be calculated and a bonus up to $1,500,000 paid plus any amounts carried forward from prior years even if such total amount paid on behalf of such fiscal year is more than $1,500,000. However, the cumulative total amount to be paid as an incentive bonus shall not exceed $4,000,000. For purposes of this Agreement, the term "EBIT" shall mean net earnings before deduction for interest and taxes of the Company and its subsidiaries for the fiscal year, all as determined in accordance with generally accepted accounting principles and in addition, EBIT shall be calculated without reduction for the amount of any compensation paid to the Executive other than base salary. (iv) Simultaneously with the execution of this Agreement, the Executive is executing a stock option agreement under which he will be granted an option to purchase a total of 300,000 shares of the Company's common stock all in accordance with the terms of the Stock Option Agreement attached hereto as Exhibit "A" and incorporated herein for all purposes. (v) Executive shall be entitled to fly first class when he is traveling on Company business and shall be entitled to such other fringe benefits as are paid to other senior executives of the Company. The Executive shall not be entitled to receive a car allowance from the Company. (vi) The Company shall provide and maintain group medical, dental, life and disability insurance benefits to the Executive as are provided to other senior executives. (vii) The Executive shall receive from Company a paid vacation each year in accordance with the present policy and practice of Company regarding vacations for senior executives. (b) In the event that the Executive is directed to perform services on behalf of any entity or organization other than the Company, the Executive shall receive compensation in amounts and on terms that are no less favorable to the Executive than those set forth above. 3 Section 4. Expenses. The Company shall reimburse the Executive for reasonable and necessary expenses incurred (i) in the ordinary course of conducting Company's business and in accordance with policies established by the Company, (ii) in relocating the Executive from Dallas, Texas, to Denver, Colorado, including the payment of real estate commissions paid on the sale of the Executive's house in Texas and covering the moving costs to transport Executive's household goods to Denver, and (iii) in providing up to 90 days of temporary living expenses during the time of transition of Executive's family to Denver, Colorado. In addition to the actual cost of Executive in relocating from Dallas, Texas, to Denver, Colorado, the Company shall gross up the amounts of the payment to the Executive so that the net amount received by the Executive after payment of all federal, state, and local taxes that he is obligated to pay as a result of the receipt of the moving expense reimbursement is equal to the amount of his moving expenses but in no event shall the total amount paid by the Company for moving expenses exceed $35,000. Executive shall submit expense reports accompanied by receipts and other appropriate substantiation for all items of business expenses in excess of $25.00 for which reimbursement is sought. Section 5. Duration and Termination. (a) The Executive's employment shall be for a period commencing on the date hereof and ending on the date five (5) years later, unless terminated at an earlier date pursuant to this Section 5 (the "Employment Period"). (b) If during the Employment Period the Executive shall be unable to perform his duties hereunder on account of illness, disability, or other incapacity, he shall be entitled to compensation in accordance with Section 5 providing that such illness, disability, or other incapacity lasts for less than six (6) months. In the event such illness, disability, or other incapacity lasts for a period of more than six (6) months, Executive shall be entitled to compensation in accordance with the sick leave plan of the Company, if any, and shall be covered by the Company's disability income policy, if any. (c) In the event of the Executive's death during his employment hereunder, his compensation shall cease as of the last day of the full calendar month following the month in which such event occurs, or the last day of the Employment Period, whichever is earlier. The salary for the period following the Executive's death shall be paid to his legal heirs or the representative of his estate. In addition, the Executive shall be entitled to be paid a prorated incentive bonus based upon the number of days in the Company's fiscal year that had lapsed prior to his death divided by three hundred sixty-five and multiplied by the incentive bonus he would have otherwise received and shall be paid any excess amount of incentive bonus which was being carried forward to be paid in subsequent years provided that the total incentive bonus to be paid as a result of the death of the Executive together with prior incentive bonus payments shall not exceed a total amount of $4,000,000. The prorated incentive bonus for the fiscal year of the Executive's death shall be paid within sixty (60) days after the end of such fiscal year. The amount of any incentive bonus carried over from previous years shall be paid to the Executive's legal heirs or the representative of his estate within sixty (60) days after his death. 4 (d) In the event the Executive voluntarily terminates his employment without Just Grounds for any reason, his right to all compensation shall cease as of the date of termination of his employment. "Just Grounds" shall mean (a) resignation by the Executive due to (i) a material breach of this Agreement by the Company, or (ii) the Executive's duties, authority or responsibilities as Co-Chief Executive Officer, President and a member of the Board of Directors having been materially diminished. (e) In the event (i) the Board of Directors determines that this Agreement and the Executive's employment shall be terminated without Just Cause (as hereinafter defined) or (ii) Executive terminates his employment with Just Grounds, the Executive shall receive the greater of (i) two times his then current annual salary; (ii) $2,000,000 less the amount of any incentive bonus previously paid to the Executive; or (iii) any amount accrued but unpaid from bonuses in prior years under Section 3(a) (iii) hereof but in no event to exceed $4,000,000. (f) In the event the Board of Directors determines that this Agreement and the Executive's services hereunder should be terminated for Just Cause, the Executive's right to all compensation and benefit shall cease as of the date of termination of his employment. In such event, the Executive shall be entitled only to such rights as shall have vested prior to such termination or violation, and he shall not be entitled to any future cash or non-cash compensation, benefits or termination pay. For purposes of this Agreement, termination for "Just Cause" shall mean (a) a termination due to (i) a material breach of this Agreement by the Executive, (ii) willful or gross neglect of duties for which employed or (iii) willful misconduct in the performance of such duties, all of such facts to be determined in good faith by the Board of Directors of the Company after Executive has been given written notice of his purported material breach of this Agreement, willful misconduct or gross negligence and has failed to cure his breach of this Agreement or alter his inappropriate conduct within thirty (30) days after Executive's receiving such written notice, or (b) a termination due to Executive's committing any felony for which he is convicted and which, as determined in good faith by the Board of Directors of the Company, constitutes a crime involving moral turpitude and results in material harm to the Company. (g) Notwithstanding anything above, if the Executive's employment is terminated by the Company within 180 days after a "change in control" (as hereinafter defined) of the Company has occurred, Executive shall receive the greater of two times his then current annual salary or $4,000,000 less the amount of any incentive bonus previously paid to the Executive. Change in control for purposes of this Agreement shall be deemed to have occurred if: (i) any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934, as amended) becomes the beneficial owner, directly or indirectly, of securities of the Company representing greater than or equal to fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of twelve (12) months, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's shareholders of each new director was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period; or 5 (iii) a person (as defined in clause (i) above) acquires (or, during the twelve (12) month period ending on the date of the most recent acquisition by such person or group of persons, has acquired) gross assets of the Company that have an aggregate fair market value greater than or equal to over fifty percent (50%) of the fair market value of all of the gross assets of the Company immediately prior to such acquisition or acquisitions. Section 6. Governing Law and Arbitration. (a) Any controversy or claim arising out of or relating to this Agreement or its interpretation, construction or any breach thereof, or any relationship between the parties hereto, whether such claim is grounded in common law or statutory law, shall be settled exclusively by arbitration in the State of Colorado, in accordance with the then-applicable rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any court of competent jurisdiction. (b) The failure or refusal of either party to submit to arbitration in accordance with this provision shall be deemed a breach of this Agreement. If either party seeks and secures judicial intervention requiring enforcement of this arbitration provision, such party shall be entitled to recover from the other party all costs and expenses, including reasonable attorneys' fees, that it was thereby required to incur. Section 7. Entire Agreement. This Agreement supersedes and cancels any and all prior agreements between the parties hereto, express or implied, relating to the subject matter hereof. This Agreement sets forth the entire agreement between the parties hereto and it may not be changed, altered, modified or amended except in a writing signed by both parties. Section 8. Non-Waiver. The failure or refusal of either party to insist upon the strict performance of any provision of this Agreement or to exercise any right in any one or more instances or circumstances shall not be construed as a waiver or relinquishment of such provision or right, nor shall such failure or refusal be deemed a custom or practice contrary to such provision or right. Section 9. Non-Assignment. The Executive shall have no right to assign any of the rights, nor to delegate any of the duties, created by this Agreement, and any assignment or attempted assignment of the Executive's rights, and any delegation or attempted delegation of the Executive's duties, shall be null and void. In all other respects, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, beneficiaries, personal representatives, successors, assigns, officers and directors. Section 10. Severability. If any paragraph, term or provision of this Agreement shall be held or determined to be unenforceable, the balance of this Agreement shall nevertheless continue in full force and effect unaffected by such-holding or determination. In addition, in any such event, the parties agree that it is their intention and agreement that any such paragraph, term or provision which is held or determined to be unenforceable as written, shall nonetheless be enforced and binding to the fullest extent permitted by law as though such paragraph, term or provision had been written in such a manner and to such an extent as to be enforceable under the circumstances. 6 Section 11. Notice. All notices hereunder shall be in writing. Notices may be delivered personally, or by mail, postage prepaid, to the address set forth on the signature page hereof. Either party may designate a new address for purposes of this Agreement by notice to the other party. VICORP Restaurants, Inc., a Colorado corporation By: /s/ Charles R. Frederickson ----------------------------- Name: Charles R. Frederickson Its: Chairman /s/ J. Michael Jenkins ------------------------- J. Michael Jenkins EX-10 4 STOCK OPTION AGREEMENT- J. MICHAEL JENKINS 1 STOCK OPTION AGREEMENT This Stock Option Agreement (the "Option Agreement") dated as of August 26, 1994, provides for the grant of stock options by VICORP Restaurants, Inc., a Colorado corporation (the "Company"), to J. Michael Jenkins, an employee of the Company (the "Optionee"); The Company has determined that the Optionee is to be granted options to buy shares of the Company's common stock, par value $.05 per share ("Common Stock"), on the terms and subject to the conditions hereinafter provided. 1. Number of Shares and Option Price. (a) The Company hereby grants to the Optionee the options (the "Options") to purchase Common Stock in the amounts and for the exercise prices set forth below. The Optionee shall not have any rights as a shareholder with respect to the shares unless and until one or more certificates for such shares are delivered to him upon the exercise of one or more of the Options. Number of Shares Exercise Price Per Share 50,000 $15.00 50,000 $17.25 50,000 $19.84 50,000 $22.81 50,000 $26.26 50,000 $30.17 (b) In the event that the outstanding shares of the Company's common stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, through reorganization, merger, consolidation, liquidation, recapitalization, stock split up, or a combination of shares or dividends payable in stock of the class which is subject to this Option Agreement, appropriate adjustment in the number of shares subject to the Options shall be made so that the proportionate number of shares subject to the Options shall be maintained as before the occurrence of such event and an appropriate adjustment shall be made to the exercise price. (c) Optionee acknowledges that the shares which are to be reserved for issuance upon the exercise of the Options are not at this time registered in accordance with applicable securities laws. The Company agrees that upon receipt of a written request by Optionee, it will, consistent with applicable securities laws and regulations, promptly prepare and file with the Securities and Exchange Commission an appropriate registration statement on Form S-8 and/or Form S-3, depending upon whether the Options have then been exercised (or any successor forms to such form subsequently promulgated by the Securities and Exchange Commission) pertaining to the shares covered by the Options and will use its reasonable good faith efforts to cause such registration statement to be declared effective as soon as practicable thereafter. The Company will bear the expense to prepare and file such registration statement. 2 To the extent requested by the Optionee, the Company will also use its reasonable good faith efforts to seek shareholder approval of the Option Agreement or to take such other reasonable steps as may from time to time become appropriate to qualify the Option Agreement for purposes of Rule 16b-3 under the Securities Exchange Act of 1934; however, no failure of the Company's shareholders to approve such qualification shall prejudice the rights of the Optionee pursuant to this Agreement. 2. Period of Option and Conditions of Exercise. (a) Generally, the Options shall vest and become exercisable on October 1, 1999 at which time all of the shares subject to the Options shall become immediately exercisable in full and shall continue to be exercisable at any time or from time to time in whole or in part until October 1, 2004. (b) Upon a change of control of the Company, all of the Options shall immediately vest and become exercisable in full and shall continue to be exercisable at any time or from time to time in whole or in part until October 1, 2004. (c) If Optionee's employment with the Company is terminated for Just Cause or he resigns without Just Grounds prior to October 1, 1999, then none of the options shall vest and they shall be immediately forfeited upon such termination or resignation. (d) If Optionee dies, becomes permanently disabled, resigns on Just Grounds or is terminated other than for Just Cause ("Events"), the shares shall vest and be vested in accordance with the following schedule: Exercise Price Vesting Date Number of Shares Per Share September 1, 1994 50,000 $15.00 October 1, 1995 50,000 $17.25 October 1, 1996 50,000 $19.84 October 1, 1997 50,000 $22.81 October 1, 1998 50,000 $26.26 October 1, 1999 50,000 $30.17 Such Options must then be exercised within six (6) months after vesting. For example, if Optionee dies on July 15, 1997, he shall be vested in 150,000 shares and these Options shall become immediately exercisable in full and shall be exercisable at any time or from time to time in whole or in part until January 15, 1998. All Options which do not vest under the above schedule shall be immediately forfeited upon the occurrence of any of the events. (e) The terms Change of Control, Just Grounds and Just Cause as used in this Option Agreement shall have the same meanings as they do in the Employment Agreement between Company and Optionee which is being executed simultaneously with this Option Agreement. 3 3. Non-Transferability of Option; Death of Optionee. The Options shall not be transferable otherwise than by will or by the laws of descent and distribution; and the Options may be exercised, during the lifetime of the Optionee, only by the Optionee, and in the event of the death of the Optionee, only by the Optionee's estate. In particularly, the Options may not be assigned, transferred (except as provided above), pledged or hypothecated in any way, shall not be assignable by operation of law, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Options contrary to the provisions hereof shall be null and void and without effect. 4. Exercise of Option. The Options shall be exercised in the following manner: the Optionee or the Optionee's estate shall deliver to the Company written notice specifying the number of shares which he elects to purchase and a date, not more than ten (10) business days after the date of such notice, upon which such shares shall be purchased and payment therefor shall be made. Upon delivery to the Company on such date of cash or certified or bank cashier's check payable to the order of the Company, in an amount equal to the product of the number of shares specified in such notice and the exercise price, together with payment, by cash or certified or bank cashier's check payable to the order of the Company or by such other method as shall be acceptable to the Company, of such amount, if any, as the Company deems necessary to satisfy its liability to withhold federal, state or local income or other taxes incurred by reason of the exercise or the transfer of shares thereupon, the shares so purchased shall thereupon be promptly delivered to the Optionee or the Optionee's estate. Provided, however, that if any securities or other law or regulation of any commission or agency of competent jurisdiction shall require the Company or the exercising Optionee to take any action with respect to the shares acquired by the exercise of an Options, then the date upon which the Company shall issue or cause to be issued the certificate or certificates for the shares shall be postponed until full compliance has been made with all such requirements of law or regulation; provided, that the Optionee shall use Optionee's best efforts to take all necessary action to comply with such requirements of law or regulation. Neither the Optionee nor the Optionee's estate will be deemed to be a holder of any shares pursuant to exercise of the Options until the date of the issuance of a stock certificate to him for such shares. 5. Notices. Any notice required or permitted under this Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office as registered mail, postage prepaid, addressed, as appropriate, either to the Optionee at the address Optionee last gave to the Company as his home address or such other address as he may designate in writing or to the Corporation at its principal offices. 6. Failure to Enforce Not a Waiver. The failure of the Company to enforce at any time any provision of this Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 7. Severability. If any provision of this Option Agreement shall be held to be illegal, invalid or unenforceable under any applicable law, then such contravention or invalidity shall not invalidate the entire Option Agreement. Such provision shall be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no such modification shall render it legal, valid and enforceable, then this Option Agreement shall be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties shall be construed and enforced accordingly. 4 8. Complete Agreement. This Option Agreement and the related Employment Agreement between Optionee and the Company embody the complete agreement and understanding between the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 9. Governing Law. This Option Agreement shall be governed by and construed according to the laws of the State of Colorado. IN WITNESS WHEREOF, the Corporation has executed this Option on the day and year first above written. VICORP Restaurants, Inc., a Colorado corporation By: /s/ Charles R. Frederickson ---------------------------- Name: Charles R. Frederickson Its: Chairman The undersigned hereby accepts and agrees to all terms and provisions of the foregoing Option Agreement. /s/ J. Michael Jenkins ------------------------ Optionee EX-23 5 CONSENTS OF ACCOUNTANTS 1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports included in this Form 10-K, into the Company's previously filed Registration Statements, File Nos. 33-26650, 33-32608, 33-4447, 33-48205 and 33-49166. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Denver, Colorado, January 25, 1995. EX-24 6 POWER OF ATTORNEY 1 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 and J. Michael Jenkins, or either of them 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 January 28, 1995. 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 second day of December, 1994. /s/ Carole Lewis Anderson ----------------------------- Carole Lewis Anderson Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A. Schreivogel ---------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 2 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 and J. Michael Jenkins, or either of them 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 January 28, 1995. 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 second day of December, 1994. /s/ Bruce B. Brundage --------------------- Bruce B. Brundage Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A. Schreivogel ------------------------ Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 3 POWER OF ATTORNEY The undersigned, Charles R. Frederickson, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint J. Michael Jenkins 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 January 28, 1995. 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 second day of December, 1994. /s/ Charles R. Frederickson ---------------------------- Charles R. Frederickson Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A. Schreivogel ------------------------ Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 4 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 and J. Michael Jenkins, or either of them 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 January 28, 1995. 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 second day of December, 1994. /s/ John C. Hoyt ----------------- John C. Hoyt Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A. Schreivogel ------------------------ Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 5 POWER OF ATTORNEY The undersigned, J. Michael Jenkins, 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 January 28, 1995. 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 second day of December, 1994. /s/ J. Michael Jenkins ----------------------- J. Michael Jenkins Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, before me came J. Michael Jenkins, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A. Schreivogel ------------------------ Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 6 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 and J. Michael Jenkins, or either of them 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 January 28, 1995. 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 second day of December, 1994. /s/ Robert T. Marto -------------------- Robert T. Marto Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A.Schreivogel ----------------------- Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 7 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 and J. Michael Jenkins, or either of them 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 January 28, 1995. 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 second day of December, 1994. /s/ Dudley C. Mecum -------------------- Dudley C. Mecum Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A. Schreivogel ------------------------ Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 8 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 and J. Michael Jenkins, or either of them 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 January 28, 1995. 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 second day of December, 1994. /s/ Dennis B. Robertson ------------------------ Dennis B. Robertson Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A. Schreivogel ------------------------ Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 9 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 and J. Michael Jenkins, or either of them 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 January 28, 1995. 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 second day of December, 1994. /s/ Arthur Zankel ------------------ Arthur Zankel Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This second day of December, 1994, 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 8/25/98. WITNESS my hand and official seal. /s/ Toni A. Schreivogel ------------------------ Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} EX-27 7 FINANCIAL DATA SCHEDULE- VICORP 1994
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VICORP RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AS OF OCTOBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000703799 VICORP RESTAURANTS, INC. 1,000 YEAR OCT-30-1994 OCT-30-1994 6,123 0 9,801 0 10,585 35,101 282,979 117,177 249,023 50,453 42,554 476 0 0 134,390 249,023 409,297 412,644 123,280 123,280 239,309 0 3,867 (10,620) (3,982) (6,638) 0 0 0 (6,638) (.69) (.69)
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