-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PjyJNCq8JJKogaymvYPkcztBGyIdllRvv1H1+aKvP7cr0CR7yLzdj01r2KZAbeo5 8TREijbnkLhT1RySsCzwZA== 0000703799-96-000003.txt : 19960119 0000703799-96-000003.hdr.sgml : 19960119 ACCESSION NUMBER: 0000703799-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19960118 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VICORP RESTAURANTS INC CENTRAL INDEX KEY: 0000703799 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 840511072 STATE OF INCORPORATION: CO FISCAL YEAR END: 1026 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12343 FILM NUMBER: 96505119 BUSINESS ADDRESS: STREET 1: 400 W 48TH AVE CITY: DENVER STATE: CO ZIP: 80216 BUSINESS PHONE: 3032962121 10-K 1 1995 10-K UNITED STATES SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 1995 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. [ ] The aggregate market value of 7,675,407 shares of the registrant's common stock held by non-affiliates on January 10, 1996 was approximately $74,835,000. At January 10, 1996, there were 9,049,026 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 1996 Annual Meeting of Shareholders ("the Proxy Statement") are incorporated herein by reference into Parts I and III. PART I ITEM 1. BUSINESS. VICORP Restaurants, Inc., the registrant, 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 "Bakers Square", "Village Inn" and "Angel's Diner and Bakery" and franchises restaurants under the Village Inn name. At October 31, 1995, VICORP operated 264 restaurants in 14 states, of which, 160 were Bakers Squares, 99 were Village Inns and five were Angel's. On that date, there were 106 franchised Village Inn restaurants in 20 states. The Company has a pie manufacturing division supporting its restaurants, which operates under the name VICOM. VICOM has five production facilities. Company Operations During fiscal 1995, the Company closed 46 restaurants. The closures resulted from a plan adopted in 1994 to close and dispose of restaurants with both declining sales and operating cash flows which are located in areas no longer considered appropriate for the Company's existing concepts. Four additional restaurants are expected to be closed in fiscal 1996 which were operating at October 31, 1995. Also in 1995, the Company discontinued internal warehousing and distribution of grocery products for its restaurants and closed its bakery facility in Phoenix, Arizona. The Company began utilizing an independent distribution company in order to focus on its core business of producing pies within its VICOM division. The Company did not open any new restaurants in fiscal 1995, although it acquired two Village Inn restaurants from franchisees. While the Company plans to resume growth of Company-operated restaurants, none are anticipated in fiscal 1996 as the Company's principal focus in the near- term is on improving existing operations. 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. During 1995, the Bakers Square division lowered its prices by approximately 10% in order to provide better value and ultimately attract more customers. Each Company-operated restaurant offers a relatively standard core menu. The standard menus are supplemented with daily and monthly specials. Daily specials are chosen at the discretion of the restaurant managers to provide specific locality appeal. 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 work closely with the restaurant general managers in helping them meet the Company's objectives. Each area director reports to a Vice President of Operations. 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. Cost effective procurement of quality products is also critical to providing a satisfying customer experience. The Company makes centralized purchasing decisions for basic menu ingredients to gain favorable prices and ensure uniform quality specifications. Management does not anticipate any difficulty in obtaining food products of adequate quantity or quality at acceptable prices. The Company utilizes advertising where market penetration allows. Expenditures for advertising were 3.0% of Company-operated restaurant sales in fiscal 1995. During 1995, advertising included support of holiday pie sales, select menu items and lower prices in Bakers Square. All of the Company-operated restaurants utilize point-of-sale computer systems. These systems capture and record sales and payroll data which are transmitted daily to the Company's corporate office. These systems are supplemented with personal computer back office systems that provide analytical and reporting tools for restaurant managers. 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. During fiscal 1995, five new franchise restaurants were opened and one restaurant which previously was operated by the Company was franchised. Also in that year, five franchise restaurants were closed and two franchise locations were purchased by the Company. 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. Approximately seven new franchise units are expected to open in fiscal 1996. 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 31, 1995, the Company employed approximately 13,500 persons. 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 57 Chairman of the Board and Co-Chief Executive Officer J. Michael Jenkins 49 Director, President and Co-Chief Executive Officer Nicholas S. Galanos 45 President/Angel's and Executive Vice President/Development Robert E. Kaltenbach 50 President/Village Inn James R. Burke 47 Executive Vice President/Bakers Square
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. Nicholas S. Galanos was appointed President/Angel's in February 1995. In October 1995, he assumed the additional duties of Executive Vice President/Development. From September 1993 until February 1995, he served as Chief Executive Officer/Chief Operating Officer for Champps Entertainment, Inc. Mr. Galanos served as Chief Operating Officer/Executive Vice President of T.G.I. Friday's Hospitality Worldwide, Inc. from October 1991 to September 1993 and served as Senior Vice President Operations for T.G.I. Friday's, Inc. from June 1989 to October 1991. Robert E. Kaltenbach was appointed President/Village Inn in December 1994 after serving as Vice President/Franchise Operations since July 1988. James R. Burke was appointed Executive Vice President/Bakers Square in May 1995. From November 1992 to April 1995, he served as Vice President Operations/Village Inn. For approximately six years prior to that time, Mr. Burke served as Vice President of Operations for Sea Galley Restaurants. ITEM 2. PROPERTIES. The following table provides information as of October 31, 1995, concerning the land and buildings at restaurant locations owned, leased or held for disposal by the Company.
Village Bakers Inn Square Angel's Other Total ------- ------ ------- ----- ----- Company-operated restaurants: Properties owned in fee 7 55 1 -- 63 Buildings owned on leased land 5 9 -- -- 14 Leased locations 86 93 4 -- 183 ------- ------ ------- ----- ----- 98 157 5 -- 260 ======= ====== ======= ===== ===== Properties leased to others: Properties owned in fee 2 -- -- 4 6 Buildings owned on leased land -- -- -- 1 1 Leased locations 25 -- -- 26 51 ------- ------ ------- ----- ----- 27 -- -- 31 58 ======= ====== ======= ===== ===== Properties held for disposal: Properties owned in fee -- -- -- 6 6 Buildings owned on leased land -- 1 -- -- 1 Leased locations 1 2 -- 27 30 ------- ------ ------- ----- ----- 1 3 -- 33 37 ======= ====== ======= ===== =====
The restaurants operated by the Company are located primarily in Arizona, California, Florida, the Rocky Mountain region, and the upper Midwest. The Company considers its existing operating restaurant properties and equipment to be in good condition. For additional information concerning the Company's leases see Note 4 of Notes to Consolidated Financial Statements which is included in Item 8 of Part II. The Company intends to lease, sublease or sell the 33 properties which are currently idle. Additionally, over the next fiscal year, the Company plans to close and dispose of another four properties which were operating at October 31, 1995. The Company owns its corporate office complex in Denver, Colorado. It 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, and Mounds View, Minnesota. ITEM 3. LEGAL PROCEEDINGS. VICORP is a party to various judicial and administrative proceedings, all of which have arisen in the ordinary course of business. None of the proceedings are deemed to be material in light of the amounts involved. 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 31, 1995. 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 10, 1996, the Company had 539 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 ----------------------------------------------- 1995 High $ 18 $ 16 1/2 $ 15 3/4 $ 14 3/4 Low 15 1/2 14 13 1/2 10 1/2 1994 High $ 21 1/2 $ 21 $ 15 1/2 $ 17 1/4 Low 17 3/4 15 1/4 14 14 3/8 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. ITEM 6. SELECTED FINANCIAL DATA.
(dollars in thousands, except per share data) 1995 1994 1993 1992 1991 ----------------------------------------------------- RESULTS OF OPERATIONS System-wide sales including franchise sales $ 496,300 $ 529,982 $ 542,986 $ 527,817 $ 524,231 Restaurant sales 370,116 409,297 425,139 414,324 417,808 Total revenues 373,838 412,644 428,505 417,518 421,232 Income (loss) before extraordinary item (4,532) (6,638) 16,524 15,522 7,182 Net income (loss) (4,532) (6,638) 16,524 14,940 6,375 ----------------------------------------------------- OPERATING ANALYSIS Restaurant operating profit analysis as a percentage of restaurant sales Costs and expenses Food 33.5% 30.1% 29.8% 30.9% 32.7% Labor 33.7% 30.2% 28.5% 27.8% 27.8% Other operating 28.3% 28.2% 27.5% 27.2% 26.4% Restaurant operating profit 4.4% 11.4% 14.2% 14.1% 13.1% General and administrative expense as a percentage of revenues 7.0% 8.7% 7.8% 7.5% 7.0% Interest expense as a percentage of revenues 1.0% .9% .9% 1.3% 1.9% Income before income taxes and extraordinary and unusual items as a percentage of revenues (2.4%) 2.5% 6.3% 6.1% 4.9% Effective income tax rate 50.0% 37.5% 36.2% 39.5% 40.4% ----------------------------------------------------- BALANCE SHEET DATA Total assets $ 228,161 $ 249,023 $ 254,031 $ 241,958 $ 234,251 Long-term debt and capitalized lease obligations 42,179 42,554 40,008 43,736 53,259 Common shareholders' equity 123,098 134,866 148,318 135,445 119,932 Debt to total capitalization 25.5% 24.0% 21.2% 24.4% 30.8% ----------------------------------------------------- CASH FLOW DATA Net income (loss) $ (4,532) $ (6,638) $ 16,524 $ 14,940 $ 6,375 Depreciation and amortization 22,565 26,133 23,381 20,242 17,758 Deferred income tax provision (4,825) (5,414) 5,932 8,145 2,911 Write-offs, extraordinary item, and other 446 24,113 4,397 2,645 12,405 ----------------------------------------------------- Subtotal 13,654 38,194 50,234 45,972 39,449 Change in current assets and liabilities (6,345) (4,100) 636 8,196 (1,570) ----------------------------------------------------- Cash provided by operations 7,309 34,094 50,870 54,168 37,879 As a percentage of revenues 2.0% 8.3% 11.9% 13.0% 9.0% Investment in property and equipment 13,234 28,733 42,426 41,509 36,339 ----------------------------------------------------- PER COMMON SHARE Earnings (loss) before extraordinary item $ (.49) $ (.69) $ 1.60 $ 1.48 $ .70 Earnings (loss) (.49) (.69) 1.60 1.42 .62 Book value 13.61 14.18 14.96 13.58 11.99 Market price at year-end 11 16 3/4 20 3/4 22 1/4 21 1/8 Weighted average common and dilutive common equivalent shares (000's omitted) 9,246 9,656 10,301 10,519 10,304 ----------------------------------------------------- NUMBER OF RESTAURANTS AT YEAR-END Bakers Square 160 189 187 181 179 Company-operated Village Inn 99 112 126 122 122 Franchised Village Inn 106 107 104 105 106 Angel's 5 6 -- -- -- ----------------------------------------------------- Total 370 414 417 408 407 -----------------------------------------------------
. 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 last three fiscal years. All average sales are presented on a 52 week basis. 1995 1994 1993 ------------- ------------- ------------- Bakers Square Restaurant sales $ 226,996,000 $ 260,110,000 $ 274,479,000 Average sales per restaurant 1,282,000 1,364,000 1,475,000 Restaurant operating profit (loss) (9,000) 28,802,000 39,436,000 Restaurant operating profit % 0.0% 11.1% 14.4% Divisional administrative costs 5,902,000 7,425,000 7,646,000 Divisional operating profit (loss) (5,911,000) 21,377,000 31,790,000 Restaurants at year-end 160 189 187 ------------------------------------------- Village Inn Restaurant sales $ 132,349,000 $ 145,410,000 $ 150,660,000 Average sales per restaurant 1,251,000 1,192,000 1,182,000 Restaurant operating profit 17,930,000 17,894,000 20,988,000 Restaurant operating profit % 13.5% 12.3% 13.9% Franchise income 3,722,000 3,347,000 3,366,000 Divisional administrative costs 3,284,000 4,854,000 5,639,000 Divisional operating profit 18,368,000 16,387,000 18,715,000 Restaurants at year-end 99 112 126 ------------------------------------------- Angel's Restaurant sales $ 10,771,000 $ 3,777,000 -- Average sales per restaurant 1,539,000 2,122,000 -- Restaurant operating profit (loss) (1,488,000) 12,000 -- Restaurant operating profit % (13.8%) .3% -- Divisional administrative costs 956,000 796,000 -- Divisional operating profit (loss) (2,444,000) (784,000) -- Restaurants at year-end 5 6 -- ------------------------------------------- Consolidated Restaurant sales $ 370,116,000 $ 409,297,000 $ 425,139,000 Food cost % 33.5% 30.1% 29.8% Labor cost % 33.7% 30.2% 28.5% Other operating cost % 28.3% 28.2% 27.5% Restaurant operating profit % 4.4% 11.4% 14.2% Restaurant operating profit 16,433,000 46,708,000 60,424,000 Franchise income 3,722,000 3,347,000 3,366,000 Divisional general and administrative costs 10,142,000 13,075,000 13,285,000 -------------------------------------------- Divisional operating profit 10,013,000 36,980,000 50,505,000 -------------------------------------------- Unallocated general and administrative costs 16,119,000 22,677,000 19,706,000 -------------------------------------------- Operating profit (loss) (1) (6,106,000) 14,303,000 30,799,000 ============================================ (1) Before asset disposal and restructuring charges of $23 million and $1.3 million in 1994 and 1993, respectively. Restaurant sales decreased 9.6% in 1995 versus 1994. The Company operated approximately 25 fewer restaurants in 1995 compared to 1994 due to restaurant closures and dispositions. A comparable same store sales decline of 5.9% also contributed to the overall decrease in sales. The Bakers Square division registered the majority of the decrease which was affected by a menu price reduction of approximately 10% put into place in the middle of 1995. This action of reducing prices was taken to reverse a four-year decline in customer counts in that division. Compared to the prior year, same store customer counts for Bakers Square decreased 8.7% in 1995 prior to the price reduction, but only decreased 1.4% thereafter. 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. However, the principal reason for the decline was a decrease in comparable same store 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. 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 contributed to the sales declines in 1994. Menu price changes had no appreciable effect on sales in 1994. Restaurant operating profit decreased 65% in 1995 versus 1994. Bakers Square's restaurant operating profit decreased significantly due to the menu price reductions, lower comparable sales in relationship to fixed costs, and investments in food, labor and certain other restaurant related items in order to improve customer counts. Village Inn's restaurant operating results were essentially unchanged from the prior year, but improved as a percentage of sales. The closure of unprofitable restaurants and reduced advertising and insurance costs were largely offset by higher labor costs from increased staffing. Angel's, the Company's experimental concept, recorded a restaurant operating loss in 1995 due to preopening costs and a higher than expected cost structure. The decision on whether Angel's is a viable concept for expansion will be made in 1996. Restaurant operating profit decreased 23% in 1994 compared to 1993. 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. General and administrative expense decreased in 1995 compared to 1994 as the result of administrative office consolidations, staff reductions, reduced incentive and legal expenses and a $1,000,000 sign-up bonus for the Company's President paid in 1994. General and administrative expense increased in 1994 compared with 1993 due primarily to the sign-up bonus, litigation costs and lower capitalization of overhead as a result of a slowdown in construction activity. Other income/expense in 1994 included $1,918,000 of income related to settlement of litigation against certain of the Company's insurance carriers. In 1994, the Company recorded a $23,000,000 charge related primarily to a plan to close and dispose of underperforming restaurants and discontinue a portion of the Company's manufacturing and distribution activities. Also, included were charges to impair the carrying values on four properties and to accrue for administrative restructuring costs. As of October 31, 1995, 46 of the 50 restaurants scheduled for disposition had been closed. The remaining four locations are expected to close in fiscal 1996. Of the closures, 22 have been disposed through sale, lease termination, or sublease. The Company does not anticipate that disposition proceeds or costs will materially affect the Company's liquidity. The following table details sales and operating results of the 50 closure restaurants: 1995 1994 1993 ---------------------------------------- Bakers Square Sales $ 15,765,000 $ 26,664,000 $ 30,491,000 Restaurant operating profit (loss) (1,198,000) (484,000) 433,000 Village Inn Sales 5,328,000 11,084,000 11,242,000 Restaurant operating profit (loss) (175,000) (589,000) (321,000) Angel's Sales 2,065,000 143,000 -- Restaurant operating profit (loss) (754,000) (23,000) -- Total Sales 23,158,000 37,891,000 41,733,000 Restaurant operating profit (loss) (2,127,000) (1,096,000) 112,000 In 1995, the Company discontinued internal warehousing and distribution of grocery products for its restaurants. The Company does not anticipate significant changes in delivered product costs as a result of the change; however, food inventories were reduced. Also in 1995, the Company closed its bakery facility in Phoenix, Arizona. In 1993, the Company recorded a $1,300,000 charge related to the decision to close its Matteson, Illinois regional office and combine 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 effective income tax rates used for financial reporting were 50.0% in 1995, 37.5% in 1994 and 36.2% in 1993. The 1995 and 1994 rates were 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 both in 1994 and 1995 due primarily to lower operating income and changes in working capital from contraction of the Company's business. Operating cash flow in 1995 was supplemented by the collection of an insurance receivable. 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. During fiscal 1995, the Company borrowed an additional $7,000,000 under its bank credit facility as operating cash flows were insufficient to fund capital expenditures and stock repurchases. At October 31, 1995, the Company had $35,250,000 of outstanding borrowings under its bank credit facility, with approximately $9,750,000 available for additional direct advances. The Company's current bank agreement expires on June 30, 1996 when it converts to a term facility payable in eight equal quarterly installments through June 30, 1998. The Company is currently pursuing a new revolving facility with certain lenders and is optimistic that a new facility will be in place prior to the current revolving facility's expiration. The Company is also exploring other debt financing sources. Over the last three years, 1,199,500 shares of the Company's common stock were repurchased for $20,423,000 under authorizations approved by the Board of Directors. At October 31, 1995, authorization to repurchase an additional 300,500 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 1995 totaled $13,234,000 and consisted of $1,954,000 to purchase two previously franchised locations and a land site, $9,167,000 for improvements to existing restaurants, and $2,113,000 for other support related projects. Capital expenditures of $14,000,000 are expected for 1996. No new restaurants are planned during 1996. Cash flow from operations, funds available under a bank credit facility, or other financing sources are expected to be adequate for planned capital projects and any repurchases of common stock authorized by the Board. At October 31, 1995, the Company had $44,375,000 of net deferred tax assets, the majority of which relates to federal net operating loss carryforwards totaling $207,082,000. The Company has established a valuation allowance due to the uncertainty that the full amount of the operating loss carryforwards will be applied against future taxable income. While a continuation of the Company's 1995 taxable income level is not sufficient to realize the portion of the net deferred tax asset related to the operating loss carryforwards before the expiration periods, the Company feels that its 1995 operating results are not indicative of future performance. Historically, the Company had taxable income in excess of the amount necessary for realization and believes it will do so again in future years. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Cumulative taxable income of approximately $53,000,000 through 1999 will be necessary to realize the net deferred tax asset before expiration of a majority of the net operating loss carryforwards. MANAGEMENT OUTLOOK The mid-scale segment of the restaurant industry remains extremely competitive. The Company has discontinued opening new restaurants until existing operations improve which affects its overall competitiveness. Improvements in future operating performance will be dependent upon the Company's ability to reverse negative comparable sales trends, especially given the significant profit impact associated with incremental sales at existing restaurants. Cost controls will also play a significant factor in future profit growth. In addition, numerous external factors could have a significant impact on future performance, not limited to food commodity costs, labor availability, site availability, the economy, the weather and government initiatives such as minimum wage rates, mandated benefits and taxes. Historically, the Company has mitigated the effects of inflation through cost controls and periodic price increases. Management believes it will be able to minimize the effects of future inflation through similar measures, although such price increases will be subject to competitive constraints and other business considerations. NEW ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock- Based Compensation". The SFAS, which would be effective for the Company's fiscal 1997, recommends a fair value based method of accounting for an employee stock option. However, companies may choose to continue to account for stock options using the intrinsic value based method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and provide proforma disclosures of net income and earnings per share as if the fair value based method had been applied. The Company anticipates it will continue to account for stock options using the intrinsic value based method, and thus SFAS No. 123 will not have any impact on its reported results. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS TO OUR SHAREHOLDERS: The preparation and integrity of the financial statements of VICORP Restaurants, Inc. are the responsibility of its management. This responsibility includes the selection of accounting procedures and practices which conform with generally accepted accounting principles considered appropriate in the circumstances. Informed judgments and estimates which the Company believes to be reasonable are required in the determination of certain data used in the accounting and reporting process. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are executed in accordance with management's authorization and properly recorded in all material respects. Adequate communication of Company policies to its employees, segregation of responsibilities for the authorization and execution of transactions, and proper accountability for the Company's assets are essential elements of the system. Each year the Board of Directors appoints an Audit Committee comprised of directors who are not employees of the Company. The principal responsibilities of this Committee are to recommend an independent auditor for the Company and to periodically meet with representatives of the independent auditors and with management to obtain reasonable assurances that the auditors are properly discharging their responsibilities and that the Company's financial reporting to stockholders and others is adequate and appropriate. Arthur Andersen LLP has conducted an independent examination in order to render their opinion on the Company's financial statements. Charles R. Frederickson J. Michael Jenkins Chairman of the Board and President and Co-Chief Executive Officer Co-Chief Executive 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 31, 1995 and October 30, 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1995. 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 31, 1995 and October 30, 1994, and the results of their operations and their cash flows for the three years in the period ended October 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, December 12, 1995. VICORP Restaurants, Inc. CONSOLIDATED BALANCE SHEETS October 31, October 30, (in thousands) 1995 1994 ----------- ----------- ASSETS Cash (Note 1) $ 3,988 $ 6,123 Receivables (Notes 1 and 2) 3,149 9,801 Inventories (Note 1) 8,597 10,585 Deferred income taxes (Notes 1 and 9) 5,000 6,000 Prepaid expenses and other (Note 1) 2,003 2,592 ----------- ----------- Total current assets 22,737 35,101 ----------- ----------- Property and equipment, net (Notes 1 and 3) 152,592 165,802 Deferred income taxes (Notes 1 and 9) 39,375 33,550 Long-term receivables (Notes 1 and 2) 3,032 3,998 Other assets (Note 1) 10,425 10,572 ----------- ----------- Total assets $ 228,161 $ 249,023 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current maturities of long-term debt and capitalized lease obligations (Notes 1, 4 and 5) $ 6,116 $ 1,796 Accounts payable, trade 16,526 19,246 Accrued compensation 5,542 5,965 Accrued taxes 7,998 9,979 Accrued insurance (Note 10) 5,656 6,537 Other accrued expenses 4,984 6,930 ----------- ---------- Total current liabilities 46,822 50,453 ----------- ----------- Long-term debt (Notes 1 and 5) 31,094 28,573 Capitalized lease obligations (Note 4) 11,085 13,981 Non-current accrued insurance (Note 10) 6,092 7,750 Other non-current liabilities and credits 9,970 13,400 Commitments and contingencies (Notes 4, 5 and 10) Shareholders' equity (Note 6) 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, 9,044,026 and 9,509,426 shares issued 452 476 Paid-in capital 84,332 91,544 Retained earnings 38,314 42,846 ----------- ----------- Total shareholders' equity 123,098 134,866 ----------- ----------- Total liabilities and shareholders' equity $ 228,161 $ 249,023 =========== =========== The accompanying notes are an integral part of the financial statements. VICORP Restaurants, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended ---------------------------------------------- October 31, October 30, October 31, (in thousands, except per share data) 1995 1994 1993 ---------- ---------- ---------- Revenues Restaurant operations $370,116 $409,297 $425,139 Franchise operations (Note 1) 3,722 3,347 3,366 ---------- ---------- ---------- 373,838 412,644 428,505 ---------- ---------- ---------- Costs and expenses Restaurant operations Food 124,028 123,280 126,647 Labor 124,792 123,718 121,273 Other operating 104,863 115,591 116,795 General and administrative 26,261 35,752 32,991 Asset disposal, restructuring and related costs (Note 8) -- 23,000 1,300 ---------- ---------- ---------- Operating profit (loss) (6,106) (8,697) 29,499 Interest 3,855 3,867 3,878 Other (income) expense, net (Note 2) (897) (1,944) (289) ---------- ---------- ---------- Income (loss) before income taxes (9,064) (10,620) 25,910 Provision for income taxes (Note 9) (4,532) (3,982) 9,386 ---------- ---------- ---------- Net income (loss) $ (4,532) $ (6,638) $ 16,524 ========== ========== ========== Earnings (loss) per common and dilutive common equivalent share (Note 1) $ (.49) $ (.69) $ 1.60
The accompanying notes are an integral part of the financial statements. VICORP Restaurants, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended ------------------------------------------ October 31, October 30, October 31, (in thousands) 1995 1994 1993 ---------- ---------- ---------- OPERATIONS Net income (loss) $ (4,532) $ (6,638) $ 16,524 Reconciliation to cash provided by operations Depreciation and amortization 22,565 26,133 23,381 Deferred income tax provision (4,825) (5,414) 5,932 Asset disposal, restructuring and related costs 436 24,788 2,787 Other, net 10 (675) 1,610 ---------- ---------- ---------- 13,654 38,194 50,234 Change in assets and liabilities Trade receivables 250 (1,855) (164) Inventories 1,962 1,240 (1,404) Accounts payable, trade (2,720) (1,423) 2,739 Other current assets and liabilities (4,180) (1,379) (1,099) Non-current accrued insurance (1,657) (683) 564 ---------- ---------- ---------- Cash provided by operations 7,309 34,094 50,870 ---------- ---------- ---------- INVESTING ACTIVITIES Purchase of property and equipment (13,234) (28,733) (42,426) Purchase of other assets (14) (1,568) (580) Disposition of property (768) (16) 255 Additions to non-trade receivables -- (1,088) -- Collection of non-trade receivables 6,582 1,617 694 ---------- ---------- ---------- Cash used for investing activities (7,434) (29,788) (42,057) ---------- ---------- ---------- FINANCING ACTIVITIES Proceeds from issuance of debt 41,250 17,750 6,750 Payments of debt and capital lease obligations (35,984) (14,471) (10,060) Purchase of common stock (7,694) (7,282) (5,449) Other, net 418 532 394 ---------- ---------- ---------- Cash used for financing activities (2,010) (3,471) (8,365) ---------- ---------- ---------- Increase (decrease) in cash (2,135) 835 448 Cash at beginning of year 6,123 5,288 4,840 ---------- ---------- ---------- Cash at end of year (Note 1) $ 3,988 $ 6,123 $ 5,288 ========== ========== ========== Supplemental information Cash paid during the year for Interest (net of amount capitalized) $ 3,933 $ 3,792 $ 3,828 Income taxes 968 1,217 2,228
The accompanying notes are an integral part of the financial statements. VICORP Restaurants, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of operations VICORP operates family style restaurants under the names "Bakers Square", "Village Inn" and "Angel's Diner and Bakery" and franchises restaurants under the Village Inn name. At October 31, 1995, VICORP operated 264 restaurants in 14 states, of which, 160 were Bakers Squares, 99 were Village Inns and five were Angel's. On that date, there were 106 franchised Village Inn restaurants in 20 states. The restaurants operated by the Company are located primarily in Arizona, California, Florida, the Rocky Mountain region, and the upper Midwest. The Company has a pie manufacturing division supporting its restaurants, which operates under the name VICOM. VICOM has five production facilities. Basis of presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates. Principles of consolidation The consolidated financial statements include the accounts of VICORP Restaurants, Inc. and its wholly-owned subsidiary. All significant intercompany transactions and accounts have been eliminated. Fiscal year In fiscal 1995, the Company switched its fiscal year end to the last day in October. Prior to that, the Company utilized a 52/53 week fiscal year which ended on the last Sunday in October. Fiscal year 1993 was 53 weeks, while fiscal 1994 was 52 weeks and fiscal 1995 was 52 weeks and two days. Sales for the extra two days in fiscal 1995 ("the transition period") totaled $1,216,000. Sales for the extra week in fiscal 1993 totaled $7,400,000. Inventories Inventories are valued at the lower of first-in, first-out cost or market value. Inventories consisted of the following (in thousands): October 31, October 30, 1995 1994 ---------- ---------- Food at production facilities Raw materials $ 2,828 $ 4,553 Finished goods 3,252 3,067 ---------- ---------- 6,080 7,620 Food at restaurants 2,191 2,355 Other inventories 326 610 ---------- ---------- $ 8,597 $10,585 ========== ========== Prepaid expenses Prepaid expenses consist primarily of supplies, restaurant preopening costs and prepaid contract costs. Preopening costs are amortized over a one-year period following restaurant opening. Unamortized preopening costs totaled $21,000 and $386,000 at the end of 1995 and 1994, 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): 1995 1994 1993 ------- ------- ------- Continuing service fees $ 4,192 $ 3,968 $ 3,607 Initial and renewal fees 167 166 125 Property rental income 269 319 630 Interest income on franchisee notes 293 263 299 Equipment sales income 50 64 115 Administrative expense (1,249) (1,433) (1,410) ------- ------- ------- Franchise revenues $ 3,722 $ 3,347 $ 3,366 ======= ======= ======= Advertising Costs The American Institute of Certified Public Accountants (AICPA) issued Statement of Position No. 93-7 "Reporting on Advertising Costs" in December 1993. The Company adopted the new statement in its fiscal 1995 and the implementation of the statement had no material effect on reported income. The Company expenses the production costs of advertising the first time the advertising takes place. Costs of communicating advertising are expensed when incurred, generally when airtime or print media is used. Direct response advertising is seldom used by the Company and is expensed when incurred. Advertising expense for 1995, 1994 and 1993 was $11,106,000, $14,043,000 and $15,219,000, respectively. At October 31, 1995 and October 30, 1994, no material amounts of advertising were reported as assets. 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 carryforwards and temporary differences between the financial reporting and tax bases of assets and liabilities. 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 years 1995 and 1994 were anti-dilutive due to the net losses recorded in those years. The weighted average number of common and common equivalent shares used for the 1995, 1994 and 1993 calculations were as follows: 1995 1994 1993 ------------------------------------ Weighted average common shares outstanding 9,246,439 9,656,094 10,007,907 Common equivalent shares outstanding -- -- 292,793 ------------------------------------ 9,246,439 9,656,094 10,300,700 ==================================== 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. NOTE 2. RECEIVABLES Receivables consisted of the following: October 31, October 30, (in thousands) 1995 1994 ---------- ---------- Trade receivables $ 3,391 $ 3,751 Notes receivable 5,808 7,755 Insurance receivable -- 6,500 Discounts (750) (1,170) Allowance for doubtful accounts (2,268) (3,037) ---------- ---------- Receivables, net 6,181 13,799 Current portion 3,149 9,801 ---------- ---------- Long-term portion $ 3,032 $ 3,998 ========== ========== The Company's receivables 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. 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. This receivable was collected in the first quarter of 1995. NOTE 3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: October 31, October 30, (in thousands) 1995 1994 ---------- ---------- Property and equipment used in operations Land $ 21,982 $ 20,832 Buildings and improvements 122,533 115,838 Equipment 104,856 101,573 Construction in progress 1,829 8,615 Restaurant property leased to others 4,339 3,811 Accumulated depreciation (111,339) (95,126) ---------- ---------- 144,200 155,543 ---------- ---------- Capitalized lease buildings 10,091 11,097 Accumulated amortization (5,091) (5,370) ---------- ---------- 5,000 5,727 ---------- ---------- Properties held for disposal, net 10,011 15,906 Allowance for loss on disposal (6,619) (11,374) ---------- ---------- Property and equipment, net $ 152,592 $ 165,802 ========== ========== Depreciation and amortization expense charged to operations for property and equipment was $22,018,000 in 1995, $25,509,000 in 1994 and $22,763,000 in 1993. At October 31, 1995, all of the Company's fee owned properties were free of mortgages, pledges or other liens. NOTE 4. 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 certain bakery production facilities. 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 leases having initial terms ranging from 3 to 7 years. The implicit interest rates range from 6.4% to 18.6% for capitalized 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 31, 1995, 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 ------- --------- --------- 1996 $ 3,108 $ 15,744 $ (2,683) 1997 2,909 14,448 (2,557) 1998 2,685 13,613 (2,403) 1999 2,503 13,073 (2,059) 2000 2,233 12,213 (1,852) Later years 5,709 52,873 (6,780) ------- -------- --------- Total minimum lease payments 19,147 $121,964 $(18,334) ======== ========= Less amount representing interest 6,426 ------- Present value of mininum lease payments 12,721 Current maturities of capitalized lease obligations 1,636 ------- Capitalized lease obligations $11,085 ======= Net rental expense consisted of the following: (in thousands) 1995 1994 1993 ------- ------- ------- Restaurant land and buildings Minimum rentals $14,714 $15,243 $15,154 Contingent rentals 2,685 2,922 3,522 Equipment 1,346 3,293 3,362 ------- ------- ------- Rental expense 18,745 21,458 22,038 Less lease and sublease rental income 3,368 3,152 3,829 ------- ------- ------- Net rental expense $15,377 $18,306 $18,209 ======= ======= ======= NOTE 5. DEBT Long-term debt consisted of the following: October 31, October 30, (in thousands) 1995 1994 ---------- ----------- Advances under bank credit agreement $35,250 $28,250 Other long-term debt 324 392 ---------- ----------- 35,574 28,642 Current maturities 4,480 69 ---------- ----------- Long-term debt $31,094 $28,573 ========== =========== The Company's bank credit agreement provides up to $55,000,000 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 Company is currently negotiating a new revolving bank credit agreement with certain lenders. In addition, the Company is exploring other options of refinancing its bank advances. The largest outstanding balance under the facility during 1995 was $35,250,000. The average balance outstanding was $25,100,000 and the average annual interest rate was 7.2%. As of October 31, 1995, the Company had placed letters of credit totaling $9,999,000 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. At October 31, 1995, principal amounts of long-term debt due during each of the five succeeding fiscal years were $4,480,000 in 1996, $17,703,000 in 1997, $13,302,000 in 1998, $89,000 in 1999 and none in 2000. The Company incurred $3,864,000, $3,956,000 and $4,179,000 of interest charges in 1995, 1994 and 1993, respectively. Of these amounts, $9,000, $89,000 and $301,000 were capitalized in each respective year. NOTE 6. 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. At various times since August 1992, the Company's Board of Directors has authorized the purchase of shares of the Company's common stock. At October 31, 1995, authorization to purchase an additional 300,500 common shares was available. Under Colorado law, repurchased shares of capital stock are considered authorized and unissued shares and have the same status as shares which have never been issued. Under the most restrictive covenants of the Company's bank credit agreement, approximately $880,000 of consolidated retained earnings were unrestricted at October 31, 1995, as to the declaration of cash dividends and the acquisition of the Company's common stock. 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 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 Net loss -- -- -- (4,532) (4,532) Common stock options exercised including income tax benefit 42,600 1 457 -- 458 Purchase of common shares (508,000) (25) (7,669) -- (7,694) -------------------------------------------------------- Balances at October 31, 1995 9,044,026 $ 452 $ 84,332 $ 38,314 $ 123,098 ========================================================
NOTE 7. 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 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 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 Granted 19,882 15.25 - 17.00 Exercised (42,600) 5.63 - 15.00 Canceled (146,694) 9.88 - 25.50 - ---------------------------------------------------------------- Outstanding at October 31, 1995 (356,607 shares exercisable) 677,898 $ 5.63 - 30.17 ================================================================ In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock- Based Compensation". The SFAS, which would be effective for the Company's fiscal 1997, recommends a fair value based method of accounting for an employee stock option. However, companies may choose to continue to account for stock options using the intrinsic value based method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and provide proforma disclosures of net income and earnings per share as if the fair value based method had been applied. The Company anticipates it will continue to account for stock options using the intrinsic value based method, and thus SFAS No. 123 will not have any impact on its reported results. 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 1995, 1994 and 1993 were $455,000, $829,000 and $861,000, respectively. NOTE 8. ASSET DISPOSAL, RESTRUCTURING AND RELATED COSTS In 1994, a $23,000,000 charge was recorded principally related to a plan to close and dispose of restaurants that had declining sales and profits and that were in trade areas no longer considered appropriate for the Company's operating concepts. The disposition plan also included a portion of the Company's manufacturing and distribution operations which were no longer economical to operate. The disposal charge consisted of estimates to reduce the carrying amounts of assets to net realizable value, accruals for closure and carrying costs, and losses on sublease dispositions where it is expected that sublease rentals will be lower than the Company's obligations under the prime lease. Through 1995, the Company closed 46 locations. Another four locations are anticipated to close in fiscal 1996. Of the closed locations, 22 had been disposed of through sale, lease termination or sublease. Also in 1995, the Company discontinued the internal distribution and warehousing of grocery products for its restaurants and closed its bakery facility in Phoenix, Arizona. Operating results for the 50 restaurants for the past three fiscal years were as follows (in thousands): 1995 1994 1993 -------- -------- -------- Sales $ 23,158 $ 37,891 $ 41,733 Restaurant operating profit (loss) (2,127) (1,096) 112 Included in the 1994 charge was an impairment of assets of $2,287,000 for four restaurant properties with projected cash flows insufficient to recover remaining investments and a $1,291,000 restructuring charge related to the elimination of 27 administrative positions that were redundant or non-essential to ongoing operations. In 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 1994 and approximately 70 employees resigned or were terminated as a result of the office closure. As of October 31, 1995, the Company had $12,015,000 of reserves remaining to provide for the disposal of 37 properties, including nine closed prior to 1994. The reserves consisted of $6,852,000 to reduce the disposal property to net realizable value and $5,163,000 to provide for carrying costs and sublease losses. The Company believes that these reserves are adequate to cover the remaining costs and losses associated with the remaining disposal properties. During 1995, $2,603,000 of closure and carrying costs were charged against the established liability. NOTE 9. INCOME TAXES The total provisions for income taxes consisted of the following: (in thousands) 1995 1994 1993 ---------------------------- Current Federal $ -- $ 414 $ 560 States 200 929 1,311 ---------------------------- 200 1,343 1,871 ---------------------------- Deferred Federal (4,316) (3,613) 6,416 States (509) (1,801) (484) ---------------------------- (4,825) (5,414) 5,932 ---------------------------- $ (4,625) $ (4,071) $ 7,803 ============================ The components of the income tax provision were as follows: (in thousands) 1995 1994 1993 --------------------------- Current Taxes on income before carryforwards $ 200 $ 6,177 $ 9,398 Less benefit of loss carryforwards utilized -- (4,834) (7,527) ---------------------------- 200 1,343 1,871 ---------------------------- Deferred Tax effect of net change in temporary differences 3,866 (9,659) (409) Utilization of (addition to) tax net operating loss carryforward (7,609) 4,834 7,527 FICA tax credit (780) (749) -- Targeted jobs tax credit and AMT credit (302) -- -- 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) ---------------------------- (4,825) (5,414) 5,932 ---------------------------- Tax effect of deduction for exercised stock options credited to paid-in capital 93 89 1,583 ---------------------------- Income tax expense (benefit) $(4,532) $(3,982) $ 9,386 ============================ The provisions for income taxes differ from the amounts computed by applying the federal income tax rate to income before income taxes as follows:
(in thousands) 1995 % 1994 % 1993 % --------------------------------------------------- Computed federal income taxes using statutory rate $ (3,172) (35.0%) $ (3,717) (35.0%) $ 9,024 34.8% FICA tax credit (780) (8.6) (749) (7.0) -- -- Targeted jobs tax credit and AMT credit (302) (3.3) -- -- -- -- State income taxes net of federal income tax effect (201) (2.2) (567) (5.3) 1,341 5.2 Expiration of tax credit carryforwards -- -- 2,160 20.3 -- -- Change in valuation allowance -- -- (2,000) (18.8) 1,000 3.8 Effect of change in federal tax rate -- -- -- -- (2,186) (8.4) Other (77) (.9) 891 8.4 207 .8 --------------------------------------------------- $ (4,532) (50.0%) $ (3,982) (37.5%) $ 9,386 36.2% ===================================================
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. The Company had taxable income (loss) for federal income tax purposes and book income (loss) before income taxes as follows: (in thousands) 1995 1994 1993 ------------------------------- Federal taxable income (loss) $ (17,020) $ 14,589 $23,436 Book income (loss) before income taxes (9,064) (10,620) 25,910 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 assets were as follows: (in thousands) 1995 1994 --------------------- Deferred tax assets Tax effect of net operating loss carryforwards $ 79,268 $ 71,659 Tax credit carryforwards 4,206 3,922 FICA tax credit 1,529 749 Alternative minimum tax credits 2,165 2,147 Accrued insurance claims not yet deductible 4,512 5,430 Leasing transactions 3,598 3,889 Property and equipment 543 3,359 Other 4,782 5,526 --------------------- 100,603 96,681 Valuation allowance (53,000) (53,000) --------------------- Deferred tax asset, net 47,603 43,681 --------------------- Deferred tax liability (3,228) (4,131) --------------------- Net deferred tax asset 44,375 39,550 Current portion 5,000 6,000 --------------------- Long-term portion $ 39,375 $ 33,550 ===================== As of October 31, 1995, the Company had federal net operating loss carryforwards totaling $207,082,000 which expire $71,036,000 in 1998, $112,880,000 in 1999, $6,146,000 in 2001 and $17,020,000 in 2010. The Company also has 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. While a continuation of the Company's 1995 taxable income level is not sufficient to realize the portion of the net deferred tax asset related to the operating loss carryforwards before the expiration periods, the Company feels that its 1995 operating results are not indicative of future performance. Historically, the Company had taxable income in excess of the amount necessary for realization and believes it will do so again in future years. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Cumulative taxable income of approximately $53,000,000 through 1999 will be necessary to realize the net deferred tax asset before expiration of a majority 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. 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 $9,999,000 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 31, 1995, the Company had contractual commitments for restaurant construction of approximately $230,000. 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 19, May 14, August 6, October 31, 1995 (a) 1995 1995 1995 (a) -------------------------------------------- Revenues $ 124,033 $ 85,324 $ 83,216 $ 81,265 Restaurant operating income (loss) 11,706 5,810 (1,063) (20) Net income (loss) 2,499 158 (3,978) (3,211) Net income (loss) per common and dilutive common equivalent share .26 .02 (.44) (.36) ============================================ 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) ============================================ (a) The quarterly periods ended February 19, 1995, and February 20, 1994 were comprised of sixteen weeks each. The remainder of the Company's quarterly periods were comprised of twelve weeks each except for the fourth quarter of 1995 which consisted of twelve weeks and two days. In fiscal 1995, the Company switched its fiscal year end to the last day of October rather than the last Sunday in October. Sales for the extra two days in fiscal 1995's fourth quarter totaled $1,216,000. Each fiscal quarter in subsequent years will consist of three months. (b) Includes pre-tax asset disposal, restructuring and related cost charge of $23,000,000 and $1,918,000 income from settlement of litigation. 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 1996 Annual Meeting of Shareholders. Such statement will be filed no later than 120 days after the close of the fiscal year covered by this Form 10-K. Except for certain information concerning executive officers of the Company which is included in Part I of this Form 10-K, the information called for by the above items will be included in such definitive proxy statement under "Election of Directors", "Certain Transactions", "Compensation of Directors and Executive Officers" and "Voting Securities and Principal Holders Thereof", which is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (1) The following Consolidated Financial Statements of VICORP Restaurants, Inc. are filed as part of this report: Management's Report on Financial Statements. Report of Independent Public Accountants. Consolidated Balance Sheets - October 31, 1995 and October 30, 1994. Consolidated Statements of Operations - Years ended October 31, 1995, October 30, 1994 and October 31, 1993. Consolidated Statements of Cash Flows - Years ended October 31, 1995, October 30, 1994 and October 31, 1993. Consolidated Statements of Shareholders' Equity - Years ended October 31, 1995, October 30, 1994 and October 31, 1993 as presented in Note 6 of Notes to Consolidated Financial Statements. (a) (2) The following financial statement schedule for VICORP Restaurants,Inc., as listed in the Index below, is included herein beginning on page 35. Report of Independent Public Accountants on Financial Statement Schedule. Schedule II - Valuation and Qualifying Accounts for the years ended October 31, 1995, October 30, 1994 and October 31, 1993. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a) (3) The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index on Page 37. For the purpose of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's currently effective Registration Statements on Form S-8: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to any statute, charter provisions, bylaws, contract, or other arrangements, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceedings) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) Reports on Form 8-K filed in fourth quarter of 1995: Form 8-K dated September 22, 1995. Item 8. Change in fiscal year. (c) Exhibits filed with this report are attached hereto. (d) Financial statement schedules filed with this report follow: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To VICORP Restaurants, Inc.: 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 12, 1995. 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 attached index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Denver, Colorado, December 12, 1995. VICORP Restaurants, Inc. Schedule II - VALUATION AND QUALIFYING ACCOUNTS For the Three Years Ended October 31, 1995 (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 31, 1995: Allowance for doubtful accounts $ 3,037 $ 25 $ 234 (4) $ 1,028 (1) $ 2,268 Discounts 1,170 (63) -- 357 (5) 750 Allowance for loss on disposal 12,427 -- -- 5,575 (1) 6,852 Accumulated amortization 6,215 689 -- 1,230 (3) 5,674 ---------- ---------- -------- ---------- --------- $ 22,849 $ 651 $ 234 $ 8,190 $ 15,544 ========== ========== ======== ========== ========= 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 ========== ========== ======== ========== =========
(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. Year-end balances are reflected in the Consolidated Balance Sheets as follows: October 31, October 30, 1995 1994 ---------- ---------- Deducted from current receivables $ 1,067 $ 1,480 Deducted from property and equipment 6,619 11,374 Deducted from long-term receivables 1,951 2,727 Deducted from other assets 5,907 7,268 ---------- ---------- $ 15,544 $ 22,849 ========== ========== 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) Second Amended and Restated Credit Agreement dated June 18, 1993 between VICORP Restaurants, Inc. and Citibank N.A. and NationsBank of Texas, N.A. (Second Amended and Restated Credit Agreement) - Form 10-Q for the quarter ended May 9, 1993, Exhibit 10(a). *(vii) Amendment No. 1 dated May 1, 1995 to Second Amendment and Restated Credit Agreement - Form 10-Q for the quarter ended May 14, 1995, Exhibit 10. *(viii) Amendment No. 2 dated August 1, 1995 to Second Amendment and Restated Credit Agreement - Form 10-Q for the quarter ended August 6, 1995 - Exhibit 10. (ix) Amendment No. 3 dated October 31, 1995 to Second Amendment & Restated Credit Agreement. (x) 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) Amendment to 1982 Incentive Stock Option Plan dated April 11, 1995. *(g) 1983 Non-Qualified Stock Option Plan - Registration Statement 2-83326, Exhibit 10(c). *(h) Amendment to 1983 Non-Qualified Stock Option Plan - Form 10-Q for the quarter ended May 10, 1987, Exhibit 10(ii). *(i) Amendment to 1983 Non-Qualified Stock Option Plan - Form 10-K for the year ended October 25, 1992, Exhibit 10(x). (j) Amendment to 1983 Non-Qualified Stock Option Plan dated April 11, 1995. *(k) VICORP Restaurants, Inc. Outstanding Stock Purchase Plan (1989) - Registration Statement 33-32608, Exhibit 4(h). *(l) Deferred Compensation Plan of VICORP Restaurants, Inc. as amended - Form 10-K for the year ended October 31, 1993, Exhibit 10(vi)(1). *(m) Form Severance Agreement (Executive Officers excluding Frederickson and Jenkins) - Form 10-K for the year ended October 31, 1993, Exhibit 10(vi). *(n) Severance Agreement Charles R. Frederickson - Form 10-K for the year ended October 31, 1993, Exhibit 10(vi). *(o) Employment Agreement of J. Michael Jenkins dated August 26, 1994 - Form 10-K for year ended October 30, 1994, Exhibit 10 (vi)(n). *(p) Stock Option Agreement for J. Michael Jenkins dated August 26, 1994 - Form 10-K for year ended October 30, 1994, Exhibit 10 (vi)(o). (q) Employment Severance & Release Agreement - James F. Caruso. (r) Employment Severance & Release Agreement - Dennis L. Kuper. (s) Employment Agreement of Nicholas Galanos dated February 3, 1995. 23 - Consents of Accountants 24 - Power of Attorney 27 - Financial Data Schedule SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on the 18th day of January, 1996. 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 18, 1996 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/ David D. Womack Controller (David D. Womack) (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 (IX) AMENDMENT 3 TO CREDIT AGREEMENT Amendment No. 3 Dated as of October 31, 1995 to Second Amendment and Restated Credit Agreement Dated as of June 18, 1993 This AMENDMENT No. 3 ("Amendment") dated as of October 31, 1995 is entered into by and among VICORP Restaurants, Inc., a Colorado corporation (the "Borrower"), Citibank, N.A. and NationsBank of Texas, N.A., as lenders (the "Lenders"), and Citibank, N.A., as agent for the lenders (in such capacity, the "Agent"). RECITALS A. The Borrower, the Lenders and the Agent are parties to that certain Second Amended and Restated Credit Agreement dated as of June 18, 1993 (as amended, the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise defined herein are used herein as defined in the Loan Agreement. B. The Borrower has requested that the Lenders and the Agent amend, and the Lenders and the Agent have agreed to amend, certain provisions of the Loan Agreement as set forth below. NOW, THEREFORE, the Borrower, the Lenders and the Agent agree as follows: SECTION 1. Amendment. Subject to the conditions set forth in Section 2 herein, the Borrower, the Lenders and the Agent hereby amend the Loan Agreement as follows: (a) Section 7.03(b) of the Loan Agreement is amended to provide that the Borrower is required to maintain a ratio of Consolidated Unsubordinated Liabilities to Consolidated Tangible Net Worth of no more than .92 to 1 as of the last day of the fiscal quarter ended October 31, 1995, and of no more than .90 to 1 as of the last day of each fiscal quarter thereafter; (b) Section 7.03(c) of the Loan Agreement is amended to provide that clause (i) will be "$124,000,000" for the fiscal quarter ended October 31, 1995, and that clause (i) will be "$125,000,000" for each fiscal quarter thereafter; and (c) Section 7.03(e) of the Loan Agreement is amended to provide that the Borrower is required to maintain a fixed charge coverage ratio (as set forth in such Section 7.03(e)) greater than or equal to .95 to 1 for the fiscal quarter ending on October 31, 1995; and to maintain a fixed charge coverage ratio greater than or equal to 1.75 to 1 as of the last day of each fiscal quarter thereafter. SECTION 2. Conditions Precedent to Amendment. This Amendment shall be deemed to be effective as of October 31, 1995 upon the satisfaction of each of the following conditions precedent: (a) the receipt by the Agent of four (4) original copies of this Amendment duly executed and delivered by a duly authorized officer of the Borrower and of each Lender; and (b) the absence of any Default or Event of Default under the Loan Agreement. SECTION 3. Representations and Warranties of the Borrower. (a) Upon the Effectiveness of this Amendment, the Borrower hereby reaffirms all covenants, representations and warranties made in the Loan Agreement and agrees that all such covenants, representations and warranties shall be deemed to have been re-made as of the effective date of this Amendment. (b) The Borrower hereby represents and warrants that this Amendment constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally, and general principles of equity which may limit the availability of equitable remedies. SECTION 4. Reference to and Effect on the Loan Agreement. (a) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Lenders and the Agent under the Loan Agreement or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. (b) Upon the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import shall mean and be a reference to the Loan Agreement as amended hereby, and each reference to the Loan Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Loan Agreement shall mean and be a reference to the Loan Agreement as amended hereby. (c) Except as specifically amended hereby, the Loan Agreement and any other document, instrument or agreement executed in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. SECTION 5. Governing Law. This Amendment shall be governed by and construed in accordance with the other remaining terms of the Loan Agreement and the internal laws (as opposed to conflict of law provisions) of the State of New York. SECTION 6. Section Titles. The section titles contained in this Amendment are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. SECTION 7. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. VICORP RESTAURANTS, INC. By: /s/ Charles R. Frederickson Name: Charles R. Frederickson Title: Chairman of the Board By: /s/ Jack A. Baldwin Name: Jack A. Baldwin Title: Assistant Treasurer CITIBANK, N.A. By: /s/ Marjorie Futornick Marjorie Futornick Vice President NATIONSBANK OF TEXAS, N.A. By: /s/ Gloria Holland Gloria Holland Vice President CITIBANK, N.A., as Agent By: /s/ Marjorie Futornick Marjorie Futornick Vice President EX-10 3 (X)(F) AMENDMENT TO 1982 STOCK OPTION PLAN AMENDMENT TO 1982 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN OF VICORP RESTAURANTS, INC. VICORP Restaurants, Inc. (the "Corporation") hereby amends its 1982 Incentive and Non-Qualified Stock Option Plan (the "Plan") effective the 11th day of April, 1995. RECITALS A. The Corporation adopted the Plan on the 29th day of June, 1982, and amended the same as of December 16, 1986; June 25, 1987; August 25, 1987; April 12, 1988; and March 27, 1992. B. The Corporation now desires to further amend such Plan. C. Article 15 of the Plan provides: "The Board of Directors may amend or discontinue this Plan at any time provided that no unexercised option granted under this Plan may be altered or canceled, except in accordance with its terms, without the written consent of the participant to whom such option was granted; and provided further that, without the approval of the stockholders, no amendment may change (except as provided in Article 12) either the aggregate number of shares which may be issued under the Plan, or the designation or the class of employees eligible to receive options as provided in Article 3 or remove the administration of this Plan from the Committee." D. The stockholders of the Corporation approved this amendment to the Plan at the Corporation's annual meeting of stockholders on April 11, 1995. AMENDMENT NOW, THEREFORE, the Corporation does amend the Plan as follows: 1. Article 16 of the Plan is hereby amended to read as follows: "No option shall be granted hereunder after June 29, 2002." 2. Any inconsistent provisions of the Plan shall be read to be consistent with this Amendment. 3. Except as amended above, the Corporation hereby affirms and readopts each and every other provision of the Plan. 4. The effective date of this Amendment shall be April 11, 1995. IN WITNESS WHEREOF, VICORP Restaurants, Inc. has executed this Amendment by its duly authorized officers as of the 11th day of April, 1995. VICORP RESTAURANTS, INC. By /s/ Charles R. Frederickson Charles R. Frederickson, Chairman [CORPORATE SEAL] ATTEST: By /s/ Stanley Ereckson, Jr. Stanley Ereckson, Jr., Secretary EX-10 4 (X)(J) AMENDMENT TO 1983 STOCK OPTION PLAN AMENDMENT TO 1983 NON-QUALIFIED STOCK OPTION PLAN OF VICORP RESTAURANTS, INC. VICORP Restaurants, Inc. (the "Corporation") hereby amends its 1983 Non-Qualified Stock Option Plan (the "Plan") effective the 11th day of April, 1995. RECITALS A. The Corporation adopted the Plan on the 30th day of March, 1983, and amended the same as of April 9, 1987; August 25, 1987; March 30, 1989; and March 27, 1992. B. The Corporation now desires to further amend such Plan. C. Article 15 of the Plan provides: "The Board of Directors may amend or discontinue this Plan at any time provided that no unexercised option granted under this Plan may be altered or canceled, except in accordance with its terms, without the written consent of the participant to whom such option was granted; and provided further that, without the approval of the stockholders, no amendment may change (except as provided in Article 12) either the aggregate number of shares which may be issued under the Plan, or the designation or the class of employees eligible to receive options as provided in Article 3 or remove the administration of this Plan from the Committee." D. The stockholders of the Corporation approved this amendment to the Plan at the Corporation's annual meeting of stockholders on April 11, 1995. AMENDMENT NOW, THEREFORE, the Corporation does amend the Plan as follows: 1. Article 4, sentence 1 of the Plan is hereby amended to read as follows: "The stock for which options may be granted and which may be sold pursuant to this Plan shall not, subject to Article 12, exceed in the aggregate three hundred thousand (300,000) shares of the Corporation's common stock." 2. Article 16 of the Plan is hereby amended to read as follows: "No option shall be granted under this Plan after June 29, 2002." 3. Any inconsistent provisions of the Plan shall be read to be consistent with this Amendment. 4. Except as amended above, the Corporation hereby affirms and readopts each and every other provision of the Plan. 5. The effective date of this Amendment shall be April 11, 1995. IN WITNESS WHEREOF, VICORP Restaurants, Inc. has executed this Amendment by its duly authorized officers as of the 11th day of April, 1995. VICORP RESTAURANTS, INC. By /s/ Charles R. Frederickson Charles R. Frederickson, Chairman [CORPORATE SEAL] ATTEST: By /s/ Stanley Ereckson, Jr. Stanley Ereckson, Jr., Secretary EX-10 5 (X)(Q) SEVERANCE & RELEASE AGREEMENT - JAMES F. CARUSO February 16, 1995 James F. Caruso 173 Marion Street Denver, Colorado 80218 Re: Employment Severance and Release Agreement Dear Mr. Caruso: The purpose of this letter is to put into written form the agreement with respect to your termination of employment with VICORP Restaurants, Inc. ("VICORP"). The agreement is: Employment: You will be relieved of any further duties with VICORP on February 16, 1995. Your status as an employee shall terminate on February 17, 1995. Salary: VICORP shall pay you your base salary through February 17, 1995, 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 February 17, 1995. Benefits: Your entitlement to participate in the benefits offered by VICORP shall cease as of February 17, 1995. 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"). Stock Options: VICORP confirms your right to exercise until May 18, 1995 any options which were granted to you to purchase VICORP's common stock and which were vested as of February 17, 1995. In no event, however, shall any granted but unvested options vest subsequent to February 17, 1995. Severance: VICORP shall pay to you $201,666, less appropriate federal and state withholding, as severance pay in recognition of your service to VICORP. The payment shall be made to you in a lump sum payment immediately after the expiration of the revocation period provided for in this agreement. 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 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 in gainful employment by a third party subsequent to your termination from VICORP. Return of Documents: You have agreed to immediately return to VICORP any and all keys, charge cards, company documents, and any and all other items of VICORP which are in your possession. 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: You will be eligible to receive the three-month out-placement package at the Company's expense through the firm of AIM/Enterchange. 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 arising out of the employment relationship. 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. 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. In consideration for the foregoing release, VICORP shall pay to you $18,333 at the expiration of the revocation period defined below. 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. 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. The provisions of this agreement relating to severance, outplacement assistance, and mutual release shall not be effective or enforceable until the revocation period has expired; all other provisions shall be effective as of February 17, 1995. Sincerely, /s/ J. Michael Jenkins Accepted and agreed to J. Michael Jenkins President /s/ James F. Caruso James F. Caruso SE/ts 17 February 1995 ---------------- Date EX-10 6 (X)(R) SEVERANCE & RELEASE AGREEMENT - DENNIS L. KUPER October 9, 1995 Dennis L. Kuper 740 Olive Street Denver, Colorado 80220 Re: Employment Severance and Release Agreement Dear Mr. Kuper: The purpose of this letter is to put into written form the agreement with respect to your termination of employment with VICORP Restaurants, Inc. ("VICORP"). The agreement is: Employment: You will be relieved of any further duties with VICORP on October 9, 1995. Your status as an employee shall terminate on October 9, 1995. Salary: VICORP shall pay you your base salary through October 9, 1995, 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 October 9, 1995. Benefits: Your entitlement to participate in the benefits offered by VICORP shall cease as of October 9, 1995. 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"). Stock Options: VICORP confirms your right to exercise until January 8, 1996 any options which were granted to you to purchase VICORP's common stock and which were vested as of October 9, 1995. In no event, however, shall any granted but unvested options vest subsequent to October 9, 1995. Severance: On January 3, 1996 VICORP shall pay to you $128,333, less appropriate federal and state withholding, as severance pay in recognition of your service to VICORP. 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 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 in gainful employment by a third party subsequent to your termination from VICORP. Return of Documents: You have agreed to immediately return to VICORP any and all keys, charge cards, company documents, and any and all other items of VICORP which are in your possession. 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: You will be eligible to receive the three-month out-placement package at the Company's expense through the firm of AIM/Executive. 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 arising out of the employment relationship. 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. 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. In consideration for the foregoing release, VICORP shall pay to you $11,667 at the expiration of the revocation period defined below. 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. 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. The provisions of this agreement relating to severance, outplacement assistance, and mutual release shall not be effective or enforceable until the revocation period has expired; all other provisions shall be effective as of October 9, 1995. Sincerely, /s/ J. Michael Jenkins Accepted and agreed to J. Michael Jenkins President /s/ Dennis L. Kuper Dennis L. Kuper SE/ts 10/24/95 -------- Date EX-10 7 (X)(S) EMPLOYMENT AGREEMENT OF NICHOLAS GALANOS February 3, 1995 VIA FAX (214) 522-7437 Nick Galanos 2001 Coit Road, Suite #166 Plano, Texas 75075 Re: President/Angel's Diner Division Dear Nick: This letter will confirm the terms of your employment with VICORP Restaurants, Inc. ("VICORP"). Those terms are: 1. You have been employed into the position of President/Angel's Diner Division. 2. Your employment commenced on February 1, 1995 and shall continue on an at-will basis indefinitely. 3. In that position, your duties will be to discharge the duties of the President of the Angel's Diner Division 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 President of VICORP. 4. Your immediate supervisor will be the President of VICORP. 5. The compensation package you will receive is: A. A bi-weekly base salary of $7,692.31 (representing an annualized base salary of $200,000). B. You will be eligible to earn an annual bonus equal to 10% of Angel's Divisional Operating Income. Divisional operating income is defined as dollars of Store Operating Profit minus Division Overhead Expenses. In no event, however, shall your bonus exceed, on a cumulative basis, $2.5 million over the fiscal year period 1995 through 1999. C. You will be eligible to participate in VICORP's standard benefits programs, consistent with the terms of those programs, that are offered to other officers of VICORP. You will receive complete information on each of the benefits offered to officers of VICORP at your orientation. D. The company will reimburse you for all travel and other business expenses in accordance with VICORP's business expense reimbursement guidelines, except, however, when first-class air travel is available, VICORP agrees to pay for up-grade stickers. Further, VICORP agrees to purchase air pass mileage blocks from American Airlines to help reduce your travel costs. E. In the event of your involuntary termination by VICORP, which is not for cause, VICORP agrees that it will pay to you a severance package equal to one year's base salary, plus benefit coverages for up to the earlier of 12 months or until you secure another position which includes benefits coverages. Hopefully, the above is a correct expression of our understanding of the terms of your employment. To the extent, however, you have additional questions or concerns, please feel free to contact me, so that we can clarify any confusions. On behalf of VICORP, I am happy that you have chosen to become a member of the VICORP team and look forward to the contributions that you can bring in the development and growth of the Angel's Diner Division. Sincerely, /s/ J. Michael Jenkins J. Michael Jenkins President Acknowledged and agreed to this 3rd day of February, 1995 /s/ Nick Galanos Nick Galanos EX-23 8 CONSENTS OF ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports included in this Form 10-K, into the Company's previously filed Registration Statements, File No. 33-26650, 33-32608, 33-34447, 33-48205, 33-43889 and 33-49166. ARTHUR ANDERSEN LLP Denver, Colorado. January 18, 1996 EX-24 9 POWER OF ATTORNEY POWER OF ATTORNEY The undersigned, Carole Lewis Anderson, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson 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 29, 1996. 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 first day of December, 1995. /s/ Carole Lewis Anderson Carole Lewis Anderson Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Bruce B. Brundage, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson 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 29, 1996. 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 first day of December, 1995. /s/ Bruce B. Brundage Bruce B. Brundage Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Charles R. Frederickson, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint 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 29, 1996. 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 first day of December, 1995. /s/ Charles R. Frederickson Charles R. Frederickson Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, John C. Hoyt, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson 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 29, 1996. 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 first day of December, 1995. /s/ John C. Hoyt John C. Hoyt Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} 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 29, 1996. 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 first day of December, 1995. /s/ J. Michael Jenkins J. Michael Jenkins Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Robert T. Marto, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson 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 29, 1996. 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 first day of December, 1995. /s/ Robert T. Marto Robert T. Marto Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Dudley C. Mecum, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson 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 29, 1996. 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 first day of December, 1995. /s/ Dudley C. Mecum Dudley C. Mecum Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Dennis B. Robertson, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson 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 29, 1996. 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 first day of December, 1995. /s/ Dennis B. Robertson Dennis B. Robertson Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} POWER OF ATTORNEY The undersigned, Arthur Zankel, a Director of VICORP Restaurants, Inc. (the "Company"), a Colorado corporation, does hereby constitute and appoint Charles R. Frederickson 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 29, 1996. 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 first day of December, 1995. /s/ Arthur Zankel Arthur Zankel Director STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) This first day of December, 1995, 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 Toni A. Schreivogel Notary Public 400 West 48th Avenue Denver, Colorado 80216 {SEAL} EX-27 10 FINANCIAL DATA SCHEDULE-1995
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VICORP RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AS OF OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000703799 VICORP RESTAURANTS, INC. 1,000 YEAR OCT-31-1995 OCT-31-1995 3,988 0 3,149 0 8,597 22,737 279,894 127,302 228,161 46,822 42,178 0 0 452 122,646 228,161 370,116 373,838 124,028 124,028 229,655 0 3,855 (9,064) (4,532) (4,532) 0 0 0 (4,532) (.49) (.49)
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