Use these links to rapidly review the documentFORM 10-K/A INDEX VI ACQUISITION CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549-1004

FORM 10-K/A
Amendment No. 1

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the Fiscal Year Ended October 28, 2004                   
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission File Number: 333-117263

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VICORP RESTAURANTS, INC.(Exact name of registrant as specified in its charter)

|Colorado(State or other jurisdiction
of incorporation or organization)   |  | 84-0511072(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------ |  | ----------------------------------------------
|400 West 48th Avenue, Denver, CO(Address of principal executive offices) |  | 80216(Zip Code)                               
|303-296-2121(Registrant's telephone number, including area code)        

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

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

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the past
90 days. YES o    NO ý

Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to
this form 10-K: ý

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

The aggregate market value of voting stock held by non-affiliates of the registrant is not determinable as such shares were privately placed and there
is no public market for such shares.

Number
of shares of Common Stock, $.0001 par value, outstanding at May 17, 2005: 1,427,602, excluding treasury shares.



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Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to the
reports will be provided without charge upon written request addressed to: Investor Relations, VICORP Restaurants, Inc., 400 West 48th Avenue, Denver, Colorado 80216.
Additionally, our consolidated financial statements are available at our website, www.vicorpinc.com, under the "Our CompanyInvestor Relations" headings.

FORM 10-K/A INDEX



|         |  |                                                                                      
|-------- |  | -------------------------------------------------------------------------------------
|PART I  
|Item 1   |  | Business                                                                             
|Item 2   |  | Properties                                                                           
|Item 3   |  | Legal Proceedings                                                                    
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                  
|PART II 
|Item 5   |  | Market for the Registrant's Common Equity and Related Stockholder Matters            
|Item 6   |  | Selected Financial Data                                                              
|Item 7   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 7a  |  | Quantitative and Qualitative Disclosures About Market Risk                           
|Item 8   |  | Financial Statements and Supplementary Data                                          
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|Item 9A  |  | Controls and Procedures                                                              
|Item 9B  |  | Other Information                                                                    
|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                                       
|Item 14  |  | Principal Accounting Fees and Services                                               
|PART IV 
|Item 15  |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K/A and the documents incorporated by reference into the Annual Report on
Form 10-K/A include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements can be identified by the use of forward-looking terminology, including the words "believes," "estimates," "anticipates," "expects," "intends," "may," "will" or
"should," or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of
places throughout this Annual Report on Form 10-K/A and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of
operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in
the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of
the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report on Form 10-K/A. In addition,
even if our results or operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this
Annual Report on Form 10-K/A, those results or developments may not be indicative of results or developments in subsequent periods.

The following listing represents some, but not necessarily all, of the factors that may cause actual results to differ from those anticipated or
predicted:



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These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us, including the factors described under "Item 1.
BusinessRisk factors." The forward-looking events we discuss in this Annual Report on Form 10-K/A speak only as of the date of such statement and might not occur in
light of these risks, uncertainties and assumptions. We undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

Unless otherwise provided in this Annual Report on Form 10-K/A, references to "the Company," "VICORP," "we," "us" and "our" refer to VI
Acquisition Corp. and our consolidated subsidiaries including VICORP Restaurants, Inc.

Explanatory Note

This Amendment No. 1 on Form 10-K/A ("Form 10-K/A") to our Annual Report on Form 10-K for the
fiscal year ended October 28, 2004, initially filed with the Securities and Exchange Commission (the "SEC") on January 24, 2005 (the "Original Filing"), is being filed to reflect
restatements of (i) our consolidated balance sheets at October 28, 2004 and October 26, 2003 and (ii) our consolidated statements of operations, stockholders' equity and
cash flows for the fiscal year ended October 28, 2004, the period ended October 26, 2003, the period ended June 13, 2003 and the fiscal year ended October 27, 2002, and the
notes related thereto. For a more detailed description of these restatements, see Note 3, "Restatement of Previously Issued Financial Statements"
to the accompanying audited consolidated financial statements (as restated) and the section entitled "Restatement of Previously Issued Financial Statements" in Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in this Form 10-K/A.

We
have restated our financial statements and related disclosures for periods spanning from fiscal 2000 through fiscal 2004 to correct the following accounting errors, primarily as a
result of a review of our lease accounting policies and practices prompted by the views expressed by the Office of the Chief Accountant of the SEC on February 7, 2005 in a letter to the
American Institute of Certified Public Accountants and other recent interpretations regarding certain operating lease issues and their application under U.S. Generally Accepted Accounting Principles
("GAAP"):

(i)    Accounting for Real Estate Transactions

Historically, we have accounted for certain of our real estate transactions of restaurant properties as sale-leaseback transactions. We have restated
our financial statements to now report these transactions as financing transactions under Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 98, "Accounting for Leases," rather than as sale-leaseback transactions as previously reported due to a determination that certain lease agreement provisions reflect continuing
involvement with the buyer-lessor. Our continuing involvement for most of our leases now accounted for under the financing method results from our ability to control the property with
pre-determined rental payments through at least 90 percent of the economic life of the property, even though lease renewals would need to be exercised by us to effectuate such
control. These "perpetual fixed-price renewal options" are considered continuing involvement because the seller-lessee is deemed to benefit from future appreciation in the underlying property in a
manner similar to a fixed-price purchase option. Such continuing involvement precludes the use of sale-leaseback accounting until such time that the continuing involvement no longer
exists. The affected real estate transactions related to an aggregate of 79 existing restaurants in 1999, 2001 and 2003 and nine new restaurant locations opened in 2003 and 2004.

The
impact of the restatement was to record on our consolidated balance sheets the assets of the restaurants subject to these transactions as if they had not been sold and record the
proceeds from these transactions (including any gains previously deferred) as liabilities under the caption "Deemed

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landlord
financing liability". Operating results were restated to recognize depreciation expense associated with the assets subject to these transactions and re-characterize the lease
payments previously reported as rent expense as principal repayments and imputed interest expense. The rent expense reversal associated with these transactions included the reversal of previously
recorded expenses for straight-line rents and rent reductions for certain purchase accounting adjustments made to account for the leases at fair market value. In addition, the capital
lease classification for three leased properties was re-characterized as deemed landlord financing assets and liabilities.

The
net impact to correctly classify the aforementioned leases as financing transactions was decreases in pre-tax income of $4.6 million, $1.8 million,
$2.0 million and $3.3 million for the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 and the fiscal year ended
October 27, 2002, respectively. The correcting entries decreased other operating and franchise operating expenses and increased interest expense.

(ii)    Understated Straight-Line Rent Expense

GAAP requires that leases for which there are scheduled rent increases over the term of the lease be accounted for at the average rent payment, or on a
straight-line basis, over the applicable term with differences being recorded on the balance sheet as a deferred rent liability. We did not appropriately straight-line our
rents for certain locations, which resulted in understated operating expenses in prior financial reporting periods. The net impact to correctly straight-line rents resulted in decreased
pre-tax income of $0.5 million, $0.3 million, $0.3 million and $0.6 million for the fiscal year ended October 28, 2004, the periods ended
October 26, 2003 and June 13, 2003 and the fiscal year ended October 27, 2002, respectively.

(iii)    Understated Depreciation and Amortization Expense

We generally have historically depreciated our buildings and leasehold improvements over the lesser of the asset's useful life or the initial term of the
associated lease unless an economic penalty would occur from not exercising renewal options, in which case, the assets are depreciated over the lesser of the asset's useful life or the reasonably
assured lease term. However, in performing a detailed review of our depreciable assets, we determined that buildings and leasehold improvements for approximately 31 restaurant properties had incorrect
depreciable lives resulting in an understatement of depreciation expense, predominantly in earlier periods. The net pre-tax impact of the correction of our leasehold depreciable lives was
not material for the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 or the fiscal year ended October 27, 2002. The
pre-tax impact of the correction prior to these time periods totaled $1.1million and is reflected in our consolidated balance sheets as a reduction in property and equipment, net and
stockholders' equity.

(iv)    Understated Interest Expense and Preferred Stock Dividends on Preferred Stock Warrant Accretion

We also determined it was appropriate to record additional adjustments which were previously deemed immaterial. The adjustments related to interest expense and
preferred dividends imputed from the accretion of preferred stock warrants with anti-dilutive provisions issued originally to
certain debt holders at the time of our June 2003 purchase. The pre-tax impact for the correction increased interest expense by $0.1 million and $0.1 million for the
fiscal year ended October 28, 2004 and the period ended October 26, 2003, respectively.

(v)    Accounting for Income Taxes

In addition to the impact on our income tax provision resulting from the accounting corrections discussed above, we also determined that our accounting for income
taxes related to our purchase business combinations was not correct. Under FASB SFAS No. 109, "Accounting for Income Taxes,"

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companies
are to recognize deferred tax assets and liabilities for the tax effects of differences between assigned values in the purchase price allocation in a purchase business combination (except
for the portion of goodwill that is not deductible for tax purposes). The provisions of SFAS No. 109 apply to basis differences that arise in both taxable and nontaxable business combinations.
In both our 2001 and 2003 business acquisitions, certain purchase price allocations were not correctly tax effected. The correction resulted in recognition of additional deferred tax liabilities and a
corresponding increase in goodwill. The impact of the corrections decreased our provision for income taxes by $2.6 million, $1.0 million, $1.2 million and $1.9 million for
the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 and the fiscal year ended October 27, 2002, respectively.

See
Note 3 to the accompanying consolidated financial statements (as restated) for a complete discussion of the restatement. All previously reported amounts affected by the
restatement that appear in this Annual Report on Form 10-K/A have been restated.

For
the convenience of the reader, this Form 10-K/A sets forth the Original Filing in its entirety. However, this Form 10-K/A only amends and
restates Items 6, 7, 8 and 9A of Part II and Exhibit 12.1 of Item 15 of Part IV of the Original Filing, in each case, solely as a result of, and to reflect, the restatement, and
no other information in the Original Filing is amended hereby. The foregoing items have not been updated to reflect other events occurring after the Original Filing or to modify or update those
disclosures affected by subsequent events. In addition, pursuant to the rules of the SEC, Item 15 of Part IV of the Original Filing has been amended to contain certifications from our Chief
Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer and Chief Financial Officer are
attached to this Form 10-K/A as Exhibits 31.1, 31.2 and 32.1, respectively.

Except
for the foregoing amended information, this Form 10-K/A continues to describe conditions as of the date of the Original Filing, and we have not updated the
disclosures contained herein to reflect events that occurred at a later date.

We
have not amended and do not intend to amend our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods
affected by the restatement that ended prior to October 28, 2004. For this reason, the consolidated financial statements, auditors' reports and related financial information for the affected
periods contained in such reports should no longer be relied upon.

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PART I

Item 1.    Business.

Our company

We operate family-dining restaurants under two proven and well-recognized brands, Village Inn and Bakers Square. As of October 28, 2004, our
company, which was founded in 1958, had 374 restaurants in 25 states, consisting of 271 company-operated restaurants and 103 franchised restaurants. Our restaurant locations are concentrated in
particular regions in order to maximize operating efficiencies, including regional management, purchasing and advertising penetration. In addition to our restaurants, we operate three strategically
located pie production facilities that produce premium pies that are offered in our restaurants and sold to third-party customers. Our revenues increased from $379.9 million in 2001 to
$399.7 million in 2004, while same unit sales decreased an average of 0.1% per year during that same period. Both of our restaurant concepts operate in the stable family-dining segment of the
restaurant industry. Over our 46-year history, we have concentrated on providing our customers great-tasting, high-quality food at reasonable prices with fast and friendly
service. Our commitment to an attractive price-to-value relationship has enabled us to develop a stable base of repeat customers.

We
continually seek to increase the efficiency of our operations, increase customer visits and sales per customer, provide new menu options for our guests and increase sales of higher
margin items. Significant investments in our brands and operational improvements, including an investment of approximately $7.2 million to upgrade our information and restaurant
point-of-sale ("POS") systems in 2002 and 2003, ongoing remodeling of our restaurants and reductions in purchasing and manufacturing costs have enabled us to improve our prime
margin, which is our profitability expressed as a percentage of restaurant sales after deducting
our two most significant costs, food and labor. Prime margin improved from 38.8% in 2001 to 41.6% in 2004. In addition, we have increased our margins by providing our managers with extensive training
and the tools necessary to effectively operate our business, such as on-line ordering and bill processing and real-time information on key business metrics. We continually
engage in selective menu engineering and the development of updated menu items for our restaurants such as our signature oven-roasted focaccia sandwiches in our Village Inn restaurants,
seasonal offerings such as artisan-style bread bowls filled with hearty soups and stews in our Bakers Square restaurants and a "Carb Counter" menu in our Village Inn restaurants. Our other efforts to
drive sales growth include creative marketing programs, such as our successful new electronic gift card program, and expansion of our third-party customer base for our pies.

Village Inn

We opened our first Village Inn restaurant in 1958, and as of October 28, 2004 we had 224 locations, 121 of which were operated by our company and 103 of
which we franchised. Our company-operated Village Inn restaurants are located in nine states, primarily in the Rocky Mountain region, the Midwest, the Northwest and Florida, including attractive
markets such as Denver (26 units), Phoenix (19 units), Omaha (13 units) and Salt Lake City (11 units). Village Inn is focused on family dining and appeals to a large segment of the population, and we
believe it has a strong reputation for fast and friendly service, fresh food and reasonable prices. We are known for serving fresh breakfast items throughout the day, including our Ultimate Skillet
meals, Pecan Roll French Toast, made-from-scratch buttermilk pancakes and fluffy three-egg omelets. Breakfast items accounted for 63% of Village Inn sales in 2004.
We have also successfully leveraged our strong breakfast heritage to establish a well-developed brand platform encompassing a broad selection of traditional American fare for lunch and
dinner, at price points that position us in the mid-range of the family-dining segment. Signature items on our lunch and dinner menus include our Portabella Chicken Skillet and our
All-World Double Cheeseburger®. We frequently review and update our menus with the assistance of our team of

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in-house
research and development chefs to enhance the attractiveness of our menu offerings to our customers. Customer loyalty is one of Village Inn's strongest characteristics, with a
significant number of customers who patronize our restaurants three or more times a month.

Our
Village Inn restaurants are predominantly free-standing units which average approximately 5,000 square feet in size and can seat between 120 and 180 people. We are
typically open from 6 a.m. to 12 a.m., allowing us to effectively generate revenue in all three day parts. Our typical entrée prices range from $4.29 to $9.69 for
breakfast items and from $4.99 to $10.69 for lunch and dinner items, with an average per-person check of $7.65 overall in 2004. In order to improve our efficiency and purchasing power, our
menus are standardized throughout the United States, with some variations driven by regional preferences. In 2004, Village Inn's average unit sales were $1.5 million, and corresponding average
restaurant operating cash flow was $275,000, representing an 18.7% margin.

Bakers Square

The Bakers Square concept began in 1983 when we acquired 59 Poppin Fresh Pies restaurants from the Pillsbury Restaurant Group. Since then, we have grown Bakers
Square to 150 company-operated restaurants as of October 28, 2004. Our Bakers Square restaurants are located in eight states, including California (50 units), Illinois (44 units) and Minnesota
(25 units). The foundation of the Bakers Square concept is our signature freshly-baked pies, which accounted for 25% of Bakers Square's sales in 2004. Building upon our reputation for quality pies, we
have extended our offerings to include popular traditional American fare for breakfast, lunch and dinner. Bakers Square offers dozens of varieties of multi-layer specialty pies made from premium
ingredients, which differentiates the concept from our family-dining competitors. Many of our customers complement their lunch or dinner with a serving of pie, while others purchase whole pies for
at-home consumption throughout the year, and particularly around the holidays. As with Village Inn, we use our team of in-house research and development chefs to regularly
update the Bakers Square menu offerings to attract a wider demographic range of diners and increase repeat business from existing customers. For example, we have successfully promoted our
artisan-style bread bowls filled with hearty soups and stews, along with popular menu favorites like our Stir-Fry Chicken Pita, Slow-Roasted Turkey Focaccia, Honey Mustard
Chicken and Portabella Pot Roast.

Our
Bakers Square restaurants are free-standing units which average approximately 4,500 square feet in size and can generally seat between 120 and 160 people. We are
typically open from 7 a.m. to 11 p.m., with our highest traffic generated at lunch and dinner. Our typical entrée prices range from $4.49 to $9.99 for breakfast items and
from $6.29 to $10.99 for lunch and dinner items, with an average per-person check of $8.70 overall in 2004. As with Village Inn, our menus are standardized across the United States, with
some variations driven by regional preferences. In 2004, Bakers Square's average unit sales were $1.5 million, and corresponding average restaurant operating cash flow was $179,000,
representing a 12.2% margin.

Recently,
we completed the first phase of a broad-based Bakers Square re-positioning review. In fiscal 2005, we expect to refine the changes to the brand and to initiate
selective market trials.

Pie production operations

Complementing our restaurant operations, we produce premium pies for the Bakers Square and Village Inn restaurants and for sale to select third-party customers.
In 2004, we produced 17.6 million premium pies. By producing pies at our three strategically located facilities, we are able to control the quality, consistency and freshness of our pies and
enhance our distribution capabilities. We differentiate ourselves from other pie manufacturers by producing multi-layer pies, using premium ingredients such as fresh cream, whole fruits and high
quality pie crusts, and maintaining a strict shelf life policy of no

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more
than three days for the fresh pies in our restaurants. At the 2004 National Pie Championships, we won 31 blue-ribbon awards, which was more than any other competitor.

We
have improved the efficiency of our pie production operations and increased sales of our pies to third parties, including the addition of several new accounts. We have used our
enterprise resource planning system to manage inventory and costs, concentrated our frozen pie production in our high volume Chaska, Minnesota facility to achieve economies of scale and restructured
our delivery arrangements to obtain substantial savings.

Industry overview

The restaurant industry is a significant contributor to the U.S. economy, with total 2002 sales of $279 billion, the eleventh consecutive year of real
growth. We believe this growth can be attributed to several key lifestyle and demographic trends, including the continued increase in spending on food consumed away from home and restaurant dining,
and the continued growth in disposable incomes and key age groups of the population. The restaurant industry can be divided into two primary operating segments: full service restaurants ("FSR") and
limited service restaurants ("LSR"). Restaurants operating in the FSR segment present broad menu choices that are served to patrons by a waitstaff, while restaurants operating in the LSR segment serve
customers at a counter or through a drive-thru window.

Our
Village Inn and Bakers Square concepts operate in the "family-dining" category of the FSR segment. The family-dining category is the largest category in the FSR segment, with
approximately $32 billion in sales in 2002. Family-dining sales grew at a compound annual growth rate of 1.6% from 1997 to 2002 and are projected to grow at a 1.0% compound annual growth rate
for the period from 2002 to 2007, according to Technomic, Inc. The family-dining category is relatively fragmented, with the top 100 chains representing approximately 33% of total category
sales in 2002. While not exhibiting the higher growth of certain other segments, we believe the family-dining category has a loyal customer
base and stable characteristics. We believe that family-dining restaurants offer consumers a consistent dining experience with quality food at a lower cost per check than other FSR dining options.

Our background

We opened our first restaurant under the name "Village Inn Pancake House" in Denver, Colorado in 1958. Due to the success of the Village Inn concept, we began
franchising the brand, and our first franchise restaurant opened in 1961. We introduced the Bakers Square concept in 1983 when we acquired 59 Poppin Fresh Pies restaurants from the Pillsbury
Restaurant Group. We transformed the Poppin Fresh Pies restaurants, all of which were located in the Midwest, into the Bakers Square concept. In 1984, we acquired 175 former Sambo's restaurants in
California, Florida and Arizona. We converted these restaurants in California into Bakers Square restaurants, which served as the basis for our expansion to the West Coast, and we converted the
Florida and Arizona restaurants into Village Inn restaurants.

We
completed an initial public offering in 1982 and changed our name from Village Inn Pancake House, Inc. to VICORP Restaurants, Inc. Following our initial public offering,
we were publicly traded until we were acquired in a going-private transaction led by the private equity firms Goldner Hawn Johnson & Morrison and BancBoston Capital in May 2001. In
June 2003, we were acquired in a transaction led by the private equity firm Wind Point Partners.

Our sponsor

Wind Point Partners is a private equity investment firm that manages over $1 billion in commitments and has invested in more than 75 companies since its
founding in 1983. Wind Point's strategy is to partner with top caliber CEOs and to align its economic interests closely with those of

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company
management teams through significant equity participation. Wind Point typically invests between $20 million and $70 million in transactions such as leveraged buyouts,
recapitalizations, industry consolidations and expansion capital transactions involving companies with revenue between $50 million and $500 million.

Operations and controls

To maintain a consistently high level of food quality and service in our restaurants, we have established uniform operational standards relating to the quality of
ingredients, preparation of food, menu selection, maintenance of premises and employee conduct. We require each of our restaurants to operate in accordance with these rigorous standards, and our
managers are responsible for implementing these standards.

To
reduce costs and improve the management of our restaurant and pie production operations, we have recently updated our information systems, including our ReMACS back-office
system, our POS system and our enterprise resource planning system. Our ReMACS information system provides our restaurant managers with improved electronic food ordering, inventory, ideal and actual
food cost reporting, cash control and labor management tools. By using our recently upgraded POS system in our restaurants, we are able to track sales, product mix, labor dollars and hours, and credit
card and cash deposit information for each of our restaurants on a daily basis. We use an SAP enterprise resource planning system in our pie production facilities to measure and reduce waste, labor
costs and inventory levels. In addition, to enable us to better understand and manage our operations, we maintain a central database of information and data relating to decisions support, cash and
sales, enterprise resource planning and our vital systems.

Site development and expansion

We believe that the locations of our restaurants are critical to our long-term success, and we devote significant time and resources to analyzing each
prospective site. We plan to expand in a number of ways, including through the development of new sites, the conversion of competitors' sites, and the purchase of franchised sites from franchisees.
The costs of opening a Bakers Square or Village Inn restaurant may vary by restaurant depending upon, among other factors, the location of the site, the method of acquisition and the amount of
construction required. With an average projected investment of approximately $450,000 for leased units, we believe we have a low-cost economic model for the continued development of new
restaurants. At times, we receive landlord development and/or rent allowances for leasehold improvements, furniture, fixtures and equipment. In addition, we anticipate that we will enter into
sale-leaseback transactions and other leasing arrangements with respect to our newly constructed restaurant properties. The standardized decor and interior design of each of our restaurant
concepts can be readily adapted to accommodate different types of building configurations.

We
use our in-house development team, including real estate, design and legal professionals, to find, evaluate and negotiate new sites for our restaurants. We evaluate
potential sites based on a number of criteria, including surrounding population density, demographic information, median household income and size, location, area restaurant competition, traffic,
access, visibility, potential restaurant size, parking and signage capability. We also selectively use outside consultants who
specialize in site evaluation to provide independent validation of our sales potential estimates for new sites. In fiscal 2004, we opened six newly constructed restaurants.

We
may also purchase our competitors' sites and convert them to our restaurant concepts. We evaluate each potential conversion site using the same criteria that we use to evaluate new
restaurant sites. We believe that conversion can be a cost-effective method for adding new restaurants. In fiscal 2004, we converted two of our competitors' restaurants to one of our
concepts.

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We
also may grow by purchasing franchised Village Inn restaurants from our franchisees. These opportunities may arise as our franchisees retire or seek liquidity for their investment.
For example, in 2003 we acquired eight franchised Village Inn restaurants located in the Albuquerque, New Mexico area.

Restaurant staffing and training

Attraction and retention of quality employees, continuous employee development, regular communication of expectations and regular performance feedback are
critical factors that help us achieve customer satisfaction. We believe we distinguish ourselves by the quality of personnel and longevity of service among our Regional Managers, restaurant general
managers and hourly staff. We attribute much of our success in retaining our management and employees to our extensive training programs, attractive cash incentive compensation program and competitive
benefit programs.

Each
of our restaurants is typically managed by one general manager, one associate manager and one assistant manager. On average, general managers possess over eight years of experience
with us. Each of our general managers has primary responsibility for day-to-day operations in one of our restaurants, including hiring/firing, scheduling, cleanliness of the
restaurant and restaurant cash flows. The restaurant managers are supported by Regional Managers, Regional Vice Presidents (or District Managers in California) and our corporate office. As of
October 28, 2004, we had 31 Regional Managers, each of whom is responsible for managing approximately nine restaurants in a designated geographic region in a manner consistent with our
strategies, policies and standards of quality. The Regional Managers report to one of three Regional Vice Presidents of Operations or two District Managers (in California). Our Regional Vice
Presidents of Operations participate in every aspect of our restaurant operations, from organizing quality management teams for the restaurants to routine visits to each location.

Our
training programs are designed to equip our employees and franchisees with the skills necessary to help us achieve our objectives. We focus on outcome-based training, emphasizing the
acquisition of basic skills and behavior that result in desired performance for specific positions. The average time in training for a manager new to our company is eight to ten weeks. At the
successful completion of training they are placed in a restaurant as an assistant manager. At this point the manager continues to be trained and developed, utilizing a program called Management
Development Criteria. This ongoing training challenges the new manager to thoroughly understand and demonstrate proficiency in all facets of management of our restaurants. Upon completion, the manager
is eligible to participate in our bonus program. In addition to these programs, we conduct field training for our restaurant managers covering a variety of topics such as new products, food safety and
management development. For each of our franchised restaurants, we require that a minimum of two managers receive certification through our management training program. Additionally, we require our
franchisees to successfully complete our management training program prior to the scheduled opening of any of our franchised restaurants.

Marketing, advertising and menu development

The family-dining segment in which our restaurant concepts operate attracts customers seeking quality, consistency, variety and value, with an average
per-person check typically between $6 and $9. Our mid-range price positioning in the family-dining segment provides the competitive advantage of flexibility in menu choices by
offering higher or lower priced items based on customer preferences. We use various marketing techniques, such as television and radio (in geographic markets where we have sufficient market
penetration), newspaper, direct mail and point-of-purchase materials to promote our restaurant concepts and gain market share. Other marketing initiatives include our
successful electronic gift card program. We sold $3.0 million worth of gift cards from the introduction of this program in November 2003 through October 2004.

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In
our ongoing effort to maximize our sales and profitability, we engage in careful menu engineering and the development of new menu items. We maintain a modern test kitchen at our
headquarters staffed by highly qualified food professionals who create new menu offerings as well as new pie recipes. Before new items are introduced, a program of testing is undertaken to assess
customer acceptance and implementation considerations. In preparing menu items, we emphasize quality and freshness, as well as trends in the family-dining segment as illustrated by our introduction of
"Carb Counter" menu items in our Village Inn restaurants. New items may be offered on a promotional or seasonal basis, serve as special items to provide variety to our regular menus, or become a
permanent part of our offerings.

Purchasing and distribution

Our ability to maintain consistent quality throughout our restaurants depends in large part upon our ability to acquire food products and related items from
reliable sources in accordance with our specifications. We make centralized, national purchasing decisions for most menu ingredients to gain favorable prices and maintain quality and freshness levels.
We negotiate directly with our major suppliers to obtain competitive prices and use purchase agreements in an effort to stabilize the potentially volatile pricing associated with certain commodities.
We also routinely negotiate with prospective suppliers in an effort to obtain competitive pricing. We believe that we have good relationships with our suppliers and that alternative supply sources are
readily available if necessary.

We
deliver our pies from our three pie manufacturing facilities to all of our restaurants and to our third-party customers using external distributors and transportation companies. We
recently restructured our delivery and distribution arrangements to obtain substantial savings.

Franchise program

We established our first Village Inn franchise in 1961. As of October 28, 2004 we had a total of 103 franchised Village Inn restaurants, operated by 25
franchisees, each with one to eleven restaurants. We believe that we currently enjoy solid working relationships with our franchisees. We presently intend to focus our expansion efforts on
company-operated restaurants but may pursue selected franchising opportunities.

We
generally seek franchisees that have related business experience and access to capital to build out and support the Village Inn concept. We also provide our franchisees with access to
training, marketing, quality control, purchasing/distribution and operations assistance. A franchisee is required to pay an initial franchise fee for a 15 year franchise term. Until the end of
their first year of operation, our franchisees also pay us a royalty fee of $1,154 a week and a marketing fee of $577 a week. A franchisee is also typically obligated to pay a fee for renewal of a
franchise agreement beyond the initial term. After the first year of operation, our franchisees are required to pay royalty fees of 4% of gross sales as well as marketing fees of 2% of gross sales.
Our standard franchise agreement gives our franchisees the right to use our trademarks, service marks, trade dress and our recipes, systems, manuals, processes and related items. Our franchise
consultants work toward visiting each of our Village Inn franchisees four times a year to monitor their business and to ensure that their stores meet with our quality standards.

Competition

The restaurant industry is highly competitive with respect to price, quality and speed of service, and quality and value of the food products offered. The number
and location of units, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development are also important competitive factors. Changes in consumer tastes
and preferences, economic conditions or

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population
demographics as well as shifts in traffic patterns, can also impact operations and profitability.

We
compete in the family-dining category within the full-service segment of the restaurant industry. Key competitors in this category for Village Inn include Denny's,
International House of Pancakes ("IHOP"), Perkins, and, to a lesser extent, Country Kitchen, Cracker Barrel, Shoney's and Waffle House. Our Midwest Bakers Square restaurants face competition from
Denny's, IHOP, independent restaurants and, to a lesser extent, Bob Evans, Embers and Perkins. Competitors for our California Bakers Square restaurants include Coco's, Denny's, Marie Callender's and,
to a lesser extent, Carrow's, Hof's Hut and Polly's. Some of these competitors have greater financial, distribution and brand resources than we do. Our restaurants, like all other restaurants, also
face heightened competition from supermarkets, many of which are increasing the breadth of their meal offerings in the form of fresh entrées and side dishes.

Intellectual property

We have an extensive portfolio of registered service marks, trademarks and logos, including "Bakers Square®," "Village Inn®," "Village Inn
Pancake House®," "Best Pie in America®," "Great Food. Unbelievable Pie.®," "The Skillet Experts®," "Good Food... Good Feelings®," "The
Breakfast Experts®" and "J. Horner's®." We believe that our service marks, trademarks and logos are valuable to the operation of our restaurants and are important to our
marketing strategy. Our policy is to actively pursue and maintain registration of our service marks, trademarks and logos where our business strategy requires us to do so and to oppose vigorously any
infringement or dilution of our service marks, trademarks or logos. However, we cannot predict whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation
of these rights or the use by others of restaurant features based upon, or otherwise similar to, our concepts. It may be difficult for us to prevent others from copying elements of our concepts, and
any litigation to enforce our rights will likely involve significant costs.

Environmental matters

Our operations are subject to federal, state and local laws and regulations relating to environmental protection, including regulation of discharges into the air
and water. Under various federal, state and local laws, an owner or operator of real estate may be liable for the costs of removal or remediation of hazardous or toxic substances on or in such
property. Such liability may be imposed without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances.

Some
of our properties are located on or adjacent to sites that we know or suspect to have been used by prior owners or operators as retail gas stations or industrial facilities. Such
properties previously contained underground storage tanks, and some of these properties may currently contain abandoned underground storage tanks. We do not believe that we have contributed to the
contamination at any of our properties. It is possible that petroleum products and other contaminants may have been released at or migrated beneath our properties into or through the soil or
groundwater. Under applicable federal and state environmental laws, we, as the current owner or operator of these sites, may be jointly and severally liable for the costs of investigation and
remediation of any contamination. While we seek to obtain certain assurances relating to environmental issues at the properties that we purchase from the prior owners of the properties or from third
parties, there can be no assurances that we will not be liable for environmental conditions relating to our prior, existing or future restaurants or restaurant sites. If we are found liable for the
costs of remediation of contamination at any of these properties, our operating expenses would likely increase and our operating results would be materially adversely affected.

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Governmental regulation

We are subject to various federal, state and local laws affecting the operation of our business, as are our franchisees, including various health, sanitation,
fire and safety standards. Each of our restaurants and pie production facilities is subject to licensing and regulation by a number of governmental authorities, which include zoning, health, safety,
environmental, sanitation, building and fire agencies in the jurisdiction in which the restaurant is located. We are also subject to the rules and regulations of the Federal Trade Commission and
various state laws regulating the offer and sale of franchises. In addition, all of our restaurants located in California sell beer and wine. As a result, we are required to comply with applicable
alcohol licensing requirements and alcoholic beverage control regulations.

We
also are subject to the Fair Labor Standards Act, the Immigration Reform and Control Act of 1986 and various federal and state laws governing such matters as minimum wages, overtime
and other
working conditions. A significant portion of our hourly staff is paid at rates consistent with the applicable federal or state minimum wage and, accordingly, increases in the minimum wage will
increase our labor cost.

The
federal Americans with Disability Act prohibits discrimination on the basis of disability in public accommodations and employment. We are required to comply with the Americans with
Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities.

Employees

As of October 28, 2004, we had 11,382 employees, consisting of 7,413 part-time employees and 3,969 full-time employees. We employ
172 employees at our corporate headquarters. Our employees are not covered by any collective bargaining agreement, and we consider our employee relations to be good. In 2003, employees at one of our
pie manufacturing facilities conducted an election to unionize our 138 employees at that facility. This effort was unsuccessful; however, our employees could engage in future unionization efforts that
may succeed.

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Risk factors related to our business

Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our
industry and prevent us from meeting our obligations under our indebtedness.

We are significantly leveraged. The following chart shows our level of indebtedness and certain other information as of October 28, 2004:

As of
October 28,
2004(In millions)Senior secured credit facilityRevolving credit facility(1)

$
1.4Term loan


15.0101/2% senior unsecured notes


126.5Unamortized original issue discount


(1.4
)Capitalized leases


0.4Total indebtedness


141.9Stockholders' equity


68.0


---

Our
substantial degree of leverage could have important consequences, including the following:



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We may have difficulty implementing our expansion strategy.

Our ability to open new restaurants is dependent upon a number of factors, many of which are beyond our control, including our ability to:



Historically,
there is a "ramp-up" period of time before we expect a new restaurant location to achieve our targeted level of performance. This phenomenon is due to higher
operating costs caused by start-up and other temporary inefficiencies associated with opening new restaurants, such as lack of market familiarity and acceptance when we enter new markets
and unavailability of experienced staff. We may not be able to attract enough customers to new restaurants because potential customers may be unfamiliar with our restaurants or our restaurants'
atmosphere or menus might not appeal to them.

We may not be able to open new restaurants profitably, which could negatively affect our growth strategy.

We have historically added, and plan to continue to add, new restaurants through new construction, acquisitions and conversions. We have traditionally used cash
flow from operations and sale-leaseback transactions as the primary funding sources for additional restaurants. We cannot guarantee that our cash flows will be sufficient to achieve the
desired development levels if our revenues, profitability or cash flow from operations decline. Opening a new restaurant in an existing market also could reduce the revenue of our existing restaurants
in that market.

Our restaurants may not be able to compete successfully with other restaurants.

We operate in a highly competitive industry. Price, restaurant location, food quality and type, service and attractiveness of facilities are important aspects of
competition in the restaurant industry, and the competitive environment is often affected by factors beyond a particular restaurant management's control, including changes in the public's taste and
eating habits, population, traffic patterns and general economic conditions. Competitive pressures may have the effect of limiting our ability to increase prices, which may adversely affect our
operating earnings. This competitive environment makes it more difficult for us to continue to provide high levels of service while maintaining our reputation for value without adversely affecting
operating margins. Additionally, to the extent we raise prices, our customer traffic may decline. Our restaurants compete with a large number of other restaurants, including national and regional
restaurant chains and franchised restaurant operations, as well as independently owned restaurants, for customers, restaurant locations, qualified management and other restaurant staff. Many of our
competitors have greater financial and other resources than we have. In addition, the restaurant industry has few non-economic barriers to entry, and therefore new competitors may emerge
at any time. We may not be able to compete successfully against our competitors in the future, and competition may have a material adverse effect on our operations.

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The success of our restaurants is highly dependent on their location.

The success of our company-operated and franchised restaurants is significantly influenced by location. There can be no assurance that our current locations will
continue to be attractive, as demographic patterns change and the economic conditions where our restaurants are located could change. The success of new restaurants that we open will be substantially
dependent on the locations that we select and the availability of desirable locations.

We are vulnerable to fluctuations in the cost, availability and quality of our ingredients.

The cost, availability and quality of the ingredients we use to prepare our food are subject to a range of factors, many of which are beyond our control. We
depend on frequent deliveries of fresh ingredients, thereby subjecting us to the risk of shortages or interruptions in supply. Fluctuations in economic and political conditions, weather and demand
could adversely affect the cost of our ingredients. Our efforts to pass along price increases may be subject to delays associated with our cycle of updating our menus. We have no control over
fluctuations in the price of commodities, and we may be unable to pass through cost increases to our customers. For example, we did not pass on to our customers the 75% increase in the price of eggs
(one of our largest food costs) which occurred during the 2004 fiscal year. We currently do not enter into futures contracts with respect to potential price fluctuations in the cost of food and other
supplies, which we purchase at prevailing market or contracted prices. Although we at times enter into arrangements locking in the price of certain ingredients for a specified period of time, we
typically do not rely on long-term written contracts with our suppliers. Our suppliers could implement significant price increases. All of these factors could adversely affect our
financial results.

We depend heavily on our suppliers and distributors.

We currently purchase our raw materials from various suppliers. Most of our suppliers drop-ship directly to our restaurants, as well as to our pie
production facilities. Our reliance on our suppliers subjects us to a number of risks, including possible delays or interruptions in delivery of supplies, diminished control over quality and a
potential lack of adequate raw material capacity. If any of these suppliers do not perform adequately or otherwise fail to distribute products or supplies to our restaurants or pie production
facilities, we may be unable to replace the suppliers in a short period of time on acceptable terms. For example, labor disputes at any of our suppliers could result in those suppliers being unable to
provide us with raw materials or supplies that we depend upon to run our business. Our inability to replace the suppliers in a short period of time on acceptable terms could increase our costs and
could cause shortages at our restaurants or pie production facilities of food and other items.

We
depend on our distribution system to distribute our food products to our restaurant locations. If there is any disruption in our distribution system, it could have a material adverse
effect on our results of operations.

Food-borne illness incidents, claims of food-borne illness and adverse publicity could reduce our restaurant sales.

Claims of illness or injury relating to food quality or food handling are common in the food service industry, and a number of these claims may exist at any given
time. We cannot guarantee that our internal controls and training will be effective in preventing all food-borne illnesses. Some food-borne illness incidents could be caused by
third-party food suppliers and transporters outside of our control. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise,
such as Bovine Spongiform Encephalopathy (also known as Mad Cow Disease), that could give rise to claims or allegations on a retroactive basis. We could be adversely

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affected
by negative publicity resulting from food quality or handling claims at one or more of our restaurants. Food-borne illnesses spread at restaurants have generated significant
negative publicity at other restaurant chains in the past, which has had a negative impact on their results of operations. One or more instances of food-borne illness in one of our
restaurants could negatively affect our restaurants' image and sales. These risks exist even if it were later determined that an illness was wrongly attributed to one of our restaurants.

In
addition, the impact of adverse publicity relating to one of our restaurants may extend beyond that restaurant to affect some or all of our other restaurants. The risk of negative
publicity is particularly great with respect to our franchised restaurants because we have limited ability to control their operations, especially on a real-time basis. A similar risk
exists with respect to unrelated food service businesses if customers mistakenly associate them with our operations.

We face the risk of litigation in connection with our operations.

We are from time to time the subject of complaints or litigation from our consumers alleging illness, injury or other food quality, health or operational
concerns. Adverse publicity resulting from these allegations may materially adversely affect us, regardless of whether the allegations are valid or whether we are ultimately held liable. In addition,
employee claims against us based on, among other things, discrimination, harassment, wrongful termination or wage, rest break and meal break issues, including those relating to overtime compensation,
may divert our financial and management resources that
would otherwise be used to benefit the future performance of our operations. We have been subject to such claims from time to time.

In
2001, we settled an individual labor-related legal claim and two class actions relating to overtime and other wage payments at our Bakers Square restaurants in California for a total
of $8.9 million plus attorneys' fees and expenses.

We
are currently defendants in two purported class action claims in California. The first class action claim was brought in October 2003 by two former employees and one current
employee of ours, and the second class action claim was brought in May 2004 by two former employees of ours. The complaints allege that we violated California law with regard to rest and meal
periods, bonus payment calculations (in the October 2003 complaint), overtime payments (in the May 2004 complaint) and California law regarding unfair business practices. The classes and
subclasses alleged in the actions have not been certified by the respective courts at the current stages of the litigation, but generally are claimed in the 2003 complaint to include persons who have
been employed by us in California since October 17, 1999 in the positions of food server, restaurant general manager and assistant restaurant manager, and generally are claimed in the 2004
complaint to include persons who have been employed by us in California since May 21, 2000 in the positions of restaurant general manager and restaurant associate manager. No dollar amount in
damages is requested in either complaint, and the complaints seek statutory damages, compensatory damages, interest and attorneys' fees in unspecified amounts.

During
the fourth quarter of fiscal 2004, we established a reserve of $3.2 million in connection with our agreement in principle to settle these class action lawsuits. The parties
in both lawsuits are in the process of finalizing the settlement, which is subject to approval of the court. Under the terms of the proposed settlements, we have agreed to pay up to an aggregate of
$6.55 million for the alleged claims and associated legal fees.

We
filed a lawsuit on December 3, 2004 against the former shareholders of Midway Investors Holdings Inc. (the former parent of VICORP Restaurants, Inc.), including
certain members of current management, in the Circuit Court of Cook County, Illinois seeking indemnification for all of the damages related to such litigation under the purchase agreement dated
June 14, 2003 pursuant to which VICORP Restaurants, Inc. was acquired, in addition to the assertion of other claims. The former shareholders of Midway Investors Holdings Inc.
filed a lawsuit on December 22, 2004 in Suffolk County

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Superior
Court in Massachusetts. The former shareholders of Midway Investors Holdings Inc. claim, among other allegations, that we improperly sought indemnification and are denying liability
for the portion of the damages in the previously mentioned class action lawsuits that arose following the closing of the June 2003 acquisition, and for certain settlements for which they claim
they did not receive appropriate notice or approval rights.

While
we believe that our claims against the former shareholders of Midway Investors Holdings Inc. are meritorious and that we will prevail, in the event we do not fully prevail
on our indemnification claims, management estimates that the Company's maximum exposure under the settlement agreements is the $3.2 million amount reserved. See "Item 3. Legal Proceedings."

Our operating results may fluctuate significantly due to the seasonality of our business and weather conditions.

Our business is subject to seasonal fluctuations that may vary depending upon the region in which a particular restaurant is located. In addition, the sales of
our pies typically increase during holiday periods, in particular during November and December of each year, and decrease significantly following holiday periods. Accordingly, results for any one
quarter are not necessarily indicative of results to be expected for any other quarter or for any year. Adverse weather conditions can also negatively impact our financial results. For example,
unusually cold temperatures or above-average rainfall tends to adversely affect sales in affected markets. These fluctuations can make it more difficult for us to predict accurately and address in a
timely manner factors that may have a negative impact on our business.

We may incur additional costs or liabilities and lose revenues and profits as a result of government regulation.

Our business is subject to extensive federal, state and local government regulation, including regulations related to the preparation and sale of food, the sale
of alcoholic beverages, the use of tobacco, zoning and building codes, land use and employee, health, sanitation and safety matters. One or more of our restaurants could be subject to litigation and
governmental fine, censure or closure in connection with issues relating to our food and/or our facilities. Our franchise operations are also subject to regulation by the Federal Trade Commission. We
and our franchisees must also comply with state franchising laws and a wide range of other state and local rules and regulations applicable to our business. The failure to comply with federal, state
and local rules and regulations could impair our ability to continue operating our business.

All
of our restaurants located in California sell beer and wine. Typically, each restaurant's license to sell alcoholic beverages must be renewed annually and may be suspended or revoked
at any time for cause. Alcoholic beverage control regulations relate to various aspects of daily operations of our restaurants, including the minimum age of patrons and employees, hours of operation,
advertising, wholesale purchasing and inventory control, handling and storage.

Our
restaurants that sell beer and wine are also subject to "dram shop" laws, which allow a person to sue us if that person was injured by a legally intoxicated person who was wrongfully
served alcoholic beverages at one of our restaurants. A judgment against us under a dram shop law could exceed our
liability insurance coverage policy limits and could result in substantial liability for us and have a material adverse effect on our profitability.

To
the extent that governmental regulations impose material additional obligations on our suppliers, including, without limitation, regulations relating to the inspection or preparation
of meat, food and other products used in our business, product availability could be limited and the prices that our suppliers charge us could increase. The costs of operating our restaurants may also
increase if there are changes in laws and regulations such as those governing access for the disabled, including the Americans with Disabilities Act. If any of these costs increased and we were unable
to offset the

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increase
by increasing our menu prices or by other means, we would generate lower profits, which could have a material adverse effect on our business and results of operations. See
"BusinessGovernmental regulation."

We may be locked into long-term and non-cancelable leases that we want to cancel, and may be unable to renew leases that we want to extend at the end of
their terms.

Many of our current leases are non-cancelable and typically have terms ranging from 15 to 20 years and renewal options for terms ranging from
ten to 20 years. Leases that we enter into in the future likely will also be long-term and non-cancelable and have similar renewal options. If we close a restaurant, we
may remain committed to perform our obligations under the applicable lease, which would include, among other things, payment of the base rent for the balance of the lease term. As of
October 28, 2004, we were responsible for lease payments at two closed restaurant locations. Additionally, the potential losses associated with our inability to cancel leases may result in our
keeping open restaurant locations that are performing significantly below targeted levels. As a result, ongoing lease operations at closed or underperforming restaurant locations could impair our
results of operations.

In
addition, at the end of the lease term and any renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all. As a result, we may
be required to close or relocate a restaurant, which could subject us to construction and other costs and risks, and could have a material adverse effect on our business and results of operations.

Changing consumer preferences and discretionary spending patterns could have an adverse effect on our business.

Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. Factors such as
traffic patterns, local demographics and the type, number and location of competing restaurants may adversely affect the performance of individual locations. In addition, inflation and increased food
and energy costs may harm the restaurant industry in general and our locations in particular. Adverse changes in any of these factors could reduce consumer traffic or impose practical limits on
pricing, which could harm our business. Our continued success will depend in part on our ability to anticipate, identify and respond to changing consumer preferences and economic conditions.

The
success of our restaurants is significantly influenced by the attractiveness and condition of our facilities. We periodically update the exterior and interior of our locations. If we
temporarily close a restaurant for renovation, we will lose the revenue that the restaurant would otherwise receive had it remained open. In addition, renovated restaurants may also experience a
significant reduction in revenue after they reopen if our existing customers change their dining habits as a result of the temporary closing of the restaurants.

In
addition, our business may be adversely affected by laws restricting smoking in restaurants, particularly in areas where smoking is only allowed in restaurants that serve alcohol,
since most of our restaurants do not serve alcohol. Adverse changes involving any of these factors could further reduce our guest traffic and impose practical limits on pricing, which could further
reduce our revenues and operating income.

If we make acquisitions in the future, we may experience assimilation problems and dissipation of management resources, and we may need to incur additional indebtedness.

Our future growth may be a function, in part, of acquisitions of other restaurants. To the extent that we grow through acquisitions, we will face the operational
and financial risks commonly encountered with that type of a strategy. We would also face operational risks, such as failing to

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assimilate
the operations and personnel of the acquired businesses, disrupting our ongoing business, dissipating our limited management resources and impairing relationships with employees and
customers of the acquired business as a result of changes in ownership and management. Additionally, we may incur additional indebtedness to finance future acquisitions, as permitted under our senior
secured credit facility and our indenture, in which case we would also face certain financial risks associated with the incurrence of this indebtedness, such as reductions in our liquidity, access to
capital markets and financial stability.

Any prolonged disruption in our pie manufacturing business could harm our business.

We
operate three pie manufacturing plants which produce pies for Bakers Square and Village Inn as well as third-party customers that account for a portion of current production. Any
prolonged disruption in the operations of any of these plants, whether as a result of technical or labor difficulties, destruction or damage to the facilities or other reasons, could result in
increased costs and reduced revenues, and our relationships with third-party customers could be harmed.

We rely in part on our franchisees.

We rely in part on our Village Inn franchisees and the manner in which they operate their locations to develop, promote and operate our Village Inn business. Our
Village Inn franchises generated revenues to us of $5.1 million during the 2004 fiscal year. Although we have developed criteria to evaluate and screen prospective franchisees, there can be no
assurance that franchisees will have the business acumen or financial resources necessary to operate successful franchises in their franchise areas. The failure of franchisees to operate franchises
successfully could have a material adverse effect on Village Inn's reputation and its brands. While we try to ensure that the quality of the Village Inn brand is
maintained by all of our franchisees, franchisees could take actions that adversely affect the value of our intellectual property or reputation.

We could face labor shortages that could slow our growth and increase our labor costs.

Our success depends in part upon our ability to attract, motivate and retain qualified employees, including restaurant managers, kitchen staff and servers, in
quantities sufficient to keep pace with our expansion schedule and meet the needs of our existing restaurants. A sufficient number of qualified individuals of the requisite caliber to fill these
positions may be in short supply in some areas. Additionally, competition for qualified employees could require us to pay higher wages, which could result in higher labor costs. Any future inability
to recruit and retain qualified individuals may delay the planned openings of new restaurants and could adversely impact our existing restaurants. Any such delays, any material increases in employee
turnover rates in existing restaurants or any widespread employee dissatisfaction could have a material adverse effect on our operations. Additionally, any labor disruption resulting from unionization
efforts or otherwise could result in increased costs and reduced revenues. In 2003, employees at one of our pie manufacturing facilities conducted an election to unionize our workforce of 138
employees at that facility. This effort was unsuccessful; however, future unionization efforts could result in our being subject to collective bargaining agreements that are on terms that are not as
economically attractive as our current arrangements with our employees.

Changes in employment laws may adversely affect our business.

Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime
and tip credits, working conditions, unemployment tax rates, workers' compensation rates and citizenship requirements.

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Significant
additional government-imposed increases in the following areas could materially affect our results of operations:



We may not be able to protect our trademarks, service marks, logos and other proprietary rights.

We believe that our trademarks, service marks, logos and other proprietary rights are important to our success and our competitive position. Accordingly, we
protect our trademarks, service marks, logos and proprietary rights. However, the actions taken by us may be inadequate to prevent imitation of our products and concepts by others or to prevent others
from claiming violations of their trademarks, service marks, logos and proprietary rights by us. In addition, our intellectual property rights may not have the value that we believe they have. If we
are unsuccessful in protecting our intellectual property rights, or if another party prevails in litigation against us relating to our intellectual property rights, we may incur significant costs and
may be required to change certain aspects of our operations.

We face risks associated with environmental laws.

We are subject to federal, state and local laws, regulations and ordinances that:



In
particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and may be subject to associated liabilities resulting from lawsuits
brought by private litigants, relating to our restaurants and the land on which our restaurants are located, regardless of whether we lease or own the restaurants or land in question and regardless of
whether such environmental conditions were created by us or by a prior owner or tenant. Some of our properties are located on or adjacent to sites that we know or suspect to have been used by prior
owners or operators as retail gas stations or industrial facilities. Such properties previously contained underground storage tanks, and some of these properties may currently contain abandoned
underground storage tanks. It is possible that petroleum products and other contaminants may have been released at or migrated beneath our properties into or through the soil or groundwater. Under
applicable federal and state environmental laws, we, as the current owner or operator of these sites, may be jointly and severally liable for the costs of investigation and remediation of any
contamination. If we are found liable for the costs of remediation of contamination at any of these properties, our operating expenses would likely increase and our operating results could be
materially adversely affected. Environmental conditions relating to our prior, existing or future restaurants or restaurant sites could have a material adverse effect on our business and results of
operations.

We depend on the services of key executives, the loss of whom could materially harm our business.

Our senior executives are important to our success because they have been instrumental in setting our strategic direction, operating our business, identifying,
recruiting and training key personnel, identifying expansion opportunities and arranging necessary financing. Losing the services of any of

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these
individuals could adversely affect our business until a suitable replacement could be found. See "Item 10. Directors and Executive Officers of the Registrant."

We are controlled by affiliates of Wind Point.

As a result of their control of VI Acquisition Corp., which is our parent, investment funds affiliated with Wind Point have the power to elect a majority of our
directors, to appoint members of management, to approve all actions requiring the approval of the holders of our common stock, including adopting amendments to our certificate of incorporation and
approving mergers, acquisitions or sales of all or substantially all of our assets, and to direct our operations.

The
interests of Wind Point may not in all cases be aligned with the interests of our other equity holders and the holders of our indebtedness. For example, if we encounter financial
difficulties or are unable to pay our debts as they mature, the interests of Wind Point as a holder of equity might conflict
with the interests of our other equity holders and the holders of our indebtedness. Wind Point also may have an interest in pursuing acquisitions, divestitures, financings or other transactions that,
in its judgment, could enhance its equity investment, even though such transactions might involve risks to other equity holders and the holders of our indebtedness.

We
have only one independent director (as defined under the federal securities laws) on our Board of Directors and, as a result, our Board of Directors and Audit Committee have not met,
and do not meet, the standard "independence" requirements that would be applicable if our equity securities were traded on the Nasdaq National Market or the New York Stock Exchange.

Item 2.    Properties.

We own our executive offices consisting of approximately 93,050 square feet in Denver, Colorado. In addition, we own two pie production facilities, each with
approximately 63,000 square feet, located in Chaska, Minnesota and Oak Forest, Illinois, and we lease a pie production facility consisting of approximately 68,000 square feet located in Santa Fe
Springs, California. We believe that our current office and operating space is suitable and adequate for its intended purposes and that we have the ability to increase production at our pie production
facilities without significant capital expenditures.

Our
restaurants for both Village Inn and Bakers Square provide seating capacity for approximately 120 to 180 customers and typically average around 5,000 square feet. We currently own
the land and building at eight of our restaurant properties. The rest of our company-operated restaurants are leased, in whole or in part.

We
also lease 11 restaurants that we sublease to franchisees and lease six restaurants that we sublease to others. All of our other franchise restaurants are leased or owned directly by
the respective franchisees. As of October 28, 2004, we had three idle properties, two of which were leased and one was owned in fee.

Our
senior secured credit facility is secured by a lien on all of our assets, including our real properties.

Locations.As of October 28, 2004, we and our franchisees operated 374 restaurants as follows:

22

---



Village Inn restaurants:

|State of operation |       | Number of
company-
operated
restaurants |     | Number of
franchised
restaurants |     | Total
number of
restaurants
|------------------ | ----- | --------------------------------------- | --- | -------------------------------- | --- | ---------------------------
|Alaska             |       |                                        |     | 3                                |     | 3                          
|Arizona            |       | 22                                      |     |                                 |     | 22                         
|Arkansas           |       |                                        |     | 4                                |     | 4                          
|Colorado           |       | 33                                      |     | 16                               |     | 49                         
|Florida            |       | 11                                      |     | 16                               |     | 27                         
|Illinois           |       | 2                                       |     | 1                                |     | 3                          
|Iowa               |       | 16                                      |     | 4                                |     | 20                         
|Kansas             |       |                                        |     | 10                               |     | 10                         
|Minnesota          |       |                                        |     | 3                                |     | 3                          
|Missouri           |       |                                        |     | 4                                |     | 4                          
|Nebraska           |       | 16                                      |     | 3                                |     | 19                         
|New Mexico         |       | 9                                       |     | 5                                |     | 14                         
|North Dakota       |       |                                        |     | 2                                |     | 2                          
|Oklahoma           |       |                                        |     | 6                                |     | 6                          
|Oregon             |       | 1                                       |     | 3                                |     | 4                          
|Texas              |       |                                        |     | 8                                |     | 8                          
|Utah               |       | 11                                      |     | 2                                |     | 13                         
|Virginia           |       |                                        |     | 1                                |     | 1                          
|Washington         |       |                                        |     | 3                                |     | 3                          
|Wyoming            |       |                                        |     | 9                                |     | 9                          
|                   |       |                                         |     |                                  |     |                            
|                   | Total |                                         | 121 |                                  | 103 |                            
|                   |       |                                         |     |                                  |     |                            

Bakers Square restaurants:

|State of operation |       | Number of
company-
operated
restaurants |     | Number of
franchised
restaurants |   | Total
number of
restaurants
|------------------ | ----- | --------------------------------------- | --- | -------------------------------- | - | ---------------------------
|California         |       | 50                                      |     |                                 |   | 50                         
|Illinois           |       | 44                                      |     |                                 |   | 44                         
|Indiana            |       | 4                                       |     |                                 |   | 4                          
|Iowa               |       | 3                                       |     |                                 |   | 3                          
|Michigan           |       | 8                                       |     |                                 |   | 8                          
|Minnesota          |       | 25                                      |     |                                 |   | 25                         
|Ohio               |       | 8                                       |     |                                 |   | 8                          
|Wisconsin          |       | 8                                       |     |                                 |   | 8                          
|                   |       |                                         |     |                                  |   |                            
|                   | Total |                                         | 150 |                                  |  |                            
|                   |       |                                         |     |                                  |   |                            

Lease expirations

In fiscal 2005, leases for 14 of our properties are scheduled to expire. Of these expiring leases, we plan to exercise options to extend the lease term on nine
properties. Of the five leases we expect to let expire, one is associated with a currently operated restaurant which will close, two are associated with closed restaurants and two are associated with
restaurants subleased to others.

23

---





Item 3.    Legal proceedings.

We are parties to lawsuits, revenue agent reviews by taxing authorities and legal proceedings, of which the majority involve workers' compensation, employment
practices liability and general liability claims arising in the ordinary course of business.

We
are currently defendants in two purported class action claims in California. The first class action claim was brought in October 2003 by two former employees and one current
employee of ours, and the second class action claim was brought in May 2004 by two former employees of ours. The complaints allege that we violated California law with regard to rest and meal
periods, bonus payment calculations (in the October 2003 complaint), overtime payments (in the May 2004 complaint) and California law regarding unfair business practices. The classes and
subclasses alleged in the actions have not been certified by the respective courts at the current stages of the litigation, but generally are claimed in the 2003 complaint to include persons who have
been employed by us in California since October 17, 1999 in the positions of food server, restaurant general manager and assistant restaurant manager, and generally are claimed in the 2004
complaint to include persons who have been employed by us in California since May 21, 2000 in the positions of restaurant general manager and restaurant associate manager. No dollar amount in
damages is requested in either complaint, and the complaints seek statutory damages, compensatory damages, interest and attorneys' fees in unspecified amounts.

During
the fourth quarter of fiscal 2004, we established a reserve of $3.2 million in connection with our agreement in principle to settle these class action lawsuits. The parties
in both lawsuits are in the process of finalizing the settlement, which is subject to approval of the court. Under the terms of the proposed settlements, we have agreed to pay up to an aggregate of
$6.55 million for the alleged claims and associated legal fees.

We
filed a lawsuit on December 3, 2004 against the former shareholders of Midway Investors Holdings Inc. (the former parent of VICORP Restaurants, Inc.), including
certain members of current management, in the Circuit Court of Cook County, Illinois seeking indemnification for all of the damages related to such litigation under the purchase agreement dated
June 14, 2003 pursuant to which VICORP Restaurants, Inc. was acquired, in addition to the assertion of other claims. The former shareholders of Midway Investors Holdings Inc.
filed a lawsuit on December 22, 2004 in Suffolk County Superior Court in Massachusetts. The former shareholders of Midway Investors Holdings Inc. claim, among other allegations, that we
improperly sought indemnification and are denying liability for the portion of the damages in the previously mentioned class action lawsuits that arose following the
closing of the June 2003 acquisition, and for certain settlements for which they claim they did not receive appropriate notice or approval rights.

While
we believe that our claims against the former shareholders of Midway Investors Holdings Inc. are meritorious and that we will prevail, in the event we do not fully prevail
on our indemnification claims, management estimates that the Company's maximum exposure under the settlement agreements is the $3.2 million amount reserved.

We
believe that these matters, individually and in the aggregate, will not have a significant adverse effect on our financial condition, and that established reserves adequately provide
for the estimated resolution of these claims. However, a significant increase in the number of these claims or an increase in the number of successful claims would materially adversely affect our
business, prospects, financial condition, operating results or cash flows.

Item 4.    Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders of the Company during the fiscal year covered by this report.

24

---



PART II

Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters.

Our outstanding common stock is privately held and is not traded on any public market. A majority of our outstanding common stock, as of the date of this filing,
was owned by affiliates of our sponsor, Wind Point Partners. See "Item 12. Security Ownership of Certain Beneficial Owners and Management."

Item 6.    Selected Financial Data.

The following information has been restated to reflect adjustments to the Original Filing that are further discussed in "Explanatory Note" in the forepart of this
Form 10-K/A and in Note 3, "Restatement of Previously Issued Financial Statements" under Notes to Consolidated Financial Statements included in Item 8, "Financial Statements
and Supplementary Data" of this Form 10-K/A.

The
table below presents selected historical consolidated financial data (as restated). The selected historical consolidated financial data for, and at the end of, the fiscal year ended
October 27, 2002, the period from October 28, 2002 to June 13, 2003, the period from June 14, 2003 to October 26, 2003 and the fiscal year ended October 28,
2004 have been derived from our audited consolidated financial statements included elsewhere herein. The selected historical consolidated financial data for, and at the end of, the fiscal year ended
October 29, 2000, the period from October 30, 2000 to May 13, 2001 and the period from May 14, 2001 to October 28, 2001 have been derived from our audited
consolidated financial statements for those periods not included elsewhere herein.

On
May 14, 2001, Midway Investors Holdings Inc. purchased VICORP Restaurants, Inc., which was a publicly-owned company prior to the acquisition. On June 14,
2003, VI Acquisition Corp. purchased Midway Investors Holdings Inc. Neither of these holding companies has had any independent operations, and consequently the consolidated statements of
operations of VI Acquisition Corp. and Midway Investors Holdings Inc. are substantially equivalent to those of VICORP Restaurants, Inc. However, as a result of applying the required
purchase accounting rules to these acquisitions, our financial statements for periods following the transactions were significantly affected. The application of purchase accounting rules required us
to revalue our assets and liabilities at the two respective acquisition dates which resulted in different accounting bases being applied in different periods. As a result of these changes, the summary
financial information presented below relate to the entity specified below for the following periods:

Fiscal year ended October 29, 2000

VICORP Restaurants, Inc.October 30, 2000 to May 13, 2001

VICORP Restaurants, Inc.May 14, 2001 to October 28, 2001

Midway Investors Holdings Inc.Fiscal year ended October 27, 2002

Midway Investors Holdings Inc.October 28, 2002 to June 13, 2003

Midway Investors Holdings Inc.June 14, 2003 to October 26, 2003

VI Acquisition Corp.Fiscal year ended October 28, 2004

VI Acquisition Corp.


25

---



The
following data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial
statements and notes thereto (as restated) included elsewhere in this Annual Report on Form 10-K/A.

|                                     |                                     | VICORP Restaurants, Inc. |        | Midway Investors Holdings Inc. |         | VI Acquisition Corp. |       
|------------------------------------ | ----------------------------------- | ------------------------ | ------ | ------------------------------ | ------- | -------------------- | ------
|
|
|
|Income statement data:               |                                     |                          |        |                                |         |                      |       
|                                     | Revenues:                           |                          |        |                                |         |                      |       
|                                     |                                     | Restaurant operations    |        | $                              | 367,397 |                      | $     
|                                     |                                     | Franchise operations     |        |                                | 6,201   |                      |       
|                                     |                                     |                          |        |                                |         |                      |       
|                                     |                                     | Total revenues           |        |                                | 373,598 |                      |       
|Cost and expenses:                   |                                     |                          |        |                                |         |                      |       
|                                     | Restaurant costs:                   |                          |        |                                |         |                      |       
|                                     |                                     | Food                     |        |                                | 109,496 |                      |       
|                                     |                                     | Labor                    |        |                                | 121,109 |                      |       
|                                     | Other operating expenses(1)         |                          |        | 87,943                         |         |                      | 49,820
|                                     | Franchise operating expenses        |                          |        | 2,880                          |         |                      | 1,242 
|                                     | General and administrative expenses |                          |        | 27,366                         |         |                      | 15,049
|                                     | Litigation settlement               |                          |        |                               |         |                      |      
|                                     | Goodwill amortization(2)            |                          |        |                               |         |                      |      
|                                     | Transaction expenses(3)             |                          |        |                               |         |                      | 15,993
|                                     | Management fees                     |                          |        |                               |         |                      |      
|                                     | Asset impairments                   |                          |        |                               |         |                      |      
|                                     |                                     |                          |        |                                |         |                      |       
|Operating profit (loss)              |                                     |                          | 24,804 |                                |         | (2,173               | )     
|Interest expense                     |                                     |                          | 3,797  |                                |         | 1,889                |       
|Debt extinguishment costs(3)         |                                     |                          |       |                                |         |                     |       
|Other income, net                    |                                     |                          | 494    |                                |         | 102                  |       
|                                     |                                     |                          |        |                                |         |                      |       
|Income (loss) before income taxes    |                                     |                          | 21,501 |                                |         | (3,960               | )     
|Provision for income taxes (benefit) |                                     |                          | 7,925  |                                |         | (2,700               | )     
|                                     |                                     |                          |        |                                |         |                      |       
|Net income (loss)                    |                                     | $                        | 13,576 |                                | $       | (1,260               | )     
|                                     |                                     |                          |        |                                |         |                      |       
|                                     |                                     |                          |        |                                |         |                      |       

26

---



|Balance sheet data (at end of period): |                                                             |                                                                                      |   |         |        |   |         |       |   |          |       |   |         |        |   |         |        |   |          |       |   |        
|-------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------------------------------------ | - | ------- | ------ | - | ------- | ----- | - | -------- | ----- | - | ------- | ------ | - | ------- | ------ | - | -------- | ----- | - | -------
|                                       | Cash and cash equivalents                                   |                                                                                      | $ | 1,003   |        | $ | 11,510  |       | $ | 5,568    |       | $ | 16,021  |        | $ | 9,036   |        | $ | 5,326    |       | $ | 1,332  
|                                       | Working capital(4)                                          |                                                                                      |   | (21,585 | )      |   | (10,600 | )     |   | (27,922  | )     |   | (14,758 | )      |   | (61,111 | )      |   | (25,679  | )     |   | (16,348
|                                       | Total assets                                                |                                                                                      |   | 207,385 |        |   | 208,190 |       |   | 271,709  |       |   | 276,248 |        |   | 270,553 |        |   | 376,939  |       |   | 384,127
|                                       | Total debt(5)                                               |                                                                                      |   | 4,740   |        |   | 3,272   |       |   | 93,931   |       |   | 91,700  |        |   | 80,611  |        |   | 143,169  |       |   | 141,918
|                                       | Deemed landlord financing liability                         |                                                                                      |   | 29,434  |        |   | 29,477  |       |   | 88,875   |       |   | 89,305  |        |   | 92,209  |        |   | 108,140  |       |   | 114,670
|                                       | Total stockholders' equity                                  |                                                                                      |   | 125,114 |        |   | 132,826 |       |   | 37,171   |       |   | 45,735  |        |   | 5,592   |        |   | 69,588   |       |   | 68,045 
|Cash flow and other financial data:    |                                                             |                                                                                      |   |         |        |   |         |       |   |          |       |   |         |        |   |         |        |   |          |       |   |        
|                                       | Adjusted EBITDA(6)                                          |                                                                                      | $ | 44,178  |        | $ | 24,142  |       | $ | 20,107   |       | $ | 51,090  |        | $ | 32,727  |        | $ | 16,752   |       | $ | 53,597 
|                                       | Net rent expense:(7)                                        |                                                                                      |   |         |        |   |         |       |   |          |       |   |         |        |   |         |        |   |          |       |   |        
|                                       |                                                             | Net rent expense, less amortization of rent- related purchase accounting adjustments |   |         | 13,269 |   |         | 7,544 |   |          | 6,758 |   |         | 14,615 |   |         | 10,093 |   |          | 6,012 |   |        
|                                       |                                                             | Amortization of rent-related purchase accounting adjustments                         |   |         |       |   |         |      |   |          | (139  | ) |         | (301   | ) |         | (222   | ) |          | 614   |   |        
|                                       | Capital expenditures(8)                                     |                                                                                      |   | 27,603  |        |   | 6,929   |       |   | 4,265    |       |   | 10,599  |        |   | 9,904   |        |   | 9,573    |       |   | 16,006 
|                                       | Depreciation and amortization                               |                                                                                      |   | 18,806  |        |   | 10,220  |       |   | 10,141   |       |   | 19,059  |        |   | 11,215  |        |   | 6,869    |       |   | 18,962 
|                                       | Cash flow from operating activities                         |                                                                                      |   | 38,216  |        |   | 18,303  |       |   | (6,581   | )     |   | 28,657  |        |   | 11,976  |        |   | 5,602    |       |   | 24,489 
|                                       | Cash flow from investing activities                         |                                                                                      |   | (24,099 | )      |   | (6,870  | )     |   | (178,744 | )     |   | (10,278 | )      |   | (13,743 | )      |   | (154,261 | )     |   | (23,766
|                                       | Cash flow from financing activities                         |                                                                                      |   | (41,208 | )      |   | (926    | )     |   | 179,383  |       |   | (7,926  | )      |   | (5,218  | )      |   | 144,949  |       |   | (4,717 
|Ratio data:                            |                                                             |                                                                                      |   |         |        |   |         |       |   |          |       |   |         |        |   |         |        |   |          |       |   |        
|                                       | Ratio of earnings to fixed charges(9)                       |                                                                                      |   | 2.8     | x      |   | 0.6     | x     |   | 1.1      | x     |   | 1.4     | x      |   | 0.7     | x      |   | 0.9      | x     |   | 0.8    
|                                       | Ratio of total debt to Adjusted EBITDA                      |                                                                                      |   | 0.1     | x      |   |         |       |   |          |       |   | 1.7     | x      |   |         |        |   |          |       |   | 2.7    
|                                       | Ratio of Adjusted EBITDA to interest expense                |                                                                                      |   | 11.6    | x      |   | 12.8    | x     |   | 2.2      | x     |   | 2.6     | x      |   | 2.9     | x      |   | 1.7      | x     |   | 2.0    
|Operating data:                        |                                                             |                                                                                      |   |         |        |   |         |       |   |          |       |   |         |        |   |         |        |   |          |       |   |        
|                                       | Village Inn company-operated locations (at end of period)   |                                                                                      |   | 107     |        |   | 108     |       |   | 109      |       |   | 109     |        |   | 117     |        |   | 118      |       |   | 121    
|                                       | Bakers Square company-operated locations (at end of period) |                                                                                      |   | 149     |        |   | 150     |       |   | 147      |       |   | 148     |        |   | 148     |        |   | 149      |       |   | 150    
|                                       | Village Inn franchised locations (at end of period)         |                                                                                      |   | 115     |        |   | 116     |       |   | 115      |       |   | 115     |        |   | 106     |        |   | 105      |       |   | 103    
|                                       | Change in same unit salesVillage Inn                       |                                                                                      |   | 1.9     | %      |   | 0.4     | %     |   | (0.9     | )%    |   | 0.2     | %      |   | (0.2    | )%     |   | 0.4      | %     |   | 2.2    
|                                       | Change in same unit salesBakers Square                     |                                                                                      |   | 1.7     | %      |   | (0.6    | )%    |   | (0.1     | )%    |   | 1.8     | %      |   | (1.3    | )%     |   | (4.7     | )%    |   | (1.0   
|                                       | Change in total same unit sales                             |                                                                                      |   | 1.8     | %      |   | (0.2    | )%    |   | (0.4     | )%    |   | 1.1     | %      |   | (0.8    | )%     |   | (2.6     | )%    |   | 0.4    

---

27

---



VICORP Restaurants, Inc.

Midway Investors Holdings Inc.

VI Acquisition Corp.Fiscal year
ended
October 29,
2000

Period from
October 30,
2000 to
May 13,
2001

Period from
May 14,
2001 to
October 28,
2001

Fiscal year
ended
October 27,
2002

Period from
October 28,
2002 to
June 13,
2003

Period from
June 14,
2003 to
October 26,
2003

Fiscal year
ended
October 28,
2004(In thousands)Transaction expenses:Employment contract termination and stock compensation(a)

$


$
6,018

$


$


$
5,574

$


$
Legal, accounting and other professional fees





1,675





279


3,862


49


75Severance costs(b)

















1,177


Legal settlements(c)





8,300














50Total transaction expenses

$


$
15,993

$


$
279

$
9,436

$
1,226

$
125Debt extinguishment costs:(d)(e)Debt prepayment penalties

$


$


$


$


$
1,298

$


$
2,305Write-off of deferred debt financing costs














3,322





4,344Derivative termination














1,896





207Total debt extinguishment costs

$


$


$


$


$
6,516

$


$
6,856






28

---



The following table reconciles EBITDA and Adjusted EBITDA to net income (loss):

VICORP Restaurants, Inc.

Midway Investors Holdings Inc.

VI Acquisition Corp.Fiscal year
ended
October 29,
2000

Period from
October 30,
2000 to
May 13,
2001

Period from
May 14,
2001 to
October 28,
2001

Fiscal year
ended
October 27,
2002

Period from
October 28,
2002 to
June 13,
2003

Period from
June 14,
2003 to
October 26,
2003

Fiscal year
ended
October 28,
2004(As restated)

(As restated)

(As restated)

(As restated)

(As restated)

(As restated)

(As restated)(In thousands)Net income (loss)

$
13,576

$
(1,260
)
$
1,832

$
8,478

$
(3,417
)
$
(582
)
$
(2,525
)Provision for income taxes (benefit)


7,925


(2,700
)

(711
)

3,882


(3,139
)

(1,235
)

(2,912
)Interest expense


3,797


1,889


8,953


19,312


11,353


9,719


26,787Depreciation and amortization


18,806


10,220


10,141


19,059


11,215


6,869


18,962Asset retirements


74





31


88


237


141


438Asset impairments














96





1,101EBITDA


44,178


8,149


20,246


50,819


16,345


14,912


41,851Litigation settlement




















3,168Transaction expenses





15,993





279


9,436


1,226


125Debt extinguishment costs














6,516





6,856Noncash compensation expense











293


652





Amortization of rent related purchase accounting adjustments(7)








(139
)

(301
)

(222
)

614


1,597Adjusted EBITDA

$
44,178

$
24,142

$
20,107

$
51,090

$
32,727

$
16,752

$
53,597


29

---





Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could
differ materially from those discussed in the forward-looking statements as a result of these risks and uncertainties, including those set forth in this Annual Report on Form 10-K/A
under "Forward-looking statements" and under "Risk factors." You should read the following discussion in conjunction with "Item 6. Selected financial data" and our audited consolidated financial
statements and notes appearing elsewhere in this Annual Report on Form 10-K/A.

Company profile

We operate family-dining restaurants under two well-recognized brands, Village Inn and Bakers Square. As of October 28, 2004, our company,
which was founded in 1958, had 374 restaurants in 25 states, consisting of 271 company-operated restaurants and 103 franchised restaurants. We also produce premium pies at three strategically located
facilities that we serve in our restaurants or sell to third parties.

Our
Village Inn restaurants are known for serving fresh breakfast items throughout the day, and we have leveraged our breakfast heritage to include traditional American fare at lunch and
dinner. Our Bakers Square restaurants have built upon the reputation of our signature pies to offer quality meals at breakfast, lunch and dinner. Our broad offering of affordable menu items is
designed to appeal to a demographically diverse customer base, including families, senior citizens and other value-oriented diners.

The
following table sets forth the changes to the number of company-operated and franchised restaurants for the periods presented below.

|(Units)                                     |                               | 2002                               |     | 2003 |     | 2004 |    
|------------------------------------------- | ----------------------------- | ---------------------------------- | --- | ---- | --- | ---- | ---
|Village Inn company-operated restaurants:   |                               |                                    |     |      |     |      |    
|                                            | Beginning of period           |                                    | 109 |      | 109 |      | 118
|                                            | Acquired from franchisee      |                                    |    |      | 8   |      | 1  
|                                            | Openings                      |                                    |    |      | 2   |      | 5  
|                                            | Conversion to a Bakers Square |                                    |    |      |    |      | (1 
|                                            | Closings                      |                                    |    |      | (1  | )    | (2 
|                                            |                               |                                    |     |      |     |      |    
|                                            | End of period                 |                                    | 109 |      | 118 |      | 121
|                                            |                               |                                    |     |      |     |      |    
|Bakers Square company-operated restaurants: |                               |                                    |     |      |     |      |    
|                                            | Beginning of period           |                                    | 147 |      | 148 |      | 149
|                                            | Openings                      |                                    | 1   |      | 3   |      | 3  
|                                            | Conversion from a Village Inn |                                    |    |      |    |      | 1  
|                                            | Closings                      |                                    |    |      | (2  | )    | (3 
|                                            |                               |                                    |     |      |     |      |    
|                                            | End of period                 |                                    | 148 |      | 149 |      | 150
|                                            |                               |                                    |     |      |     |      |    
|                                            |                               | Total company-operated restaurants |     | 257  |     | 267  |    
|                                            |                               |                                    |     |      |     |      |    
|Village Inn franchised restaurants:         |                               |                                    |     |      |     |      |    
|                                            | Beginning of period           |                                    | 115 |      | 115 |      | 105
|                                            | Openings                      |                                    | 4   |      | 2   |      |   
|                                            | Acquired by our company       |                                    |    |      | (8  | )    | (1 
|                                            | Closings                      |                                    | (4  | )    | (4  | )    | (1 
|                                            |                               |                                    |     |      |     |      |    
|                                            | End of period                 |                                    | 115 |      | 105 |      | 103
|                                            |                               |                                    |     |      |     |      |    
|                                            |                               | Total restaurants                  |     | 372  |     | 372  |    
|                                            |                               |                                    |     |      |     |      |    

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Our
Village Inn and Bakers Square concepts operate in the "family-dining" segment of the full service restaurant category. Full service restaurants offer broad menu choices that are
served to patrons by a waitstaff, while restaurants operating in the "limited service" segment serve customers at a counter or through a drive-thru window. We believe the family-dining
category has a loyal customer base and stable characteristics. According to Technomic, Inc., the family-dining segment grew at a compound growth rate of 1.6% from 1997 to 2002 and is projected
to continue to grow at 1.0% per year over the next four years. In the family-dining category, the average per-person check generally ranges from $6 to $9, and diners in this category are
sensitive to changes in price. In 2004, the average per-person check at Village Inn was $7.65 and the average per person check at Bakers Square was $8.70. One of the important elements of
our business strategy is to provide our customers with an attractive value by offering quality food at reasonable prices. As a result, we continually strive to maintain and improve the efficiency of
our operations.

Management overview

Our restaurant revenues are affected by restaurant openings and closings and same unit sales performance. Same unit sales is a measure of the percentage increase
or decrease of the sales of units open at least 18 months relative to the same period in the prior year. We do not use new restaurants in our calculation of same unit sales until they are open
for 18 months in order to allow a new restaurant's operations and sales time to stabilize and provide more meaningful results. Same unit sales is an important indicator within the restaurant
industry because small changes in same unit sales can have a proportionally higher impact on operating margins because of the high degree of fixed costs associated with operating restaurants.

Within
both Village Inn and Bakers Square, the restaurant count has only increased modestly over the last three years. However, with our new strategic focus, we intend to increase the
number of company-operated Village Inn and Bakers Square restaurants more significantly over the next several years. We currently expect to open an estimated 23 to 27 new restaurants in fiscal 2005.

Like
much of the restaurant industry, we view same unit sales as a key performance metric, at the individual unit level, within regions, across each chain and throughout our company.
With our field-level and corporate information systems, we monitor same unit sales on a daily, weekly and four-week period basis from the chain level down to the individual unit level. The
primary drivers of same unit sales performance are changes in the average per-person check and changes in the number of customers, or customer count. Average check performance is primarily
affected by menu price increases and changes in the purchasing habits of our customers. We also monitor entrée count, exclusive of take-out business, and sales of whole
pies, which we believe is indicative of overall customer traffic patterns. To increase average unit sales, we focus marketing and promotional efforts on increasing customer visits and sales of
particular products. We also selectively increase prices, but are constrained by the price sensitivity of customers in our market segment and our desire to maintain an attractive
price-to-value relationship that is a fundamental characteristic of our concepts. For example, we raised prices in our Bakers Square units in fiscal 2002 and fiscal 2003, and
while some unit sales increased in fiscal 2003, guest traffic declined. As a result, we generally have increased prices in line with increases in the consumer price index, and expect to continue to do
so in the future. Same unit sales performance is also affected by other factors, such as food quality, the level and consistency of service within our restaurants, the attractiveness and physical
condition of our restaurants, as well as local and national economic factors. From fiscal 2000 through fiscal 2004, Village Inn recorded average annual same unit sales growth of 0.8% and Bakers Square
recorded a modest average annual same unit sales decline of 0.1%.

As
of October 28, 2004, we had 103 franchised Village Inn restaurants in eight states, operated by 25 franchisees which operate one to eleven restaurants each. Our revenue
attributable to franchise operations, consisting primarily of royalty income has averaged approximately 1.4% of our total

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revenues
over the last three years. On February 24, 2003, we acquired eight restaurants from a franchisee in Albuquerque, New Mexico for $4.6 million, which subsequently reduced our
franchise revenue and increased our company-operated restaurant revenue. Although we may increase franchise revenues by increasing the number of franchised Village Inn restaurants, we expect that our
franchise revenues will decline as a percentage of our total revenue as we emphasize growth in the number of company-operated units.

In
addition to unit sales, the other major factor affecting the performance of our restaurants is the cost associated with operating our restaurants. We monitor and assess these costs
principally as a percentage of a restaurant's revenues, or on a margin basis. The operating margin of a restaurant is the profitability, expressed as a percentage of sales, of the restaurant after
accounting for all direct expenses of operating the restaurant. Another key performance metric is the prime margin, which is the profitability, expressed as a percentage of sales, of the restaurants
after deducting the two most significant costs, labor and food. Due to the importance of both labor cost and food cost, we closely monitor prime margin from the chain level down to the individual
restaurant. We have systems in place at each restaurant to assist the restaurant managers in effectively managing these costs to improve prime margin.

Labor
is our largest cost element. The principal drivers of labor cost are wage rates, particularly for the significant number of hourly employees in our restaurants, and the number of
labor hours utilized in serving our customers and operating our restaurants, as well as health insurance costs for our employees. Wage rates are largely market driven, with increases to minimum wage
rates causing corresponding increases in our pay scales. Differences in minimum wage laws among the various states impact the relative profitability of the restaurants in those states. In
January 2004, the minimum wage rate for the state of Illinois increased and is scheduled to do so again in January 2005. The state of Florida's minimum wage is scheduled to increase in
June 2005.

While
the wage rates are largely externally determined, labor utilization within our restaurants is more subject to our control and is closely monitored. We seek to staff each restaurant
to provide a high level of service to our customers, without incurring more labor cost than is needed. We have included labor scheduling tools in each of our company-operated restaurants' back office
systems to assist our managers in improving labor utilization. We monitor labor hours actually incurred in relation to sales and customer count on a restaurant- by-restaurant basis
throughout each week. We have been able to modestly reduce our labor cost percentage from 32.3% in fiscal 2001 to 31.8% in fiscal 2004 as a result of modifying our internal processes to provide our
restaurant managers greater control over employee utilization and overtime.

In
managing prime margin, we also focus on percentage food cost, which is food cost expressed as a percentage of total revenues. Our food cost is affected by several factors, including
market prices for the food ingredients, our effectiveness at controlling waste and proper portioning, and shifts in our customers' buying habits between low-food-cost and
high-food-cost menu items. Our ReMACS food cost management system within each restaurant measures actual ingredient costs and actual customer product purchases against an
"ideal" food cost standard. Ideal food cost is calculated within each restaurant based on the cost of ingredients used, assuming proper portion size, adherence to recipes, limited waste and similar
factors. We track variances from ideal food cost within each restaurant and seek to address the causes of such variances, to the extent they are within our control, in order to improve our percentage
food cost. In addition, our centralized purchasing department buys a majority of the products used in both Village Inn and Bakers Square (as well as our pie production operations), leveraging the
purchasing volumes of our restaurants and our franchisees to obtain favorable prices. We attempt to stabilize potentially volatile prices for certain high-cost ingredients such as chicken,
beef, coffee and dairy products for three to twelve month periods by entering into purchase contracts when we believe that this will improve our food cost. We also use "menu engineering" to promote
menu items which have a lower percentage food cost. However, we are vulnerable to fluctuations in food

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costs.
Given our customers' sensitivity to price increases and since we only reprint our full menus every six months, our ability to adjust prices and featured menu items in response to rapidly
changing commodity prices is limited.

Since
we produce a majority of our pies for Village Inn and Bakers Square and since our third-party pie sales historically have not had, and currently do not have, a material impact on
our operating profit, we include the net results of our pie manufacturing operations as an offset to our food costs. As a result, any profit (or loss) from third-party pie sales has the effect of
reducing (or increasing) our total food cost. As part of our overall effort to optimize total company food cost, we have been focusing on various measures to improve the net margins within our pie
manufacturing operations, including increasing third-party sales, renegotiating our distribution contracts and rebalancing the production among our three plants to increase efficiency.

As
a result of our efforts, we lowered our consolidated food cost percentage at our restaurants by 2.3% to 26.6% of total revenues for fiscal 2004 from 28.9% of total revenues for fiscal
2001. Controlling food costs presents ongoing challenges.

Other
operating expenses principally include occupancy costs, depreciation, supplies, repairs and maintenance, utility costs, marketing expenses, insurance expenses and workers'
compensation costs. Historically, these costs have increased over time and many are not directly related to the level of sales in our restaurants. We have experienced increases in many of these items
throughout the last three fiscal years, particularly utility costs and insurance expenses. In order to maintain our operating performance levels, and to address expected cost increases, we will be
required to increase efficiency in restaurant operations and increase sales, although there is no assurance that we will be able to offset future cost increases.

Our
2004 financial results included:



Restatement of Previously Reported Financial Statements

We have restated our financial statements and related disclosures for periods spanning from fiscal 2000 through fiscal 2004 to correct the following accounting
errors, primarily as a result of a review of our lease accounting policies and practices prompted by the views expressed by the Office of the Chief Accountant of the SEC on February 7, 2005 in
a letter to the American Institute of Certified Public Accountants and other recent interpretations regarding certain operating lease issues and their application under GAAP.

(i)    Accounting for Real Estate Transactions

Historically, we have accounted for certain of our real estate transactions of restaurant properties as sale-leaseback transactions. We have restated
our financial statements to now report these transactions as financing transactions under Financial Accounting Standards Board ("FASB") Statement

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of
Financial Accounting Standards ("SFAS") No. 98, "Accounting for Leases," rather than as sale-leaseback transactions as previously reported due to a determination that certain
lease agreement provisions reflect continuing involvement with the buyer-lessor. Our continuing involvement for most of the leases now accounted for under the financing method results from our ability
to control the property with pre-determined rental payments through at least 90 percent of the economic life of the property, even though lease renewals would need to be exercised
by us to effectuate such control. These "perpetual fixed-price renewal options" are considered continuing involvement because the seller-lessee is deemed to benefit from future appreciation in the
underlying property in a manner similar to a fixed-price purchase option. Such continuing involvement precludes the use of sale-leaseback accounting until such time that the continuing
involvement no longer exists. The affected real estate transactions related to an aggregate of 79 existing restaurants in 1999, 2001 and 2003 and nine new restaurant locations opened in 2003 and 2004.

The
impact of the restatement was to record on our consolidated balance sheets the assets of the restaurants subject to these transactions as if they had not been sold and record the
proceeds from these transactions (including any gains previously deferred) as liabilities under the caption "Deemed landlord financing liability". Operating results were restated to recognize
depreciation expense associated with the assets subject to these transactions and re-characterize the lease payments previously reported as rent expense as principal repayments and imputed
interest expense. The rent expense reversal associated with these transactions included the reversal of previously recorded expenses for straight-line rents and rent reductions for certain
purchase accounting adjustments made to account for the leases at fair market value. In addition, the capital lease classification for three leased properties was re-characterized as
deemed landlord financing assets and liabilities.

The
net impact to correctly classify the aforementioned leases as financing transactions was decreases in pre-tax income of $4.6 million, $1.8 million,
$2.0 million and $3.3 million for the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 and the fiscal year ended
October 27, 2002, respectively. The correcting entries decreased other operating and franchise operating expenses and increased interest expense.

(ii)    Understated Straight-Line Rent Expense

GAAP requires that leases for which there are scheduled rent increases over the term of the lease be accounted for at the average rent payment, or on a
straight-line basis, over the applicable term with differences being recorded on the balance sheet as a deferred rent liability. We did not appropriately straight-line our
rents for certain locations, which resulted in understated operating expenses in prior financial reporting periods. The net impact to correctly straight-line rents resulted in decreased
pre-tax income of $0.5 million, $0.3 million, $0.3 million and $0.6 million for the fiscal year ended October 28, 2004, the periods ended
October 26, 2003 and June 13, 2003 and the fiscal year ended October 27, 2002, respectively.

(iii)    Understated Depreciation and Amortization Expense

We generally have historically depreciated our buildings and leasehold improvements over the lesser of the asset's useful life or the initial term of the
associated lease unless an economic penalty would occur from not exercising renewal options, in which case, the assets are depreciated over the lesser of the asset's useful life or the reasonably
assured lease term. However, in performing a detailed review of our depreciable assets, we determined that buildings and leasehold improvements for approximately 31 restaurant properties had incorrect
depreciable lives resulting in an understatement of depreciation expense, predominantly in earlier periods. The net pre-tax impact of the correction of our leasehold depreciable lives was
not material for the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 or the fiscal year ended October 27, 2002. The
pre-tax

34

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impact
of the correction prior to these time periods totaled $1.1million and is reflected in our consolidated balance sheets as a reduction in property and equipment, net and stockholders' equity.

(iv)    Understated Interest Expense and Preferred Stock Dividends on Preferred Stock Warrant Accretion

We also determined it was appropriate to record additional adjustments which were previously deemed immaterial. The adjustments related to interest expense and
preferred dividends imputed from the accretion of preferred stock warrants with anti-dilutive provisions issued originally to certain debt holders at the time of our June 2003
purchase. The pre-tax impact for the correction increased interest expense by $0.1 million and $0.1 million for the fiscal year ended October 28, 2004 and the period
ended October 26, 2003, respectively.

(v)    Accounting for Income Taxes

In addition to the impact on our income tax provision resulting from the accounting corrections discussed above, we also determined that our accounting for income
taxes related to our purchase business combinations was not correct. Under FASB SFAS No. 109, "Accounting for Income Taxes," companies are to recognize deferred tax assets and liabilities for
the tax effects of differences between assigned values in the purchase price allocation in a purchase business combination (except for the portion of goodwill that is not deductible for tax purposes).
The provisions of SFAS No. 109 apply to basis differences that arise in both taxable and nontaxable business combinations. In both our 2001 and 2003 business acquisitions, certain purchase
price allocations were not correctly tax effected. The correction resulted in recognition of additional deferred tax liabilities and a corresponding increase in goodwill. The impact of the corrections
decreased our provision for income taxes by $2.6 million, $1.0 million, $1.2 million and $1.9 million for the fiscal year ended October 28, 2004, the periods ended
October 26, 2003 and June 13, 2003 and the fiscal year ended October 27, 2002, respectively.

See
Note 3 to the accompanying consolidated financial statements (as restated) for a complete discussion of the restatement.

Factors affecting comparability

On May 14, 2001, Midway Investors Holdings Inc., a newly created holding company, purchased VICORP Restaurants, Inc., which was a publicly
owned company prior to the acquisition. On June 14, 2003, VI Acquisition Corp., a newly created holding company, purchased Midway Investors Holdings Inc. Neither of these holding
companies has had any independent operations, and consequently the consolidated statements of operations of Midway Investors Holdings Inc. and VI Acquisition Corp. are substantially equivalent.
As a result of applying the required purchase accounting rules to these acquisitions, our financial statements for periods following the transactions were significantly affected. The application of
purchase accounting rules required us to revalue our assets and liabilities at the two respective acquisition dates, which resulted in different accounting bases being applied in different periods. In
particular, occupancy expense increased as existing rent escalator accruals were eliminated as part of purchase accounting and the amount of future rent escalator accruals were recalculated based upon
the lease escalator provisions applicable over the remaining life of the leases at each acquisition date. In addition, depreciation expense increased as a result of the increase in the valuation of
our assets, which correspondingly increased our depreciable base. As a result, the financial information for the periods from May 14, 2001 through June 13, 2003, from October 28,
2002 to June 13, 2003, from June 14, 2003 through October 26, 2003 and from October 27, 2003 through October 28, 2004 are not comparable to one another in certain
respects. The term "predecessor" refers to Midway Investors Holdings Inc. which was merged into VI Acquisition Corp. in connection with the refinancing.

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As
a result of these changes, the historical financial information in this Annual Report on Form 10-K/A and related discussions relate to the entity specified below
for the following periods:

Fiscal year ended October 27, 2002

Midway Investors Holdings Inc.October 28, 2002 to June 13, 2003

Midway Investors Holdings Inc.June 14, 2003 to October 26, 2003

VI Acquisition Corp.Fiscal year ended October 28, 2004

VI Acquisition Corp.


In
our analysis, we combine partial periods into fiscal periods to aid the discussion of financial information. The combined periods are not necessarily comparable and should not be
given more emphasis than the individual components.

At
the time of each of the two acquisitions, we also sold certain properties under sale-leaseback transactions to help finance the acquisitions. Specifically, we sold 48
properties in May 2001 for an aggregate of $57.2 million and an additional ten properties in June 2003 for an aggregate of $13.9 million. The sale-leaseback
transactions have resulted in higher interest expense as a result of recording these transactions under the financing method.

On
February 24, 2003, we purchased one of our franchisees which owned and operated eight Village Inn restaurants in the Albuquerque, New Mexico area for $4.6 million. After
the acquisition, revenue associated with these restaurants was included in our restaurant revenues, and since the date of the acquisition we have not earned franchise revenues from those units. Please
refer to the table above for information on unit openings during the relevant periods.

Our
fiscal year, which historically ended on the last Sunday in October, is comprised of 52 or 53 weeks divided into four fiscal quarters of 12 or 13, 12, 12, and 16 weeks. Beginning
January 22, 2004, we changed our fiscal year so that it ends on the Thursday nearest to October 31st of each year. This increased fiscal 2004 by an extra four days (368 days in
fiscal 2004 versus 364 in fiscal 2003). This change was made to facilitate restaurant operations by moving the end of our fiscal periods and weekly reporting and payroll periods away from weekends
when our restaurants are busier.

Critical accounting policies and estimates

In the ordinary course of business, our company makes a number of estimates and assumptions relating to the reporting of results of operations and financial
condition in the preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ significantly from those estimates
and assumptions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and
results of operations and require management judgment about the effect of matters that are uncertain.

On
an ongoing basis, management evaluates its estimates and assumptions, including those related to recoverability of long-lived assets, revenue recognition and goodwill.
Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable at the time the estimates and assumptions are made. Actual
results may differ from these estimates and assumptions under different circumstances or conditions.

We
have discussed the development and selection of critical accounting policies and estimates with our audit committee. The following is a summary of our critical accounting policies and
estimates:

Inventories

Inventories are stated at the lower of cost or market value. Cost is principally determined by the first-in, first-out method. The
valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. Both our manufactured pie inventories and

36

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individual
store food inventories are subject to spoilage. We use estimates of future demand as well as historical trend information to schedule manufacturing and ordering. If our demand forecast for
specific products is greater than actual demand, we could be required to record additional inventory reserves or losses which would have a negative impact on our gross margin.

Property and equipment, build-to-suit projects and assets under deemed landlord financing liability

Property and equipment is recorded at cost and is depreciated on the straight-line basis over the estimated useful lives of such assets or through the
applicable lease expiration, if shorter. Leasehold improvements added subsequent to the inception of a lease are amortized over the shorter of the useful life of the assets or a term that includes
lease renewals, if such renewals are considered reasonably assured. The useful lives of assets range from 20 to 40 years for buildings and three to ten years for equipment and improvements.
Changes in circumstances such as the closing of units within underproductive markets or changes in our capital structure could result in the actual useful lives of these assets differing from our
estimates.

For
many of our build-to-suit projects, we are considered the owner of the project during the construction period in accordance with Emerging Issues Task Force
("EITF") Issue No. 97-10, "The Effect of Lessee Involvement in Asset Construction," because we are deemed to have substantially all of the construction period risk. At the end of
these construction projects, a sale-leaseback could be deemed to occur in certain situations and the seller-lessee would record the sale, remove all property and related liabilities from
its balance sheet and recognize gain or loss from the sale, which is generally deferred and amortized as an adjustment to rent expense over the term of the lease. However, many of our real estate
transactions and build-to-suit projects have not qualified for sale-leaseback accounting because of our deemed continuing involvement with the buyer-lessor, which
results in the
transaction being recorded under the financing method. Under the financing method, the assets remain on the consolidated balance sheet and are depreciated over their useful life, and the proceeds from
the transaction are recorded as a financing liability. A portion of lease payments are applied as payments of deemed principal and imputed interest.

We
review long-lived assets, including land, buildings and building improvements, for impairments on a quarterly basis or whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Management evaluates individual restaurants, which are considered to be the lowest level for which there are identifiable cash flows for
impairment. A specific restaurant is deemed to be impaired if a forecast of undiscounted future operating cash flows directly relating to that restaurant, including disposal value, if any, is less
than the carrying amount of that restaurant. If a restaurant is determined to be impaired, the loss is measured as the amount by which the carrying amount of the restaurant exceeds its fair value.
Management determines fair value based on quoted market prices in active markets, if available. If quoted market prices are not available, management estimates the fair value of a restaurant based on
either the estimates provided by real estate professionals and/or our past experience in disposing of restaurant properties. Our estimates of undiscounted cash flows may differ from actual cash flows
due to economic conditions or changes in operating performance. During fiscal 2004, we concluded that a $1.1 million impairment charge (as restated) was necessary.

Following
the June 2003 acquisition, we analyzed fixed assets and adjusted these assets to their fair market values as of the date of the transaction. Asset fair market values
were determined through receipt of third party real estate appraisals as well as the application of management judgment for those properties for which external valuations could not be obtained. These
procedures resulted in our increasing the value of property and equipment by $7.7 million following the June 2003 acquisition.

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Leases

We lease a substantial amount of our restaurant properties and one of our pie production plants. We account for our leases under the provisions of Statement of
Financial Accounting Standards No. 13, "Accounting for Leases," and subsequent amendments, which require leases to be evaluated and classified as operating or capitalized leases for financial
reporting purposes. In addition, the Company records the total rent payable during the operating lease term on a straight-line basis over the term of the lease and records the difference
between the rent paid and the straight-line rent as a deferred rent liability. Incentive payments received from landlords are recorded as deferred rent liabilities and are amortized on a
straight-line basis over the lease term as a reduction of rent. Certain of our leases are accounted for under the financing method as discussed above. Future authoritative changes to the
methods of accounting for leases could have a material impact on the Company's reported results of operations and financial position.

Following
the June 2003 acquisition, we analyzed all capital and operating leases which had not been initiated or renewed in the past 18 months to determine the fair market
value of these agreements. Lease fair market values were determined by obtaining comparable rents for select locations through third-party advisors and reviewing sale-leaseback
transactions within the past 18 months to determine an average rent as a percentage of unit sales. This average was applied to each location to determine fair value rents. As a result, an
additional rent asset of $7.9 million was recorded in June 2003. These additional rents are amortized over the remaining life of the underlying lease agreements.

Insurance reserves

We self-insure a significant portion of our employee medical insurance, workers' compensation and general liability insurance plans. As of
October 28, 2004, we had an insurance reserve liability of $8.8 million recorded. For fiscal 2005, our anticipated claim costs are $10.1 million for employee medical/dental
claims, $3.4 million for workers' compensation and $1.0 million for general liability claims. We have obtained stop-loss insurance policies to protect from individual losses
over specified dollar values ($175,000 for employee health insurance claims, $250,000 workers' compensation and $150,000 for general liability for fiscal 2005). The full extent of certain claims,
especially workers' compensation and general liability claims, may not become fully determined for several years. Therefore, we estimate potential obligations for liabilities that have been incurred
but not yet reported based upon historical data and experience. Although management believes that the amounts accrued for these obligations are sufficient, any significant increase in the number of
claims or costs associated with claims made under these plans could have a material adverse effect on our financial results.

Loss contingencies

We maintain accrued liabilities and reserves relating to the resolution of certain contingent obligations. Significant contingencies include those related to
litigation. We account for contingent obligations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies," as interpreted by FASB
Interpretation No. 14 which requires that we assess each contingency to determine estimates of the degree of probability and range of possible settlement. Contingencies which are deemed to be
probable and where the amount of such settlement is reasonably estimable are accrued in our financial statements. If only a range of loss can be determined, we accrue to the best estimate within that
range; if none of the estimates within that range is better than another, we accrue to the low end of the range. During the fourth quarter of fiscal 2004, we established a reserve of
$3.2 million in connection with our agreement in principle to settle two class action lawsuits.

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The
assessment of loss contingencies is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy
of the accruals and related financial statement disclosure. The ultimate settlement of loss contingencies may differ significantly from amounts we have accrued in our financial statements.

Income taxes

Deferred income tax assets and liabilities are recognized for the expected future income tax consequences of carryforwards and temporary differences between the
book and tax basis of assets and liabilities. Valuation allowances are established for deferred tax assets that are deemed unrealizable. As of October 28, 2004, we had gross deferred tax assets
of $29.3 million, which included $11.8 million of FICA tip credit carryforwards, expiring at various dates through 2024. Approximately $9.6 million of the FICA tip credit
carryforwards were generated prior to our acquisition in June 2003 and are subject to an annual use limitation of $0.7 million.

We
must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, valuation allowances are established. The valuation allowance is based
on our estimates of future taxable income by each jurisdiction in which we operate, tax planning strategies and the period over which our deferred tax assets will be recoverable. In the event that
actual results differ from these estimates, we are unable to implement certain tax planning strategies or we adjust these estimates in future periods, we may need to establish an additional valuation
allowance which could have a material negative impact on our results of operations or financial position.

Significant
judgment is required in determining our effective tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions
are supportable, we believe that certain positions are likely to be successfully challenged. We adjust these reserves in light of changing facts and circumstances, such as the progress of a tax audit.
Our effective tax rate includes the impact of reserve provisions and changes to reserves that we consider appropriate.

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Results of operations

|                                                      |                                     | Predecessor |         |         |         |         |         |        |        
|----------------------------------------------------- | ----------------------------------- | ----------- | ------- | ------- | ------- | ------- | ------- | ------ | -------
|
|
|
|
|
|Revenues:                                             |                                     |             |         |         |         |         |         |        |        
|                                                      | Restaurant operations               |             | $       | 377,630 |         | $       | 243,157 |        | $      
|                                                      | Franchise operations                |             |         | 5,796   |         |         | 3,448   |        |        
|                                                      |                                     |             |         |         |         |         |         |        |        
|                                                      |                                     |             | 383,426 |         |         | 246,605 |         |        | 140,612
|Costs and expenses:                                   |                                     |             |         |         |         |         |         |        |        
|                                                      | Restaurant costs:                   |             |         |         |         |         |         |        |        
|                                                      |                                     | Food        |         |         | 104,298 |         |         | 66,186 |        
|                                                      |                                     | Labor       |         |         | 122,850 |         |         | 79,016 |        
|                                                      | Other operating expenses            |             |         | 94,424  |         |         | 62,201  |        |        
|                                                      | Franchise operating expenses        |             |         | 3,092   |         |         | 1,583   |        |        
|                                                      | General and administrative expenses |             |         | 26,598  |         |         | 16,533  |        |        
|                                                      | Litigation settlement               |             |         |        |         |         |        |        |        
|                                                      | Transaction expenses                |             |         | 279     |         |         | 9,436   |        |        
|                                                      | Management fees                     |             |         | 1,000   |         |         | 674     |        |        
|                                                      | Asset impairments                   |             |         |        |         |         | 96      |        |        
|                                                      |                                     |             |         |         |         |         |         |        |        
|                                                      |                                     |             | 352,541 |         |         | 235,725 |         |        | 132,857
|                                                      |                                     |             |         |         |         |         |         |        |        
|Operating profit                                      |                                     |             | 30,885  |         |         | 10,880  |         |        | 7,755  
|Interest expense                                      |                                     |             | (19,312 | )       |         | (11,353 | )       |        | (9,719 
|Debt extinguishment costs                             |                                     |             |        |         |         | (6,516  | )       |        |       
|Other income, net                                     |                                     |             | 787     |         |         | 433     |         |        | 147    
|                                                      |                                     |             |         |         |         |         |         |        |        
|Income (loss) before income taxes                     |                                     |             | 12,360  |         |         | (6,556  | )       |        | (1,817 
|Provision for income taxes (benefit)                  |                                     |             | 3,882   |         |         | (3,139  | )       |        | (1,235 
|                                                      |                                     |             |         |         |         |         |         |        |        
|Net income (loss)                                     |                                     |             | 8,478   |         |         | (3,417  | )       |        | (582   
|Preferred stock dividends and accretion               |                                     |             | (3,570  | )       |         | (2,260  | )       |        | (2,627 
|                                                      |                                     |             |         |         |         |         |         |        |        
|Net income (loss) attributable to common stockholders |                                     | $           | 4,908   |         | $       | (5,677  | )       | $      | (3,209 
|                                                      |                                     |             |         |         |         |         |         |        |        

40

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|                                                      |                                     | Predecessor |      |       |      |       |      |       |     
|----------------------------------------------------- | ----------------------------------- | ----------- | ---- | ----- | ---- | ----- | ---- | ----- | ----
|
|
|
|
|Revenues:                                             |                                     |             |      |       |      |       |      |       |     
|                                                      | Restaurant operations               |             | 98.5 | %     | 98.6 | %     | 98.6 | %     | 98.6
|                                                      | Franchise operations                |             | 1.5  |       | 1.4  |       | 1.4  |       | 1.4 
|                                                      |                                     |             |      |       |      |       |      |       |     
|                                                      |                                     | 100.0       |      | 100.0 |      | 100.0 |      | 100.0 |     
|Costs and expenses                                    |                                     |             |      |       |      |       |      |       |     
|                                                      | Restaurant costs:                   |             |      |       |      |       |      |       |     
|                                                      |                                     | Food        |      | 27.2  |      | 26.8  |      | 26.5  |     
|                                                      |                                     | Labor       |      | 32.0  |      | 32.0  |      | 32.4  |     
|                                                      | Other operating expenses            |             | 24.7 |       | 25.2 |       | 27.2 |       | 25.9
|                                                      | Franchise operating expenses        |             | 0.8  |       | 0.7  |       | 0.7  |       | 0.7 
|                                                      | General and administrative expenses |             | 6.9  |       | 6.7  |       | 6.7  |       | 6.7 
|                                                      | Litigation settlement               |             |     |       |     |       |     |       |    
|                                                      | Transaction expenses                |             | 0.1  |       | 3.8  |       | 0.9  |       | 2.8 
|                                                      | Management fees                     |             | 0.3  |       | 0.3  |       | 0.1  |       | 0.2 
|                                                      | Asset impairments                   |             |     |       | 0.1  |       |     |       | 0.0 
|                                                      |                                     |             |      |       |      |       |      |       |     
|                                                      |                                     | 92.0        |      | 95.6  |      | 94.5  |      | 95.2  |     
|Operating profit                                      |                                     | 8.0         |      | 4.4   |      | 5.5   |      | 4.8   |     
|Interest expense                                      |                                     | (5.0        | )    | (4.6  | )    | (6.9  | )    | (5.4  | )   
|Debt extinguishment costs                             |                                     |            |      | (2.7  | )    |      |      | (1.7  | )   
|Other income, net                                     |                                     | 0.2         |      | 0.2   |      | 0.1   |      | 0.2   |     
|                                                      |                                     |             |      |       |      |       |      |       |     
|Income (loss) before income taxes                     |                                     | 3.2         |      | (2.7  | )    | (1.3  | )    | (2.1  | )   
|Provision for income taxes (benefit)                  |                                     | 1.0         |      | (1.3  | )    | (0.9  | )    | (1.1  | )   
|                                                      |                                     |             |      |       |      |       |      |       |     
|Net income (loss)                                     |                                     | 2.2         |      | (1.4  | )    | (0.4  | )    | (1.0  | )   
|Preferred stock dividends and accretion               |                                     | (0.9        | )    | (0.9  | )    | (1.9  | )    | (1.3  | )   
|                                                      |                                     |             |      |       |      |       |      |       |     
|Net income (loss) attributable to common stockholders |                                     | 1.3         | %    | (2.3  | )%   | (2.3  | )%   | (2.3  | )%  
|                                                      |                                     |             |      |       |      |       |      |       |     

Fiscal 2004 compared to the combined periods beginning October 28, 2002 through June 13, 2003 and beginning June 14, 2003 through October 26, 2003
(together, the "Combined 2003 Period")

Total revenuesincreased by $12.5 million, or 3.2%, to $399.7 million in fiscal 2004, from
$387.2 million for the Combined 2003 Period. The increase was largely due to operating six more locations on average in fiscal 2004 compared to the Combined 2003 Period. We also experienced a
0.4% increase in same unit sales for fiscal 2004 over the Combined 2003 Period, and fiscal 2004 had four extra days compared to the Combined 2003 Period. Village Inn same unit sales for fiscal 2004
increased 2.2% over the Combined 2003 Period, and Bakers Square same unit sales decreased 1.0% over the same period. Average guest spending increased 1.6% at Village Inn and 3.7% at Bakers Square in
fiscal 2004 compared to the Combined 2003 Period.

Food costsincreased by $2.9 million, or 2.8%, to $106.3 million in fiscal 2004, from $103.4 million for the Combined
2003 Period. Food costs as a percentage of total revenues slightly decreased to 26.6% for fiscal 2004 from 26.7% in the Combined 2003 Period. Menu engineering and menu price increases generally offset
unfavorable commodity costs experienced in fiscal 2004. Food commodity costs were

41

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very
volatile in fiscal 2004 and generally were very high in the early- to mid-portions of the fiscal year with moderation near the end of the fiscal year. During the year, we experienced
the highest prices we have seen in the last five years for butter, eggs, poultry, pork and fryer oil all of which are important ingredients in our products. In addition, beef prices remained
historically high and record high diesel fuel prices increased our delivery costs.

Labor costsincreased by $2.8 million, or 2.2%, to $127.3 million in fiscal 2004, from $124.5 million for the
Combined 2003 Period, but as a percentage of total revenues declined to 31.8% from 32.2% over these periods. Labor costs as a percentage of revenues decreased between the periods as the result of
hourly labor efficiencies and reduced overtime due in part to moving our end of week to a Thursday from a Sunday which allowed for us to manage scheduling and overtime issues during less busy times of
the week. In addition, management bonus expense decreased as a result of revisions in the management incentive bonus programs implemented at the beginning of fiscal 2004, which established more
conservative bonus qualifier thresholds and limited the eligibility to participate in the bonus program based upon completion of specified training programs.

Other operating expensesincreased by $4.9 million, or 4.9%, to $105.4 million in fiscal 2004 from $100.5 million for
the Combined 2003 Period. Other operating expenses as a percentage of total revenues increased from 25.9% to 26.4% over these periods. Partially offsetting this increase was a decrease in advertising
expenses.

General and administrative expensesdecreased $0.8 million, or 3.1%, to $25.2 million for fiscal 2004 from
$26.0 million for the Combined 2003 Period. This decrease resulted from $0.5 million in deferred compensation charges recorded in the Combined 2003 Period compared to no such charges in
fiscal 2004, lower direct construction oversight and support expenses in fiscal 2004 due to increased construction capitalization activity and lower manager-in-training costs
in fiscal 2004. Partially offsetting the decrease were $0.6 million of expenses in fiscal 2004 related to a Bakers Square brand revitalization study. As a percentage of revenues, general and
administrative expenses were 6.3% in fiscal 2004 compared to 6.7% in the Combined 2003 Period, which was reflective of the reduced costs and economies of scale associated with the higher revenues.

Litigation settlement expensesincreased by $3.2 million in fiscal 2004 due to the proposed settlement of two class action employee
practices claims. No litigation settlement was incurred in the Combined 2003 Period.

Transaction expensesof $10.7 million were incurred in the Combined 2003 Period associated with the acquisition of our Company.
Only $0.1 million of transaction costs were incurred in fiscal 2004.

Impairment expenseof $1.1 million was incurred in fiscal 2004 compared to $0.1 million in the Combined 2003 Period. The
impairment in fiscal 2004 related to 10 restaurant locations for which the estimated future cash flows could not recover the carrying value of the applicable long-term assets and the fair
market value of the assets was less than the carrying value. The impairment in the Combined 2003 Period related to one such restaurant location.

Operating profitincreased by $9.1 million, or 48.9%, to $27.7 million in fiscal 2004, from $18.6 million for the
Combined 2003 Period. Operating profit as a percentage of total revenues for fiscal 2004 increased from 4.8% to 6.9% over the Combined 2003 Period. This increase in profit margin was primarily due to
the $10.7 million of transaction costs in the Combined 2003 Period partially offset by $3.2 million of litigation settlement costs in fiscal 2004.

Interest expenseincreased by $5.7 million, or 27.0%, to $26.8 million in fiscal 2004, from $21.1 million for the
Combined 2003 Period. Interest expense as a percentage of total revenues increased from 5.4% to 6.7% over these periods. This increase was due primarily to larger outstanding average debt balances
during the fiscal 2004 compared to the Combined 2003 Period. The increase in

42

---



interest
expense in fiscal 2004 was the result of the borrowings made in June 2003 to help finance the acquisition of our company which were outstanding for the entire fiscal 2004 year.

Debt extinguishment costsof $6.9 million were incurred in fiscal 2004 in connection with the refinancing of our debt that closed
April 14, 2004. These expenses included $2.3 million of prepayment penalties, a write-off of deferred financing costs of $4.4 million associated with the previous
obligations and settlement of outstanding derivative obligations in the amount of $0.2 million. Debt extinguishment costs of $6.5 million were recorded for the Combined 2003 Period as a
result of costs related to terminating financing arrangements prior to their maturity in connection with the June 2003 acquisition of our company. Included within the $6.5 million in
debt extinguishment costs were a write-off of deferred financing cost of $3.3 million, early termination costs of $1.3 million and costs associated with terminating
unfavorable derivative instruments of $1.9 million.

Provision for income taxes (benefit)for fiscal 2004 was a benefit of $2.9 million. For the Combined 2003 Period, an income tax
benefit of $4.4 million was recorded. The provisions differ from our statutory rate of 39.9% due to general business credits that we earn from FICA taxes paid on employee tips, partially offset
by nondeductible amortization related to franchise rights.

Net income (loss)increased by $1.5 million to a $2.5 million loss in fiscal 2004, from a $4.0 million loss for the
Combined 2003 Period. Net income (loss) as a percentage of total revenues improved to (0.6)% from (1.0%) over these periods.

Preferred stock dividends and accretionincreased by $2.8 million to $7.7 million in fiscal 2004 from $4.9 million
for the Combined 2003 Period as a result of the redemption of $36.5 million liquidation preference of preferred stock of Midway Investors Holdings Inc. that accrued dividends at a rate
of 8.94% per annum and the issuance of $69.7 million liquidation preference of preferred stock of VI Acquisition Corp. that accrue dividends at a rate of 10.0% per annum in connection with the
June 2003 acquisition. Until the June 2003 acquisition, Midway Investors Holdings Inc. had, and following the June 2003 acquisition VI Acquisition Corp. has, outstanding
preferred stock. Dividends on VI Acquisition Corp.'s preferred stock accumulate and compound but are not payable until dividends are declared. Covenants contained in our senior secured credit
agreement and the indenture governing our 101/2% notes restrict our ability to declare dividends on our preferred stock.

Combined periods beginning October 28, 2002 through June 13, 2003 and beginning June 14, 2003 through October 26, 2003 compared to fiscal 2002

Total revenuesincreased by $3.8 million, or 1.0%, to $387.2 million for the Combined 2003 Period,
from $383.4 million in fiscal 2002. The increase in revenues was principally due to revenues from ten new company-operated restaurants acquired or opened during the Combined 2003 Period,
slightly offset by a decrease in pie sales of $0.3 million. We experienced a 1.4% decrease in same unit sales for the Combined 2003 Period compared to fiscal 2002. Village Inn same unit sales
for the Combined 2003 Period increased 0.1% over fiscal 2002, and Bakers Square same unit sales decreased 2.5%. Affecting the change in same unit sales, we experienced a 3.5% increase in average
per-person check size and a 3.5% decrease in entrée count for our Village Inn restaurants in the Combined 2003 Period as compared to fiscal 2002. We also experienced a 2.7%
increase in average per-person check size and a 5.1% decrease in entrée count for our Bakers Square restaurants in the Combined 2003 Period as compared to fiscal 2002. We
believe that the decrease in pie and Bakers Square revenues was primarily the result of a challenging economic environment.

Food costsdecreased by $0.9 million, or 0.9%, to $103.4 million in the Combined 2003 Period, from $104.3 million in
fiscal 2002. Food cost as a percentage of total revenues declined from 27.2% to 26.7% over these periods with improvements of 0.5% at both Village Inn and Bakers Square. The decrease resulted from
increased management of the cost of food, which reduced the difference between actual

43

---



food
cost and ideal food cost. Menu price increases of approximately 3.1% exceeded food cost inflation and contributed to the decline as a percentage of revenues.

Labor costsincreased by $1.7 million, or 1.4%, to $124.5 million in the Combined 2003 Period, from $122.8 million
for fiscal 2002. Labor costs as a percentage of total revenues increased from 32.0% to 32.2% during these periods. $1.6 million of the increase was associated with increased store count
resulting from our acquisition of the eight New Mexico units. Employee benefit costs increased $0.5 million and were offset by lower bonus payouts for the Bakers Square managers due to a change
in their incentive program. Village Inn reduced overtime expense by $0.2 million due to our modifying internal processes to provide our restaurant managers greater control over employee
utilization and overtime.

Other operating expensesincreased by $6.1 million, or 6.4%, to $100.5 million in the Combined 2003 Period, from
$94.4 million in fiscal 2002. Other operating expenses as a percentage of total revenues increased from 24.7% to 25.9% during these periods. We increased advertising program expenditures by
$1.7 million in an effort to increase customer traffic. Occupancy expenses increased $2.3 million due primarily to new operating locations and increases in general insurance costs. In
addition, we
experienced a $1.2 million increase in utility costs across all of our markets, incurred $0.4 million in repair and maintenance expenses and incurred $0.3 million of incremental
pre-opening expense over fiscal 2002 as a result of new unit openings.

General and administrative expensesdecreased by $0.6 million, or 2.3%, to $26.0 million in the Combined 2003 Period, from
$26.6 million in fiscal 2002. General and administrative expenses expressed as a percentage of total revenues declined from 6.9% to 6.7% during these periods reflective of the higher revenue
and lower costs in the Combined 2003 Period. This decrease was primarily the result of a decrease of $1.3 million in bonuses paid in connection with our corporate management incentive plan,
partially offset by a $0.4 million increase in compensation costs associated with options and warrants and a $0.1 million increase in the cost of providing benefits to employees.

Operating profitdecreased by $12.3 million, or 39.8%, to $18.6 million for the Combined 2003 Period from
$30.9 million in fiscal 2002. Operating profit as a percentage of total revenues declined from 8.0% to 4.8% over these periods. The decrease in operating profit and operating margin for the
Combined 2003 Period versus fiscal 2002 was primarily attributable to transaction expenses incurred in connection with the acquisition of our company on June 14, 2003, which decreased operating
profit by $10.7 million, or 2.7% of total revenues, during the Combined 2003 Period. Excluding the impact of the transaction-related costs of $10.7 million and $0.3 million in the
Combined 2003 Period and fiscal 2002, respectively, operating profit during the Combined 2003 Period would have been $29.3 million, or 7.6% of total revenues, compared to $31.1 million,
or 8.1% of total revenues, during fiscal 2002.

Additionally,
we incurred compensation costs related to the issuance of options to purchase shares of our predecessor's common stock that were $0.4 million greater in the Combined
2003 Period than in fiscal 2002. These increased costs, totaling $1.1 million, decreased operating margin by 0.3% during the Combined 2003 Period.

Debt extinguishment costsof $6.5 million were recorded for the Combined 2003 Period as a result of costs related to terminating
financing arrangements prior to their maturity in connection with the June 2003 acquisition of our company. No such charges were incurred for fiscal 2002. Included within the
$6.5 million in debt extinguishment costs are a write-off of deferred financing cost of $3.3 million, early termination costs of $1.3 million and costs associated with
terminating unfavorable derivative instruments of $1.9 million.

Provision for income taxes (benefit)for the Combined 2003 Period was a benefit of $4.4 million. This benefit reflects the loss
before provision for income taxes for the Combined 2003 Period of $8.4 million and a tax benefit rate of 52.4%. For fiscal 2002, the provision for income taxes of

44

---



$3.9 million
reflects a tax provision rate of 31.4%. These rates differ from our statutory rate of 39.9% due to tax credits that we earn by paying FICA taxes on employee tips, partially offset
by amortization relating to franchise rights that is nondeductible for tax purposes.

Net income (loss)decreased by $12.5 million to a net loss of $4.0 million for the Combined 2003 Period, from net income of
$8.5 million for fiscal 2002. This decrease in profits was primarily the result of $10.7 million in transaction expenses and $6.5 million in debt elimination costs which were
incurred in connection with the sale of our company.

Preferred stock dividends and accretionincreased by $1.3 million, or 36.1%, to $4.9 million for the Combined 2003 Period,
from $3.6 million for fiscal 2002, as a result of the redemption of $36.5 million liquidation preference of Midway Investors Holdings Inc. preferred stock that accrued dividends
at a rate of 8.94% per annum and the issuance of $67.9 million liquidation preference of preferred stock of VI Acquisition Corp. that accrue dividends at a rate of 10.0% per annum in connection
with the June 2003 acquisition.

Liquidity and capital resources

Cash requirements

Our principal liquidity requirements are to continue to finance our operations, service our debt and fund capital expenditures for maintenance and expansion. Cash
flow from operations has historically been sufficient to finance continuing operations and meet normal debt service requirements. However, we are highly leveraged and our ability to repay borrowings
at maturity is likely to depend in part on our ability to refinance the debt when it matures, which will be contingent on our continued successful operation of the business as well as other factors
beyond our control, including the debt and capital market conditions at that time.

Our
cash balance and working capital needs are generally low, as sales are made for cash or through credit cards that are quickly converted to cash, purchases of food and supplies and
other operating expenses are generally paid within 30 to 60 days after receipt of invoices and labor costs are paid bi-weekly. The timing of our sales collections and vendor and
labor payments are consistent with other companies engaged in the restaurant industry.

During
fiscal 2005, we anticipate capital expenditures before build-to-suit construction (as discussed below) of approximately $26 million reflecting an
acceleration of our unit growth. Of this amount, $12 million is expected to be spent on new store construction, $6 million for remodels and the remainder on capital maintenance and other
support related projects. We may also have capital expenditures in fiscal 2005 related to our Bakers Square brand repositioning, although at present such plans have not been finalized. We currently
expect to open an estimated 23 to 27 new stores in fiscal 2005.

We
may also be required to make cash payments associated with litigation settlements. We expect our maximum net cash outlay for this litigation settlement to be $3.2 million
reflecting indemnification of pre-acquisition activities by our predecessor for the balance of the $6.55 million proposed settlements.

In
connection with our new restaurant development program, we have entered into build-to-suit development agreements whereby third parties will purchase property,
fund the costs to develop new restaurant properties for us and lease the properties to us upon completion. Under these agreements, we generally are responsible for the construction of the restaurant,
and remitting payments to the contractors on the projects, which are subsequently reimbursed by the property owner. These amounts advanced and subsequently reimbursed are not included in the
anticipated capital spending totals above. On October 28, 2004, we had outstanding receivables of $2.4 million relating to these types of agreements. In certain of these agreements, we
are obligated to purchase the property in the event that

45

---



we
are unable to complete the construction within a specified time frame, and are also responsible for cost overruns above specified amounts.

Debt and other obligations

In April 2004, we completed a refinancing of our prior debt including a private placement of $126.5 million aggregate principal amount of
101/2% senior unsecured notes maturing in April 2011. The notes were issued at a discounted price of 98.791% of face value, resulting in proceeds before transaction costs of
$125.0 million. The senior unsecured notes were issued by VICORP Restaurants, Inc.
and are guaranteed by VI Acquisition Corp. and our subsidiary Village Inn Pancake House of Albuquerque, Inc.

Concurrently
with the issuance of the 101/2% senior unsecured notes, we entered into an amended and restated senior secured credit facility consisting of a
$15.0 million term loan and a $30.0 million revolving credit facility, with a $15.0 million sub-limit for letters of credit. As of October 28, 2004, we had
issued letters of credit aggregating $7.3 million and had $1.4 million of borrowings outstanding under the senior secured revolving credit facility. The senior secured revolving credit
facility permits borrowings equal to the lesser of (a) $30.0 million and (b) 1.2 times trailing twelve months Adjusted EBITDA (as defined in the senior secured credit agreement)
minus the original amount of the senior secured term loan. Under this formula, as of October 28, 2004, we had the ability to borrow the full $30 million, less the amount of outstanding
letters of credit, under the senior secured revolving credit facility, or $21.3 million. Borrowings under both the revolving credit facility and the term loan bear interest at floating rates
tied to either the base rate of the agent bank under the credit agreement or LIBOR rates for a period of one, two or three months, in each case plus a margin that will adjust based on the ratio of our
Adjusted EBITDA to total indebtedness, as defined in the senior secured credit agreement. Both facilities are secured by a lien of all of the assets of VICORP Restaurants, Inc., and guaranteed
by VI Acquisition Corp. and our subsidiary Village Inn Pancake House of Albuquerque, Inc. The guarantees also secured by the pledge of all of the outstanding capital stock of VICORP
Restaurants, Inc. by VI Acquisition Corp. The term loan does not require periodic principal payments, but requires mandatory repayments under certain events, including proceeds from sale of
assets, issuance of equity, and issuance of new indebtedness. Both facilities mature in April 2009.

Our
senior secured credit facility and the indenture governing the senior unsecured notes contain a number of covenants that, among other things, restrict, subject to certain exceptions,
our ability and the ability of our subsidiaries, to sell assets, incur additional indebtedness, as defined, or issue preferred stock, repay other indebtedness, pay dividends and distributions or
repurchase our capital stock, create liens on assets, make investments, loans or advances, make certain acquisitions, engage in mergers or consolidations, enter into sale-leaseback
transactions, engage in certain transactions with affiliates, amend certain material agreements governing our indebtedness, change the business conducted by us and our subsidiaries and enter into
hedging agreements. In addition, our senior secured credit facility requires us to maintain or comply with a maximum total leverage ratio, a minimum interest coverage ratio and a maximum capital
expenditures limitation. As of October 28, 2004, we were in compliance with these requirements.

We
are subject to capital lease obligations related to six of our leased properties. The principal component of our capital lease obligations was $0.4 million as of
October 28, 2004. These capital leases have expiration dates ranging from December 2004 to January 2025. We are also the prime lessee under various operating leases or agreements
under deemed landlord financing liability transactions for land, building and equipment for company-operated and franchised restaurants, pie production facilities and locations subleased to
non-affiliated third parties. These leases and agreements have initial terms ranging from 15 to 35 years and, in most instances, provide for renewal options ranging from five to
20 years. These leases and agreements expire at various dates through January 2025.

46

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We
have guaranteed certain leases for restaurant properties sold in 1986 and restaurant leases of certain franchisees. Estimated minimum future rental payments remaining under these
leases were approximately $2.7 million as of October 28, 2004.

On
October 28, 2004, our contractual obligations with respect to the above were as follows:

Payments due by periodTotal

Less than
one year

1-3 years

3-5 years

More than
5 years(In millions)Senior secured credit facility

$
16.4

$


$


$
16.4

$
101/2% senior unsecured notes


126.5











126.5Total long-term debt


142.9








16.4


126.5Capital lease obligations(1)(2)


0.6


0.2


0.2


0.1


0.1Operating lease obligations(2)


103.4


15.6


25.9


17.9


44.0Deemed landlord financing liability(1)(2)


301.2


12.1


24.5


24.8


239.8Letters of credit(3)


7.3


7.3








Purchase commitments(4)


5.3


5.3








Total

$
560.7

$
40.5

$
50.6

$
59.2

$
410.4


---

Prior indebtedness

Our previous credit facilities consisted of a $25.0 million revolving credit facility, a term A loan, and a term B loan issued pursuant to a credit
agreement dated June 13, 2003. In addition, we had outstanding subordinated indebtedness in the original principal amount of $45.0 million issued pursuant to an investment agreement
dated June 13, 2003. The prior term loans and the prior subordinated debt were paid in full from a portion of the proceeds of our senior unsecured notes and our senior secured term loan. In
addition, a portion of these proceeds were used to pay an early redemption premium of $2.3 million on the subordinated debt, and to pay $0.2 million to terminate an interest rate swap
agreement pursuant to which we agreed to make fixed rate payments in exchange for receiving quarterly floating rate payments at the three month LIBOR rate that applied to the borrowings under our
previous senior secured credit facility. In addition, in connection with the refinancing, we wrote off $4.4 million of unamortized debt financing costs in fiscal 2004 related to the prior debt.

47

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Sources and uses of cash

The following table presents a summary of our cash flows from operating, investing and financing activities for the periods indicated:

PredecessorPeriod endedFiscal year
October 27,
2002

June 13,
2003

October 26,
2003

Combined
2003
Period

Fiscal year
October 28,
2004(In millions)Net cash provided by operating activities

$
28.7

$
12.0

$
5.6

$
17.6

$
24.5Net cash used for investing activities


(10.3
)

(13.8
)

(154.3
)

(168.1
)

(23.8
)Net cash provided by (used for) financing activities


(7.9
)

(5.2
)

145.0


139.8


(4.7
)Net increase (decrease) in cash and cash equivalents


10.5


(7.0
)

(3.7
)

(10.7
)

(4.0
)


Operating activities

For fiscal 2004, cash flows from operating activities increased $6.9 million compared to the Combined 2003 Period. The increase resulted primarily from the
use of $11.6 million of operating cash in the Combined 2003 Period for transaction and debt extinguishment costs compared to $2.6 million in fiscal
2004. This was partially offset in part by $6.0 million of higher interest payments in fiscal 2004 due to the debt incurred as a result of the June 2003 acquisition.

For
the Combined 2003 Period, cash from operations decreased $11.1 million largely from the use of $11.6 million of operating cash for the transaction and debt
extinguishment costs incurred in connection with the June 2003 acquisition.

48

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Investing activities

Our capital expenditures, excluding amounts related to build-to-suits, for the last three fiscal years were comprised of the following:

Fiscal
2002

Combined
2003
Period

Fiscal
2004(In millions)New store construction

$
1.0

$
6.1

$
3.6Existing store remodel and refurbishment


2.2


2.7


5.8Point-of-sale computer roll-out


1.3


5.9


Store capital maintenance


3.4


3.6


4.3Pie production facility capital maintenance


0.8


0.6


1.4Corporate related


0.5


0.6


0.9Other


1.4





Purchase of property and equipment

$
10.6

$
19.5

$
16.0


In
addition to the capital expenditures noted above, we spent $8.4 million and $2.1 million for the purchase of assets under deemed landlord financing liability in fiscal
2004 and the Combined 2003 Period, respectively. Also, we used $153.3 million of cash in the Combined 2003 Period for the June 2003 acquisition of our company and $3.8 million for
our acquisition of Village Inn Pancake House of Albuquerque, Inc., a former Village Inn franchisee.

Financing activities

We used cash in financing activities of $4.7 million during fiscal 2004, consisting principally of the net proceeds from our April 2004 debt
refinancing, $1.4 million of borrowing under our revolving credit facility and $2.5 million of proceeds from deemed landlord financing, offset by the periodic principal payments on the
previous term debt and the repayment of $9.8 million on our previous revolving line of credit.

During
the Combined 2003 Period, we generated cash from financing activities of $139.8 million, consisting principally of borrowings under our senior secured credit facility and
$72.8 million from the issuance of new capital stock in connection with the June 2003 acquisition, all of which was used to repay existing indebtedness and partially fund the
acquisition. We also generated $18.8 million from sale-leaseback transactions accounted for as deemed landlord financings and $5.3 million from borrowings under our senior
secured revolving credit facility. During the Combined 2003 Period we used $2.8 million of cash to repay a portion of our senior secured term loans. We also had $5.4 million of debt
financing costs incurred in the June 2003 acquisition and real estate financing transactions. In addition, we used cash of $1.0 million to redeem the shares of our former chief executive
officer during the Combined 2003 Period.

In
fiscal 2002, we used cash in financing activities of $7.9 million consisting of scheduled principal payments on our debt and capital leases.

Cash management

We have historically funded the majority of our capital expenditures out of cash from operations. We have on occasion obtained, and may in the future obtain,
capitalized lease financing for certain expenditures related to equipment. Our investment requirements for new restaurant development include requirements for acquisition of land, building and
equipment. Historically we have either acquired all of these assets for cash, or purchased building and equipment assets for cash and acquired a leasehold interest in land. We have entered into
sale-leaseback arrangements for many of the land

49

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and
building assets that we have purchased in the past, many of which have been accounted for as financing transactions. Since the initial net cash investment required for leased units is
significantly lower than for owned properties, we intend to focus on leasing sites for future growth so that we only have to fund the equipment portion of our new restaurant capital costs from our
cash flows. We believe that this will reduce our upfront cash requirements associated with new restaurant growth and enable us to increase our return on these investments, although it will result in
significant long term obligations under operating leases, capital leases or financing liabilities.

New accounting pronouncements

In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory
Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material and
requires that such items be recognized as current-period charges regardless of whether they meet the "so abnormal" criterion outlined in ARB No. 43. SFAS No. 151 also introduces the
concept of "normal capacity" and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized
as an expense in the period incurred. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. While we are still evaluating the impact
of this statement, we do not currently believe it will have a material impact on our consolidated financial statements.

In
December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-based Payment" which replaces the prior SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123 (revised 2004) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or
liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period
that an employee provides services in exchange for the award. This new standard will become effective for us July 8, 2005, and we are still evaluating the impact of this statement.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk primarily from changes in interest rates and changes in food commodity prices.

We
are subject to changes in interest rates on borrowings under our senior secured credit facility that bear interest at floating rates. As of October 28, 2004,
$16.4 million, or 11.5% of our total debt and capitalized lease obligations of $141.9 million, bears interest at a floating rate. A hypothetical one hundred basis increase in interest
rates for our variable rate borrowings, as of October 28, 2004, would increase our future interest expense by approximately $0.2 million per year. This sensitivity analysis does not
factor in potential changes in the level of our variable interest rate borrowings, or any actions that we might take to mitigate our exposure to changes in interest rates.

Many
of the ingredients purchased for use in the products sold to our guests are subject to unpredictable price volatility outside of our control. We try to manage this risk by entering
into selective short-term agreements for the products we use most extensively. Also, we believe that our commodity cost risk is diversified as many of our food ingredients are available
from several sources and we have the ability to modify recipes or vary our menu items offered. Historically, we have also been able to increase certain menu prices in response to food commodity price
increases and believe the opportunity may exist in the future. To compensate for a hypothetical price increase of 10% for food ingredients, we would need to increase prices charged to our guests by an
average of

50

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approximately
2.7%. We have not historically used financial instruments to hedge our commodity ingredient prices.

Item 8.    Financial Statements and Supplementary Data.

The information required under this Item 8 is set forth on pages F-1 through F-42 of this Report.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A.    Controls and Procedures.

Evaluation of disclosure controls and procedures

Within the 90-day period prior to the filing date of this report, our management, under the supervision of our Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-14 and
15d-14 under the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective in alerting them timely to material information required to be included in our Exchange Act filings due to the lease restatement issue noted
below.

On
March 21, 2005, we announced that our financial statements were likely to be restated, relating to certain lease accounting and leasehold improvement depreciation accounting
practices, consistent with similar adjustments made by many other retailers and other publicly traded companies concerning these practices. This restatement is described elsewhere in this
Form 10-K/A. Our conclusion to change our accounting policies and restate was made, among other things, in consideration of the views of the Office of the Chief Accountant of the
SEC expressed in its letter related to these matters dated February 7, 2005. Accordingly, we concluded that our controls over the selection of appropriate assumptions and factors affecting
lease accounting practices were not effective as of October 28, 2004, which we believe represents a material weakness in internal control over financial reporting. There have not been any
significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation, except as described in the following
paragraph.

We
have enhanced our internal controls to require an evaluation of the applicable lease provisions that could affect, in the context of current interpretive guidance pertaining to the
application of GAAP for lease accounting, the classification and accounting for such transactions.

Limitations on the effectiveness of controls

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty, that breakdowns can occur because of simple errors or mistakes, and that controls can be circumvented by the acts of
individuals or groups. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B.    Other Information.

Not applicable.

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PART III

Item 10.    Directors and Executive Officers of the Registrant.

The following table sets forth certain information regarding our Board of Directors and executive officers as of October 28, 2004.

|Name                  |  | Age |  | Position                            
|--------------------- |  | --- |  | ------------------------------------
|Debra Koenig          |  | 52  |  | Chief Executive Officer and Director
|Robert Kaltenbach     |  | 59  |  | Chief Operating Officer             
|Anthony Carroll       |  | 53  |  | Chief Financial Officer             
|Walter Van Benthuysen |  | 65  |  | Chairman of the Board and Director  
|Robert Cummings       |  | 57  |  | Director                            
|Wayne Kocourek        |  | 67  |  | Director                            
|Michael Solot         |  | 40  |  | Director                            

Debra Koenighas been our Chief Executive Officer and one of our directors since June 2003. She joined us after a 25 year
career with McDonald's Corporation. Ms. Koenig's most recent position was President of the Southeast Division from 1997 to 2001. In this role she was responsible for McDonald's largest U.S.
division, with $4 billion in sales, consisting of approximately 2,675 franchised restaurants and 290 company-operated restaurants in 14 states.

Robert Kaltenbachhas been our Chief Operating Officer since November 2000, after serving as President of our Village Inn division
since December 1994. Mr. Kaltenbach began his career with us in 1988 as Vice President of Franchise Operations of Village Inn. Mr. Kaltenbach's professional career includes over
33 years of management experience in several aspects of the foodservice industry, including extensive experience with new concept development and positioning.

Anthony Carrollhas been our Chief Financial Officer since February 2004. From June 2000 until December 2002
Mr. Carroll was Chief Financial Officer of ProcureZone.com, LLC, which provided an Internet-based procurement tool for the utility industry. Mr. Carroll was Chief Financial Officer for
Au Bon Pain Co., Inc. and its successor, ABP Corporation, from October 1988 until June 2000. Mr. Carroll began his career with PriceWaterhouseCoopers and is a Certified
Public Accountant.

Walter Van Benthuysenhas been one of our directors and Chairman of the Board since June 2003. Mr. Van Benthuysen served as
a member of the Board of Directors of Value Added Bakery Holding Company and as its Chairman of the Board from December 1998 until December 2003. He also served as Chairman of the Board
of Hazelwood Farms, a subsidiary of Supervalu, Inc., from September 1995 to December 1998. Previously, Mr. Van Benthuysen was the Executive Vice President of Quaker Oats
Company until he retired in October 1995. Mr. Van Benthuysen is also a director of Colorado Baking Company and Nonni's Food Company, Inc.

Robert Cummingshas been one of our directors since June 2003. Mr. Cummings has been a Managing Director of Wind Point
Advisors LLC, a private equity investment firm, since 1987. Investment funds affiliated with Wind Point Advisors LLC control our company. He is also a director of Procyon Technologies, Inc.,
Nonni's Food Company, Inc. and United Subcontractors, Inc.

Wayne Kocourekhas been one of our directors since June 2003. He is Chairman, Chief Executive Officer and Managing Member of Mid
Oaks Investments LLC, a private equity investment company that he founded in 1997. He is also currently a director of Little Rapids Corporation, Liquid Container Inc., Profile Products LLC,
Environmental Materials LLC and Wilkinson Industries, Inc.

Michael Solothas been one of our directors since June 2003. He has been employed by Wind Point Advisors LLC, a private equity
investment firm, since 1999, most recently as a Managing Director. Investment funds affiliated with Wind Point Advisors LLC control our company. Prior to joining Wind

52

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Point,
Mr. Solot spent six years in various operating and strategy positions with Werner Ladder Co. Mr. Solot has also held positions as an Associate with Goldman, Sachs and Co. and as a
Consultant with Bain & Co.

Ms. Koenig,
Mr. Van Benthuysen, Mr. Cummings, Mr. Solot and Mr. Kocourek were elected as directors in June 2003 pursuant to the stockholders
agreement described in "Item 13. Certain Relationships and Related Party Transactions." Our directors serve until their successors have been elected and qualified or until their earlier
resignation or removal. Our executive officers are elected by and serve at the discretion of our Board of Directors.

Our
Board of Directors has an Audit Committee that is responsible, among other things, for overseeing our accounting and financial reporting processes and audits of our financial
statements. The Audit Committee is comprised solely of Messrs. Kocourek and Van Benthuysen. Our Board of Directors has determined that Mr. Kocourek qualifies as an "audit committee
financial expert" and that Mr. Van Benthuysen is "independent" as defined in federal securities laws.

VICORP
Restaurants, Inc., VI Acquisition Corp. and Village Inn Pancake House of Albuquerque, Inc. have entered into separate indemnification agreements with their directors
under which each company has agreed to indemnify, and to advance expenses to, each of that company's directors to the fullest extent permitted by applicable law with respect to liabilities they may
incur in their capacities as that company's directors and officers.

We
have adopted a Business Conduct Policy effective as of January 24, 2005 that is applicable to all of our Board members, employees and executive officers, including our Chief
Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer and Accounting Officer).

Item 11.    Executive Compensation.

The following table discloses the compensation awarded by us for services rendered during our last two fiscal years to the chief executive officer and to the
other named executive officers.

Summary compensation table

|                                               |  |           |  |   |                 |  |   | Long-term
Compensation |  |     | 
|---------------------------------------------- |  | --------- |  | - | --------------- |  | - | ---------------------- |  | --- | 
|
|
|
|
|Debra Koenig(3)
Chief Executive Officer        |  | 2004
2003 |  | $ | 420,757
251,505 |  | $ | 90,000
               |  | 
 | 
|Joseph Trungale
Former Chief Executive Officer |  | 2004
2003 |  |   | 
339,066       |  |   | 
                    |  | 
 | 
|Robert Kaltenbach
Chief Operating Officer      |  | 2004
2003 |  |   | 434,872
430,560 |  |   | 76,003
71,782          |  | 
 | 
|Anthony Carroll(9)
Chief Financial Officer     |  | 2004
2003 |  |   | 165,796
       |  |   | 23,381
               |  | 
 | 
|William Hoppe
Former Chief Financial Officer   |  | 2004
2003 |  |   | 
107,689       |  |   | 
                    |  | 
 | 

---

53

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Compensation Committee Interlocks and Insider Participation

Our compensation committee is currently comprised of Messrs. Robert Cummings and Walter Van Benthuysen. None of these individuals has been at any time an
officer or employee of our company. No member of our compensation committee serves as a member of the board of directors or

54

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compensation
committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Employment and severance agreements

Employment contracts

We have entered into employment agreements with Ms. Koenig, Mr. Kaltenbach and Mr. Carroll. Under Ms. Koenig's employment agreement,
she is entitled to receive a minimum base salary of $400,000, less applicable tax withholding, as well as an annual performance bonus targeted at 50% of base salary. The annual performance bonus is
based upon achievement of our annual budget that is determined by our Board in its sole discretion.

If
Ms. Koenig's employment is terminated by us without "cause", she is entitled to a severance payment equal to 12 months of her base salary, which severance is payable
over the 12 month period immediately following the termination of her employment. In addition, during the 12 month severance period, we will pay the cost of Ms. Koenig's health
care continuation coverage under COBRA at the same rate that we pay for health insurance for our active employees, if Ms. Koenig elects COBRA continuation coverage. Ms. Koenig will also
be entitled to the foregoing severance payments if she terminates her employment for "good reason," which is generally defined as a diminution in her duties or position that is not remedied after
notice or a breach of her employment contract by us (which includes any decrease in Ms. Koenig's base salary without her consent or a required relocation outside of the Denver area) that is not
remedied after notice.

Mr. Kaltenbach's
employment agreement is substantially the same as Ms. Koenig's, except that he is entitled to receive a minimum base salary of $430,560, less applicable
tax withholding. In addition, if Mr. Kaltenbach's employment is terminated by us without "cause" (or by him for "good reason"), his severance payment will be an amount equal to $500,000,
payable in equal installments over a period of 12 months. In addition, Mr. Kaltenbach received an option to purchase 458.57 shares of our preferred stock at an exercise price of $24.80
per share. The option is fully vested and will expire on June 12, 2013, subject to earlier termination in the event Mr. Kaltenbach's employment is terminated.

Mr. Carroll's
employment agreement is substantially the same as Ms. Koenig's, except that he is entitled to receive a minimum annual base salary of $225,000, less
applicable tax withholding, and his annual performance bonus is targeted at 40% of base salary. In addition, if Mr. Carroll's employment is terminated by us without "cause" (or by him for "good
reason"), he is entitled to receive as severance the continuation of his base salary then in effect for a period of one month for each month in which he was employed by us, up to a maximum of
12 months, payable in accordance with our payroll policy.

Ms. Koenig,
Mr. Kaltenbach and Mr. Carroll are also each subject to noncompetition restrictions for a period of at least twelve months following termination of their
employment and nonsolicitation restrictions for a period of two years following employment termination. We may, in our discretion, extend the noncompetition period up to a maximum period of twelve
additional months by similarly extending the period for which they are entitled to receive severance.

Management agreements

Ms. Koenig, Mr. Kaltenbach and Mr. Carroll have entered into certain Management Agreements with us pursuant to which they purchased
restricted shares of our common stock at a price equal to $1.00 per share. The shares vest over a period of five years at the rate of 20% per year and are subject to certain repurchase rights upon
termination of employment. Upon termination of employment, all vesting ceases and the unvested shares may be repurchased by us at their original cost and the vested shares may be repurchased at fair
market value (unless termination is for "cause" or voluntarily by the employee without "good reason", in which event all of the shares may be repurchased by us at the

55

---



lesser
of original cost or fair market value). In addition, pursuant to the Management Agreements, following the termination of Ms. Koenig's, Mr. Kaltenbach's or Mr. Carroll's
employment, we may elect, or, in the event of their deaths, their respective estates may compel us, to repurchase certain shares of our preferred stock and common stock previously acquired by
Ms. Koenig, Mr. Kaltenbach and Mr. Carroll. The purchase price for such shares will be equal to fair market value with respect to the common stock and original cost with respect
to the preferred stock, unless the purchase is pursuant to Ms. Koenig's, Mr. Kaltenbach's or Mr. Carroll's put right following death, in which case the purchase price will be the
lesser of the foregoing amounts or the original cost of the shares.

Severance agreements

We entered into severance agreements with Mr. William Hoppe, our former Chief Financial Officer, and with Mr. Joseph Trungale, our former President
and Chief Executive Officer. Mr. Hoppe's employment terminated on June 27, 2003. Pursuant to the terms of his agreement, we continued to pay Mr. Hoppe his base salary until
December 26, 2003. In addition, we paid a portion of the cost of Mr. Hoppe's health care continuation coverage under COBRA until October 31, 2003. In exchange for these severance
payments, Mr. Hoppe executed a release of all claims against us. Mr. Hoppe also is subject to an agreement that prohibits him from competing against us for a period of 12 months
following the termination of his employment.

Mr. Trungale's
employment terminated on September 2, 2003. Pursuant to the terms of his severance agreement, we continued to pay Mr. Trungale his base salary and a
portion of the cost of his health care continuation coverage under COBRA until March 2, 2004. In addition, we exercised our right to repurchase certain shares of our common stock and preferred
stock that had been previously acquired by Mr. Trungale. The aggregate purchase price paid to Mr. Trungale in connection with such repurchase was approximately $1,000,000. In exchange
for his severance payments, Mr. Trungale executed a release of all claims against us. Mr. Trungale is subject to an agreement that prohibits him from soliciting our employees or
customers for a period of two years following the termination of his employment.

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

All of the outstanding capital stock of VICORP Restaurants, Inc. is held by VI Acquisition Corp. The following table sets forth information with respect to
the beneficial ownership of all of the common stock of VI Acquisition Corp. as of October 28, 2004 by:



To
our knowledge, each of the holders of shares listed below has sole voting and investment power as to the shares owned unless otherwise noted. Our equity securities are privately held
and no class of

56

---



our
voting securities is registered pursuant to Section 12 of the Exchange Act. The information set forth herein does not describe the ownership of our preferred stock, which is nonvoting.

Name and address(1)

Amount and nature of
beneficial ownership

Percentage of outstanding
voting securities(2)Wind Point Partners V, L.P.(3)

682,403

48.0
%Wind Point Partners IV, L.P.(4)

258,289

18.2
%Mid Oaks Investments LLC(5)

171,939

12.1
%Debra Koenig

108,905

7.7
%Robert Kaltenbach

52,795

3.7
%Anthony Carroll

14,295

1.0
%Walter Van Benthuysen

29,695

2.1
%Robert Cummings(3)(4)(6)

947,690

66.7
%Wayne Kocourek(7)

171,939

12.1
%Michael Solot



All executive officers and directors as a group (seven persons)(6)(7)

1,325,319

93.2
%


---

57

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58

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Item 13.    Certain Relationships and Related Party Transactions.

Professional services agreement

In June 2003, VI Acquisition Corp. entered into a professional services agreement with Wind Point Investors IV, L.P. and Wind Point Investors V, L.P.
pursuant to which they provide services relating to corporate strategy, acquisition and divestiture strategy and advice regarding debt and equity financings. In exchange for such services, Wind Point
Investors IV, L.P. is entitled to an annual management fee of $231,668 plus its reasonable out-of-pocket expenses, and Wind Point Investors V, L.P. is entitled to an annual
management fee of $618,332 plus its reasonable out-of-pocket expenses. In addition, upon repayment in full of all amounts owing under VI Acquisition Corp.'s prior senior
secured credit agreement and its prior subdebt credit agreement, Wind Point Investors IV, L.P. and Wind Point Investors V, L.P. was paid a fee equal to the sum of $250,000 plus the product of $70,000
multiplied by the result of a fraction, the numerator of which is the number of days from June 13, 2003 until such repayment and the denominator of which is 365. We paid Wind Point Investors
IV, L.P. and Wind Point Investors V, L.P. approximately $309,000 pursuant to this provision upon repayment of our prior senior credit facility in connection with the April 2004 refinancing.

The
professional services agreement will continue until the occurrence of a change of control of VI Acquisition Corp.; provided that if at such time VI Acquisition Corp. pays in full all
amounts owing under its existing senior secured credit facility and mezzanine credit agreement, the professional services agreement shall remain in effect as long as VI Acquisition Corp.'s current
stockholders own at least 10% of the common stock or preferred stock of VI Acquisition Corp. The professional services agreement, however, may be terminated by VI Acquisition Corp. if either Wind
Point Investors IV, L.P. or Wind Point Investors V, L.P. is in material breach and has not cured such breach within 60 days of notice thereof. In June 2003, VI Acquisition Corp. paid
Wind Point Investors IV, L.P. professional service fees of $89,122 and paid Wind Point Investors V, L.P. professional service fees of $234,248. VI Acquisition Corp. also paid Wind Point Investors IV,
L.P. and Wind Point Investors V, L.P. expense reimbursement of $22,208 in 2003. The professional services agreement contains customary indemnification provisions in favor of Wind Point Investors IV,
L.P., Wind Point Investors V, L.P. and
their affiliates. Mr. Cummings is a managing director and Mr. Solot is a principal of Wind Point Advisors LLC, an affiliate of Wind Point Investors IV, L.P. and Wind Point Investors V,
L.P.

Additional equity issuances

In November 2003, Wind Point Partners IV, L.P. purchased 1,324 shares of our common stock for $1,324 and 61.075 shares of our series A preferred
stock for $61,075, Wind Point Partners V, L.P. purchased 3,520 shares of our common stock for $3,520 and 162.331 shares of our series A preferred stock for $162,331, Wind Point IV Executive
Advisor Partners, L.P. purchased ten shares of our common stock for $10 and 0.459 shares of our series A preferred stock for $459, Wind Point Associates IV, LLC purchased five shares of our
common stock for $5 and 0.226 shares of our series A preferred stock for $226, Mid Oaks Investments LLC purchased 629 shares of our common stock for $629 and 29.028 shares of our
series A preferred stock for $29,028 and Walter Van Benthuysen purchased 72 shares of our common stock for $72 and 3.325 shares of our series A preferred stock for $3,325.

In
February and March 2004, Walter Van Benthuysen purchased 10,000 shares of our common stock for $10,000, Debra Koenig purchased 3,575 shares of our common stock for $3,575 and
Anthony Carroll purchased 14,295 shares of our common stock for $14,295.

Transaction fees in connection with the June 2003 acquisition

In June 2003, VI Acquisition Corp. entered into a stock purchase agreement with Wind Point Partners IV, L.P., Wind Point Partners V, L.P., Wind Point IV
Executive Advisor Partners, L.P., Wind Point Associates IV, LLC and certain other parties, including Robert Kaltenbach, pursuant to which VI

59

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Acquisition
Corp. issued common stock and series A preferred stock. In exchange for certain services in connection with the capitalization of VI Acquisition Corp. and VI Acquisition Corp.'s
purchase of all of the capital stock of Midway Investors Holdings Inc., VI Acquisition Corp. paid Wind Point Partners IV, L.P. and Wind Point Partners V, L.P. a transaction fee of $749,994 and
fees and expense reimbursement in the amount of $60,000. Mid Oaks Investments LLC also received reimbursement of $120,000 of its fees and expenses associated with the June 2003 transaction.
Wayne Kocourek, one of our directors, is the Chairman and Chief Executive Officer of Mid Oaks Investments LLC.

Item 14.    Principal Accounting Fees and Services.

The following table sets forth the aggregate fees and related expenses for professional services provided by our independent registered public accounting firm,
Ernst & Young LLP, for the fiscal year ended October 28, 2004 and the combined periods from October 28, 2002 through June 13, 2003 and from June 14, 2003 through
October 26, 2003 (together, "Combined 2003").

Fiscal
2004

Combined
2003Audit fees

$
453,032
(1)
$
237,011
(4)Audit-related fees


17,050
(2)

18,500
(5)Tax fees


3,500
(3)

58,825
(6)All other fees





Total

$
473,582

$
314,336


---

Audit Committee pre-approval of fees.

Our Audit Committee meets with the independent auditors prior to the audit to discuss the planning and staffing of the audit and to approve the proposed fee for
the audit and any required special services. The Audit Committee is notified in advance of any proposed engagement of the independent auditor to provide non-audit services to the Company.
The Audit Committee adopted a pre-approval policy for services by its independent accountant to comply with Securities and Exchange Commission Release No. 33-8183
pursuant to which all services provided by the principal accountant

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are
pre-approved by the Audit Committee. The Audit Committee pre-approved all services performed by the principal accountants for fiscal year 2004 in accordance with the
pre-approval policy.

Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K



1.     Financial Statements

See the Index to Financial Statements which appears on Page F-1 hereof.

2.     Financial Statement Schedules

None.

3.     Exhibits

|2.1 |  | Stock Purchase Agreement, dated as of April 15, 2003, by and among VI Acquisition Corp., Midway Investors Holdings Inc., the Sellers listed on Schedule 1 thereto and the Preferred Holders listed on Schedule 1 thereto. Schedules to
this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K promulgated under the Securities Act. The registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon
request.*                                                                                                                                                                                                                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.2 |  | Amendment No. 1 to Stock Purchase Agreement, dated as of June 9, 2003, by and among VI Acquisition Corp., Midway Investors Holdings Inc. and BancBoston Ventures, Inc. and Marathon Fund Limited Partnership IV as the Seller
Representatives*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.3 |  | Amendment No. 2 to Stock Purchase Agreement, dated as of June 12, 2003, by and among VI Acquisition Corp., Midway Investors Holdings Inc. and BancBoston Ventures, Inc. and Marathon Fund Limited Partnership IV as the Seller
Representatives*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2.4 |  | Stock Purchase Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp., Wind Point Partners IV, L.P., Wind Point Partners V, L.P., Wind Point IV Executive Advisor Partners, L.P., Wind Point Associates IV, LLC, Mid Oaks
Investments LLC, A.G. Edwards Private Equity Partners QP II, L.P., A.G. Edwards Private Equity Partners II, L.P., Debra Koenig, Walter Van Benthuysen, Robert Kaltenbach, Joseph Trungale and the other Executives as defined therein. Schedules to this
exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K promulgated under the Securities Act. The registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon
request.*
|3.1 |  | Amended and Restated Articles of Incorporation of VICORP Restaurants, Inc.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.2 |  | Bylaws of VICORP Restaurants, Inc.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.3 |  | Certificate of Incorporation of VI Acquisition Corp.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3.4 |  | Bylaws of VI Acquisition Corp.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3.5 |  | Certificate of Incorporation of Village Inn Pancake House of Albuquerque, Inc.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3.6 |  | Bylaws of Village Inn Pancake House of Albuquerque, Inc.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.1 |  | Indenture, dated as of April 14, 2004, by and among VICORP Restaurants, Inc., as issuer, the Securities Guarantors, as defined therein, and Wells Fargo Bank, National Association, as Trustee*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

61

---



|4.2   |  | Purchase Agreement, dated as of April 6, 2004, by and among VICORP Restaurants, Inc., as issuer, J.P. Morgan Securities Inc. and CIBC World Markets Corp., as initial purchasers*                                                                                                                                                                                                                                                                                                                          
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.3   |  | Amendment No. 1 to Purchase Agreement, dated as of April 14, 2004, by and among VICORP Restaurants, Inc., as issuer, J.P. Morgan Securities Inc. and CIBC World Markets Corp., as initial purchasers*                                                                                                                                                                                                                                                                                                      
|4.4   |  | Registration Rights Agreement, dated as of April 14, 2004, by and among VICORP Restaurants, Inc., as issuer, VI Acquisition Corp. and Village Inn Pancake House of Albuquerque, Inc., as guarantors, and J.P. Morgan Securities Inc.
and CIBC World Markets Corp., as initial purchasers*                                                                                                                                                                                                                  
|4.5   |  | Form of Note (included as Exhibit B to Exhibit 4.1)*                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.1  |  | Stockholders Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp., Wind Point Partners IV, L.P., Wind Point Partners V, L.P., Wind Point IV Executive Advisor Stockholders Agreement, dated as of June 13, 2003, by and among
VI Acquisition Corp., Wind Point Partners IV, L.P., Wind Point Partners V, L.P., Wind Point IV Executive Advisor*                                                                                                                                         
|10.2  |  | Registration Rights Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp., Wind Point Partners IV, L.P., Wind Point Partners V, L.P., Wind Point IV Executive Advisor Partners, L.P., Wind Point Associates IV, LLC, Mid Oaks
Investments LLC, A.G. Edwards Private Equity Partners QP II, L.P., A.G. Edwards Private Equity Partners II, L.P., Debra Koenig, Walter Van Benthuysen, Robert Kaltenbach, Joseph Trungale and the other Executives, and each of the Initial
Warrantholders*
|10.3  |  | Joinder Agreement, dated as of February 27, 2004, by and among VI Acquisition Corp. and Anthony Carroll*                                                                                                                                                                                                                                                                                                                                                                                                   
|10.4  |  | Joinder Agreement, dated as of December 1, 2003, by and among VI Acquisition Corp. and Wind Point V Executive Advisor Partners, L.P.*                                                                                                                                                                                                                                                                                                                                                                      
|10.5  |  | Amended and Restated Loan and Security Agreement, dated as of April 14, 2004, by and among VI Acquisition Corp., VICORP Restaurants, Inc., the Lenders (as defined therein) and Wells Fargo Foothill, Inc., as the arranger and
administrative agent for the Lenders*                                                                                                                                                                                                                                      
|10.6  |  | Management Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp. and Debra Koenig*+                                                                                                                                                                                                                                                                                                                                                                                                      
|10.7  |  | Management Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp. and Robert Kaltenbach*+                                                                                                                                                                                                                                                                                                                                                                                                 
|10.8  |  | Management Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp. and Walter Van Benthuysen*+                                                                                                                                                                                                                                                                                                                                                                                             
|10.9  |  | Nonstatutory Stock Option Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp. and Robert Kaltenbach*+                                                                                                                                                                                                                                                                                                                                                                                  
|10.10 |  | Subscription Agreement, dated as of November 19, 2003, by and among VI Acquisition Corp. and Mid Oaks Investments, LLC*                                                                                                                                                                                                                                                                                                                                                                                    
|10.11 |  | Subscription Agreement, dated as of November 19, 2003, by and among VI Acquisition Corp. and Walter Van Benthuysen*                                                                                                                                                                                                                                                                                                                                                                                        
|10.12 |  | Amended and Restated Subscription Agreement, dated as of November 19, 2003, by and among VI Acquisition Corp., Wind Point Partners IV, L.P., Wind Point Partners V, L.P., Wind Point IV Executive Advisor Partners, L.P. and Wind Point Associates IV,
 LLC*                                                                                                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

62

---



|10.13 |  | Management Agreement, dated as of February 12, 2004, by and among VI Acquisition Corp. and Anthony Carroll*+                                                                                                                                                     
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 |  | Management Agreement, dated as of March 3, 2004, by and among VI Acquisition Corp. and Debra Koenig*+                                                                                                                                                            
|10.15 |  | Management Agreement, dated as of March 11, 2004, by and among VI Acquisition Corp. and Walter Van Benthuysen*+                                                                                                                                                  
|10.16 |  | Employment Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp. and Debra Koenig*+                                                                                                                                                            
|10.17 |  | Amendment to Employment Agreement, dated as of March 15, 2004, by and among VICORP Restaurants, Inc. and Debra Koenig*+                                                                                                                                          
|10.18 |  | Employment Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp. and Robert Kaltenbach*+                                                                                                                                                       
|10.19 |  | Employment Agreement, dated as of February 12, 2004, by and among VI Acquisition Corp. and Anthony Carroll*+                                                                                                                                                     
|10.20 |  | Form of Indemnification Agreement for directors of VICORP Restaurants, Inc.*                                                                                                                                                                                     
|10.21 |  | Form of Indemnification Agreement for directors of VI Acquisition Corp.*                                                                                                                                                                                         
|10.22 |  | Form of Indemnification Agreement for directors of Village Inn Pancake House of Albuquerque, Inc.*                                                                                                                                                               
|10.23 |  | Professional Services Agreement, dated as of June 13, 2003, by and among VI Acquisition Corp., Wind Point Investors IV, L.P. and Wind Point Investors V, L.P.*                                                                                                   
|12.1  |  | Statement Regarding Computation of Ratios of Earnings and Fixed Charges                                                                                                                                                                                          
|14.1  |  | Business Conduct Policy **                                                                                                                                                                                                                                       
|21.1  |  | Subsidiaries of the Company**                                                                                                                                                                                                                                    
|31.1  |  | Certification by our Chief Executive Officer with respect to our Form 10-K/A for the year ended October 28, 2004, pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|31.2  |  | Certification by our Chief Financial Officer with respect to our Form 10-K/A for the year ended October 28, 2004, pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|32.1  |  | Certifications by our Chief Executive Officer and Chief Financial Officer with respect to our Form 10-K/A for the year ended October 28, 2004, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.         

---

(b)   Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended October 28, 2004.

63

---





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.

|VICORP RESTAURANTS, INC.
(Registrant) |                                                                                      | 
|------------------------------------- | ------------------------------------------------------------------------------------ | 
|By:                                   | /s/DEBRA KOENIG                                                                      | 
|                                      | Debra Koenig
Chief Executive Officer
(Principal Executive Officer)                  
|By:                                   | /s/ANTHONY CARROLL                                                                   | 
|                                      | Anthony Carroll
Chief Financial Officer
(Principal Financial and Accounting Officer)

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on
the date indicated.

|Signature / Title                                                    |  |                   
|-------------------------------------------------------------------- |  | ------------------
|/s/ROBERT CUMMINGSRobert Cummings, Director                          |  | Date: May 18, 2005
|/s/WAYNE KOCOUREKWayne Kocourek, Director                            |  | Date: May 18, 2005
|/s/MICHAEL SOLOTMichael Solot, Director                              |  | Date: May 18, 2005
|/s/WALTER VAN BENTHUYSENWalter Van Benthuysen, Chairman of the Board |  | Date: May 18, 2005

64

---





VI ACQUISITION CORP.  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|Reports of Independent Registered Public Accounting Firm                                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Consolidated Balance Sheets (As restated)As of October 28, 2004 and October 26, 2003                                                                                                    
|Consolidated Statements of Operations (As restated)Fiscal year ended October 28, 2004, periods ended October 26, 2003 and June 13, 2003 and fiscal year ended October 27, 2002          
|Consolidated Statements of Cash Flows (As restated)Fiscal year ended October 28, 2004, periods ended October 26, 2003 and June 13, 2003 and fiscal year ended October 27, 2002          
|Consolidated Statements of Stockholders' Equity (As restated)Fiscal year ended October 28, 2004, periods ended October 26, 2003 and June 13, 2003 and fiscal year ended October 27, 2002
|Notes to Consolidated Financial Statements (As restated)                                                                                                                                 

F-1

---





Report of Ernst & Young LLP,  Independent Registered Public Accounting Firm

To
the Board of Directors
VI Acquisition Corp.

We
have audited the accompanying consolidated balance sheets of VI Acquisition Corp. as of October 28, 2004 and October 26, 2003, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended October 28, 2004 and the period from June 14, 2003 through October 26, 2003. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of VI Acquisition Corp. at October 28,
2004 and October 26, 2003, and the consolidated results of its operations and its cash flows for the year ended October 28, 2004 and the
period from June 14, 2003 through October 26, 2003, in conformity with U.S. generally accepted accounting principles.

As
described in Note 3, "Restatement of Previously Issued Financial Statements," VI Acquisition Corp. has restated previously issued financial statements as of October 28,
2004 and October 26, 2003 and for the year ended October 28, 2004 and the period from June 14, 2003 through October 26, 2003.

|                                                                                            |  | /s/ ERNST & YOUNG LLP
|------------------------------------------------------------------------------------------- |  | ---------------------
|                                                                                            |  |                      
|Denver, Colorado
December 10, 2004, except for Note 3,
as to which the date is May 12, 2005 |  |                      

F-2

---



Report of Ernst & Young LLP,
Independent Registered Public Accounting Firm

To
the Board of Directors
Midway Investors Holdings Inc.

We
have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of Midway Investors Holdings Inc. (the predecessor company to VI
Acquisition Corp.) for the period from October 28, 2002 through June 13, 2003 and the year ended October 27, 2002. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Midway Investors
Holdings Inc. for the period from October 28, 2002 through June 13, 2003 and the year ended October 27, 2002, in conformity with U.S. generally accepted accounting
principles.

As
described in Note 3, "Restatement of Previously Issued Financial Statements," Midway Investors Holdings Inc. has restated previously issued financial statements for the
period from October 28, 2002
through June 13, 2003 and the year ended October 27, 2002 and the beginning retained earnings as of October 28, 2001.

|                                                                                            |  | /s/ ERNST & YOUNG LLP
|------------------------------------------------------------------------------------------- |  | ---------------------
|                                                                                            |  |                      
|Denver, Colorado
December 22, 2003, except for Note 3,
as to which the date is May 12, 2005 |  |                      

F-3

---





VI Acquisition Corp.

Consolidated balance sheets

|                                                                   |                                                                                                                                                                                                            | October 28, 2004                    |                                                                                                                                                                                                                                    | October 26, 2003 |       
|------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ------
|
|
|Assets                                                             |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|Current assets:                                                    |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   | Cash and cash equivalents                                                                                                                                                                                  |                                     | $                                                                                                                                                                                                                                  | 1,332            |       
|                                                                   | Receivables, net (Note 4)                                                                                                                                                                                  |                                     |                                                                                                                                                                                                                                    | 11,915           |       
|                                                                   | Inventories                                                                                                                                                                                                |                                     |                                                                                                                                                                                                                                    | 12,245           |       
|                                                                   | Deferred income taxes, short-term (Note 17)                                                                                                                                                                |                                     |                                                                                                                                                                                                                                    | 4,673            |       
|                                                                   | Prepaid expenses and other current assets                                                                                                                                                                  |                                     |                                                                                                                                                                                                                                    | 3,432            |       
|                                                                   | Income tax receivable                                                                                                                                                                                      |                                     |                                                                                                                                                                                                                                    | 270              |       
|                                                                   |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            | Total current assets                |                                                                                                                                                                                                                                    |                  | 33,867
|Property and equipment, net (Note 5)                               |                                                                                                                                                                                                            |                                     | 80,316                                                                                                                                                                                                                             |                  |       
|Assets under deemed landlord financing liability, net              |                                                                                                                                                                                                            |                                     | 110,342                                                                                                                                                                                                                            |                  |       
|Long-term receivables, net (Note 4)                                |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                   |                  |       
|Goodwill                                                           |                                                                                                                                                                                                            |                                     | 91,881                                                                                                                                                                                                                             |                  |       
|Trademarks and tradenames                                          |                                                                                                                                                                                                            |                                     | 42,600                                                                                                                                                                                                                             |                  |       
|Franchise rights, net of accumulated amortization of $841 and $249 |                                                                                                                                                                                                            |                                     | 11,358                                                                                                                                                                                                                             |                  |       
|Other assets, net (Note 6)                                         |                                                                                                                                                                                                            |                                     | 13,763                                                                                                                                                                                                                             |                  |       
|                                                                   |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            |                                     | Total assets                                                                                                                                                                                                                       |                  | $     
|                                                                   |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|Liabilities and stockholders' equity                               |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|Current liabilities:                                               |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   | Current maturities of long-term debt and capitalized lease obligations
(Notes 8 and 10)                                                                                                                    |                                     | $                                                                                                                                                                                                                                  | 201              |       
|                                                                   | Cash overdraft                                                                                                                                                                                             |                                     |                                                                                                                                                                                                                                    | 3,190            |       
|                                                                   | Accounts payable                                                                                                                                                                                           |                                     |                                                                                                                                                                                                                                    | 13,174           |       
|                                                                   | Accrued compensation                                                                                                                                                                                       |                                     |                                                                                                                                                                                                                                    | 7,138            |       
|                                                                   | Accrued taxes                                                                                                                                                                                              |                                     |                                                                                                                                                                                                                                    | 7,992            |       
|                                                                   | Other accrued expenses (Note 7)                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    | 18,520           |       
|                                                                   |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            | Total current liabilities           |                                                                                                                                                                                                                                    |                  | 50,215
|Long-term debt (Note 8)                                            |                                                                                                                                                                                                            |                                     | 141,469                                                                                                                                                                                                                            |                  |       
|Capitalized lease obligations (Note 10)                            |                                                                                                                                                                                                            |                                     | 248                                                                                                                                                                                                                                |                  |       
|Deemed landlord financing liability                                |                                                                                                                                                                                                            |                                     | 114,670                                                                                                                                                                                                                            |                  |       
|Deferred income taxes, long-term (Note 17)                         |                                                                                                                                                                                                            |                                     | 1,360                                                                                                                                                                                                                              |                  |       
|Other noncurrent liabilities (Note 11)                             |                                                                                                                                                                                                            |                                     | 7,057                                                                                                                                                                                                                              |                  |       
|                                                                   |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            |                                     | Total liabilities                                                                                                                                                                                                                  |                  |       
|Commitments and contingencies (Notes 10 and 20)                    |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                   |                  |       
|Stock subject to repurchase (Note 12)                              |                                                                                                                                                                                                            |                                     | 1,063                                                                                                                                                                                                                              |                  |       
|Stockholders' equity (Notes 12 and 14):                            |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            | Preferred stock, $0.0001 par value: |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            |                                     | Series A, 100,000 shares authorized, 68,659 shares issued and outstanding at October 28, 2004 and 67,854 shares issued and outstanding at October 26, 2003 (aggregate liquidation preference of $78,846 and $70,481,
respectively) |                  |       
|                                                                   |                                                                                                                                                                                                            |                                     | Unclassified preferred stock, 100,000 shares authorized, no shares issued or outstanding                                                                                                                                           |                  |       
|                                                                   |                                                                                                                                                                                                            | Common stock $0.0001 par value:     |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            |                                     | Class A, 2,800,000 shares authorized, 1,386,552 shares issued and outstanding at October 28, 2004 and 1,298,649 shares issued and outstanding at October 26, 2003                                                                  |                  |       
|                                                                   | Paid-in capital                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    | 2,426            |       
|                                                                   | Treasury stock, at cost, 923.87 shares of preferred stock and 80,603 shares of common stock at October 28, 2004 and 923.87 shares of preferred stock and 76,103 shares of common stock at October 26, 2003 |                                     |                                                                                                                                                                                                                                    | (1,004           | )     
|                                                                   | Accumulated deficit                                                                                                                                                                                        |                                     |                                                                                                                                                                                                                                    | (13,399          | )     
|                                                                   |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            | Total stockholders' equity          |                                                                                                                                                                                                                                    |                  | 68,045
|                                                                   |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       
|                                                                   |                                                                                                                                                                                                            |                                     | Total liabilities and stockholders' equity                                                                                                                                                                                         |                  | $     
|                                                                   |                                                                                                                                                                                                            |                                     |                                                                                                                                                                                                                                    |                  |       

See accompanying notes to consolidated financial statements.

F-4

---





VI Acquisition Corp.

Consolidated statements of operations

|                                                          |                                     | VI Acquisition |         | Midway  |        
|--------------------------------------------------------- | ----------------------------------- | -------------- | ------- | ------- | -------
|
|
|
|Revenues:                                                 |                                     |                |         |         |        
|                                                          | Restaurant operations               |                | $       | 394,667 |        
|                                                          | Franchise operations                |                |         | 5,057   |        
|                                                          |                                     |                |         |         |        
|                                                          |                                     |                | 399,724 |         |        
|Cost and expenses:                                        |                                     |                |         |         |        
|                                                          | Restaurant costs:                   |                |         |         |        
|                                                          |                                     | Food           |         |         | 106,294
|                                                          |                                     | Labor          |         |         | 127,251
|                                                          | Other operating expenses            |                |         | 105,438 |        
|                                                          | Franchise operating expenses        |                |         | 2,311   |        
|                                                          | General and administrative expenses |                |         | 25,193  |        
|                                                          | Litigation settlement               |                |         | 3,168   |        
|                                                          | Transaction expenses (Note 19)      |                |         | 125     |        
|                                                          | Management fees (Note 21)           |                |         | 1,159   |        
|                                                          | Asset impairments (Note 16)         |                |         | 1,101   |        
|                                                          |                                     |                |         |         |        
|                                                          |                                     |                | 372,040 |         |        
|                                                          |                                     |                |         |         |        
|Operating profit                                          |                                     |                | 27,684  |         |        
|Interest expense                                          |                                     |                | (26,787 | )       |        
|Debt extinguishment costs (Note 19)                       |                                     |                | (6,856  | )       |        
|Other income, net                                         |                                     |                | 522     |         |        
|                                                          |                                     |                |         |         |        
|Income (loss) before income taxes                         |                                     |                | (5,437  | )       |        
|Provision for income taxes (benefit) (Note 17)            |                                     |                | (2,912  | )       |        
|                                                          |                                     |                |         |         |        
|Net income (loss)                                         |                                     |                | (2,525  | )       |        
|Preferred stock dividends and accretion (Notes 12 and 13) |                                     |                | (7,665  | )       |        
|                                                          |                                     |                |         |         |        
|Net income (loss) attributable to common stockholders     |                                     | $              | (10,190 | )       | $      
|                                                          |                                     |                |         |         |        

See accompanying notes to consolidated financial statements.

F-5

---





VI Acquisition Corp.

Consolidated statements of cash flows

|                                                                         |                                                              | VI Acquisition                                               |                                                 | Midway   |       
|------------------------------------------------------------------------ | ------------------------------------------------------------ | ------------------------------------------------------------ | ----------------------------------------------- | -------- | ------
|
|
|
|Cash flows from operating activities:                                    |                                                              |                                                              |                                                 |          |       
|                                                                         | Net income (loss)                                            |                                                              | $                                               | (2,525   | )     
|                                                                         | Reconciliation to cash provided by operations:               |                                                              |                                                 |          |       
|                                                                         |                                                              | Depreciation and amortization                                |                                                 |          | 18,962
|                                                                         |                                                              | Asset impairments                                            |                                                 |          | 1,101 
|                                                                         |                                                              | Amortization of financing costs and original issue discounts |                                                 |          | 1,085 
|                                                                         |                                                              | Stock-based compensation expense                             |                                                 |          |      
|                                                                         |                                                              | Warrants issued for anti-dilution                            |                                                 |          |      
|                                                                         |                                                              | Loss on disposition of assets                                |                                                 |          | 438   
|                                                                         |                                                              | Deferred finance charge write-off                            |                                                 |          | 4,344 
|                                                                         |                                                              | Deferred income tax expense (benefit)                        |                                                 |          | (5,159
|                                                                         |                                                              | Interest on warrants                                         |                                                 |          | 88    
|                                                                         |                                                              | Changes in assets and liabilities:                           |                                                 |          |       
|                                                                         |                                                              |                                                              | Receivables, net                                |          |       
|                                                                         |                                                              |                                                              | Inventories                                     |          |       
|                                                                         |                                                              |                                                              | Cash overdraft                                  |          |       
|                                                                         |                                                              |                                                              | Accounts payable, trade                         |          |       
|                                                                         |                                                              |                                                              | Accrued compensation                            |          |       
|                                                                         |                                                              |                                                              | Other current assets and liabilities            |          |       
|                                                                         |                                                              |                                                              | Other noncurrent assets and liabilities         |          |       
|                                                                         |                                                              |                                                              |                                                 |          |       
|                                                                         |                                                              |                                                              | Cash provided by operations                     |          |       
|                                                                         |                                                              |                                                              |                                                 |          |       
|Cash flows from investing activities:                                    |                                                              |                                                              |                                                 |          |       
|                                                                         | Acquisitions, net of cash acquired                           |                                                              |                                                 | (8       | )     
|                                                                         | Purchase of property and equipment                           |                                                              |                                                 | (16,006  | )     
|                                                                         | Purchase of assets under deemed landlord financing liability |                                                              |                                                 | (8,409   | )     
|                                                                         | Proceeds from disposition of property                        |                                                              |                                                 | 627      |       
|                                                                         | Collection of notes receivable                               |                                                              |                                                 | 30       |       
|                                                                         |                                                              |                                                              |                                                 |          |       
|                                                                         |                                                              |                                                              | Cash used in investing activities               |          |       
|                                                                         |                                                              |                                                              |                                                 |          |       
|Cash flows from financing activities:                                    |                                                              |                                                              |                                                 |          |       
|                                                                         | Payments of debt and capital lease obligations               |                                                              |                                                 | (165,020 | )     
|                                                                         | Proceeds from issuance of debt                               |                                                              |                                                 | 163,651  |       
|                                                                         | Proceeds from deemed landlord financing                      |                                                              |                                                 | 2,452    |       
|                                                                         | Net proceeds from issuance of preferred and common stock     |                                                              |                                                 | 298      |       
|                                                                         | Debt issuance costs                                          |                                                              |                                                 | (6,094   | )     
|                                                                         | Repurchase of shares                                         |                                                              |                                                 | (4       | )     
|                                                                         |                                                              |                                                              |                                                 |          |       
|                                                                         |                                                              |                                                              | Cash provided by (used in) financing activities |          |       
|                                                                         |                                                              |                                                              |                                                 |          |       
|Increase (decrease) in cash and cash equivalents                         |                                                              |                                                              | (3,994                                          | )        |       
|Cash and cash equivalents at beginning of period                         |                                                              |                                                              | 5,326                                           |          |       
|                                                                         |                                                              |                                                              |                                                 |          |       
|Cash and cash equivalents at end of period                               |                                                              | $                                                            | 1,332                                           |          | $     
|                                                                         |                                                              |                                                              |                                                 |          |       
|Supplemental disclosures of cash flow information:                       |                                                              |                                                              |                                                 |          |       
|                                                                         | Cash paid during the period for:                             |                                                              |                                                 |          |       
|                                                                         |                                                              | Interest (net of amount capitalized)                         |                                                 | $        | 25,700
|                                                                         |                                                              | Income taxes                                                 |                                                 |          | 1,867 
|Supplemental disclosures of non-cash investing and financing activities: |                                                              |                                                              |                                                 |          |       
|                                                                         |                                                              | Build-to-suit reimbursements not yet received                |                                                 | $        | 2,359 
|                                                                         |                                                              | Fixed assets purchased with debt                             |                                                 |          |      

See accompanying notes to consolidated financial statements.

F-6

---





Midway Investors Holdings Inc.
(Predecessor to VI Acquisition Corp.)

Consolidated statements of stockholders' equity

|                                                        |                                                      | Preferred stock (Note 11)                         |                            | Common stock (Note 11) |        |         |        |         |   |        |         |       |        |   |      
|------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------- | -------------------------- | ---------------------- | ------ | ------- | ------ | ------- | - | ------ | ------- | ----- | ------ | - | -----
|
|
|
|
|                                                        | Balances at October 28, 2001, as previously reported |                                                   | 18,299                     |                        |        | 17,603  |        | 18,266  |   |        | 17,572  |       |       |   |      
|                                                        | Restatement adjustments                              |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        |                                                      |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      
|                                                        | Balances at October 28, 2001, as restated            |                                                   | 18,299                     |                        |        | 17,603  |        | 18,266  |   |        | 17,572  |       |       |   |      
|                                                        | Dividends on preferred stock Class A & B             |                                                   |                           |                        |        | 1,618   |        |        |   |        | 1,615   |       |       |   |      
|                                                        | Preferred stock Class C issued, net                  |                                                   |                           |                        |        |        |        |        |   |        | (2,380  | )     | 2,380  |   |      
|                                                        | Accretion of redeemable preferred stock              |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Issuance of incentive stock options                  |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Amortization of deferred compensation                |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Comprehensive income:                                |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      
|                                                        |                                                      | Unrealized loss on hedge transactions, net of tax |                            |                       |        |         |       |         |  |        |         |      |        |  |      
|                                                        |                                                      | Net income                                        |                            |                       |        |         |       |         |  |        |         |      |        |  |      
|                                                        |                                                      |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      
|                                                        |                                                      |                                                   | Total comprehensive income |                        |       |         |        |        |   |       |         |       |       |   |     
|                                                        |                                                      |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      
|Balances at October 27, 2002, as restated               |                                                      | 18,299                                            |                            |                        | 19,221 |         | 18,266 |         |   | 16,807 |         | 2,380 |        |   | 2,380
|                                                        | Dividends on Class A and B preferred stock           |                                                   |                           |                        |        | 1,027   |        |        |   |        | 1,025   |       |       |   |      
|                                                        | Class C preferred stock issued, net                  |                                                   |                           |                        |        |        |        |        |   |        | (1,025  | )     | 1,025  |   |      
|                                                        | Accretion of redeemable preferred stock              |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Issuance of incentive stock options                  |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Amortization of deferred compensation                |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Issuance of warrants                                 |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Realization of hedge transaction loss                |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Amortization of deferred compensation                |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Exercise of options                                  |                                                   | 1,543                      |                        |        | 1,544   |        |        |   |        |        |       | 287    |   |      
|                                                        | Exercise of warrants                                 |                                                   |                           |                        |        |        |        |        |   |        |        |       |       |   |      
|                                                        | Repurchase of Midway preferred stock                 |                                                   | (19,842                    | )                      |        | (21,792 | )      | (18,266 | ) |        | (16,807 | )     | (3,692 | ) |      
|                                                        | Comprehensive loss:                                  |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      
|                                                        |                                                      | Unrealized loss on hedge transactions, net of tax |                            |                       |        |         |       |         |  |        |         |      |        |  |      
|                                                        |                                                      |                                                   | Net loss                   |                        |       |         |        |        |   |       |         |       |       |   |     
|                                                        |                                                      |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      
|                                                        |                                                      |                                                   | Total comprehensive loss   |                        |       |         |        |        |   |       |         |       |       |   |     
|                                                        |                                                      |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      
|Balances at June 13, 2003, as restated                  |                                                      |                                                  |                            |                        |       |         |       |         |   |       |         |      |        |   |     
|Elimination of Midway equity, as restated               |                                                      |                                                  |                            |                        |       |         |       |         |   |       |         |      |        |   |     
|                                                        |                                                      |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      
|Balance at June 13, 2003, post-transaction, as restated |                                                      |                                                  |                            | $                      |       |         |       |         | $ |       |         |      |        | $ |     
|                                                        |                                                      |                                                   |                            |                        |        |         |        |         |   |        |         |       |        |   |      

See accompanying notes to consolidated financial statements.

F-7

---



VI Acquisition Corp.

Consolidated statements of stockholders' equity

|                                             |  | Preferred stock
Series A |   | Common Stock
Class A |        | Treasury stock |           | Treasury stock |   |   |  |   |      |   |  
|-------------------------------------------- |  | ------------------------ | - | -------------------- | ------ | -------------- | --------- | -------------- | - | - |  | - | ---- | - | -
|
|
|Balances at June 14, 2003, as restated       |  |                         |   | $                    |       |                |          |                | $ |  |  | $ |     |   | $
|Issuance of preferred stock and common stock |  | 67,854                   |   |                      | 67,854 |                | 1,358,649 |                |   |  |  |   |     |   |  
|Issuance of preferred stock options          |  |                         |   |                      |       |                |          |                |   |  |  |   |     |   |  
|Warrants issued                              |  |                         |   |                      |       |                |          |                |   |  |  |   |     |   |  
|Exercise of options                          |  | 924                      |   |                      | 924    |                |          |                |   |  |  |   |     |   |  
|Repurchase of preferred and common shares    |  | (924                     | ) |                      |       |                | (60,000   | )              |   |  |  |   | (924 | ) |  
|Dividends on Series A preferred stock        |  |                         |   |                      | 2,627  |                |          |                |   |  |  |   |     |   |  
|Preferred warrant accretion                  |  |                         |   |                      | 60     |                |          |                |   |  |  |   |     |   |  
|Net loss                                     |  |                         |   |                      |       |                |          |                |   |  |  |   |     |   |  
|                                             |  |                          |   |                      |        |                |           |                |   |   |  |   |      |   |  
|Balances at October 26, 2003, as restated    |  | 67,854                   |   |                      | 71,465 |                | 1,298,649 |                |   |  |  |   | (924 | ) |  
|Issuance of preferred stock and common stock |  | 258                      |   |                      | 257    |                | 39,603    |                |   |  |  |   |     |   |  
|Release of collateralized stock              |  | 547                      |   |                      | 547    |                | 52,800    |                |   |  |  |   |     |   |  
|Repurchase of common shares                  |  |                         |   |                      |       |                | (4,500    | )              |   |  |  |   |     |   |  
|Dividends on Series A preferred stock        |  |                         |   |                      | 7,665  |                |          |                |   |  |  |   |     |   |  
|Preferred warrant accretion                  |  |                         |   |                      | 88     |                |          |                |   |  |  |   |     |   |  
|                                             |  |                          |   |                      |        |                |           |                |   |   |  |   |      |   |  
|Net loss                                     |  |                         |   |                      |       |                |          |                |   |  |  |   |     |   |  
|                                             |  |                          |   |                      |        |                |           |                |   |   |  |   |      |   |  
|Balances at October 28, 2004, as restated    |  | 68,659                   |   | $                    | 80,022 |                | 1,386,552 |                | $ |  |  | $ | (924 | ) | $
|                                             |  |                          |   |                      |        |                |           |                |   |   |  |   |      |   |  

See accompanying notes to consolidated financial statements.

F-8

---





VI Acquisition Corp.        Notes to consolidated financial statements

1.     Description of the business and basis of presentation

VI Acquisition Corp. (the "Company" or "VI Acquisition"), a Delaware corporation, was organized by Wind Point Partners and other individual
co-investors.

On
June 14, 2003, the Company acquired Midway Investors Holdings Inc. ("Midway"), and its wholly owned subsidiaries VICORP Restaurants, Inc. ("VICORP") and Village
Inn Pancake House of Albuquerque, Inc. (collectively "Midway" or "Predecessor") in a stock purchase transaction accounted for under the purchase method of accounting pursuant to Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." The Midway legal entity was merged into the Company on
April 14, 2004 and no longer exists.

Midway
was a Delaware corporation originally organized by BancBoston Ventures, Inc., Goldner Hawn Johnson & Morrison, Incorporated ("Goldner Hawn"), Fairmont
Capital, Inc. and other affiliates. Midway acquired VICORP in May 2001 in a "going private" stock purchase transaction accounted for under the purchase method of accounting pursuant to
SFAS No. 141. Prior to the acquisition of VICORP by Midway, VICORP operated as a publicly-traded company.

The
Company operates family-style restaurants under the brand names "Bakers Square" and "Village Inn," and franchises restaurants under the Village Inn brand name. At October 28,
2004, the Company operated 271 Company-owned restaurants in 15 states. Of the Company-owned restaurants, 150 are Bakers Squares and 121 are Village Inns, with an additional 103 franchised Village Inn
restaurants in 19 states. The Company-owned and franchised restaurants are concentrated in Arizona, California, Florida, the Rocky Mountain region, and the upper Midwest. In addition, the Company
operates three
pie manufacturing facilities located in Santa Fe Springs, California; Oak Forest, Illinois; and Chaska, Minnesota.

As
discussed in Note 3, the consolidated financial statements for all periods presented have been restated.

VI Acquisition's purchase of Midway

In connection with the June 14, 2003 purchase of Midway, the assets (including specifically identifiable intangible assets) and liabilities of the acquired
company were recorded at their estimated fair value of $143.2 million with the excess of the purchase price over these amounts being recorded as goodwill of $82.8 million. Capitalization
of the acquired company was funded by new senior and subordinated debt under the terms of newly executed credit and investment agreements dated as of June 13, 2003 (Note 8). In
connection with the closing of the purchase and subject to the terms of the stock purchase agreement, the following transactions occurred:



F-9

---





The
consolidated financial statements for Midway for the period from October 28, 2002 through June 13, 2003 and the year ended October 27, 2002 represent the
operations of the Company prior to the purchase by VI Acquisition and reflect the values established at the time of Midway's purchase of the Company on May 14, 2001. Therefore, they do not
reflect the effects of the purchase accounting adjustments of the June 14, 2003 transaction discussed above. The consolidated financial statements and related notes as of October 28,
2004 and October 26, 2003 and for the period from June 14, 2003 through October 26, 2003 reflect all purchase accounting adjustments resulting from the June 14, 2003
transaction.

VICORP's purchase of Village Inn Pancake House of Albuquerque, Inc.

On February 24, 2003, VICORP purchased all of the outstanding shares of Village Inn Pancake House of Albuquerque, Inc. This transaction was
accounted for as a purchase in accordance with SFAS No. 141. The purchase price was originally allocated to the acquired assets (including specifically identifiable intangible assets) and
assumed liabilities. Cash of $4.6 million was used to purchase net assets with the fair value of approximately $894,000, including $948,000 of property, plant and equipment resulting in
goodwill of $3.7 million. The amounts allocated for this transaction were revalued in connection with the June 14, 2003 transaction mentioned above.

2.     Summary of significant accounting policies

Principles of consolidation

The accompanying consolidated financial statements of VI Acquisition Corp. as of October 28, 2004 and October 26, 2003 and for the year ended
October 28, 2004 and period from June 14, 2003 through October 26, 2003 include the accounts of the Company, Midway, VICORP and its wholly-owned subsidiaries.

The
accompanying predecessor financial statements for the period from October 28, 2002 through June 13, 2003 and the year ended October 27, 2002 include the accounts
of Midway, VICORP and its wholly-owned subsidiaries.

All
intercompany accounts and balances have been eliminated.

Fiscal year

The Company's fiscal year, which historically ended on the last Sunday in October, is comprised of 52 or 53 weeks divided into four fiscal quarters of 12 or 13,
12, 12, and 16 weeks. Beginning January 22, 2004, the Company changed its fiscal year so that it ends on the Thursday nearest to

F-10

---



October 31st
of each year. This increased the fiscal year ended October 28, 2004 by four days (368 days in fiscal 2004 versus 364 days in fiscal 2003). This change was made
to facilitate restaurant operations by moving the end of the Company's fiscal periods and weekly reporting and payroll periods away from weekends when the Company's restaurants are busier.

Estimates

The preparation of financial statements in conformity with U.S. 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 materially from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the
period that they are determined to be necessary. The Company's critical accounting estimates include (i) inventory valuation (Note 2), (ii) useful life assignments and impairment
evaluations associated with property and equipment and intangible assets (Notes 2, 5 and 16), (iii) anticipated outcomes of legal proceedings and other contingencies (Notes 2 and
20) (iv) self-insurance reserves (Notes 2 and 20) and (v) valuation allowances associated with deferred tax assets (Notes 2 and 17).

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and highly liquid instruments with original maturities of three months or less when purchased. Amounts
in-transit from credit card processors are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash
within three days of the sales transaction.

Receivables

Receivables generally represent billings to third-party customers of our pie production facilities, billings to franchisees for royalties, initial and renewal
fees and equipment sales, and rent receivable from franchisees and other sublessees. Trade receivables are generally unsecured, while notes receivable are typically secured by the property that gave
rise to them. Other receivables consist of various amounts due from landlords, insurance providers and others in the ordinary course of business.

The
allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses related to existing receivables. The Company determines the allowance based on
historical write-off experience and management's judgment regarding the collectibility of certain accounts. Account balances are charged off against the allowance after management
determines that the potential for recovery is considered remote.

Concentrations of credit risk

Financial instruments that potentially subject the Company to a concentration of credit risk are cash and cash equivalents and receivables. The Company maintains
deposits in excess of FDIC limits at two banks. The maximum loss that would have resulted from this risk amounted to approximately $1.3 million at October 28, 2004, which represents the
excess of the deposit liabilities reported by the bank over the amounts that would have been covered by federal deposit insurance. The Company considers the concentration of credit risk within its
receivables to be minimal as a result of payment histories and the general financial condition of its third party-customers and franchisees.

F-11

---



Inventories

Inventories are stated at the lower of cost (which is determined on a first-in, first-out basis) or market and consist of food, paper
products and supplies. Inventories consisted of the following:

October 28,
2004

October 26,
2003(In thousands)Production facility inventories:Raw materials

$
4,353

$
3,851Finished goods


4,717


5,1089,070


8,959Restaurant inventories


3,175


2,808$
12,245

$
11,767


The
Company obtains most of its food products and supplies from three distributors. Management believes that it could obtain its food products and supplies from alternative sources under
terms that are similar to those currently received

Renovations, improvements and repairs and maintenance

The Company renovates, remodels or improves its restaurants and production facilities (all or a portion depending on need), replaces aged equipment and
periodically upgrades equipment to more current technology. These expenditures are typical in the restaurant industry and each provides a future economic benefit. Therefore, the related costs are
capitalized and depreciated over the estimated useful lives discussed further below under the caption "Property and equipment". While the Company believes the estimated useful lives used for
depreciation purposes are representative of the assets' actual useful lives, the Company has an asset retirement policy, and any assets that are replaced are retired. The Company currently has a
capitalization threshold of $600, and any costs for singular items below this threshold are expensed.

The
Company routinely incurs costs to repair and maintain its facilities and equipment, which are expensed as incurred. Such repairs and maintenance costs generally relate to repairs to
existing equipment, fixtures or facilities, including, but not limited to, electrical, plumbing, refrigeration, air conditioning, heating, painting, tile work, roof repairs and wood repairs. The
Company recorded repair and maintenance expense of $9.2 million, $3.4 million, $5.6 million and $8.6 million for the fiscal year ended October 28, 2004, the periods ended
October 26, 2003 and June 13, 2003, and the fiscal year ended October 27, 2002, respectively.

Property and equipment, build-to-suit projects and assets under deemed landlord financing liability

At the date of the June 14, 2003 purchase of Midway, all property and equipment were adjusted to their estimated fair market values. This resulted in the
Company recording an increase in its net property and equipment of $7.7 million and all subsequent acquisitions of property and equipment are stated at cost, less accumulated depreciation and
amortization.

Depreciation
and amortization expense is calculated using the straight-line method. The useful lives of assets range from 20 to 40 years for buildings and three to ten
years for equipment and improvements. In general, assets acquired under capital leases and initial leasehold improvements are amortized over the lesser of the useful life or the lease term. Leasehold
improvements added subsequent to the inception of a lease are amortized over the shorter of the useful life of the assets or a term that includes lease renewals, if such renewals are considered
reasonably assured. Property and

F-12

---



equipment
additions include acquisitions of building and equipment and costs incurred in the development and construction of new stores.

For
many of the Company's build-to-suit restaurant construction projects, it is considered the owner of the project during the construction period in accordance
with Emerging Issues Task Force ("EITF") Issue No. 97-10, "The Effect of Lessee Involvement in Asset Construction," because the Company is deemed to have substantially all of the
construction period risk. At the end of these construction projects, a sale-leaseback could be deemed to occur in certain situations and the Company would record the sale, remove all
property and related liabilities from its consolidated balance sheet and recognize gain or loss from the sale, which is generally deferred and amortized as an adjustment to rent expense over the term
of the lease. However, many of the Company's real estate transactions and build-to-suit restaurant construction projects have not qualified for sale-leaseback
accounting because of its deemed continuing involvement with the buyer-lessor, which results in the transaction being recorded under the financing method. Under the financing method, the assets remain
on the consolidated balance sheet and are depreciated over their useful life, and the proceeds from the transaction are
recorded as a financing liability. A portion of lease payments are applied as payments of deemed principal and imputed interest.

Long-lived assets

The Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations," in the period beginning October 28, 2002. Under SFAS
No. 143, the fair value of a liability for an asset retirement obligation covered under the scope of this statement would be recognized in the period in which the liability is incurred, along
with an offsetting increase in the carrying amount of the related long-lived asset. Upon settlement of the liability, an entity would either settle the obligation for its recorded amount
or incur a gain or loss upon settlement.

The
Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in the period beginning October 28, 2002. SFAS
No. 144 retains the fundamental provisions of existing generally accepted accounting principles with respect to the recognition and measurement of long-lived asset impairment
contained in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." However, SFAS No. 144 provides new
guidance intended to address certain significant implementation issues associated with SFAS No. 121, including expanded guidance with respect to appropriate cash flows to be used to determine
whether recognition of any long-lived asset impairment is required, and if required, how to measure the amount of the impairment. SFAS No. 144 also requires that any net assets to
be disposed of by sale be reported at the lower of carrying value or fair value less cost to sell, and expands the reporting of discontinued operations to include any component of any entity with
operations and cash flows that can be clearly distinguished from the rest of the entity.

Prior
to October 28, 2002 and pursuant to SFAS No. 121, carrying values of long-lived assets were reviewed for impairment when events or changes in
circumstances indicated that the assets' carrying values may not be recoverable from the estimated future cash flows expected to result from the properties' use and eventual disposition. When
undiscounted expected future cash flows were less than carrying values, an impairment loss is recognized equal to the amount by which the carrying values exceed the net realizable values of the
assets. The net realizable value would typically be calculated using discounted expected future cash flows, or determined by estimates provided by real estate professionals and/or the Company's past
experience in disposing of restaurant properties.

Intangible assets

Goodwill represents the excess of cost over the fair value of individual net assets acquired in business combinations accounted for under the purchase method of
accounting. In accordance with

F-13

---



SFAS
No. 142, "Goodwill and Other Intangible Assets," goodwill is not amortized on a periodic basis, but instead is subject to an impairment test to be performed at least on an annual basis, or
more frequently if events or changes in circumstances indicate that the asset might be impaired. SFAS No. 142 requires a two-step process for testing impairment. First, the fair
value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If an impairment is indicated, the fair value of the reporting unit's goodwill
is determined by allocating the unit's fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The
amount of impairment, if any, for goodwill and other intangible assets is measured as the excess of its carrying value over its fair value. The Company has determined that no impairments have existed
related to its related goodwill in any of the periods presented. Intangible assets with lives restricted by contractual, legal, or other means continue to be amortized over their useful lives.

In
connection with the June 14, 2003 purchase transaction and in accordance with SFAS No. 142, the Company had its trademarks and tradenames evaluated by an external third
party. As a result of this evaluation, it was determined that the Company possesses $42.6 million in trademarks and tradenames which have indefinite lives. The trademarks and tradenames are not
amortized and are evaluated for impairment at least annually.

Prior
to the June 14, 2003 purchase transaction, franchise rights with a value of $14.2 million were amortized using the straight-line method over the period
expected to be benefited, or 20 years. Amortization expense of $500,000 and $794,000 was recorded for the period ended June 13, 2003 and the year ended October 27, 2002,
respectively. At the date of the June 14, 2003 purchase transaction, the remaining franchise rights were adjusted to their then current fair market value of $12.2 million. This value is
being amortized over the remaining period expected to be benefited, or 18 years. Amortization expense of $592,000 and $250,000 was recorded for the fiscal year ended October 28, 2004 and
period ended October 26, 2003, respectively. The Company expects to record annual amortization expense of $592,000 over the 18-year life of the franchise rights.

Deferred
debt financing costs are amortized to interest expense over the life of the related loan.

Upon
completion of VICORP's "going-private" transaction on May 14, 2001, the former chairman of VICORP's Board of Directors entered into a non-competition and escrow
agreement pursuant to which he will be paid a total of $2 million not to compete with the Company for a period of
five years after the purchase. The agreement requires the escrow agent to pay the former chairman, on January 2 of each year starting in 2002 through 2005, an amount equal to the lesser of
(a) $500,000 plus all interest and other earnings in the escrow account, less any fees then due the escrow agent or (b) the entire amount then remaining in the escrow account. The
non-competition agreement is reflected in other assets and amortized using the straight-line method over a five-year period.

Loss contingencies and self-insurance reserves

The Company maintains accrued liabilities and reserves relating to the resolution of certain contingent obligations including reserves for
self-insurance. Contingent obligations are accounted for in accordance with SFAS No. 5, "Accounting for Contingencies," which requires that the Company assess each contingency to
determine estimates of the degree of probability and the range of possible settlement. Those contingencies that are deemed to be probable and where the amount of such settlement is reasonably
estimable are accrued in the Company's consolidated financial statements. If only a range of loss can be determined, the best estimate within that range is accrued; if none of the estimates within
that range is better than another, the low end of the range is accrued. Reserves for self-insurance are determined based on the insurance companies undiscounted incurred loss estimates,
loss development factors and management's judgment.

F-14

---



The
assessment of contingencies is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of the
accruals and related financial statement disclosure. The ultimate settlement of contingencies may differ materially from amounts accrued in the financial statements.

Leases and deferred straight-line rent payable

The Company leases most of its restaurant properties. Leases are accounted for under the provisions of SFAS No. 13, "Accounting for Leases," as amended,
which requires that leases be evaluated and classified as operating or capital leases for financial reporting purposes.

For
leases that contain rent escalations, the Company records the total rent payable during the lease term on a straight-line basis over the term of the lease and records the
difference between the rent paid and the straight-line rent as a deferred straight-line rent payable. Incentive payments received from landlords are recorded as
deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction of rent. Certain of our leases are accounted for under the financing method, as
discussed above.

Revenue recognition

Revenue from Company-operated stores is recognized in the period during which food and beverage products are sold. Gift cards sold but not yet redeemed are
included in other accrued expenses (Note 7). Revenues are recognized upon redemption of the gift cards.

Royalties
are calculated as a percentage of the franchisee gross sales and recognized in the period the sales are generated. Initial franchise fees are recognized as income upon
commencement of the franchise operation and completion of all material services and conditions by the Company. Rental income on properties subleased to franchisees is recognized on a
straight-line basis over the life of the lease. Interest income on franchisee notes receivable is recognized when earned.

Franchise
operations gross revenues and expenses consisted of the following:

VI Acquisition

MidwayYear ended
October 28,
2004

Period
ended
October 26,
2003

Period ended
June 13,
2003

Year ended
October 27,
2002(As restated)

(As restated)

(As restated)

(As restated)(In thousands)Royalties

$
3,917

$
1,451

$
2,612

$
4,217Initial and renewal fees








67


155Property rental


1,120


457


754


1,402Interest income on franchise notes


20


8


15


22Franchise revenues


5,057


1,916


3,448


5,796Franchise operating expenses


(2,311
)

(978
)

(1,583
)

(3,092
)Franchise operations, net

$
2,746

$
938

$
1,865

$
2,704


Since
the Company produces a majority of its pies and since its third-party pie sales historically have not had, and currently do not have, a material impact on our operating profit, the
net results of pie manufacturing operations is included as an offset to food costs.

F-15

---



Advertising costs

Advertising costs for television, radio, newspapers, direct mail and point-of-purchase materials are expensed in the period incurred.
Advertising expense for the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003, and the fiscal year ended October 27, 2002 was
approximately $12.3 million, $4.7 million, $8.6 million, and $11.6 million, respectively. Prepaid advertising costs totaled $0.3 million at October 28, 2004
and $0.1 million at October 26, 2003 representing billings paid for media events not occurring until after the respective dates.

New store pre-opening costs

New store pre-opening costs consist of salaries and other direct expenses incurred in connection with the setup and stocking of stores, employee
training, and general store management costs incurred prior to the opening of new restaurants. New store pre-opening costs are expensed as incurred in accordance with SOP 98-5,
"Reporting on the Costs of Start-up Activities." New store pre-opening costs for the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and
June 13, 2003, and the fiscal year ended October 27, 2002 were $532,000, $249,000, $150,000, and $60,000, respectively.

Comprehensive income

Under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," the Company's interest rate swap agreements on its variable rate debt
(Note 18) are recorded at fair value with changes in the value of such contracts, net of income taxes, reported in comprehensive income. For purposes of calculating income taxes related to
comprehensive income, the Company uses the combined statutory rate for federal and state income taxes.

Fair value of financial instruments

At October 28, 2004 and October 26, 2003, the fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximated their carrying value based on the short-term nature of these instruments. See Note 8 for information concerning the fair value of the Company's long-term
debt.

F-16

---



Derivatives and hedging activities

SFAS No. 133 established accounting standards for derivative instruments and hedging activities. Under SFAS No. 133, all derivatives are recognized
as either assets or liabilities and measured at fair value. The accounting for changes in fair value of derivatives is dependent upon the intended use of the derivative. The Company does not use
derivative instruments for trading purposes and the Company has procedures in place to monitor and control their use.

The
Company has used interest rate swaps to manage its interest rate mix on the total debt portfolio and related overall cost of borrowing whereby it agreed to exchange the variable rate
on a portion of its term borrowings for a fixed rate. Under SFAS No. 133, the Company's interest rate swap agreements are typically designated as cash flow hedges and recorded at fair value,
with changes in the value of such contracts, net of income taxes, reported in comprehensive income. The net settlements made under the interest rate swap agreements are reflected in the consolidated
statements of operations as an adjustment to interest expense over the term of the related swap. See Note 18 for further discussion.

Income taxes

Income taxes are accounted for under the asset and liability method. The Company recognizes deferred tax assets and liabilities for the future tax consequences
attributable to differences between the carrying value for financial reporting purposes and the tax basis of assets and liabilities. Deferred tax assets and liabilities are recorded using the enacted
tax rates expected to apply to taxable income in the years in which such differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities resulting from a change
in tax rates is recognized as a component of income tax expense (benefit) in the period such change occurs. Net operating loss and other credit carryforwards, including FICA tip credit, are recorded
as deferred tax assets. A valuation allowance is recorded for the tax benefit of the deferred tax assets not expected to be utilized.

Accounting for stock based compensation

SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair value method of accounting for employee stock compensation and encourages, but does
not require, all entities to adopt that method of accounting. Entities electing not to adopt the fair value method of accounting must make pro forma disclosures of net income as if the fair value
method of accounting defined in SFAS No. 123 had been applied. The Company has elected not to adopt the fair value method and instead has elected to follow Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under APB Opinion No. 25, compensation expense related to stock options is calculated as the
difference between the exercise price of the option and the fair market value of the underlying stock at the date of grant. This expense is recognized over the vesting period of the option or at the
time of grant if the options immediately vest. As a result of the minimal number of options outstanding during all periods presented in the accompanying consolidated financial statements, the pro
forma effects of applying the fair value method to outstanding options over their respective vesting periods had an immaterial effect on net income (loss).

New accounting pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires an investor with a
majority of the variable interests in a variable interest entity to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A
variable interest entity is an entity in which the equity investors do not have a controlling interest or the equity investment at risk is insufficient to finance the entity's activities without
receiving additional subordinated financial support from the other parties. The

F-17

---



provisions
of FIN 46 were effective for the Company no later than April 15, 2004. The adoption of FIN 46 had no effect on the Company's consolidated financial statements.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 improves
the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that those instruments be classified as liabilities (or assets in
certain circumstances) in statements of financial position. SFAS No. 150 also requires disclosures about alternative ways of settling the instruments and the capital structure of entities whose
shares are mandatorily redeemable. SFAS No. 150 was generally effective for all financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150
requires that certain financial instruments the Company would have otherwise classified as equity be reflected in the liability section of the consolidated balance sheets. Therefore, the Company
classified obligations related to certain of its securities outside of stockholders' equity in the accompanying consolidated balance sheets as a result of applying the provisions of SFAS
No. 150. See Note 12 for further discussion.

On
December 17, 2003, the Staff of the Securities and Exchange Commission ("SEC" or the "Staff") issued Staff Accounting Bulletin ("SAB") No. 104 "Revenue Recognition,"
which supersedes SAB No. 101, "Revenue Recognition in Financial Statements." SAB No. 104's primary purpose is to rescind accounting guidance contained in SAB No. 101 related to
multiple element revenue arrangements, superseded as a result of the issuance of EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." SAB
No. 104 did not have a significant impact on the Company's consolidated financial statements.

In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material, and requires that such items be recognized as current-period charges regardless of whether they meet the "so abnormal"
criterion outlined in ARB No. 43. SFAS No. 151 also introduces the concept of "normal capacity" and requires the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period incurred. SFAS No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. While the Company is still evaluating the impact of this statement, it does not currently believe it will have a material impact on its consolidated financial
statements.

In
December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-based Payment," which replaces the prior SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123 (revised 2004) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or
liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides services in
exchange for the award. This new standard will become effective for the Company on November 4, 2005, and the Company is still evaluating its impact.

Reclassifications

Certain reclassifications have been made to prior year information to conform to the current year presentation.

3.     Restatement of Previously Issued Financial Statements

The Company has restated its financial statements for periods spanning from fiscal 2000 through fiscal 2004 to correct the following accounting errors, primarily
as a result of a review of its lease

F-18

---



accounting
policies and practices prompted by the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission ("SEC") on February 7, 2005 in a letter to the
American Institute of Certified Public Accountants and other recent interpretations regarding certain operating lease issues and their application under U.S. Generally Accepted Accounting Principles
("GAAP").

(i)    Accounting for Real Estate Transactions

Historically, the Company had accounted for certain of its real estate transactions of restaurant properties as sale-leaseback transactions. The
Company has restated its financial statements to now report these transactions as financing transactions under SFAS No. 98, "Accounting for Leases," rather than as sale-leaseback
transactions as previously reported due to a determination that certain lease agreement provisions reflect continuing involvement with the buyer-lessor. Our continuing involvement for most of our
leases now accounted for under the financing method results from our ability to control the property with pre-determined rental payments through at least 90 percent of the economic
life of the property, even though lease renewals would need to be exercised by the Company to effectuate such control. These "perpetual fixed-price renewal options" are considered continuing
involvement because the seller-lessee is deemed to benefit from future appreciation in the underlying property in a manner similar to a fixed-price purchase option. Such continuing involvement
precludes the use of sale-leaseback accounting until such time that the continuing involvement no longer exists. The affected real estate transactions related to an aggregate of 79
existing restaurants in 1999, 2001 and 2003 and nine new restaurant locations opened in 2003 and 2004.

The
impact of the restatement was to record on the Company's consolidated balance sheets the assets of the restaurants subject to these transactions (Note 5) as if they had not
been sold and record the proceeds from these transactions (including any gains previously deferred) as liabilities under the caption "Deemed landlord financing liability" (Note 9). Operating
results were restated to recognize depreciation expense associated with the assets subject to these transactions and re-characterize the lease payments previously reported as rent expense
as principal repayments and imputed interest expense. The rent expense reversal associated with these transactions included the reversal of previously recorded expenses for straight-line
rents and rent reductions for certain purchase accounting adjustments made to account for the leases at fair market value. In addition, the capital lease classification for three leased properties was
re-characterized as deemed landlord financing assets and liabilities.

The
net impact to correctly classify the aforementioned leases as financing transactions was decreases in pre-tax income of $4.6 million, $1.8 million,
$2.0 million and $3.3 million for the fiscal
year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 and the fiscal year ended October 27, 2002, respectively. The correcting entries decreased
other operating and franchise operating expenses and increased interest expense.

(ii)    Understated Straight-Line Rent Expense

GAAP requires that leases for which there are scheduled rent increases over the term of the lease be accounted for at the average rent payment, or on a
straight-line basis, over the applicable term with differences being recorded on the balance sheet as a deferred rent liability. The Company did not appropriately straight-line
its rents for certain locations, which resulted in understated operating expenses in prior financial reporting periods. The net impact to correctly straight-line rents resulted in
decreased pre-tax income of $0.5 million, $0.3 million, $0.3 million and $0.6 million for the fiscal year ended October 28, 2004, the periods ended
October 26, 2003 and June 13, 2003 and the fiscal year ended October 27, 2002, respectively.

F-19

---



(iii)    Understated Depreciation and Amortization Expense

The Company generally has historically depreciated its buildings and leasehold improvements over the lesser of the asset's useful life or the initial term of the
associated lease unless an economic penalty would occur from not exercising renewal options, in which case, the assets are depreciated over the lesser of the asset's useful life or the reasonably
assured lease term. However, in performing a detailed review of the Company's depreciable assets, it was determined that buildings and leasehold improvements for approximately 31 restaurant properties
had incorrect depreciable lives resulting in an understatement of depreciation expense, predominantly in earlier periods. The net pre-tax impact of the correction of the Company's
leasehold depreciable lives was not material for the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 or the fiscal year ended
October 27, 2002. The pre-tax impact of the correction prior to these time periods totaled $1.1million and is reflected in our consolidated balance sheets as a reduction in property
and equipment, net and stockholders' equity.

(iv)    Understated Interest Expense on Preferred Stock Warrant Accretion

The Company also determined it was appropriate to record additional adjustments which were previously deemed immaterial. The adjustments related to interest
expense and preferred dividends
imputed from the accretion of preferred stock warrants with anti-dilutive provisions issued originally to certain debt holders at the time of the Company's June 2003 purchase. The
pre-tax impact for the correction increased interest expense by $0.1 million and $0.1 million for the fiscal year ended October 28, 2004 and the period ended
October 26, 2003, respectively.

(v)    Accounting for Income Taxes

In addition to the impact on the Company's income tax provision resulting from the accounting corrections discussed above, it was also determined that the
Company's accounting for income taxes related to purchase business combinations was not correct. Under FASB SFAS No. 109, "Accounting for Income Taxes," companies are to recognize deferred tax
assets and liabilities for the tax effects of differences between assigned values in the purchase price allocation in a purchase business combination (except for the portion of goodwill that is not
deductible for tax purposes). The provisions of SFAS No. 109 apply to basis differences that arise in both taxable and nontaxable business combinations. In both the 2001 and 2003 business
acquisitions, certain purchase price allocations were not correctly tax effected. The correction resulted in recognition of additional deferred tax liabilities and a corresponding increase in
goodwill. The impact of the corrections decreased our provision for income taxes by $2.6 million, $1.0 million, $1.2 million and $1.9 million for the fiscal year ended
October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 and the fiscal year ended October 27, 2002, respectively.

F-20

---



The collective impact of these restatements on the Company's consolidated financial statements are summarized below:

|                                                                       |  | As of October 28, 2004 |         | As of October 26, 2003 |  
|---------------------------------------------------------------------- |  | ---------------------- | ------- | ---------------------- | -
|
|
|Balance Sheet Data                                                     |  |                        |         |                        |  
|Receivables, net                                                       |  | $                      | 13,676  |                        | $
|Deferred income taxes, short-term                                      |  |                        | 2,463   |                        |  
|Total current assets                                                   |  |                        | 33,418  |                        |  
|Property and equipment, net                                            |  |                        | 84,785  |                        |  
|Assets under deemed landlord financing liability, net                  |  |                        |        |                        |  
|Build-to-suit construction-in-progress                                 |  |                        | 6,258   |                        |  
|Deferred income taxes, long-term                                       |  |                        | 22,636  |                        |  
|Goodwill                                                               |  |                        | 82,843  |                        |  
|Other assets, net                                                      |  |                        | 6,482   |                        |  
|Total assets                                                           |  |                        | 290,380 |                        |  
|Current maturities of long-term debt and capitalized lease obligations |  |                        | 258     |                        |  
|Accounts payable                                                       |  |                        | 12,865  |                        |  
|Total current liabilities                                              |  |                        | 49,963  |                        |  
|Capitalized lease obligations                                          |  |                        | 3,490   |                        |  
|Deemed landlord financing liability                                    |  |                        |        |                        |  
|Build-to-suit liability                                                |  |                        | 6,258   |                        |  
|Deferred income taxes, long-term                                       |  |                        |        |                        |  
|Other non-current liabilities                                          |  |                        | 15,871  |                        |  
|Total liabilities                                                      |  |                        | 217,051 |                        |  
|Preferred stock                                                        |  |                        | 79,769  |                        |  
|Accumulated deficit                                                    |  |                        | (8,925  | )                      |  
|Total stockholders' equity                                             |  |                        | 72,266  |                        |  
|Total liabilities and stockholders' equity                             |  |                        | 290,380 |                        |  

F-21

---



|                                             |  | VI Acquisition |        
|-------------------------------------------- |  | -------------- | -------
|
|
|
|Statement of Operations Data                 |  |                |        
|Other operating expenses                     |  | $              | 111,663
|Franchise operating expenses                 |  |                | 2,490  
|Asset impairments                            |  |                | 552    
|Operating profit                             |  |                | 21,829 
|Interest expense                             |  |                | (15,161
|Income (loss) before income taxes            |  |                | 334    
|Provision for income taxes (benefit)         |  |                | (359   
|Net income (loss)                            |  |                | 693    
|Preferred stock dividends and accretion      |  |                | (7,560 
|Net loss attributable to common stockholders |  |                | (6,867 
|Statement of Cash Flows Data                 |  |                |        
|Net cash provided by operations              |  | $              | 22,520 
|Net cash used in investing activities        |  |                | (19,297
|Net cash used in financing activities        |  |                | (7,217 
|Net decrease in cash and cash equivalents    |  |                | (3,994 

|                                             |  | VI Acquisition |         
|-------------------------------------------- |  | -------------- | --------
|
|
|
|Statement of Operations Data                 |  |                |         
|Other operating expenses                     |  | $              | 40,531  
|Franchise operating expenses                 |  |                | 1,032   
|Operating profit                             |  |                | 5,472   
|Interest expense                             |  |                | (5,330  
|Income (loss) before income taxes            |  |                | 289     
|Provision for income taxes (benefit)         |  |                | (280    
|Net income (loss)                            |  |                | 569     
|Net loss attributable to common stockholders |  |                | (2,058  
|Statement of Cash Flows Data                 |  |                |         
|Net cash provided by operations              |  | $              | 5,579   
|Net cash used in investing activities        |  |                | (138,640
|Net cash provided by financing activities    |  |                | 129,351 
|Net decrease in cash and cash equivalents    |  |                | (3,710  

F-22

---



|                                             |  | Midway |        
|-------------------------------------------- |  | ------ | -------
|
|
|
|Statement of Operations Data                 |  |        |        
|Other operating expenses                     |  | $      | 65,629 
|Operating profit                             |  |        | 7,452  
|Interest expense                             |  |        | (5,550 
|Loss before income taxes                     |  |        | (4,181 
|Provision for income taxes (benefit)         |  |        | (1,986 
|Net loss                                     |  |        | (2,195 
|Net loss attributable to common stockholders |  |        | (4,455 
|Statement of Cash Flows Data                 |  |        |        
|Net cash provided by operations              |  | $      | 12,299 
|Net cash used in investing activities        |  |        | (11,137
|Net cash used in financing activities        |  |        | (8,147 
|Net decrease in cash and cash equivalents    |  |        | (6,985 

|                                               |  | Midway |        
|---------------------------------------------- |  | ------ | -------
|
|
|
|Statement of Operations Data                   |  |        |        
|Other operating expenses                       |  | $      | 100,002
|Operating profit                               |  |        | 25,307 
|Interest expense                               |  |        | (9,786 
|Income before income taxes                     |  |        | 16,308 
|Provision for income taxes                     |  |        | 5,779  
|Net income                                     |  |        | 10,529 
|Net income attributable to common stockholders |  |        | 6,959  
|Statement of Cash Flows Data                   |  |        |        
|Net cash provided by operations                |  | $      | 29,119 
|Net cash used in investing activities          |  |        | (10,278
|Net cash used in financing activities          |  |        | (8,388 
|Net increase in cash and cash equivalents      |  |        | 10,453 

Please
refer to Note 22 for the impact of the restatement on the Company's fiscal 2004 and 2003 quarterly financial data.

F-23

---



4.     Receivables, net

Receivables, net consisted of the following:

|                                            |  | October 28,
2004 |        | October 26,
2003 |  
|------------------------------------------- |  | ---------------- | ------ | ---------------- | -
|
|
|Trade receivables                           |  | $                | 5,373  |                  | $
|Construction receivables (Note 5)           |  |                  | 2,359  |                  |  
|Indemnification receivable (Notes 7 and 20) |  |                  | 3,382  |                  |  
|Other receivables                           |  |                  | 975    |                  |  
|Notes receivable                            |  |                  | 204    |                  |  
|Allowance for doubtful accounts             |  |                  | (378   | )                |  
|                                            |  |                  |        |                  |  
|Receivables, net                            |  |                  | 11,915 |                  |  
|Less: long-term portion                     |  |                  |       |                  |  
|                                            |  |                  |        |                  |  
|Current portion                             |  | $                | 11,915 |                  | $
|                                            |  |                  |        |                  |  

Construction
receivables represent amounts due from landlords for build-to-suit construction projects (Note 5).

Activity
in the allowance for doubtful accounts was as follows:

|                    |  | VI Acquisition |      | Midway |  
|------------------- |  | -------------- | ---- | ------ | -
|
|
|Beginning of period |  | $              | 492  |        | $
|Bad debt expense    |  |                | 11   |        |  
|Write-offs          |  |                | (125 | )      |  
|                    |  |                |      |        |  
|End of period       |  | $              | 378  |        | $
|                    |  |                |      |        |  

5.     Property and equipment and assets under deemed landlord financing liability

Property and equipment consisted of the following:

|                               |  | October 28,
2004 |         | October 26,
2003 |  
|------------------------------ |  | ---------------- | ------- | ---------------- | -
|
|
|Land                           |  | $                | 5,634   |                  | $
|Buildings and improvements     |  |                  | 40,242  |                  |  
|Equipment                      |  |                  | 45,917  |                  |  
|Construction in progress       |  |                  | 6,225   |                  |  
|Capitalized lease buildings    |  |                  | 1,284   |                  |  
|Impairment reserve             |  |                  | (1,101  | )                |  
|                               |  |                  |         |                  |  
|                               |  |                  | 98,201  |                  |  
|Less: accumulated depreciation |  |                  | (17,885 | )                |  
|                               |  |                  |         |                  |  
|Property and equipment, net    |  | $                | 80,316  |                  | $
|                               |  |                  |         |                  |  

F-24

---



Depreciation
expense on property and equipment was $13.6 million, $4.8 million, $8.1 million, and $14.0 million during the year ended October 28, 2004,
the periods ended October 26, 2003 and June 13, 2003 and the year ended October 27, 2002, respectively.

Assets
under deemed landlord financing liability consisted of the following:

|                                                      |  | October 28,
2004 |         | October 26,
2003 |  
|----------------------------------------------------- |  | ---------------- | ------- | ---------------- | -
|
|
|Land                                                  |  | $                | 48,806  |                  | $
|Buildings and improvements                            |  |                  | 65,523  |                  |  
|Construction in progress                              |  |                  | 2,025   |                  |  
|                                                      |  |                  |         |                  |  
|                                                      |  |                  | 116,354 |                  |  
|Less: accumulated depreciation                        |  |                  | (6,012  | )                |  
|                                                      |  |                  |         |                  |  
|Assets under deemed landlord financing liability, net |  | $                | 110,342 |                  | $
|                                                      |  |                  |         |                  |  

Depreciation
expense on assets under deemed landlord financing liability was $4.4 million, $1.6 million, $2.4 million, and $3.8 million during the year ended
October 28, 2004, the periods ended October 26, 2003 and June 13, 2003 and the year ended October 27, 2002, respectively.

6.     Other assets, net

Other assets, net consisted of the following:

|                                           |  | October 28,
2004 |        | October 26,
2003 |  
|------------------------------------------ |  | ---------------- | ------ | ---------------- | -
|
|
|Non-competition agreements                 |  | $                | 2,030  |                  | $
|Deferred debt financing costs              |  |                  | 7,877  |                  |  
|Deferred lease payments                    |  |                  | 7,904  |                  |  
|Deposits and miscellaneous financing costs |  |                  | 216    |                  |  
|                                           |  |                  |        |                  |  
|                                           |  |                  | 18,027 |                  |  
|Less: accumulated amortization             |  |                  | (4,264 | )                |  
|                                           |  |                  |        |                  |  
|Other assets, net                          |  | $                | 13,763 |                  | $
|                                           |  |                  |        |                  |  

During
fiscal 2004, deferred debt financing costs with a book value of $4.3 million were written off as a result of early extinguishment of debt associated with the
April 2004 refinancing transactions (Notes 8 and 19). Also during fiscal 2004, deferred financing costs totaling $6.1 million were added associated with the debt incurred as a result
with the April 2004 refinancing transactions (Note 8).

The
deferred lease payments asset was established at the date of the Company's purchase of Midway and represents the present value of the excess market rates in effect as of that date
compared to the Company's lease payments on individual properties.

F-25

---



7.     Other accrued expenses

Other accrued expenses consisted of the following:

|                                                 |  | October 28,
2004 |        | October 26,
2003
|------------------------------------------------ |  | ---------------- | ------ | ----------------
|
|Legal settlements (Notes 4 and 20)               |  | $                | 6,775  |                 
|Insurance                                        |  |                  | 4,372  |                 
|Rent                                             |  |                  | 1,611  |                 
|Interest                                         |  |                  | 729    |                 
|Gift certificates and cards                      |  |                  | 891    |                 
|Advertising                                      |  |                  | 869    |                 
|Reserve for closed/subleased locations (Note 16) |  |                  | 556    |                 
|Miscellaneous                                    |  |                  | 2,717  |                 
|                                                 |  |                  |        |                 
|                                                 |  | $                | 18,520 |                 
|                                                 |  |                  |        |                 

Accrued
miscellaneous expenses consisted primarily of accrued expenses for 401(k) employer contributions, credit card fees, royalty prepayments and legal, management and audit fees.

F-26

---



8.     Debt

Long-term debt consisted of the following:

|                                                        |                                                               | October 28,
2004 |         | October 26,
2003 |  
|------------------------------------------------------- | ------------------------------------------------------------- | ---------------- | ------- | ---------------- | -
|
|101/2% Senior Unsecured Notes(1):                       |                                                               | $                | 126,530 |                  | $
|Amended and Restated Senior Secured Credit Facility(1): |                                                               |                  |         |                  |  
|                                                        | Term loan                                                     |                  |         | 15,000           |  
|                                                        | Revolving credit facility                                     |                  |         | 1,350            |  
|Original Senior Secured Credit Facility(2):             |                                                               |                  |         |                  |  
|                                                        | Term A Loan                                                   |                  |         |                 |  
|                                                        | Term B Loan                                                   |                  |         |                 |  
|                                                        | Revolving credit facility                                     |                  |         |                 |  
|Subordinated debt(2)                                    |                                                               |                  |        |                  |  
|                                                        |                                                               |                  |         |                  |  
|Gross amount payable                                    |                                                               |                  | 142,880 |                  |  
|                                                        | Unamortized original issue discount on senior unsecured notes |                  |         | (1,411           | )
|                                                        | Unamortized original issue discount on subordinated debt      |                  |         |                 |  
|                                                        |                                                               |                  |         |                  |  
|                                                        |                                                               |                  | 141,469 |                  |  
|Less: current maturities                                |                                                               |                  |        |                  |  
|                                                        |                                                               |                  |         |                  |  
|                                                        | Long-term debt                                                |                  | $       | 141,469          |  
|                                                        |                                                               |                  |         |                  |  

---

On
April 14, 2004, the Company completed a private placement of $126.5 million aggregate principal amount of 101/2% senior unsecured notes maturing on
April 15, 2011. The notes were issued at a discounted price of 98.791% of face value, resulting in net proceeds before transaction expenses of $125.0 million. The senior unsecured notes
were issued by VICORP Restaurants, Inc. and are guaranteed by VI Acquisition Corp. and Village Inn Pancake House of Albuquerque, Inc. In August 2004, the Company's registration
statement with the Securities and Exchange Commission on Form S-4 was declared effective and the senior unsecured notes and guarantees were exchanged for registered notes and
guarantees having substantially the same terms and evidencing the same indebtedness. Interest is payable semi-annually on each April 15 and October 15 until maturity.

Concurrently
with the issuance of the 101/2% senior unsecured notes, the Company entered into an Amended and Restated Senior Secured Credit Facility consisting of a
$15.0 million term loan and a $30.0 million revolving credit facility, with a $15.0 million sub-limit for letters of credit. As of October 28, 2004, the Company
had issued letters of credit aggregating $7.3 million and had $1.4 million of borrowings outstanding under the senior secured revolving credit facility. The senior
secured revolving credit facility permits borrowings equal to the lesser of (a) $30.0 million and (b) 1.2 times trailing twelve months Adjusted EBITDA (as defined in the senior
secured credit agreement) minus the original amount of the new senior secured term loan. Under this formula, as of October 28, 2004, the Company had the ability to borrow the full
$30.0 million, less the amount of outstanding letters of credit and borrowings under the senior secured revolving credit facility, or $21.3 million.

Borrowings
under both the revolving credit facility and the term loan of the Amended and Restated Senior Credit Facility bear interest at floating rates tied to either the base rate of
the agent

F-27

---



bank
under the credit agreement or LIBOR rates for a period of one, two or three months, in each case plus a margin that will adjust based on the ratio of our Adjusted EBITDA to total indebtedness, as
defined in the agreement. At October 28, 2004, the interest rates on borrowings outstanding were 4.72% for term loan borrowings and 5.75% for loans under the revolving credit facility. Both
facilities are secured by a lien of all of the assets of VICORP Restaurants, Inc., and guaranteed by VI Acquisition Corp. and Village Inn Pancake House of Albuquerque, Inc. In addition,
the guarantees also are secured by the pledge of all of the outstanding capital stock of VICORP Restaurants, Inc. by VI Acquisition Corp. The term loan does not require periodic principal
payments, but requires mandatory repayments under certain events, including proceeds from sale of assets, issuance of equity, and issuance of new indebtedness. Both facilities mature on
April 14, 2009.

The
Amended and Restated Senior Secured Credit Facility and the indenture governing the 101/2% Senior Unsecured Notes contain a number of covenants that, among other
things, restrict, subject to certain exceptions, the Company's ability and the ability of its subsidiaries, to sell assets, incur additional indebtedness, as defined, or issue preferred stock, repay
other indebtedness, pay dividends and distributions or repurchase our capital stock, create liens on assets, make investments, loans or advances, make certain acquisitions, engage in mergers or
consolidations, enter into sale-leaseback transactions, engage in certain transactions with affiliates, amend certain material agreements governing our indebtedness, change the business
conducted by us and our subsidiaries and enter into hedging agreements. In addition, the Company's Amended and Restated Senior Secured Credit Facility requires us to maintain or comply with a maximum
total leverage ratio, a minimum interest coverage ratio and a maximum capital expenditures limitation. On October 28, 2004, the Company was in compliance with these requirements.

On
June 14, 2003, the Company, along with various lending institutions, entered into a $90 million credit agreement (the "Original Senior Secured Credit Facility"), and a
$45 million investment agreement for subordinated debt ("Subordinated Debt"). The Original Senior Secured Credit Facility consisted of Term A and B loans.

Proceeds
from the Original Senior Secured Credit Facility were used to finance the purchase of Midway on June 14, 2003. The Original Senior Secured Credit Facility also provided
for a $25 million revolving credit facility, which could have been borrowed and repaid from time to time through the maturity date of June 12, 2008.

Interest
on the Original Senior Secured Credit Facility accrued at variable rates per annum equal to the base (higher of lender prime rate or Federal Funds Effective rate plus 0.50%) or
Eurodollar rate plus the applicable margin with respect to Eurodollar rate ("LIBOR") loans as in effect from time to time. In addition, the Company was required to pay a commitment fee calculated by
multiplying (a) the applicable commitment fee percentage (0.50% or 0.375%, depending on the leverage ratio) times (b) the average daily amount during each calendar quarter (or portion
thereof).

The
interest rate on borrowings outstanding under the Original Senior Secured Credit Facility was 4.657% for the Term A Loan and 5.157% for the Term B Loan at October 26, 2003.
Borrowings were collateralized by substantially all of the Company's property, rights and interests of the consolidated entities and the pledge by the Company, Midway and VICORP of all of the capital
stock of their respective subsidiaries. This loan facility contained customary representations, warranties, and covenants, including financial covenants related to the maintenance of certain financial
ratios and limitations on capital expenditures.

The
Original Senior Secured Credit Facility also provided for the issuance of letters of credit of up to $12.5 million under a sub-facility. The Company was also
required to pay fees on the issuance, extension, or renewal of any letters of credit equal to the applicable margin plus an amount equal to 0.125 of 1% per annum, as a fronting fee, plus other
reasonable administrative fees in effect from time to time.

F-28

---



On
June 14, 2003, the Company also issued Subordinated Debt with a principal amount of $45 million, which was subordinated to the senior indebtedness and was accompanied by
warrants for an aggregate of 95,745 shares of common stock and 0.06 shares of preferred stock. See Note 12 ("Stockholders' equityVI Acquisition Corp.Warrants") for
further discussion. The discount was amortized to interest expense over the term of the Subordinated Debt. The proceeds from the issuance of the notes were used to finance, in part, the
June 2003 purchase, and to pay related transaction fees and expenses. The principal amount of the notes was due in full on December 13, 2009, and accrued interest at a fixed annual rate
of 16%. Subject to the terms of the Subordinated Debt, interest was to be paid in cash on a quarterly basis on each interest payment date (October 1, January 1, April 1 and
July 1) at a fixed rate of 13% annually. On each interest payment date, the Company, at its option, could (a) make an additional cash payment to the holders of the Subordinated Debt in
an amount equal to 3% annually of the principal outstanding under the note, (b) the then outstanding principal of the note could be increased by a payment-in-kind
amount, or (c) pay a portion of the additional cash payment to the holders and accrue to the holders a portion of the payment-in-kind amount equal to 3% annually of the
principal outstanding under the notes. This facility also contained covenants customary in lending transactions of this type.

The
Company incurred $26.8 million, $9.7 million, $11.4 million and $19.3 million of interest charges during the fiscal year ended October 28, 2004,
the periods ended October 26, 2003 and June 13, 2003 and the fiscal year ended October 27, 2002, respectively. Of these amounts, $193,000, $23,000, $92,000 and $0 was capitalized
in the fiscal year ended October 28, 2004, periods ended October 26, 2003 and June 13, 2003, and the fiscal year ended October 27, 2002, respectively.

Excluding
capitalized lease obligations (Note 10), the aggregate maturities of long-term debt obligations for the five years following October 28, 2004 are:

(In thousands)2005

$
2006


2007


2008


2009


16,3502010 and thereafter


126,530$
142,880


The
estimated fair value of the Company's long-term debt (excluding capitalized lease obligations) was approximately $142.2 million at October 28, 2004. The
Company believes that the carrying value of debt balances under its Senior Secured Credit Facility approximates fair value because of its variable interest feature and the difference between the
estimated fair value of long-term debt compared to its historical cost reported in the consolidated balance sheets at October 28, 2004 relates primarily to market quotations for the
101/2% Senior Unsecured Notes.

9.     Deemed landlord financing liability

The agreements related to the Company's deemed landlord financing liability generally contain an initial term of 15 or 20 years plus renewal options and
also require payment of property taxes, maintenance, insurance and utilities.

F-29

---



The
following summarizes future minimum payments under the Company's agreements related to the deemed landlord financing liability having an initial or remaining
non-cancelable term of one year or more as of October 28, 2004 (as restated):

(In thousands)2005

$
12,0772006


12,1922007


12,2802008


12,3822009


12,4802010 and thereafter


239,815301,226Less: amount representing imputed interest


(186,556
)Present value of minimum payments

$
114,670


During
the period ended June 13, 2003, the Company completed two sale-leaseback transactions of real estate related to restaurant properties. The Company received
$2.6 million in proceeds. In connection with the purchase transaction on June 14, 2003, the Company completed a sale-leaseback transaction of real estate related to ten
restaurant properties. The Company received $13.9 million in proceeds. In October 2003, the Company completed an additional sale-leaseback transaction of real estate related
to a restaurant property. The Company
received $1.3 million in proceeds. Each of the aforementioned sale-leaseback transactions were recorded under the financing method (Note 2) due to deemed continuing
involvement with the buyer-lessor.

The
imputed interest rates on the deemed landlord financing liability ranged from 9.0% to 11.5%. Imputed interest expense on the deemed landlord financing liability totaled
$11.8 million, $4.4 million, $6.1 million and $9.8 million during the fiscal year ended October 28, 2004, the periods ended October 26, 2003 and
June 13, 2003 and the fiscal year ended October 27, 2002, respectively.

10.   Leases

The Company is the prime lessee under various land, building, and equipment leases for Company-operated and franchised restaurants, pie production facilities and
other locations. The leases have initial terms ranging from 15 to 35 years and, in most instances, provide for renewal options ranging from five to 20 years. Many leases contain purchase
options at the end of the lease term and escalation clauses, either predetermined or based upon inflation. When predetermined escalation clauses are present, the Company recognizes rental expense on
the straight-line basis. Certain leases contain provisions that require additional rental payments based upon restaurant sales volume ("contingent rentals"). Contingent rentals are accrued
each accounting period as the liabilities are incurred utilizing prorated periodic sales targets. Under most leases, the Company is responsible for occupancy costs including taxes, insurance and
maintenance. Subleases to franchisees and others generally provide for similar terms as the prime lease and an obligation for occupancy costs.

F-30

---



The
following summarizes future minimum lease payments under capital and operating leases having an initial or remaining non-cancelable term of one year or more as of
October 28, 2004:

|                                                          |  | Capital
leases |      | Operating
leases |   | Lease and
sublease
income
|--------------------------------------------------------- |  | -------------- | ---- | ---------------- | - | -------------------------
|
|
|2005                                                      |  | $              | 241  |                  | $ | 15,627                   
|2006                                                      |  |                | 79   |                  |   | 14,119                   
|2007                                                      |  |                | 74   |                  |   | 11,807                   
|2008                                                      |  |                | 66   |                  |   | 9,543                    
|2009                                                      |  |                | 37   |                  |   | 8,311                    
|2010 and thereafter                                       |  |                | 65   |                  |   | 44,008                   
|                                                          |  |                |      |                  |   |                          
|Total minimum lease payments                              |  |                | 562  |                  | $ | 103,415                  
|                                                          |  |                |      |                  |   |                          
|Less: amount representing interest                        |  |                | (113 | )                |   |                          
|                                                          |  |                |      |                  |   |                          
|Present value of minimum lease payments                   |  |                | 449  |                  |   |                          
|Less: current maturities of capitalized lease obligations |  |                | (201 | )                |   |                          
|                                                          |  |                |      |                  |   |                          
|Capitalized lease obligations                             |  | $              | 248  |                  |   |                          
|                                                          |  |                |      |                  |   |                          

Six
of our leased properties are subject to capital lease obligations. These capital leases have expiration dates ranging from December 2004 to January 2025. Implicit
interest rates range from 9.7% to 14.0% on capital leases.

Net
rental expense consisted of the following:

|                                       |                    | VI Acquisition |        | Midway |  
|-------------------------------------- | ------------------ | -------------- | ------ | ------ | -
|
|
|
|Restaurant land and buildings:         |                    |                |        |        |  
|                                       | Minimum rentals    |                | $      | 17,944 |  
|                                       | Contingent rentals |                |        | 2,061  |  
|                                       | Equipment          |                |        | 437    |  
|                                       |                    |                |        |        |  
|Gross rental expense                   |                    |                | 20,442 |        |  
|Less: lease and sublease rental income |                    |                | (1,458 | )      |  
|                                       |                    |                |        |        |  
|Net rental expense                     |                    | $              | 18,984 |        | $
|                                       |                    |                |        |        |  

F-31

---



11.   Other noncurrent liabilities

Other noncurrent liabilities and credits consisted of the following:

|                                                  |  | October 28,
2004 |       | October 26,
2003
|------------------------------------------------- |  | ---------------- | ----- | ----------------
|
|
|Reserve for closed/subleased properties (Note 16) |  | $                | 714   |                 
|Deferred straight-line rent payable               |  |                  | 1,354 |                 
|Insurance                                         |  |                  | 4,477 |                 
|Landlord incentive                                |  |                  | 466   |                 
|Other                                             |  |                  | 46    |                 
|                                                  |  |                  |       |                 
|                                                  |  | $                | 7,057 |                 
|                                                  |  |                  |       |                 

12.   Stockholders' equityVI Acquisition Corp.

Preferred stock

The VI Acquisition Corp. Series A preferred stock has a par value of $0.0001 per share with a liquidation preference of $1,000 per share, plus accrued and
unpaid dividends. Dividends on the Series A preferred stock accrue cumulatively on a daily basis at a fixed rate of 10% and are payable upon liquidation or redemption. Accrued dividends were
approximately $7.7 million and $2.6 million at October 28, 2004 and October 26, 2003, respectively. Holders of the Series A preferred stock have no voting rights in
relation to matters of the Company.

Common stock

VI Acquisition Corp. common stock has a par value of $0.0001 per share and each holder of common stock is entitled to one vote for each share of common stock.

Mezzanine and collateralized securities

On June 13, 2003, the Company issued shares of both common stock and Series A preferred stock to a member of management. Indebtedness incurred by
the shareholder totaling $590,000 to purchase these shares was guaranteed by a letter of credit totaling $600,000 obtained by the Company. As the Company had a potential obligation under this
arrangement, the potential obligation was reflected outside the stockholders' equity section in the October 26, 2003 consolidated balance sheet. 52,800 common shares, or $52,800, and 547.2
preferred shares, or $547,200, were classified in this manner. The amounts were reclassified to stockholders' equity in fiscal 2004 as a result of the repayment of the loan by the member of
management.

Certain
members of management have purchased shares of the Company's common and preferred stock, and those shares are subject to a put by the holder upon the death of the holder. Since
the put feature is at the option of the holders' estate but is not mandatory, these shares have been classified as mezzanine equities. These shares have resulted in common mezzanine equity of 35,248
shares, or $35,248, and preferred mezzanine equity of 1,027.85 shares, or $1,028,000.

Treasury stock

Following the separation of a member of management from the Company during the period ended October 26, 2003, the Company repurchased 76,103 shares of
common stock and 923.90 shares of preferred stock at a cost of $1.00 and $1,000 per share, respectively. During the year ended October 28,

F-32

---



2004,
the Company repurchased 4,500 shares of common stock at a cost of $1.00 per share following the separation of another member of management.

Warrants

In connection with the issuance of senior debt on June 13, 2003, VI Acquisition issued common and preferred stock purchase warrants which entitled the
holders to purchase at any time through June 13, 2013 an aggregate of 95,745 shares of common stock and an aggregate of 0.06 shares of Series A preferred stock at $0.01 per share. The
preferred stock warrant holders are subject to an anti-dilution provision, which allows their ownership to remain at approximately 6% of
the value of the accrued dividends on the Series A preferred stock. As of October 28, 2004, the preferred warrants were exercisable for an aggregate of 647.49 shares of preferred stock.

13.   Stockholders' equityMidway Investors Holdings Inc.

Preferred stock

The Midway Class A preferred stock had a par value of $0.01 per share with a liquidation preference of $1,000 per share, plus accrued and unpaid dividends.
Dividends on the Class A preferred stock accrued cumulatively on a daily basis at a fixed annual rate of 8.94% through April 30, 2004, and 11.34% thereafter, and were payable upon
liquidation or redemption. Accrued dividends were approximately $3.4 million at June 13, 2003. The Class A preferred stock was redeemable in cash, at Midway's option, to all
holders on a pro-rata basis. Holders of the Class A preferred stock had no voting rights in relation to matters of the Company.

In
connection with the issuance of the Subordinated Debt on May 14, 2001, Midway issued 2,005.7 additional shares of Class A preferred stock, which were subject to certain
put and call provisions (the "Redeemable Preferred Stock"). Under the terms of the Redeemable Preferred Stock, holders could require Midway to redeem their shares on the earliest of
(i) May 14, 2006, (ii) a change in control, (iii) acceleration of the Subordinated Debt, (iv) noncompliance of covenants in the Subordinated Debt agreement, or
(v) the undertaking of Midway in a fundamental asset transaction. Midway was also entitled to purchase all of the Redeemable Preferred Stock at any time between May 14, 2007 and the date
of an initial public offering. The shares were to be redeemed at the accumulated liquidation value.

The
Midway Class B preferred stock had a par value of $0.01 per share with a liquidation preference of $1,000 per share, plus accrued and unpaid dividends, and was convertible
into an equal number of shares of Class A preferred stock. Dividends on the Class B Preferred Stock accrued cumulatively on a daily basis at a fixed annual rate of 8.94% through
April 30, 2004, and 11.34% thereafter, and were payable exclusively by issuance of a payment-in-kind dividend of Class C preferred stock on the last day of each
fiscal quarter. Fractional shares of Class C preferred stock could be issued in connection with any payment-in-kind dividend. The Class B preferred stock was
redeemable in cash, at Midway's option, to all holders of the preferred shares on a pro-rata basis. Holders of the Class B preferred stock had no voting rights in relation to
matters of the Company.

The
Class C preferred stock had a par value of $0.01 per share with a liquidation preference of $1,000 per share. The Class C preferred stock was redeemable in cash, at
Midway's option, to all holders of the
preferred shares on a pro-rata basis. Holders of the Class C preferred stock had no voting rights in relation to matters of the Company.

Common stock

The Midway Class A common stock had a par value of $0.01 per share and was convertible into the same number of shares of Class B common stock. Each
holder of Class A common stock was entitled to one vote for each share of Class A common stock.

F-33

---



The
Midway Class B common stock had a par value of $0.01 per share and was automatically convertible into the same number of shares of Class A common stock upon the closing
of a qualified public offering. Holders of the Class B common stock had no voting rights in relation to matters of the Company.

On
June 14, 2003, all previously outstanding shares of Class A preferred stock, Class B preferred stock, Class C preferred stock, Class A common stock,
and Class B common stock were redeemed by the previous holders and sold to VI Acquisition Corp. At that time, all outstanding shares of common stock were sold to VI Acquisition Corp.

Warrants

In connection with the issuance of the Midway Subordinated Debt, Midway issued common stock purchase warrants entitling the holders to purchase from Midway at any
time prior to May 14, 2011, an aggregate of 1,063.7 shares of Class B common stock for an exercise price of $0.01 per share. See also Note 8 related to the accretion of this
amount as a discount to the Subordinated Debt.

During
the period of October 27, 2002 through June 13, 2003, the Company issued an additional 118.18 warrants with a value of $129,000. The warrants were issued in
accordance with the antidilution provision in the warrant agreement following the grant of additional employee stock options on October 28, 2002. All warrants of Midway were exercised on
June 13, 2003.

14.   Stock option and incentive program

On October 28, 2002, Midway's Board of Directors authorized the issuance of options to certain key management personnel to purchase 550.5 shares of
Class B common stock for an exercise price of $100 per share. It was determined that the market price of the Class B common stock at the date of grant was in excess of $100 per share and
thus deferred compensation expense of $1.8 million was accrued based upon the difference in the market price, as determined by the Board of Directors, and the exercise price. This charge was
amortized into expense over the vesting period of the options and, during the period ended June 13, 2003, the Company recorded compensation expense of $523,000. At June 13, 2003, all
outstanding options became fully vested as a result of the change in control and were exercised as a component of the acquisition of Midway by VI Acquisition Corp.

Information
regarding activity for stock options exercisable for shares of Class B common stock outstanding under Midway's stock option plan is as follows:

|                                        |           | Shares  |         | Weighted-
average
exercise
price
|--------------------------------------- | --------- | ------- | ------- | --------------------------------
|Options outstanding at October 28, 2001 |           | 1,767.2 |         | $                               
|                                        | Granted   |         | 135.0   |                                 
|                                        | Exercised |         |        |                                 
|                                        | Forfeited |         | 22.0    |                                 
|                                        |           |         |         |                                 
|Options outstanding at October 27, 2002 |           | 1,880.2 |         |                                 
|                                        | Granted   |         | 550.5   |                                 
|                                        | Exercised |         | 2,430.7 |                                 
|                                        | Forfeited |         |        |                                 
|                                        |           |         |         |                                 
|Options outstanding at June 13, 2003    |           |        |         | $                               
|                                        |           |         |         |                                 

In
connection with the acquisition of Midway by VI Acquisition, those members of management who chose to roll over options to purchase shares of Midway stock were granted options to
purchase

F-34

---



shares
of Series A preferred stock of VI Acquisition Corp. for $24.80 per share. These options were fully vested as of the grant date and no expense was recorded.

Information
regarding activity for stock options exercisable for shares of Series A preferred stock outstanding under VI Acquisition Corp. Stock Option Plan is as follows:

|                                        |                          | Shares |       | Weighted-
average
exercise
price
|--------------------------------------- | ------------------------ | ------ | ----- | --------------------------------
|Options outstanding at June 13, 2003    |                          |       |       | $                               
|                                        | Granted rollover options |        | 1,571 |                                 
|                                        | Exercised                |        | 924   |                                 
|                                        | Forfeited                |        |      |                                 
|                                        |                          |        |       |                                 
|Options outstanding at October 26, 2003 |                          | 647    |       |                                 
|                                        |                          |        |       |                                 
|                                        | Granted                  |        |      |                                 
|                                        | Exercised                |        |      |                                 
|                                        | Forfeited                |        |      |                                 
|                                        |                          |        |       |                                 
|Options outstanding at October 28, 2004 |                          | 647    |       | $                               
|                                        |                          |        |       |                                 
|Options exercisable at October 28, 2004 |                          | 647    |       | $                               
|                                        |                          |        |       |                                 

The
options outstanding at October 28, 2004 had a weighted average remaining contractual life of 8.7 years.

15.   Employee benefit plans

The Company maintains the VICORP Restaurants, Inc. Employees' 401(k) Plan under Section 401(k) of the Internal Revenue Code of 1986, which provides
for annual contributions by the Company in the amount of 2% of the aggregate compensation of participants. Full-time and part-time employees meeting a 1,000 hour service
requirement are eligible to participate. During the year ended October 28, 2004, the periods ended October 26, 2003 and June 13, 2003, and the year ended October 27, 2002,
the Company recorded expense of $587,000, $232,000, $406,000 and $593,000, respectively, for its 401(k) contributions.

16.   Asset impairments, asset disposals and related costs

During the fiscal year ended October 28, 2004, the Company recorded a $1.1 million pretax impairment charge related to the write-down of
assets for 11 restaurant locations, 10 of which will continue to be operated and one which is closed. Management assessed various factors relevant to the assets, including projected negative cash
flows, and concluded the historical performance trends at the operating locations were unlikely to improve materially. Therefore an impairment charge was recognized to reduce the carrying value of the
assets to fair market value, which was estimated based upon management's historical experience associated with such assets.

As
of October 28, 2004 and October 26, 2003, the Company had recorded a reserve for closed/subleased restaurant locations (Notes 7 and 11) of approximately
$1.3 million and $1.8 million, respectively, primarily representing estimated future minimum lease payments related to the restaurant facilities, net of expected sublease income. Of the
eight restaurant locations to which this reserve relates, four of the leases will terminate during the Company's fiscal year ending November 3, 2005. Six of such locations were subleased as of
October 28, 2004.

F-35

---



The following summarizes the activities that occurred in the Company's reserve for closed/subleased restaurant locations during the year ended October 28, 2004, the periods ended
October 26, 2003 and June 13, 2003 and the year ended October 27, 2002, respectively:

|                    |  | VI Acquisition |       | Midway |  
|------------------- |  | -------------- | ----- | ------ | -
|
|
|Beginning of period |  | $              | 1,762 |        | $
|Additions           |  |                | 65    |        |  
|Payments            |  |                | (557  | )      |  
|                    |  |                |       |        |  
|End of period       |  | $              | 1,270 |        | $
|                    |  |                |       |        |  

17.   Income taxes

The total provisions for income tax expense (benefit) consisted of the following:

|                                     |         | VI Acquisition |        | Midway
|------------------------------------ | ------- | -------------- | ------ | ------
|
|
|
|Current:                             |         |                |        |       
|                                     | Federal |                | $      | 1,394 
|                                     | State   |                |        | 853   
|                                     |         |                |        |       
|                                     |         |                | 2,247  |       
|Deferred:                            |         |                |        |       
|                                     | Federal |                |        | (4,394
|                                     | State   |                |        | (765  
|                                     |         |                |        |       
|                                     |         |                | (5,159 | )     
|                                     |         |                |        |       
|Provision for income taxes (benefit) |         | $              | (2,912 | )     
|                                     |         |                |        |       

The
following is a reconciliation of income taxes at the federal statutory rate to the Company's income tax expense (benefit):

|                                                                    |  | VI Acquisition |   | Midway |  
|------------------------------------------------------------------- |  | -------------- | - | ------ | -
|
|
|
|Income tax provision computed at statutory federal income tax rates |  | (1,903         | ) | 35     | %
|FICA tip tax credit                                                 |  | (1,049         | ) | 19     | %
|Non-deductible costs                                                |  | 18             |   | 0      | %
|State income tax provision, net of federal benefit                  |  | 58             |   | -1     | %
|Other, net                                                          |  | (36            | ) | 1      | %
|                                                                    |  |                |   |        |  
|Income tax expense (benefit)                                        |  | (2,912         | ) | 54     | %
|                                                                    |  |                |   |        |  

F-36

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The
components of the net deferred tax assets (liabilities) were as follows:

|                                                |                                              | October 28,
2004 |         | October 26,
2003 |  
|----------------------------------------------- | -------------------------------------------- | ---------------- | ------- | ---------------- | -
|
|
|                                                | FICA tax credit carryforwards                |                  | $       | 11,820           |  
|                                                | Alternative minimum tax credit carryforwards |                  |         | 3,366            |  
|                                                | Accrued insurance claims not yet deductible  |                  |         | 3,347            |  
|                                                | Property and equipment                       |                  |         | 4,867            |  
|                                                | Investment                                   |                  |         | 2,760            |  
|                                                | Other                                        |                  |         | 3,146            |  
|                                                |                                              |                  |         |                  |  
|                                                |                                              |                  | 29,306  |                  |  
|Valuation allowance                             |                                              |                  | (2,760  | )                |  
|                                                |                                              |                  |         |                  |  
|Deferred tax assets, net of valuation allowance |                                              |                  | 26,546  |                  |  
|                                                | Trademarks                                   |                  |         | (17,090          | )
|                                                | Franchise rights                             |                  |         | (4,557           | )
|                                                | Leasing/financing transactions               |                  |         | (1,526           | )
|                                                | Other                                        |                  |         | (60              | )
|                                                |                                              |                  |         |                  |  
|Deferred tax liabilities                        |                                              |                  | (23,233 | )                |  
|                                                |                                              |                  |         |                  |  
|Net deferred tax assets (liabilities)           |                                              |                  | 3,313   |                  |  
|                                                |                                              |                  |         |                  |  
|Deferred income taxes, short-term               |                                              |                  | 4,673   |                  |  
|                                                |                                              |                  |         |                  |  
|Deferred income taxes, long-term                |                                              | $                | (1,360  | )                | $
|                                                |                                              |                  |         |                  |  

The
FICA tip credit is a general business income tax credit claimed by the Company for employer social security taxes paid on employee tips exceeding the amount treated as wages for
minimum wage purposes. To the extent that the FICA tip credit is claimed, a business deduction for the FICA tax is not received for the FICA tax which is subject to the federal income tax credit. Any
unused FICA tip credit may be carried back one year and forward 20 years (three-year carryback and 15-year carryforward for credits generated in tax years beginning
before 1998). The alternative minimum tax credit carryforwards never expire.

Approximately
$9.6 million of the FICA tip credit carryforwards were generated prior to the Company's acquisition in June 2003 and are subject to an annual use limitation
of approximately $0.7 million. Of these credit carryforwards, $5.5 million may be carried forward up to 15 years with expirations in 2009 through 2013 and $4.1 million may
be carried forward up to 20 years with expirations in 2019 through 2023. The remaining $2.2 million of FICA tip credit carryforwards were generated post-acquisition, are not
subject to annual limitations and will expire in 2023 and 2024. Management believes that, based upon past historical and forecasted future taxable income, it is more likely than not that these
carryforwards will be fully utilized before expiration. Annual taxable income of approximately $6.0 million would be necessary to fully utilize the credit carryforwards. Estimated taxable
income for the fiscal year ended October 28, 2004 was $5.0 million and included approximately $6.9 million of taxable expense related to debt extinguishment costs
(Note 19).

The
Company has established a valuation allowance of $2.8 million for the portion of its deferred tax asset related to an investment for which it is more likely than not that a
tax benefit will not be realized. This investment arose from the sale of a subsidiary and in 1991 had been written-off for financial reporting purposes. While the Company believes that
this investment will ultimately be written-off for tax purposes, it does not believe that it will generate sufficient capital gains to offset the capital loss.

F-37

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18.   Hedging activities

Effective October 27, 2003, the Company entered into an interest rate swap agreement to manage its cash flows associated with the interest payable under
the variable component of its prior senior secured credit agreement. The swap agreement had an original notional amount of $35 million. The contract was scheduled to expire October 27,
2006 and the interest rate was fixed at 2.686%. In connection with the debt refinancing transaction on April 14, 2004 (Note 8), the outstanding derivative obligations were settled for
$0.2 million. The Company held no derivative instruments as of October 28, 2004 and October 26, 2003.

19.   Transaction and debt extinguishment expenses

The Company incurred various expenses directly related to the acquisitions of the predecessor companies (Note 1). The components of the transaction
expenses and debt extinguishment costs were as follows:

|                           |                                                        | VI Acquisition                  |   | Midway
|-------------------------- | ------------------------------------------------------ | ------------------------------- | - | ------
|
|
|Transaction expenses:      |                                                        |                                 |   |       
|                           | Employment contract termination and stock compensation |                                 | $ |      
|                           | Legal, accounting and other professional fees          |                                 |   | 75    
|                           | Severance costs                                        |                                 |   |      
|                           | Legal settlements                                      |                                 |   | 50    
|                           |                                                        |                                 |   |       
|                           |                                                        | Total transaction expenses      |   | $     
|                           |                                                        |                                 |   |       
|Debt extinguishment costs: |                                                        |                                 |   |       
|                           | Debt prepayment penalties                              |                                 | $ | 2,305 
|                           | Write-off of deferred financing costs                  |                                 |   | 4,344 
|                           | Derivative termination                                 |                                 |   | 207   
|                           |                                                        |                                 |   |       
|                           |                                                        | Total debt extinguishment costs |   | $     
|                           |                                                        |                                 |   |       

20.   Commitments and contingencies

Insurance reserves

The Company retains a significant portion of certain insurable risks primarily in the medical, dental, workers' compensation, general liabiliaty 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. As of October 28, 2004, the Company had
placed letters of credit totaling approximately $7.3 million, primarily associated with its insurance programs.

Litigation and tax contingencies

From time-to-time, the Company has been involved in various lawsuits and claims arising from the conduct of its business. Such lawsuits
typically involve claims from customers and others related to operational issues and complaints and allegations from former and current employees. These matters are believed to be common for
restaurant businesses. Additionally, the Company has been party to various assessments of taxes, penalties and interest from federal and state agencies. Management

F-38

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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.

The
Company is currently a defendant in two purported class action claims in California. The first class action claim was brought in October 2003 by two former employees and one
current employee, and the second class action claim was brought in May 2004 by two former employees. The complaints allege that the Company violated California law with regard to rest and meal
periods, bonus payment calculations (in the October 2003 complaint), overtime payments (in the May 2004 complaint) and California law regarding unfair business practices. The classes and
subclasses alleged in the actions have not been certified by the respective courts at the current stages of the litigation, but generally are claimed in the 2003 complaint to include persons who have
been employed by the Company in California since October 17, 1999 in the positions of food server, restaurant general manager and assistant restaurant manager, and generally are claimed in the
2004 complaint to include persons who have been employed by the Company in California since May 21, 2000 in the positions of restaurant general manager and restaurant associate manager. No
dollar amount in damages is requested in either complaint, and the complaints seek statutory damages, compensatory damages, interest and attorneys' fees in unspecified amounts.

During
the fourth quarter of fiscal 2004, the Company established a reserve of $3.2 million in connection with its agreement in principle to settle these class action lawsuits.
The parties in both lawsuits are in the process of finalizing the settlement, which is subject to approval of the court. Under the terms of the proposed settlements, the Company has agreed to pay up
to an aggregate of $6.55 million for the alleged claims and associated legal fees.

The
Company filed a lawsuit on December 3, 2004 against the former shareholders of Midway (the former parent of VICORP) in the Circuit Court of Cook County, Illinois seeking
indemnification for all of the damages related to such litigation under the purchase agreement dated June 14, 2003 pursuant to which VICORP was acquired, in addition to the assertion of other
claims. The former shareholders of Midway filed a lawsuit on December 22, 2004 in Suffolk County Superior Court in Massachusetts. The former shareholders of Midway claim, among other
allegations, that the Company has improperly sought indemnification and are denying liability for the portion of the damages in the previously
mentioned class action lawsuits that arose following the closing of the June 2003 acquisition, and for certain settlements for which they claim they did not receive appropriate notice or
approval rights.

While
the Company believes that its claims against the former shareholders of Midway Investors Holdings Inc. are meritorious and that it will prevail, in the event the Company
does not fully prevail on its indemnification claims, management estimates that the Company's maximum exposure under the settlement agreements is the $3.2 million amount reserved. A receivable
of $3.4 million (Note 4) was recorded at October 28, 2004 for the difference between the aggregate amount of the settlement and the Company's estimated exposure.

Guarantees and commitments

VICORP guaranteed certain leases for restaurant properties sold in 1986 and restaurant leases of certain franchisees. Minimum future rental payments remaining
under these leases were approximately $2.7 million as of October 28, 2004. 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.

Contractual
obligations for restaurant construction amounted to approximately $5.3 million as of October 28, 2004.

F-39

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21.   Related party transactions

On June 14, 2003, the Company entered into a professional services agreement with Wind Point Investors, IV, L.P. and Wind Point Investors V, L.P., whereby
certain management, financial and other consulting services would be provided to the Company. Under terms of the agreement, the Company pays a total annual fee of $850,000 to the partnerships. In
connection with the April 14, 2004 debt refinancing (Note 8), the Company also paid an additional $309,000 in fees to Wind Point Investors IV, L.P. and Wind Point Investors V, L.P.,
which represented a deferral of a portion of the transaction fee payable to Wind Point Investors IV, L.P. and Wind Point Investors V, L.P. in connection with the June 2003 acquisition
(Note 1). Total management fees paid to Wind Point Investors, IV, L.P. and Wind Point Investors V, L.P. totaled $1,088,000 and $315,000 for the fiscal year ended October 28, 2004 and the
period from June 14, 2003 through October 26, 2003, respectively. Total management fee expense for the fiscal year ended October 28, 2004 and the period from June 14, 2003
through October 26, 2003 was
$1,159,000 and $315,000, respectively. As of October 28, 2004 and October 26, 2003, $275,000 and $204,000 of such management fees were accrued but unpaid (Note 7).

The
Company previously had obtained a letter of credit which was required to secure the personal loan of a member of management. The proceeds under this arrangement were used by the
individual to participate in the acquisition of the Company's stock (Note 12). The Company assumed fees associated with this letter of credit in the amount of approximately $8,000. The loan was
paid in full in February 2004.

On
May 14, 2001, the Company entered into management fee agreements with Goldner, Hawn, Johnson & Morrison, a Minnesota corporation, and Second Capital Corporation of
Boston ("Second Capital"), a Massachusetts corporation, whereby certain management, financial and other consulting services would be provided to the Company's predecessor. Under the terms of the
agreement, the Company paid a total annual fee of $1.0 million to Goldner Hawn and Second Capital. Management fees totaled approximately $575,000, and $1.0 million for the period from
October 28, 2002 through June 13, 2003 and for the fiscal year ended October 27, 2002, respectively. This agreement terminated on June 13, 2003.

F-40

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22.   Quarterly financial data (unaudited)

The Company's quarterly results of operations for fiscal years 2004 and 2003 are summarized as follows:

|                          |  | Quarter ended(c) |        
|------------------------- |  | ---------------- | -------
|
|
|
|Revenues                  |  | $                | 100,594
|Litigation settlement     |  |                  |       
|Transaction costs         |  |                  | 22     
|Impairment expense(d)     |  |                  |       
|Operating profit(d)       |  |                  | 8,984  
|Debt extinguishment costs |  |                  |       
|Net income (loss)(d)      |  |                  | 2,043  

|                          |  | Quarter ended(c) |       
|------------------------- |  | ---------------- | ------
|
|
|
|Revenues                  |  | $                | 93,585
|Transaction costs         |  |                  | 100   
|Impairment expense        |  |                  |      
|Operating profit(e)       |  |                  | 9,311 
|Debt extinguishment costs |  |                  |      
|Net income (loss)(e)      |  |                  | 3,269 

---

Midway

VI Acquisition

CombinedJune 13,
2003

July 6,
2003

July 6,
2003(As restated)

(As restated)

(As restated)(In thousands)Revenues

$
65,724

$
24,865

$
90,589Transaction costs


8,964


82


9,046Impairment expense


96





96Operating profit(e)


(2,824
)

2,200


(624
)Debt extinguishment costs


6,516





6,516Net income (loss)(e)


(6,927
)

678


(6,249
)


F-41

---





F-42

---