(Mark One)

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

For the fiscal year ended October 29, 2000

OR

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

For the transition period from

Commission file number 0-12343

(Exact name of registrant as specified in its charter)

(Address of principal executive offices, Zip Code)

Registrant's telephone number, including area code: (303) 296-2121

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

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Securities registered pursuant to Section 12(g) of the Act:

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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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

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

The aggregate market value of 6,432,791 shares of the registrant's common stock held by non-affiliates on January 16, 2001 was approximately $108,553,348.

At January 16, 2001 there were 6,763,488 shares of the Company's Common Stock $.05 par value outstanding.

The Notice of Annual Meeting of Shareholders and Proxy Statement pertaining to the 2000 Annual Meeting of Shareholders ("the Proxy Statement") are incorporated herein by reference into Parts I and III.

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VICORP Restaurants, Inc., the registrant, is referred to herein as "VICORP" or the "Company." The Company was incorporated in 1959 and is headquartered in Denver, Colorado.

VICORP operates family style restaurants under the names "Bakers Square" and "Village Inn," and franchises restaurants under the Village Inn brandname. At October 29, 2000, the Company operated two hundred fifty-six Company-owned restaurants in fourteen states. Of the two hundred fifty-six Company-owned restaurants, one hundred forty-nine were Bakers Squares and one hundred seven were Village Inns, with an additional one hundred fifteen franchised Village Inn restaurants in twenty-one states. The Company-owned and franchised restaurants are concentrated in Arizona, California, Florida, the Rocky Mountain region and the upper Midwest. The Company operates a pie manufacturing division to support the restaurants, which operates under the name "VICOM". VICOM has three production facilities located in Santa Fe Springs, California, Oak Forest, Illinois and Chaska, Minnesota.

The Village Inn concept is focused on breakfast food, offering homestyle entrees for breakfast, lunch and dinner. Bakers Square emphasizes lunch and dinner with signature fresh baked pies in twenty-two, plus flavors. Each concept offers a relatively standard core menu supplemented with daily and monthly entree and pie specials with an average guest check of six to eight dollars.

Store management typically consists of a general manager and two assistant managers. The store managers are supported by regional managers, regional vice-presidents and the corporate office. Incentives are provided to encourage store and regional managers to maximize store sales and monitor controllable costs.

The Company believes the principal measure of success for the restaurants is the ability to provide the customer with a satisfying experience. Attracting and retaining the best people, continuous employee development, regular communication of expectations, and constant performance feedback are central factors to ensure customer satisfaction. Training programs are designed to meet these objectives and focus on outcome-based training, emphasizing the acquisition of basic skills and behavior that result in desired performance for specific positions.

Cost effective procurement of quality products is also critical to providing a satisfying customer experience. The Company makes centralized purchasing decisions for basic menu ingredients to gain favorable prices and ensure uniform quality specifications. Management does not anticipate any difficulty in obtaining food products of adequate quantity or quality at acceptable prices.

The Company utilizes advertising to promote the restaurant concepts and gain market share. Expenditures for marketing were 3.1% of Company-operated restaurant sales for fiscal 2000.

The Company-operated restaurants utilize point-of-sale and back-of-house computer systems. These systems capture sales information, payroll data, and provide restaurant managers with analytical and reporting tools.

During fiscal 2000, the Company opened seven new restaurants and closed four restaurants, of which all were closed due to lease expiration. The Company intends to open six to nine Company-operated restaurants during fiscal year 2001.

The initial term of a Village Inn Franchise Agreement is twenty-five years. An initial franchise fee of $35,000 is due upon the grant of a franchise and ongoing royalty fees are 4% of gross sales. The Company supports its franchisees with regular visits to the restaurants by Quality Assurance Consultants to help ensure the Company's high quality service and cleanliness standards are upheld. A franchise advisory board, consisting of seven franchisees elected by their peers every two years, meets with Company management four times per year. The meetings provide a forum for the exchange of ideas, which enables the Company and the franchisees to maximize growth, sales and profits.

During fiscal year 2000, the Company established four new franchised Village Inn locations (three in Colorado and one in Alaska) and closed four franchised restaurants. The Company plans to pursue franchise development as a source of providing a continued profitable revenue stream, as well as to gain market share, thus promoting the advancement of the Village Inn brandname. The Company expects to develop from four to eight franchised units during fiscal 2001.

The Company owns the right to use the trademarks and service marks, which have been registered with various state and federal patent and trademark offices. The Company considers the trademarks and service marks important to the business and actively defends and enforces them.

The restaurant industry is highly competitive with regards to quality, value, location, service and price, and is often affected by changes in consumer tastes, local and national economic and real estate conditions, traffic patterns and demographic trends. The Company competes directly and indirectly with all types of restaurants from national and regional chains to local establishments. Competitors include corporations much larger than the Company, which have greater capital resources and ability to withstand adverse business trends.

No material amounts were spent on Company sponsored research activities relating to the development or enhancement of products, services or techniques.

The Company is subject to various federal, state and local laws governing the sale and preparation of food, zoning, sanitation, health and safety, minimum wage requirements, overtime, construction, environmental and sale of alcoholic beverages.

The Federal Trade Commission, as well as state laws regulate franchise operations, including laws imposing registration and disclosure requirements for franchisors during the offer and sale of franchises and, in certain cases, applying substantive standards to the relationship between the Company and the franchisee.

The following table sets forth the names, ages, position and business experience of the executive officers of the Company. Executive officers are appointed by the Board of Directors on an annual basis. There are no family relationships between the executive officers.

Charles R. Frederickson has been a director of the Company since 1968, and Chairman of the Board since November 1986.

Joseph F. Trungale was appointed President of the Company on November 1, 1999, and subsequently Chief Executive Officer on May 8, 2000. Previously, Mr. Trungale served as the President of the Bakers Square concept since August 1998. Mr. Trungale also served in various positions with operational responsibility over the Company's Bakers Square restaurants. Prior to joining the Company, Mr. Trungale operated a family-owned real estate business from September 1995 through July 1997. For eight years preceding that, he was Vice President of Operations for Whataburger, Inc.

Robert E. Kaltenbach was appointed Chief Operating Officer on November 1, 2000 after serving as President of Village Inn since December 1994. Previously, Mr. Kaltenbach served as Vice President of Franchise Operations since July 1988.

Richard E. Sabourin was appointed Executive Vice President and Chief Financial Officer in August 1996. From 1989 to August 1996, Mr. Sabourin was employed by Bestop, Inc. in various positions including Chief Executive Officer, President, and Chief Operating Officer.

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The Company owns the corporate office complex located in Denver, Colorado and the bakery facilities in Oak Forest, Illinois and Chaska, Minnesota. The land and building at the Santa Fe Springs, California bakery are leased.

Company-operated Village Inn restaurants are concentrated in the Rocky Mountain region, the upper Midwest, Arizona and Florida, while Bakers Square restaurants are located primarily in the upper Midwest and California. The Company considers existing restaurant properties and equipment to be in good working condition. During fiscal 2000, two idle properties were sold, six leases expired on idle and subleased properties and four leases for Company-operated locations were not renewed. The Company intends to lease, sublease or sell the five remaining idle properties. In fiscal 1999, the Company completed a sale leaseback transaction of the real estate related to twenty-one restaurant properties. The following table sets forth restaurant properties owned in fee, buildings owned on leased land, and leased locations as of October 29, 2000:

On September 28, 1998, two class actions were commenced in the Superior Court of Los Angeles County, California.

The first, Kirk v. VICORP Restaurants, Inc., Case No. BC-198202, was brought by a former manager of a California Bakers Square restaurant. Allegations in the amended complaint assert violations by VICORP of California wage and hour laws and regulations concerning overtime wages. The Plaintiff is seeking class certification, injunctive relief, damages in an unspecified amount, statutory penalties, interest, costs, and attorneys' fees. On February 14, 2000, Kirk's motion for class certification was denied. Kirk filed an appeal of the denial on April 14, 2000. The case has been stayed pending the appeal.

The second, Schroeder v. VICORP Restaurants, Inc., Case No. BC-198203, was brought by a former server at a California Bakers Square restaurant. The Plaintiff alleges VICORP has violated California statutes and regulations concerning the payment of wages, tip pooling, reimbursement for uniform expenses, failure to remit tips, the improper charging of walkouts to servers and unfair competition. Class certification is requested, as well as injunctive relief, damages in an unspecified amount, statutory penalties, interest, costs, and attorneys' fees.

On December 28, 1998, a third action was commenced in the Superior Court of Los Angeles County, California, Ontiveros v. VICORP Restaurants, Inc., Case No. BC-202962. This action was brought by a former manager of a California Bakers Square restaurant. The Plaintiff is seeking class certification damages, statutory penalties, declaratory relief, interest, attorneys' fees, and costs for alleged violations of California statutes and regulations concerning the payment of wages. On January 3, 2000, the Court issued an order staying the case under the primary jurisdiction doctrine.

The Company believes the legal actions described above are similar to actions brought against other multi-location restaurant operators in the state of California. Resolution of these matters may require a significant period of time and is subject to substantial uncertainties common to the judicial process for class actions in general. The Company believes it has not violated California statutes and regulations and has meritorious defenses to each of the claims in these actions. While the Company intends to vigorously defend against the allegations, it is possible that the Company will not prevail, or that decisions made in other similar cases may result in interpretations of the California statutes that are adverse to the Company's position. The cost of defense for these actions is being recognized as incurred. No provision has been made for any judgements or settlements that might ultimately result. While a contingency exists that any such judgement or settlement could be material to the results of operations of the Company for some future period or periods, the Company currently believes that resolution of these amounts will not have a material adverse effect on the Company's financial position.

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There were no matters submitted to the Company's security holders during the fourth quarter ended October 29, 2000.

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The Company's common stock is traded on the over-the-counter market and is quoted on the National Association of Securities Dealers (NASDAQ) National Market System under the symbol "VRES". As of January 16, 2001, the Company had 385 shareholders of record. The following table sets forth the high and low closing sales quotations per share of common stock as reported by NASDAQ during each of the Company's fiscal quarters:

The range of high and low closing sales quotations contained in the foregoing table reflects inter-dealer prices, without retail mark-up, markdown or commissions, and may not represent actual transactions.

The Company has not paid cash dividends on common stock since 1986. Future common stock dividend payments are dependent upon operating results, loan agreement restrictions and other financial and business considerations. Under the most restrictive covenant of the Company's bank credit agreement, approximately $19,364,000 was unrestricted at October 29, 2000 as to the payment of dividends.

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* An asset impairment of $746,000 was included in results of operations for 1999.

* A one-time tax benefit of approximately $5,400,000 from adjusting the valuation allowance relating to certain deferred tax assets was included in net income for 1999.

* An asset disposal charge of $5,800,000 was included in results of operations for 1996.

* An asset disposal, impairment and restructuring charge of $23,000,000 and income of $1,918,000 from settlement of litigation were included in results of operations for 1994.

- Fiscal 2000 and 1999 consisted of 364 days, while fiscal years 1998, 1997, 1996, 1995 and 1994, consisted of 366 days, 365 days, 366 days, 366 days and 364 days, respectively.

- The Company has not paid dividends on common stock since 1986.

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The following analysis should be read in conjunction with the Selected Financial Data (Item 6 of Part II) and the Financial Statements and Supplementary Data (Item 8 of Part II).

The following table sets forth selected operating statistics for the last three fiscal years (in thousands except restaurants at year-end).

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Consolidated restaurant sales increased 3.6% or $12,945,000 for the fiscal year ended October 29, 2000 compared to the fiscal year ended October 31, 1999. The Company experienced an overall same store sales increase of 1.8% over the prior year period.

The following table sets forth the percent change over the prior year by concept for same store sales and same store guest counts, as well as year to date store operating margin:

Fiscal 2000 Bakers Square restaurant sales increased $2,997,000 or 1.4% over fiscal 1999 sales as a result of the 1.7% increase in same store sales. The Company was successful in capturing an additional $1,975,000 in sales during the key holiday pie season in the first quarter of 2000 compared to the first quarter of 1999.

Fiscal 2000 Village Inn restaurant sales increased $9,948,000 or 7.1% due to the Company operating five additional Village Inn restaurants (during fiscal 2000 seven new restaurants were opened, one franchise operation was converted to a Company-operated restaurant and three restaurants were closed due to lease expiration). Village Inn same store sales increased 1.9%, while same store customer counts decreased 1.1% over the prior year. The decrease in same store customer counts is partially attributable to the initial impact of opening new stores in established market areas.

Consolidated restaurant operating profit increased 6.9% or $3,089,000 for fiscal year ended October 29, 2000 versus fiscal year ended October 31, 1999.

Bakers Square restaurant operating profit for fiscal year 2000 compared to fiscal year 1999 increased 8.0% or $1,692,000, while restaurant operating profit as a percent of sales increased to 10.4% from 9.8%. The increase in the restaurant operating profit as a percent of sales was primarily a result of the significant improvement in the California region. The restaurant operating profit as a percent of sales for the California region increased from 5.4% in fiscal 1999 to 7.5% for fiscal 2000. The improvement of Bakers Square restaurant operating profit was also driven by a 1.7% increase in same stores sales, improved execution during the first quarter's key holiday pie season and effective food cost and other operating expense management at the store-level.

Village Inn restaurant operating profit for fiscal year 2000 compared to fiscal year 1999 increased 5.9% or $1,397,000 due primarily to the increased profit contribution of the seven stores opened during fiscal 1999. Restaurant operating profit as a percent of sales decreased slightly to 16.6% from 16.8% primarily as a result of increased marketing expenses and costs attributed to the seven new stores opened during fiscal 2000. Marketing expenses as a percent of sales increased to 2.4% compared to 1.6% in the prior year.

Net franchise income increased 1.7% or $56,000 for fiscal 2000 compared to fiscal 1999.

General and administrative expenses for fiscal 2000 were $27,366,000 compared to $28,992,000 for fiscal 1999. The $1,626,000 or 5.6% decrease is attributable to various expense reductions, including a reduction in Year 2000 related expenditures. Overall, general and administrative expenses decreased favorably as a percent of restaurant sales to 7.4% for fiscal 2000 compared to 8.1% for fiscal 1999.

Other income for fiscal 2000 decreased $928,000 or 65.2% from the prior year, due primarily to a gain of $859,000 on the sale of a restaurant property during the fourth quarter of 1999. Interest income for fiscal 2000 was $324,000 compared to $239,000 in fiscal 1999.

Interest expense declined 19.3% or $195,000 for fiscal 2000 compared to fiscal 1999. The decrease was primarily due to twelve capital leases being paid in full during 1999 and $103,000 of interest expense capitalized under the requirements of Statement of Financial Accounting Standards No. 34, "Capitalization of Interest Cost" ("SFAS 34"), offset by interest incurred on line of credit draws. The Company maintained an average draw on the line of credit during fiscal 2000 of $1,813,000 compared to $3,022 for the prior year.

The Company's effective tax rate for fiscal 2000 was 37.1% compared to 6.5% for fiscal 1999. During the fourth quarter of fiscal 1999, a one-time tax benefit of approximately $5,400,000 was recognized from adjusting the valuation allowance relating to certain deferred tax assets. A significant portion of the fiscal 2000 and 1999 provision for income taxes represents the non-cash utilization of deferred tax assets established for remaining net operating loss carryforwards. Taxes currently payable continue to be limited to Federal alternative minimum taxes and state income taxes.

The Company currently projects that remaining net operating loss carryforwards will be fully utilized during fiscal 2001 and tax credit carryforwards will be fully utilized over the next two fiscal years. Thereafter, cash required to pay income taxes is expected to more closely approximate income tax expense.

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Consolidated restaurant sales increased 3.8% in 1999 versus 1998. The Company experienced an overall same store sales increase of 3.2% over the prior year period.

The following table sets forth the percent change over the prior year by concept for same store sales and same store guest counts, as well as year to date store operating margin:

Fiscal 1999 Bakers Square restaurant sales increased $8,180,000 or 3.9% over fiscal 1998 sales as a result of the 4.6% increase in same store sales. Restaurant remodel programs to enhance the dining experience, broadened advertising coverage, special incentive programs at the local level, strengthened management ranks in the Midwest and Westcoast, and continued improved execution of the Bakers Square concept contributed to the improvement in sales.

Fiscal 1999 Village Inn restaurant sales increased $4,947,000 or 3.7% due to the Company operating three additional Village Inn restaurants (during fiscal 1999 seven new restaurants were opened, three Company-operated restaurants were converted to franchise operations, one restaurant was closed due to lease expiration). Village Inn same store sales increased .9%, while same store customer counts decreased 1.5% over the prior year. The decrease in same store customer counts is partially attributable to the initial impact of opening new stores in established market areas.

Consolidated restaurant operating profit increased 17.3% or $6,578,000 for fiscal year ended October 31, 1999 versus fiscal year ended November 1, 1998.

Bakers Square restaurant operating profit for fiscal year 1999 compared to fiscal year 1998 increased 43.0% or $6,322,000, while restaurant operating profit as a percent of sales increased to 9.8% in 1999 from 7.1% in 1998. Improved Bakers Square operating profit is due to a 4.6% increase in same store sales and programs developed to improve efficiencies, control food costs and minimize controllable operating costs.

Village Inn restaurant operating profit increased 1.1% or $256,000, while profit as a percent of sales decreased from 17.2% in 1998 to 16.8% in 1999 due to start-up costs associated with the seven new stores opened in 1999.

Net franchise income decreased 7.2% or $254,000 between 1999 and 1998 primarily as a result of increased general and administrative expenses associated with franchise operations.

General and administrative expenses for fiscal 1999 were $28,992,000 compared to $26,018,000 for fiscal 1998. The $2,974,000 or 11.4% increase was attributed to Year 2000 related expenses, increased divisional management expenses, higher incentive compensation, increased investment in store manager training, and increased depreciation associated with the Enterprise Resource Planning (ERP) system. General and administrative expenses as a percent of restaurant sales increased .5% to 8.1% for fiscal 1999.

Other income for 1999 increased $1,040,000 from 1998 due to a $859,000 gain on the sale of a restaurant property during the fourth quarter of 1999. Interest income for fiscal 1999 was $239,000 compared to $184,000 in fiscal 1998.

Interest expense declined 34.6%, or $535,000 between 1999 and 1998 due to a substantial reduction in long-term debt in 1998.

The Company's effective tax rate for fiscal 1999 was 6.5% compared to 36.5% for fiscal 1998. During the fourth quarter of fiscal 1999, a one-time tax benefit of approximately $5,400,000 was recognized from adjusting the valuation allowance relating to certain deferred tax assets. A significant portion of the fiscal 1999 and 1998 provision for income taxes represents the non-cash utilization of deferred tax assets established for remaining net operating loss carryforwards. Taxes currently payable were limited to Federal alternative minimum taxes and state income taxes.

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Asset Disposal, Impairment and Related Costs

At October 29, 2000, the Company had twenty-four properties, which it was seeking to dispose of, five of these were idle and nineteen were subleased. The Company owns four of the properties in fee and is the prime lessee on twenty leases. The Company estimates potential proceeds of $938,000 on the disposal of the fee properties. Two of the three remaining idle properties will be disposed of through lease terminations within a year. At October 29, 2000, loss reserves previously established for the disposal of these properties had a remaining balance of $3,058,000 including $1,220,000 to reduce the properties to realizable value and $1,838,000 to provide for carrying costs and sublease losses. At present, the Company anticipates the reserves will be adequate to cover the future losses and operating costs for these properties.

During fiscal 2000, two idle properties were sold yielding $1,472,000 in proceeds. The resulting loss of $1,096,000 was applied against the property disposal reserve previously established for this purpose.

Four Company-operated stores were closed during fiscal 2000, four during fiscal 1999 and two during fiscal 1998. The operating results for these stores over the past three years is as follows:

The Company recorded a pre-tax charge of $746,000 in fiscal 1999 for the write down of certain restaurant properties. Management assessed various factors relevant to the assets, including projected negative cash flow losses and concluded the historical performance trends were unlikely to improve materially, therefore an impairment of the assets was recognized.

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The Company's principal source of funds is internally generated cash from operations. Net cash provided by operating activities during fiscal 2000 was $37,372,000 compared with $29,405,000 during fiscal 1999. The $7,967,000 increase was primarily due to the $5,517,000 or 30.0% increase in operating profit and a $2,744,000 or 23.0% increase in net income (excluding the $5,400,000 one-time tax benefit recognized in fiscal 1999), as well as effective working capital management. Cash provided by operations in fiscal 1999 decreased $12,817,000 over fiscal 1998. The decrease was attributed to various working capital accounts.

The Company's investing activities for the fiscal year ended October 29, 2000 utilized $24,099,000 compared with $1,954,000 for the fiscal year ended October 31, 1999. The $22,145,000 increase in cash used for investing activities during fiscal 2000 was primarily attributable to the $28,700,000 in proceeds from the sale leaseback transaction on twenty-one properties completed during fiscal 1999. Investing activities for fiscal 1999 decreased $16,634,000 over fiscal 1998. This was primarily due to the sale leaseback transaction discussed above and higher capital spending.

Capital expenditures in 2000 totaled $27,064,000, which consisted of $13,686,000 for the completion of seven new restaurants, $8,037,000 for several remodel projects on existing restaurants and $5,341,000 for other support related projects, including the purchase of the Chaska bakery facility to enhance production capabilities at VICOM. Fiscal 2000 capital expenditures were $5,932,000 less than fiscal 1999 primarily as a result of the implementation of both the Enterprise Resource Planning and new back-of-house systems in fiscal 1999. Fiscal 1998 capital expenditures totaled $21,054,000. Anticipated capital expenditures of $24,000,000 are planned for fiscal year 2001, including the opening of six to nine additional restaurants.

The Company's financing activities for fiscal 2000 utilized $41,251,000 compared with $4,526,000 for fiscal 1999. The $36,725,000 increase was as a result of the tender offer concluded on December 22, 1999, and funded on December 29, 1999 whereby 2,000,000 shares were purchased at $19.00 per share. The transaction was funded using the $28,700,000 in net proceeds received from the sale leaseback transaction completed on October 28, 1999, as well as a $4,000,000 draw on the Company's credit facility. An additional 115,000 shares were repurchased in fiscal 2000 for $1,810,625, 232,925 shares in fiscal 1999 for $3,637,000 and 213,700 shares for $2,912,000 in fiscal 1998 under the Company's share repurchase plan. On October 2, 2000, the Board of Directors authorized an increase in the Company's existing share repurchase program for up to 3,000,000 shares of common stock over the next 24 months. Future purchases under the authorizations may be made from time to time in the open market or through privately negotiated transactions and will be dependent upon various business and financial considerations. Net cash used for financing activities in fiscal 1999 decreased $10,310,000 over fiscal 1998. During fiscal 1999, there were no draws on the bank credit facility, while in fiscal 1998, $13,400,000 of debt under the bank facility was paid down.

On December 19, 1997, the Company executed an amended and restated credit agreement, which provides for an available credit limit of $40,000,000 in the aggregate with a sublimit of $10,000,000 on letters of credit. The bank credit facility was amended effective April 14, 2000 to extend the maturity date to February 28, 2003, as well as amend certain fee calculations and debt covenants. As of October 29, 2000, the Company had $700,000 outstanding under the Company's line of credit and $700,000 in letters of credit issued in connection with its insurance programs.

Cash and cash equivalents at October 29, 2000, October 31, 1999 and November 1, 1998 were $5,209,000, $33,187,000 and $10,262,000, respectively. The Company believes anticipated cash flow from operations, as well as the availability of funds under the $40,000,000 line of credit, and other financing sources will provide sufficient capital to meet current foreseeable cash needs, including working capital and capital expenditures.

The Company 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 $6,645,000 as of October 29, 2000. These guarantees are included in the definition of financial instruments with off-balance-sheet risk of accounting loss. In fiscal 1999, the Company took possession of one of these properties, which has since been subleased, and settled on a defaulted lease in the amount of $57,000 as a result of a sublessee bankruptcy filing. The Company has no reason to believe that any material liability exists and believes it is impracticable to estimate the fair value of these financial guarantees (e.g., amounts the Company could pay to remove the guarantees).

As of October 29, 2000, the Company had federal net operating loss ("NOL") carryforwards totaling $6,283,000 which expire $2,526,000 in 2010 and $3,757,000 in 2011. The Company also has FICA and Alternative Minimum Tax ("AMT") credits in the amount of $9,596,000.

On October 28, 1999, the Company completed the sale and leaseback of the real estate related to twenty-one restaurant properties. The Company received $28,700,000 in net proceeds with a resulting deferred gain of $16,500,000, which is being amortized to reduce future rent expenses over the terms of the operating leases. The transaction allowed the Company to realize net operating loss carryforwards that were due to expire, as well as substantially fund the tender offer discussed below.

The Company concluded a tender offer on December 22, 1999, and funded the transaction on December 29, 1999 whereby 2,000,000 shares were purchased at $19.00 per share. The tender offer was funded through cash proceeds realized from the sale-leaseback and a $4,000,000 draw on the line of credit.

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During fiscal 2000, the Board of Directors appointed an independent committee of Directors to evaluate various strategic alternatives to enhance shareholder value. The independent committee retained Salomon Smith Barney as its financial advisor. On October 2, 2000, the special committee of the Board of Directors recommended and the Board authorized an increase in the Company's existing share repurchase program to cover up to 3,000,000 shares of common stock over the next 24 months. The purchases may be made from time to time in the open market or through privately negotiated transactions and will be dependent upon various business and financial considerations.

The Company's 2001 Plans call for continuation of moderate growth for Company-operated and franchise Village Inn restaurants within the existing markets. The Company plans to open four to six Company-operated Village Inn restaurants during fiscal 2001. In addition to a new Bakers Square, which opened in Chicago after fiscal 2000 year-end, two Bakers Square restaurants are under construction in the Chicago market and the Company anticipates building up to an additional two units in the Midwest during fiscal 2001.

The mid-scale segment of the restaurant industry remains extremely competitive. Improvements in future operating performance will be primarily dependent upon the Company's ability to increase comparable sales, especially given the significant profit impact associated with incremental sales at existing restaurants. Cost controls will also play a significant factor in future profit growth. In addition, numerous external factors could have a significant impact on future performance, including, but not limited to, food costs, labor availability, site availability, the economy, weather and government initiatives such as minimum wage rates, mandated benefits and taxes.

Historically, the Company has mitigated the effects of inflation through cost controls and periodic price increases. Management believes it will be able to minimize the effects of future inflation through similar measures, although such price increases will be subject to competitive constraints and other business considerations.

Certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those currently anticipated. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

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In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 which delayed the effective date of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), until fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires all derivatives to be recognized as assets or liabilities on the balance sheet and measured at fair value. Changes in the fair value of derivatives should be recognized in either net income or other comprehensive income, depending on the designated purpose of the derivative. The Company has concluded that the adoption of SFAS 133 will not materially impact the Company's financial statements.

In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions involving Stock Compensation - an interpretation of APB Opinion No. 25," with an effective date of July 1, 2000. The interpretation clarifies the application of Opinion 25 for certain issues, including the definition of employee for purposes of applying Opinion 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award and the accounting for an exchange of stock compensation awards in a business combination, among others. The adoption of FIN 44 had no material impact on the Company's financial statements.

In December 1999, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which the Company is required to adopt no later than the fourth quarter of fiscal 2001. SAB 101 provides the SEC's interpretation of existing Generally Accepted Accounting Principles relating to timing and method of revenue and expense recognition. At present, the Company is investigating the effect the adoption of this bulletin will have on the Company's results of operations, financial position and cash flows, if any.

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TO OUR SHAREHOLDERS:

The preparation and integrity of the financial statements of VICORP Restaurants, Inc. are the responsibility of its management. This responsibility includes the selection of accounting procedures and practices which conform with generally accepted accounting principles considered appropriate in the circumstances. Informed judgments and estimates which the Company believes to be reasonable are required in the determination of certain data used in the accounting and reporting process.

The Company maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are executed in accordance with management's authorization and properly recorded in all material respects. Adequate communication of Company policies to its employees, segregation of responsibilities for the authorization and execution of transactions, and proper accountability for the Company's assets are essential elements of the system.

Each year the Board of Directors appoints an Audit Committee comprised of directors who are not employees of the Company. The principal responsibilities of this Committee are to recommend an independent auditor for the Company and to periodically meet with representatives of the independent auditors and with management to obtain reasonable assurances that the auditors are properly discharging their responsibilities and that the Company's financial reporting to stockholders and others is adequate and appropriate.

Arthur Andersen LLP has conducted an independent examination in order to render their opinion on the Company's financial statements.

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TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF VICORP RESTAURANTS, INC.:

We have audited the accompanying balance sheets of VICORP Restaurants, Inc. (a Colorado corporation) as of October 29, 2000 and October 31, 1999, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended October 29, 2000. 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 auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of VICORP Restaurants, Inc. as of October 29, 2000 and October 31, 1999, and the results of its operations and its cash flows for each of the three years in the period ended October 29, 2000, in conformity with accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Denver, Colorado,

December 7, 2000.

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The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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Non-cash transaction:

During fiscal 2000, the Company settled a franchisee receivable in the amount of $210,000 in exchange for property and equipment with a fair market value of $210,000.

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The accompanying notes are an integral part of these financial statements.

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VICORP Restaurants, Inc. ("the Company") operates family style restaurants under the names "Bakers Square" and "Village Inn," and franchises restaurants under the Village Inn brandname. At October 29, 2000, VICORP operated two hundred fifty-six Company-owned restaurants in fourteen states. Of the two hundred fifty-six Company-owned restaurants, one hundred forty-nine were Bakers Squares and one hundred seven were Village Inns, with an additional one hundred fifteen franchised Village Inn restaurants in twenty-one states. The Company-owned and franchised restaurants are concentrated in Arizona, California, Florida, the Rocky Mountain region and the upper Midwest. The Company operates a pie manufacturing division to support the restaurants, which operates under the name "VICOM". VICOM has three production facilities located in Santa Fe Springs, California, Oak Forest, Illinois and Chaska, Minnesota.

Effective fiscal 1999, the Company adopted reporting on a 52 / 53 week fiscal year ending on the last Sunday in October. In conjunction with that change, the Company's fourth quarter consists of sixteen weeks and all other quarters consist of twelve weeks. Prior to 1999, the Company utilized a fiscal year which ended on the last day in October. Fiscal quarters in 1998 consisted of three months.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.

Inventories are stated at the lower of cost (first-in, first-out) or market and consist of food, paper, products and supplies. Inventories at year-end were as follows (in thousands):

Property and equipment is stated at cost, less accumulated depreciation and amortization. The provision for depreciation and amortization has been calculated using the straight-line method. The useful lives of assets range from twenty to forty years for buildings and three to ten years for equipment and improvements. Leasehold improvements and leasehold rights are amortized over the lesser of the useful life or the lease term. Property and equipment additions include acquisitions of building and equipment and costs incurred in the development and construction of new stores. Expenditures for maintenance and repairs are charged to expense as incurred.

The Company accounts for the cost of its information systems in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires capitalization of external and internal costs incurred during the application development stage. Costs incurred during the preliminary project stage, post-implementation stage, training and application maintenance are expensed as incurred.

The excess purchase price over net assets acquired is included in other assets and amortized over twenty-five years.

The deferred gain on a sale leaseback transaction is amortized to reduce future rent expenses over the terms of the operating leases in accordance with SFAS 98, "Accounting for Leases."

Revenue from Company stores is recognized in the period during which related food and beverage products are sold.

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

Net franchise operations consisted of the following (in thousands):

Advertising costs for television, radio, newspapers, direct mail and point-of-purchase materials are expensed in the period incurred. Production costs are expensed upon initial usage of the advertising. Advertising expense for fiscal 2000, 1999 and 1998 was $11,311,000, $9,454,000 and $7,982,000, respectively.

The carrying value of cash and cash equivalents approximates fair value due to the length of maturity. Notes receivable is valued at estimated fair market value based on the respective facts and circumstances of each non-publicly traded instrument. The fair value of long-term debt approximates carrying value due to the variable, market-based interest rate feature.

Deferred income tax assets and liabilities are recognized for the expected future income tax consequences of carryforwards and temporary differences between the GAAP and tax basis of assets and liabilities. Valuation allowances are established for deferred tax assets that are deemed unrealizable.

Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of potentially dilutive common stock equivalents using the treasury stock method.

The Company evaluates long-lived assets to be held and used in the business for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. An impairment is determined by comparing estimated undiscounted future operating cash flows to the carrying amounts of assets. Assets are assessed on a restaurant by restaurant basis. If impairment exists, the asset will be recorded at the lesser of its fair value or the estimated discounted future cash flows related to that asset.

In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 which delayed the effective date of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), until fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires all derivatives to be recognized as assets or liabilities on the balance sheet and measured at fair value. Changes in the fair value of derivatives should be recognized in either net income or other comprehensive income, depending on the designated purpose of the derivative. The Company has concluded that the adoption of SFAS 133 will not materially impact the Company's financial statements.

In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions involving Stock Compensation - an interpretation of APB Opinion No. 25," with an effective date of July 1, 2000. The interpretation clarifies the application of Opinion 25 for certain issues, including the definition of employee for purposes of applying Opinion 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award and the accounting for an exchange of stock compensation awards in a business combination, among others. The adoption of FIN 44 had no material impact on the Company's financial statements.

In December 1999, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which the Company is required to adopt no later than the fourth quarter of fiscal 2001. SAB 101 provides the SEC's interpretation of existing GAAP relating to timing and method of revenue and expense recognition. At present the Company is investigating the effect the adoption of this bulletin will have on the Company's results of operations, financial position and cash flows, if any.

Certain reclassifications have been made to the fiscal 1999 and 1998 amounts in the accompanying financial statements to conform with the fiscal 2000 presentation.

Receivables represent billings to outside bakery sales customers and franchisee billings for continuing royalty service fees, initial and renewal fees, equipment sales, and property rental for franchisees and other sublessees. The trade receivables are generally unsecured while notes receivable are typically secured by the property that gave rise to the transaction.

Year-end receivables consisted of the following:

Property and equipment at fiscal years ended October 29, 2000 and October 31, 1999 were as follows. Certain amounts were reclassified between categories at October 31, 1999.

Depreciation and amortization expense was $17,345,000 in 2000, $18,635,000 in 1999, and $18,790,000 in 1998.

At October 29, 2000, all fee owned properties were free of mortgages, pledges or other liens.

The Company is the prime lessee under various land, building and equipment leases for Company-owned and franchised restaurants, bakery facilities and other non-Company operated locations. The leases have initial terms ranging from fifteen to thirty-five years and, in certain instances, provide for renewal options ranging from five to twenty years. Many leases provide for purchase options at the end of the lease term and escalation clauses, either predetermined or based upon inflation. When predetermined escalation clauses are present, the Company recognizes rental expense on a straight-line basis in accordance with SFAS 13, "Accounting for Leases." Leases may also include additional rental payments contingent upon restaurant sales volume. Under most leases, the Company is responsible for occupancy costs including taxes, insurance and maintenance. Subleases to franchisees or other non-Company operators generally provide for similar terms as the prime lease, as well as an obligation for occupancy costs. Implicit interest rates range from 7.2% to 13.8% on capital leases.

The following summarizes future minimum lease payments under capital and operating leases having an initial or remaining non-cancelable term of one year or more as of October 29, 2000:

Net rental expense consisted of the following:

On October 28, 1999, the Company completed the sale leaseback transaction of the real estate related to twenty-one restaurant properties. The Company received $28,700,000 in net proceeds with a resulting deferred gain of $16,500,000, which is being amortized to reduce future rent expenses over the terms of the operating leases in accordance with SFAS 98, "Accounting for Leases."

Long-term debt consisted of the following:

On December 19, 1997, the Company executed an amended and restated credit agreement, which provides for an available credit limit of $40,000,000 in the aggregate with a sublimit of $10,000,000 on letters of credit. The credit agreement expires on February 28, 2001. The bank credit facility was amended effective April 14, 2000 to extend the maturity date to February 28, 2003, as well as amend certain fee calculations and debt covenants.

Advances under the amended and restated agreement bear interest at the higher of the Federal Funds rate plus 1/2 of 1% or the lender's Prime Rate, or the lender's Eurodollar rate plus .75% to 1.50%. In addition, the Company is required to pay fees equal to .225 to .400 of 1% per annum on unused portions of the commitment, and .75% to 1.5% per annum on issued letters of credit.

The unused commitment and letter of credit fees and the margin on Eurodollar borrowings are adjusted based on the Company's debt-to-adjusted consolidated earnings before interest, taxes, depreciation and rent ratio.

On October 28, 1999, the Company completed the sale leaseback transaction of the real estate related to twenty-one restaurant properties. In conjunction with the transaction the Company received a waiver letter dated October 22, 1999, under which the lender waived any default caused by the sale leaseback transaction, and agreed not to enforce their rights or remedies under the loan document. In consideration of the waiver, the Company agreed not to purchase any of its shares of common stock or exchange shares of one class of capital stock for another in excess of the lesser of $30,000,000 or the net proceeds of the sale leaseback transaction without the prior written consent of the lender through the maturity date of the loan agreement. The waiver does not constitute a waiver of any present or future violation of or noncompliance with any provision of the loan document. The Company concluded a tender offer on December 22, 1999, and funded the transaction on December 29, 1999 whereby 2,000,000 shares were purchased at $19.00 per share. The Company received a waiver letter dated November 22, 1999 from the lender consenting to the transaction and amending certain covenants.

During fiscal 2000, the largest aggregate outstanding balance under the Company's bank facilities was $7,500,000. The average balance outstanding was $1,813,000 with an average interest rate of 8.85%. As of October 29, 2000, the Company had $700,000 outstanding under the Company's line of credit and $700,000 in letters of credit issued in connection with its insurance programs.

The credit agreement contains various restrictive covenants which include, among others, maintenance of certain financial ratios, maintenance of a minimum balance of tangible net worth and limitations on annual capital expenditures, indebtedness, dividends, dispositions and acquisitions and franchise guarantees.

Principal amounts of other long-term debt outstanding as of October 29, 2000 due during each of the five succeeding fiscal years were $49,000 in fiscal 2001 and none in the next four years.

The Company incurred $920,000, $1,012,000, and $1,553,000 of interest charges in 2000, 1999 and 1998, respectively. Of these amounts, $103,000, $0 and $6,000 was capitalized in 2000, 1999 and 1998, respectively.

Deferred loan fees were $49,000 and $23,000 net of amortization at October 29, 2000 and October 31, 1999, respectively. These amounts are included in other assets and are amortized over loan commitment period using the straight-line method.

Other non-current liabilities and credits at year-end were as follows (in thousands):

Since August 1992, the Company's Board of Directors has authorized the repurchase of shares of the Company's common stock. During fiscal 2000, the Company repurchased 115,000 shares at an aggregate cost of $1,810,625. On October 2, 2000, the Board of Directors authorized an increase in the Company's existing share repurchase program of up to 3,000,000 shares of common stock over the next 24 months. Future purchases may be made in the open market or through privately negotiated transactions and will be dependent upon various business and financial considerations.

The Company concluded a tender offer on December 22, 1999, and funded the transaction on December 29, 1999 whereby 2,000,000 shares were purchased at $19.00 per share.

Under Colorado law, repurchased shares of capital stock are considered authorized and unissued shares and have the same status as shares which have never been issued.

Under the most restrictive covenants of the Company's bank credit agreement, approximately $38,500,000 and $19,364,000 was unrestricted at October 29, 2000, as to the repurchase of the Company's common stock and to declaration of cash dividends, respectively. The following table summarizes shareholders' equity activity:

Under terms of the Company's stock option plans, officers and certain other employees may be granted options to purchase the Company's common stock at exercise prices not less than the market value of the common stock on the date of the grant. Options generally vest over three years and expire ten years after the date of grant or three months after employment termination, whichever occurs first.

The Company has elected to account for its stock-based compensation plans using the intrinsic value based method under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." For pro forma disclosure purposes, the Company has computed the value of all options granted during 2000, 1999 and 1998 using the Black-Scholes option pricing model and the following assumptions:

The aggregate estimated fair value of stock options granted in 2000, 1999 and 1998 was $1,495,000, $100,000 and $1,208,000, respectively. For purposes of pro forma disclosure, the estimated fair value of options is amortized over the options' vesting period and previously recognized compensation expense is reversed for current year forfeitures of unvested options. If the Company had accounted for its employee stock compensation plans in accordance with SFAS No. 123, "Accounting for Stock-based Compensation," the Company's net income and pro forma net income per share would have been reported as follows:

Following is a summary of the Company's stock option plans for fiscal years 2000, 1999 and 1998: