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

Washington, D.C. 20549-1004

FORM 10-K

(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

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

For the Fiscal Year Ended November 2, 2006

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

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

(Exact name of registrant as specified in its charter)

Colorado		84-0511072
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

400 West 48th Avenue, Denver, CO		80216
(Address of principal executive offices)		(Zip Code)

303-296-2121

(Registrant’s telephone number, including area code)

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

None

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

None

Indicate by check mark ~~whether~~if the registrant ~~(1)~~is ~~has~~a ~~filed~~well-known ~~all~~seasoned ~~reports~~issuer, ~~required~~as todefined bein ~~filed~~Rule 405 ~~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 ýo NO ox

Indicate by check mark if ~~disclosure of delinquent filers, pursuant to Item 405 of~~the ~~Regulation~~registrant ~~S-K~~ is not ~~contained~~required ~~herein,~~to ~~and~~file ~~will~~reports ~~not~~pursuant ~~be contained,~~ to ~~the~~Section 13 ~~best of the registrant’s knowledge, in definitive proxy~~ or ~~information statements~~ ~~incorporated by reference in Part III~~ Section 15(d) of the ~~Form~~Exchange ~~10-K or any amendment to this form 10-K: ý~~Act. YES x NO o

Indicate by check mark ifwhether the registrant (1) has isfiled anall ~~accelerated~~reports ~~filer~~required ~~(as~~to ~~defined~~be infiled ~~Rule 12b-2~~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 ox NO ýo

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: x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x.

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 ~~January 24~~December 31, ~~2005~~2006: 1,~~421~~361,~~800~~753, ~~excluding~~ excluding treasury shares.

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 INDEX

		Page
	PART I
PART I
Item 1	Business		4
Item 1	Business	3
Item 1a	Risk Factors		10
Item 2	Properties	17
Item 1b	Unresolved Staff Comments		16
Item 3	Legal Proceedings	19
Item 2	Properties		16
Item 4	Submission of Matters to a Vote of Security Holders	19
Item 3	Legal Proceedings		18
PART II
Item 4	Submission of Matters to a Vote of Security Holders		18
Item 5	Market for the Registrant’s Common Equity and Related Stockholder Matters	19
	PART II
Item 6	Selected Financial Data	20
Item 5	Market for the Registrant’s Common Equity and Related Stockholder Matters		18
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 6	Selected Financial Data		18
Item 7a	Quantitative and Qualitative Disclosures About Market Risk	39
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 8	Financial Statements and Supplementary Data	40
Item 7a	Quantitative and Qualitative Disclosures About Market Risk		37
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	40
Item 8	Financial Statements and Supplementary Data		37
Item 9A	Controls and Procedures	40
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		37
Item 9B	Other Information	40
Item 9A	Controls and Procedures		37
PART III
Item 9B	Other Information		37
Item 10	Directors and Executive Officers of the Registrant	40
	PART III
Item 11	Executive Compensation	42
Item 10	Directors and Executive Officers of the Registrant		38
Item 12	Security Ownership of Certain Beneficial Owners and Management	44
Item 11	Executive Compensation		40
Item 13	Certain Relationships and Related Transactions	45
Item 12	Security Ownership of Certain Beneficial Owners and Management		43
Item 14	Principal Accounting Fees and Services	46
Item 13	Certain Relationships and Related Transactions		44
PART IV
Item 14	Principal Accounting Fees and Services		45
Item 15	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	47
	PART IV
Item 15	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		46

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents ~~incorporated~~ incorporated by reference into the Annual Report on Form 10-K include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and ~~Section~~ 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 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. In addition, even if our results orof 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, 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:

•· Our level of indebtedness;

•· Our development and expansion plans;

•· Our ability to profitably implement our growth strategy;

•· Competitive pressures and trends in the restaurant industry;

•· Our exposure to commodity prices;

•· Our dependence upon frequent deliveries of food and other supplies;

•· Food-borne illness incidents;

•· Adverse publicity and litigation;

•· Seasonality of our business and weather conditions;

•· Government regulations;

•· Our vulnerability to changes in consumer preferences and economic conditions;

•· Integration of future acquisitions into our business;

•· Our reliance in part on our franchisees;

•· Our ability to attract and retain employees;

•· Our liquidity and capital resources;

•· ~~the~~ The loss of key employees; ~~and~~

•· ~~the~~ The impact of having a controlling shareholder.; and

~~These~~· Loss ~~forward-looking~~development ~~statements are subject to numerous risks, uncertainties and assumptions about us, including the~~ factors ~~described under~~used ~~“Item 1. Business - Risk factors.” The forward-looking events we discuss~~ in ~~this~~determining ~~Annual~~our ~~Report~~insurance ~~on Form 10-K speak only as of the date of such statement and might not occur in light of these risks, uncertainties and assumptions~~reserves. ~~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~~These ~~otherwise~~forward-looking ~~provided~~statements are subject to numerous risks, uncertainties and assumptions about us, including the factors described under “Item 1. Business - Risk factors related to our business.” The forward-looking events we discuss in this Annual Report on Form 10-K, ~~references~~speak toonly “as of the ~~Company,”~~date ~~“VICORP,”~~of ~~“we,”~~such ~~“us”~~statement and might ~~“our”~~not ~~refer~~occur toin ~~VI Acquisition~~light ~~Corp~~of these risks, uncertainties and assumptions. We undertake no obligation and ~~our~~disclaim ~~consolidated~~any ~~subsidiaries~~obligation ~~including~~to ~~VICORP~~publicly update or ~~Restaurants~~revise any forward-looking statements, ~~Inc~~whether as a result of new information, future events or otherwise.

2Unless otherwise provided in this Annual Report on Form 10-K, references to “the Company,” “VICORP,” “we,” “us” and “our” refer to VI Acquisition Corp. and our consolidated subsidiaries including VICORP Restaurants, Inc.

~~PART I~~3

~~Item 1. Business.~~PART I

~~Our~~Item ~~company~~1. Business.

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.company

We ~~continually~~operate ~~seek to~~family-dining ~~increase~~restaurants ~~the~~under ~~efficiency~~two ofproven ~~our~~and ~~operations~~well-recognized brands, ~~increase~~Village ~~customer~~Inn ~~visits~~ and ~~sales~~Bakers ~~per~~Square. ~~customer,~~As ~~provide~~of ~~new~~November ~~menu~~2, ~~options~~2006, ~~for~~ our ~~guests~~company, ~~and~~which ~~increase~~was ~~sales~~founded ~~of higher~~in ~~margin~~1958, ~~items.~~had ~~Significant~~404 restaurants ~~investments~~ in ~~our~~25 ~~brands and operational improvements~~states, ~~including~~consisting ~~an investment~~ of ~~approximately~~309 ~~$7.2~~company-operated ~~million~~restaurants toand ~~upgrade~~95 ~~our~~franchised ~~information and~~ restaurants. Our restaurant ~~point-of-sale~~locations ~~(“POS”)~~are ~~systems~~concentrated in ~~2002~~particular ~~and~~regions ~~2003, ongoing~~in ~~remodeling~~order ofto maximize ~~our~~operating ~~restaurants~~efficiencies, ~~and~~including ~~reductions~~regional inmanagement, purchasing and ~~manufacturing~~advertising ~~costs~~penetration. ~~have~~In ~~enabled~~addition us to ~~improve~~ our ~~prime margin~~restaurants, ~~which~~we isoperate ~~our~~three ~~profitability~~strategically ~~expressed~~located aspie aproduction ~~percentage~~facilities ofthat ~~restaurant~~produce ~~sales~~premium ~~after~~pies ~~deducting our~~that ~~two~~are ~~most~~offered ~~significant~~in ~~costs,~~our ~~food~~restaurants and ~~labor~~sold to third-party customers. ~~Prime~~ ~~margin~~Our ~~improved~~revenues increased from 38$404.8%2 million in ~~2001~~2002 to 41$466.6%3 million in ~~2004~~2006. In ~~addition,~~Both weof ~~have increased~~ our ~~margins by~~ ~~providing~~restaurant ~~our~~concepts ~~managers~~operate ~~with~~in ~~extensive training and~~ the ~~tools~~stable ~~necessary to effectively operate our business, such as on~~family-~~line~~dining ~~ordering~~segment ~~and~~of ~~bill processing~~the ~~and~~restaurant ~~real-time information on key business metrics~~industry. WeOver ~~continually~~our ~~engage~~48-year ~~in selective~~history, ~~menu~~we ~~engineering~~have ~~and~~concentrated ~~the development of updated menu items for our~~on ~~restaurants~~providing ~~such as~~ our ~~signature~~customers ~~oven~~great-~~roasted focaccia sandwiches in our Village Inn restaurants~~tasting, ~~seasonal~~high-quality ~~offerings~~food ~~such~~at asreasonable ~~artisan-style bread bowls~~prices ~~filled~~ with ~~hearty~~fast ~~soups~~ and ~~stews~~friendly ~~in our Bakers Square restaurants and a “Carb Counter” menu in our Village Inn restaurants~~service. Our ~~other~~commitment ~~efforts~~ to ~~drive~~an ~~sales growth~~attractive ~~include creative marketing programs, such as our successful new~~price-to-value ~~electronic~~relationship ~~gift~~has ~~card~~enabled ~~program,~~us ~~and~~to ~~expansion~~develop ofa ~~our~~stable ~~third-party customer~~ base ~~for~~ ~~our~~of ~~pies~~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 manage 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 was 40.7% in 2002 compared to 41.0% in 2006. In addition, we provide 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 and new flavors of pie offerings in our Bakers Square restaurants. Our other efforts to drive sales growth include creative marketing programs, and expansion of our third-party customer base for our pies.

~~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 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.

3We opened our first Village Inn restaurant in 1958, and as of November 2, 2006 we had 256 locations, 161 of which were operated by our company and 95 of which we franchised. Our company-operated Village Inn restaurants are located in eleven states, primarily in the Rocky Mountain region (91 units), the Midwest (39 units), and Florida (16 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 58.7% of Village Inn sales in 2006. 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 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~~ 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 $911.6935 for breakfast items and from $4.99 to $1013.6925 for lunch and dinner items, with an average per-person check of $78.6509 overall in ~~2004~~2006. 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~~2006, Village Inn’s average unit sales were $1.5 48 million, and corresponding average restaurant operating cash flow was $~~275~~281,000, representing ana 1819.70% margin.

~~Bakers Square~~4

~~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~~The Bakers Square concept began in 1983 when we acquired 59 Poppin Fresh Pies restaurants ~~are~~from ~~free-standing~~the Pillsbury ~~units~~Restaurant ~~which~~Group. ~~average~~Since ~~approximately~~then, 4we have grown Bakers Square to 148 company-operated restaurants as of November 2,~~500~~ ~~square~~2006. Our Bakers Square ~~feet~~restaurants are located in ~~size~~eight ~~and~~states, ~~can~~including ~~generally~~California ~~seat~~(47 ~~between~~units), Illinois ~~120~~(47 units) and ~~160~~Minnesota ~~people~~(25 units). WeThe ~~are~~foundation of the Bakers ~~typically~~Square ~~open~~concept ~~from~~is 7our asignature freshly baked pies, which accounted for 22.m.7% of toBakers 11Square’s psales in 2006.m. Building upon our reputation for quality pies, ~~with~~we have extended our ~~highest~~offerings ~~traffic~~to ~~generated~~include atpopular traditional American fare for breakfast, lunch and dinner. ~~Our~~Bakers ~~typical~~Square ~~entrée~~offers ~~prices~~dozens ~~range~~of ~~from~~varieties of ~~$4.49~~multi-layer tospecialty ~~$9.99~~pies ~~for~~made from premium ingredients, which ~~breakfast~~differentiates ~~items~~the ~~and~~concept from ~~$6.29~~our tofamily-dining ~~$10~~competitors.99 ~~for~~Many of our customers complement their lunch ~~and~~or dinner ~~items~~with a serving of pie, ~~with~~while anothers ~~average~~purchase ~~per~~whole pies for at-~~person~~home ~~check~~consumption ofthroughout ~~$8.70~~the ~~overall~~year, inand particularly ~~2004~~around the holidays. As with Village Inn, we use our team of ~~menus~~in-house ~~are~~research ~~standardized~~and ~~across~~development chefs to regularly update the ~~United~~Bakers ~~States,~~Square menu ~~with~~offerings ~~some~~to ~~variations~~attract ~~driven~~a bywider demographic range of diners and increase ~~regional~~repeat ~~preferences~~business from existing customers. InFor ~~2004~~example, ~~Bakers~~we ~~Square’s~~have ~~average~~successfully promoted ~~unit~~our ~~sales~~artisan-style ~~were~~bread ~~$1.5 million,~~bowls filled with hearty soups and ~~corresponding~~stews, along ~~average~~with ~~restaurant~~popular ~~operating~~menu ~~cash~~favorites ~~flow~~like ~~was~~our ~~$179~~Stir-Fry Chicken Pita,~~000,~~ Honey Mustard ~~representing~~Chicken aand ~~12.2%~~Portabella ~~margin~~Pot Roast.

~~Recently~~Our Bakers Square restaurants are free-standing units which average approximately 4,500 wesquare feet ~~completed~~in ~~the~~size and can generally seat between 120 and 160 people. We are ~~first~~typically ~~phase~~open offrom 7 a.m. ~~broad-based~~to ~~Bakers~~11 p.m., ~~Square~~with reour highest traffic generated at lunch and dinner. Our typical entrée prices range from $4.99 to $9.99 for breakfast items and from $6.79 to $12.99 for lunch and dinner items, with an average per-~~positioning~~person ~~review~~check of $9. In39 ~~fiscal~~overall ~~2005~~in 2006. As with Village Inn, our wemenus ~~expect~~are tostandardized ~~refine~~across the United States, with some variations ~~changes~~driven toby ~~the~~regional ~~brand~~preferences. In 2006, Bakers Square’s average unit sales were $1.40 million, and tocorresponding ~~initiate~~average restaurant ~~selective~~operating ~~market~~cash ~~trials~~flow was $114,000, representing an 8.1% margin.

~~Pie~~In ~~production~~fiscal ~~operations~~2005 and 2006 we opened four remodeled test units. We are currently in the process of evaluating performance data to determine the appropriate model for the future Bakers Square units.

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

WeComplementing ~~have~~our restaurant ~~improved~~operations, we produce premium pies for the ~~efficiency~~ ofBakers ~~our~~Square ~~pie~~and Village ~~production~~Inn ~~operations~~restaurants and ~~increased~~for ~~sales~~sale ofto ~~our~~select third-party customers. In 2006, we produced 19.4 million premium pies compared to 15.4 million pies in 2005. By ~~third~~producing ~~parties~~pies at our three strategically located facilities, ~~including~~we are able to control the ~~addition~~quality, consistency and freshness of ~~several~~our ~~new~~pies ~~accounts~~and enhance our distribution capabilities. We ~~have~~differentiate ~~used~~ourselves ~~our~~from other pie ~~enterprise~~manufacturers ~~resource~~by ~~planning~~producing ~~system~~multi-layer topies, ~~manage~~using ~~inventory~~premium ~~and~~ingredients ~~costs,~~such ~~concentrated~~as ~~our~~fresh ~~frozen~~cream, ~~pie~~whole ~~production~~fruits inand ~~our~~ high ~~volume~~quality ~~Chaska~~pie crusts, ~~Minnesota~~and ~~facility~~maintaining toa strict ~~achieve~~shelf ~~economies~~life policy of ~~scale~~no ~~and~~more ~~restructured~~than three days for the fresh pies in our restaurants. ~~delivery~~At ~~arrangements~~the to2006 ~~obtain~~National Pie Championships, we won 21 first place ~~substantial~~awards, ~~savings~~which was more than any other competitor.

4We continue to focus on 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~~Although our primary focus is to produce pies for ~~overview~~Village Inn and Bakers Square, our third-party pie sales have increased over time. The overall results of operations of our pie manufacturing historically have not had, and currently do not have, a material impact on our operating profit. We show the results of operations associated with our third party pie sales separately on our income statement. In order to determine the operating profit for our third party sales, we allocate both variable and fixed costs. As external sales increase as a percentage of total pie production, the allocation method may cause a decrease in the operating profit due to the higher allocation of fixed costs to the external sales. The net costs associated with internal “sales” to our restaurants are included in restaurant 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, investing in equipment to improve automation, renegotiating our distribution contracts and rebalancing the production among our three plants to increase efficiency.

~~The restaurant industry is a~~Industry 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.overview

~~Our~~The ~~Village~~restaurant ~~Inn and Bakers~~industry ~~Square~~is ~~concepts~~a ~~operate~~significant incontributor ~~the~~to ~~“family-dining” category of~~ the ~~FSR segment~~U.S. ~~The family-dining category is the largest category in the FSR segment~~economy, with ~~approximately~~ ~~$32~~estimated ~~billion~~total in 2006 sales inof ~~2002.~~$511 ~~Family-dining~~billion, ~~sales~~the ~~grew~~fifteenth atconsecutive ~~a compound~~year ~~annual growth rate~~ of 1real growth.6% ~~from 1997 to 2002 and are projected to grow~~We atbelieve athis ~~1.0% compound annual~~ growth ~~rate~~can ~~for~~be ~~the~~attributed ~~period from 2002~~ to ~~2007, according~~several tokey ~~Technomic,~~lifestyle ~~Inc.~~and ~~The family-dining category is relatively~~demographic ~~fragmented~~trends, ~~with~~including the ~~top~~continued ~~100~~increase ~~chains representing approximately 33% of total category sales~~ in ~~2002.~~spending ~~While~~on ~~not~~food ~~exhibiting~~consumed ~~the~~away ~~higher growth of certain other~~from ~~segments,~~home weand ~~believe~~restaurant ~~the family-~~dining, ~~category has a loyal customer base~~ and ~~stable~~ ~~characteristics.~~the ~~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~~5

Wecontinued ~~opened~~growth ~~our first restaurant under the name “Village Inn Pancake House”~~ in ~~Denver, Colorado in~~ ~~1958.~~disposable ~~Due~~incomes toand ~~the~~key ~~success~~age groups of the ~~Village Inn concept, we began franchising the brand, and our first franchise restaurant opened in 1961~~population. WeThe ~~introduced the~~restaurant ~~Bakers~~industry ~~Square~~can ~~concept~~be individed ~~1983~~into ~~when~~two weprimary ~~acquired~~operating 59segments: ~~Poppin~~full ~~Fresh~~service ~~Pies~~ restaurants ~~from~~(“FSR”) ~~the~~and ~~Pillsbury~~limited ~~Restaurant~~service ~~Group. We transformed the Poppin Fresh Pies~~ restaurants, ~~all~~(“LSR”). ofRestaurants ~~which~~operating ~~were located~~ in the ~~Midwest, into the Bakers Square~~ ~~concept.~~FSR Insegment ~~1984,~~present webroad ~~acquired~~menu ~~175~~choices ~~former~~that ~~Sambo’s~~are ~~restaurants~~served into ~~California, Florida~~patrons ~~and~~by ~~Arizona. We converted these restaurants in California into Bakers~~a ~~Square restaurants~~wait-staff, ~~which~~while ~~served~~restaurants asoperating in the ~~basis~~LSR ~~for~~segment ~~our~~serve ~~expansion~~customers toat ~~the West Coast,~~a ~~and~~counter weor ~~converted~~through ~~the~~a ~~Florida~~drive-thru ~~and Arizona restaurants into Village Inn restaurants~~window.

WeOur ~~completed~~Village anInn ~~initial~~and ~~public~~Bakers ~~offering~~Square concepts operate in ~~1982~~the ~~and~~“family-dining” ~~changed~~category ~~our~~of ~~name~~the ~~from~~FSR segment. ~~Village~~The ~~Inn~~family-dining ~~Pancake~~category ~~House, Inc.~~is estimated to ~~VICORP~~be ~~Restaurants,~~near ~~Inc.~~6% ~~Following~~of ~~our~~the ~~initial~~total sales ~~public~~of ~~offering,~~the wetop ~~were publicly~~100 ~~traded~~restaurants ~~until~~per wethe ~~were~~National ~~acquired~~Restaurant inAssociation. While anot ~~going-private~~exhibiting ~~transaction~~the ~~led~~higher bygrowth of ~~the~~certain ~~private~~other ~~equity~~segments, ~~firms~~we ~~Goldner~~believe ~~Hawn~~the ~~Johnson~~family-dining &category ~~Morrison~~has ~~and~~a ~~BancBoston~~loyal ~~Capital~~customer inbase ~~May~~and ~~2001~~stable characteristics. InWe ~~June~~believe ~~2003,~~that wefamily-dining restaurants ~~were~~offer ~~acquired~~consumers in a ~~transaction~~consistent ~~led~~dining byexperience ~~the~~with quality food at ~~private~~a ~~equity~~lower ~~firm~~cost ~~Wind~~per ~~Point~~check ~~Partners~~than other FSR dining options.

Our ~~sponsor~~ background

~~Wind~~We ~~Point~~opened ~~Partners~~our ~~is a~~first ~~private~~restaurant ~~equity~~under ~~investment~~the ~~firm~~name ~~that~~“Village ~~manages~~Inn ~~over~~Pancake $1House” ~~billion~~ in ~~commitments~~Denver, ~~and~~Colorado in ~~has~~1958. ~~invested~~Due into ~~more~~the ~~than~~success 75of ~~companies~~the ~~since~~Village ~~its~~Inn ~~founding~~concept, we began franchising the brand, and our first franchise restaurant opened in ~~1983~~1961. ~~Wind~~We ~~Point’s~~introduced the ~~strategy~~Bakers isSquare toconcept ~~partner~~in ~~with~~1983 ~~top~~when ~~caliber~~we ~~CEOs~~acquired ~~and~~59 toPoppin ~~align~~Fresh ~~its~~Pies ~~economic~~restaurants ~~interests~~from ~~closely~~the ~~with~~Pillsbury ~~those~~Restaurant ofGroup. ~~company~~We ~~management~~transformed ~~teams~~the ~~through~~Poppin ~~significant~~Fresh Pies ~~equity~~restaurants, ~~participation.~~all ~~Wind~~of ~~Point~~which ~~typically~~were ~~invests~~located ~~between~~in ~~$20~~the ~~million~~Midwest, ~~and~~into ~~$70~~the Bakers Square ~~million~~concept. inIn ~~transactions~~1984, ~~such~~we asacquired ~~leveraged~~175 ~~buyouts,~~former ~~recapitalizations,~~Sambo’s ~~industry~~restaurants in California, ~~consolidations~~Florida and ~~expansion~~Arizona. ~~capital~~We ~~transactions~~converted ~~involving~~these ~~companies~~restaurants ~~with~~in California into Bakers ~~revenue~~Square ~~between~~restaurants, ~~$50~~which ~~million~~served as the basis for our expansion to the West Coast, and ~~$500~~we ~~million~~converted the Florida and Arizona restaurants into Village Inn restaurants.

~~Operations~~We completed an initial public offering in 1982 and ~~controls~~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. In April 2004, we completed a private placement of senior unsecured notes. The registration statement relating to these notes was declared effective and the unregistered notes were exchanged for registered notes in August 2004.

~~To maintain a consistently~~Our 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.sponsor

5Wind Point Partners is a private equity investment firm that manages over $2 billion in commitments and has invested in more than 80 companies since its founding in 1984. Wind Point’s strategy is to partner with top caliber CEOs and to align its economic interests closely with those of 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 $100 million and $400 million.

~~To reduce costs and improve~~Operations ~~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.controls

~~Site~~To maintain a ~~development~~consistently high level of food quality and ~~expansion~~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.

We ~~believe~~use ~~that the~~updated ~~locations~~information ofsystems, ~~our~~including ~~restaurants are critical to~~ our ~~long~~ReMACS back-~~term~~office ~~success~~system, ~~and~~our ~~we devote~~POS ~~significant time~~ system and ~~resources~~our toenterprise ~~analyzing~~resource ~~each~~planning ~~prospective site~~system. ~~We plan~~Our toReMACS ~~expand~~information insystem provides aour ~~number~~restaurant ofmanagers ~~ways,~~with ~~including~~improved ~~through~~electronic ~~the~~food ~~development of new~~ordering, ~~sites~~inventory, ~~the~~ideal ~~conversion~~and ofactual ~~competitors’~~food ~~sites~~cost reporting, ~~and~~cash ~~the~~control ~~purchase~~and ~~of franchised~~labor ~~sites~~management ~~from franchisees~~tools. ~~The~~By ~~costs~~using ofour ~~opening~~recently aupgraded ~~Bakers~~POS ~~Square~~system orin ~~Village~~our ~~Inn~~restaurants, ~~restaurant~~we ~~may~~are ~~vary~~able byto ~~restaurant~~track ~~depending upon~~sales, ~~among~~product ~~other factors~~mix, ~~the location~~labor ofdollars ~~the~~and ~~site~~hours, ~~the method of acquisition~~ and ~~the amount of construction~~credit ~~required.~~card ~~With~~and ancash ~~average~~deposit ~~projected~~information ~~investment of approximately $450,000~~ for ~~leased~~ ~~units,~~each weof ~~believe~~our werestaurants ~~have~~on a ~~low-cost~~daily ~~economic~~basis. We ~~model~~use ~~for~~an ~~the~~SAP ~~continued development~~enterprise ofresource ~~new~~planning ~~restaurants.~~system Atin ~~times,~~our wepie ~~receive landlord development~~production ~~and/or~~facilities ~~rent~~to ~~allowances~~measure ~~for~~and ~~leasehold~~reduce ~~improvements~~waste, ~~furniture,~~labor ~~fixtures~~costs and ~~equipment~~inventory levels. In In addition, weto ~~anticipate~~enable ~~that~~us weto ~~will~~better ~~enter~~understand ~~into sale-leaseback transactions~~ and ~~other~~manage ~~leasing arrangements with respect to~~ our ~~newly~~operations, ~~constructed restaurant~~we ~~properties.~~maintain ~~The~~a ~~standardized~~central ~~decor~~database ~~and~~of ~~interior~~information ~~design~~and ofdata ~~each~~relating ofto ~~our~~decisions ~~restaurant~~support, ~~concepts~~cash ~~can~~and besales, ~~readily~~enterprise ~~adapted~~resource toplanning ~~accommodate~~and ~~different~~our ~~types~~vital ~~of building configurations~~systems.

~~We use our in-house~~Site 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.expansion

We ~~may~~believe ~~also~~that ~~purchase~~the locations of our ~~competitors’~~ ~~sites~~restaurants are critical to our long-term success, and ~~convert~~we devote ~~them~~significant time and resources to ~~our~~analyzing ~~restaurant~~each ~~concepts~~prospective site. We ~~evaluate~~ ~~each~~plan ~~potential~~to ~~conversion~~expand ~~site~~in ~~using~~a ~~the~~number ~~same~~of ~~criteria~~ways, ~~that~~including wethrough ~~use~~the todevelopment ~~evaluate~~ of new sites, ~~restaurant~~the conversion of competitors’ sites., Weand ~~believe~~the ~~that~~purchase ~~conversion~~of ~~can~~franchised sites befrom franchisees. The costs of opening a ~~cost-effective~~Bakers ~~method~~Square or Village Inn ~~for~~restaurant ~~adding~~may ~~new~~vary ~~restaurants.~~by Inrestaurant ~~fiscal~~depending ~~2004~~upon, weamong ~~converted~~other ~~two~~factors, the location of ~~our~~the ~~competitors’ restaurants~~site, tothe ~~one~~method of ~~our~~acquisition ~~concepts~~and the amount of construction required. With an average projected investment of approximately

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.6

~~Restaurant~~$450,000 for leased ~~staffing~~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 ~~training~~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.

~~Attraction~~We ~~and~~use ~~retention~~our ofin-house ~~quality~~development ~~employees~~team, ~~continuous~~including ~~employee~~real ~~development~~estate, ~~regular~~design ~~communication of expectations~~ and ~~regular~~legal ~~performance~~professionals, ~~feedback~~to find, ~~are~~evaluate ~~critical~~and ~~factors~~negotiate ~~that~~new ~~help~~sites ~~us achieve~~for ~~customer~~our ~~satisfaction~~restaurants. We ~~believe~~evaluate potential wesites ~~distinguish~~based ~~ourselves~~on bya ~~the quality~~number of ~~personnel~~criteria, ~~and~~including ~~longevity~~surrounding ofpopulation density, ~~service~~demographic ~~among~~information, ~~our~~median ~~Regional~~household ~~Managers~~income and size, location, area restaurant ~~general~~competition, ~~managers~~traffic, access, visibility, potential restaurant size, parking and ~~hourly~~signage ~~staff~~capability. We ~~attribute~~also ~~much~~selectively ofuse ~~our success~~outside inconsultants ~~retaining~~who ~~our~~specialize ~~management~~in ~~and~~site ~~employees~~evaluation to provide independent validation of our ~~extensive~~sales ~~training~~potential ~~programs~~estimates for new sites. In fiscal 2006, ~~attractive~~ ~~cash~~we ~~incentive~~opened ~~compensation~~22 new ~~program~~restaurants and ~~competitive~~acquired ~~benefit programs~~5 franchise locations.

~~Each~~We ofmay ~~our~~also ~~restaurants~~purchase isour ~~typically~~competitors’ ~~managed~~sites ~~by one general manager, one associate manager~~ and ~~one assistant~~convert ~~manager.~~them ~~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~~concepts. ~~The restaurant~~We ~~managers are supported by Regional Managers, Regional Vice~~evaluate ~~Presidents~~each ~~(or~~potential ~~District~~conversion ~~Managers~~site inusing ~~California)~~the ~~and~~same ~~our~~criteria ~~corporate~~that ~~office. As of October 28, 2004,~~ we ~~had~~use 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~~evaluate ornew ~~two~~restaurant ~~District Managers (in California)~~sites. ~~Our~~We ~~Regional~~believe ~~Vice~~that ~~Presidents~~conversion ~~of Operations~~can ~~participate~~be ina ~~every~~cost-effective ~~aspect of our restaurant operations, from~~method ~~organizing quality management teams~~ for ~~the~~adding ~~restaurants~~new ~~to routine visits to each location~~restaurants.

6We also seek to 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. Additionally, we completed a transaction in 2006 with a franchisee in Oklahoma in which we purchased five Village Inn restaurants.

~~Our training programs are~~Restaurant ~~designed~~staffing ~~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~~Attraction and retention of quality employees, continuous employee development, regular communication of ~~advertising~~expectations and ~~menu~~regular ~~development~~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.

~~The~~Each ~~family-dining~~of ~~segment~~our inrestaurants ~~which~~is ~~our~~typically ~~restaurant~~managed ~~concepts~~by ~~operate~~one ~~attracts~~general ~~customers~~manager, ~~seeking~~one ~~quality, consistency,~~associate ~~variety~~manager and ~~value,~~one ~~with~~assistant manager. anOn average, ~~per-person~~general ~~check~~managers ~~typically between~~possess $6over ~~and~~eight $9years of experience with us. ~~Our~~Each ~~mid-range~~of ~~price~~our ~~positioning~~general inmanagers ~~the~~has ~~family~~primary responsibility for day-~~dining~~to-day operations ~~segment~~in one of our restaurants, including hiring, scheduling, cleanliness ~~provides~~of the ~~competitive~~restaurant ~~advantage~~and ofrestaurant ~~flexibility~~cash inflows. ~~menu~~The ~~choices~~restaurant bymanagers ~~offering~~are ~~higher~~supported by Regional Managers, Regional Vice Presidents (Village Inn) or District ~~lower~~Managers ~~priced~~(Bakers ~~items~~Square) ~~based~~and onour ~~customer~~corporate ~~preferences~~office. WeAs ~~use various~~of ~~marketing~~November 2, ~~techniques~~2006, ~~such~~we ashad ~~television~~39 ~~and~~Regional ~~radio~~Managers, ~~(in~~each ~~geographic~~of ~~markets~~whom ~~where~~is responsible wefor ~~have~~managing ~~sufficient~~approximately ~~market~~eight ~~penetration),~~restaurants ~~newspaper,~~in ~~direct~~a ~~mail~~designated ~~and~~geographic ~~point-of-purchase~~region ~~materials~~in toa ~~promote~~manner consistent with our ~~restaurant~~strategies, ~~concepts~~policies and ~~gain~~standards ~~market~~of ~~share~~quality. The ~~Other~~Regional Managers report to one of the Regional Vice Presidents of Operations ~~marketing~~(in ~~initiatives~~Village ~~include~~Inn) ~~our~~or ~~successful~~the ~~electronic~~District ~~gift~~Managers ~~card~~(in ~~program~~Bakers Square). WeOur Regional Vice ~~sold~~Presidents ~~$3.0~~of ~~million~~Operations ~~worth~~and District Managers participate in every aspect of our ~~gift~~restaurant ~~cards~~operations, from ~~the~~organizing ~~introduction~~quality ofmanagement ~~this~~teams ~~program~~for inthe ~~November~~restaurants ~~2003~~to ~~through~~routine ~~October~~visits ~~2004~~to each location.

InOur ~~our~~training ~~ongoing~~programs ~~effort~~are designed to ~~maximize~~ equip our ~~sales~~employees and ~~profitability,~~franchisees wewith ~~engage~~the inskills ~~careful~~necessary ~~menu~~to help ~~engineering~~us ~~and~~achieve our objectives. We focus on outcome-based training, emphasizing the ~~development~~acquisition of ~~new~~basic ~~menu~~skills ~~items.~~and Webehavior ~~maintain~~that aresult ~~modern~~in ~~test~~desired ~~kitchen~~performance for atspecific ~~our headquarters~~positions. ~~staffed~~The byaverage ~~highly~~time ~~qualified~~in ~~food~~training ~~professionals~~for ~~who~~a ~~create~~manager new ~~menu~~to our ~~offerings~~company asis ~~well~~eight asto ~~new~~ten ~~pie recipes~~weeks. At ~~Before~~the successful ~~new~~completion ~~items~~of training they are ~~introduced,~~placed in a restaurant as an ~~program~~assistant ofmanager. At ~~testing~~this ispoint ~~undertaken~~the manager continues to ~~assess~~be ~~customer~~trained ~~acceptance~~ and developed, utilizing a program called ~~implementation~~Management ~~considerations~~Development Criteria. This ongoing Intraining ~~preparing~~challenges ~~menu~~the ~~items,~~new wemanager ~~emphasize~~to ~~quality~~ thoroughly understand and demonstrate ~~freshness,~~proficiency asin ~~well~~all asfacets ~~trends~~of inmanagement of our restaurants. Upon completion, the ~~family-dining~~manager ~~segment~~is aseligible ~~illustrated~~to participate byin our bonus program. In addition to these programs, we conduct field training for our ~~introduction~~restaurant managers covering a variety of ~~“Carb~~topics ~~Counter”~~such ~~menu~~as ~~items~~new inproducts, ~~our~~food ~~Village~~safety ~~Inn~~and management ~~restaurants~~development. ~~New~~ ~~items~~For ~~may~~each beof ~~offered~~our onfranchised restaurants, we require that a ~~promotional~~minimum orof ~~seasonal~~two ~~basis,~~managers ~~serve~~receive ascertification ~~special~~through our management training ~~items~~program. toAdditionally, ~~provide~~we ~~variety~~require our franchisees to successfully complete our management ~~regular~~training ~~menus,~~program orprior ~~become~~to athe ~~permanent~~scheduled ~~part~~opening of any of our franchised ~~offerings~~restaurants.

~~Purchasing~~Marketing, advertising and ~~distribution~~menu development

~~Our~~The ~~ability~~family-dining ~~to maintain~~segment ~~consistent~~in ~~quality~~which ~~throughout~~ our ~~restaurants~~restaurant ~~depends~~concepts inoperate ~~large~~attracts ~~part~~customers ~~upon~~seeking ~~our~~quality, ~~ability~~consistency, tovariety ~~acquire food products~~ and ~~related~~value, ~~items from reliable sources in accordance~~ with ~~our~~an ~~specifications.~~average Weper-person ~~make~~check ~~centralized, national purchasing~~typically ~~decisions~~between ~~for~~$8 ~~most menu ingredients to gain favorable prices~~ and ~~maintain quality and freshness levels~~$9. WeOur ~~negotiate~~mid-range ~~directly~~price ~~with~~positioning ~~our~~in ~~major~~the ~~suppliers~~family-dining tosegment ~~obtain~~provides the competitive ~~prices~~advantage ~~and~~of ~~use~~flexibility ~~purchase agreements~~ in anmenu ~~effort~~choices toby ~~stabilize~~offering ~~the~~higher ~~potentially~~or ~~volatile~~lower ~~pricing~~priced ~~associated~~items ~~with~~based ~~certain~~on ~~commodities~~customer preferences. We ~~also routinely~~use ~~negotiate with prospective suppliers in an effort to obtain~~various ~~competitive~~marketing ~~pricing.~~techniques, Wesuch ~~believe~~as ~~that~~television ~~we have good relationships with our suppliers~~ and ~~that~~radio ~~alternative~~(in ~~supply~~geographic ~~sources~~markets ~~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.7

~~Franchise~~where we have sufficient ~~program~~market penetration), newspaper, direct mail and point-of-purchase materials to promote our restaurant concepts and gain market share.

WeIn ~~established~~ our ~~first~~ongoing effort to ~~Village~~maximize ~~Inn~~our ~~franchise~~sales and profitability, we engage in ~~1961.~~careful Asmenu engineering and the development of ~~October~~new ~~28,~~menu ~~2004~~items. weWe ~~had~~maintain a ~~total~~modern oftest ~~103~~kitchen at our ~~franchised~~headquarters ~~Village~~staffed ~~Inn~~by ~~restaurants,~~highly ~~operated~~qualified byfood 25professionals ~~franchisees,~~who ~~each~~create ~~with~~new ~~one~~menu toofferings ~~eleven~~as ~~restaurants.~~well Weas ~~believe~~new ~~that~~pie werecipes. ~~currently~~Before ~~enjoy~~new ~~solid~~items ~~working~~are introduced, a ~~relationships~~program ~~with~~of ~~our~~testing ~~franchisees~~is undertaken to assess customer acceptance and implementation considerations. WeIn ~~presently~~preparing ~~intend~~menu toitems, ~~focus~~we ~~our~~emphasize ~~expansion~~quality ~~efforts~~and onfreshness, ~~company~~as well as trends in the family-~~operated~~dining ~~restaurants~~segment. ~~but~~New items may ~~pursue~~be offered ~~selected~~on ~~franchising~~a promotional or seasonal basis, serve as special items to provide ~~opportunities~~variety to our regular menus, or become a permanent part of our offerings.

7Purchasing and distribution

WeOur ~~generally~~ability ~~seek franchisees that have related business experience and access~~ to ~~capital to~~maintain ~~build~~consistent ~~out~~quality ~~and~~throughout ~~support~~our ~~the~~restaurants ~~Village~~depends ~~Inn~~in ~~concept.~~large Wepart ~~also~~upon ~~provide~~ our ~~franchisees~~ ~~with~~ability ~~access~~ to ~~training,~~acquire ~~marketing,~~food ~~quality~~products ~~control, purchasing/distribution~~ and ~~operations~~related ~~assistance.~~items Afrom ~~franchisee~~reliable issources ~~required to pay an initial franchise~~in ~~fee~~accordance ~~for~~with aour ~~15 year franchise term~~specifications. ~~Until~~We ~~the~~make ~~end~~centralized, ofnational ~~their first year of~~purchasing ~~operation,~~decisions ~~our~~for ~~franchisees~~most ~~also~~menu ~~pay~~ingredients usto again ~~royalty~~favorable ~~fee~~prices ~~of $1,154 a week~~ and amaintain ~~marketing~~quality ~~fee~~and offreshness ~~$577 a week~~levels. AWe ~~franchisee~~negotiate isdirectly ~~also~~with ~~typically obligated to pay a fee for renewal of a franchise agreement beyond the initial term. After the first year of operation,~~ our ~~franchisees~~major ~~are~~suppliers ~~required~~ to ~~pay royalty fees of 4%~~ ofobtain ~~gross~~competitive ~~sales~~prices asand ~~well~~use aspurchase ~~marketing~~agreements ~~fees~~in ofan 2%effort ofto ~~gross sales. Our standard~~stabilize ~~franchise agreement gives our franchisees~~ the ~~right~~potentially tovolatile ~~use~~pricing ~~our~~associated ~~trademarks, service~~with ~~marks,~~certain ~~trade~~commodities. ~~dress and our recipes, systems, manuals, processes and~~We ~~related~~believe ~~items.~~that ~~Our~~we ~~franchise~~have ~~consultants~~good ~~work~~relationships ~~toward~~with ~~visiting each of~~ our ~~Village~~ ~~Inn~~suppliers ~~franchisees four times a year to monitor their business~~ and ~~to ensure~~ that ~~their~~alternative supply ~~stores~~sources ~~meet~~are ~~with~~readily ~~our~~available ~~quality~~if ~~standards~~necessary.

~~Competition~~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.

~~The restaurant industry is~~Franchise 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 population demographics as well as shifts in traffic patterns, can also impact operations and profitability.program

We ~~compete~~established inour ~~the~~first ~~family-dining~~Village ~~category~~Inn ~~within~~franchise ~~the~~in ~~full-service~~1961. ~~segment~~As of ~~the~~November 2, ~~restaurant industry.~~2006 ~~Key~~we ~~competitors~~had ina ~~this~~total ~~category~~of ~~for~~95 franchised Village Inn ~~include Denny’s~~restaurants, ~~International~~ ~~House~~operated ofby ~~Pancakes~~25 ~~(“IHOP”)~~franchisees, ~~Perkins,~~each ~~and,~~with one to aeleven ~~lesser~~restaurants. ~~extent, Country~~We ~~Kitchen,~~believe ~~Cracker~~that ~~Barrel,~~we ~~Shoney’s~~currently ~~and~~enjoy ~~Waffle~~solid ~~House. Our Midwest Bakers~~working ~~Square~~relationships ~~restaurants~~with ~~face~~our ~~competition~~franchisees. ~~from~~We ~~Denny’s,~~presently ~~IHOP,~~intend ~~independent restaurants and,~~ to afocus ~~lesser extent, Bob Evans, Embers and Perkins. Competitors for~~ our expansion ~~California~~efforts ~~Bakers~~on ~~Square~~company-operated restaurants ~~include~~but ~~Coco’s,~~may ~~Denny’s,~~pursue ~~Marie~~selected ~~Callender’s~~franchising ~~and, to a lesser extent, Carrow’s, Hof’s Hut and Polly’s~~opportunities. We ~~Some~~completed ~~of these~~a ~~competitors~~transaction ~~have~~in ~~greater~~2006 ~~financial,~~with ~~distribution~~a ~~and~~franchisee ~~brand~~in ~~resources~~Oklahoma ~~than~~in ~~we do. Our restaurants, like all other restaurants, also face heightened competition from supermarkets, many of~~ which ~~are~~we ~~increasing~~purchased ~~the breadth of~~five ~~their~~Village ~~meal~~Inn ~~offerings in the form of fresh entrées and side dishes~~restaurants.

~~Intellectual~~We generally seek ~~property~~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. Our current franchisees pay royalty fees up to 4% of gross sales. Additionally, our current franchisees pay marketing fees up to 2% of gross sales. Our franchise consultants work toward visiting each of our Village Inn franchisees approximately four times a year to monitor their business and to ensure that their stores meet with our quality standards.

WeA ~~have~~franchisee anis ~~extensive~~required ~~portfolio~~to ofpay ~~registered~~an ~~service~~initial ~~marks,~~franchise ~~trademarks~~fee ~~and~~for ~~logos,~~a ~~including~~15 ~~“Bakers Square®,”~~year ~~“Village~~franchise ~~Inn®,” “Village Inn Pancake HouseÒ,” “Best Pie in AmericaÒ,” “Great Food~~term. ~~Unbelievable~~Until ~~Pie.Ò,”~~the ~~“The~~end ~~Skillet~~of their ~~ExpertsÒ~~first ,”year ~~“Good~~of ~~Food … Good FeelingsÒ~~operation,” ~~“The Breakfast ExpertsÒ“ and “J. Horner’sÒ.” We believe that~~ our ~~service~~franchisees ~~marks, trademarks~~also ~~and~~pay ~~logos~~us ~~are~~a ~~valuable~~royalty tofee ~~the operation~~ of $1,154 ~~our~~a ~~restaurants~~week and ~~are important~~a ~~to our~~ marketing ~~strategy.~~fee ~~Our policy is to actively pursue and maintain registration~~ of ~~our~~$577 ~~service~~a ~~marks,~~week. ~~trademarks~~A ~~and~~franchisee ~~logos~~is ~~where our~~also ~~business~~typically ~~strategy~~obligated ~~requires us~~ to dopay soa ~~and~~fee tofor ~~oppose~~renewal ~~vigorously any infringement or dilution~~ of ~~our~~a ~~service~~franchise ~~marks,~~agreement ~~trademarks~~beyond the orinitial ~~logos~~term. ~~However,~~After ~~we cannot~~the ~~predict~~first ~~whether~~year ~~steps~~of ~~taken~~operation, ~~by us to protect~~ our ~~proprietary~~franchisees ~~rights will~~are berequired ~~adequate~~ to ~~prevent~~pay ~~misappropriation~~royalty ofand ~~these~~marketing ~~rights~~fees orbased ~~the~~on ~~use~~gross bysales. ~~others~~Our ofstandard ~~restaurant~~franchise ~~features~~agreement ~~based~~gives ~~upon, or otherwise similar to,~~ our ~~concepts.~~franchisees Itthe ~~may be~~right ~~difficult for us~~ to ~~prevent~~use ~~others from copying elements of~~ our ~~concepts~~trademarks, ~~and~~service ~~any~~marks, ~~litigation~~trade todress ~~enforce~~and our ~~rights~~recipes, ~~will~~systems, ~~likely~~manuals, ~~involve~~processes ~~significant~~and related ~~costs~~items.

~~Environmental matters~~Competition

~~Our~~The ~~operations~~restaurant ~~are subject~~industry tois ~~federal,~~highly ~~state~~competitive ~~and~~with ~~local~~respect ~~laws~~to price, quality and ~~regulations~~speed ~~relating~~of toservice, ~~environmental~~and ~~protection,~~quality ~~including~~and ~~regulation~~value of ~~discharges into~~ the ~~air~~food ~~and~~products ~~water~~offered. ~~Under various~~The ~~federal,~~number ~~state~~ and ~~local~~location ~~laws~~of units, anattractiveness ~~owner~~of orfacilities, ~~operator~~effectiveness of ~~real~~advertising ~~estate~~and ~~may~~marketing beprograms, ~~liable~~and ~~for~~new ~~the~~product ~~costs~~development ofare ~~removal~~also orimportant ~~remediation~~competitive ~~of hazardous or toxic~~factors. ~~substances~~Changes ~~on or~~ in ~~such~~consumer ~~property.~~tastes ~~Such~~and ~~liability~~preferences, ~~may~~economic beconditions ~~imposed~~or ~~without regard~~population todemographics ~~whether~~as ~~the~~well ~~owner~~as orshifts ~~operator~~in ~~knew~~traffic ofpatterns, orcan ~~was~~also ~~responsible~~impact ~~for, the presence~~operations ofand ~~such hazardous or toxic substances~~profitability.

8We 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

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.8

~~Governmental~~their meal offerings in ~~regulation~~the form of fresh entrées and side dishes.

~~We are subject to various~~Intellectual 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.property

We ~~also~~have ~~are~~an ~~subject~~extensive portfolio toof ~~the~~registered service marks, trademarks and logos, including “Bakers ~~Fair~~Square®,” ~~Labor~~“Village ~~Standards~~Inn®,” ~~Act~~“Village Inn Pancake HouseÒ,” “Best ~~the~~Pie ~~Immigration~~in ~~Reform~~AmericaÒ,” “Great Food. Unbelievable PieÒ,” “The Skillet ExpertsÒ,” “Good Food … Good FeelingsÒ,” “The Breakfast ExpertsÒ“ and ~~Control~~“J. ~~Act~~Horner’sÒ.” We ofbelieve ~~1986~~that our service marks, trademarks and logos are valuable to the ~~various~~operation ~~federal~~of our restaurants and ~~state~~are ~~laws~~important ~~governing~~to ~~such~~our ~~matters~~marketing asstrategy. ~~minimum~~Our policy ~~wages~~is to actively pursue and maintain registration of our service marks, ~~overtime~~trademarks and ~~other~~logos ~~working~~where ~~conditions.~~our Abusiness ~~significant~~strategy ~~portion~~requires us to do so and to oppose vigorously any infringement or dilution of our ~~hourly~~service marks, trademarks ~~staff~~or islogos. ~~paid~~However, atwe ~~rates~~cannot ~~consistent~~predict ~~with~~whether ~~the~~steps ~~applicable~~taken ~~federal~~by orus ~~state~~to ~~minimum~~protect our ~~wage~~proprietary ~~and~~rights will be adequate to prevent misappropriation of these rights or the use by others of restaurant features based upon, ~~accordingly~~or otherwise similar to, ~~increases~~our inconcepts. ~~the~~It ~~minimum~~may ~~wage~~be ~~will~~difficult ~~increase~~for us to prevent others from copying elements of our ~~labor~~concepts, and any litigation to enforce our rights will likely ~~cost~~involve significant costs.

~~The federal Americans with~~Environmental 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.matters

~~Employees~~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.

AsSome of ~~October~~our ~~28,~~properties are ~~2004,~~located on or adjacent to sites that we know or suspect to have been used ~~had~~by ~~11,382~~prior ~~employees,~~owners ~~consisting~~or ofoperators ~~7,413~~as ~~part-time~~retail ~~employees~~gas ~~and~~stations 3or industrial facilities. Such properties previously contained underground storage tanks,~~969~~ and some of ~~full-time~~these ~~employees~~properties may currently contain abandoned underground storage tanks. We do ~~employ~~not ~~172~~believe ~~employees~~that we have contributed to the contamination at ~~our~~any ~~corporate~~of ~~headquarters~~our properties. ~~Our~~It is possible that petroleum products and other contaminants may ~~employees~~have ~~are~~been ~~not~~released ~~covered~~at byor ~~any~~migrated ~~collective~~beneath ~~bargaining~~our ~~agreement,~~properties into or through the soil or groundwater. Under applicable federal and state environmental laws, we, ~~consider~~as ~~our~~the ~~employee~~current ~~relations~~owner toor beoperator ~~good.~~of Inthese ~~2003~~sites, ~~employees~~may atbe ~~one~~jointly and severally liable for the costs of ~~our~~investigation and remediation of any contamination. ~~pie~~While ~~manufacturing~~we ~~facilities~~seek ~~conducted~~to anobtain ~~election~~certain assurances relating to ~~unionize~~environmental ~~our~~issues ~~138~~at ~~employees~~the atproperties that ~~facility~~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. ~~This~~If ~~effort~~we ~~was~~are ~~unsuccessful;~~found ~~however~~liable for the costs of remediation of contamination at any of these properties, our ~~employees~~operating expenses would likely ~~could~~increase ~~engage~~and inour ~~future~~operating ~~unionization~~results ~~efforts~~would ~~that~~be ~~may~~materially ~~succeed~~adversely affected.

~~Risk factors related to our~~Governmental ~~business~~regulation

~~Our~~We ~~level~~are subject to various federal, state and local laws affecting the operation of ~~indebtedness~~our ~~could~~business, ~~adversely~~as ~~affect~~are our franchisees, including various health, sanitation, fire and safety standards. Each of our ~~ability~~restaurants and pie production facilities is subject to licensing ~~raise~~and ~~additional~~regulation ~~capital~~by a number of governmental authorities, which include tozoning, ~~fund~~health, ~~our~~safety, ~~operations~~environmental, ~~limit~~sanitation, ~~our~~building ~~ability~~and tofire ~~react~~agencies in tothe ~~changes~~jurisdiction in which the ~~economy~~restaurant oris located. We are also subject to ~~our~~the ~~industry~~rules and regulations of the Federal Trade Commission and ~~prevent~~various state uslaws ~~from~~regulating ~~meeting~~the offer and sale of franchises. In addition, all of our restaurants ~~obligations~~located ~~under~~in California and some of our restaurants in the Midwest ~~indebtedness~~sell beer and wine. As a result, we are required to comply with applicable alcohol licensing requirements and alcoholic beverage control regulations.

9We 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.

WeThe ~~are~~federal ~~significantly~~Americans ~~leveraged.~~with ~~The~~Disability ~~following~~Act ~~chart~~prohibit ~~shows~~discrimination ~~our~~on ~~level~~the basis of ~~indebtedness~~disability in public accommodations and ~~certain~~employment. We are required to comply with the ~~other~~Americans ~~information~~with asDisabilities Act and regulations relating to accommodating the needs of ~~October~~the ~~28,~~disabled ~~2004:~~in connection with the construction of new facilities and with significant renovations of existing facilities.

(In millions)	As of October 28, 2004
Senior secured credit facility
Revolving credit facility(1)	$	1.4
Term loan	15.0
10 ½% senior unsecured notes	126.5
Unamortized original issue discount	(1.4		)
Capitalized leases	3.7
Total indebtedness	145.2
Stockholders’ equity	72.2

Employees

~~(1) Does~~As ~~not include $7.3 million~~ of ~~outstanding letters of credit that~~November 2, ~~were~~2006, ~~issued~~we ~~under~~had ~~the~~12,789 ~~senior~~employees, ~~secured~~consisting ~~revolving credit facility as~~ of ~~October 28~~7,423 ~~2004.~~part-time Weemployees ~~are able to borrow under the senior secured revolving credit~~and ~~facility~~5,366 ~~the~~full-time ~~lesser of (a) $30~~employees.0 ~~million~~We ~~and~~employ ~~(b)~~173 ~~1.2~~employees ~~times~~at ~~trailing twelve months Adjusted EBITDA (as defined in the senior secured credit facility) minus the original principal amount of~~ our ~~senior secured term loan~~corporate headquarters. Our ~~senior secured~~employees ~~revolving~~are ~~credit~~not ~~facility~~covered ~~has~~by aany ~~$15.0~~collective ~~million~~bargaining ~~sublimit for letters of credit. As of October 28, 2004, our borrowing base supported $30.0 million of borrowings.~~

~~Our substantial degree of leverage could have important consequences, including the following:~~9

~~• it~~agreement, ~~may~~and ~~limit~~we consider our ~~ability~~employee relations to ~~obtain~~be good. In 2003, employees at one of our ~~additional~~pie ~~debt~~manufacturing orfacilities ~~equity~~conducted ~~financing~~an ~~for~~election ~~working~~to ~~capital,~~unionize ~~capital~~our ~~expenditures,~~138 ~~new~~employees ~~restaurant~~at ~~development,~~that ~~debt~~facility. ~~service~~This ~~requirements,~~effort ~~acquisitions~~was ~~and~~unsuccessful; ~~general~~however, our ~~corporate~~employees orcould ~~other~~engage ~~purposes;~~in future unionization efforts that may succeed.

~~• a~~Item ~~substantial~~1a. ~~portion~~Risk of our cash flows from operations must be dedicated to the payment of principal and interest on our indebtedness and is not available for other purposes, including our operations, capital expenditures and future business opportunities;Factors.

~~• the~~Risk ~~debt~~factors ~~service requirements~~related ~~of our other indebtedness could make it more difficult for us~~ to ~~make~~ ~~payments on~~ our ~~indebtedness;~~ business

~~• certain~~Our level of indebtedness could adversely affect our ~~borrowings,~~ability ~~including~~to raise additional ~~borrowings~~capital ~~under~~to fund our ~~senior~~operations, ~~secured~~limit ~~credit~~our ~~facility,~~ability ~~are~~to atreact ~~variable~~to ~~rates~~changes ofin the ~~interest,~~economy ~~exposing~~or usour toindustry ~~the~~and ~~risk~~prevent ofus ~~increased~~from ~~interest~~meeting ~~rates;~~our obligations under our indebtedness.

~~• it~~We ~~may~~are ~~limit our ability to adjust to~~significantly ~~changing~~leveraged. ~~market~~The ~~conditions~~following ~~and~~chart ~~place~~shows usour atlevel aof ~~competitive~~indebtedness ~~disadvantage~~and ~~compared~~certain toother ~~our~~information ~~competitors~~as ~~that~~of ~~have~~November 2, ~~less debt; and~~2006:

• we may be vulnerable in a downturn in general economic conditions or in our business, or we may be unable to carry out capital spending that is important to our growth.

(In millions)	As of November 2, 2006
Senior secured credit facility
Revolving credit facility(1)	$	12.6
Term loan	15.0
10 ½% senior unsecured notes	126.5
Unamortized original issue discount	(1.0		)
Capitalized leases	0.2
Other debt	0.8
Total indebtedness (2)	$	154.1
Stockholders’ equity	$	63.3

(1) Does not include $7.4 million of outstanding letters of credit that were issued under the senior secured revolving credit facility as of November 2, 2006. We are able to borrow under the senior secured revolving credit facility the lesser of (a) $30.0 million and (b) 1.2 times trailing twelve months Adjusted EBITDA (as defined in the senior secured credit facility) minus the original principal amount of our senior secured term loan. As of November 2, 2006, 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 $10.0 million.

We(2) Does ~~may have~~not ~~difficulty~~include ~~implementing~~deemed ~~our~~landlord ~~expansion~~financing ~~strategy~~liability.

Our ~~ability~~substantial todegree ~~open new~~of ~~restaurants~~leverage iscould ~~dependent~~have ~~upon~~important ~~a number of factors~~consequences, ~~many of which are beyond our control,~~ including ~~our~~the ~~ability to~~following:

•· ~~find~~it may ~~suitable~~limit ~~locations~~our ability to obtain additional debt or equity financing for working capital, capital expenditures, new restaurant development, debt service requirements, acquisitions and general corporate or other purposes;

•· ~~reach~~a substantial ~~acceptable~~portion ~~agreements~~of ~~regarding the~~our ~~lease~~cash orflows ~~purchase~~from operations must be dedicated to the payment of ~~prospective~~principal ~~locations~~and interest on our indebtedness and is not available for other purposes, including our ~~restaurants~~operations, capital expenditures and future business opportunities;

•· ~~comply~~the debt ~~with~~service ~~applicable~~requirements ~~zoning,~~of ~~land~~our other indebtedness could make it more ~~use~~difficult ~~and~~for ~~environmental~~us ~~regulations~~to make payments on our indebtedness;

•· ~~raise~~certain of orour ~~have~~borrowings, ~~available~~including anborrowings ~~adequate~~under our senior secured credit ~~amount~~facility, are at variable rates of ~~money~~interest, ~~for~~exposing ~~construction~~us ~~and~~to ~~opening~~the ~~costs~~risk of increased interest rates;

•· ~~hire,~~it may ~~train~~limit ~~and~~our ~~retain~~ability ~~the~~to ~~skilled management~~adjust to changing market conditions and ~~other~~place ~~employees~~us ~~necessary~~at toa competitive ~~meet~~disadvantage ~~staffing~~compared ~~needs~~to inour acompetitors ~~timely~~that ~~and cost-effective~~have ~~manner~~less debt; and

•· ~~obtain~~we may ~~required~~be ~~permits~~vulnerable ~~and~~in a downturn in general economic conditions or in our ~~approvals;~~business, ~~and~~or we may be unable to carry out capital spending that is important to our growth.

~~• efficiently manage the amount of time and money used to build and open each new restaurant.~~10

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~~ tohave ~~attract~~difficulty ~~enough~~implementing ~~customers to new restaurants because potential customers may be unfamiliar with~~ our ~~restaurants~~expansion ~~or our restaurants’ atmosphere or menus might not appeal to them~~strategy.

WeOur ~~may~~ability ~~not be able~~ to open new restaurants ~~profitably~~is dependent upon a number of factors, ~~which~~many ~~could~~of ~~negatively~~which ~~affect~~are beyond our ~~growth~~control, ~~strategy.~~including our ability to:

~~We have historically added,~~· find ~~and~~suitable 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.locations;

~~Our~~· reach ~~restaurants~~acceptable ~~may~~agreements ~~not~~regarding bethe ~~able~~lease toor ~~compete~~purchase ~~successfully~~of ~~with~~prospective ~~other~~locations for our restaurants.;

~~We operate in a highly~~· comply 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 aapplicable ~~large number of other restaurants~~zoning, ~~including~~land ~~national~~use and ~~regional~~ ~~restaurant~~environmental 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.regulations;

11· raise or have available an adequate amount of money for construction and opening costs;

~~The success~~· hire, oftrain ~~our~~and ~~restaurants~~retain isthe ~~highly~~skilled ~~dependent~~management onand ~~their~~other ~~location.~~employees necessary to meet staffing needs in a timely and cost-effective manner;

~~The success of our~~· obtain ~~company-operated~~required ~~and~~permits ~~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~~approvals; ~~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~~· efficiently ~~vulnerable~~manage tothe ~~fluctuations~~amount inof ~~the~~time ~~cost,~~and ~~availability~~money used to build and ~~quality~~open ofeach ~~our ingredients~~new restaurant.

~~The cost~~Historically, ~~availability~~there ~~and quality~~is ~~of the ingredients we use to prepare our food are subject to~~ a ~~range of~~“ramp-up” ~~factors,~~period ~~many~~ of ~~which~~time ~~are~~before ~~beyond~~a ~~our~~new ~~control.~~restaurant Welocation ~~depend~~achieves onits ~~frequent~~targeted ~~deliveries of~~level ~~fresh ingredients, thereby subjecting us to the risk~~ of ~~shortages or~~ ~~interruptions in supply~~performance. ~~Fluctuations~~This inphenomenon ~~economic~~is ~~and~~due ~~political~~to ~~conditions, weather~~higher ~~and~~operating ~~demand~~costs ~~could~~caused ~~adversely affect the cost of our ingredients. Our~~by ~~efforts~~start-up toand ~~pass~~other ~~along~~temporary ~~price~~inefficiencies ~~increases may be subject to delays~~ associated with ~~our~~ ~~cycle~~opening ~~of updating our menus. We have no control over fluctuations in the~~new ~~price of commodities~~restaurants, ~~and~~such weas ~~may~~lack beof ~~unable~~market tofamiliarity ~~pass~~and ~~through~~acceptance ~~cost~~when ~~increases to our customers. For example,~~ we ~~did not pass on to our customers the 75%~~enter ~~increase~~new inmarkets ~~the~~and ~~price~~lack of ~~eggs~~experienced ~~(one of our largest food costs) which occurred during the 2004 fiscal year~~staff. We ~~currently~~may do not ~~enter~~be ~~into~~able ~~futures~~to ~~contracts~~attract ~~with~~enough ~~respect~~customers to ~~potential~~new ~~price~~restaurants ~~fluctuations~~because inpotential ~~the~~customers ~~cost~~may ofbe ~~food~~unfamiliar ~~and other supplies,~~with ~~which~~our werestaurants ~~purchase~~or atour ~~prevailing~~restaurants’ ~~market~~atmosphere or ~~contracted~~menus ~~prices.~~might ~~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~~appeal ~~on long-term written~~to ~~contracts with our suppliers~~them. ~~Our suppliers could implement significant price increases. All of these factors could adversely affect our financial results.~~

We ~~depend~~may ~~heavily~~not onbe ~~our~~able ~~suppliers~~to ~~and~~open ~~distributors~~new restaurants profitably, which could negatively affect our growth strategy.

We ~~currently~~have ~~purchase our~~historically ~~raw materials from various suppliers. Most of our suppliers drop-ship directly to our restaurants~~added, asand ~~well~~plan as to ~~our~~continue ~~pie production facilities. Our reliance on our suppliers subjects us~~ to ~~a number of risks~~add, ~~including~~new ~~possible~~restaurants ~~delays~~through ~~or interruptions~~new ~~in delivery of supplies~~construction, acquisitions ~~diminished control over quality~~ and ~~a potential lack of adequate raw material capacity~~conversions. IfWe ~~any~~have oftraditionally ~~these~~used ~~suppliers~~cash doflow from ~~not~~operations ~~perform~~and ~~adequately~~sale-leaseback ortransactions ~~otherwise~~as ~~fail~~the toprimary ~~distribute~~funding ~~products~~sources ~~or supplies to~~for ~~our~~additional restaurants. orWe ~~pie~~cannot ~~production~~guarantee ~~facilities,~~that weour ~~may~~cash beflows ~~unable~~will be sufficient to ~~replace~~achieve the ~~suppliers~~ indesired adevelopment ~~short~~levels ~~period~~if ofour ~~time on acceptable terms. For example~~revenues, ~~labor~~ ~~disputes~~profitability ~~at any of our suppliers could result in those suppliers being unable to provide us with raw materials~~ or ~~supplies~~cash ~~that~~flow wefrom ~~depend~~operations ~~upon to run our business~~decline. ~~Our~~Opening ~~inability to replace the suppliers in~~ a ~~short~~new ~~period~~restaurant ~~of time on~~in ~~acceptable~~an ~~terms~~existing ~~could~~market ~~increase~~also ~~our costs and~~ could ~~cause~~reduce ~~shortages~~the atrevenue ~~our restaurants or pie production facilities~~ of ~~food~~our ~~and~~existing ~~other~~restaurants ~~items~~in that market.

~~We depend on our~~Our ~~distribution~~restaurants ~~system~~may tonot ~~distribute~~be ~~our~~able ~~food products~~ to ~~our~~compete ~~restaurant locations.~~successfully Ifwith ~~there~~other ~~is any disruption in our distribution system, it could have a material adverse effect on our results of operations~~restaurants.

~~Food-borne~~We operate in a highly ~~illness~~competitive ~~incidents~~industry. Price, ~~claims~~restaurant oflocation, food~~-borne~~ ~~illness~~quality and ~~adverse~~type, service ~~publicity~~and ~~could~~attractiveness of facilities are important aspects of competition ~~reduce~~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 ~~sales~~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.

~~Claims of illness or injury~~The ~~relating~~success ~~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 affected by negative publicity resulting from food quality or handling claims at one or more of our restaurants. ~~Food-borne~~is ~~illnesses~~highly ~~spread~~dependent ~~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~~location. 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.

InThe ~~addition,~~success ~~the impact~~ of our ~~adverse~~company-operated ~~publicity~~and ~~relating~~franchised ~~to one of our~~ restaurants ~~may~~is ~~extend~~significantly ~~beyond~~influenced ~~that~~by ~~restaurant~~location. toThere ~~affect~~can ~~some~~be orno ~~all~~assurance ofthat our ~~other~~current ~~restaurants.~~locations ~~The~~will ~~risk~~continue ~~of negative~~to ~~publicity~~be isattractive, ~~particularly~~as ~~great~~demographic ~~with~~patterns ~~respect~~change toand ~~our~~the ~~franchised~~economic ~~restaurants~~conditions where ~~because~~our werestaurants ~~have~~are ~~limited~~located ~~ability~~could tochange. ~~control~~The ~~their~~success ~~operations,~~of ~~especially~~new onrestaurants athat ~~real-time~~we ~~basis.~~open Awill ~~similar~~be ~~risk~~substantially ~~exists~~dependent ~~with~~on ~~respect~~the tolocations ~~unrelated~~that ~~food~~we ~~service businesses~~select ifand ~~customers~~the availability ~~mistakenly~~of ~~associate~~desirable ~~them with our operations~~locations.

1211

We ~~face the~~are ~~risk~~vulnerable ofto ~~litigation~~fluctuations in ~~connection~~the ~~with~~cost, ~~our~~availability ~~operations~~and quality of our ingredients.

WeThe ~~are~~cost, ~~from~~availability and ~~time~~quality of the ingredients we use to ~~time~~prepare ~~the~~ our food are subject to a range of ~~complaints~~factors, ormany ~~litigation~~of ~~from~~which are beyond our ~~consumers~~control. ~~alleging~~We ~~illness,~~depend ~~injury~~on frequent ordeliveries ~~other~~of ~~food~~fresh ~~quality~~ingredients, ~~health~~thereby subjecting us to the risk of shortages or ~~operational~~interruptions ~~concerns~~in supply. ~~Adverse~~Fluctuations ~~publicity resulting~~in ~~from~~economic ~~these~~and ~~allegations~~political ~~may~~conditions, weather ~~materially~~and demand could adversely affect ~~us,~~the ~~regardless~~ cost of ~~whether~~our ~~the~~ingredients. ~~allegations~~Our efforts ~~are~~to ~~valid~~pass oralong ~~whether~~price weincreases ~~are~~may ~~ultimately~~be ~~held~~subject ~~liable.~~to delays associated with Inour ~~addition,~~cycle ~~employee~~of ~~claims~~updating ~~against~~our usmenus. ~~based~~We ~~on,~~have ~~among~~no ~~other~~control ~~things,~~over fluctuations in the ~~discrimination,~~price ~~harassment~~of commodities, ~~wrongful~~and ~~termination~~we ormay ~~wage,~~be ~~rest~~unable ~~break~~to ~~and~~pass ~~meal~~through cost increases to ~~break~~our ~~issues~~customers. For example, ~~including~~we ~~those~~did ~~relating~~not pass on to ~~overtime~~our ~~compensation,~~customers ~~may~~the ~~divert~~75% increase in the price of eggs (one of our largest food costs) which occurred ~~financial~~during ~~and~~the ~~management~~2004 ~~resources~~fiscal ~~that~~year. ~~would~~We ~~otherwise~~currently bedo ~~used~~not enter into futures contracts with respect to ~~benefit~~potential price fluctuations in the ~~future~~ ~~performance~~cost of ~~our~~food ~~operations~~and other supplies, which we purchase at prevailing market or contracted prices. WeAlthough we ~~have~~at ~~been~~times ~~subject~~enter tointo ~~such~~arrangements ~~claims~~locking ~~from~~in the price of certain ingredients ~~time~~for toa 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.

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

We ~~are~~ currently ~~defendants~~ inpurchase ~~two~~our raw ~~purported~~materials ~~class~~from ~~action~~various ~~claims~~suppliers. inMost ~~California.~~of ~~The~~our ~~first~~suppliers ~~class~~drop-ship directly ~~action~~to ~~claim~~our ~~was~~pie ~~brought~~production infacilities. ~~October~~Our ~~2003~~reliance byon ~~two~~our ~~former~~suppliers ~~employees~~subjects ~~and~~us ~~one~~to ~~current~~a ~~employee~~number of ~~ours~~risks, ~~and~~including ~~the~~possible ~~second~~delays ~~class~~or ~~action~~interruptions ~~claim was brought~~ in ~~May~~delivery of ~~2004~~supplies, bydiminished ~~two~~control ~~former~~over ~~employees~~quality ofand ~~ours.~~a ~~The~~potential ~~complaints~~lack ~~allege~~of ~~that~~adequate ~~we violated~~raw ~~California~~material ~~law~~capacity. ~~with~~If ~~regard~~any toof ~~rest~~these ~~and~~suppliers ~~meal~~do ~~periods,~~not ~~bonus~~perform ~~payment~~adequately ~~calculations~~or ~~(in~~otherwise ~~the~~fail ~~October~~to ~~2003~~distribute ~~complaint),~~products ~~overtime~~or ~~payments~~supplies ~~(in~~to ~~the~~our ~~May~~restaurants ~~2004~~or ~~complaint)~~pie ~~and~~production ~~California~~facilities, ~~law~~we ~~regarding~~may ~~unfair~~be ~~business~~unable ~~practices.~~to ~~The~~replace ~~classes~~the ~~and subclasses~~suppliers ~~alleged~~ in ~~the~~a ~~actions~~short period ~~have~~of ~~not~~time ~~been~~on ~~certified~~acceptable byterms. ~~the~~For ~~respective courts~~example, atlabor ~~the~~disputes ~~current~~at ~~stages~~any of ~~the~~our suppliers ~~litigation,~~could ~~but~~result ~~generally~~in ~~are~~those ~~claimed~~suppliers ~~in the~~being ~~2003~~unable ~~complaint~~ to ~~include~~provide ~~persons who have been employed by~~ us inwith raw ~~California~~materials ~~since~~or ~~October 17,~~supplies ~~1999~~that inwe ~~the~~depend ~~positions~~upon ofto ~~food~~run ~~server, restaurant~~our ~~general~~business. ~~manager~~Our ~~and~~inability ~~assistant restaurant manager, and generally are~~to ~~claimed~~replace in the ~~2004~~suppliers ~~complaint~~in toa ~~include~~short ~~persons~~period ~~who~~of ~~have~~time ~~been~~on ~~employed~~acceptable byterms uscould inincrease ~~California~~our ~~since~~costs ~~May 21, 2000 in the positions of restaurant general manager~~ and ~~restaurant~~could ~~associate~~cause ~~manager.~~shortages Noat ~~dollar~~our ~~amount~~restaurants inor ~~damages is requested~~pie inproduction ~~either~~facilities ~~complaint,~~of ~~and~~food ~~the complaints seek statutory damages, compensatory damages, interest~~ and ~~attorneys’~~other ~~fees in unspecified amounts~~items.

~~During~~We ~~the~~depend ~~fourth~~on our ~~quarter~~distribution ofsystem ~~fiscal~~to ~~2004,~~distribute ~~we established a reserve of $3.2 million in connection with~~ our ~~agreement~~food inproducts ~~principle~~ to ~~settle~~our ~~these class action lawsuits~~restaurant locations. ~~The~~ ~~parties~~If inthere ~~both~~is ~~lawsuits~~any ~~are~~disruption in ~~the process~~our ofdistribution ~~finalizing the settlement~~system, ~~which~~it iscould ~~subject to approval of the~~have ~~court.~~a ~~Under~~material ~~the~~adverse ~~terms~~effect ofon ~~the~~our ~~proposed~~results ~~settlements, we have agreed to pay up to an aggregate~~ of $6operations.~~55 million for the alleged claims and associated legal fees.~~

~~We filed a lawsuit~~Food-borne onillness ~~December 3~~incidents, 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~~food-borne ~~Holdings~~illness 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~~adverse ~~denying liability~~publicity ~~for the portion of the damages in the previously mentioned class~~could ~~action~~reduce ~~lawsuits~~our ~~that~~restaurant ~~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~~sales.

~~While~~Claims weof ~~believe~~illness or ~~that~~injury ~~our~~relating ~~claims~~to ~~against~~food quality or food handling are common in the ~~former~~food ~~shareholders~~service industry, and a number of ~~Midway~~these ~~Investors~~claims ~~Holdings~~may exist at any given time. We cannot ~~Inc~~guarantee that our internal controls and training will be effective in preventing all food-borne illnesses. ~~are~~Some ~~meritorious~~food-borne illness incidents could be caused by third-party food suppliers and ~~that~~transporters weoutside ~~will~~of ~~prevail,~~our control. New illnesses resistant to our current precautions may develop in the ~~event~~future, weor diseases dowith ~~not~~long ~~fully~~incubation ~~prevail~~periods could arise, such as Bovine Spongiform Encephalopathy (also known as Mad Cow Disease), that could give rise to claims or allegations on ~~our~~a ~~indemnification~~retroactive basis. We could be adversely affected by negative publicity resulting from food quality or handling claims, ~~management~~at ~~estimates~~one ~~that~~or more ~~the~~of ~~Company’s~~our ~~maximum~~restaurants. Food-borne illnesses spread at restaurants have ~~exposure~~generated ~~under~~significant ~~the~~negative ~~settlement~~publicity ~~agreements~~at isother restaurant chains in the past, ~~$3.2~~which ~~million~~has ~~amount~~had ~~reserved~~a negative impact on their results of operations. One or ~~See~~more ~~“Item~~instances 3of food-borne illness in one of our restaurants could negatively affect our restaurants’ image and sales. ~~Legal~~These ~~Proceedings~~risks exist even if it were later determined that an illness was wrongly attributed to one of our restaurants.”

~~Our~~In addition, the impact ~~operating~~of ~~results~~adverse publicity relating to one of our restaurants may ~~fluctuate~~extend ~~significantly~~beyond ~~due~~that restaurant to ~~the~~affect ~~seasonality~~some or all of our other restaurants. The risk of negative ~~business~~publicity ~~and~~is ~~weather~~particularly ~~conditions~~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.

~~Our~~We ~~business is subject to~~face ~~seasonal fluctuations that may vary depending upon~~ the ~~region~~risk ~~in which a particular restaurant is located. In addition, the sales~~ of ~~our~~litigation ~~pies typically increase during holiday periods,~~ in ~~particular~~connection ~~during~~with 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~~operations. 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.

13We 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.

We ~~may incur~~settled ~~additional~~two ~~costs~~class action orclaims ~~liabilities~~in ~~and~~California ~~lose~~related ~~revenues~~to overtime and ~~profits~~wage aspayments ain ~~result~~June 2005 offor ~~government~~an ~~regulation.~~aggregate

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.12

~~All~~payment of ~~our~~up ~~restaurants~~to $6.5 ~~located~~million, insubject ~~California~~to ~~sell~~the ~~beer~~following ~~and~~partial ~~wine~~indemnification. We ~~Typically,~~filed ~~each~~a ~~restaurant’s~~suit ~~license to~~in ~~sell~~December ~~alcoholic~~2004 ~~beverages~~in ~~must~~Cook beCounty, Illinois, ~~renewed~~seeking ~~annually~~indemnification ~~and~~for ~~may~~damages berelated ~~suspended~~to orthis litigation under ~~revoked~~the atPurchase ~~any~~Agreement ~~time~~dated ~~for~~June ~~cause.~~14, ~~Alcoholic~~2003, ~~beverage~~pursuant ~~control~~to ~~regulations~~which ~~relate~~VICORP Restaurants, Inc., was acquired, in addition to ~~various~~ ~~aspects~~assertion of ~~daily~~other ~~operations~~claims. The former shareholders of Midway Investors Holdings Inc. filed a similar action in December 2004 in Superior Court in Massachusetts. Through our ~~restaurants~~parent company, ~~including~~VI ~~the~~Acquisition ~~minimum age~~Corp., an agreement to settle claims brought in both of these ~~patrons~~actions was finalized and ~~employees,~~VI ~~hours~~Acquisition ofCorp. ~~operation,~~received ~~advertising,~~a ~~wholesale~~settlement payment ~~purchasing~~in December 2005 of $2.65 million. ~~and~~The ~~inventory~~ultimate ~~control,~~cost ~~handling~~to ~~and~~settle ~~storage~~the two class actions was reduced to $5.3 million.

~~Our~~We ~~restaurants~~are ~~that~~currently defendants ~~sell~~in two class action claims in California. The first class action was brought in March ~~beer~~2006 by two former managers and ~~wine~~alleges ~~are~~that ~~also~~we ~~subject~~violated California law with regard to ~~“dram~~unpaid ~~shop”~~overtime, ~~laws~~compensation for missed meals and rest periods, civil ~~which~~penalties ~~allow~~for afailure ~~person~~to provide itemized wage statements, failure to provide ~~sue~~notice on paychecks where paychecks may be cashed without any fees, and usunfair ifbusiness ~~that~~practices. The ~~person~~classes and ~~was~~subclasses ~~injured~~alleged in the action have not been certified by athe ~~legally~~court ~~intoxicated~~at the ~~person~~current ~~who~~stage ~~was~~of the litigation but generally are claimed to be persons who ~~wrongfully~~have ~~served~~been ~~alcoholic~~employed ~~beverages~~since atFebruary ~~one~~1, 2005, in the position of ~~our~~restaurant managers, ~~restaurants.~~persons Awho ~~judgment~~have been employed in California since March 15, 2002, in ~~against~~any uscapacity ~~under~~who received a ~~dram~~payroll ~~shop~~check ~~law~~in ~~could~~California, ~~exceed~~and ~~our~~all ~~liability~~restaurant managers ~~insurance~~who have ~~coverage~~ended their employment ~~policy~~with ~~limits~~VICORP ~~and~~prior ~~could~~to ~~result~~the effective date of any settlement, judgment, or other resolution of the action. No dollar amount in ~~substantial~~damages ~~liability~~is ~~for~~requested usin the Complaint and ~~have~~the aComplaint seeks ~~material~~statutory ~~adverse~~damages, ~~effect~~and onattorneys’ ~~our~~fees ~~profitability~~in an unspecified amount.

ToThe ~~the~~second ~~extent~~class ~~that~~action ~~governmental~~was ~~regulations~~brought ~~impose~~in ~~material~~April ~~additional~~2006 ~~obligations~~by ona ~~our suppliers,~~former ~~including,~~employee ~~without~~and ~~limitation,~~alleges ~~regulations~~that ~~relating~~VICORP ~~to the~~violated ~~inspection~~California orlaws ~~preparation~~with ofregard ~~meat,~~to ~~food~~failure ~~and~~to ~~other~~pay ~~products~~vested ~~used~~vacation inpay ~~our business, product availability could be limited~~ and ~~the prices that our~~unfair ~~suppliers~~business ~~charge us could increase~~practices. The ~~costs~~class ofalleged ~~operating~~is any ~~our~~person ~~restaurants~~who ~~may also~~has ~~increase~~been ifemployed ~~there~~by ~~are~~us ~~changes~~ in ~~laws~~California ~~and~~at ~~regulations~~any ~~such~~time asfrom ~~those~~four ~~governing~~years ~~access~~prior ~~for~~to the ~~disabled,~~filing ~~including~~of the ~~Americans~~class ~~with~~action ~~Disabilities Act.~~to Ifdate ~~any~~ of ~~these~~trial. No ~~costs~~dollar ~~increased~~amount ~~and~~in wedamages ~~were~~is ~~unable~~requested toin the ~~offset~~Complaint and the ~~increase by~~Complaint ~~increasing~~seeks ~~our~~attorneys’ ~~menu~~fees ~~prices~~in oran byunspecified amount. In ~~other~~the ~~means,~~fourth wequarter ~~would~~of ~~generate lower~~fiscal ~~profits~~2006, ~~which~~The ~~could~~Company ~~have~~established a ~~material~~liability ~~adverse~~of ~~effect~~$600,000 onrelating ~~our~~to ~~business~~this ~~and results of operations~~action. ~~See “Business—Governmental regulation.”~~

~~We may be~~Our ~~locked~~operating ~~into~~results ~~long-term and non-cancelable leases that we want to cancel, and~~ may be ~~unable~~fluctuate tosignificantly ~~renew~~due ~~leases that we want~~ to ~~extend at~~ the ~~end~~seasonality of ~~their~~our business ~~terms~~and weather conditions.

~~Many~~Our ofbusiness ~~our~~is ~~current leases~~subject ~~are~~to ~~non-cancelable~~seasonal ~~and~~fluctuations ~~typically~~that ~~have~~may ~~terms~~vary ~~ranging~~depending ~~from~~upon 15the toregion 20in ~~years~~which ~~and~~a ~~renewal~~particular ~~options~~restaurant ~~for~~is ~~terms~~located. ~~ranging~~In ~~from~~addition, ~~ten~~the tosales 20of ~~years.~~our ~~Leases~~pies ~~that we enter~~typically ~~into~~increase induring ~~the~~holiday ~~future~~periods, ~~likely~~in ~~will~~particular ~~also~~during ~~be long-term~~ November and ~~non-cancelable and have~~ ~~similar~~December of ~~renewal~~each ~~options. If we close a restaurant~~year, weand ~~may~~decrease ~~remain~~significantly ~~committed~~following toholiday ~~perform~~periods. ~~our~~Accordingly, ~~obligations~~results ~~under~~for ~~the~~any ~~applicable~~one ~~lease,~~quarter ~~which~~are ~~would~~not ~~include, among~~necessarily ~~other~~indicative ~~things, payment~~ of ~~the~~results ~~base~~to ~~rent~~be expected for ~~the~~any ~~balance~~other ofquarter ~~the~~or ~~lease~~for ~~term.~~any ~~As of~~year. ~~October~~Adverse ~~28,~~weather ~~2004,~~conditions wecan ~~were~~also ~~responsible~~negatively ~~for~~impact ~~lease~~our ~~payments~~financial ~~at two closed~~results. ~~restaurant~~For ~~locations. Additionally~~example, ~~the~~unusually ~~potential~~cold ~~losses~~temperatures ~~associated~~or ~~with~~above-average ~~our inability~~rainfall tends to adversely ~~cancel~~affect ~~leases~~sales ~~may~~in ~~result~~affected inmarkets. ~~our~~These ~~keeping~~fluctuations ~~open~~can ~~restaurant~~make ~~locations~~it more ~~that~~difficult ~~are~~for ~~performing~~us ~~significantly~~to ~~below~~predict ~~targeted~~accurately ~~levels.~~and Asaddress in a ~~result,~~timely ~~ongoing~~manner factors ~~lease~~that ~~operations~~may athave ~~closed~~a ornegative ~~underperforming~~impact ~~restaurant~~on ~~locations could impair~~ our ~~results of operations~~business.

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

~~Changing~~Our business is subject ~~consumer~~to ~~preferences~~extensive federal, state and ~~discretionary~~local ~~spending~~government ~~patterns~~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 ~~have~~be ansubject ~~adverse~~to litigation and governmental fine, censure or closure in ~~effect~~connection onwith 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.

~~Food~~All ~~service~~of ~~businesses~~our ~~are~~restaurants ~~often~~located ~~affected by changes~~ in ~~consumer~~California ~~tastes, national, regional~~ and ~~local economic~~some ~~conditions and demographic trends. Factors such as traffic patterns, local demographics and the type, number and location~~ of ~~competing~~our restaurants ~~may~~ ~~adversely~~in ~~affect~~ the ~~performance~~Midwest ofsell ~~individual~~beer ~~locations~~and wine. ~~In addition~~Typically, ~~inflation~~ ~~and~~each ~~increased~~restaurant’s ~~food~~license ~~and~~to ~~energy~~sell ~~costs~~alcoholic ~~may~~beverages ~~harm~~must ~~the restaurant industry~~be inrenewed ~~general~~annually and ~~our~~may ~~locations~~be insuspended ~~particular.~~or ~~Adverse~~revoked ~~changes~~at in any oftime ~~these~~for cause. ~~factors~~Alcoholic ~~could~~beverage ~~reduce~~control ~~consumer~~regulations ~~traffic~~relate orto ~~impose~~various ~~practical~~aspects ~~limits~~of ~~on pricing,~~daily ~~which~~operations ~~could~~of ~~harm~~ our ~~business.~~restaurants, ~~Our~~including ~~continued~~the ~~success~~minimum ~~will~~age ~~depend~~of inpatrons ~~part~~and employees, onhours ~~our ability~~of tooperation, ~~anticipate~~advertising, ~~identify~~wholesale purchasing and ~~respond~~inventory control, tohandling ~~changing consumer preferences~~ and ~~economic conditions~~storage.

14Our 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.

~~The~~To ~~success of our restaurants is significantly influenced by~~ the ~~attractiveness~~extent ~~and condition of~~that ~~our~~governmental ~~facilities.~~regulations Weimpose ~~periodically~~material ~~update~~additional ~~the~~obligations ~~exterior~~on ~~and interior of~~ our ~~locations.~~suppliers, Ifincluding, wewithout ~~temporarily close a restaurant for renovation~~limitation, weregulations ~~will~~relating ~~lose the~~to ~~revenue that~~ the inspection ~~restaurant~~or ~~would~~preparation ~~otherwise~~of ~~receive had it remained open. In addition~~meat, ~~renovated~~food ~~restaurants~~and ~~may~~other ~~also~~products ~~experience~~used ain ~~significant reduction~~our inbusiness, ~~revenue~~product ~~after~~availability ~~they~~could ~~reopen~~be iflimited ~~our~~and ~~existing~~the ~~customers~~prices ~~change~~that ~~their dining~~our ~~habits~~suppliers ascharge aus ~~result~~could ofincrease. ~~the~~The ~~temporary~~costs ~~closing~~ of ~~the~~operating our 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.13

Ifmay wealso ~~make~~increase if ~~acquisitions~~there are changes in laws and regulations such as those governing access for the ~~future~~disabled, weincluding ~~may~~the ~~experience~~Americans ~~assimilation~~with ~~problems~~Disabilities ~~and dissipation~~Act. If any of ~~management~~these costs ~~resources,~~increased and we ~~may~~were ~~need~~unable to ~~incur~~offset ~~additional~~the increase by increasing our ~~indebtedness~~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.”

~~Our~~We ~~future growth~~ may be ~~a function,~~locked ininto ~~part,~~long-term ofand ~~acquisitions~~non-cancelable ofleases ~~other restaurants. To the extent~~ that we ~~grow~~ ~~through~~want ~~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 ~~assimilate the operations and personnel of the acquired businesses~~cancel, ~~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~~be ~~additional~~unable ~~indebtedness~~ to ~~finance future~~renew ~~acquisitions,~~leases asthat ~~permitted under our senior secured credit facility and our indenture, in which case~~ we ~~would~~want ~~also~~to ~~face~~extend ~~certain~~at ~~financial risks associated with~~ the ~~incurrence~~end of ~~this~~their ~~indebtedness, such as reductions in our liquidity, access to capital markets and financial stability~~terms.

~~Any~~Many of our current ~~prolonged~~leases ~~disruption~~are non-cancelable and typically have terms ranging from 15 to 20 years and renewal options for terms ranging from five to 20 years. It is likely that leases we enter into in the future 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 ~~pie~~obligations ~~manufacturing~~under ~~business~~the ~~could~~applicable ~~harm~~lease, which would include, among other things, payment of the base rent for the balance of the lease term. As of November 2, 2006, we were responsible for lease payments at 4 closed restaurant locations. Additionally, the potential losses associated with our inability ~~business~~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.

WeIn ~~operate~~addition, ~~three~~at ~~pie~~the end ~~manufacturing~~of ~~plants~~the ~~which~~lease ~~produce~~term ~~pies for Bakers Square~~ and ~~Village~~any ~~Inn~~renewal ~~as well~~period ~~as third-party customers that account~~ for a ~~portion~~restaurant, ofwe ~~current~~may ~~production. Any~~be ~~prolonged~~unable ~~disruption~~to renew in the ~~operations~~lease ofwithout ~~any~~substantial ofadditional ~~these plants~~cost, ~~whether~~if asat ~~a result~~all. ofAs ~~technical~~a ~~or labor difficulties~~result, ~~destruction~~we may orbe ~~damage~~required to ~~the facilities~~close or ~~other~~relocate ~~reasons~~a restaurant, which could ~~result~~subject inus ~~increased~~to construction and other costs and ~~reduced revenues~~risks, and ~~our~~could ~~relationships~~have ~~with~~a ~~third-party~~material ~~customers~~adverse ~~could~~effect beon ~~harmed~~our business and results of operations.

WeChanging consumer ~~rely~~preferences inand discretionary spending patterns could have an adverse ~~part~~effect on our ~~franchisees~~business.

WeFood ~~rely~~service ~~in part on our~~businesses ~~Village~~are ~~Inn~~often ~~franchisees~~affected ~~and~~by ~~the~~changes ~~manner~~ in ~~which~~consumer ~~they~~tastes, ~~operate~~national, ~~their~~regional ~~locations~~and tolocal ~~develop,~~economic ~~promote~~conditions and ~~operate~~demographic ~~our~~trends. ~~Village~~Factors ~~Inn~~such ~~business.~~as ~~Our~~traffic ~~Village Inn~~patterns, ~~franchises~~local ~~generated~~demographics ~~revenues~~and tothe ustype, ofnumber ~~$5.1~~and ~~million~~location ~~during~~of ~~the~~competing ~~2004 fiscal~~restaurants ~~year.~~may ~~Although~~adversely weaffect ~~have~~the ~~developed~~performance ~~criteria~~of toindividual ~~evaluate~~locations. ~~and~~In ~~screen prospective franchisees~~addition, inflation ~~there~~and ~~can~~increased befood noand ~~assurance~~energy ~~that~~costs ~~franchisees~~may ~~will~~harm ~~have~~ the ~~business~~restaurant industry ~~acumen~~in orgeneral ~~financial~~and ~~resources~~our ~~necessary~~locations toin ~~operate~~particular. ~~successful~~Adverse ~~franchises~~changes in ~~their~~ ~~franchise~~any ~~areas. The failure~~ of ~~franchisees to operate franchises~~these ~~successfully~~factors could ~~have~~reduce aconsumer ~~material~~traffic ~~adverse~~or ~~effect~~impose onpractical ~~Village~~limits ~~Inn’s~~on ~~reputation~~pricing, ~~and~~which ~~its~~could ~~brands.~~harm ~~While~~our webusiness. ~~try~~Our tocontinued ~~ensure~~success ~~that~~will ~~the~~depend ~~quality~~in ofpart ~~the~~on ~~Village Inn~~our ~~brand~~ability isto ~~maintained~~anticipate, byidentify ~~all~~and ofrespond ~~our~~to ~~franchisees,~~changing ~~franchisees~~consumer ~~could take actions~~preferences ~~that~~and ~~adversely~~economic ~~affect the value of our intellectual property or reputation~~conditions.

WeThe ~~could~~success of our ~~face~~restaurants ~~labor~~is ~~shortages~~significantly ~~that~~influenced ~~could~~by ~~slow~~the attractiveness and condition of our ~~growth~~facilities. We periodically update the exterior and ~~increase~~interior of our locations. ~~labor~~If ~~costs~~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.

~~Our~~In ~~success depends in part upon our ability to attract~~addition, ~~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~~business ~~restaurants.~~may Abe ~~sufficient~~adversely ~~number~~affected ofby ~~qualified~~laws ~~individuals~~restricting ofsmoking ~~the~~in ~~requisite~~restaurants, ~~caliber~~particularly ~~to fill these positions may be~~ in ~~short supply in some~~ areas~~. Additionally,~~ ~~competition~~where ~~for~~smoking ~~qualified~~is ~~employees~~only ~~could~~allowed ~~require~~in usrestaurants tothat ~~pay~~serve ~~higher wages~~alcohol, ~~which~~since ~~could~~most ~~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~~do ~~such delays,~~not ~~any~~serve ~~material~~alcohol. ~~increases~~Adverse ~~in employee turnover rates in existing~~changes ~~restaurants~~involving or any ~~widespread~~of ~~employee~~these ~~dissatisfaction~~factors could ~~have~~further areduce ~~material adverse effect on~~ our ~~operations.~~guest ~~Additionally,~~traffic ~~any labor disruption resulting from unionization efforts or otherwise could result in increased costs~~ and ~~reduced~~impose ~~revenues.~~practical Inlimits ~~2003,~~on ~~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~~pricing, ~~future~~which ~~unionization efforts~~ could ~~result~~further inreduce our ~~being~~revenues ~~subject to collective bargaining agreements that are~~and onoperating ~~terms that are not as economically attractive as our current arrangements with our employees~~income.

15If we make acquisitions in the future, we may experience assimilation problems and dissipation of management resources, and we may need to incur additional indebtedness.

~~Changes~~Our future growth may be a function, in part, of acquisitions of other restaurants. To the extent that ~~employment~~we ~~laws~~grow ~~may~~through ~~adversely~~acquisitions, ~~affect~~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 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.

~~Various federal and state~~Any ~~labor~~prolonged ~~laws~~disruption ~~govern~~in our ~~relationship~~pie ~~with~~manufacturing ~~our~~business 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. Significant additional government-imposed increases in the following areas could ~~materially~~harm ~~affect~~ our ~~results of operations:~~business.

~~• minimum~~We ~~wages;~~operate three pie manufacturing plants which produce pies for Bakers Square and Village Inn as well as third-party customers. 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

~~• mandated health benefits;~~14

~~• paid~~our ~~leaves~~relationships ofwith ~~absence;~~third-party customers could be harmed.

~~• tax~~We ~~reporting;~~rely orin part on our franchisees.

~~• revisions~~We rely in part on our Village Inn franchisees and the manner in which they operate their locations to ~~tax~~develop, ~~payment~~promote ~~requirements~~and ~~for~~operate ~~employees~~our ~~who~~Village ~~receive~~Inn ~~gratuities~~business. Our Village Inn franchises generated revenues to us of $5.1 million during the 2006 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 ~~may not~~could beface ~~able~~labor toshortages ~~protect~~that ~~our~~could ~~trademarks,~~slow ~~service~~our ~~marks,~~growth ~~logos~~ and ~~other~~increase ~~proprietary rights~~our labor costs.

WeOur ~~believe~~success ~~that~~depends ~~our~~in ~~trademarks,~~part ~~service~~upon ~~marks~~our ability to attract, ~~logos~~motivate and ~~other~~retain ~~proprietary~~qualified ~~rights~~employees, including ~~are~~restaurant ~~important~~managers, tokitchen staff and servers, in quantities sufficient to keep pace with our ~~success~~expansion schedule and meet the needs of our ~~competitive~~existing ~~position~~restaurants. ~~Accordingly,~~A wesufficient ~~protect~~number ~~our~~of qualified individuals of the ~~trademarks,~~requisite ~~service~~caliber ~~marks,~~to ~~logos~~fill ~~and~~these ~~proprietary~~positions ~~rights.~~may ~~However,~~be ~~the~~in ~~actions~~short supply in some areas. ~~taken~~Additionally, bycompetition usfor ~~may~~qualified beemployees ~~inadequate~~could require us to ~~prevent~~pay higher ~~imitation~~wages, ofwhich ~~our~~could ~~products~~result ~~and~~in ~~concepts by~~higher ~~others~~labor orcosts. Any future inability to recruit ~~prevent~~and ~~others~~retain ~~from~~qualified ~~claiming~~individuals ~~violations~~may ofdelay ~~their~~the ~~trademarks, service~~planned ~~marks,~~openings ~~logos~~of new restaurants and ~~proprietary~~could ~~rights~~adversely byimpact usour existing restaurants. InAny ~~addition~~such delays, ~~our intellectual~~any ~~property~~material ~~rights~~increases ~~may~~in ~~not~~employee ~~have~~turnover ~~the~~rates ~~value~~in ~~that~~existing restaurants weor ~~believe~~any ~~they~~widespread employee dissatisfaction could have a material adverse effect on our operations. Additionally, any labor disruption resulting Iffrom weunionization ~~are~~efforts ~~unsuccessful~~or otherwise could result in ~~protecting~~increased ~~our~~costs ~~intellectual~~and reduced ~~property~~revenues. ~~rights~~In 2003, oremployees ~~if another~~at ~~party~~one ~~prevails~~of inour ~~litigation~~pie ~~against~~manufacturing usfacilities conducted ~~relating~~an election to unionize our ~~intellectual~~workforce ~~property~~of 138 employees at that ~~rights,~~facility. weThis ~~may~~effort ~~incur~~was ~~significant~~unsuccessful; ~~costs~~however, ~~and~~future ~~may~~unionization beefforts could ~~required~~result in our being subject to ~~change~~collective ~~certain~~bargaining agreements that are ~~aspects~~on ofterms that are not as economically attractive as our ~~operations~~current arrangements with our employees.

~~We face~~Changes ~~risks~~in ~~associated~~employment ~~with~~laws ~~environmental~~may ~~laws~~adversely affect our business.

WeVarious ~~are~~federal ~~subject~~and ~~to federal,~~ state labor laws govern our relationship with our employees and ~~local~~affect operating costs. These laws include minimum wage requirements, ~~regulations~~overtime and ~~ordinances~~tip ~~that~~credits, working conditions, unemployment tax rates, workers’ compensation rates and citizenship requirements. Significant additional government-imposed increases in the following areas could materially affect our results of operations:

•· ~~govern activities~~minimum ~~or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes~~wages; ~~and~~

•· ~~impose liability~~mandated ~~for~~health ~~the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous materials.~~benefits;

~~In particular, under~~· paid ~~applicable~~leaves ~~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.absence;

~~We depend~~· tax onreporting; ~~the services of key executives, the loss of whom could materially harm our business.~~or

~~Our senior executives are~~· revisions ~~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~~tax ofpayment ~~any~~requirements offor ~~these~~employees ~~individuals~~who ~~could adversely~~receive ~~affect our business until a suitable replacement could be found~~gratuities. ~~See “Item 10. Directors and Executive Officers of the Registrant.”~~

16We 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 ~~controlled~~our success and our competitive position. Accordingly, we protect our trademarks, service marks, logos and proprietary rights. However, the actions taken by ~~affiliates~~us may be inadequate to prevent imitation of ~~Wind~~our ~~Point~~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.

AsWe ~~a result of their control~~face ofrisks VIassociated ~~Acquisition Corp., which is our parent, investment funds affiliated~~ with ~~Wind~~ ~~Point~~environmental 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 operationslaws.

~~The~~We ~~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~~subject to ~~pay our debts as they mature~~ federal, ~~the~~state ~~interests of Wind Point as a holder of equity might conflict with the interests of our other equity holders~~ and ~~the~~local ~~holders of our indebtedness. Wind Point also may have an interest in pursuing acquisitions~~laws, ~~divestitures,~~regulations ~~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~~ordinances ~~of our indebtedness.~~that:

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.15

~~Item~~· govern activities ~~2. Properties.~~or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes; and

We· impose liability ~~own~~for ~~our~~the ~~executive~~costs ~~offices consisting~~ of ~~approximately~~cleaning 93up,~~050~~ ~~square~~and ~~feet~~certain indamages ~~Denver,~~resulting ~~Colorado. In addition~~from, ~~we own two pie production facilities, each with approximately 63,000~~ ~~square~~sites ~~feet,~~of ~~located~~past ~~in Chaska~~spills, ~~Minnesota~~disposals ~~and~~or ~~Oak~~other ~~Forest,~~releases ~~Illinois, and we lease a pie production facility consisting~~ of ~~approximately~~hazardous ~~68,000 square feet located in Santa Fe Springs, California~~materials. 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~~In ~~restaurants~~particular, under applicable environmental laws, we may be responsible for ~~both~~remediation of ~~Village~~environmental ~~Inn~~conditions and ~~Bakers~~may ~~Square~~be ~~provide~~subject ~~seating~~to ~~capacity~~associated ~~for~~liabilities ~~approximately~~resulting from ~~120~~lawsuits brought by private litigants, relating to ~~180~~ ~~customers~~our restaurants and ~~typically~~the land ~~average~~on ~~around~~which 5our restaurants are located,~~000~~ ~~square~~regardless ~~feet.~~of Wewhether ~~currently~~we ~~own~~lease or own the restaurants or land in question and ~~building~~regardless atof ~~eight~~whether such environmental conditions were created by us or by a prior owner or tenant. Some of our ~~restaurant~~ 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. ~~The~~Such ~~rest~~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 ~~company-operated~~the ~~restaurants~~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 ~~leased~~found liable for the costs of remediation of contamination at any of these properties, inour ~~whole~~operating expenses would likely increase and our operating results could be materially adversely affected. Environmental conditions relating to our prior, existing or infuture ~~part~~restaurants or restaurant sites could have a material adverse effect on our business and results of operations.

We ~~also lease 11 restaurants~~ ~~that~~depend weon ~~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~~services ~~franchisees. As~~ of ~~October~~ ~~28,~~key ~~2004~~executives, wethe ~~had~~loss ~~three idle properties, two~~ of ~~which~~whom ~~were~~could ~~leased and~~materially ~~one~~harm ~~was~~our ~~owned in fee~~business.

Our senior ~~secured~~executives ~~credit~~are ~~facility~~important isto ~~secured~~our bysuccess abecause ~~lien~~they onhave ~~all~~been ofinstrumental in setting our strategic ~~assets~~direction, ~~including~~operating our ~~real~~business, identifying, recruiting and ~~properties~~training key personnel, identifying expansion opportunities and arranging necessary financing. Losing the services of any of these individuals could adversely affect our business until a suitable replacement could be found. See “Item 10. Directors and Executive Officers of the Registrant.”

~~Locations. As~~We ~~of October 28, 2004, we and~~are ~~our~~controlled ~~franchisees~~by ~~operated~~affiliates ~~374~~of ~~restaurants~~Wind ~~as follows:~~Point.

17As 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.

~~Village~~The ~~Inn~~interests of Wind ~~restaurants:~~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.

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	224

We have two independent directors (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.

~~Bakers Square~~Item ~~restaurants:~~1b. Unresolved Staff Comments.

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	—	150

None.

~~Lease~~Item ~~expirations~~2. Properties.

InWe ~~fiscal~~own ~~2005,~~our ~~leases~~executive ~~for~~offices 14consisting of ~~our~~approximately ~~properties~~93,050 ~~are~~square ~~scheduled~~feet toin ~~expire~~Denver, Colorado. In Ofaddition, ~~these~~we ~~expiring~~own ~~leases~~two pie production facilities, weeach ~~plan~~with toapproximately ~~exercise~~63,000 square ~~options~~feet, tolocated ~~extend~~in ~~the~~Chaska, Minnesota and Oak Forest, Illinois, and we lease ~~term~~a onpie ~~nine~~production ~~properties. Of~~facility ~~the~~consisting ~~five leases~~of weapproximately ~~expect~~68,000 tosquare ~~let~~feet located ~~expire~~in Santa Fe Springs, ~~one~~California. isWe ~~associated~~believe ~~with~~that aour ~~currently~~current ~~operated~~office and ~~restaurant~~operating ~~which~~space ~~will~~is ~~close,~~suitable ~~two~~and ~~are~~adequate ~~associated~~for ~~with~~its ~~closed~~intended ~~restaurants~~purposes and ~~two~~that we ~~are~~have ~~associated~~the ~~with~~ability ~~restaurants~~to ~~subleased~~increase toproduction ~~others~~at our pie production facilities without significant capital expenditures.

18Our 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

~~Item 3. Legal proceedings.~~16

Werest ~~are parties to lawsuits, revenue agent reviews by taxing authorities and legal proceedings,~~ of ~~which the~~our ~~majority~~company-operated ~~involve~~restaurants ~~workers’~~are ~~compensation~~leased, ~~employment~~in ~~practices~~whole ~~liability~~or ~~and general liability claims arising~~ in ~~the ordinary course of business~~part.

We ~~are~~also ~~currently~~lease ~~defendants in two~~10 ~~purported~~restaurants ~~class~~that ~~action~~we ~~claims~~sublease into ~~California.~~franchisees ~~The first class action claim was brought in October 2003 by two former employees~~ and ~~one~~lease ~~current~~four ~~employee~~restaurants ~~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~~sublease 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~~others. ~~The~~All ~~classes and subclasses alleged in the actions have not been certified by the respective courts at the current stages~~ of ~~the~~our ~~litigation,~~other ~~but~~franchise ~~generally~~restaurants are ~~claimed~~leased inor ~~the 2003 complaint to~~owned ~~include~~directly ~~persons who have been employed~~ by usthe inrespective ~~California since October 17,~~franchisees. ~~1999~~As ~~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~~November 212, ~~2000 in the positions of restaurant general manager and restaurant associate manager. No dollar amount in damages is requested in either complaint~~2006, ~~and~~we ~~the complaints~~owned ~~seek~~no ~~statutory~~idle ~~damages, compensatory damages, interest and attorneys’ fees in unspecified amounts~~property.

~~During the~~Our ~~fourth~~senior ~~quarter~~secured ~~of fiscal 2004, we established a reserve of $3.2 million in~~credit ~~connection~~facility ~~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~~secured toby ~~approval of~~a ~~the~~lien ~~court.~~on ~~Under~~all ~~the terms~~ of ~~the~~our ~~proposed settlements~~assets, ~~the~~including weour ~~have~~real ~~agreed to pay up to an aggregate of $6~~properties.~~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~~Locations. (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~~As ~~former shareholders~~ of ~~Midway~~ ~~Investors Holdings Inc. filed a lawsuit on December 22, 2004 in Suffolk County Superior Court in Massachusetts.~~November ~~The former shareholders of Midway Investors Holdings Inc. claim~~2, ~~among other allegations~~2006, ~~that~~ we ~~improperly sought indemnification~~ and ~~are denying~~our ~~liability~~franchisees ~~for~~operated ~~the~~404 ~~portion~~restaurants ofas 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.follows:

~~While~~Village weInn 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.restaurants:

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.

State of operation	Number of company- operated restaurants	Number of franchised restaurants	Total number of restaurants
Alaska	—	3	3
Arizona	29	—	29
Arkansas	—	4	4
Colorado	38	16	54
Florida	16	15	31
Illinois	2	1	3
Iowa	18	4	22
Kansas	—	10	10
Minnesota	—	3	3
Missouri	—	3	3
Nebraska	19	3	22
New Mexico	10	5	15
North Dakota	—	2	2
Oklahoma	5	—	5
Oregon	1	3	4
Texas	9	8	17
Utah	14	2	16
Virginia	—	1	1
Washington	—	3	3
Wyoming	—	9	9
Total	161	95	256

~~Item 4. Submission~~Bakers ofSquare ~~Matters to a Vote of Security Holders.~~restaurants:

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

State of operation	Number of company- operated restaurants	Number of franchised restaurants	Total number of restaurants
California	47	—	47
Illinois	47	—	47
Indiana	4	—	4
Iowa	3	—	3
Michigan	7	—	7
Minnesota	25	—	25
Ohio	7	—	7
Wisconsin	8	—	8
Total	148	—	148

~~Item~~Lease ~~5. Market for the Registrant’s Common Equity and Related Stockholder Matters.~~expirations

~~Our outstanding~~In ~~common~~fiscal ~~stock~~2007, isleases for ~~privately~~22 ~~held~~of ~~and~~our isproperties ~~not~~are ~~traded~~scheduled onto ~~any public market~~expire. Of Athese ~~majority~~expiring ofleases, ~~our~~we ~~outstanding~~plan ~~common~~to ~~stock,~~exercise options asto ofextend the ~~date~~lease ofterm ~~this filing,~~on ~~was~~19 ~~owned~~properties. Of bythe ~~affiliates~~three ofleases ~~our~~we ~~sponsor,~~expect ~~Wind~~to ~~Point~~let ~~Partners. See~~expire, these ~~“Item~~are ~~12.~~associated ~~Security~~with ~~Ownership~~currently ofoperating ~~Certain Beneficial~~restaurants ~~Owners~~which ~~and~~will ~~Management~~close.”

1917

Item 63. ~~Selected~~ ~~Financial~~Legal ~~Data~~proceedings.

~~The~~We ~~table~~are ~~below~~parties ~~presents~~to ~~selected~~lawsuits, ~~historical~~revenue ~~consolidated~~agent ~~financial~~reviews ~~data.~~by ~~The~~taxing ~~selected~~authorities ~~historical consolidated financial data for,~~ and atlegal ~~the end of~~proceedings, ~~the fiscal year ended~~of ~~October~~which ~~27, 2002,~~ the ~~period~~majority ~~from~~involve ~~October~~workers’ 28compensation, ~~2002~~employment ~~to June 13, 2003, the period~~practices ~~from~~liability ~~June 14, 2003 to October 26, 2003~~ and ~~the~~general ~~fiscal~~liability ~~year~~claims ~~ended~~arising ~~October~~in ~~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~~ordinary ~~of,~~course ~~the fiscal year ended October 29, 2000, the period from~~of 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 hereinbusiness.

OnWe ~~May~~settled ~~14,~~two ~~2001, Midway~~class ~~Investors~~action ~~Holdings~~claims ~~Inc.~~in ~~purchased~~California ~~VICORP~~related ~~Restaurants,~~to ~~Inc.,~~overtime ~~which~~and ~~was~~wage ~~a publicly-owned~~payments ~~company~~in ~~prior~~June to2005 for ~~the~~an ~~acquisition.~~aggregate Onpayment ~~June~~of ~~14,~~up ~~2003,~~to ~~VI Acquisition Corp~~$6.5 ~~purchased~~million, ~~Midway~~subject ~~Investors~~to ~~Holdings~~the ~~Inc~~following partial indemnification. We ~~Neither~~filed ofa ~~these~~suit ~~holding~~in ~~companies~~December ~~has~~2004 ~~had~~in ~~any~~Cook ~~independent~~County, ~~operations~~Illinois, ~~and~~seeking ~~consequently~~indemnification ~~the~~for damages ~~consolidated~~related ~~statements~~to ofthis ~~operations~~litigation ofunder VIthe ~~Acquisition~~Purchase ~~Corp.~~Agreement ~~and~~dated ~~Midway Investors~~June ~~Holdings~~14, ~~Inc.~~2003, pursuant ~~are substantially equivalent~~ to ~~those~~which of VICORP Restaurants, Inc. ~~However~~, aswas aacquired, ~~result~~in ofaddition ~~applying the required purchase~~to ~~accounting~~assertion ~~rules~~of toother ~~these~~claims. The ~~acquisitions, our financial statements for periods~~former ~~following~~shareholders ~~the~~of ~~transactions~~Midway ~~were~~Investors ~~significantly~~Holdings ~~affected~~Inc. ~~The~~filed ~~application~~a ofsimilar action in ~~purchase~~December ~~accounting~~2004 ~~rules~~in ~~required~~Superior usCourt toin ~~revalue~~Massachusetts. Through our ~~assets~~parent ~~and~~company, ~~liabilities~~VI atAcquisition ~~the~~Corp., ~~two~~an ~~respective~~agreement ~~acquisition~~to ~~dates~~settle ~~which~~claims ~~resulted~~brought in ~~different~~both ~~accounting bases~~of ~~being~~these ~~applied~~actions inwas finalized ~~different~~and ~~periods~~VI Acquisition Corp. Asreceived a ~~result~~settlement ofpayment ~~these~~in ~~changes, the~~December ~~summary~~2005 ~~financial~~of ~~information~~$2.65 ~~presented~~million. The ~~below~~ultimate ~~relate~~ cost to settle the ~~entity~~two ~~specified below~~class ~~for~~actions ~~the~~was ~~following~~reduced ~~periods:~~to $5.3 million.

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.

We are currently defendants in two class action claims in California. The first class action was brought in March 2006 by two former managers and alleges that we violated California law with regard to unpaid overtime, compensation for missed meals and rest periods, civil penalties for failure to provide itemized wage statements, failure to provide notice on paychecks where paychecks may be cashed without any fees, and unfair business practices. The classes and subclasses alleged in the action have not been certified by the court at the current stage of the litigation but generally are claimed to be persons who have been employed since February 1, 2005, in the position of restaurant managers, persons who have been employed in California since March 15, 2002, in any capacity who received a payroll check in California, and all restaurant managers who have ended their employment with the Company prior to the effective date of any settlement, judgment, or other resolution of the action. No dollar amount in damages is requested in the Complaint and the Complaint seeks statutory damages, and attorneys’ fees in an unspecified amount.

The ~~following~~second ~~data~~class ~~should be~~action ~~read~~was brought in ~~conjunction~~April ~~“Item~~2006 7.by ~~Management’s~~a ~~Discussion~~former employee and ~~Analysis~~alleges ofthat ~~Financial~~the Company ~~Condition~~violated California laws with regard to failure to pay vested vacation pay and unfair ~~Results~~business practices. The class alleged is any person who has been employed by us in California at any time from four years prior to the filing of ~~Operations”~~the ~~and~~class ~~our~~action ~~consolidated~~to ~~financial~~date ~~statements~~of trial. No dollar amount in damages is requested in the Complaint and ~~notes~~the ~~thereto~~Complaint ~~included~~seeks ~~elsewhere~~attorneys’ fees in ~~this~~an ~~Annual~~unspecified ~~Report~~amount. In onthe ~~Form~~fourth ~~10-K~~quarter of fiscal 2006, the Company established a liability of $600,000 relating to this action.

20We 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.

	VICORP Restaurants, Inc.						Midway Investors Holdings Inc.									VI Acquisition Corp.
(In thousands)	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
Income statement data:
Revenues:
Restaurant operations	$	367,397		$	203,494		$	170,326		$	377,630		$	243,157		$	138,696		$	394,667
Franchise operations	6,201			3,219			2,902			5,796			3,448			1,916			5,057
Total revenues	373,598			206,713			173,228			383,426			246,605			140,612			399,724
Cost and expenses:
Restaurant costs:
Food	109,496			60,423			49,319			104,298			66,186			37,219			106,294
Labor	121,109			66,359			56,388			122,850			79,016			45,500			127,251
Other operating expenses(1)	89,099			50,455			45,850			100,002			65,629			40,531			111,663
Franchise operating expenses	2,880			1,242			1,851			3,092			1,583			1,032			2,490
General and administrative expenses	27,366			15,049			12,344			26,598			16,533			9,447			25,193
Litigation settlement	—			—			—			—			—			—			3,168
Goodwill amortization(2)	—			—			462			—			—			—			—
Transaction expenses(3)	—			15,993			—			279			9,436			1,226			125
Management fees	—			—			—			1,000			674			185			552
Asset impairments	—			—			—			—			96			—			1,159
Operating profit (loss)	23,648			(2,808		)	7,014			25,307			7,452			5,472			21,829
Interest expense	817			292			4,524			9,786			5,550			5,330			15,161
Debt extinguishment costs(3)	—			—			—			—			6,516			—			6,856
Other income, net	494			102			625			787			433			147			522
Income (loss) before income taxes	23,325			(2,998		)	3,115			16,308			(4,181		)	289			334
Provision for income taxes (benefit)	8,654			(2,316		)	233			5,779			(1,986		)	(280		)	(359		)
Net income (loss)	$	14,671		$	(682	)	$	2,882		$	10,529		$	(2,195	)	$	569		$	693
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		)	(27,954		)	(14,797		)	(61,150		)	(25,719		)	(16,545		)
Total assets	195,213			196,120			187,384			193,850			186,658			278,302			290,380
Total debt(5)	4,740			3,272			97,351			95,088			83,974			146,516			145,217
Total stockholders’ equity	126,697			134,987			38,221			48,836			9,915			70,679			72,266
Cash flow and other financial data:
Adjusted EBITDA(6)	$	42,096		$	23,043		$	15,862		$	41,783		$	27,032		$	12,614		$	42,141
Net rent expense:(7)
Net rent expense, less amortization of rent- related purchase accounting adjustments	15,351			8,643			11,003			23,922			15,788			10,150			28,843
Amortization of rent-related purchase accounting adjustments	—			—			(139		)	(301		)	(222		)	322			837
Capital expenditures(8)	27,064			6,929			4,265			10,599			9,904			10,845			15,868
Depreciation and amortization	17,880			9,756			8,331			15,330			8,948			5,306			14,670
Cash flow from operating activities	38,259			18,346			(6,361		)	29,119			12,299			5,579			22,520
Cash flow from investing activities	(24,099		)	(6,870		)	(120,631		)	(10,278		)	(11,137		)	(138,640		)	(19,297		)
Cash flow from financing activities	(41,251		)	(969		)	121,050			(8,388		)	(8,147		)	129,351			(7,217		)
Ratio data:
Ratio of earnings to fixed charges(9)	4.3		x	0.2		x	1.4		x	1.0		x	0.8		x	1.0		x	1.0		x
Ratio of total debt to Adjusted EBITDA	0.1		x							2.3		x							3.4		x
Ratio of Adjusted EBITDA to interest expense	51.5		x	78.9		x	3.5		x	4.3		x	4.8		x	2.3		x	2.8		x
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		%

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

21No matters were submitted to a vote of security holders of the Company during the fiscal year covered by this report.

~~(1) Other~~PART ~~operating expense consists primarily of rent, utilities, depreciation and marketing expenses.~~II

~~(2) We~~Item ~~adopted Statement of Financial Accounting Standards (“SFAS”) No~~5. ~~142,~~ ~~“Goodwill~~Market ~~and~~for ~~Other~~the ~~Intangible~~Registrant’s ~~Assets,”~~Common ~~effective~~Equity ~~in fiscal 2002. Under SFAS No. 142, goodwill~~ and ~~intangible~~Related ~~assets~~Stockholder ~~deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests~~Matters.

~~(3) We~~Our outstanding ~~incurred~~common ~~various~~stock ~~expenses~~is ~~directly~~privately ~~related~~held toand ~~the~~is ~~May~~not ~~2001~~traded ~~and~~on ~~June~~any public ~~2003~~market. ~~acquisitions~~A majority of ~~the~~our ~~predecessor~~outstanding ~~companies.~~common ~~The~~stock, ~~components~~as of the date of this ~~transaction~~filing, ~~expenses~~was ~~are~~owned asby ~~follows:~~affiliates of our sponsor, Wind Point Partners. See “Item 12. Security Ownership of Certain Beneficial Owners and Management.”

	VICORP Restaurants, Inc.				Midway Investors Holdings Inc.						VI Acquisition Corp.
(In thousands)	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
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		75
Severance costs(b)	—		—		—		—		—		1,177		—
Legal settlements(c)	—		8,300		—		—		—		—		50
Total transaction expenses	$	—	$	15,993	$	—	$	279	$	9,436	$	1,226	$	125
Debt extinguishment costs:(d)(e)
Debt prepayment penalties	$	—	$	—	$	—	$	—	$	1,298	$	—	$	2,305
Write-off of deferred debt financing costs	—		—		—		—		3,322		—		4,344
Derivative termination	—		—		—		—		1,896		—		207
Total debt extinguishment costs	$	—	$	—	$	—	$	—	$	6,516	$	—	$	6,856

Item 6. Selected Financial Data.

~~(a) We~~The ~~recognized~~table ~~$6.0~~below ~~million~~presents selected ofhistorical ~~compensation~~consolidated ~~expense~~financial ~~associated~~data. ~~with~~The ~~the~~selected historical consolidated ~~exercise~~financial ofdata ~~stock~~for ~~options~~the infiscal ~~connection~~year ~~with~~ended ~~the~~October 28, ~~May~~2004, ~~2001~~the ~~acquisition.~~fiscal Inyear ~~connection~~ended ~~with~~November 3, 2005 and the ~~June~~fiscal ~~2003~~year ~~acquisition~~ended weNovember 2, ~~paid~~2006 have ~~senior~~been ~~employees~~derived afrom ~~total~~our ofaudited consolidated financial statements included $2elsewhere herein.1 ~~million~~The toselected ~~terminate~~historical ~~their~~consolidated ~~existing~~financial ~~employment~~data ~~contracts~~for the fiscal year ended October 27, 2002 and ~~recognized $3.5~~the ~~million~~period offrom ~~compensation~~October 28, 2002 ~~expense~~to ~~associated~~June 13, ~~with~~2003, and the ~~exercise~~period offrom ~~stock~~June 14, 2003 to ~~options~~October 26, 2003 has been derived from our audited consolidated financial statements for those periods not included elsewhere herein.

~~(b) We~~On ~~made~~May 14, ~~severance~~2001, Midway ~~payments~~Investors ~~totaling~~Holdings $1Inc.2 ~~million~~purchased VICORP Restaurants, Inc., ~~primarily~~which was ~~related~~a publicly owned company prior to ~~our~~ ~~former~~the ~~chief~~acquisition. ~~executive~~On ~~officer~~June 14, ~~pursuant~~2003, VI toAcquisition ~~contractual~~Corp. ~~provisions~~purchased ~~triggered~~Midway Investors Holdings Inc. Neither of these byholding companies has had any independent operations, and consequently the consolidated ~~June~~statements ~~2003~~of ~~acquisition~~operations of VI Acquisition Corp. and Midway Investors Holdings Inc. are substantially equivalent to those of VICORP

(c) We settled two class-action legal claims and one individual labor-related legal claim for $8.9 million, offset by $0.6 million of insurance proceeds received in respect of those claims, as a condition to the May 2001 acquisition.18

~~(d) In~~Restaurants, Inc. However, ~~connection~~as ~~with~~a result of applying the ~~June~~required ~~2003~~purchase ~~acquisition~~accounting rules to these acquisitions, weour ~~incurred~~financial ~~$6.5~~statements ~~million of~~for ~~debt~~periods ~~extinguishment~~following ~~costs,~~the transactions ~~including~~were ~~prepayment~~significantly ~~penalties~~affected. The application of ~~$1.3~~purchase ~~million~~accounting ~~relating~~rules required us to ~~the~~revalue ~~prepayment~~our ofassets ~~existing~~and ~~debt,~~liabilities ~~$3.3~~at ~~million~~the ~~of noncash write-offs~~two ofrespective ~~unamortized~~acquisition ~~deferred~~dates ~~debt~~which ~~financing~~resulted ~~costs~~in ~~related~~different toaccounting ~~prior~~bases ~~credit facilities~~being ~~and~~applied $1in different periods.9 ~~million~~As a result of ~~costs~~these ~~related~~changes, tothe ~~terminating~~summary financial ~~interest~~information ~~rate~~presented ~~swaps~~below ~~effected~~ relate to ~~hedge~~the ~~interest~~entity ~~rate~~specified ~~risk~~below onfor the ~~existing~~following ~~debt.~~periods:

(e) In connection with the April 2004 refinancing, we incurred $6.9 million of debt extinguishment costs, including prepayment penalties of $2.3 million, $4.4 million of noncash write-offs of unamortized deferred financing costs and $0.2 million of costs relating to terminating interest rate swaps.

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.
Fiscal year ended November 3, 2005		VI Acquisition Corp.
Fiscal year ended November 2, 2006		VI Acquisition Corp.

~~(4)~~The ~~Working~~following ~~capital~~data isshould ~~defined~~be asread ~~current~~in ~~assets~~conjunction ~~less~~with ~~current~~“Item ~~liabilities~~7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

~~(5) Total debt at the end of each of the periods presented represents the following:~~19

VICORP Restaurants, Inc.—Capital lease obligations and other long-term debt;

	VI Acquisition Corp.												Midway Investors Holdings Inc.
(In thousands)	Fiscal year ended November 2, 2006			Fiscal year ended November 3, 2005			Fiscal year ended October 28, 2004			Period from June 14, 2003 to October 26, 2003			Period from October 28, 2002 to June 13, 2003			Fiscal year ended October 27, 2002

Income statement data:
Revenues:
Restaurant operations	$	425,185		$	407,424		$	394,667		$	138,696		$	243,157		$	377,630
Franchise operations	5,058			5,280			5,057			1,916			3,448			5,796
Manufacturing operations	36,065			26,641			31,796			12,378			18,726			20,754
Total revenues	466,308			439,345			431,520			152,990			265,331			404,180
Cost and expenses:
Restaurant costs:
Food	108,774			105,575			103,604			35,800			64,108			101,218
Labor	141,876			132,000			127,251			45,500			79,016			122,850
Other operating expenses(1)	126,415			112,204			105,043			38,161			62,067			94,336
Franchise operating expenses	2,148			2,181			2,311			978			1,583			3,092
Manufacturing operating expenses	35,350			24,809			32,322			12,899			19,432			21,518
General and administrative expenses	29,417			29,602			27,028			10,048			17,802			28,914
Litigation settlement expenses	600			(408		)	3,168			—			—			—
Employee severance	40			600			286			297			—			—
Transaction expenses(2)	—			15			125			1,226			9,436			279
Management fees	850			850			1,159			185			674			1,000
Loss on disposition of assets	1,395			110			438			141			237			88
Asset impairments	1,381			—			1,101			—			96			—
Operating profit	18,062			31,807			27,684			7,755			10,880			30,885
Interest expense	(29,976		)	(28,951		)	(26,787		)	(9,719		)	(11,353		)	(19,312		)
Debt extinguishment costs(2)	—			—			(6,856		)	—			(6,516		)	—
Other income, net	586			745			522			147			433			787
Income (loss) before income taxes	(11,328		)	3,601			(5,437		)	(1,817		)	(6,556		)	12,360
Provision for income taxes (benefit)	(3,457		)	138			(2,912		)	(1,235		)	(3,139		)	3,882
Net income (loss)	$	(7,871	)	$	3,463		$	(2,525	)	$	(582	)	$	(3,417	)	$	8,478

Balance sheet data (at end of period):
Cash and cash equivalents	$	1,938		$	2,099		$	1,332		$	5,326		$	9,036		$	16,021
Working deficit(3)	(12,688		)	(10,708		)	(16,348		)	(25,679		)	(61,111		)	(14,758		)
Total assets	395,242			412,265			384,127			376,939			270,553			276,248
Total debt(4)	154,168			147,261			141,918			143,169			80,611			91,700
Deemed landlord financing liability	108,033			132,038			114,670			108,140			92,209			89,305
Total stockholders’ equity	63,347			71,871			68,045			69,588			5,592			45,735
Cash flow and other financial data:
Net rent expense:(5)
Net rent expense, less amortization of rent- related purchase accounting adjustments	23,277			18,343			17,387			6,012			10,093			14,615
Amortization of rent-related purchase accounting adjustments	1,140			1,582			1,597			614			(222		)	(301		)
Capital expenditures(6)	24,699			21,081			16,006			9,573			9,904			10,599
Depreciation and amortization	22,184			20,482			18,962			6,869			11,215			19,059
Cash flow from operating activities	17,890			24,490			25,121			5,820			12,243			28,657
Cash flow from investing activities	(36,375		)	(38,871		)	(23,766		)	(154,261		)	(13,743		)	(10,278		)
Cash flow from financing activities	18,324			15,148			(5,349		)	144,731			(5,485		)	(7,926		)

Ratio data:
Ratio of earnings to fixed charges(7)	0.7 x			1.1 x			0.8 x			0.9 x			0.7 x			1.4 x
Operating data:
Village Inn company-operated locations (at end of period)	161			135			121			118			117			109
Bakers Square company-operated locations (at end of period)	148			152			150			149			148			148
Village Inn franchised locations (at end of period)	95			100			103			105			106			115
Change in same unit sales—Village Inn	(1.9		)%	0.9		%	2.2		%	0.4		%	(0.2		)%	0.2		%
Change in same unit sales—Bakers Square	(2.3		)%	(3.1		)%	(1.0		)%	(4.7		)%	(1.3		)%	1.8		%
Change in total same unit sales	(2.1		)%	(1.3		)%	0.4		%	(2.6		)%	(0.8		)%	1.1		%

~~Midway Investors Holdings~~(1) Other ~~Inc.—Term~~operating ~~loan~~expense ~~and~~consists ~~revolving~~primarily ~~borrowings~~of ~~outstanding~~rent, ~~under~~utilities, ~~a senior secured~~depreciation, ~~credit~~marketing ~~facility~~expenses, ~~subordinated~~supplies, ~~debt~~repairs ~~(net~~and ~~of original issue discounts)~~maintenance, ~~capital lease~~insurance ~~obligations~~expenses and workers’ ~~redeemable~~compensation ~~preferred stock;~~costs.

VI Acquisition Corp. (October 26, 2003) —Term loan and revolving borrowings under our prior senior secured credit facility, subordinated debt (net of original issue discounts), capital lease obligations and a letter of credit secured by our capital stock; and20

~~VI Acquisition Corp.~~ (~~October 28, 2004~~2) We incurred ~~—Senior~~various ~~unsecured~~expenses ~~notes~~directly ~~payable,~~related ~~term~~to ~~loan~~the ~~and~~June 2003 ~~revolving~~acquisitions ~~borrowings~~of ~~under~~the ~~our~~predecessor ~~senior~~companies. ~~secured~~The ~~credit~~components ~~facility,~~of ~~subordinated~~the ~~debt~~transaction ~~(net~~expenses ofare as ~~original~~follows ~~issue~~(there ~~discounts)~~were ~~and~~no ~~capital~~transaction ~~lease~~or ~~obligations.~~debt related costs incurred in fiscal 2006):

	VI Acquisition Corp.						Midway Investors Holdings Inc.
(In thousands)	Fiscal year ended November 3, 2005		Fiscal year ended October 28, 2004		Period from June 14, 2003 to October 26, 2003		Period from October 28, 2002 to June 13, 2003		Fiscal year ended October 27, 2002
Transaction expenses:
Employment contract termination and stock compensation(a)	$	—	$	—	$	—	$	5,574	$	—
Legal, accounting and other professional fees	15		75		49		3,862		279
Severance costs(b)	—		—		1,177		—		—
Legal settlements	—		50		—		—		—
Total transaction expenses	$	15	$	125	$	1,226	$	9,436	$	279
Debt extinguishment costs:(c)(d)
Debt prepayment penalties	$	—	$	2,305	$	—	$	1,298	$	—
Write-off of deferred debt financing costs	—		4,344		—		3,322		—
Derivative termination	—		207		—		1,896		—
Total debt extinguishment costs	$	—	$	6,856	$	—	$	6,516	$	—

(6a) ~~EBITDA represents net income (loss) before interest expense, income~~ In ~~taxes,~~connection ~~depreciation~~with ~~on property plant and equipment and amortization on franchise rights. Adjusted EBITDA excludes~~ the ~~transaction~~June 2003 ~~expenses~~acquisition ~~and~~we ~~debt extinguishment~~paid ~~costs~~senior ~~discussed~~employees above in footnote 3, noncash compensation costs related to option issuances, and noncash impairment expense and amortization of rent-related purchase accounting adjustments. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to net income as a ~~measure of operating performance or to cash flow from operating~~total ~~activities as a measure~~ of ~~liquidity~~$2.1 ~~Additionally,~~million ~~EBITDA and Adjusted EBITDA are not intended~~ to beterminate ~~measures~~their ofexisting ~~free~~employment ~~cash~~contracts ~~flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments~~ and ~~debt service requirements~~recognized $3.5 ~~Because~~million ~~not all companies use identical calculations, these presentations~~ of ~~EBITDA~~compensation ~~and Adjusted~~expense ~~EBITDA~~associated ~~may~~with ~~not be comparable to similarly titled measures of other companies. We believe that~~ the ~~inclusion~~exercise of ~~supplementary adjustments to EBITDA~~stock ~~applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about certain unusual items that we do not expect to incur in the future and certain noncash items~~options.

~~The~~(b) We made ~~following~~severance ~~table reconciles~~payments ~~EBITDA~~totaling ~~and~~$1.2 ~~Adjusted~~million, ~~EBITDA~~primarily related to ~~net~~our ~~income~~former chief ~~(loss)~~executive officer, pursuant to contractual provisions triggered by the June 2003 acquisition.

	VICORP Restaurants, Inc.					Midway Investors Holdings Inc.									VI Acquisition Corp.
(In thousands)	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
Net income (loss)	$	14,671	$	(682	)	$	2,882		$	10,529		$	(2,195	)	$	569		$	693
Provision for income taxes (benefit)	8,654		(2,316		)	233			5,779			(1,986		)	(280		)	(359		)
Interest expense	817		292			4,524			9,786			5,550			5,330			15,161
Depreciation and amortization	17,880		9,756			8,331			15,330			8,948			5,306			14,670
Asset retirements	74		—			31			88			237			141			438
Asset impairments	—		—			—			—			96			—			552
EBITDA	42,096		7,050			16,001			41,512			10,650			11,066			31,155
Litigation settlement	—		—			—			—			—			—			3,168
Transaction expenses	—		15,993			—			279			9,436			1,226			125
Debt extinguishment costs	—		—			—			—			6,516			—			6,856
Noncash compensation expense	—		—			—			293			652			—			—
Amortization of rent- related purchase accounting adjustments(7)	—		—			(139		)	(301		)	(222		)	322			837
Adjusted EBITDA	$	42,096	$	23,043		$	15,862		$	41,783		$	27,032		$	12,614		$	42,141

(c) In connection with the June 2003 acquisition, we incurred $6.5 million of debt extinguishment costs, including prepayment penalties of $1.3 million relating to the prepayment of existing debt, $3.3 million of noncash write-offs of unamortized deferred debt financing costs related to prior credit facilities and $1.9 million of costs related to terminating interest rate swaps effected to hedge interest rate risk on existing debt.

(7d) ~~Increases in net rent expense over the periods presented are primarily~~ In ~~due to the sale-leaseback transactions that were entered into in~~ connection with the ~~May~~April 2004 14refinancing, ~~2001~~we ~~acquisition~~incurred ~~of VICORP Restaurants, Inc~~$6.,9 ~~relating~~million ~~to 48~~of ~~restaurants,~~debt ~~and~~extinguishment ~~the June 14~~costs, ~~2003~~including ~~acquisition~~prepayment penalties of ~~Midway Investors Holdings Inc~~$2.3 million, ~~relating to ten restaurants~~$4. ~~Net rent expense also includes the effects~~4 million of ~~recording~~noncash ~~the known escalations in our rent expense on a straight~~write-~~line~~offs ~~basis over the committed term~~ of ~~the~~unamortized ~~lease.~~deferred ~~Additionally,~~financing ~~net~~costs ~~rent~~and ~~expense includes~~$0.2 ~~amortization~~million of ~~the~~costs ~~fair~~relating ~~market rent adjustments which we were required~~ to ~~recognize~~ ~~under~~terminating ~~purchase~~interest ~~accounting~~rate ~~at the time of each of the May 2001 and June 2003 acquisitions~~swaps.

(83) ~~Capital~~ Working deficit ~~expenditures~~is ~~include~~defined ~~capital~~as ~~spent~~current ~~for~~assets ~~new~~less ~~stores,~~current ~~remodeling projects, restaurant maintenance and corporate capital projects~~liabilities.

(94) ~~For purposes of calculating the ratio of earnings to fixed charges,~~ Total ~~earnings represent earnings before income taxes, plus fixed charges (excluding amortization of capitalized interest). Fixed charges include interest expense (including amortization of deferred~~ debt ~~financing~~at ~~costs), capitalized interest and~~ the ~~portion~~end of ~~operating~~each ~~rental expense, which management believes is representative~~ of the ~~interest~~periods ~~component~~presented ofrepresents ~~rent~~the ~~expense.~~following:

23Midway Investors Holdings Inc.—Term loan and revolving borrowings outstanding under a senior secured credit facility, subordinated debt (net of original issue discounts), capitalized lease obligations and redeemable preferred stock;

~~Item~~VI 7Acquisition Corp. ~~Management’s~~ ~~Discussion~~(October 26, 2003) —Term loan and ~~Analysis~~revolving borrowings under our prior senior secured credit facility, subordinated debt (net of ~~Financial~~original ~~Condition~~issue discounts), capitalized lease obligations and ~~Results~~a letter of ~~Operations.~~credit secured by our capital stock; and

~~The following~~VI ~~discussion~~Acquisition ~~contains forward-looking statements that involve numerous risks and uncertainties~~Corp. ~~Our actual results could differ materially from those~~ ~~discussed~~(October 28, in2004, ~~the forward-looking statements as a result of these risks and uncertainties~~November 3, ~~including~~2005 ~~those set forth in this Annual Report on Form 10-K under “Forward-looking statements”~~ and ~~under~~November ~~“Risk~~2, ~~factors.”~~2006) ~~You should read~~—Senior ~~the~~unsecured ~~following~~notes ~~discussion~~payable, interm ~~conjunction~~loan ~~with~~and ~~“Item~~revolving 6.borrowings ~~Selected~~under ~~financial~~our ~~data”~~senior ~~and~~secured ~~our~~credit ~~audited~~facility, ~~consolidated~~subordinated ~~financial~~debt ~~statements~~(net ~~and~~of ~~notes~~original ~~appearing~~issue ~~elsewhere in this Annual Report on Form 10-K.~~

~~Company profile~~21

Wediscounts) ~~operate family-dining restaurants under two well-recognized brands, Village Inn~~ and ~~Bakers Square. As~~capitalized oflease ~~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~~obligations. WeAmounts ~~also~~exclude ~~produce~~deemed ~~premium~~landlord ~~pies~~financing ~~at three strategically located facilities that we serve in our restaurants or sell to third parties~~liability.

~~Our Village Inn restaurants~~(5) Net ~~are~~rent ~~known~~expense ~~for~~includes ~~serving~~the ~~fresh~~effects ~~breakfast~~of ~~items~~recording ~~throughout~~ the ~~day,~~known ~~and~~escalations wein ~~have leveraged~~ our ~~breakfast heritage to include traditional American fare at lunch~~ ~~and~~rent ~~dinner.~~expense ~~Our~~on ~~Bakers~~a ~~Square~~straight-line ~~restaurants~~basis ~~have~~over ~~built upon~~ the ~~reputation~~committed term of ~~our~~the lease. ~~signature~~Additionally, ~~pies~~net torent ~~offer~~expense ~~quality~~includes ~~meals~~amortization atof ~~breakfast,~~the ~~lunch~~fair ~~and~~market ~~dinner. Our broad~~rent ~~offering~~adjustments ofwhich ~~affordable~~we ~~menu~~were ~~items~~required ~~is designed~~ to ~~appeal~~recognize tounder apurchase ~~demographically~~accounting at ~~diverse~~the ~~customer~~time ~~base,~~of ~~including~~June 2003 ~~families, senior citizens and other value-oriented diners~~acquisitions.

~~The following table sets~~(6) Capital ~~forth~~expenditures ~~the~~include ~~changes~~capital tospent ~~the~~for ~~number~~new ofstores, ~~company-operated~~remodeling ~~and franchised restaurants~~projects, ~~for~~restaurant ~~the~~maintenance ~~periods~~and ~~presented~~corporate ~~below~~capital projects.

(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		271
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		374

(7) For purposes of calculating the ratio of earnings to fixed charges, earnings represent earnings before income taxes, plus fixed charges (excluding amortization of capitalized interest). Fixed charges include interest expense (including amortization of deferred debt financing costs), capitalized interest and the portion of operating rental expense, which management believes is representative of the interest component of rent expense.

24Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Our Village Inn and Bakers~~The ~~Square~~following ~~concepts~~discussion ~~operate~~contains ~~in the “family~~forward-~~dining”~~looking ~~segment~~statements ~~of the full service restaurant category. Full service restaurants offer broad menu choices~~ that ~~are served~~involve ~~to patrons by a waitstaff, while restaurants operating in the “limited~~numerous ~~service”~~risks ~~segment~~and ~~serve customers at a counter or through a drive-thru window~~uncertainties. We ~~believe~~Our ~~the~~actual ~~family-dining~~results ~~category~~could ~~has~~differ amaterially ~~loyal~~from ~~customer base and stable~~those ~~characteristics.~~discussed ~~According~~in ~~to Technomic, Inc.,~~ the ~~family~~forward-~~dining~~looking ~~segment~~statements ~~grew at~~as a ~~compound~~result ~~growth rate~~ of ~~1.6%~~these ~~from~~risks ~~1997 to 2002~~ and ~~is projected to~~ ~~continue~~uncertainties, toincluding ~~grow~~those atset ~~1.0%~~forth ~~per~~in ~~year~~this ~~over~~Annual ~~the~~Report ~~next four years. In the family-dining~~on ~~category,~~Form 10-K ~~the~~under ~~average per~~“Forward-~~person~~looking ~~check~~statements” ~~generally ranges from $6 to $9,~~ and ~~diners~~ inunder ~~this~~“Risk ~~category are sensitive to changes in price~~factors.” ~~In 2004, the average~~You ~~per-person~~should ~~check~~read ~~at Village Inn was $7.65 and~~ the ~~average~~following ~~per~~discussion ~~person~~in ~~check~~conjunction ~~at Bakers~~with ~~Square~~“Item ~~was $8~~6.~~70.~~ ~~One of the important elements of our business strategy~~Selected isfinancial todata” ~~provide~~and our ~~customers~~audited ~~with~~consolidated anfinancial ~~attractive~~statements ~~value~~and ~~by offering quality food~~notes atappearing ~~reasonable~~elsewhere ~~prices.~~in Asthis aAnnual ~~result,~~Report weon ~~continually strive to maintain and improve the efficiency of our operations~~Form 10-K.

~~Management~~Company ~~overview~~profile

~~Our~~We ~~restaurant~~operate ~~revenues are~~family-dining ~~affected~~restaurants byunder ~~restaurant~~two ~~openings~~well-recognized ~~and~~brands, ~~closings~~Village Inn and ~~same~~Bakers ~~unit sales performance~~Square. ~~Same~~ ~~unit sales is a measure of the percentage increase or decrease of the~~As ~~sales~~ of ~~units~~November 2, ~~open~~2006, atour ~~least~~company, 18which ~~months~~was ~~relative~~founded ~~to the same period~~ in ~~the~~1958, ~~prior year.~~had ~~We do not use new~~ 404 restaurants in ~~our~~25 ~~calculation~~states, consisting of ~~same~~309 ~~unit~~company-operated ~~sales~~restaurants ~~until they are open for 18 months in order to allow a new restaurant’s operations~~ and 95 ~~sales~~franchised ~~time to stabilize and provide more meaningful results~~restaurants. ~~Same~~We ~~unit~~also ~~sales~~produce premium ispies anat ~~important~~three ~~indicator within~~strategically ~~the~~located ~~restaurant~~facilities ~~industry~~that ~~because~~we ~~small~~serve ~~changes~~ in ~~same unit sales can~~our ~~have~~restaurants aor ~~proportionally~~sell ~~higher~~to ~~impact~~third ~~on operating margins because of the high degree of fixed costs associated with operating restaurants~~parties.

~~Within~~Our ~~both~~ Village Inn ~~and~~ ~~Bakers~~restaurants ~~Square,~~are ~~the~~known ~~restaurant~~for ~~count~~serving ~~has~~fresh ~~only~~breakfast ~~increased~~items ~~modestly~~throughout ~~over~~ the ~~last~~day, and ~~three~~we ~~years. However,~~have ~~with~~leveraged our ~~new strategic~~breakfast ~~focus,~~heritage ~~we intend~~ to ~~increase~~include ~~the~~traditional ~~number~~American ~~of company-operated Village~~fare ~~Inn~~at lunch and dinner. Our Bakers Square restaurants ~~more~~have ~~significantly~~built ~~over~~upon the ~~next several~~reputation ~~years. We~~of ~~currently~~our ~~expect~~signature pies to ~~open~~offer anquality meals at breakfast, lunch and dinner. ~~estimated~~Our 23broad offering of affordable menu items is designed to 27appeal ~~new~~to ~~restaurants~~a demographically indiverse ~~fiscal~~customer ~~2005~~base, including families, senior citizens and other value-oriented diners.

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~~following ~~drivers~~table ~~of same unit sales~~sets ~~performance~~forth ~~are changes in~~ the ~~average per-person check and~~ changes into 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 takecompany-~~out~~operated ~~business,~~ and ~~sales~~ offranchised ~~whole pies, which we believe is indicative of overall customer traffic~~restaurants ~~patterns.~~for ~~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~~periods ~~sensitivity~~presented ~~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~~below. 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 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.22

(Units)	2006		2005		2004
Village Inn company-operated restaurants:
Beginning of period	135		121		118
Acquired from franchisee	5		—		1
Openings	22		14		5
Conversion to a Bakers Square	—		—		(1	)
Closings	(1	)	—		(2	)
End of period	161		135		121
Bakers Square company-operated restaurants:
Beginning of period	152		150		149
Openings	—		4		3
Conversion from a Village Inn	—		—		1
Closings	(4	)	(2	)	(3	)
End of period	148		152		150

Total company-operated restaurants	309		287		271
Village Inn franchised restaurants:
Beginning of period	100		103		105
Openings	—		—		—
Acquired by our company	(5	)	—		(1	)
Closings	—		(3	)	(1	)
End of period	95		100		103
Total restaurants	404		387		374

InOur ~~addition~~Village toInn ~~unit sales,~~and ~~the~~Bakers ~~other~~Square ~~major~~concepts ~~factor~~operate ~~affecting~~in the ~~performance~~“family-dining” segment of ~~our~~the full service restaurant category. Full service restaurants isoffer ~~the~~broad ~~cost~~menu choices ~~associated~~that ~~with~~are ~~operating~~served ~~our~~to ~~restaurants.~~patrons Weby ~~monitor~~a ~~and~~wait-staff, ~~assess~~while ~~these~~restaurants ~~costs~~operating in the “limited ~~principally~~service” assegment aserve ~~percentage~~customers ofat a ~~restaurant’s~~counter ~~revenues,~~ or onthrough a ~~margin~~drive-thru ~~basis~~window. ~~The~~We ~~operating~~believe ~~margin~~the offamily-dining acategory ~~restaurant~~has isa ~~the~~loyal ~~profitability,~~customer ~~expressed~~base asand astable ~~percentage~~characteristics. ofAccording ~~sales~~to Crest/NPD, of the ~~restaurant~~growth ~~after~~in ~~accounting~~the ~~for~~third ~~all~~quarter ~~direct expenses~~ of 2006 ~~operating~~was ~~the restaurant~~2.6% ~~Another~~which ~~key~~is ~~performance~~the ~~metric~~lowest issince the ~~prime margin,~~third ~~which~~quarter 2003 and is ~~the~~expected to ~~profitability,~~be ~~expressed~~modest asin a2007. ~~percentage~~In ofthe ~~sales~~family-dining category, of the ~~restaurants~~ ~~after~~average ~~deducting~~per-person check ~~the~~generally ~~two~~ranges ~~most~~from ~~significant~~$8 ~~costs~~to $9, ~~labor~~ and ~~food.~~diners ~~Due~~in this category are sensitive to ~~the~~changes ~~importance~~in ofprice. ~~both~~In ~~labor~~2006, ~~cost~~the ~~and~~average ~~food~~per-person ~~cost,~~check weat ~~closely~~Village ~~monitor~~Inn ~~prime~~was ~~margin~~$8.09 ~~from~~and the ~~chain~~average ~~level~~per ~~down~~person tocheck ~~the~~at ~~individual~~Bakers ~~restaurant~~Square was $9.39. WeOne ~~have~~of ~~systems~~the inimportant ~~place~~elements atof ~~each~~our ~~restaurant~~business tostrategy ~~assist~~is ~~the~~to ~~restaurant~~provide ~~managers~~our incustomers ~~effectively~~with an ~~managing~~attractive ~~these~~value ~~costs~~by offering quality food at reasonable prices. As a result, we continually strive to maintain and improve ~~prime~~the ~~margin~~efficiency of our operations.

~~Labor is our largest cost~~Management 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.overview

~~While~~Our ~~the~~restaurant ~~wage rates are~~revenues ~~largely~~are ~~externally~~affected ~~determined,~~by ~~labor~~restaurant ~~utilization~~openings ~~within~~and ~~our~~closings ~~restaurants~~and issame ~~more~~unit sales ~~subject~~performance. toSame ~~our~~unit ~~control~~sales ~~and~~ is ~~closely~~a ~~monitored.~~measure Weof ~~seek~~the topercentage ~~staff~~increase ~~each~~or ~~restaurant~~decrease toof ~~provide~~the asales ~~high level~~ of ~~service~~units toopen ~~our~~at ~~customers,~~least ~~without incurring~~18 ~~more~~months ~~labor~~relative ~~cost~~to ~~than~~the ~~is needed. We have included labor scheduling~~same ~~tools~~period in ~~each~~the ofprior ~~our~~year. ~~company-operated~~Restaurants ~~restaurants’~~opened ~~back~~for ~~office~~less ~~systems~~than ~~to assist~~18 ~~our~~months ~~managers~~are excluded in ~~improving~~order ~~labor~~to ~~utilization.~~allow Wea ~~monitor~~new ~~labor~~restaurant’s ~~hours actually~~operations ~~incurred~~and insales ~~relation~~time to stabilize ~~sales~~ and ~~customer~~provide ~~count~~more onmeaningful ~~a restaurant-~~results. ~~by-restaurant~~Same ~~basis~~unit ~~throughout~~sales ~~each~~is ~~week.~~an Weimportant ~~have~~indicator ~~been~~within ~~able~~the torestaurant ~~modestly reduce~~industry ~~our~~because ~~labor~~small ~~cost~~changes ~~percentage from 32.3%~~ in ~~fiscal~~same ~~2001~~unit tosales ~~31.8%~~can inhave ~~fiscal~~a ~~2004~~proportionally ashigher aimpact ~~result~~on ofoperating ~~modifying~~margins ~~our~~because ~~internal~~of ~~processes~~the tohigh ~~provide~~degree ~~our~~of ~~restaurant~~fixed ~~managers~~costs ~~greater~~associated ~~control~~with ~~over~~operating ~~employee utilization and overtime~~restaurants.

InThe ~~managing~~Village ~~prime margin, we~~Inn ~~also~~restaurant ~~focus~~count onhas ~~percentage~~increased ~~food~~over ~~cost,~~36% 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~~last ~~of ingredients~~three ~~used, assuming proper portion size, adherence to recipes, limited waste and similar factors~~years. We ~~track~~plan ~~variances~~to ~~from~~continue ~~ideal food cost within each restaurant and seek~~ to ~~address~~increase the ~~causes~~number of ~~such variances, to the extent they~~ ~~are~~Company-operated ~~within~~Village ~~our~~Inn ~~control,~~restaurants inover ~~order~~the tonext ~~improve~~several ~~our percentage food cost~~years. InWithin ~~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~~restaurant ~~volumes~~count ofhas ~~our~~decreased ~~restaurants~~one ~~and~~unit ~~our franchisees~~over tothe ~~obtain~~last ~~favorable prices~~three years. In Wefiscal ~~attempt~~2005 ~~to stabilize potentially volatile prices for certain high-cost ingredients such as chicken, beef, coffee~~ and ~~dairy~~2006 ~~products~~we ~~for three to twelve month periods by entering into purchase~~opened ~~contracts~~four ~~when~~remodeled wetest ~~believe that this will improve our food cost~~units. We ~~also use “menu~~are ~~engineering”~~currently toin ~~promote~~the ~~menu~~process ~~items~~of ~~which~~evaluating ~~have~~performance adata ~~lower percentage food cost. However, we are vulnerable~~ to ~~fluctuations~~determine ~~in food costs. Given our customers’~~the ~~sensitivity~~appropriate tomodel ~~price~~for ~~increases~~the ~~and~~future ~~since~~Bakers weSquare ~~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~~units.

~~Since~~Like much of the restaurant industry, we ~~produce~~view same unit sales as a ~~majority~~key performance metric, at ofthe ~~our~~individual ~~pies~~unit ~~for~~level, ~~Village~~within ~~Inn~~regions, ~~and~~across ~~Bakers~~each ~~Square~~chain and ~~since~~throughout our company. ~~third~~With our field-~~party~~level ~~pie~~and corporate information systems, we monitor ~~sales~~same ~~historically~~unit ~~have~~sales ~~not~~on ~~had~~a daily, weekly and ~~currently~~four-week doperiod ~~not~~basis ~~have,~~from athe ~~material impact~~chain onlevel ~~our~~down ~~operating~~to ~~profit,~~the weindividual ~~include~~unit ~~the~~level. ~~net~~The ~~results~~primary drivers of ~~our~~same ~~pie~~unit ~~manufacturing~~sales ~~operations~~performance asare anchanges ~~offset~~in tothe ~~our~~average ~~food~~per-person ~~costs.~~check Asand achanges ~~result,~~in ~~any~~the number ~~profit~~of (customers, or ~~loss) from~~customer ~~third-party~~count. ~~pie~~Average ~~sales~~check ~~has~~performance ~~the~~is ~~effect~~primarily affected ofby ~~reducing~~menu ~~(or~~price ~~increasing)~~increases ~~our~~and ~~total food~~changes ~~cost.~~in Asthe ~~part~~purchasing habits of our customers. ~~overall~~We ~~effort~~also tomonitor ~~optimize~~entrée ~~total~~count, ~~company~~exclusive ~~food~~of ~~cost~~take-out business, and wesales ~~have~~of ~~been~~whole ~~focusing~~pies, onwhich ~~various~~we ~~measures~~believe tois ~~improve~~indicative ~~the~~of ~~net~~overall ~~margins~~customer ~~within our~~traffic ~~pie~~patterns. ~~manufacturing~~To ~~operations,~~increase ~~including~~average ~~increasing~~unit ~~third-party~~ sales, we focus marketing and promotional ~~renegotiating~~efforts ~~our~~on ~~distribution~~increasing ~~contracts~~customer visits and ~~rebalancing~~sales ~~the~~of ~~production~~particular ~~among~~products. We also ~~our~~selectively ~~three~~increase ~~plants~~prices, tobut ~~increase~~are ~~efficiency.~~

2623

Asconstrained aby ~~result~~the price sensitivity of customers in our ~~efforts,~~market segment and our desire to maintain an weattractive ~~lowered~~price-to-value relationship that is a fundamental characteristic of our ~~consolidated~~concepts. ~~food~~For ~~cost~~example, ~~percentage~~we atraised prices in our ~~restaurants~~Bakers bySquare 2units in fiscal 2002 and fiscal 2003, and while some unit sales increased in fiscal 2003, guest traffic declined.3% As a result, we generally have increased prices in line with increases in the consumer price index, and expect to continue to 26do so in the future.6% Same unit sales performance is also affected by other factors, such as food quality, the level and consistency of ~~total~~service ~~revenues~~within ~~for~~our restaurants, ~~fiscal~~the ~~2004~~attractiveness ~~from~~and ~~28.9%~~physical condition of ~~total~~our ~~revenues~~restaurants, ~~for~~as well as local and national economic factors. From fiscal 2002 through fiscal ~~2001. Controlling~~2006, ~~food~~Village ~~costs~~Inn ~~presents~~recorded average annual same unit sales growth of 1.5% and ~~ongoing~~Bakers ~~challenges~~Square recorded an annual same unit sales decline of 8.1%.

~~Other~~As ~~operating~~of ~~expenses~~November 2, ~~principally~~2006, ~~include~~we ~~occupancy~~had ~~costs,~~95 ~~depreciation,~~franchised ~~supplies,~~Village ~~repairs~~Inn ~~and maintenance,~~restaurants ~~utility~~in ~~costs,~~18 ~~marketing expenses~~states, ~~insurance~~operated ~~expenses~~by ~~and workers’~~25 ~~compensation~~franchisees ~~costs.~~which ~~Historically,~~operate ~~these~~one ~~costs~~to ~~have~~eleven ~~increased~~restaurants ~~over~~each. Our ~~time~~revenue ~~and~~attributable ~~many~~to franchise ~~are~~operations, ~~not~~consisting ~~directly~~primarily ~~related~~of toroyalty ~~the~~income ~~level~~has ofaveraged ~~sales~~approximately 1% inof our ~~restaurants~~total revenues over the last three years. WeOn ~~have~~February 24, 2003, ~~experienced~~we ~~increases~~acquired ineight ~~many~~restaurants offrom ~~these~~a ~~items~~franchisee ~~throughout~~in ~~the~~Albuquerque, ~~last~~New ~~three~~Mexico ~~fiscal~~for ~~years~~$4.6 million, ~~particularly~~which ~~utility~~subsequently ~~costs~~reduced our franchise revenue and ~~insurance~~increased our ~~expenses~~company-operated restaurant revenue. InAlthough ~~order~~we tomay ~~maintain~~increase franchise ~~our~~revenues ~~operating~~by ~~performance~~increasing ~~levels,~~the ~~and~~number toof ~~address~~franchised ~~expected~~Village ~~cost~~Inn ~~increases~~restaurants, we ~~will~~expect bethat ~~required~~our tofranchise ~~increase~~revenues ~~efficiency~~will indecline ~~restaurant~~as ~~operations~~a ~~and~~percentage ~~increase~~of our total ~~sales,~~revenue ~~although~~as ~~there~~we isemphasize nogrowth ~~assurance~~in ~~that~~the wenumber ~~will~~of becompany-operated ~~able~~units. During tofiscal ~~offset~~2006 ~~future~~we acquired five ~~cost~~restaurants ~~increases~~in Oklahoma from a franchisee for $650,000.

~~Our~~In ~~2004~~addition ~~financial~~to ~~results~~unit sales, the other major factor ~~included:~~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.

~~• Growth~~Labor ofis ~~revenues~~our bylargest 3cost element.2% toThe ~~$399~~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.7 ~~million~~Wage rates are largely ~~from~~market ~~2003~~driven, with increases to ~~2004,~~minimum ~~reflecting~~wage rates causing corresponding increases in our pay scales. Differences in minimum wage laws among the ~~net~~various states ~~addition~~impact the relative profitability of 14the ~~company-operated~~ restaurants ~~over~~in those states. In May 2005 and again on January 1, 2006, the ~~past~~minimum ~~two~~wage ~~years~~rate ~~(including~~for the state ~~net~~of ~~addition~~Florida increased. The state of Oregon’s ~~four~~minimum wage increased in both 2005 and 2006 and the states of ~~restaurants~~Michigan ~~during~~and ~~2004)~~Wisconsin also increased their minimum wage in 2006. ~~Same~~Arizona, ~~store~~California, Colorado, Florida, Ohio, ~~sales~~Oregon, ~~modestly~~and ~~increased~~Albuquerque, byNew 0Mexico will all raise their minimum wage rate in 2007.4% The ~~from~~federal ~~2003~~legislation toregarding the ~~2004~~minimum wage rate currently is under discussion in both the U.S. House of Representatives and U.S. Senate which would also increase our labor costs.

~~• Improvement~~While inthe ~~operating~~wage ~~income~~rates are largely externally determined, labor utilization within our restaurants is more subject to ~~$21~~our control and is closely monitored.8 ~~million~~We seek to staff each restaurant to provide a ~~from~~high ~~$12~~level of service to our customers, without incurring more labor cost than is needed.9 ~~million~~We have included labor scheduling tools in ~~2003~~each of our company-operated restaurants’ back office systems to assist our managers in improving labor utilization. ~~Our~~ ~~2004~~We monitor labor hours actually incurred in ~~results~~relation ~~included~~to sales and customer count on a $3restaurant- by-restaurant basis throughout each week.2 ~~million~~We ~~litigation~~have ~~settlement~~been ~~expense~~able ~~and~~to contain increases to our ~~2003~~labor cost as a ~~results~~percentage ~~included~~of ~~$10~~restaurant revenues, with those amounts increasing from 32.75% ~~million~~in fiscal 2002 to 33.4% in fiscal 2006 as a result of ~~transaction~~modifying ~~expenses~~our internal processes to provide our restaurant managers greater control over employee utilization and overtime.

~~• Net~~In ~~income~~managing ~~improved~~prime tomargin, awe ~~$0.7~~also ~~million~~focus ~~profit~~on percentage infood ~~2004~~cost, ~~from~~which is food cost expressed as a $1percentage of total revenues.6 ~~million~~Our food ~~loss~~cost inis ~~2004.~~ affected by several factors, including market prices for the food Weingredients, ~~incurred~~our ~~debt~~effectiveness ~~extinguishment~~at ~~costs~~controlling waste and proper portioning, and shifts in ~~both~~our ~~years~~customers’ ~~($6~~buying habits between low-food-cost and high-food-cost menu items.8 ~~million~~Our ~~for~~ReMACS food cost management system within each restaurant ~~2004~~measures actual ingredient costs and ~~$6.5~~actual ~~million~~customer ~~for~~product ~~2003)~~purchases against an “ideal” food cost standard. Ideal food cost is calculated within each ~~Interest~~restaurant ~~expense~~based ~~increased~~on $4the cost of ingredients used, assuming proper portion size, adherence to recipes, limited waste and similar factors.3 ~~million~~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 ~~2004~~order asto improve our percentage food cost. In addition, our centralized purchasing department buys a ~~result~~majority of ~~financing~~the products used in both Village Inn and Bakers Square (as ~~associated~~well ~~with~~as our pie production operations), leveraging the ~~acquisition~~purchasing volumes of our restaurants and our ~~company~~franchisees into ~~June~~obtain ~~2003~~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

~~Factors affecting comparability~~24

Onengineering” ~~May~~to ~~14,~~promote ~~2001,~~menu ~~Midway Investors~~items ~~Holdings Inc., a newly created holding company, purchased VICORP Restaurants, Inc.,~~ which ~~was~~have a ~~publicly owned company prior to the acquisition.~~lower Onpercentage ~~June~~food ~~14, 2003, VI Acquisition Corp~~cost., ~~a newly created holding company~~However, ~~purchased~~ ~~Midway~~we 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.~~vulnerable ~~As a result of applying the required purchase accounting rules~~ to ~~these~~ ~~acquisitions,~~fluctuations ~~our~~in ~~financial~~food ~~statements for periods following the transactions were significantly affected~~costs. ~~The application of purchase~~ ~~accounting~~Given ~~rules~~our ~~required~~customers’ ussensitivity to ~~revalue~~price ~~our~~increases ~~assets~~ and ~~liabilities~~since atwe ~~the~~only ~~two~~reprint ~~respective~~our ~~acquisition~~full ~~dates,~~menus ~~which~~every ~~resulted~~six ~~in different accounting bases being applied in different periods. In particular~~months, 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,~~ability ~~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~~adjust ~~13,~~prices ~~2003, from June 14, 2003 through October 26, 2003~~ and ~~from~~featured ~~October 27, 2003 through October 28, 2004 are not comparable to one~~menu ~~another~~items in ~~certain~~response ~~respects. The term “predecessor” refers~~ to ~~Midway~~rapidly ~~Investors Holdings~~changing ~~Inc.~~commodity ~~which~~prices ~~was~~is ~~merged into VI Acquisition Corp~~limited. ~~in connection with the refinancing.~~

As a result of ~~these changes~~our efforts, ~~the~~we ~~historical~~lowered ~~financial~~our consolidated ~~information~~food incost ~~this~~percentage ~~Annual~~at ~~Report~~our onrestaurants ~~Form~~to 25.6% of total ~~10-K~~restaurant ~~and~~revenues ~~related~~for ~~discussions~~fiscal ~~relate~~2006 tofrom ~~the~~26.8% ~~entity~~of ~~specified~~total ~~below~~restaurant revenues for fiscal ~~the~~2002. Controlling food costs ~~following~~presents ~~periods:~~ongoing challenges.

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.

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. 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.

27Our 2006 financial results included:

In· Growth ~~our~~of revenues ~~analysis,~~by we6.1% ~~combine partial~~to ~~periods~~$466.3 ~~into~~million ~~fiscal~~from ~~periods~~2005 to ~~aid~~2006, reflecting the ~~discussion~~net addition of ~~financial information.~~38 ~~The~~company-operated ~~combined~~restaurants ~~periods~~over ~~are~~the ~~not~~past ~~necessarily~~two ~~comparable~~years ~~and~~(including the ~~should~~net ~~not be~~addition ~~given~~of ~~more~~22 ~~emphasis~~restaurants ~~than~~during ~~the~~2006). Same ~~individual~~store ~~components~~sales decreased by 2.1% from 2005 to 2006.

At· Operating ~~the time of each of the~~profit ~~two~~decreased ~~acquisitions, we also sold certain properties under sale-leaseback transactions~~ to ~~help finance the acquisitions~~$18.1 ~~Specifically,~~million ~~we sold 48 properties~~ in ~~May~~2006 ~~2001~~from ~~for an aggregate of~~ $5731.28 million ~~and an additional ten properties~~ in ~~June 2003 for an aggregate of $13~~2005.9 Our ~~million.~~2006 Asresults ~~discussed~~included ~~below~~increased occupancy, ~~the~~utility ~~sale-leaseback transactions have resulted in higher rent expense~~ and ~~lower depreciation~~labor ~~expense subsequent to the transactions~~charges.

On· Net ~~February~~income decreased ~~24,~~to ~~2003,~~a ~~we purchased~~net ~~one~~loss of ~~our~~$7.9 ~~franchisees~~million ~~which owned and operated eight Village Inn restaurants~~ in ~~the~~2006 ~~Albuquerque,~~from ~~New~~net ~~Mexico~~income ~~area~~of ~~for~~ $43.65 million~~. After the~~ ~~acquisition, revenue associated with these restaurants was included~~ in ~~our restaurant~~2005 ~~revenues,~~as ~~and~~a ~~since~~result ~~the date~~ of ~~the~~increased ~~acquisition~~other werestaurant ~~have~~operating ~~not~~costs ~~earned franchise~~and ~~revenues from those units. Please refer to~~ the ~~table above for~~ ~~information~~decline onin ~~unit~~same ~~openings~~store ~~during the relevant periods~~sales.

~~Our~~Factors ~~fiscal~~affecting 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.comparability

~~Critical~~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 ~~policies~~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 ~~estimates~~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. Fiscal years 2004, 2005 and 2006 relate to VI Acquisition Corp.

In At the ~~ordinary~~time ~~course~~ of ~~business,~~each ~~our company makes a number~~ of ~~estimates and assumptions relating to~~ the ~~reporting~~two ofacquisitions, ~~results~~we ~~of operations and financial~~also ~~condition~~sold incertain ~~the~~properties ~~preparation~~under ofsale-leaseback ~~our~~transactions ~~consolidated~~to ~~financial~~help ~~statements~~finance ~~in conformity~~the ~~with U~~acquisitions.S. ~~generally~~Specifically, ~~accepted~~we ~~accounting~~sold ~~principles.~~48 ~~Actual~~properties ~~results~~in ~~could~~May 2001 ~~differ~~for an ~~significantly~~aggregate ~~from~~of ~~those~~$57.2 ~~estimates~~million and ~~assumptions.~~an Weadditional ~~believe~~ten ~~that~~properties ~~the~~in June 2003 ~~following~~for ~~discussion~~an ~~addresses~~aggregate ~~our~~of ~~most~~$13.9 ~~critical~~million. ~~accounting~~The ~~policies,~~sale-leaseback ~~which~~transactions ~~are~~have resulted ~~those~~in ~~that~~higher ~~are~~interest ~~most~~expense ~~important~~as toa ~~the~~result ~~portrayal~~ of ~~our~~recording ~~financial~~these ~~condition~~transactions ~~and~~under ~~results of operations and require management judgment about~~ the ~~effect~~financing ~~of matters that are uncertain~~method.

On February 24, an2003, ~~ongoing~~we ~~basis,~~purchased ~~management~~one ~~evaluates~~of ~~its~~our ~~estimates~~franchisees which owned and ~~assumptions,~~operated ~~including~~eight ~~those~~Village ~~related~~Inn torestaurants ~~recoverability~~in ofthe ~~long-lived assets~~Albuquerque, ~~revenue~~New ~~recognition~~Mexico ~~and goodwill~~area for $4.6 ~~Management~~million. After ~~bases~~the ~~its~~acquisition, ~~estimates~~revenue ~~and~~associated ~~assumptions~~with onthese ~~historical~~restaurants was included ~~experience~~in our restaurant revenues, and onsince ~~various~~the ~~other~~date ~~factors~~of ~~that~~the ~~are~~acquisition ~~believed~~we have not earned franchise revenues from those units. Please refer to bethe ~~reasonable~~table atabove for ~~the~~information ~~time~~on ~~the~~unit ~~estimates~~openings ~~and~~during ~~assumptions~~the ~~are~~relevant ~~made~~periods. ~~Actual~~Additionally, ~~results~~we completed ~~may~~a ~~differ~~transaction ~~from these~~in 2006 ~~estimates~~with ~~and~~a ~~assumptions~~franchisee ~~under~~in ~~different~~Oklahoma ~~circumstances~~in orwhich ~~conditions~~we purchased five Village Inn restaurants for $650,000.

~~We have~~Our ~~discussed~~fiscal year, which historically ended on the ~~development~~last Sunday ~~and~~in ~~selection~~October, is comprised of ~~critical~~52 ~~accounting~~or ~~policies~~53 weeks divided into four fiscal quarters of 12 or 13, 12, 12, and ~~estimates~~16 ~~with~~weeks. ~~our~~Fiscal ~~audit~~2005 ~~committee~~was comprised of 53 weeks, or 371 days and fiscal 2006 was comprised of 52 weeks, or 364 days. Beginning January 22, 2004, we changed ~~The~~our ~~following~~fiscal isyear aso ~~summary~~that it ends on the Thursday nearest to October 31st of each year. This increased fiscal 2004 by an extra four days. This change was made to facilitate restaurant operations by moving the end of our ~~critical~~fiscal periods ~~accounting~~and ~~policies~~weekly reporting and payroll periods away from weekends when our ~~estimates:~~restaurants are busier.

~~Inventories~~25

~~Inventories are~~Critical ~~stated~~accounting atpolicies 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 ~~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.

28In 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.

~~Property~~On an ongoing basis, management evaluates its estimates and ~~equipment~~assumptions, including those related to recoverability of long-lived assets, revenue recognition, goodwill and other intangibles. 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.

~~Property and~~We ~~equipment~~have isdiscussed ~~recorded at cost and is depreciated on~~ the ~~straight-line basis~~ ~~over~~development ~~the~~and ~~estimated~~selection ~~useful lives~~ of ~~such~~critical ~~assets.~~accounting ~~The~~policies ~~useful lives of assets range from 20 to 40 years for buildings~~ and ~~three~~estimates ~~to ten years for equipment~~with ~~and improvements. Changes in circumstances such as the closing of units within underproductive markets or changes in~~ our ~~capital~~audit ~~structure~~committee. The ~~could~~following ~~result~~is ~~in the~~a ~~actual~~summary ~~useful lives~~ of ~~these~~our ~~assets~~critical ~~differing~~accounting ~~from~~policies ~~our~~and estimates.:

WeGoodwill ~~review long-lived assets, including land, buildings~~ and ~~building~~other 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 $552,000 impairment charge was necessary.intangibles

~~Following the~~To ~~June~~assist ~~2003~~in ~~acquisition,~~the weprocess of ~~analyzed~~determining ~~fixed~~goodwill ~~assets~~ and ~~adjusted~~tradenames ~~these~~impairment ~~assets to~~for ~~their~~fiscal ~~fair~~2006, ~~market~~the ~~values~~Company engaged asan ofoutside ~~the~~firm ~~date~~to ofperform ~~the~~a ~~transaction~~valuation analysis. ~~Asset~~Estimates of fair ~~market~~value ~~values~~are ~~were~~primarily determined ~~through~~using ~~receipt~~discounted ofcash ~~third~~flows ~~party~~and ~~real estate~~market ~~appraisals~~comparisons asand ~~well~~recent astransactions. These ~~the~~approaches ~~application~~use ofsignificant ~~management~~estimates ~~judgment~~and ~~for~~assumptions ~~those~~including ~~properties~~projected ~~for~~future ~~which~~cash ~~external~~flows ~~valuations~~(including ~~could~~timing), ~~not~~discount berate ~~obtained.~~reflecting ~~These~~the ~~procedures~~risk ~~resulted~~inherent in ~~our~~future ~~increasing~~cash ~~the~~flows, ~~value~~perpetual growth rate, determination of appropriate ~~property~~market comparables and ~~equipment~~the bydetermination ~~$6.2~~of whether a premium or ~~million~~discount ~~following~~should ~~the~~be ~~June~~applied ~~2003~~to ~~acquisition~~comparables.

~~Capital~~Change ~~and~~in accounting ~~operating leases~~estimate

WeIt is the Company’s ~~are~~policy to periodically review the ~~prime~~estimated ~~lessee~~useful ~~under~~lives ~~various~~of ~~land,~~its fixed assets. This review during 2006 indicated that actual lives for our building ~~and~~assets were ~~equipment~~longer ~~leases~~than the useful lives used for depreciation purposes in the Company’s ~~company-operated~~financial ~~and~~statements. ~~some~~As ~~franchisee-operated~~a ~~locations~~result, ~~pie~~the ~~manufacturing~~Company revised the estimated useful ~~facilities~~lives of buildings from 30 years to 45 years. The Company reviewed its own restaurants, as well as using construction industry data and ~~other~~comparable restaurant ~~non-~~company~~-operated~~ ~~locations,~~estimated ~~which~~lives ~~include~~of ~~warehouse~~building assets. The change was made ~~space~~effective ~~and~~during ~~parking~~the ~~facilities~~third quarter. ~~Actual~~The ~~cash~~Company ~~rents~~believes ~~are~~the ~~charged~~change tomore appropriately reflects the ~~operating~~remaining useful lives of the assets based upon the ~~units~~nature onof the asset. This change has been accounted for prospectively in accordance with the provisions of Accounting Principle Board Opinion No. 20: Accounting Changes. The effect of this change was a ~~daily~~reduction ~~basis~~of asapproximately $0.5 ~~incurred~~million to depreciation during fiscal 2006.

~~Following the~~Property ~~June~~and ~~2003 acquisition~~equipment, ~~we analyzed all capital and operating leases which had not been initiated or renewed in the past 18 months~~ build-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~~suit ~~advisors~~ projects and ~~reviewing sale-leaseback transactions within the past 18 months to~~assets ~~determine~~under andeemed ~~average~~landlord ~~rent~~financing as a percentage of unit sales. This average was applied to each location to determine fair value rents. As a result, an additional rent obligation of $8.0 million was recorded in June 2003. These additional rents are amortized over the remaining life of the underlying lease agreements.liability

29Property 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 45 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.

~~Insurance~~For ~~reserves~~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 historical 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 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.26

~~Loss~~We ~~contingencies~~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 was necessary. No impairment was recorded in fiscal 2005. During fiscal 2006, we concluded that a $1.4 million impairment charge was necessary.

WeDuring the third quarter ~~maintain~~of ~~accrued~~fiscal ~~liabilities~~2006, ~~and~~the ~~reserves~~Company ~~relating~~changed the estimated useful lives of its buildings (Note 2). This change removed the Company’s ability to control the ~~resolution~~property through at least 90% of ~~certain~~its economic life for 26 of our 126 restaurants ~~contingent~~accounted ~~obligations~~for using the financing method. ~~Significant~~ As a result, the Company recognized ~~contingencies~~the ~~include~~“sale” ~~those~~of ~~related~~these to26 ~~litigation. We~~units ~~account~~by ~~for~~removing ~~contingent~~both the assets and financing obligations associated with the restaurants and recording any gain or loss in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 598, “Accounting for ~~Contingencies,~~Leases”. asThe leases ~~interpreted~~were bythen ~~FASB~~tested ~~Interpretation~~under the provisions of SFAS No. 1413 ~~which~~“Accounting ~~requires~~for ~~that~~Leases” wefor ~~assess~~treatment ~~each~~as ~~contingency~~capital toor ~~determine~~operating ~~estimates~~leases. ofAll ~~the~~26 ~~degree~~leases ofqualified ~~probability~~as operating and ~~range~~deferred ofrent ~~possible~~was ~~settlement. Contingencies~~recorded ~~which~~in ~~are~~accordance ~~deemed~~with toSFAS beNo. ~~probable~~98 and SFAS ~~where~~No.13. ~~the~~The ~~amount~~effect of ~~such~~ ~~settlement~~this ischange ~~reasonably~~was ~~estimable~~a ~~are~~reduction ~~accrued~~ in ~~our~~the ~~financial~~Company’s financing ~~statements~~obligation of $30. If5 ~~only~~million, a ~~range~~reduction of ~~loss~~financing ~~can~~assets beof ~~determined~~$29.3 million, ~~we accrue~~an toincrease ~~the~~in ~~best~~deferred ~~estimate~~rent ~~within~~of ~~that~~$1.2 ~~range;~~million, ifand ~~none~~a ofnet ~~the~~loss ~~estimates~~on ~~within~~the ~~that~~transactions ~~range~~of ~~is better than another~~$50,000. weThe ~~accrue~~net toloss ~~the~~has ~~low~~been ~~end~~deferred ofand ~~the~~will ~~range. During~~be ~~the~~amortized to ~~fourth~~rent ~~quarter~~expense ofover ~~fiscal~~the ~~2004,~~remaining ~~we established~~reasonably aassured ~~reserve~~lease ofterm ~~$3.2 million~~ in ~~connection~~ accordance with ~~our~~SFAS ~~agreement~~No. ~~in principle to settle two class action lawsuits~~13.

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.Leases

~~Income~~We ~~taxes~~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, we record the total rent payable during the operating lease term on a straight-line basis over the term of the lease and record 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. Future authoritative changes to the methods of accounting for leases could have a material impact on our reported results of operations and financial position.

~~Deferred income~~In ~~tax~~October 2005, ~~assets~~the ~~and~~FASB ~~liabilities~~issued ~~are~~FSP ~~recognized~~No. FAS 13-1, “Accounting for ~~the~~Rental ~~expected~~Costs ~~future~~Incurred ~~income tax~~during ~~consequences~~a ofConstruction ~~carryforwards~~Period.” ~~and~~FSP ~~temporary~~No. FAS ~~differences~~13-1 ~~between~~requires ~~the~~rental ~~book and~~costs ~~tax~~associated ~~basis~~with ofoperating ~~assets~~leases ~~and~~that ~~liabilities.~~are ~~Valuation~~incurred ~~allowances~~during ~~are~~a ~~established for~~construction ~~deferred~~period ~~tax~~to ~~assets~~be ~~that~~recognized ~~are~~as ~~deemed~~rental ~~unrealizable~~expense. As ofFSP ~~October~~No. FAS ~~28,~~13-1 ~~2004,~~is weeffective ~~had~~for ~~net~~reporting ~~deferred tax~~periods ~~assets~~beginning ofafter ~~$25.1 million~~December 15, ~~which~~2005. ~~included~~The ~~$11.8~~transition ~~million~~provisions of ~~FICA~~FSP ~~tip~~No. FAS ~~credit carryforwards,~~13-1 ~~expiring~~permit atearly ~~various~~adoption ~~dates~~and ~~through~~retrospective ~~2024. Approximately~~application ~~$9.6 million~~ of the ~~FICA~~guidance. ~~tip credit~~The ~~carryforwards~~Company ~~were~~historically ~~generated~~capitalized ~~prior~~rental tocosts ~~the~~incurred ~~our~~during ~~acquisition~~a inconstruction ~~June~~period. We ~~2003 and~~implemented ~~are~~FSP ~~subject~~No. toFAS an13-1 ~~annual~~during ~~use~~the ~~limitation~~first quarter of fiscal 2006. We capitalized $0.7 million and $0.2 million in 2005 and 2004, respectively.

~~We must~~Insurance 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.reserves

~~Significant judgment~~We isself-insure ~~required~~a significant inportion ~~determining~~of our ~~effective~~employee ~~tax~~medical ~~rate~~insurance, workers’ compensation and ingeneral ~~evaluating~~liability insurance plans. ~~our~~We ~~tax~~had ~~positions~~an insurance reserve liability of $8.9 million and $9.3 million recorded as of November 2, 2006 and November 3, 2005, respectively. We ~~establish~~have ~~reserves~~obtained ~~when~~stop-loss insurance policies to protect from individual losses over specified dollar values ($175,000 ~~despite~~for employee ~~our~~health ~~belief~~insurance ~~that~~claims, ~~our~~$250,000 ~~tax~~workers’ compensation and $150,000 ~~return~~for ~~positions~~general ~~are~~liability ~~supportable~~for fiscal 2005 and 2006). The full extent of certain claims, especially workers’ compensation and general liability claims may not become fully determined for several years. Therefore, we ~~believe~~estimate potential obligations for liabilities that ~~certain~~have ~~positions~~been ~~are~~incurred ~~likely~~but not yet reported based toupon behistorical ~~successfully~~data, ~~challenged~~experience, and use of outside consultants. WeAlthough management ~~adjust~~believes that the amounts accrued for these ~~reserves~~obligations are reasonably estimated, any significant increase in ~~light~~the number of ~~changing~~claims or costs ~~facts~~associated ~~and~~with ~~circumstances,~~claims ~~such~~made asunder ~~the~~these ~~progress~~plans ofcould have a ~~tax~~material ~~audit.~~adverse effect ~~Our~~on ~~effective~~our ~~tax~~financial results. ~~rate~~Favorable ~~includes~~workers ~~the~~compensation ~~impact~~claims ofexperience ~~reserve~~related ~~provisions~~to ~~and~~recent ~~changes~~years has topermitted ~~reserves~~a ~~that~~reduction wein workers compensation expense accruals in fiscal ~~consider~~2005 ~~appropriate~~and 2006.

3027

~~Results of~~Loss ~~operations~~contingencies

	Predecessor
	Fiscal year ended			Period ended						Combined			Fiscal year ended
	October 27,			June 13,			October 26,			2003			October 28,
(In thousands)	2002			2003			2003			Period			2004
Revenues:
Restaurant operations	$	377,630		$	243,157		$	138,696		$	381,853		$	394,667
Franchise operations	5,796			3,448			1,916			5,364			5,057
	383,426			246,605			140,612			387,217			399,724
Costs and expenses:
Restaurant costs:
Food	104,298			66,186			37,219			103,405			106,294
Labor	122,850			79,016			45,500			124,516			127,251
Other operating expenses	100,002			65,629			40,531			106,160			111,663
Franchise operating expenses	3,092			1,583			1,032			2,615			2,490
General and administrative expenses	26,598			16,533			9,447			25,980			25,193
Litigation settlement	—			—			—			—			3,168
Transaction expenses	279			9,436			1,226			10,662			125
Management fees	1,000			674			185			859			1,159
Asset impairments	—			96			—			96			552
	358,119			239,153			135,140			374,293			377,895
Operating profit	25,307			7,452			5,472			12,924			21,829
Interest expense	(9,786		)	(5,550		)	(5,330		)	(10,880		)	(15,161		)
Debt extinguishment costs	—			(6,516		)	—			(6,516		)	(6,856		)
Other income, net	787			433			147			580			522
Income (loss) before income taxes	16,308			(4,181		)	289			(3,892		)	334
Provision for income taxes (benefit)	5,779			(1,986		)	(280		)	(2,266		)	(359		)
Net income (loss)	10,529			(2,195		)	569			(1,626		)	693
Preferred stock dividends and accretion	(3,570		)	(2,260		)	(2,627		)	(4,887		)	(7,560		)
Net income (loss) attributable to common stockholders	$	6,959		$	(4,455	)	$	(2,058	)	$	(6,513	)	$	(6,867	)

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.

	Predecessor
	Fiscal year ended		Period ended				Combined		Fiscal year ended
	October 27,		June 13,		October 26,		2003		October 28,
	2002		2003		2003		Period		2004
Revenues:
Restaurant operations	98.5	%	98.6	%	98.6	%	98.6	%	98.7	%
Franchise operations	1.5		1.4		1.4		1.4		1.3
	100.0		100.0		100.0		100.0		100.0
Costs and expenses
Restaurant costs:
Food	27.2		26.8		26.5		26.7		26.6
Labor	32.0		32.0		32.4		32.2		31.8
Other operating expenses	26.1		26.6		28.8		27.4		28.0
Franchise operating expenses	0.8		0.7		0.7		0.7		0.6
General and administrative expenses	6.9		6.7		6.7		6.7		6.3
Litigation settlement	—		—		—		—		0.8
Transaction expenses	0.1		3.8		0.9		2.8		0.0
Management fees	0.3		0.3		0.1		0.2		0.3
Asset impairments	—		0.1		—		0.0		0.1
	93.4		97.0		96.1		96.7		94.5
Operating profit	6.6		3.0		3.9		3.3		5.5
Interest expense	(2.6	)	(2.3	)	(3.8	)	(2.8	)	(3.8	)
Debt extinguishment costs	—		(2.6	)	—		(1.7	)	(1.7	)
Other income, net	0.2		0.2		0.1		0.2		0.1
Income (loss) before income taxes	4.2		(1.7	)	0.2		(1.0	)	0.1
Provision for income taxes (benefit)	1.5		(0.8	)	(0.2	)	(0.6	)	(0.1	)
Net income (loss)	2.7		(0.9	)	0.4		(0.4	)	0.2
Preferred stock dividends and accretion	(0.9	)	(0.9	)	(1.9	)	(1.3	)	(1.9	)
Net income (loss) attributable to common stockholders	1.8	%	(1.8	)%	(1.5	)%	(1.7	)%	(1.7	)%

31Income taxes

~~Fiscal~~Deferred ~~2004~~income tax ~~compared~~assets toand liabilities are recognized for the ~~combined~~expected ~~periods~~future ~~beginning~~income ~~October~~tax consequences ~~28,~~of ~~2002~~carry ~~through~~forwards ~~June~~and ~~13,~~temporary differences between the book and ~~2003~~tax basis of assets and ~~beginning~~liabilities. ~~June~~Valuation 14allowances are established for deferred tax assets that are deemed unrealizable. As of November 2, ~~2003~~2006, ~~through~~we ~~October~~had 26gross deferred tax assets of $32.2 million, ~~2003~~which ~~(together~~included $16.1 million of FICA tip credit carry forwards, expiring at various dates through 2026. Approximately $10.2 million of the ~~“Combined~~FICA tip credit carry forwards were generated prior to our acquisition in June 2003 and ~~Period”)~~are subject to an annual use limitation of $0.7 million.

~~Total~~We ~~revenues~~must ~~increased~~assess bythe likelihood ~~$12.5~~that ~~million,~~we orwill ~~3.2%,~~be able to ~~$399~~ recover our deferred tax assets.7 ~~million~~If inrecovery is ~~fiscal~~not ~~2004~~likely, ~~from~~valuation ~~$387~~allowances are established.2 ~~million~~The ~~for~~valuation allowance is based on the ~~Combined~~reversals ~~2003 Period. The~~of ~~increase~~our ~~was~~existing ~~largely~~deferred ~~due~~tax toitems and our estimates of ~~operating~~future ~~six~~taxable ~~more~~income ~~locations~~by oneach ~~average~~jurisdiction in ~~fiscal~~which ~~2004~~we ~~compared~~operate toas ~~the~~a ~~Combined~~result of ~~2003~~available ~~Period~~tax planning strategies. WeIn the ~~also~~event ~~experienced~~that aactual ~~0.4% increase~~results indiffer ~~same~~from ~~unit~~these ~~sales~~estimates, ~~for~~we ~~fiscal~~are ~~2004~~unable ~~over~~to implement ~~the~~certain ~~Combined~~tax ~~2003~~planning ~~Period,~~strategies ~~and fiscal~~or ~~2004~~we ~~had~~adjust ~~four~~these ~~extra~~estimates ~~days~~in future ~~compared~~periods, we may need to ~~the~~establish ~~Combined~~an ~~2003~~additional ~~Period.~~valuation ~~Village~~allowance ~~Inn~~which ~~same~~could ~~unit~~have ~~sales~~a ~~for~~material ~~fiscal~~negative ~~2004~~impact ~~increased~~on ~~2.2%~~our ~~over~~results ~~the~~of ~~Combined~~operations ~~2003~~or ~~Period~~financial position. As of November 2, 2006, ~~and~~the ~~Bakers~~Company ~~Square~~recorded ~~same~~a ~~unit~~valuation ~~sales~~allowance ~~decreased~~of 1$2.0%5 ~~over~~million ~~the~~for ~~same~~FICA ~~period.~~tip ~~Average~~credits ~~guest~~for ~~spending~~which ~~increased~~it ~~1.6%~~is atmore ~~Village~~likely ~~Inn~~than ~~and~~not ~~3.7%~~that ata ~~Bakers~~tax ~~Square in~~benefit ~~fiscal~~will ~~2004~~not ~~compared~~be realized due to the ~~Combined~~impending ~~2003~~expiration ~~Period~~of such credits.

~~Food~~Significant ~~costs~~judgment ~~increased by $2.9 million, or 2.8%, to~~is ~~$106.3~~required ~~million~~ in ~~fiscal~~determining ~~2004,~~our ~~from~~effective ~~$103.4~~tax ~~million~~rate ~~for~~and ~~the~~in ~~Combined~~evaluating ~~2003~~our tax ~~Period~~positions. ~~Food~~ ~~costs~~We asestablish areserves ~~percentage~~when, ~~of total~~despite ~~revenues~~our ~~slightly~~belief ~~decreased~~that toour ~~26.6%~~tax ~~for fiscal 2004 from 26.7% in the~~return ~~Combined~~positions ~~2003~~are ~~Period. Menu~~supportable, ~~engineering and~~we ~~menu~~believe ~~price~~that ~~increases~~certain ~~generally~~positions ~~offset~~are ~~unfavorable~~likely ~~commodity~~to ~~costs~~be ~~experienced~~successfully ~~in fiscal 2004~~challenged. ~~Food commodity~~ ~~costs~~We ~~were~~adjust ~~very~~these ~~volatile~~reserves in ~~fiscal~~light ~~2004~~of ~~and~~changing ~~generally were very high~~facts inand ~~the~~circumstances, ~~early-~~such toas ~~mid-portions of~~ the ~~fiscal~~progress ~~year with moderation near the end~~ of ~~the~~a ~~fiscal~~tax ~~year~~audit. ~~During~~ ~~the~~Our ~~year,~~effective wetax rate ~~experienced~~includes the ~~highest~~impact ~~prices we have seen in the last five years for butter, eggs, poultry, pork and fryer oil all~~ of ~~which~~reserve ~~are~~provisions ~~important ingredients in our products. In addition, beef prices remained historically high~~ and ~~record~~changes ~~high~~to ~~diesel~~reserves ~~fuel~~that ~~prices increased our~~we ~~delivery~~consider ~~costs~~appropriate.

Labor costs increased 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.28

~~Other~~Results ~~operating expenses increased by $5.5 million, or 5.2%, to $111.7 million in fiscal 2004 from $106.2 million for the Combined 2003 Period. Other operating expenses as a percentage~~ of total revenues increased from 27.4% to 28.0% over these periods. This increase was primarily due to higher occupancy costs resulting from the sale and leaseback of 13 locations in 2003 and the fair market value adjustments to operating and capital leases associated with our June 2003 acquisition. Partially offsetting this increase was a decrease in advertising expenses.operations

General and administrative expenses decreased $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.

(In thousands)	Fiscal year ended November 2, 2006			Fiscal year ended November 3, 2005			Fiscal year ended October 28, 2004

Revenues:
Restaurant operations	$	425,185		$	407,424		$	394,667
Franchise operations	5,058			5,280			5,057
Manufacturing operations	36,065			26,641			31,796
	466,308			439,345			431,520
Costs and expenses:
Restaurant costs:
Food	108,774			105,575			103,604
Labor	141,876			132,000			127,251
Other operating expenses	126,415			112,204			105,043
Franchise operating expenses	2,148			2,181			2,311
Manufacturing operating expenses	35,350			24,809			32,322
General and administrative expenses	29,417			29,602			27,028
Litigation settlement expense	600			(408		)	3,168
Employee severance	40			600			286
Transaction expenses	—			15			125
Management fees	850			850			1,159
Loss on disposition of assets	1,395			110			438
Asset impairments	1,381			—			1,101
	448,246			407,538			403,836
Operating profit	18,062			31,807			27,684
Interest expense	(29,976		)	(28,951		)	(26,787		)
Debt extinguishment costs	—			—			(6,856		)
Other income, net	586			745			522
Income (loss) before income taxes	(11,328		)	3,601			(5,437		)
Provision for income taxes (benefit)	(3,457		)	138			(2,912		)
Net income (loss)	(7,871		)	3,463			(2,525		)
Preferred stock dividends and accretion	(9,795		)	(8,941		)	(7,665		)
Net loss attributable to common stockholders	$	(17,666	)	$	(5,478	)	$	(10,190	)

Litigation settlement expenses increased 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.

	Fiscal year ended November 2, 2006		Fiscal year ended November 3, 2005		Fiscal year ended October 28, 2004

Revenues:
Restaurant operations	91.2	%	92.7	%	91.4	%
Manufacturing operations	1.1		1.2		1.2
Franchise operations	7.7		6.1		7.4
	100.0		100.0		100.0
Costs and expenses
Restaurant costs:
Food (1)	25.6		25.9		26.3
Labor (1)	33.4		32.4		32.2
Other operating expenses (1)	29.7		27.5		26.6
Franchise operating expenses (2)	42.5		41.3		45.7
Manufacturing operating expenses (3)	98.0		93.1		101.7
General and administrative expenses	6.3		6.7		6.3
Litigation settlement expense	0.1		(0.1	)	0.7
Employee severance	—		0.1		0.1
Transaction expenses	—		—		—
Management fees	0.2		0.2		0.3
Loss on disposition of assets	0.3		—		0.1
Asset impairments	0.3		—		0.3
	96.1		92.8		93.6
Operating profit	3.9		7.2		6.4
Interest expense	(6.4	)	(6.6	)	(6.2	)
Debt extinguishment costs	—		—		(1.6	)
Other income, net	0.1		0.2		0.1
Income (loss) before income taxes	(2.4	)	0.8		(1.3	)
Provision for income taxes (benefit)	(0.7	)	—		(0.7	)
Net income (loss)	(1.7	)	0.8		(0.6	)
Preferred stock dividends and accretion	(2.1	)	(2.0	)	(1.8	)
Net loss attributable to common stockholders	(3.8	)%	(1.2	)%	(2.4	)%

~~Transaction expenses of $10.7 million were incurred in the Combined 2003 Period associated~~(1) Restaurant ~~with~~costs ~~the~~percentages ~~acquisition~~are ofbased ~~our~~on ~~Company. Only~~Restaurant ~~$0.1~~operations ~~million of transaction costs were incurred in fiscal 2004~~revenues.

~~Impairment~~(2) Franchise operating expense ofpercentage ~~$0.6~~is ~~million~~based ~~was~~on ~~incurred~~Franchise inoperations ~~fiscal 2004 compared to $0~~revenues.1 million in the Combined 2003 Period. The impairment in fiscal 2004 related to nine 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.

3229

~~Operating profit increased by $8.9 million, or 69.0%, to $21.8 million in fiscal 2004,~~(3) Manufacturing ~~from~~operating ~~$12.9~~expense ~~million for the Combined 2003 Period. Operating profit as a~~ percentage ofis ~~total~~based ~~revenues~~on ~~for~~Manufacturing ~~fiscal~~operations ~~2004 increased from 3~~revenues.3% to 5.5% 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~~All ~~expense~~other ~~increased~~cost bypercentages ~~$4.3~~are ~~million,~~based oron ~~39.4%, to $15.2 million in fiscal 2004, from $10.9 million for the Combined 2003 Period. Interest expense as a percentage of~~ total revenues ~~increased from 2~~.8% to 3.8% 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 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~~Fiscal ~~extinguishment~~2006 ~~costs~~compared ~~of $6.9~~to ~~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.2005

~~Provision~~Total ~~for~~revenues ~~income~~increased ~~taxes~~by ~~(benefit)~~$27.0 million, ~~for~~or ~~fiscal~~6.1%, ~~2004~~to ~~was~~$466.3 amillion ~~benefit~~in offiscal 2006, from $0439.4 3 million for fiscal 2005. ~~For~~The ~~the~~increase ~~Combined~~was ~~2003~~largely due ~~Period~~to operating 22 more locations in fiscal 2006 compared to fiscal 2005 offset by seven extra days in fiscal 2005 compared to fiscal 2006. However, we experienced a 2.1% decrease in ansame ~~income~~unit ~~tax~~sales ~~benefit~~for offiscal $2006 over fiscal 2005. Village Inn same unit sales for fiscal 2006 decreased 1.9% over fiscal 2005, and Bakers Square same unit sales decreased 2.3% ~~million~~over ~~was~~the ~~recorded~~same period. ~~The~~Average ~~provisions~~guest ~~differ~~spending ~~from our~~decreased ~~statutory~~2.7% ~~rate~~at ofVillage 39Inn and 4.93% ~~due~~at Bakers Square in fiscal 2006 compared to ~~general~~fiscal ~~business~~2005. ~~credits~~We believe that weour ~~earn~~decrease ~~from~~in comparable store is closely related to trends within the ~~FICA~~restaurant ~~taxes~~industry. ~~paid~~The onmajority ~~employee~~of ~~tips,~~our ~~partially~~direct ~~offset~~competitors have been experiencing similar declining sales and restaurant analysts believe this is a result of increasing utility and gas prices being absorbed by ~~nondeductible~~consumers. Third ~~amortization~~party ~~related~~pie sales increased $9.5 million, or 35.4%, to ~~franchise~~$36.1 ~~rights~~million in fiscal 2006 due to the addition of a large customer at the end of the first quarter of 2006.

~~Net~~Food ~~income~~costs ~~(loss)~~ increased by $2.3.2 million, or 3.0%, to a $0108.78 million ~~profit~~ in fiscal ~~2004~~2006, from a $1105.6 million ~~loss~~ for ~~the Combined 2003~~fiscal ~~Period~~2005. ~~Net~~Food ~~income~~costs as a percentage of ~~total~~restaurant revenues decreased ~~increased~~ to 025.26% for fiscal 2006 from (025.49%) ~~over~~in ~~these~~fiscal ~~periods~~2005. The decrease was driven primarily by menu price increases exceeding commodity price increases.

~~Preferred~~Labor ~~stock~~costs ~~dividends and accretion~~ increased by $29.79 million, or 7.5%, to $7141.69 million in fiscal ~~2004~~2006, from $4132.90 million for ~~the~~fiscal ~~Combined~~2005, while ~~2003~~labor ~~Period~~costs as a ~~result~~percentage of ~~the redemption~~restaurant ofrevenues ~~$36.5~~increased ~~million~~slightly ~~liquidation preference of preferred stock of Midway~~to ~~Investors Holdings Inc~~33.4% ~~that~~from ~~accrued dividends at a rate of 8~~32.944% ~~per~~over ~~annum~~these ~~and the issuance of $69~~periods.~~7 million liquidation preference of preferred stock of VI~~ The ~~Acquisition~~relative ~~Corp.~~increase ~~that accrue dividends at a rate of 10.0% per annum~~ in ~~connection~~ ~~with~~labor ~~the~~costs ~~June~~was ~~2003~~due ~~acquisition.~~to ~~Until~~lower ~~the~~operating ~~June 2003 acquisition~~efficiency, ~~Midway~~increased ~~Investors~~average ~~Holdings~~wage ~~Inc.~~due ~~had,~~to ~~and~~minimum ~~following~~wage ~~the~~increases, ~~June~~negative ~~2003 acquisition VI~~leverage ~~Acquisition~~associated ~~Corp.~~with ~~has,~~the ~~outstanding~~same ~~preferred~~store ~~stock.~~sales ~~Dividends~~declines ~~on VI Acquisition Corp.’s preferred stock accumulate~~ and ~~compound~~labor ~~but~~inefficiencies ~~are~~at ~~not payable until~~the ~~dividends~~new ~~are~~restaurants ~~declared. Covenants contained~~ in ~~our~~start ~~senior~~up ~~secured credit agreement and the indenture governing our 10½% notes restrict our ability to declare dividends on our preferred stock~~mode.

~~Combined~~Other operating expenses increased by ~~periods~~$14.2 ~~beginning~~million, ~~October~~or 2812.7%, ~~2002~~to ~~through~~$126.4 ~~June~~million ~~13,~~in ~~2003~~fiscal ~~and~~2006 ~~beginning~~from ~~June~~$112.2 ~~14,~~million ~~2003~~for ~~through~~fiscal ~~October~~2005. ~~26,~~Other ~~2003~~operating ~~compared~~expenses as a percentage of restaurant revenues increased from 27.5% to ~~fiscal~~29.7% ~~2002~~over these periods. This increase was primarily due to higher occupancy costs ($8.4 million), increased utility costs ($2.1 million) and increased costs associated with new store growth.

~~Total~~Manufacturing ~~revenues~~operating expenses increased by $310.86 million, or 142.05%, to $~~387~~35.~~2 million for the Combined 2003 Period, from $383.~~4 million in fiscal ~~2002.~~2006 ~~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~~ $024.38 million. ~~We experienced a 1.4% decrease in same unit sales~~ for ~~the~~ ~~Combined 2003 Period compared to~~ fiscal ~~2002~~2005. ~~Village~~This ~~Inn~~increase ~~same~~was ~~unit~~primarily ~~sales for~~due ~~the~~to ~~Combined~~higher ~~2003 Period increased 0.1% over fiscal 2002, and Bakers Square~~third ~~same~~party ~~unit~~pie sales ~~decreased 2~~.~~5%.~~ Manufacturing ~~Affecting the change in same unit sales, we~~operating ~~experienced~~expenses ~~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%~~percentage ~~increase~~of ~~in average~~manufacturing ~~per-person~~revenues ~~check~~increased ~~size~~from ~~and a 5~~93.1% ~~decrease in entrée count for our Bakers Square restaurants in the Combined 2003 Period as compared~~ to ~~fiscal~~ ~~2002~~98.0% Weover ~~believe~~these ~~that the decrease in pie and Bakers Square revenues was primarily the result of a challenging economic environment~~periods.

~~Food~~General ~~costs~~and ~~decreased~~administrative expenses bydecreased $0.92 million, or 0.96%, to $~~103~~29.4 million infor ~~the~~fiscal ~~Combined~~2006 ~~2003 Period,~~ from $~~104~~29.3 6 million infor fiscal ~~2002~~2005. As ~~Food cost as~~ a percentage of total revenues ~~declined~~, ~~from~~general ~~27.2%~~and toadministrative ~~26.7%~~expenses ~~over~~decreased ~~these periods with improvements of 0~~to 6.53% ~~at both~~in ~~Village~~fiscal ~~Inn~~2006 ~~and Bakers Square. The decrease resulted~~ from ~~increased management of the cost of food, which reduced the difference between actual food cost and ideal food cost~~6. ~~Menu price increases of approximately 3.1~~7% ~~exceeded~~in ~~food~~fiscal ~~cost inflation and contributed to the decline as a percentage of revenues~~2005.

33Employee severance in fiscal 2005 related to a severance charge due to the departure of one of our officers.

~~Labor costs increased~~Litigation bysettlement ~~$1.7~~expense ~~million,~~for orfiscal ~~1.4%,~~2006 toincluded a $~~124~~0.56 ~~million~~charge related into the ~~Combined~~anticipated ~~2003~~settlement ~~Period,~~of ~~from $122.8~~the ~~million~~class ~~for~~action ~~fiscal~~suit ~~2002.~~brought ~~Labor~~in ~~costs~~April 2006 as adiscussed ~~percentage~~in ofItem ~~total~~3 ~~revenues increased~~Legal ~~from 32~~Proceedings.0% Fiscal to2005 ~~32.2%~~was ~~during~~a ~~these~~credit ~~periods.~~of $10.64 million ofdue ~~the increase~~to ~~was associated with increased store count resulting from our acquisition of~~ the ~~eight~~net ~~New~~effects ~~Mexico units. Employee benefit costs increased~~of reversing $01.52 million ~~and~~in ~~were~~accrued ~~offset~~litigation byreserve ~~lower~~as ~~bonus~~a ~~payouts~~result ~~for~~of the ~~Bakers Square~~ ~~managers~~ultimate ~~due~~costs tobeing afinalized ~~change~~by inthe ~~their~~trustee ~~incentive~~for ~~program.~~the ~~Village~~prior ~~Inn~~class ~~reduced~~action ~~overtime~~lawsuits ~~expense~~and bythe reversal of $0.28 million ~~due~~of tothe ~~our~~indemnification ~~modifying~~receivable from ~~internal~~our ~~processes~~former toshareholders. The ~~provide~~original ~~our~~charge ~~restaurant~~was ~~managers~~previously ~~greater~~recorded ~~control~~in ~~over~~fiscal ~~employee~~2004 ~~utilization~~at ~~and overtime~~$3.2 million.

~~Other~~Loss on ~~operating~~disposition ~~expenses~~of assets increased by $61.23 million, ~~or 6.2%,~~ to $~~106~~1.2 4 million infor ~~the~~fiscal ~~Combined 2003~~2006 ~~Period,~~ from $~~100.~~0.1 million infor fiscal ~~2002~~2005. The ~~Other operating expenses as a percentage of total revenues increased from 26.1% to 27.4% during these periods. $2.0 million of this~~ increase ~~was~~resulted ~~due~~primarily ~~to increased occupancy expense resulting~~ from ~~our sale-leaseback transactions. We also increased advertising~~ ~~program~~services ~~expenditures~~related ~~by $1.7 million in an effort~~ to ~~increase~~site ~~customer traffic. In addition~~investigation, wearchitectural ~~experienced a $1.2 million increase in utility costs across all of our markets, incurred $0.4 million in repair~~ and ~~maintenance expenses and~~environmental ~~incurred~~research ~~$0.3~~associated ~~million~~with ofproperties ~~incremental~~that ~~pre-opening~~we ~~expense~~have ~~over~~decided ~~fiscal~~not ~~2002~~to ~~as a result of new unit openings~~develop.

~~General~~Impairment expense ~~and~~of ~~administrative expenses decreased by~~ $01.64 million, orwas ~~2.3%,~~incurred ~~to $26.0 million~~ in ~~the Combined 2003 Period, from $26.6 million in~~ fiscal ~~2002. General~~2006 ~~and~~related ~~administrative~~to ~~expenses~~12 ~~expressed~~restaurant aslocations afor ~~percentage~~which ofthe ~~total~~estimated ~~revenues declined~~future ~~from~~cash ~~6.9%~~flows could tonot ~~6.7%~~recover ~~during~~the ~~these~~carrying ~~periods~~value ~~reflective~~ of the ~~higher revenue~~applicable ~~and~~long-term ~~lower~~assets ~~costs~~and ~~in the Combined 2003 Period. This decrease was~~for ~~primarily~~which the ~~result~~fair ofmarket avalue ~~decrease~~ of ~~$1.3~~the ~~million~~assets inwas ~~bonuses~~less ~~paid~~than ~~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~~carrying ~~of providing benefits to employees~~value.

Operating profit decreased by $1213.47 million, or 4943.01%, to $1218.91 million ~~for~~in ~~the~~fiscal ~~Combined 2003~~2006, ~~Period~~ from $2531.38 million infor fiscal ~~2002~~2005. Operating profit as a percentage of total revenues ~~declined~~for fiscal 2006 decreased from 67.62% to 3.39% ~~over~~for ~~these~~fiscal ~~periods~~2006. The decrease in ~~operating profit and operating margin for the Combined 2003 Period versus fiscal 2002~~ was ~~primarily~~due ~~attributable~~largely to ~~transaction~~the ~~expenses incurred in~~decline ~~connection~~in ~~with the acquisition of~~ our ~~company~~same onunit ~~June 14~~sales, ~~2003,~~its ~~which decreased~~effect ~~operating~~on ~~profit by $10.7 million~~labor, oras ~~2.7%~~well ofas ~~total~~increases ~~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,~~other ~~respectively,~~ operating ~~profit during the Combined 2003 Period would have been $23~~expenses.~~6 million, or 6.2% of total revenues, compared to $25.6 million, or 6.6% of total revenues, during fiscal 2002.~~

In addition, the sale-leaseback transaction entered into in June 2003 resulted in additional cash rent expense of $0.4 million during the period from June 14, 2003 to October 26, 2003, and additional noncash rent expenses of $0.3 million which were recorded to reflect the estimated fair market value of leases as required by purchase accounting, partially offset by a decrease in depreciation expense of $0.1 million. 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.30

~~Debt~~Interest ~~extinguishment~~expense increased ~~costs~~by of $61.50 million, ~~were~~or ~~recorded~~3.5%, ~~for the Combined 2003 Period as a result of costs related~~ to ~~terminating~~$30.0 ~~financing~~million ~~arrangements prior to their maturity~~ in ~~connection~~fiscal ~~with~~2006, ~~the~~from ~~June 2003 acquisition of our company~~$29. ~~No such charges~~0 ~~were~~million ~~incurred~~ for fiscal ~~2002~~2005. This ~~Included within the $6.5 million in debt~~increase ~~extinguishment~~was ~~costs~~due ~~are~~primarily ato ~~write-off~~the ofhigher ~~deferred~~average ~~financing~~debt ~~cost~~balances ~~of $3.3 million, early termination costs of $1.3 million~~ and ~~costs~~interest ~~associated~~rates ~~with~~during ~~terminating~~fiscal ~~unfavorable derivative instruments of $1~~2006.~~9 million.~~

Provision for income taxes (benefit) for ~~the~~fiscal ~~Combined~~2006 ~~2003 Period~~ was a benefit of $2.3.5 million., ~~This~~compared ~~benefit~~to ~~reflects~~a ~~the loss before~~ provision ~~for~~of ~~income taxes~~$0.1 million for ~~the~~fiscal ~~Combined 2003 Period of $3~~2005.9 ~~million~~The ~~and~~provisions adiffer ~~tax~~from ~~benefit~~our statutory rate of approximately 5840.20%~~. For~~ ~~fiscal~~due ~~2002,~~to ~~the~~general ~~provision~~business ~~for~~credits ~~income~~that we earn from FICA taxes ofpaid ~~$5.8~~on ~~million~~employee ~~reflects~~tips, apartially ~~tax~~offset by nondeductible amortization ~~provision~~related ~~rate~~to offranchise 35rights.~~4%.~~ ~~These~~During ~~rates~~fiscal ~~differ~~2006 ~~from~~the ~~our~~Company ~~statutory~~recorded ~~rate~~a valuation allowance of 39$2.~~9% due~~5 tomillion ~~tax~~for FICA tip credits ~~that~~for wewhich ~~earn~~it byis ~~paying~~more likely ~~FICA~~than ~~taxes~~not onthat ~~employee~~a ~~tips, partially~~tax ~~offset~~benefit bywill ~~amortization~~not ~~relating~~be torealized ~~franchise~~due ~~rights~~to ~~that~~the isimpending ~~nondeductible~~expiration ~~for~~of ~~tax~~such ~~purposes~~credits.

Net income (loss) decreased by $12.1 million to a net loss of $1.6 million for the Combined 2003 Period, from net income of $10.5 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.Valuation

34Net income (loss) decreased by $11.4 million to a loss of $7.9 million in fiscal 2006, from income of $3.5 million for fiscal 2005. Net income (loss) as a percentage of total revenues decreased from 0.8% to (1.7)% over these periods.

Preferred stock dividends and accretion increased by $10.39 million, ~~or 36.1%,~~ to $4.9 .8 million ~~for~~in ~~the~~fiscal ~~Combined~~2006 ~~2003 Period,~~ from $38.69 million for fiscal ~~2002,~~2005 as a result of the ~~redemption~~compounding effect of ~~$36.5~~unpaid ~~million~~preferred ~~liquidation~~stock dividends ~~preference~~and issuance of ~~Midway~~additional shares. ~~Investors~~Dividends ~~Holdings~~on ~~Inc~~VI Acquisition Corp.’s preferred stock ~~that~~accumulate ~~accrued dividends at a rate of~~and ~~8.94%~~compound ~~per~~but ~~annum~~are ~~and~~not ~~the~~payable ~~issuance~~until ofdividends ~~$67~~are declared.9 ~~million~~Covenants ~~liquidation preference of~~contained ~~preferred~~in ~~stock~~our ofsenior VIsecured ~~Acquisition~~credit ~~Corp.~~agreement ~~that~~and ~~accrue~~the ~~dividends~~indenture atgoverning aour ~~rate of~~ 10.0½% notes ~~per~~restrict ~~annum~~our inability ~~connection~~to ~~with~~declare ~~the~~dividends ~~June~~on ~~2003~~our ~~acquisition~~preferred stock.

~~Liquidity and~~Fiscal ~~capital~~2005 ~~resources~~compared to fiscal 2004

~~Cash~~Total ~~requirements~~revenues increased by $7.8 million, or 1.8%, to $439.3 million in fiscal 2005, from $431.5 million for fiscal 2004. The increase was largely due to operating 7.3 more locations on average in fiscal 2005 compared to fiscal 2004 and three extra days in fiscal 2005 compared to fiscal 2004. However, we experienced a 1.3% decrease in same unit sales for fiscal 2005 over fiscal 2004. Village Inn same unit sales for fiscal 2005 increased 0.9% over fiscal 2004, and Bakers Square same unit sales decreased 3.1% over the same period. Average guest spending increased 3.0% at Village Inn and 3.3% at Bakers Square in fiscal 2005 compared to fiscal 2004. Third party pie sales decreased $5.2 million, or 16.4%, to $26.6 million in fiscal 2005.

~~Our principal~~Food ~~liquidity~~costs ~~requirements~~increased ~~are~~by to$2.0 ~~continue~~million, or 1.9%, to ~~finance~~$105.6 ~~our~~million ~~operations, service~~in ~~our~~fiscal ~~debt~~2005, ~~and~~from ~~fund~~$103.6 ~~capital~~million ~~expenditures~~ for ~~maintenance and~~fiscal ~~expansion~~2004. ~~Cash~~Food ~~flow~~costs ~~from~~as ~~operations~~a ~~has historically~~percentage ~~been sufficient to finance continuing operations and meet normal~~of ~~debt~~restaurant ~~service requirements. However, we~~revenues ~~are~~decreased ~~highly~~slightly ~~leveraged~~from ~~and~~26.3% ~~our~~in ~~ability~~fiscal to2004 ~~repay borrowings at maturity is likely~~ to ~~depend~~25.9% in ~~part~~2005. Food oncommodity ~~our~~costs ~~ability~~were tovery ~~refinance~~volatile ~~the debt when it matures, which~~in ~~will~~fiscal be2004 ~~contingent~~and onwere ~~our~~moderate ~~continued~~in ~~successful~~fiscal ~~operation of the business as~~2005. ~~well~~Menu asengineering ~~other~~and ~~factors~~menu ~~beyond~~price ~~our~~increases ~~control,~~generally ~~including~~offset ~~the~~unfavorable commodity ~~debt~~cost ~~and~~increases ~~capital~~experienced ~~market conditions~~in atfiscal ~~that time~~2004.

~~Our~~Labor ~~cash~~costs ~~balance~~increased ~~and working~~by ~~capital~~$4.7 ~~needs~~million, or ~~are generally low~~3.7%, asto ~~sales~~$132.0 ~~are~~million ~~made~~in ~~for~~fiscal ~~cash~~2005, orfrom ~~through credit~~$127.3 ~~cards~~million ~~that~~for ~~are~~fiscal ~~quickly converted to cash~~2004, but ~~purchases~~labor ofcosts ~~food~~as ~~and~~a ~~supplies and~~percentage ~~other~~of ~~operating~~restaurant ~~expenses~~revenues ~~are~~increased ~~generally~~to ~~paid~~32.4% ~~within~~from 32.2% 30over tothese 60periods. A ~~days~~factor ~~after~~in ~~receipt~~the oflabor ~~invoices~~increase ~~and~~is ~~labor~~the ~~costs~~fact ~~are~~that ~~paid~~we ~~bi-weekly. The~~continue ~~timing~~to ofbe ~~our~~impacted ~~sales~~by ~~collections~~the ~~and~~increases ~~vendor~~in ~~and~~minimum ~~labor~~wage ~~payments~~in ~~are~~the ~~consistent~~states ~~with other companies engaged~~ in ~~the restaurant~~which ~~industry~~we operate.

~~During fiscal~~Other ~~2005,~~operating weexpenses ~~anticipate~~increased ~~capital expenditures before build-to-suit~~by ~~construction (as discussed below) of approximately~~ $267.2 million, ~~reflecting~~or ~~an acceleration of our unit growth~~6. ~~Of this amount~~8%, ~~$12 million is expected~~ to be$112.2 ~~spent~~million onin ~~new~~fiscal ~~store~~2005 ~~construction,~~from $6105.0 million for ~~remodels~~fiscal ~~and~~2004. ~~the~~Other ~~remainder~~operating onexpenses ~~capital~~as ~~maintenance~~a ~~and~~percentage ~~other~~of ~~support~~restaurant ~~related~~revenues ~~projects~~increased from 26. We6% ~~may~~to ~~also~~27.5% ~~have~~over ~~capital expenditures~~these periods. The increase in ~~fiscal~~other ~~2005~~operating ~~related~~expenses tois primarily ~~our~~due ~~Bakers~~to ~~Square~~higher ~~brand~~credit ~~repositioning~~card fees, ~~although~~ atpreopening ~~present~~expenses ~~such~~related ~~plans~~to ~~have~~new store ~~not~~openings, ~~been~~and ~~finalized. We~~higher ~~currently~~utility ~~expect~~and tooccupancy ~~open~~costs anwhich ~~estimated~~were 23partially tooffset 27by ~~new~~favorable ~~stores~~claim expenses in ~~fiscal~~our ~~2005~~insurance programs.

WeManufacturing operating expenses ~~may~~decreased ~~also~~by be$7.5 ~~required~~million, or 23.2%, to ~~make~~$24.8 ~~cash~~million ~~payments~~in ~~associated~~fiscal ~~with~~2005 ~~litigation settlements~~from $32. We3 million ~~expect~~for ~~our~~fiscal ~~maximum~~2004. ~~net cash~~This ~~outlay~~decrease ~~for~~was ~~this~~primarily ~~litigation~~due ~~settlement~~ to belower ~~$3.2~~third ~~million~~party sales ~~reflecting~~in fiscal 2005. Manufacturing ~~indemnification~~operating ofexpenses ~~pre-acquisition~~as ~~activities~~a bypercentage ~~our~~of ~~predecessor~~manufacturing ~~for~~revenues ~~the~~decreased from ~~balance~~101.7% ofto ~~the $6~~93.551% ~~million~~over ~~proposed~~these ~~settlements~~periods.

~~In connection~~General ~~with~~and ~~our~~administrative ~~new~~expenses increased ~~restaurant~~$2.6 ~~development program~~million, weor ~~have entered into build-to-suit development agreements whereby third parties will purchase property~~9.6%, ~~fund the costs~~ to ~~develop~~$29.6 ~~new~~million ~~restaurant properties~~ for usfiscal ~~and~~2005 ~~lease the~~from ~~properties to us upon completion~~$27. 0 ~~Under~~million ~~these agreements, we generally are responsible~~ for ~~the construction~~fiscal ~~of the restaurant, and remitting payments to the contractors on the projects, which are subsequently reimbursed by the property owner~~2004. ~~These~~ ~~amounts~~This ~~advanced~~increase ~~and~~resulted ~~subsequently reimbursed~~from ~~are~~increased ~~not~~support ~~included in the anticipated capital spending totals~~expenses ~~above. On~~related ~~October 28, 2004, we had outstanding receivables of $4.1 million relating~~ to ~~these~~new ~~types~~store ofopenings, ~~agreements. In~~increased ~~certain~~audit offees ~~these~~due ~~agreements, we are obligated~~ to ~~purchase~~ the ~~property in the event that we are unable to complete~~previously ~~the~~reported ~~construction~~restatement ~~within~~of aour ~~specified~~financing ~~time~~obligations ~~frame,~~ and ~~are~~increased ~~also~~legal ~~responsible for~~fees ~~cost~~related ~~overruns~~to ~~above~~our ~~specified~~employment ~~amounts~~litigation.

~~Debt~~Employee severance in fiscal 2005 related to a severance charge due to the departure of one of our officers and ~~other~~in ~~obligations~~fiscal 2004 to the departure of two of our officers.

InLitigation ~~April~~settlement ~~2004,~~expense wewas ~~completed~~ a ~~refinancing~~credit of ~~our~~$0.4 ~~prior~~million ~~debt~~in ~~including a private~~fiscal ~~placement~~2005 ofdue ~~$126.5~~to ~~million~~the ~~aggregate~~net ~~principal~~effects ~~amount~~ of ~~10½%~~the ~~senior~~$1.2 ~~unsecured notes~~million ~~maturing~~reduction in ~~April~~the ~~2011. The notes~~accrued ~~were~~litigation ~~issued~~reserve atas a ~~discounted~~result ~~price~~ of ~~98.791%~~the ofultimate ~~face~~costs ~~value,~~being ~~resulting~~finalized inby the ~~proceeds~~trustee ~~before~~for ~~transaction~~the ~~costs~~class ofaction ~~$125.0~~lawsuits ~~million. The~~and ~~senior~~the ~~unsecured~~corresponding ~~notes~~$0.8 ~~were issued by~~million ~~VICORP~~reduction ~~Restaurants,~~in ~~Inc.~~our ~~and~~indemnification ~~are~~receivable ~~guaranteed~~from byformer ~~VI Acquisition Corp~~shareholders. The ~~and~~original ~~our subsidiary~~charge ~~Village~~was ~~Inn~~previously ~~Pancake~~recorded in ~~House~~fiscal of2004 ~~Albuquerque,~~at ~~Inc~~$3.2 million.

3531

~~Concurrently~~Impairment ~~with~~expense ~~the issuance~~ of ~~the 10½% senior unsecured notes, we entered into an amended and restated senior secured credit facility consisting of a~~ $151.~~0 million~~1 ~~term loan and a $30.0~~ million ~~revolving~~was ~~credit~~incurred ~~facility,~~in ~~with~~fiscal ~~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~~impairment ~~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~~fiscal ~~senior secured credit agreement) minus the original amount of the senior secured term loan. Under this formula, as of October 28,~~ 2004, ~~we had~~related ~~the ability~~ to ~~borrow the full $30 million, less the amount of outstanding~~10 ~~letters~~restaurant oflocations ~~credit,~~for ~~under~~which the ~~senior~~estimated ~~secured~~future ~~revolving~~cash ~~credit~~flows ~~facility,~~could ~~or $21.3~~not ~~million. Borrowings~~recover ~~under both~~ the ~~revolving~~ ~~credit~~carrying ~~facility~~value ~~and the term loan bear interest at floating rates tied to either the base rate~~ of the ~~agent~~applicable ~~bank~~long-term ~~under~~assets ~~the~~and ~~credit agreement or LIBOR rates~~ for awhich ~~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,~~fair asmarket ~~defined~~value ~~in the senior secured credit agreement. Both facilities are secured by a lien~~ of ~~all of~~ the assets ofwas ~~VICORP~~less ~~Restaurants, Inc.,~~than ~~and guaranteed by VI Acquisition Corp. and our subsidiary Village Inn Pancake House of Albuquerque, Inc. The guarantees also secured by~~ the ~~pledge~~carrying ~~of all of the outstanding capital stock of VICORP Restaurants, Inc~~value. 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~~Operating ~~secured credit facility and the indenture governing the senior unsecured~~profit ~~notes~~increased ~~contain~~by a$4.1 ~~number of covenants that~~million, ~~among~~or ~~other things~~14.8%, ~~restrict, subject~~ to ~~certain~~$31.8 ~~exceptions,~~million our ability and the ability of our subsidiaries, to sell assets, incur additional indebtedness 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~~fiscal ~~or consolidations~~2005, ~~enter into sale-leaseback~~from ~~transactions,~~$27.7 ~~engage~~million infor ~~certain~~fiscal ~~transactions~~2004. ~~with~~Operating ~~affiliates,~~profit ~~amend~~as ~~certain material~~a ~~agreements~~percentage ~~governing~~of ~~our indebtedness, change the business conducted~~total byrevenues usfor ~~and~~fiscal ~~our~~2005 ~~subsidiaries~~increased ~~and~~from ~~enter into hedging agreements~~6.4% ~~In addition, our senior secured credit facility requires us~~ to ~~maintain~~7.2% orover ~~comply~~fiscal ~~with~~2004. ~~a maximum~~This ~~total~~increase ~~leverage~~in ~~ratio,~~profit amargin ~~minimum~~was ~~interest~~primarily ~~coverage~~due ~~ratio~~to ~~and~~the ~~a maximum capital expenditures limitation~~$3. As2 million of ~~October~~litigation ~~28,~~settlement ~~2004,~~costs ~~we were~~ in ~~compliance~~fiscal ~~with these requirements~~2004.

WeInterest expense ~~are~~increased ~~subject~~by to$2.2 ~~capital~~million, ~~lease~~or ~~obligations~~8.1%, ~~related~~ to ~~nine of our leased properties~~$29.0 ~~The~~million ~~principal~~in ~~component~~fiscal of2005, ~~our~~from ~~capital lease obligations was~~ $326.78 million asfor offiscal ~~October 28,~~ 2004. This ~~These capital leases have expiration dates~~increase ~~ranging~~was ~~from~~due ~~December~~primarily ~~2004~~ to

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