##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

(Mark One)


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

For the fiscal year ended December 29, 2002


OR

|                                                                                                  
|--------------------------------------------------------------------------------------------------
|[  ]     
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 333-57925



THE RESTAURANT
COMPANY


(Exact name of Registrant as specified in its charter)


|                                                                                |  |                                                
|------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)         |  | 62-1254388
(I.R.S. Employer Identification No.)
|                                                                                |  |                                                
|6075 Poplar Ave. Suite 800 Memphis, TN
(Address of principal executive offices) |  | 38119
(Zip Code)                               

(901) 766-6400
(Registrants telephone number, including area code)

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

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange
on which registered
|                    |  |                                          

None

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

None

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
 
[X]  No [  ]

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes
 [  ]  No  [X]

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of
such common equity, as of the last business day of the registrants most
recently completed second fiscal quarter. Not Applicable.

Number of shares of common stock outstanding: 10,820.

Documents incorporated by reference: None.





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TABLE OF CONTENTS



|                                       |                                                                                                         |  |  |  |  |  |  | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                
|                                       | Item 1. Business.                                                                                      
|                                       | Item 2. Properties                                                                                     
|                                       | Item 3. Legal Proceedings                                                                              
|                                       | Item 4. Submission of Matters to Vote of Shareholders                                                  
|PART II                               
|                                       | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                       | Item 6. Selected Financial Data                                                                        
|                                       | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                       | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    
|                                       | Item 8. Financial Statements and Supplementary Data                                                    
|                                       | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                              
|                                       | Item 10. Directors and Executive Officers of the Registrant                                            
|                                       | Item 11. Executive Compensation                                                                        
|                                       | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                       | Item 13. Certain Relationships and Related Transactions                                                
|                                       | Item 14. Controls and Procedures                                                                       
|PART IV                               
|                                       | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                            
|CERTIFICATIONS                        
|EX-10.11  AMENDMENT TO LEASE AGREEMENT



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PART I




Item 1. Business

General.The Restaurant Company (the Company, Perkins, or TRC) is a
wholly-owned subsidiary of The Restaurant Holding Corporation (RHC). TRC
conducts business under the name Perkins Restaurant and Bakery. TRC is also
the sole stockholder of TRC Realty LLC, The Restaurant Company of Minnesota
(TRCM) and Perkins Finance Corp. RHC is owned principally by Donald N. Smith
(Mr. Smith), TRCs Chairman and Chief Executive Officer, and BancBoston
Ventures, Inc (BBV). Mr. Smith is also the Chairman of Friendly Ice Cream
Corporation (FICC), which operates and franchises 543 restaurants, located
primarily in the northeastern United States. Additional information may be
found on our website, www.perkinsrestaurants.com. We make available on our
website our Annual Report on Form 10-K, our quarterly reports on Form 10-Q,
current reports on Form 8-K and all exhibits to those reports free of charge as
soon as reasonably practicable after they are electronically filed or furnished
to the Securities and Exchange Commission.

Operations.We operate and franchise mid-scale full service restaurants, which
serve a wide variety of high quality, moderately priced breakfast, lunch and
dinner entrees. Our restaurants are open seven days a week except Christmas
Day and some are open 24 hours a day. As of December 29, 2002, entrees served
in Company-operated restaurants ranged in price from $3.59 to $10.99 for
breakfast, $5.29 to $10.99 for lunch and $5.29 to $11.99 for dinner. On
December 29, 2002, there were 498 full-service restaurants in our system, of
which 155 were Company-operated restaurants and 343 were franchised
restaurants. The restaurants operate under the names Perkins Restaurant and
Bakery, Perkins Family Restaurant, Perkins Family Restaurant and Bakery,
or Perkins Restaurant and the mark Perkins. The restaurants are located in
35 states with the largest number in Minnesota, Pennsylvania, Florida, Ohio and
Wisconsin (see Significant Franchisees). We have fifteen franchised
restaurants in Canada.

We offer our customers a core menu consisting of certain required menu
offerings that each Company-operated and franchised restaurant must offer.
Additional items are offered to meet regional and local tastes. We must
approve all menu items at franchised restaurants. Menu offerings continually
evolve to meet changing consumer tastes. We purchase television, radio,
outdoor and print advertisements to encourage trial, to promote product lines
and to increase customer traffic. We maintain a computerized labor scheduling
and administrative system called PRISM in all Company-operated restaurants to
improve our operating efficiency. PRISM is also available to franchisees and
is currently utilized in approximately 75% of franchised restaurants.

We also offer cookie doughs, muffin batters, pancake mixes, pies and other food
products for sale to our Company-operated and franchised restaurants and bakery
and food service distributors through Foxtail Foods (Foxtail), our
manufacturing division. During 2002, sales of products from this division to
Perkins franchisees and outside third parties constituted approximately 10.0%
of our total revenues.

Franchised restaurants operate pursuant to license agreements generally having
an initial term of 20 years, and pursuant to which a royalty fee (4% of gross
sales) and an advertising contribution (3% of gross sales) are paid.
Franchisees pay a non-refundable license fee of $40,000 for each of their first
two restaurants. Franchisees opening their third and subsequent restaurants
pay a license fee of between $25,000 and $50,000 depending on the level of
assistance provided by us in opening the restaurant. Typically, franchisees
may terminate license agreements upon a minimum of 12 months prior notice and
upon payment of specified liquidated damages. Franchisees do not typically
have express renewal rights. In 2002, average annual royalties earned per
franchised restaurant were approximately $61,000. The following number of
license agreements are scheduled to expire in the years indicated: 2003 -
fourteen; 2004 - twenty-two; 2005 - nine; 2006  six; 2007 - twelve.
Franchisees typically apply for and receive new license agreements.

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Design Development.Our restaurants are primarily located in freestanding
buildings seating between 90 to 250 customers. We employ an on-going system of
prototype development, testing and remodeling to maintain operationally
efficient, cost-effective and unique interior and exterior facility design and
decor. The current prototype packages feature modern, distinctive interior and
exterior layouts that enhance operating efficiencies and customer appeal.

System Development.We opened four Company-operated restaurants in 2002 and
seven in 2001. In 2001, nine formerly franchised restaurants were converted to
Company-operated stores. Five Company-operated restaurants were sold to
franchisees during the same period. Seventeen new franchised restaurants
opened during 2002 and twelve new franchised restaurants opened in 2001. Two
Company-operated restaurants were closed in 2002 and three were closed in 2001.
Eighteen franchised restaurants were closed in 2002 and nine were closed in
2001. We also opened two Sage Hen Cafes located in St. Louis Park, MN and
Deerfield, IL in 2001. These restaurants were closed during 2002.

Research and Development.Each year, we develop and test a wide variety of
products in our 3,000 square foot test kitchen in Memphis, Tennessee. New
products undergo extensive operations and consumer testing to determine
acceptance. While this effort is an integral part of our overall operations,
it was not a material expense in 2002, 2001 or 2000. In addition, no material
amounts were spent to conduct consumer research in 2002, 2001 or 2000.

Significant Franchisees.As of December 29, 2002, three franchisees, otherwise
unaffiliated with the Company, owned 92 of the 343 franchised restaurants and
bakeries. These franchisees operated 41, 29 and 22 restaurants, respectively.
38 of these restaurants were located in Pennsylvania, 26 were located in Ohio
and the remaining 28 were located across Wisconsin, Nebraska, Florida,
Tennessee, New Jersey, Minnesota, South Dakota, Maryland, Kentucky, New York,
Virginia, North Dakota, South Carolina and Michigan. During 2002, we earned
net royalties and license fees of $2,435,000, $1,853,000 and $1,592,000,
respectively, from these franchisees.

Franchise Guarantees.In the past, we have sponsored financing programs
offered by certain lending institutions to assist franchisees in procuring
funds for the construction of new franchised restaurants and to purchase and
install in-store bakeries. We provided a limited guaranty of funds borrowed.
Our obligation under these agreements expired during the first quarter of 2002.

During 2000, we entered into a separate agreement to guarantee fifty percent of
borrowings up to a total guarantee of $1,500,000 for use by a franchisee to
remodel and upgrade existing restaurants. As of December 29, 2002, $3,000,000
in borrowings were outstanding under this agreement of which $1,500,000 were
guaranteed by us.

Service Fee Agreements.Our predecessors entered into arrangements with
several different parties which have reserved territorial rights under which
specified payments are to be made by us based on a percentage of gross sales
from certain restaurants and for new restaurants opened within certain
geographic regions. During 2002, we paid an aggregate of $2,694,000 under such
arrangements. Three such agreements are currently in effect. Of these, one
expires upon the death of the beneficiary, one expires in the year 2075 and the
remaining agreement remains in effect as long as we operate Perkins Restaurants
and Bakeries in certain states.

Source of Materials.Essential supplies and raw materials are available from
several sources, and we are not dependent upon any one source for our supplies
and raw materials.

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Patents, Trademarks and Other Intellectual Property.We believe that our
trademarks and service marks, especially the mark Perkins, are of substantial
economic importance to our business. These include signs, logos and marks
relating to specific menu offerings in addition to marks relating to the
Perkins name. Certain of these marks are registered in the U.S. Patent and
Trademark Office and in Canada. Common law rights are claimed with respect to
other menu offerings and certain promotions and slogans. We have copyrighted
architectural drawings for Perkins restaurants and claim copyright protection
for certain manuals, menus, advertising and promotional materials. We do not
have any patents.

Seasonality.Our revenues are subject to seasonal fluctuations. Customer
counts (and consequently revenues) are generally highest in the summer months
and lowest during the winter months because of the high proportion of
restaurants located in states where inclement weather adversely affects
customer visits.

Working Capital.We ordinarily operate with a working capital deficit since
funds generated by cash sales in excess of those needed to service short-term
obligations are used by us to reduce debt and acquire capital assets. At
December 29, 2002, this working capital deficit was $18.1 million.

Competition.Our business and the restaurant industry in general are highly
competitive and are often affected by changes in consumer tastes and eating
habits, by local and national economic conditions and by population and traffic
patterns. We compete directly or indirectly with all restaurants, from
national and regional chains to local establishments. Some of our competitors
are corporations that are much larger than us and have substantially greater
capital resources at their disposal. In addition, in some markets, primarily
in the northeastern United States, Perkins and FICC operate restaurants which
compete with each other.

Employees.As of December 29, 2002, we employed approximately 10,700 persons.
Approximately 350 of these were administrative and manufacturing personnel and
the balance were restaurant personnel. Approximately 41% of the restaurant
personnel are part-time employees. We compete in the job market for qualified
restaurant management and operational employees. We maintain ongoing
restaurant management training programs and have on our staff full-time
restaurant training managers and a training director. We believe that our
restaurant management compensation and benefits package compares favorably with
those offered by our competitors. None of our employees are represented by a
union.

Regulation.We are subject to various federal, state and local laws affecting
our business. Restaurants generally are required to comply with a variety of
regulatory provisions relating to zoning of restaurant sites, sanitation,
health and safety. No material amounts have been or are expected to be
expensed to comply with environmental protection regulations.

We are subject to a number of state laws regulating franchise operations and
sales. Those laws impose registration and disclosure requirements on
franchisors in the offer and sale of franchises and, in certain cases, also
apply substantive standards to the relationship between franchisor and
franchisee. We must also adhere to Federal Trade Commission regulations
governing disclosures in the sale of franchises.

Federal and state minimum wage rate laws impact the wage rates of our hourly
employees. Future increases in these rates could materially affect our cost of
labor.

Segment Information.We have three primary operating segments: restaurants,
franchise and manufacturing. See Note 15 of Notes to Financial Statements for
financial information regarding each of our segments.

4



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Item 2. Properties.

The following table lists the location of each of the full-service
Company-operated and franchised restaurants in the Perkins system as of
December 29, 2002. The table excludes one limited service Perkins Express
located in Utah.

Number of Restaurants

|               |       |  |          |     |            |  |       |     |  |  |    |     | 
|-------------- | ----- |  | -------- | --- | ---------- |  | ----- | --- |  |  | -- | --- | 
|               |       |  | Company- |     |            |  |       |     |  |  |   
|               |       |  | Operated |     | Franchised |  | Total
|               |       |  |          |     |            |  |      
|Arizona        |       |  |         |     |            |  | 7     |     |  |  | 7  |    
|Arkansas       |       |  | 1        |     |            |  | 3     |     |  |  | 4  |    
|Colorado       |       |  | 8        |     |            |  | 5     |     |  |  | 13 |    
|Delaware       |       |  |         |     |            |  | 1     |     |  |  | 1  |    
|Florida        |       |  | 34       |     |            |  | 26    |     |  |  | 60 |    
|Georgia        |       |  |         |     |            |  | 1     |     |  |  | 1  |    
|Idaho          |       |  |         |     |            |  | 9     |     |  |  | 9  |    
|Illinois       |       |  | 7        |     |            |  | 1     |     |  |  | 8  |    
|Indiana        |       |  |         |     |            |  | 9     |     |  |  | 9  |    
|Iowa           |       |  | 16       |     |            |  | 3     |     |  |  | 19 |    
|Kansas         |       |  | 4        |     |            |  | 4     |     |  |  | 8  |    
|Kentucky       |       |  |         |     |            |  | 4     |     |  |  | 4  |    
|Maryland       |       |  |         |     |            |  | 2     |     |  |  | 2  |    
|Michigan       |       |  | 7        |     |            |  | 2     |     |  |  | 9  |    
|Minnesota      |       |  | 38       |     |            |  | 35    |     |  |  | 73 |    
|Mississippi    |       |  |         |     |            |  | 2     |     |  |  | 2  |    
|Missouri       |       |  | 8        |     |            |  |      |     |  |  | 8  |    
|Montana        |       |  |         |     |            |  | 8     |     |  |  | 8  |    
|Nebraska       |       |  |         |     |            |  | 9     |     |  |  | 9  |    
|New Jersey     |       |  |         |     |            |  | 11    |     |  |  | 11 |    
|New York       |       |  |         |     |            |  | 13    |     |  |  | 13 |    
|North Carolina |       |  |         |     |            |  | 3     |     |  |  | 3  |    
|North Dakota   |       |  | 3        |     |            |  | 5     |     |  |  | 8  |    
|Ohio           |       |  |         |     |            |  | 50    |     |  |  | 50 |    
|Oklahoma       |       |  | 2        |     |            |  |      |     |  |  | 2  |    
|Pennsylvania   |       |  | 8        |     |            |  | 49    |     |  |  | 57 |    
|South Carolina |       |  |         |     |            |  | 3     |     |  |  | 3  |    
|South Dakota   |       |  |         |     |            |  | 10    |     |  |  | 10 |    
|Tennessee      |       |  | 4        |     |            |  | 11    |     |  |  | 15 |    
|Utah           |       |  |         |     |            |  | 1     |     |  |  | 1  |    
|Virginia       |       |  |         |     |            |  | 3     |     |  |  | 3  |    
|Washington     |       |  |         |     |            |  | 6     |     |  |  | 6  |    
|West Virginia  |       |  |         |     |            |  | 1     |     |  |  | 1  |    
|Wisconsin      |       |  | 15       |     |            |  | 27    |     |  |  | 42 |    
|Wyoming        |       |  |         |     |            |  | 4     |     |  |  | 4  |    
|Canada         |       |  |         |     |            |  | 15    |     |  |  | 15 |    
|               |       |  |          |     |            |  |       |     |  |  |    |    
|               | Total |  |          | 155 |            |  |       | 343 |  |  |    | 498 | 
|               |       |  |          |     |            |  |       |     |  |  |    |    

Most of the restaurants feature a distinctively styled brick or stucco
building. Our restaurants are predominantly single-purpose, one-story,
free-standing buildings averaging approximately 5,000 square feet, with a
seating capacity of between 90 and 250 customers.

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The following table sets forth certain information regarding Company-operated
restaurants and other properties, as of December 29, 2002:

|                                        |  |                         |    |        |  |       |    |  |  |  |     | 
|--------------------------------------- |  | ----------------------- | -- | ------ |  | ----- | -- |  |  |  | --- | 
|                                        |  | Number
of Properties(1)
|                                        |  |                        
|Use                                     |  | Owned                   |    | Leased |  | Total
|                                        |  |                         |    |        |  |      
|Offices and Manufacturing Facilities(2) |  |                         | 1  |        |  |       | 11 |  |  |  | 12  | 
|Perkins Restaurant and Bakery(3)        |  |                         | 70 |        |  |       | 85 |  |  |  | 155 | 



| | (1) In addition, we lease eleven properties, ten of which are subleased
to others and one of which is vacant. We also own six properties, four
of which are leased to others and two of which are vacant.                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) Our principal office is located in Memphis, Tennessee, and currently
comprises approximately 50,000 square feet under a lease expiring on May
31, 2013, subject to renewal by us for a maximum of 60 months. We also
own a 25,149 square-foot manufacturing facility in Cincinnati, Ohio, and
lease two other properties in Cincinnati, Ohio, consisting of 36,000
square feet and 120,000 square feet, for use as manufacturing facilities.
|
| | (3) The average term of the remaining leases is seven years, excluding
renewal options. The longest lease term will mature in approximately 39
years and the shortest lease term will mature in less than 1 year,
assuming the exercise of all renewal options.                                                                                                                                                                                 




Item 3. Legal Proceedings.

We are a party to various legal proceedings in the ordinary course of business.
We do not believe that these proceedings, either individually or in the
aggregate, are likely to have a material adverse effect on our financial
position or results of operations.




Item 4. Submission of Matters to Vote of Shareholders.

Not applicable.

[Intentionally Left Blank]

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PART II




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

(a)  Market information.

No established public market exists for our equity securities.

(b)  Holders.

As of December 29, 2002, there was 1 Stockholder of record.

(c)  Dividends.

There were no dividends declared or paid during 2002 or 2001.

[Intentionally Left Blank]

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Item 6. Selected Financial Data.

THE RESTAURANT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING DATA
(In Thousands, Except Number of Restaurants)

|                    |                                                               |                      |   |         |     |      |     |         |     |      |     |         |     |      |     |         |     |   |     |         |     |  |     | 
|------------------- | ------------------------------------------------------------- | -------------------- | - | ------- | --- | ---- | --- | ------- | --- | ---- | --- | ------- | --- | ---- | --- | ------- | --- | - | --- | ------- | --- |  | --- | 
|                    |                                                               |                      |   |         |     | 2002 |     | 2001    |     | 2000 |     | 1999    |     | 1998
|                    |                                                               |                      |   |         |     |      |     |         |     |      |     |         |     |     
|Income Data:        |                                                               |                      |   |         |     |      |     |         |     |      |     |         |     |      |     |         |     |   |     |        
|                    | Revenues                                                      |                      | $ | 339,158 |     |      | $   | 330,504 |     |      | $   | 336,244 |     |      | $   | 315,700 |     |   | $   | 299,423 |    
|                    | Net Income (Loss)                                             |                      | $ | 2,167   |     |      | $   | (696    | )   |      | $   | 4,034   |     |      | $   | 7,442   |     |   | $   | 1,109   |    
|Balance Sheet Data: |                                                               |                      |   |         |     |      |     |         |     |      |     |         |     |      |     |         |     |   |     |        
|                    | Total Assets                                                  |                      | $ | 198,684 |     |      | $   | 210,964 |     |      | $   | 210,512 |     |      | $   | 200,564 |     |   | $   | 195,638 |    
|                    | Long-Term Debt and
Capital Lease Obligations (a)              |                      | $ | 151,349 |     |      | $   | 174,775 |     |      | $   | 171,149 |     |      | $   | 164,480 |     |   | $   | 159,101 |    
|Distributions       |                                                               | $                    |  |         |     | $    |    |         |     | $    | 626 |         |     | $    |    |         |     | $ |    |        
|Statistical Data:   |                                                               |                      |   |         |     |      |     |         |     |      |     |         |     |      |     |         |     |   |     |        
|                    | Full-service Perkins Restaurants in
Operation at End of Year: |                      |   |         |     |      |     |         |     |      |     |         |     |      |     |         |     |   |     |         |    
|                    |                                                               | Company-Operated (b) |   |         | 155 |      |     |         | 153 |      |     |         | 145 |      |     |         | 141 |   |     |         | 140 | 
|                    |                                                               | Franchised (b)       |   |         | 343 |      |     |         | 344 |      |     |         | 345 |      |     |         | 333 |   |     |         | 356 | 
|                    |                                                               |                      |   |         |     |      |     |         |     |      |     |         |     |      |     |         |     |   |     |        
|                    |                                                               |                      |   | Total   |     |      | 498 |         |     |      | 497 |         |     |      | 490 |         |     |   | 474 |         |     |  | 496 | 
|                    | Average Annual Sales Per Company-Operated Restaurant (b)      |                      | $ | 1,851   |     |      | $   | 1,910   |     |      | $   | 1,937   |     |      | $   | 1,899   |     |   | $   | 1,816   |    
|                    | Average Annual Royalties Per Franchised Restaurant (b)        |                      | $ | 61.2    |     |      | $   | 62.1    |     |      | $   | 63.8    |     |      | $   | 61.8    |     |   | $   | 58.7    |    
|                    | Total System Sales (b)                                        |                      | $ | 818,637 |     |      | $   | 820,256 |     |      | $   | 819,804 |     |      | $   | 790,391 |     |   | $   | 776,164 |    
|                    | EBITDA (c)                                                    |                      | $ | 43,266  |     |      | $   | 40,410  |     |      | $   | 48,361  |     |      | $   | 45,864  |     |   | $   | 41,489  |    



|(a) | Net of current maturities of $9,489, $1,030, $971, $942 and $1,229.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) | Excludes two Company-operated Sage Hen Cafes and one franchised Perkins
Express.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(c) | EBITDA represents net income (loss) plus (i) net interest, (ii)
depreciation and amortization, (iii) provision for (benefit from) disposition
of assets, (iv) asset write-down, (v) recapitalization costs, (vi) cumulative
effect of change in accounting principle, (vii) loss due to bankruptcy of
franchisee, (viii) going private transaction costs, (ix) loss from discontinued
operations, (x) provision for minority interest and (xi) provision for
(benefit from) income taxes. We have included information concerning EBITDA in
this data table because we believe that such information is used as one measure
of our historical ability to service debt. EBITDA should not be considered as
an alternative to, or more meaningful than, earnings from operations as
determined in accordance with generally accepted accounting principles or other
traditional indications of our operating performance.

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

GENERAL

The following managements discussion and analysis describes the principal
factors affecting the results of operations, liquidity and capital resources,
as well as the critical accounting policies of TRC. This discussion should be
read in conjunction with the accompanying audited financial statements, which
include additional information about our significant accounting policies and
practices and the transactions that underlie our financial results.

The key factors that affect our operating results are comparable restaurant
sales, which are driven by comparable customer counts and check average, and
our ability to manage operating expenses such as food cost, labor and benefits
and other costs.

Except as otherwise indicated, references to years mean our fiscal year ended
December 29, 2002, December 30, 2001 or December 31, 2000.

[Intentionally Left Blank]

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RESULTS OF OPERATIONS

Overview:

Our 2002 results reflect a solid performance in spite of the continued
challenges we face due to the overall soft economic climate and continuing
political uncertainty. We are confident that through our continued cost
control and restaurant management efforts that we are poised for long-term
growth when the economy, particularly the tourism and hospitality sectors,
recovers and experiences sustained growth. The following table sets forth all
revenues, costs and expenses as a percentage of total revenues for the periods
indicated for revenue and expense items included in the consolidated statements
of operations.

|                                          |                                                         |                    |       |          |      |          |       |          |      |  |       |      |      | 
|----------------------------------------- | ------------------------------------------------------- | ------------------ | ----- | -------- | ---- | -------- | ----- | -------- | ---- |  | ----- | ---- | ---- | 
|                                          |                                                         |                    |       | December |      | December |       | December
|                                          |                                                         |                    |       | 29, 2002 |      | 30, 2001 |       | 31, 2000
|                                          |                                                         |                    |       |          |      |          |       |         
|Revenues:                                 |                                                         |                    |       |          |      |          |       |          |      |  |       |     
|                                          | Food sales                                              |                    |       | 93.5     | %    |          |       | 93.1     | %    |  |       | 93.1 | %   
|                                          | Franchise revenues and other                            |                    |       | 6.5      |      |          |       | 6.9      |      |  |       | 6.9  |     
|                                          |                                                         |                    |       |          |      |          |       |          |      |  |       |     
|Total revenues                            |                                                         |                    | 100.0 |          |      |          | 100.0 |          |      |  | 100.0 |     
|                                          |                                                         |                    |       |          |      |          |       |          |      |  |       |     
|Costs and expenses:                       |                                                         |                    |       |          |      |          |       |          |      |  |       |     
|                                          | Cost of sales:                                          |                    |       |          |      |          |       |          |      |  |       |      |     
|                                          |                                                         | Food cost          |       |          | 25.9 |          |       |          | 26.3 |  |       |      | 26.0 | 
|                                          |                                                         | Labor and benefits |       |          | 32.9 |          |       |          | 32.5 |  |       |      | 32.5 | 
|                                          |                                                         | Operating expenses |       |          | 19.6 |          |       |          | 20.0 |  |       |      | 18.5 | 
|                                          | General and administrative                              |                    |       | 9.1      |      |          |       | 9.4      |      |  |       | 9.1  |     
|                                          | Depreciation and amortization                           |                    |       | 6.2      |      |          |       | 7.1      |      |  |       | 6.8  |     
|                                          | Interest, net                                           |                    |       | 5.3      |      |          |       | 5.5      |      |  |       | 5.4  |     
|                                          | Provision for (benefit from) disposition of assets, net |                    |       | (0.1     | )    |          |       | (0.3     | )    |  |       | 0.1  |     
|                                          | Asset write-down                                        |                    |       | 0.8      |      |          |       | 0.4      |      |  |       | 0.4  |     
|                                          | Other, net                                              |                    |       | (0.3     | )    |          |       | (0.4     | )    |  |       | (0.6 | )   
|                                          |                                                         |                    |       |          |      |          |       |          |      |  |       |     
|Total costs and expenses                  |                                                         |                    | 99.4  |          |      |          | 100.5 |          |      |  | 98.2  |     
|                                          |                                                         |                    |       |          |      |          |       |          |      |  |       |     
|Income (loss) before income taxes         |                                                         |                    | 0.6   |          |      |          | (0.5  | )        |      |  | 1.8   |     
|Benefit from (provision for) income taxes |                                                         |                    | (0.1  | )        |      |          | 0.3   |          |      |  | (0.6  | )   
|                                          |                                                         |                    |       |          |      |          |       |          |      |  |       |     
|Net income (loss)                         |                                                         |                    | 0.5   | %        |      |          | (0.2  | )%       |      |  | 1.2   | %   
|                                          |                                                         |                    |       |          |      |          |       |          |      |  |       |     

Net income for 2002 was $2.2 million versus a net loss of $696,000 in 2001 and
net income of $4.0 million in 2000. Pre-tax income for 2002 included a loss of
$2.2 million related to asset dispositions and write-downs. Pre-tax loss for
2001 included a loss of $374,000 related to asset dispositions and write-downs.
Pre-tax income for 2000 included a loss of $1.5 million related to asset
dispositions and write-downs.

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Year Ended December 29, 2002 Compared to Year Ended December 30, 2001

Revenues:

Total revenues increased 2.6% over 2001 due primarily to increased restaurant
food sales.

Food sales at Company-operated restaurants increased 2.9%. The increase is
primarily the result of sales from twenty stores opened or acquired since the
beginning of 2001 partially offset by ten stores that were either closed or
sold to franchisees since the beginning of 2001. Comparable restaurant sales
decreased 2.1% primarily due to a decrease in comparable customer visits of
4.5%, partially offset by a 2.4% increase in check average.

Revenues from Foxtail increased approximately 1.8% over 2001 and constituted
10.0% of our total 2002 revenues. In order to ensure consistency and
availability of our proprietary products to each restaurant in the system,
Foxtail offers cookie doughs, muffin batters, pancake mixes, pies and other
food products to Company-operated and franchised restaurants through food
service distributors. Additionally, it produces a variety of non-proprietary
products for sale in various retail markets. Sales to Company-operated
restaurants are eliminated in the accompanying statements of operations. The
increase noted above can be attributed to growth in sales outside of the
Perkins system.

Franchise and other revenues, which consist primarily of franchise royalties
and initial license fees, decreased 2.9% from the prior year. Royalty revenues
decreased due to a decrease in comparable sales and a decline in the number of
average franchise restaurants. Initial franchise license fees increased as a
result of seventeen franchise restaurants opening in 2002 versus twelve in
2001.

Costs and Expenses:

Food cost:

In terms of total revenues, food cost decreased 0.4 percentage points from
2001. Restaurant division food cost expressed as a percentage of restaurant
division sales decreased 0.6 percentage points. The current year decrease was
primarily due to menu price increases and a net decrease in commodity costs.

The cost of Foxtail sales, in terms of total Foxtail revenues, increased
approximately 0.3 percentage points, as a result of increased raw materials
costs. As a manufacturing operation, Foxtail typically has higher food costs
as a percent of revenues than the Companys restaurants.

Labor and benefits:

Labor and benefits expense, as a percentage of total revenues, increased 0.4
percentage points over 2001. Increased workers compensation costs, a moderate
increase in wage rates and a slight drop in productivity impacted restaurant
labor and benefits. Foxtail labor and benefits decreased due to improvements
in plant efficiencies.

Federal and state minimum wage laws impact the wage rates of the Companys
hourly employees. Certain states do not allow tip credits for servers which
results in higher payroll costs as well as greater exposure to increases in
minimum wage rates. In the past, the Company has been able to offset increases
in labor costs through selective menu price increases and improvements in labor
productivity. However, there is no assurance that future increases can be
mitigated through raising menu prices or productivity improvements.

As a percentage of revenues, Foxtail labor and benefit charges are
significantly lower than the Companys restaurants. If Foxtail were to become
a more significant component of the Companys total operations, labor and
benefits expense, expressed as a percent of total revenue, would decrease.

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Operating expenses:

Operating expenses, expressed as a percentage of total revenues, decreased 0.4
percentage points from 2001 to 2002.

Restaurant division operating expenses expressed as a percentage of restaurant
sales, decreased 0.4 percentage points. The decrease is primarily the result of
decreased utility cost due to the drop in natural gas prices. Also, store
pre-opening expenses were lower due to the fact that the Company opened fewer
stores in 2002 as compared to 2001.

Foxtail expenses, expressed as a percentage of Foxtail revenue, increased 0.3
percentage points. The increase is primarily due to increased transportation
and storage costs.

Franchise division operating expenses, expressed as a percentage of franchise
revenues decreased 1.4 percentage points compared to the prior year. Expenses
under franchise service fee agreements, investment spending for advertising in
select franchised markets, and franchise settlements drove the decrease.

General and administrative:

General and administrative expenses declined to 9.1% of total revenues in 2002
from 9.4% of total revenues in 2001. The decrease is primarily attributable to
the impact of selected administrative workforce reductions.

Depreciation and amortization:

Depreciation and amortization decreased approximately 9.6% from 2001 due to the
cessation of goodwill amortization and the increase in total revenue.

Interest, net:

Net interest expense decreased from 5.5% to 5.3% of revenues. The decrease is
the result of reduced average borrowings and lower variable interest rates on
the Companys revolving line of credit.

Provision for/Benefit from disposition of assets:

During 2002, the Company recorded a net gain of $493,000 related to the
disposition of assets.

Asset write-down:

The Company recorded charges totaling $2.7 million to write down the carrying
value of the two Sage Hen properties and two Company owned restaurants to their
estimated fair values.

Other:

Other income decreased approximately $658,000. This decrease is primarily due
to the termination of 8 leases and subleases at the end of 2001 on properties
leased to a franchisee.

Provision for/Benefit from income taxes:

The benefit from income taxes in 2002 was $179,000. Our effective tax rate
was (9.0)% in 2002, 56.6% in 2001 and 31.8% in 2000. The (9.0)% effective tax
rate in 2002 was higher than in 2001 due to the fact that we had positive
pretax income in 2002 versus a pretax loss in 2001. The 2002 effective tax
rate was favorably impacted primarily by credits resulting from excess FICA
taxes paid on server tip income that exceeds minimum wage. The effective tax
rate is lower than the statutory U.S. federal tax rate and the 2001 effective
tax rate primarily due to the utilization of these credits. For 2003, we
expect the effective tax rate to be approximately 32.4%. The actual rate,
however, will depend on a number of factors, including the amount and source of
operating income.

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Year Ended December 30, 2001 Compared to Year Ended December 31, 2000

Revenues:

Total revenues decreased 1.7% over 2000 due primarily to decreased restaurant
food sales.

Food sales at Company-operated Perkins Restaurants decreased 2.5%. The decrease
can be attributed to a decline in comparable restaurant sales of 2.5% and the
fact that fiscal 2001 contained 364 days compared to 366 days in the year
ending December 31, 2000. The decline in comparable restaurant sales was due
to a decrease in comparable customer visits of 3.0%, which was partially offset
by a 0.5% increase in check average. The increase in check average is the
result of menu price increases of 1.4% partially offset by increased
discounting and sales mix shifts. Sales from two new Sage Hen Cafes opened
during 2001 partially offset the decrease.

Revenues from Foxtail increased approximately 2.4% over 2000 and constituted
10.1% of the Companys total 2001 revenues. The increase in Foxtail revenues
is attributable to growth in the number of franchise stores in the Perkins
system and increased external sales.

Franchise and other revenues, which consist primarily of franchise royalties
and initial license fees, decreased 1.5% from the prior year. Initial
franchise license fees decreased as a result of twelve franchise restaurants
opening in 2001 versus 25 in 2000. Royalty revenues increased due to a higher
number of average franchise restaurants offset by a decrease in comparable
sales in franchise restaurants.

Costs and Expenses:

Food cost:

In terms of total revenues, food cost increased 0.3 percentage points from
2000. Restaurant division food cost expressed as a percentage of restaurant
division sales also increased 0.3 percentage points. The current year increase
was primarily due to a net increase in commodity costs and the promotion of
lower margin entrees. The increase was partially offset by certain menu price
increases.

The cost of Foxtail sales, in terms of total Foxtail revenues, decreased
approximately 1.2 percentage points, as a result of stable commodity costs, an
increase in sales of higher margin products and improved manufacturing
efficiencies.

Labor and benefits:

Labor and benefits expense, as a percentage of total revenues, was flat
compared to 2000. An increase in restaurant labor and benefits was offset by a
decrease at Foxtail. A moderate increase in wage rates and a slight drop in
productivity impacted restaurant labor and benefits. A decrease in group
health program costs partially offset the increase. Foxtail labor and benefits
decreased due to improvements in plant efficiencies and a decrease in Foxtails
workers compensation program costs.

Operating expenses:

Operating expenses, expressed as a percentage of total revenues, increased 1.5
percentage points from 2000 to 2001.

Restaurant division operating expenses expressed as a percentage of restaurant
sales, increased 1.9 percentage points. The increase related to several
factors, the largest of which was the increased cost of natural gas in the
first quarter of 2001 combined with severely cold temperatures during the same
period. New store opening expenses increased due to the opening of seven new
Company-operated restaurants in 2001 compared to four in the prior year. We
also increased spending on media advertising in several markets and invested in
certain supply and repair expenses as we focused on improving the image of our
restaurants.

Foxtail expenses, expressed as a percentage of Foxtail revenue, decreased 0.1
percentage points. The majority of this decrease is due to reduced freight
costs.

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Franchise division operating expenses, expressed as a percentage of franchise
revenues increased 1.4 percentage points compared to the prior year. Expenses
under franchise service fee agreements, investment spending for advertising in
select franchised markets, and bad debt expense drove the increase. Franchise
opening costs decreased due to the opening of 13 fewer restaurants than in the
prior year.

General and administrative:

General and administrative expenses rose to 9.4% of total revenues in 2001 from
9.1% of total revenues in 2000. An effort to improve core training for
restaurant management through development of a classroom-based training school,
non-recurring charges related to staff reductions, costs associated with the
development of Sage Hen Cafe and general increases in the cost of
administrative support drove the increase. Reduced levels of incentive
compensation costs partially offset these items. The remainder of the rise in
costs as a percentage of revenue is due to the decline in revenues.

Depreciation and amortization:

Depreciation and amortization increased approximately 2.9% over 2000 due to the
Companys continuing program to upgrade and maintain existing restaurants and
the net addition of eight Company-operated restaurants during the year.

Interest, net:

Net interest expense increased from 5.4% to 5.5% of revenues due to the drop in
total revenues. An increase in interest charges on the Senior Discount Notes
was offset by a decrease in interest expense associated with capital lease
obligations. The impact of higher average borrowings on the Companys line of
credit was offset by the decline in short term borrowing rates. Prior to
November 15, 2001, interest accreted on the Senior Discount Notes on a
compounding basis. On November 15, 2001 the Company elected to begin accruing
cash interest on the Senior Discount Notes.

Provision for/Benefit from disposition of assets:

During 2001, the Company recorded a net gain of $1.1 million related to the
disposition of assets. This amount includes a loss of $132,000 related to
discontinued development of certain sites and a net gain of $1.2 million
related to the sale of seven properties, five of which were Company-operated
restaurants sold to a franchisee.

Asset write-down:

The Company recorded charges totaling $1.5 million to write down the carrying
value of three properties to their estimated fair values, and to write off the
carrying amount of certain intangibles related to the expected future royalty
income of franchised restaurants acquired by the Company in December 2001.

Other:

Other income decreased approximately $188,000. This decrease is primarily due
to the termination of nine leases and subleases on properties leased to
franchisees or third parties. Of the nine properties, six are now
Company-operated restaurants formerly leased or subleased by a franchisee, one
was disposed of through a lease termination and two are owned and held for
sale. The decreases were partially offset by rental income from a vacant
property subleased during 2001.

Provision for/Benefit from income taxes:

The benefit from income taxes in 2001 was $907,000. The 2001 benefit reflects
the benefit derived from the net loss before income taxes and the utilization
of income tax credits, which primarily result from excess FICA taxes paid on
server tip income that exceeds the minimum wage.

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CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to adopt
accounting policies and make significant judgments and estimates to develop
amounts reflected and disclosed in the financial statements. In many cases,
there are alternative policies or estimation techniques that could be used. We
maintain a thorough process to review the application of our accounting
policies and to evaluate the appropriateness of the estimates that are required
to prepare the financial statements of a corporation. However, even under
optimal circumstances, estimates routinely require adjustment based on changing
circumstances and the receipt of new or better information.

Revenue Recognition:

Revenue at Company-operated restaurants is recognized as customers pay for
products at the time of sale. The earnings reporting process is covered by our
system of internal controls and generally does not require significant
management judgments and estimates. However, estimates are inherent in the
calculation of franchisee royalty revenue. We calculate an estimate of royalty
income each period and adjust royalty income when actual amounts are reported
by franchisees. Historically, these adjustments have not been material. We
provide for estimated losses for revenues that are not likely to be collected.
Although we maintain good relationships with our franchisees, if average sales
or the financial health of significant franchisees were to deteriorate, we may
have to increase our reserves against collection of franchise revenues.

Insurance Accruals:

We are self-insured up to certain limits for costs associated with workers
compensation claims, property claims and benefits paid under employee health
care programs. At December 29, 2002 and December 30, 2001, we had total
self-insurance accruals reflected in our balance sheet of approximately $2.6
million.

The measurement of these costs required the consideration of historical loss
experience and judgments about the present and expected levels of cost per
claim. We account for these costs primarily through actuarial methods, which
develop estimates of the undiscounted liability for claims incurred, including
those claims incurred but not reported. These methods provide estimates of
future ultimate claim costs based on claims incurred as of the balance sheet
date. Other acceptable methods of accounting for these accruals include
measurement of claims outstanding and projected payments.

We believe the use of actuarial methods to account for these liabilities
provides a consistent and effective way to measure these highly judgmental
accruals. However, the use of any estimation technique in this area is
inherently sensitive given the magnitude of claims involved and the length of
time until the ultimate cost is known. We believe that our recorded
obligations for these expenses are consistently measured on a conservative
basis. Nevertheless, changes in health care costs, accident frequency and
severity and other factors can materially affect the estimate for these
liabilities.

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Long-Lived Assets:

The restaurant industry is capital intensive. We have approximately 65% of our
total assets invested in property and equipment. We capitalize only those
costs that meet the definition of capital assets under generally accepted
accounting principles. Accordingly, repairs and maintenance costs that do not
extend the useful life of the asset are expensed as incurred.

The depreciation of our capital assets over their estimated useful lives, and
the determination of any salvage values, requires management to make judgments
about future events. Because we utilize many of our capital assets over
relatively long periods (20  30 years for our restaurant buildings), we
periodically evaluate whether adjustments to our estimated lives or salvage
values are necessary. The accuracy of these estimates affects the amount of
depreciation expense recognized in a period and, ultimately, the gain or loss
on the disposal of the asset. Historically, gains and losses on the
disposition of assets have not been significant. However, such amounts may
differ materially in the future based on restaurant performance, technological
obsolescence, regulatory requirements and other factors beyond our control.

Due to the fact that we invest a significant amount in the construction or
acquisition of new restaurants, we have risks that these assets will not
provide an acceptable return on our investment and an impairment of these
assets may occur. The accounting test for whether an asset held for use is
impaired involves first comparing the carrying value of the asset with its
estimated future undiscounted cash flows. If these cash flows do not exceed
the carrying value, the asset must be adjusted to its current fair value. We
periodically perform this test on each of our restaurants to evaluate whether
impairment exists. Factors influencing our judgment include the age of the
restaurant (new restaurants have significant start up costs which impede a
reliable measure of cash flow), estimation of future restaurant performance and
estimation of restaurant fair value. Due to the fact that we can specifically
evaluate impairment on a restaurant by restaurant basis, we have historically
been able to identify impaired restaurants and record the appropriate
adjustment.

During 2002, we determined that impairment existed with respect to the two Sage
Hen Café restaurants and to two Company owned restaurants. This determination
was made based on our projections that the future cash flows of these
restaurants would not exceed the present carrying value of the assets.
Accordingly, we recorded an impairment charge of approximately $2.7 million to
adjust the assets of these restaurants to net realizable value.

We utilize operating leases to finance a significant number of our restaurant
properties. Over the years, we have found these leasing arrangements to be
favorable from a cash flow and risk management standpoint. Such arrangements
typically shift the risk of loss on the residual value of the assets at the end
of the lease period to the lessor. As discussed in Capital Resources and
Liquidity and in Note 5 to the accompanying audited financial statements, at
December 29, 2002, we had approximately $75 million (on an undiscounted basis)
of future commitments for operating leases.

The future commitments for operating leases are not reflected as a liability in
our balance sheet because the leases do not meet the accounting definition of
capital leases. The determination of whether a lease is accounted for as a
capital lease or an operating lease requires management to make estimates
primarily about the fair value of the asset and its estimated economic useful
life. We believe that we have a well-defined and controlled process for making
this evaluation.

We have approximately $31.7 million of intangible assets on our balance sheet
resulting from the acquisition of businesses. New accounting standards adopted
in 2002 require that we review these intangible assets for impairment on an
annual basis and cease all goodwill amortization. The adoption of these new
rules did not result in an impairment of our recorded intangible assets. The
annual evaluation of intangible asset impairment requires the use of estimates
about the future cash flows of each of our reporting units to determine their
estimated fair values. Changes in forecasted operations and changes in
discount rates can materially affect these estimates. However, once an
impairment of intangible assets has been recorded, it cannot be reversed.

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Deferred Income Taxes:

We record income tax liabilities utilizing known obligations and estimates of
potential obligations. A deferred tax asset or liability is recognized
whenever there are future tax effects from existing temporary differences and
operating loss and tax credit carryforwards. We record a valuation allowance
to reduce deferred tax assets to the balance that is more likely than not to be
realized. In evaluating the need for a valuation allowance, we must make
judgments and estimates on future taxable income, feasible tax planning
strategies and existing facts and circumstances. When we determine that
deferred tax assets could be realized in greater or less amounts than recorded,
the asset balance and income statement reflect the change in the period such
determination is made. We believe that the valuation allowance recorded is
adequate for the circumstances. However, changes in facts and circumstances
that affect our judgments or estimates in determining the proper deferred tax
assets or liabilities could materially affect the recorded amounts.

CAPITAL RESOURCES AND LIQUIDITY

Our primary sources of funding were cash provided by operations, the sale of
one restaurant to a franchisee, borrowings under our line of credit and the
sale of five non-operating properties. The principal use of cash during the
year was capital expenditures and principal and interest payments on debt.
Capital expenditures consisted primarily of a building and equipment for one
new Company-operated restaurant, equipment purchases for three new
Company-operated restaurants, maintenance capital and costs related to remodels
of existing restaurants.

The following table summarizes capital expenditures for each of the past three
years (in thousands).

|                                       |  |      |        |      |  |      |        |  |  |   |        | 
|-------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                       |  | 2002 |        | 2001 |  | 2000
|                                       |  |      |        |      |  |     
|New restaurants                        |  | $    | 2,781  |      |  | $    | 12,397 |  |  | $ | 6,561  | 
|Capitalized Maintenance                |  |      | 5,214  |      |  |      | 4,780  |  |  |   | 4,367  | 
|Remodeling and reimaging               |  |      | 3,510  |      |  |      | 3,109  |  |  |   | 8,904  | 
|Acquisitions of franchised restaurants |  |      |       |      |  |      | 3,550  |  |  |   | 6,158  | 
|Manufacturing                          |  |      | 389    |      |  |      | 821    |  |  |   | 633    | 
|Other                                  |  |      | 1,524  |      |  |      | 3,022  |  |  |   | 3,212  | 
|                                       |  |      |        |      |  |      |        |  |  |   |        | 
|Total Capital Expenditures             |  | $    | 13,418 |      |  | $    | 27,679 |  |  | $ | 29,835 | 
|                                       |  |      |        |      |  |      |        |  |  |   |        | 

Our capital budget for 2003 is $12.7 million and includes plans to open no new
Company-operated restaurants. The primary source of funding for these
expenditures is expected to be cash provided by operations. Capital spending
could vary significantly from planned amounts as certain of these expenditures
are discretionary in nature.

As is typical in the restaurant industry, we operate with a working capital
deficit since funds generated by cash sales in excess of those needed to
service short-term obligations are used to reduce debt and acquire capital
assets. At December 29, 2002, this working capital deficit was $18.1 million.

We have a collateralized $40 million revolving line of credit facility (the
Credit Facility) with a sub limit for up to $5.0 million of letters of
credit. The Credit Facility was amended on November 15, 2001 to modify certain
terms and conditions and reduce available borrowings from $50 million to $40
million. As a result of the amendment, borrowing rates were adjusted to
current market rates. All amounts under the Credit Facility will bear interest
at floating rates based on the agents base rate or Eurodollar rates as defined
in the agreement. All indebtedness under the Credit Facility is collateralized
by a first priority lien on substantially all of our assets. As of December
29, 2002, $2.0 million in borrowings and approximately $2.7 million of letters
of credit were outstanding under the Credit Facility.

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We have outstanding $130 million of 10.125% Unsecured Senior Notes (the
Notes) due December 15, 2007. Interest on the Notes is payable semi-annually
on June 15 and December 15.

We have outstanding $31.1 million of 11.25% Senior Discount Notes (the
Discount Notes) maturing on May 15, 2008. The Discount Notes were issued at
a discount to their principal amount at maturity and generated gross proceeds
of $18 million.

On November 15, 2001, we elected to begin accruing cash interest on the
Discount Notes. Cash interest is payable semi-annually on May 15 and November
15. The principal balance of the Notes on December 29, 2002 was $26.9 million.
On May 15, 2003, we will be required to redeem $8.4 million in accreted
interest of the Discount Notes at a redemption price of 105.625%.

Based on forecasted results of operations, we believe that it is
likely that we will not achieve one of our financial ratio requirements for the
first quarter of fiscal 2003. We are currently negotiating a
modification of this covenant with the Credit Facility lender in order to
ensure future compliance. We expect to complete such negotiation
during the quarter ending April 20, 2003 and to have the modified covenant
effective for the April 20, 2003 measurement date. If we are unable to
modify the terms of this covenant and are unable to obtain waivers from the
lender for possible future violations of this covenant, the lender could demand
payment of the balance of the Credit Facility, which could constitute a default
under the Notes and Discount Notes. As of February 23, 2003, no amounts were
borrowed and $3.1 million of letters of credit was outstanding with respect to
the Credit Facility. If the Credit Facility lender, or the trustee or the
holders of the Notes and the Discount Notes demanded repayment, we
would seek to refinance the balance of the Credit Facility, the Notes and the
Discount Notes with another lender. There can be no assurance that we
will successfully modify the terms of the covenant or refinance the balance
under the Credit Facility, the Notes and the Discount Notes.

We have contractual obligations and commercial commitments including long-term
debt, land lease obligations for Company operated restaurants and office space
for corporate operations. The table below presents, as of December 29, 2002,
our future scheduled principal repayments of long-term debt and lease
obligations (in thousands).

|                      |                               |   |           |   |             |   |             |      |                  |   |        |  |  |   |         |  | 
|--------------------- | ----------------------------- | - | --------- | - | ----------- | - | ----------- | ---- | ---------------- | - | ------ |  |  | - | ------- |  | 
|                      |                               |   |           |   |             |   | Capital     |      | Operating        |   | Total 
|                      |                               |   | Long-Term |   | Lease       |   | Lease       |      | Contractual     
|                      |                               |   | Debt      |   | Obligations |   | Obligations |      | Cash Obligations
|                      |                               |   |           |   |             |   |             |      |                 
|2003                  |                               | $ | 8,840     |   |             | $ | 823         |      |                  | $ | 9,470  |  |  | $ | 19,133  | 
|2004                  |                               |   |          |   |             |   | 575         |      |                  |   | 9,165  |  |  |   | 9,740   | 
|2005                  |                               |   | 2,000     |   |             |   | 398         |      |                  |   | 8,452  |  |  |   | 10,850  | 
|2006                  |                               |   |          |   |             |   | 312         |      |                  |   | 8,151  |  |  |   | 8,463   | 
|2007                  |                               |   | 130,000   |   |             |   | 166         |      |                  |   | 7,587  |  |  |   | 137,753 | 
|Thereafter            |                               |   | 18,015    |   |             |   | 112         |      |                  |   | 37,766 |  |  |   | 55,893  | 
|                      |                               |   |           |   |             |   |             |      |                  |   |        |  |  |   |         | 
|Total                 |                               | $ | 158,855   |   |             | $ | 2,386       |      |                  | $ | 80,591 |  |  | $ | 241,832 | 
|Less: Current Portion |                               |   | (8,840    | ) |             |   | (649        | )    |                  |   |        |  |  |   |         | 
|                      | Amounts representing interest |   |           |  |             |   |             | (403 | )                |   |        |  |  |   |         |  | 
|                      |                               |   |           |   |             |   |             |      |                  |   |        |  |  |   |         | 
|Total                 |                               | $ | 150,015   |   |             | $ | 1,334       |      |                  |   |        |  |  |   |         | 

In the past, we have sponsored financing programs offered by certain lending
institutions to assist franchisees in procuring funds for the construction of
new franchised restaurants and to purchase and install in-store bakeries. We
provided a limited guaranty of funds borrowed. Our obligation under these
agreements expired during the first quarter of 2002.

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During 2000, we entered into a separate agreement to guarantee fifty percent of
borrowings up to a total guarantee of $1,500,000 for use by a franchisee to
remodel and upgrade existing restaurants. As of December 29, 2002, $3,000,000
in borrowings were outstanding under this agreement of which $1,500,000 were
guaranteed by us.

Our predecessors entered into arrangements with several different parties which
have reserved territorial rights under which specified payments are to be made
by us based on a percentage of gross sales from certain restaurants and for new
restaurants opened within certain geographic regions. During 2002, we paid an
aggregate amount of $2,694,000 under such arrangements. Three such agreements
are currently in effect. Of these, one expires upon the death of the
beneficiary, one expires in the year 2075 and the remaining agreement remains
in effect as long as we operate Perkins Restaurants and Bakeries in certain
states.

We are a wholly owned subsidiary of RHC. The common shares of RHC not owned by
Mr. Smith are subject to an option to require RHC to redeem the shares at any
time after December 22, 2004 at fair market value (the Put). As of October 6,
2002, these shares represented 30% of the outstanding common stock of RHC. RHC
has a management fee agreement dated as of December 22, 1999, with BancBoston
Ventures, Inc. (BBV) whereby BBV provides certain consulting services to RHC.
In consideration for these services, a fee of $250,000 accrues annually and is
payable by RHC on December 22, 2004.

Additionally, RHC issued 50,000 shares of non-voting preferred stock on
December 22, 1999. The preferred stock is mandatorily redeemable for $1,000 per
share (the Liquidation Value) plus all accrued but unpaid dividends, if any,
on December 22, 2006. Preferred dividends of 8% per annum of the Liquidation
Value of each share are payable quarterly. As of October 6, 2002, approximately
$12,358,000 of in-kind dividends had been paid through the issuance of
additional shares of preferred stock. Assuming a continuation of in-kind
dividends, the redemption price on December 22, 2006 is estimated to be
$87,044,000. The holders of preferred stock are entitled to be paid in cash the
Liquidation Value of each share of preferred stock before any payments are made
to any holders of common stock. The preferred stock is redeemable at our option
at any time prior to the mandatory redemption date at the Liquidation Value
plus a redemption premium as specified in our Charter. The redemption premium
is 3% through December 21, 2002 after which the preferred stock is redeemable
at par.

RHC has no material assets other than its investment in us. Our ability to pay
dividends to or make distributions to RHC in order to redeem common or
preferred shares or pay the management fee to BBV is restricted under our
senior notes and the Credit Facility. Therefore, we may need to recapitalize or
refinance all or a portion of our obligations on or prior to maturity.

Our ability to make scheduled payments of principal of, or to pay the interest
or liquidated damages, if any, on, or to refinance, our indebtedness, or to
fund planned capital expenditures will depend on our future performance, which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based
upon the current level of operations, we believe that cash flow from operations
and available cash, together with available borrowings under the Credit
Facility, will be adequate to meet our liquidity needs for the foreseeable
future. We may, however, need to refinance all or a portion of the principal
of the Discount Notes and the Notes on or prior to maturity. There can be no
assurance that we will generate sufficient cash flow from operations, or that
future borrowings will be available under the Credit Facility in an amount
sufficient to enable us to service our indebtedness or to fund our other
liquidity needs. In addition, there can be no assurance that we will be able
to effect any such refinancing on commercially reasonable terms or at all.

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ACQUIRED RESTAURANT OPERATIONS

Prior to December 3, 2001, we leased or subleased eight restaurant properties
to a franchisee in Denver, Colorado. The franchisee operated an additional
three restaurants leased from unrelated third parties. In the third quarter of
2001, the franchisee was in default under the franchise license agreements on
its eleven properties and in default under its leases with us. Two of the
restaurants leased from third parties and one of the properties owned by us
were closed subsequent to the end of the third quarter. We earned royalty
revenues from this franchisee totaling $575,000, $653,000 and $629,000 for
2001, 2000 and 1999, respectively. Additionally, we earned lease and sublease
income from the eight properties we controlled totaling $591,000, $660,000 and
$770,000 for 2001, 2000 and 1999, respectively.

On December 3, 2001, we terminated our leases on the eight restaurants leased
or subleased to the franchisee, assumed the lease on one restaurant leased from
a third party, and terminated our license agreements on all eleven properties.
We also acquired the furniture, fixtures, equipment and operations of eight of
the restaurants and continued to operate them as Perkins restaurants. One of
the restaurants was subsequently closed in January 2002. All amounts owed to
us as of December 3, 2001, under our license and lease agreements were deducted
from the purchase price of the restaurants.

SYSTEM DEVELOPMENT

We opened four new Company-operated restaurants and seventeen franchised
restaurants in 2002. We plan to open no new Company-operated restaurants and up
to twelve franchised restaurants in 2003. There are currently five area
development agreements requiring six franchised restaurants to be opened in
2003 and 2004.

MANAGEMENTS OUTLOOK

We believe that the economy will continue to be adversely impacted by political
and economic uncertainties that existed in 2002. We are introducing a new menu
for 2003 that contains an updated, more contemporary look and places a greater
emphasis on lunch and dinner entrees. In order to improve customer counts, we
are introducing certain value-oriented promotions targeting specific
demographics. During 2003, we will continue focusing on managing restaurant
costs and providing quality food and service on a consistent basis.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for
Asset Retirement Obligations, was issued in June 2001. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 is effective for us on December 30, 2002. We have
evaluated the effects of adopting this statement and have determined that it
will not have a material effect on our results of operations or financial
position.

SFAS No. 145, Rescission of Financial Accounting Standards Board (FASB)
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, was issued in April 2002. SFAS 145 rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and an amendment of
that statement, FASB No. 64, Extinguishments of Debt Made to Satisfy Sinking
Fund Requirements, and requires that gains and losses from the extinguishment
of debt be classified as extraordinary items only if certain criteria are met.
SFAS 145 also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS 145 is effective
for us on December 30, 2002 and implementation will not have a material effect
on our results of operations or financial position.

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SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued in June 2002. SFAS 146 addresses the financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
is effective for exit and disposal activities that are initiated by us after
December 31, 2002 and will be applied on a prospective basis.

FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others, was
issued in November 2002. This Interpretation elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements in this
Interpretation are effective for our financial statements ending December 29,
2002 and are incorporated herein.

In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46 (FIN46), Consolidation of Variable Interest Entities (VIEs), an
interpretation of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to improve financial reporting of special purpose and other
entities. In accordance with the interpretation, business enterprises that
represent the primary beneficiary of another entity by retaining a controlling
financial interest in that entitys assets, liabilities, and results of
operating activities must consolidate the entity in their financial statements.
Prior to the issuance of FIN 46, consolidation generally occurred when an
enterprise controlled another entity through voting interests. Certain VIEs
that are qualifying special purpose entities (QSPEs) subject to the reporting
requirements of SFAS 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities, will not be required to be
consolidated under the provisions of FIN 46. The consolidation provisions of
FIN 46 apply to VIEs created or entered into after January 31, 2003, and for
pre-existing VIEs in the first reporting period beginning after June 15, 2003.
If applicable, transition rules allow the restatement of financial statements
or prospective application with a cumulative effect adjustment. In addition,
FIN 46 expands the disclosure requirements for the beneficiary of a significant
or a majority of the variable interests to provide information regarding the
nature, purpose and financial characteristics of the entities. The Company
does not believe that the adoption of FIN 46 will have a material adverse
impact on the Companys financial statements.

SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an Amendment of FASB Statement No. 123, was issued in December
2002. The Statement amends FASB No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
FASB No. 148 is effective for our financial statements ending December 29,
2002. However, implementation does not have a material effect on our results
of operations or financial position.

IMPACT OF INFLATION

We do not believe that our operations are affected by inflation to a greater
extent than are the operations of others within the restaurant industry. In the
past, we have generally been able to offset the effects of inflation through
selective menu price increases.

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IMPACT OF GOVERNMENTAL REGULATION

A majority of our employees are paid hourly rates as determined by Federal and
state minimum wage rate laws. Future increases in these rates could materially
affect our cost of labor. We are subject to various other regulatory
requirements from Federal, State and local organizations. The Occupational
Safety and Health Administration, the Food and Drug Administration, the
Environmental Protection Agency and other governmental agencies all maintain
regulations with which we are required to comply.

SEASONALITY

Our revenues are subject to seasonal fluctuations. Customer counts (and
consequently revenues) are generally higher in the summer months and lower
during the winter months because of the high proportion of restaurants located
in states where inclement weather adversely affects customer visits.

CHANGE IN ACCOUNTING REPORTING PERIOD

Effective January 1, 2001, we converted our financial reporting from a calendar
year basis to thirteen four-week periods ending on the last Sunday in December.
The first quarter includes four four-week periods. The first, second, third
and fourth quarters of 2002 ended April 21, July 14, October 6, and December
29, respectively.

FORWARD-LOOKING STATEMENTS

This discussion contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on current expectations that are subject to known and
unknown risks, uncertainties and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Such factors include, but are not limited to, the following: general economic
conditions, competitive factors, consumer taste and preferences and adverse
weather conditions. We do not undertake to publicly update or revise the
forward-looking statements even if experience or future changes make it clear
that the projected results expressed or implied therein will not be realized.

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

Interest Rate Risk.We currently have market risk-sensitive-instruments
related to interest rates. We have no significant exposure for changing
interest rates on the Notes and Discount Notes because the interest rates are
fixed. We have outstanding long-term debt (exclusive of capital leases) of
$158.9 million and $172.8 million at December 29, 2002 and December 30, 2001,
respectively. Market risk for fixed-rate, long-term debt is estimated as the
potential decrease in fair value resulting from a hypothetical 10% increase in
interest rates and amounts to approximately $6.6 million as of December 29,
2002 and $6.4 million as of December 30, 2001. The underlying fair values of
our long-term debt were estimated based on quoted market prices or on the
current rates offered for debt with similar terms and maturities. Currently,
derivative instruments are not used to manage interest rate risk.

We have in place a $40.0 million line of credit facility that matures on
January 1, 2005. All borrowings under the facility bear interest at floating
rates based on the agents base rate or Eurodollar rates. We had $2.0 million
outstanding under the line of credit facility at December 29, 2002. While
changes in market interest rates would affect the cost of funds borrowed in the
future, we believe that the effect, if any, of reasonably possible near-term
changes in interest rates on our consolidated financial position, results of
operations or cash flows would not be material.

Commodity Price Risk.Many of the food products and other operating essentials
purchased by us are affected by commodity pricing and are, therefore, subject
to price volatility caused by weather, production problems, delivery
difficulties and other factors that are beyond our control. Our supplies and
raw materials are available from several sources and we are not dependent upon
any single source for these items. If any existing suppliers fail, or are
unable to deliver in quantities required by us, we believe that there are
sufficient other quality suppliers in the marketplace that our sources of
supply can be replaced as necessary. At times we enter into purchase contracts
of one year or less or purchase bulk quantities for future use of certain items
in order to control commodity-pricing risks. Certain significant items that
could be subject to price fluctuations are beef, pork, coffee, eggs, dairy
products, wheat products and corn products. We believe that we will be able to
pass through increased commodity costs by adjusting menu pricing in most cases.
However, we believe that any changes in commodity pricing that cannot be
offset by changes in menu pricing or other product delivery strategies would
not be material.

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Item 8. Financial Statements and Supplementary Data.

THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)

|                                          |  |                                                         |                             |                    |        |             |         |          |        |          |         |   |        |         |         | 
|----------------------------------------- |  | ------------------------------------------------------- | --------------------------- | ------------------ | ------ | ----------- | ------- | -------- | ------ | -------- | ------- | - | ------ | ------- | ------- | 
|                                          |  |                                                         |                             |                    |        | Years Ended
|                                          |  |                                                         |                             |                    |        |            
|                                          |  |                                                         |                             |                    |        | December    |         | December |        | December
|                                          |  |                                                         |                             |                    |        | 29, 2002    |         | 30, 2001 |        | 31, 2000
|                                          |  |                                                         |                             |                    |        |             |         |          |        |         
|REVENUES:                                 |  |                                                         |                             |                    |        |             |         |          |        |          |         |  
|                                          |  |                                                         | Food sales                  |                    | $      | 316,958     |         |          | $      | 307,649  |         |   | $      | 313,045 |        
|                                          |  |                                                         | Franchise and other revenue |                    |        | 22,200      |         |          |        | 22,855   |         |   |        | 23,199  |        
|                                          |  |                                                         |                             |                    |        |             |         |          |        |          |         |  
|Total Revenues                            |  |                                                         | 339,158                     |                    |        |             | 330,504 |          |        |          | 336,244 |  
|                                          |  |                                                         |                             |                    |        |             |         |          |        |          |         |  
|COSTS AND EXPENSES:                       |  |                                                         |                             |                    |        |             |         |          |        |          |         |  
|                                          |  | Cost of sales (excluding depreciation shown below):     |                             |                    |        |             |         |          |        |          |         |   |        |        
|                                          |  |                                                         |                             | Food cost          |        |             | 87,866  |          |        |          | 86,855  |   |        |         | 87,581  | 
|                                          |  |                                                         |                             | Labor and benefits |        |             | 111,502 |          |        |          | 107,355 |   |        |         | 109,161 | 
|                                          |  |                                                         |                             | Operating expenses |        |             | 66,418  |          |        |          | 66,078  |   |        |         | 62,083  | 
|                                          |  | General and administrative                              |                             |                    | 30,696 |             |         |          | 31,051 |          |         |   | 30,491 |        
|                                          |  | Depreciation and amortization                           |                             |                    | 21,194 |             |         |          | 23,442 |          |         |   | 22,790 |        
|                                          |  | Interest, net                                           |                             |                    | 17,908 |             |         |          | 18,197 |          |         |   | 18,106 |        
|                                          |  | (Benefit from) provision for disposition of assets, net |                             |                    | (493   | )           |         |          | (1,093 | )        |         |   | 10     |        
|                                          |  | Asset write-down                                        |                             |                    | 2,666  |             |         |          | 1,467  |          |         |   | 1,537  |        
|                                          |  | Other, net                                              |                             |                    | (587   | )           |         |          | (1,245 | )        |         |   | (1,433 | )      
|                                          |  |                                                         |                             |                    |        |             |         |          |        |          |         |  
|Total Costs and Expenses                  |  |                                                         | 337,170                     |                    |        |             | 332,107 |          |        |          | 330,326 |  
|                                          |  |                                                         |                             |                    |        |             |         |          |        |          |         |  
|INCOME (LOSS) BEFORE INCOME TAXES         |  |                                                         | 1,988                       |                    |        |             | (1,603  | )        |        |          | 5,918   |  
|BENEFIT FROM (PROVISION FOR) INCOME TAXES |  |                                                         | 179                         |                    |        |             | 907     |          |        |          | (1,884  | )
|                                          |  |                                                         |                             |                    |        |             |         |          |        |          |         |  
|                                          |  | NET INCOME (LOSS)                                       |                             | $                  | 2,167  |             |         | $        | (696   | )        |         | $ | 4,034  |        
|                                          |  |                                                         |                             |                    |        |             |         |          |        |          |         |  

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

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THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

|                                                                                  |                                                                                        |                           |         |        |        |          |         |          |        |  |  | 
|--------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------- | ------- | ------ | ------ | -------- | ------- | -------- | ------ |  |  | 
|                                                                                  |                                                                                        |                           |         |        |        | December |         | December
|                                                                                  |                                                                                        |                           |         |        |        | 29, 2002 |         | 30, 2001
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|ASSETS                                                                            |                                                                                        |                           |         |        |        |          |         |         
|CURRENT ASSETS:                                                                   |                                                                                        |                           |         |        |        |          |         |         
|                                                                                  | Cash and cash equivalents                                                              |                           | $       | 5,813  |        |          | $       | 4,501    |       
|                                                                                  | Receivables, less allowance for doubtful accounts of $1,041 and $907                   |                           |         | 9,671  |        |          |         | 8,468    |       
|                                                                                  | Inventories, at the lower of first-in, first-out cost or market                        |                           |         | 5,182  |        |          |         | 5,330    |       
|                                                                                  | Prepaid expenses and other current assets                                              |                           |         | 1,977  |        |          |         | 2,692    |       
|                                                                                  | Deferred income taxes                                                                  |                           |         | 721    |        |          |         | 705      |       
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|                                                                                  |                                                                                        | Total current assets      |         |        | 23,364 |          |         |          | 21,696 | 
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization |                                                                                        |                           | 126,985 |        |        |          | 141,480 |         
|GOODWILL                                                                          |                                                                                        |                           | 27,035  |        |        |          | 27,035  |         
|INTANGIBLE ASSETS, net of accumulated amortization of $4,581 and $3,651           |                                                                                        |                           | 4,737   |        |        |          | 5,667   |         
|DEFERRED INCOME TAXES                                                             |                                                                                        |                           | 9,209   |        |        |          | 6,895   |         
|OTHER ASSETS                                                                      |                                                                                        |                           | 7,354   |        |        |          | 8,191   |         
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|                                                                                  |                                                                                        | $                         | 198,684 |        |        | $        | 210,964 |         
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|LIABILITIES AND STOCKHOLDERS INVESTMENT                                          |                                                                                        |                           |         |        |        |          |         |         
|CURRENT LIABILITIES:                                                              |                                                                                        |                           |         |        |        |          |         |         
|                                                                                  | Current maturities of long-term debt and capital lease obligations                     |                           | $       | 9,489  |        |          | $       | 1,030    |       
|                                                                                  | Accounts payable                                                                       |                           |         | 14,132 |        |          |         | 13,100   |       
|                                                                                  | Accrued expenses                                                                       |                           |         | 17,849 |        |          |         | 18,748   |       
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|                                                                                  |                                                                                        | Total current liabilities |         |        | 41,470 |          |         |          | 32,878 | 
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|CAPITAL LEASE OBLIGATIONS, less current maturities                                |                                                                                        |                           | 1,334   |        |        |          | 1,944   |         
|LONG-TERM DEBT                                                                    |                                                                                        |                           | 150,015 |        |        |          | 172,831 |         
|OTHER LIABILITIES                                                                 |                                                                                        |                           | 6,146   |        |        |          | 5,759   |         
|COMMITMENTS AND CONTINGENCIES (Notes 5 and 11)                                    |                                                                                        |                           |         |        |        |          |         |         
|STOCKHOLDERS INVESTMENT:                                                         |                                                                                        |                           |         |        |        |          |         |         
|                                                                                  | Common stock, $.01 par value, 100,000 shares authorized,
10,820 issued and outstanding |                           |         | 1      |        |          |         | 1        |       
|                                                                                  | Accumulated Deficit                                                                    |                           |         | (282   | )      |          |         | (2,449   | )     
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|                                                                                  |                                                                                        |                           | (281    | )      |        |          | (2,448  | )       
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         
|                                                                                  |                                                                                        | $                         | 198,684 |        |        | $        | 210,964 |         
|                                                                                  |                                                                                        |                           |         |        |        |          |         |         

The accompanying notes are an
integral part of these consolidated balance sheets.

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THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS INVESTMENT
(In Thousands)

|                             |  |        |   |         |  |             |   |       |  |   |        |   |  |   |        |  
|---------------------------- |  | ------ | - | ------- |  | ----------- | - | ----- |  | - | ------ | - |  | - | ------ | -
|                             |  |        |   |         |  | Additional  |   |       |  |   |        |   |  |  
|                             |  | Common |   | Paid-In |  | Accumulated |   |       |  |  
|                             |  | Stock  |   | Capital |  | Deficit     |   | Total
|                             |  |        |   |         |  |             |   |      
|Balance at December 31, 1999 |  | $      | 1 |         |  | $           |  |       |  | $ | (5,161 | ) |  | $ | (5,160 | )
|                             |  |        |   |         |  |             |   |       |  |   |        |   |  |   |        |  
|Net income                   |  |        |  |         |  |             |  |       |  |   | 4,034  |   |  |   | 4,034  |  
|Distribution                 |  |        |  |         |  |             |  |       |  |   | (626   | ) |  |   | (626   | )
|                             |  |        |   |         |  |             |   |       |  |   |        |   |  |   |        |  
|Balance at December 31, 2000 |  |        | 1 |         |  |             |  |       |  |   | (1,753 | ) |  |   | (1,752 | )
|                             |  |        |   |         |  |             |   |       |  |   |        |   |  |   |        |  
|Net loss                     |  |        |  |         |  |             |  |       |  |   | (696   | ) |  |   | (696   | )
|                             |  |        |   |         |  |             |   |       |  |   |        |   |  |   |        |  
|Balance at December 30, 2001 |  |        | 1 |         |  |             |  |       |  |   | (2,449 | ) |  |   | (2,448 | )
|                             |  |        |   |         |  |             |   |       |  |   |        |   |  |   |        |  
|Net income                   |  |        |  |         |  |             |  |       |  |   | 2,167  |   |  |   | 2,167  |  
|                             |  |        |   |         |  |             |   |       |  |   |        |   |  |   |        |  
|Balance at December 29, 2002 |  | $      | 1 |         |  | $           |  |       |  | $ | (282   | ) |  | $ | (281   | )
|                             |  |        |   |         |  |             |   |       |  |   |        |   |  |   |        |  

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

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THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |         |  
|----------------------------------------------------------------------------------------- | ----------------------------------------------------- | - | ----------- | ------- | -------- | - | -------- | ------- | - | - | ----- | ------- | -
|                                                                                          |                                                       |   | Years Ended
|                                                                                          |                                                       |   |            
|                                                                                          |                                                       |   | December    |         | December |   | December
|                                                                                          |                                                       |   | 29, 2002    |         | 30,2001  |   | 31, 2000
|                                                                                          |                                                       |   |             |         |          |   |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |                                                       |   |             |         |          |   |          |         |   |   |       |        
|Net income (loss)                                                                         |                                                       | $ | 2,167       |         |          | $ | (696     | )       |   | $ | 4,034 |        
|Adjustments to reconcile net income (loss)
to net cash provided by operating activities : |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Depreciation and amortization                         |   |             | 21,194  |          |   |          | 23,442  |   |   |       | 22,790  |  
|                                                                                          | Accretion of Senior Discount Notes                    |   |             | 25      |          |   |          | 2,501   |   |   |       | 2,664   |  
|                                                                                          | (Benefit from) provision for disposition of assets    |   |             | (493    | )        |   |          | (1,093  | ) |   |       | 10      |  
|                                                                                          | Asset write-down                                      |   |             | 2,666   |          |   |          | 1,467   |   |   |       | 1,537   |  
|                                                                                          | Other non-cash income and expense items, net          |   |             | 498     |          |   |          | 481     |   |   |       | 452     |  
|                                                                                          | Net changes in other operating assets and liabilities |   |             | (2,108  | )        |   |          | (5,891  | ) |   |       | (4,878  | )
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Total adjustments                                     |   |             | 21,782  |          |   |          | 20,907  |   |   |       | 22,575  |  
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Net cash provided by operating activities             |   |             | 23,949  |          |   |          | 20,211  |   |   |       | 26,609  |  
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Cash paid for property and equipment                  |   |             | (13,418 | )        |   |          | (24,129 | ) |   |       | (23,677 | )
|                                                                                          | Cash paid for acquisition of franchised restaurants   |   |             |        |          |   |          | (3,550  | ) |   |       | (6,158  | )
|                                                                                          | Proceeds from sale of property and equipment          |   |             | 5,366   |          |   |          | 4,402   |   |   |       | 1,419   |  
|                                                                                          | Payments on notes receivable                          |   |             | 407     |          |   |          | 1,022   |   |   |       | 226     |  
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Net cash used in investing activities                 |   |             | (7,645  | )        |   |          | (22,255 | ) |   |       | (28,190 | )
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                     |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Net (payments on) proceeds from long-term debt        |   |             | (14,000 | )        |   |          | 2,250   |   |   |       | 5,000   |  
|                                                                                          | Principal payments under capital lease obligations    |   |             | (992    | )        |   |          | (1,066  | ) |   |       | (966    | )
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Net cash (used in) provided by financing activities   |   |             | (14,992 | )        |   |          | 1,184   |   |   |       | 4,034   |  
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Net increase (decrease) in cash and cash equivalents  |   |             | 1,312   |          |   |          | (860    | ) |   |       | 2,453   |  
|CASH AND CASH EQUIVALENTS:                                                                |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Balance, beginning of year                            |   |             | 4,501   |          |   |          | 5,361   |   |   |       | 2,908   |  
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        
|                                                                                          | Balance, end of year                                  |   | $           | 5,813   |          |   | $        | 4,501   |   |   | $     | 5,361   |  
|                                                                                          |                                                       |   |             |         |          |   |          |         |   |   |       |        

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

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THE RESTAURANT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 29, 2002

(1)  ORGANIZATION:

Organization 

The Restaurant Company (TRC, Perkins or the Company) is a Delaware
corporation and is a wholly-owned subsidiary of The Restaurant Holding
Corporation (RHC). RHC is owned by Donald N. Smith (Mr. Smith), BancBoston
Ventures, Inc. (BBV), a subsidiary of Fleet Boston Financial Corp., and
others who own 70.0%, 21.0% and 9.0%, respectively.

Mr. Smith is also the Chairman and Chief Executive Officer of Friendly Ice
Cream Corporation (FICC), which operates and franchises 543 restaurants,
located primarily in the northeastern United States.

We operate and franchise mid-scale restaurants that serve a wide variety of
high quality, moderately priced breakfast, lunch, and dinner entrees and bakery
products. TRC and its franchisees operate under the names Perkins Restaurant
and Bakery, Perkins Family Restaurant, Perkins Family Restaurant and
Bakery and Perkins Restaurant. Our restaurants provide table service and
are open seven days a week. The restaurants are located in 35 states with the
largest number in Minnesota, Pennsylvania, Florida, Ohio, and Wisconsin. There
are fifteen franchised restaurants located in Canada. We also offer cookie
doughs, muffin batters, pancake mixes, pies and other food products for sale to
restaurants operated by us and our franchisees and bakery and food service
distributors through Foxtail Foods (Foxtail), our manufacturing division.

TRC Realty LLC 

TRC Realty LLC is a 100% owned subsidiary of TRC. TRC Realty LLCs sole
purpose is the operation of an airplane that is used for business purposes of
TRC and FICC.

Perkins Finance Corp. 

Perkins Finance Corp. (PFC) is a wholly-owned subsidiary of TRC, and was
created solely to act as the co-issuer of our 10.125% Senior Notes. PFC has no
operations and does not have any revenues.

The Restaurant Company of Minnesota 

On September 30, 2000, we contributed all of the restaurant, office and related
assets owned by us and used in our operations in Minnesota and North Dakota and
all of our trademarks and service marks to The Restaurant Company of Minnesota
(TRCM), a newly created, wholly-owned subsidiary. TRCM was formed to conduct
our operations in Minnesota and North Dakota as well as manage the rights and
responsibilities related to the contributed trademarks and service marks. TRCM
granted us a license to use, and the right to license others to use, the
trademarks and service marks used in the Perkins system.

Basis of Presentation 

The accompanying financial statements include the consolidated results of TRC
and subsidiaries for the fiscal years 2002, 2001 and 2000. All material
intercompany transactions have been eliminated in consolidation.

Certain prior year amounts have been reclassified to conform to current year
presentation.

Change in Accounting Reporting Period 

Effective January 1, 2001, we converted our financial reporting from a calendar
year basis to thirteen four-week periods ending on the last Sunday in December.
The first quarter includes four four-week periods. The first, second, third
and fourth quarters of 2002 ended April 21, July 14, October 6, and December
29, respectively.

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(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Estimates 

The presentation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

Concentration of Credit Risk 

Financial instruments that potentially subject us to a concentration of credit
risk are cash and cash equivalents. At times, cash balances may be in excess
of FDIC insurance limits. The Company has not experienced any losses with
respect to bank balances in excess of government provided insurance.

Cash Equivalents 

We consider all investments with an original maturity of three months or less
to be cash equivalents.

Revenue Recognition 

Revenue at Company-operated restaurants is recognized as customers pay for
products at the time of sale. Revenue recognition at Foxtail occurs upon the
shipment of product to the distributor.

Our franchisees are required to pay an initial fee to us when each franchise is
granted. These fees are not recognized as income until the restaurants open. We
also receive franchise royalties ranging from one to six percent of the gross
sales of each franchised restaurant. These royalties are recorded as income in
the period earned.

Advertising 

We include the costs of advertising in operating expenses. Advertising expense
was $13,853,000, $13,914,000 and $13,205,000 for the fiscal years 2002, 2001
and 2000, respectively.

Property and Equipment 

Major renewals and betterments are capitalized; replacements and maintenance
and repairs that do not extend the lives of the assets are charged to
operations as incurred.

Goodwill and Intangible Assets 

As of December 31, 2001, we completed adoption of Statement of Financial
Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets. Under
SFAS 142, goodwill is no longer amortized but is tested for impairment using a
fair value approach, at the reporting unit level. A reporting unit is the
operating segment, or a business one level below that operating segment (the
component level) if discrete financial information is prepared and regularly
reviewed by management at the component level. We have determined that our
operating segments are our reporting units under the provisions of SFAS 142.

SFAS 142 requires a two-step process for testing impairment. First, the fair
value of each reporting unit is compared to its carrying value to determine
whether an indication of impairment exists. The fair value of each reporting
unit is determined using a discounted cash flow analysis and comparative market
multiples. If an impairment is indicated, then the fair value of the reporting
units goodwill is determined by allocating the units fair value to its assets
and liabilities (including any unrecognized intangible assets) as if the
reporting unit had been acquired in a business combination. The amount of
impairment for goodwill and other intangible assets is measured as the excess
of its carrying value over its fair value. As required by SFAS No. 142, we
completed a transitional impairment test for goodwill as of December 31, 2001
and also an impairment test as of December 30, 2002. As a result of these tests,
we did not record any impairment of our goodwill.

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We amortize the cost of other intangibles over their estimated useful lives
unless such lives are deemed indefinite. Amortizable intangible assets are
tested for impairment based on undiscounted cash flows and, if impaired,
written down to fair value based on either discounted cash flows or appraised
values. Intangible assets with indefinite lives are tested for impairment and
written down to fair value as required.

Before December 31, 2001, we amortized goodwill over its estimated period of
benefit on a straight-line basis; we amortized other intangible assets on
appropriate bases over their estimated lives. No amortization period exceeded
40 years. When an intangible assets carrying value exceeded associated
expected operating cash flows, we considered it to be impaired and wrote it
down to fair value, which we determined based on either discounted future cash
flows or appraised values.

Income Taxes 

Deferred income taxes are provided for the tax effect of temporary differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements. We use the liability method to account for income
taxes, which requires deferred taxes to be recorded at the statutory rate
expected to be in effect when the taxes are paid.

Preopening Costs 

In accordance with the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up
Activities, we expense the costs of start-up activities as incurred.

Impairment of Long-Lived Assets 

Pursuant to SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, we evaluate the recoverability of assets (including
intangibles) when events and circumstances indicate that assets might be
impaired. For such assets, we determine impairment by comparing the
undiscounted future cash flows estimated to be generated by these assets to
their respective carrying amounts. Where an indication of impairment exists,
we generally estimate undiscounted future cash flows at the level of individual
restaurants or manufacturing facilities. In the event an impairment exists, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the asset. Assets held for disposition are valued at the lower
of historical cost, net of accumulated depreciation, or fair market value less
disposition cost.

Insurance Accruals 

We are self-insured up to certain limits for costs associated with workers
compensation claims, property claims and benefits paid under employee health
care programs. At December 29, 2002 and December 30, 2001, we had total
self-insurance accruals reflected in our balance sheet of approximately $2.6
million.

New Accounting Pronouncements 

Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for
Asset Retirement Obligations, was issued in June 2001. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 is effective for us on December 30, 2002. We have
evaluated the effects of adopting this statement and have determined that it
will not have a material effect on our results of operations or financial
position.

SFAS No. 145, Rescission of Financial Accounting Standards Board (FASB)
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, was issued in April 2002. SFAS 145 rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and an amendment of
that statement, FASB No. 64, Extinguishments of Debt Made to Satisfy Sinking
Fund Requirements, and requires that gains and losses from the extinguishment
of debt be classified as extraordinary items only if certain criteria are met.
SFAS 145 also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS 145 is effective
for us on December 30, 2002 and implementation will not have a material effect
on our results of operations or financial position.

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SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued in June 2002. SFAS 146 addresses the financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
is effective for exit and disposal activities that are initiated by us after
December 31, 2002 and will be applied on a prospective basis.

FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others, was
issued in November 2002. This Interpretation elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements in this
Interpretation are effective for our financial statements ending December 29,
2002 and are incorporated herein.

In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46 (FIN46), Consolidation of Variable Interest Entities (VIEs), an
interpretation of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to improve financial reporting of special purpose and other
entities. In accordance with the interpretation, business enterprises that
represent the primary beneficiary of another entity by retaining a controlling
financial interest in that entitys assets, liabilities, and results of
operating activities must consolidate the entity in their financial statements.
Prior to the issuance of FIN 46, consolidation generally occurred when an
enterprise controlled another entity through voting interests. Certain VIEs
that are qualifying special purpose entities (QSPEs) subject to the reporting
requirements of SFAS 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities, will not be required to be
consolidated under the provisions of FIN 46. The consolidation provisions of
FIN 46 apply to VIEs created or entered into after January 31, 2003, and for
pre-existing VIEs in the first reporting period beginning after June 15, 2003.
If applicable, transition rules allow the restatement of financial statements
or prospective application with a cumulative effect adjustment. In addition,
FIN 46 expands the disclosure requirements for the beneficiary of a significant
or a majority of the variable interests to provide information regarding the
nature, purpose and financial characteristics of the entities. The Company
does not believe that the adoption of FIN 46 will have a material adverse
impact on the Companys financial statements.

SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an Amendment of FASB Statement No. 123, was issued in December
2002. The Statement amends FASB No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
FASB No. 148 is effective for our financial statements ending December 29,
2002. However, implementation does not have a material effect on our results
of operations or financial position.

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(3)  SUPPLEMENTAL CASH FLOW INFORMATION:

The decrease in cash and cash equivalents due to changes in operating assets
and liabilities for the past three years consisted of the following (in
thousands):

|                        |                                           |   |          |        |          |   |          |        |   |   |        |        |  
|----------------------- | ----------------------------------------- | - | -------- | ------ | -------- | - | -------- | ------ | - | - | ------ | ------ | -
|                        |                                           |   | December |        | December |   | December
|                        |                                           |   | 29, 2002 |        | 30, 2001 |   | 31, 2000
|                        |                                           |   |          |        |          |   |         
|(Increase) Decrease in: |                                           |   |          |        |          |   |          |        |   |   |        |       
|                        | Receivables                               |   | $        | (1,994 | )        |   | $        | (576   | ) |   | $      | (1,130 | )
|                        | Inventories                               |   |          | 148    |          |   |          | (234   | ) |   |        | 417    |  
|                        | Prepaid expenses and other current assets |   |          | 715    |          |   |          | (1,114 | ) |   |        | (455   | )
|                        | Other assets                              |   |          | (1,214 | )        |   |          | (1,430 | ) |   |        | (3,549 | )
|Increase (Decrease) in: |                                           |   |          |        |          |   |          |        |   |   |        |       
|                        | Accounts payable                          |   |          | 1,032  |          |   |          | 61     |   |   |        | (2,470 | )
|                        | Accrued expenses                          |   |          | (1,182 | )        |   |          | (2,242 | ) |   |        | 925    |  
|                        | Other liabilities                         |   |          | 387    |          |   |          | (356   | ) |   |        | 1,384  |  
|                        |                                           |   |          |        |          |   |          |        |   |   |        |       
|                        |                                           | $ | (2,108   | )      |          | $ | (5,891   | )      |   | $ | (4,878 | )     
|                        |                                           |   |          |        |          |   |          |        |   |   |        |       

Other supplemental cash flow information for the past three years consisted of
the following (in thousands):

|                            |  |          |        |          |  |          |        |  |  |   |        | 
|--------------------------- |  | -------- | ------ | -------- |  | -------- | ------ |  |  | - | ------ | 
|                            |  | December |        | December |  | December
|                            |  | 29, 2002 |        | 30, 2001 |  | 31, 2000
|                            |  |          |        |          |  |         
|Cash paid for interest      |  | $        | 17,124 |          |  | $        | 14,771 |  |  | $ | 14,761 | 
|Income taxes paid           |  |          | 3,063  |          |  |          | 2,554  |  |  |   | 5,023  | 
|Income tax refunds received |  |          | 1,666  |          |  |          | 45     |  |  |   | 146    | 

In 2002, we recorded a note receivable and account receivable for
reimbursements of $488,000 of leasehold improvements.

(4)  PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following for the past two years (in
thousands):

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|                                                 |                            |   |          |        |          |   |          |        | 
|------------------------------------------------ | -------------------------- | - | -------- | ------ | -------- | - | -------- | ------ | 
|                                                 |                            |   | December |        | December
|                                                 |                            |   | 29, 2002 |        | 30,2001 
|                                                 |                            |   |          |        |         
|Owned:                                           |                            |   |          |        |          |   |          |       
|                                                 | Land and land improvements |   | $        | 37,327 |          |   | $        | 36,673 | 
|                                                 | Buildings                  |   |          | 94,649 |          |   |          | 94,363 | 
|                                                 | Leasehold improvements     |   |          | 51,742 |          |   |          | 48,799 | 
|                                                 | Equipment                  |   |          | 96,273 |          |   |          | 91,757 | 
|                                                 | Construction in progress   |   |          |       |          |   |          | 1,672  | 
|                                                 |                            |   |          |        |          |   |          |       
|                                                 |                            |   | 279,991  |        |          |   | 273,264  |       
|Less - accumulated depreciation and amortization |                            |   | (155,282 | )      |          |   | (138,527 | )     
|                                                 |                            |   |          |        |          |   |          |       
|                                                 |                            |   | 124,709  |        |          |   | 134,737  |       
|                                                 |                            |   |          |        |          |   |          |       
|Leased:                                          |                            |   |          |        |          |   |          |       
|                                                 | Buildings                  |   |          | 18,790 |          |   |          | 19,888 | 
|                                                 | Equipment                  |   |          |       |          |   |          | 1,170  | 
|                                                 |                            |   |          |        |          |   |          |       
|                                                 |                            |   | 18,790   |        |          |   | 21,058   |       
|Less - accumulated amortization                  |                            |   | (17,573  | )      |          |   | (19,402  | )     
|                                                 |                            |   |          |        |          |   |          |       
|                                                 |                            |   | 1,217    |        |          |   | 1,656    |       
|                                                 |                            |   |          |        |          |   |          |       
|Assets Held for Sale                             |                            |   | 1,059    |        |          |   | 5,087    |       
|                                                 |                            |   |          |        |          |   |          |       
|                                                 |                            | $ | 126,985  |        |          | $ | 141,480  |       
|                                                 |                            |   |          |        |          |   |          |       

Depreciation and amortization for financial reporting purposes is computed
primarily using the straight-line method based on the shorter of either the
estimated useful lives or the lease terms of the property, as follows:

|        |  |                        |  |  |         |  | 
|------- |  | ---------------------- |  |  | ------- |  | 
|        |  |                        |  |  | Years  
|        |  |                        |  |  |        
|Owned:  |  |                        |  | 
|        |  | Land improvements      |  |  | 3 - 20  | 
|        |  | Buildings              |  |  | 20 - 30 | 
|        |  | Leasehold improvements |  |  | 7 - 20  | 
|        |  | Equipment              |  |  | 3 - 7   | 
|Leased: |  |                        |  | 
|        |  | Buildings              |  |  | 20 - 25 | 
|        |  | Equipment              |  |  | 6       | 

As of December 29, 2002, we owned or leased three properties held for disposal
with a total carrying value of $1,059,000. The assets are reflected in the
accompanying balance sheet at the lower of historical cost, net of accumulated
depreciation, or fair market value less disposition costs. Our results of
operations include losses related to these properties of $9,000, $100,000 and
$321,000 for the years 2002, 2001 and 2000, respectively.

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(5)  LEASES:

As of December 29, 2002, we operated 155 full-service restaurants as follows:



| |  |  | 70 with both land and building leased     
| |  |  | ------------------------------------------
| |  |  | 70 with both land and building owned      
| |  |  | 15 with the land leased and building owned

As of December 29, 2002, we either leased or subleased fourteen properties to
others as follows:



| |  |  | 7 with both land and building leased     
| |  |  | -----------------------------------------
| |  |  | 4 with both land and building owned      
| |  |  | 3 with the land leased and building owned

Most of our restaurant leases have a primary term of 20 years and generally
provide for two to four renewals of five years each. Certain leases provide for
minimum payments plus a percentage of sales in excess of stipulated amounts.

Future minimum payments related to leases that have initial or remaining lease
terms in excess of one year as of December 29, 2002 were as follows (in
thousands):

|           |                               |   |                   |       |           |   |        |        | 
|---------- | ----------------------------- | - | ----------------- | ----- | --------- | - | ------ | ------ | 
|           |                               |   | Lease Obligations
|           |                               |   |                  
|           |                               |   | Capital           |       | Operating
|           |                               |   |                   |       |          
|2003       |                               | $ | 823               |       |           | $ | 9,470  |       
|2004       |                               |   | 575               |       |           |   | 9,165  |       
|2005       |                               |   | 398               |       |           |   | 8,452  |       
|2006       |                               |   | 312               |       |           |   | 8,151  |       
|2007       |                               |   | 166               |       |           |   | 7,587  |       
|Thereafter |                               |   | 112               |       |           |   | 37,766 |       
|           |                               |   |                   |       |           |   |        |       
|           | Total minimum lease payments  |   |                   | 2,386 |           |   | $      | 80,591 | 
|           |                               |   |                   |       |           |   |        |       
|Less:      |                               |   |                   |       |           |   |        |       
|           | Amounts representing interest |   |                   | (403  | )         |   |        |        | 
|           |                               |   |                   |       |           |   |        |       
|           | Capital lease obligations     |   | $                 | 1,983 |           |   |        |        | 
|           |                               |   |                   |       |           |   |        |       

Future minimum gross rental receipts as of December 29, 2002, were as follows
(in thousands):

|                            |  |                       |       |           |  |   |       | 
|--------------------------- |  | --------------------- | ----- | --------- |  | - | ----- | 
|                            |  | Amounts Receivable As
|                            |  |                      
|                            |  | Lessor                |       | Sublessor
|                            |  |                       |       |          
|2003                        |  | $                     | 484   |           |  | $ | 747   | 
|2004                        |  |                       | 484   |           |  |   | 726   | 
|2005                        |  |                       | 489   |           |  |   | 680   | 
|2006                        |  |                       | 490   |           |  |   | 342   | 
|2007                        |  |                       | 461   |           |  |   | 293   | 
|Thereafter                  |  |                       | 2,232 |           |  |   | 1,823 | 
|                            |  |                       |       |           |  |   |       | 
|Total minimum lease rentals |  | $                     | 4,640 |           |  | $ | 4,611 | 
|                            |  |                       |       |           |  |   |       | 

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The net rental expense included in the accompanying Consolidated Statements of
Operations for operating leases was as follows for the past three years (in
thousands):

|                        |  |      |       |      |  |      |       |   |  |   |       |  
|----------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                        |  | 2002 |       | 2001 |  | 2000
|                        |  |      |       |      |  |     
|Minimum rentals         |  | $    | 9,185 |      |  | $    | 8,220 |   |  | $ | 7,869 |  
|Contingent rentals      |  |      | 850   |      |  |      | 1,352 |   |  |   | 1,778 |  
|Less - sublease rentals |  |      | (615  | )    |  |      | (819  | ) |  |   | (928  | )
|                        |  |      |       |      |  |      |       |   |  |   |       |  
|                        |  | $    | 9,420 |      |  | $    | 8,753 |   |  | $ | 8,719 |  
|                        |  |      |       |      |  |      |       |   |  |   |       |  

(6)  GOODWILL AND INTANGIBLE ASSETS:

The following schedule presents the carrying amount of goodwill attributable to
each reportable operating segment and changes therein:

|                                                           |  |             |        |           |  |               |        |       |  |         |   |  |  |   |   |  |  |       |        | 
|---------------------------------------------------------- |  | ----------- | ------ | --------- |  | ------------- | ------ | ----- |  | ------- | - |  |  | - | - |  |  | ----- | ------ | 
|                                                           |  |             |        |           |  |               |        |       |  |         |   |  |  |   |   |  |  | Total
|                                                           |  | Restaurants |        | Franchise |  | Manufacturing |        | Other |  | Company
|                                                           |  |             |        |           |  |               |        |       |  |        
|Balance as of December 30, 2001                            |  | $           | 14,037 |           |  | $             | 12,998 |       |  | $       |  |  |  | $ |  |  |  | $     | 27,035 | 
|Changes in the carrying amount
of goodwill during the year |  |             |       |           |  |               |       |       |  |         |  |  |  |   |  |  |  |       |       | 
|                                                           |  |             |        |           |  |               |        |       |  |         |   |  |  |   |   |  |  |       |        | 
|Balance as of December 29, 2002                            |  | $           | 14,037 |           |  | $             | 12,998 |       |  | $       |  |  |  | $ |  |  |  | $     | 27,035 | 
|                                                           |  |             |        |           |  |               |        |       |  |         |   |  |  |   |   |  |  |       |        | 

The following schedule adjusts reported net income to exclude amortization
expense related to goodwill.

|                                |  |      |       |      |  |      |       |   |  |   |       | 
|------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                |  | 2002 |       | 2001 |  | 2000
|                                |  |      |       |      |  |     
|Reported net income (loss)      |  | $    | 2,167 |      |  | $    | (696  | ) |  | $ | 4,034 | 
|Add back: Goodwill amortization |  |      |      |      |  |      | 1,292 |   |  |   | 1,252 | 
|                                |  |      |       |      |  |      |       |   |  |   |       | 
|Adjusted net income             |  | $    | 2,167 |      |  | $    | 596   |   |  | $ | 5,286 | 
|                                |  |      |       |      |  |      |       |   |  |   |       | 

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In connection with adopting SFAS No. 142, we also reassessed the useful lives
and the classification of our identifiable intangible assets other than
goodwill and determined that they continue to be appropriate. The components
of our intangible assets are as follows.

|                                                                                                                                                 |  |      |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                                                                                                 |  | 2002 |        | 2001
|                                                                                                                                                 |  |      |        |     
|Present value of estimated future royalty fee income
being amortized evenly over the remaining lives of
the franchise agreements (1 to 15 years) |  |      | 9,318  |      |  |   | 9,318  |  
|Less  Accumulated Amortization                                                                                                                  |  |      | (4,581 | )    |  |   | (3,651 | )
|                                                                                                                                                 |  |      |        |      |  |   |        |  
|Total                                                                                                                                            |  | $    | 4,737  |      |  | $ | 5,667  |  
|                                                                                                                                                 |  |      |        |      |  |   |        |  

Amortization expense for intangible assets was $930,000 for 2002 and $2,613,000
for 2001. Estimated amortization expense for the five succeeding fiscal years
is as follows:

|     |  |                      |         | 
|---- |  | -------------------- | ------- | 
|     |  | Estimated           
|     |  | Amortization Expense
|     |  |                     
|2003 |  | $                    | 655,000 | 
|2004 |  |                      | 650,000 | 
|2005 |  |                      | 648,000 | 
|2006 |  |                      | 546,000 | 
|2007 |  |                      | 542,000 | 

(7)  ACCRUED EXPENSES:

Accrued expenses consisted of the following (in thousands):

|                                      |  |      |        |      |  |   |        | 
|------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                      |  | 2002 |        | 2001
|                                      |  |      |        |     
|Payroll and related benefits          |  | $    | 8,903  |      |  | $ | 9,108  | 
|Property, real estate and sales taxes |  |      | 2,755  |      |  |   | 2,707  | 
|Insurance                             |  |      | 568    |      |  |   | 287    | 
|Rent                                  |  |      | 1,144  |      |  |   | 1,179  | 
|Other                                 |  |      | 4,479  |      |  |   | 5,467  | 
|                                      |  |      |        |      |  |   |        | 
|                                      |  | $    | 17,849 |      |  | $ | 18,748 | 
|                                      |  |      |        |      |  |   |        | 

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(8)  LONG-TERM DEBT:

Long-term debt consisted of the following (in thousands):

|                                                         |  |      |         |      |  |   |         | 
|-------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                         |  | 2002 |         | 2001
|                                                         |  |      |         |     
|10.125% Unsecured Senior Notes, due December 15, 2007    |  | $    | 130,000 |      |  | $ | 130,000 | 
|11.25% Unsecured Senior Discount Notes, due May 15, 2008 |  |      | 26,855  |      |  |   | 26,831  | 
|Revolving credit facility, due January 1, 2005           |  |      | 2,000   |      |  |   | 16,000  | 
|                                                         |  |      |         |      |  |   |         | 
|                                                         |  |      | 158,855 |      |  |   | 172,831 | 
|Less current maturities                                  |  |      | (8,840  | )    |  |   |        | 
|                                                         |  |      |         |      |  |   |         | 
|                                                         |  | $    | 150,015 |      |  | $ | 172,831 | 
|                                                         |  |      |         |      |  |   |         | 

We have outstanding $130,000,000 of 10.125% Unsecured Senior Notes (the
Notes) due December 15, 2007. Interest on the notes is payable semi-annually
on June 15 and December 15.

We have a collateralized $40,000,000 revolving line of credit facility (the
Credit Facility) with a sub limit for up to $5,000,000 of letters of credit.
The Credit Facility was amended on November 15, 2001 to modify certain terms
and conditions and reduce available borrowings from $50,000,000 to $40,000,000.
As a result of the amendment, borrowing rates were adjusted to current market
rates. All amounts under the Credit Facility will bear interest at floating
rates based on the agents base rate or Eurodollar rates as defined in the
agreement. All indebtedness under the Credit Facility is collateralized by a
first priority lien on substantially all of our assets. As of December 29,
2002, $2,000,000 in borrowings and approximately $2,659,000 of letters of
credit were outstanding under the Credit Facility.

We have outstanding $31,100,000 of 11.25% Senior Discount Notes (the Discount
Notes) maturing on May 15, 2008. The Discount Notes were issued at a discount
to their principal amount at maturity and generated gross proceeds of
$18,009,000.

On November 15, 2001, we elected to begin accruing cash interest on the
Discount Notes. Cash interest is payable semi-annually on May 15 and November
15. The principal balance of the Notes on December 29, 2002 was $26,855,000.
On May 15, 2003, we will be required to redeem $8,383,000 in accreted interest
of the Discount Notes at a redemption price of 105.625%.

In connection with the issuance of the Notes, the Discount Notes and obtaining
the Credit Facility, we incurred deferred financing costs of approximately
$6,541,000 that are being amortized over the terms of the debt agreements. The
unamortized balance of these costs was $2,515,000 as of December 29, 2002.

Based on the borrowing rates currently available for debt with similar terms
and maturities, the approximate fair market value of our long-term debt was as
follows (in thousands):

|                                       |  |      |         |      |  |   |         | 
|-------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                       |  | 2002 |         | 2001
|                                       |  |      |         |     
|10.125% Unsecured Senior Notes         |  | $    | 123,577 |      |  | $ | 126,100 | 
|11.25% Unsecured Senior Discount Notes |  |      | 25,456  |      |  |   | 26,031  | 

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Because our revolving line of credit borrowings outstanding at December 29,
2002 bear interest at current market rates, we believe that the related
liabilities reflected in the accompanying balance sheets approximated fair
market value.

Pursuant to the Notes, the Discount Notes and the Credit Facility, we are
subject to certain restrictions which limit additional indebtedness.
Additionally, among other restrictions, the Credit Facility limits our capital
expenditures and requires us to maintain specified financial ratios, including
limits on interest expense and indebtedness compared to earnings before
interest, taxes, depreciation and amortization. At December 29, 2002, we were
in compliance with all such requirements. A continuing default under the Credit
Facility could result in a default under the Notes and the Discount Notes. In
the event of such a default and under certain circumstances, the trustee or the
holders of the Notes or the Discount Notes could then declare the respective
notes due and payable immediately.

The Notes, the Discount Notes and the Credit Facility restrict our ability to
pay dividends or distributions to our equity holders. If no default or event of
default exists, these restrictions generally allow us to pay dividends or
distributions as follows:

| |  |                                                                                                                                                                                                                                                                                                                                                                 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 1.
if at the time of such dividend or distribution we would have been
allowed to incur at least $1.00 of additional indebtedness under fixed
charge coverage ratio tests as defined in the 11.25% Senior Discount Note
Indenture and the 10.125% Senior Note Indenture (the Indentures).                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                 
| |  | 2. under the Discount Notes, if such dividend or distribution is less
than the sum of 50% of consolidated net income from July 1, 1998 through
the end of the most recent fiscal quarter plus 100% of any contribution
to or net proceeds from issuance of our common equity plus additional
dividends not to exceed $5 million after the date of the Indenture.
| |  |                                                                                                                                                                                                                                                                                                                                                                 
| |  | 3. under the Notes, in an aggregate amount after December 22, 1997 equal
to 50% of positive net income, after tax distributions, from January 1,
1998 through the end of the most recently ended fiscal quarter plus
additional dividends not to exceed $5 million after the date of the
Indenture.                                                             

These available amounts are reduced by dividends paid as well as certain other
restricted payments as defined in the Indentures.

Based on forecasted results of operations, we believe that it is
likely that we will not achieve one of our financial ratio requirements for the
first quarter of fiscal 2003. We are currently negotiating a
modification of this covenant with the Credit Facility lender in order to
ensure future compliance. We expect to complete such negotiation
during the quarter ending April 20, 2003 and to have the modified covenant
effective for the April 20, 2003 measurement date. If we are unable to
modify the terms of this covenant and are unable to obtain waivers from the
lender for possible future violations of this covenant, the lender could demand
payment of the balance of the Credit Facility, which could constitute a default
under the Notes and Discount Notes. If the Credit Facility lender, or the trustee or the
holders of the Notes and the Discount Notes demanded repayment, we
would seek to refinance the balance of the Credit Facility, the Notes and the
Discount Notes with another lender. There can be no assurance that we
will successfully modify the terms of the covenant or refinance the balance
under the Credit Facility, the Notes and the Discount Notes.

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Scheduled annual principal maturities of long-term debt for the five years
subsequent to December 29, 2002, are as follows:

|           |  |        |         | 
|---------- |  | ------ | ------- | 
|           |  | Amount
|           |  |       
|2003       |  | $      | 8,840   | 
|2004       |  |        |        | 
|2005       |  |        | 2,000   | 
|2006       |  |        |        | 
|2007       |  |        | 130,000 | 
|Thereafter |  |        | 18,015  | 
|           |  |        |         | 
|           |  | $      | 158,855 | 
|           |  |        |         | 

Interest expense capitalized in connection with the Companys construction
activities equaled approximately $28,000, $159,000 and $200,000 for the years
ended December 29, 2002, December 30, 2001 and December 31, 2000, respectively.

(9)  INCOME TAXES:

We file a consolidated Federal income tax return with RHC. For state purposes,
each subsidiary generally files a separate return.

The following is a summary of the components of the (benefit from)/provision
for income taxes for the past three years (in thousands):

|          |                 |   |        |        |      |   |        |        |   |   |        |        |  
|--------- | --------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|          |                 |   | 2002   |        | 2001 |   | 2000  
|          |                 |   |        |        |      |   |       
|Current:  |                 |   |        |        |      |   |        |        |   |   |        |       
|          | Federal         |   | $      | 1,957  |      |   | $      | 707    |   |   | $      | 3,470  |  
|          | State and local |   |        | 194    |      |   |        | 286    |   |   |        | 1,310  |  
|          |                 |   |        |        |      |   |        |        |   |   |        |       
|          |                 |   | 2,151  |        |      |   | 993    |        |   |   | 4,780  |       
|          |                 |   |        |        |      |   |        |        |   |   |        |       
|Deferred: |                 |   |        |        |      |   |        |        |   |   |        |       
|          | Federal         |   |        | (2,252 | )    |   |        | (1,688 | ) |   |        | (2,566 | )
|          | State and local |   |        | (78    | )    |   |        | (212   | ) |   |        | (330   | )
|          |                 |   |        |        |      |   |        |        |   |   |        |       
|          |                 |   | (2,330 | )      |      |   | (1,900 | )      |   |   | (2,896 | )     
|          |                 |   |        |        |      |   |        |        |   |   |        |       
|          |                 | $ | (179   | )      |      | $ | (907   | )      |   | $ | 1,884  |       
|          |                 |   |        |        |      |   |        |        |   |   |        |       

A reconciliation of the statutory Federal income tax rate to the Companys
effective income tax rate is as follows:

|                                         |  |      |       |      |  |      |       |   |  |  |       |  
|---------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                         |  | 2002 |       | 2001 |  | 2000
|                                         |  |      |       |      |  |     
|Federal                                  |  |      | 34.2  | %    |  |      | 34.2  | % |  |  | 34.2  | %
|Federal income tax credits               |  |      | (54.1 | )    |  |      | 63.6  |   |  |  | (17.1 | )
|State income taxes, net of Federal taxes |  |      | 3.7   |      |  |      | 2.8   |   |  |  | 4.4   |  
|Amortization of goodwill                 |  |      |      |      |  |      | (26.4 | ) |  |  | 7.2   |  
|Nondeductible expenses and other         |  |      | 7.2   |      |  |      | (17.6 | ) |  |  | 3.1   |  
|                                         |  |      |       |      |  |      |       |   |  |  |       |  
|                                         |  |      | (9.0  | )%   |  |      | 56.6  | % |  |  | 31.8  | %
|                                         |  |      |       |      |  |      |       |   |  |  |       |  

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The following is a summary of the significant components of our deferred tax
position
(in thousands):

|                                |                          |   |         |     |            |   |         |        |            |   |     |     |  |   |        |        |  
|------------------------------- | ------------------------ | - | ------- | --- | ---------- | - | ------- | ------ | ---------- | - | --- | --- |  | - | ------ | ------ | -
|                                |                          |   | 2002    |     | 2001      
|                                |                          |   |         |     |           
|                                |                          |   | Current |     | Noncurrent |   | Current |        | Noncurrent
|                                |                          |   |         |     |            |   |         |        |           
|Capital leases                  |                          | $ |        |     |            | $ | 420     |        |            | $ |    |     |  | $ | 517    |       
|Inventory                       |                          |   | 251     |     |            |   |        |        |            |   | 259 |     |  |   |       |       
|Accrued expenses and reserves   |                          |   | 470     |     |            |   | 165     |        |            |   | 446 |     |  |   | 126    |       
|Property and equipment          |                          |   |        |     |            |   | 9,072   |        |            |   |    |     |  |   | 7,940  |       
|State Net Operating Loss        |                          |   |        |     |            |   | 857     |        |            |   |    |     |  |   |       |       
|Deferred compensation and other |                          |   |        |     |            |   | 2,212   |        |            |   |    |     |  |   |       |       
|                                |                          |   |         |     |            |   |         |        |            |   |     |     |  |   |        |       
|                                |                          |   | 721     |     |            |   | 12,726  |        |            |   | 705 |     |  |   | 10,909 |       
|Valuation Allowance             |                          |   |        |     |            |   | (1,770  | )      |            |   |    |     |  |   |       |       
|                                |                          |   |         |     |            |   |         |        |            |   |     |     |  |   |        |       
|                                | Deferred tax assets      |   |         | 721 |            |   |         | 10,956 |            |   |     | 705 |  |   |        | 10,909 |  
|                                |                          |   |         |     |            |   |         |        |            |   |     |     |  |   |        |       
|Intangibles and other           |                          |   |        |     |            |   | (1,747  | )      |            |   |    |     |  |   | (4,014 | )     
|                                |                          |   |         |     |            |   |         |        |            |   |     |     |  |   |        |       
|                                | Deferred tax liabilities |   |         |    |            |   |         | (1,747 | )          |   |     |    |  |   |        | (4,014 | )
|                                |                          |   |         |     |            |   |         |        |            |   |     |     |  |   |        |       
|                                |                          | $ | 721     |     |            | $ | 9,209   |        |            | $ | 705 |     |  | $ | 6,895  |       
|                                |                          |   |         |     |            |   |         |        |            |   |     |     |  |   |        |       

(10)  RELATED PARTY TRANSACTIONS:

We had a revolving loan agreement with Mr. Smith, the terms of which were
modified during 2000. As a result, $626,000 of Mr. Smiths obligation,
representing accrued interest on the original principal amount, was
constructively forgiven effective August 22, 2000 through a dividend to RHC.
The remaining balance of $133,000 was paid on June 30, 2002.

FICC leases and formerly subleased certain land, buildings and equipment from
us. During the fiscal years 2002, 2001 and 2000, lease and sublease income was
$79,000, $254,000 and $343,000, respectively.

TRC Realty LLC leases an aircraft for use by both FICC and TRC. The operating
lease expires in November 2009. We currently share with FICC the cost of TRC
Realty LLCs generally fixed expenses. In addition, FICC and TRC incur actual
variable usage costs. Total expense reimbursed by FICC for the fiscal years
2002, 2001 and 2000 was $448,000, $595,000 and $581,000, respectively.

FICC purchases certain food products used in the normal course of business from
Foxtail. For the fiscal years 2002, 2001 and 2000, purchases were $463,000,
$618,000 and $759,000, respectively.

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(11)  COMMITMENTS AND CONTINGENCIES:

We are a party to various legal proceedings in the ordinary course of business.
We do not believe it is likely that these proceedings, either individually or
in the aggregate, will have a material adverse effect on our consolidated
financial statements.

In the past, we have sponsored financing programs offered by certain lending
institutions to assist our franchisees in procuring funds for the construction
of new franchised restaurants and to purchase and install in-store bakeries.
We provided a limited guaranty of funds borrowed. Our obligations under these
agreements expired during the first quarter of 2002.

During 2000, we entered into a separate agreement to guarantee fifty percent of
borrowings up to a total guarantee of $1,500,000 for use by a franchisee to
remodel and upgrade existing restaurants. As of December 29, 2002 and December
30, 2001, there were $3,000,000 and $2,796,000 in borrowings outstanding under
this agreement of which $1,500,000 and $1,398,000 was guaranteed by us.

The majority of our franchise revenues are generated from franchisees owning
individually less than five percent of total franchised restaurants, and,
therefore, the loss of any one of these franchisees would not have a material
impact on our results of operations. As of December 29, 2002, three
franchisees owned 92 of the 343 restaurants franchised by us. During 2002, we
earned net royalties and license fees of approximately $2,435,000, $1,853,000
and $1,592,000 from these franchisees. While the exit of one of these
franchisees from the system would have a material impact on our revenues, such
an occurrence would not in itself impair our ability to maintain our
operations.

Our predecessors entered into arrangements with several different parties which
have reserved territorial rights under which specified payments are to be made
by us based on a percentage of gross sales from certain restaurants and for new
restaurants opened within certain geographic regions. During 2002, we paid an
aggregate amount of $2,694,000 under such arrangements. Three such agreements
are currently in effect. Of these, one expires upon the death of the
beneficiary, one expires in the year 2075 and the remaining agreement remains
in effect as long as we operate Perkins Restaurants and Bakeries in certain
states.

Our ability to make scheduled payments of principal of, or to pay the interest
or liquidated damages, if any, on, or to refinance, our indebtedness (including
the Notes and the Discount Notes), or to fund planned capital expenditures will
depend on our future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. Based upon the current level of
operations, we believe that cash flow from operations and available cash,
together with available borrowings under the Credit Facility, will be adequate
to meet our liquidity needs for the foreseeable future. We may, however, need
to refinance all or a portion of the principal of the Notes and the Discount
Notes on or prior to maturity. There can be no assurance that we will generate
sufficient cash flow from operations, or that future borrowings will be
available under the Credit Facility in an amount sufficient to enable us to
service our indebtedness or to fund our other liquidity needs. In addition,
there can be no assurance that we will be able to effect any such refinancing
on commercially reasonable terms or at all.

(12)  LONG-TERM INCENTIVE PLANS:

Our Executive Long-Term Incentive Plan (the LTIP) was established for the
benefit of our officers and selected key employees as of January 1, 1998.
Annual awards are based on an executives position and are earned by
participants based on Minimum, Target, and Maximum performance in earnings
before interest, taxes, depreciation and amortization (EBITDA) criteria
determined by the Board of Directors each fiscal year. Long-Term Incentive
Awards are payable in cash over 3 year periods at 33.3% per year, except for
certain initial Long-Term Incentive Awards which are payable in cash 50% in
year one, 33% in year two and 17% in year three. Long-Term Incentive Award
payments are dependent upon us meeting specific EBITDA goals from year to year.
We discontinued the LTIP as of December 30, 2001.

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Effective January 1, 1999, we established a Deferred Compensation Plan under
which our officers and key employees may defer specified percentages of their
salaries, annual incentives and long-term compensation payments. We also make
matching contributions of the lesser of 3% of eligible compensation or $5,100.
Amounts deferred are excluded from the participants taxable income and are
held in trust with a bank, where the funds are invested at the direction of
each participant. As of December 29, 2002, $3,491,000 is held in trust under
the plan and is included in other long-term assets and liabilities in the
accompanying consolidated balance sheets. We made matching contributions of
$234,000, $242,000 and $241,000 for 2002, 2001 and 2000, respectively.

Investment income on the invested funds is taxable to us, and we are eligible
for a deduction for compensation expense when the funds are distributed to the
participants at retirement, cessation of employment or other specified events.

We established a Performance Unit Grant Plan under which a select group of key
employees may receive awards of Performance Units based on financial
performance criteria established by the Board of Directors at the time of
grant. The Performance Unit Grant Plan is designed to retain and reward
selected key employees by tying Performance Unit valuation to our growth
valuation criteria. Each award is payable in cash and vests over a 3 year
period at 33.3% per year. Upon exercise, up to 50% of vested award values may
be transferred to the participants Deferred Compensation Plan account.
Unexercised awards expire on the tenth anniversary of grant. We paid no awards
in 2002 and $137,000 and $115,000 in 2001 and 2000, respectively.

Our Supplemental Executive Retirement Income Plan (the SERP) was established
on July 1, 1999. Under the SERP, a contribution is made each year on behalf of
one of our executives. The executive immediately vests in 33.3% of the
contribution while vesting in the remaining 66.7% is discretionary based on the
attainment of certain performance criteria. We contributed $41,000, $123,000
and $123,000 for 2000, 2001 and 2002, respectively.

(13)  EMPLOYEE BENEFITS:

The Perkins Retirement Savings Plan (the Plan) as amended and restated
effective January 1, 1992, was established for the benefit of all eligible
employees, both hourly and salaried. All participating employees at December
31, 1991 remained eligible to participate in the Plan. All other employees of
TRC and TRC Realty LLC who have satisfied the participation requirements are
eligible for participation in the Plan provided they (i) have attained the age
of 21 and (ii) have completed one Year of Service, as defined, during which
they have been credited with a minimum of 1,000 Hours of Service.

Participants may elect to defer from 1% to 15% of their annual eligible
compensation subject to Internal Revenue Code (IRC) regulated maximums. We
may make a matching contribution equal to a percentage of the amount deferred
by the participant or a specified dollar amount as determined each year by the
Board of Directors. During 2002 and 2001, we elected to match contributions
at a rate of 25% up to the first 6% deferred by each participant. During 2000,
we elected to match contributions at a rate of 50% up to the first 6% deferred
by each participant. Our matching contributions to the Plan for each of the
years 2002, 2001 and 2000 were $517,000, $482,000 and $772,000, respectively.

Participants are always 100% vested in their salary deferral accounts and
qualified rollover accounts. Vesting in the employer matching account is based
on qualifying Years of Service. A participant vests 60% in the employer
matching account after three years, 80% after four years and 100% after five
years.

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(14)  ASSET WRITE-DOWNS:

During 2002, we determined that impairment existed with respect to the two Sage
Hen Café restaurants and to two Company owned restaurants. This determination
was made based on our projections that the future cash flows of these
restaurants would not exceed the present carrying value of the assets.
Accordingly, we recorded an impairment charge of approximately $2,666,000
million to adjust the assets of these restaurants to net realizable value.

During 2001, we wrote down the carrying value of three properties to their
estimated fair values. One of these properties was sold in January 2002.
Operations at one of the properties were discontinued on December 30, 2001, and
this property is held for disposal. We currently have no plans to discontinue
operations of the third property. As required under SFAS No. 121, the carrying
amounts of the assets associated with these restaurant properties were written
down to their estimated fair market values based on our experience in disposing
of similar under-performing properties and negotiations relating to the
disposal of the subject properties. Additionally, we wrote off the carrying
amount of certain intangibles related to the future royalty income of
franchised restaurants we acquired in December 2001. The resulting non-cash
charges related to these write-downs and write-offs reduced 2001 pre-tax income
by $1,467,000.

During 2000, we identified three restaurant properties that were not expected
to generate undiscounted future cash flows sufficient to cover the carrying
value of the underlying assets related to these properties. Two of these
properties were disposed of in January and February 2002. We reopened the
third property as a Sage Hen Café in 2001. As required under SFAS No. 121, the
carrying amounts of the assets associated with these restaurant properties were
written down to their estimated fair market values based on our experience in
disposing of similar under-performing properties and negotiations relating to
the disposal of the subject properties. The resulting non-cash charges reduced
2000 pre-tax income by $1,537,000.

(15)  SEGMENT REPORTING:

We have three primary operating segments: restaurants, franchise and
manufacturing. The restaurant operating segment includes Company-operated
restaurants. The franchise operating segment includes revenues and expenses
directly allocable to franchised restaurants. The manufacturing segment
consists of Foxtail.

Revenues for the restaurant segment result from the sale of menu products at
Perkins restaurants we operate. Revenues for the franchise segment consist
primarily of initial franchise fees and royalty income earned as a result of
operation of franchise restaurants. Revenues for the manufacturing segment are
generated by the sale of food products to restaurants we operate and
franchisees through third-party distributors, as well as customers outside the
Perkins system. Foxtails sales to Company-operated restaurants are eliminated
for external reporting purposes.

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The following presents revenues and other financial information by business
segment (in thousands):

|                                 |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         | 
|-------------------------------- |  | ----------- | ------- | --------- |  | ------------- | ------ | ----- |  | ------ | ------ |  |  | - | ------- | - |  | - | ------- | 
|2002:                            |  | Restaurants |         | Franchise |  | Manufacturing |        | Other |  | Totals
|                                 |  |             |         |           |  |               |        |       |  |       
|Revenues from
external customers |  | $           | 281,323 |           |  | $             | 21,752 |       |  | $      | 33,933 |  |  | $ | 2,150   |   |  | $ | 339,158 | 
|Intersegment revenues            |  |             |        |           |  |               |       |       |  |        | 9,689  |  |  |   |        |   |  |   | 9,689   | 
|Interest expense, net            |  |             |        |           |  |               |       |       |  |        |       |  |  |   | 17,908  |   |  |   | 17,908  | 
|Depreciation and
amortization    |  |             | 15,849  |           |  |               | 180    |       |  |        | 1,002  |  |  |   | 4,163   |   |  |   | 21,194  | 
|Segment profit (loss)            |  |             | 25,426  |           |  |               | 18,329 |       |  |        | 7,901  |  |  |   | (49,489 | ) |  |   | 2,167   | 
|Segment assets                   |  |             | 118,480 |           |  |               | 5,459  |       |  |        | 12,378 |  |  |   | 62,367  |   |  |   | 198,684 | 
|Goodwill                         |  |             | 14,037  |           |  |               | 12,998 |       |  |        |       |  |  |   |        |   |  |   | 27,035  | 
|Expenditures for
segment assets  |  |             | 12,572  |           |  |               |       |       |  |        | 389    |  |  |   | 615     |   |  |   | 13,576  | 

|                                 |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         |  
|-------------------------------- |  | ----------- | ------- | --------- |  | ------------- | ------ | ----- |  | ------ | ------ |  |  | - | ------- | - |  | - | ------- | -
|2001:                            |  | Restaurants |         | Franchise |  | Manufacturing |        | Other |  | Totals
|                                 |  |             |         |           |  |               |        |       |  |       
|Revenues from
external customers |  | $           | 273,512 |           |  | $             | 22,260 |       |  | $      | 33,342 |  |  | $ | 1,390   |   |  | $ | 330,504 |  
|Intersegment revenues            |  |             |        |           |  |               |       |       |  |        | 9,514  |  |  |   |        |   |  |   | 9,514   |  
|Interest expense, net            |  |             |        |           |  |               |       |       |  |        |       |  |  |   | 18,197  |   |  |   | 18,197  |  
|Depreciation and
amortization    |  |             | 16,036  |           |  |               | 225    |       |  |        | 959    |  |  |   | 6,222   |   |  |   | 23,442  |  
|Segment profit (loss)            |  |             | 21,956  |           |  |               | 18,515 |       |  |        | 7,803  |  |  |   | (48,970 | ) |  |   | (696    | )
|Segment assets                   |  |             | 130,517 |           |  |               | 5,579  |       |  |        | 11,838 |  |  |   | 63,030  |   |  |   | 210,964 |  
|Goodwill                         |  |             | 14,037  |           |  |               | 12,998 |       |  |        |       |  |  |   |        |   |  |   | 27,035  |  
|Expenditures for
segment assets  |  |             | 26,233  |           |  |               |       |       |  |        | 821    |  |  |   | 625     |   |  |   | 27,679  |  

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|                                 |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         | 
|-------------------------------- |  | ----------- | ------- | --------- |  | ------------- | ------ | ----- |  | ------ | ------ |  |  | - | ------- | - |  | - | ------- | 
|2000:                            |  | Restaurants |         | Franchise |  | Manufacturing |        | Other |  | Totals
|                                 |  |             |         |           |  |               |        |       |  |       
|Revenues from
external customers |  | $           | 280,499 |           |  | $             | 22,618 |       |  | $      | 32,546 |  |  | $ | 581     |   |  | $ | 336,244 | 
|Intersegment revenues            |  |             |        |           |  |               |       |       |  |        | 10,064 |  |  |   |        |   |  |   | 10,064  | 
|Interest expense, net            |  |             |        |           |  |               |       |       |  |        |       |  |  |   | 18,106  |   |  |   | 18,106  | 
|Depreciation and
amortization    |  |             | 15,522  |           |  |               | 236    |       |  |        | 918    |  |  |   | 6,114   |   |  |   | 22,790  | 
|Segment profit (loss)            |  |             | 29,494  |           |  |               | 19,120 |       |  |        | 7,189  |  |  |   | (51,769 | ) |  |   | 4,034   | 
|Segment assets                   |  |             | 124,662 |           |  |               | 7,751  |       |  |        | 12,628 |  |  |   | 65,471  |   |  |   | 210,512 | 
|Goodwill                         |  |             | 14,664  |           |  |               | 13,663 |       |  |        |       |  |  |   |        |   |  |   | 28,327  | 
|Expenditures for
segment assets  |  |             | 28,203  |           |  |               |       |       |  |        | 633    |  |  |   | 999     |   |  |   | 29,835  | 

We evaluate the performance of our segments based primarily on operating profit
before corporate general and administrative expenses, interest expense,
amortization of goodwill and income taxes.

Assets not allocated to specific operating segments primarily include cash,
corporate accounts receivable, deferred taxes and goodwill.

A reconciliation of other segment loss is as follows (in thousands):

|                                                        |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                        |  | 2002 |        | 2001 |  | 2000
|                                                        |  |      |        |      |  |     
|General and administrative expenses                     |  | $    | 25,800 |      |  | $    | 26,317 |   |  | $ | 25,913 |  
|Depreciation and amortization expenses                  |  |      | 4,163  |      |  |      | 6,222  |   |  |   | 6,114  |  
|Interest expense                                        |  |      | 17,908 |      |  |      | 18,197 |   |  |   | 18,106 |  
|Asset write-down                                        |  |      | 2,666  |      |  |      | 1,467  |   |  |   | 1,537  |  
|Provision for (Benefit from) disposition of assets, net |  |      | (493   | )    |  |      | (1,093 | ) |  |   | 10     |  
|Provision for (Benefit from) income taxes               |  |      | (179   | )    |  |      | (907   | ) |  |   | 1,884  |  
|Other                                                   |  |      | (376   | )    |  |      | (1,233 | ) |  |   | (1,795 | )
|                                                        |  |      |        |      |  |      |        |   |  |   |        |  
|                                                        |  | $    | 49,489 |      |  | $    | 48,970 |   |  | $ | 51,769 |  
|                                                        |  |      |        |      |  |      |        |   |  |   |        |  

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(16)  ACQUIRED RESTAURANT OPERATIONS:

Prior to December 3, 2001, we leased or subleased eight restaurant properties
to a franchisee in Denver, Colorado. The franchisee operated an additional
three restaurants leased from unrelated third parties. In the third quarter of
2001, the franchisee was in default under the franchise license agreements on
its eleven properties and in default under its leases with us. Two of the
restaurants leased from third parties and one of the properties owned by us
were closed subsequent to the end of the third quarter. We earned royalty
revenues from this franchisee totaling $575,000, $653,000 and $629,000 for
2001, 2000 and 1999, respectively. Additionally, we earned lease and sublease
income from the eight properties it controlled totaling $591,000, $660,000 and
$770,000 for 2001, 2000 and 1999, respectively.

On December 3, 2001, we terminated our leases on the eight restaurants leased
or subleased to the franchisee, assumed the lease on one restaurant leased from
a third party, and terminated our license agreements on all eleven properties.
We also acquired the furniture, fixtures, equipment and operations of eight of
the restaurants and continued to operate them as Perkins restaurants. One of
the restaurants was subsequently closed in January 2002. All amounts owed to
us as of December 3, 2001 under our license and lease agreements were deducted
from the purchase price of the restaurants. The total purchase price for this
transaction was $3,000,000, and resulted in goodwill of $670,000.

On October 25, 2001, we acquired the furniture, fixtures, equipment and
operations of a restaurant from a franchisee. The total purchase price was
$550,000.

During 2000, we acquired the operations of five restaurants from franchisees.
Furniture, fixtures and equipment were acquired for each restaurant property.
In addition, we acquired the land and building at two of the locations and
assumed leases on the remaining three. The total purchase price for these
transactions was $6,158,000, and resulted in goodwill of $2,765,000.

(17)  RESTAURANT DISPOSITIONS:

During 2002, we recorded a net gain of $493,000 related to the disposition of
assets. This amount includes a $920,000 net gain related to the sale of six
restaurant properties during the year and $280,000 of estimated exit costs
associated with the Sage Hen properties.

During 2001, we recorded a net gain of $1,093,000 related to the disposition of
assets. This amount includes a loss of $132,000 related to discontinued
development of certain sites and a net gain of $1,225,000 related to the sale
of seven properties, five of which were Company-operated restaurants sold to a
franchisee.

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RESPONSIBILITY FOR FINANCIAL STATEMENTS

Our management is responsible for the preparation, accuracy and integrity of
the financial statements.

These statements have been prepared in accordance with accounting principles
generally accepted in the United States consistently applied, in all material
respects, and reflect estimates and judgments by management where necessary.

We maintain a system of internal accounting control that is adequate to provide
reasonable assurance that transactions are executed and recorded in accordance
with managements authorization and that assets are safeguarded. The Board of
Directors reviews the adequacy of our internal accounting controls.

PricewaterhouseCoopers LLP, independent public accountants, performs a separate
independent audit of the financial statements. This includes an assessment of
selected internal accounting controls to determine the nature, timing and
extent of audit tests and other procedures they deem necessary to express an
opinion on the fairness of the financial statements.

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Report of Independent Accountants

To the Restaurant Company:

In our opinion, the accompanying consolidated balance sheet as of December 29, 2002 and the
related consolidated statements of income, of changes in capital and of cash flows present
fairly, in all material respects, the financial position of The Restaurant
Company (the Company) at December 29, 2002, and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. The Companys consolidated financial statements as of
December 30, 2001, and for each of the two years in the period ended December
30, 2001, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report dated March 26, 2002.

As discussed in Notes 2 and 6 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, in 2002.

PricewaterhouseCoopers LLP /s/

Memphis, TN
March 20, 2003

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Report of Independent Public Accountants

To The Restaurant Company:

We have audited the accompanying consolidated balance sheets of The Restaurant
Company (a Delaware corporation) and subsidiaries as of December 30, 2001 and
December 31, 2000, and the related consolidated statements of operations,
stockholders investment and cash flows for the years ended December 30, 2001,
December 31, 2000 and December 31, 1999. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Restaurant
Company and subsidiaries as of December 30, 2001 and December 31, 2000, and the
results of its operations and its cash flows for the years ended December 30,
2001, December 31, 2000 and December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

Arthur Andersen LLP

Memphis, Tennessee,
March 26, 2002.

This is a copy of the audit report previously issued by Arthur Andersen
LLP in connection with The Restaurant Company filing on Form 10-K for the year
ended December 30, 2001. This audit report has not been reissued by Arthur
Andersen LLP in connection with this filing on Form 10-K.

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THE RESTAURANT COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
(In Thousands)

|            |  |          |         |     |  |              |        |            |  |   |        |  
|----------- |  | -------- | ------- | --- |  | ------------ | ------ | ---------- |  | - | ------ | -
|            |  |          |         |     |  | Gross Profit |        | Net Income
|2002 (b)    |  | Revenues |         | (a) |  | (Loss)      
|            |  |          |         |     |  |             
|1st Quarter |  | $        | 105,012 |     |  | $            | 22,264 |            |  | $ | 629    |  
|2nd Quarter |  |          | 78,088  |     |  |              | 17,718 |            |  |   | 850    |  
|3rd Quarter |  |          | 78,205  |     |  |              | 17,808 |            |  |   | 1,692  |  
|4th Quarter |  |          | 77,853  |     |  |              | 15,582 |            |  |   | (1,004 | )
|            |  |          |         |     |  |              |        |            |  |   |        |  
|            |  | $        | 339,158 |     |  | $            | 73,372 |            |  | $ | 2,167  |  
|            |  |          |         |     |  |              |        |            |  |   |        |  

|            |  |          |         |     |  |              |            |  |  |   |        |  
|----------- |  | -------- | ------- | --- |  | ------------ | ---------- |  |  | - | ------ | -
|            |  |          |         |     |  | Gross Profit | Net Income
|2001 (b)    |  | Revenues |         | (a) |  | (Loss)      
|            |  |          |         |     |  |             
|1st Quarter |  | $        | 100,567 |     |  | $            | 22,299     |  |  | $ | 151    |  
|2nd Quarter |  |          | 76,384  |     |  |              | 16,721     |  |  |   | 558    |  
|3rd Quarter |  |          | 76,078  |     |  |              | 16,319     |  |  |   | 695    |  
|4th Quarter |  |          | 77,475  |     |  |              | 14,877     |  |  |   | (2,100 | )
|            |  |          |         |     |  |              |            |  |  |   |        |  
|            |  | $        | 330,504 |     |  | $            | 70,216     |  |  | $ | (696   | )
|            |  |          |         |     |  |              |            |  |  |   |        |  

(a)  Represents total revenues less cost of sales.

(b)  Effective January 1, 2001, we converted our financial reporting from a
calendar year basis to thirteen four-week periods ending on the last
Sunday in December. The first quarter includes four four-week periods. The
second, third and fourth quarters include three four-week periods.

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

A report on Form 8-K was filed under item 4 on May 9, 2002, announcing
the dismissal of Arthur Andersen LLP as our independent auditors and the
engagement of PricewaterhouseCoopers LLP as our new independent
auditors.




PART III




Item 10. Directors and Executive Officers of the Registrant.

The following individuals are currently serving as directors and executive
officers of TRC:

|                     |  |     |    |                   |  |                                                               
|-------------------- |  | --- | -- | ----------------- |  | --------------------------------------------------------------
|Name                 |  | Age |    | Position with TRC
|                     |  |     |    |                  
|Donald N. Smith      |  |     | 62 |                   |  | Chairman of the Board and Chief Executive Officer             
|                     |  |     |    |                   |  |                                                               
|Theresa A. Nibi      |  |     | 37 |                   |  | Director                                                      
|                     |  |     |    |                   |  |                                                               
|Hollis W. Rademacher |  |     | 67 |                   |  | Director                                                      
|                     |  |     |    |                   |  |                                                               
|Don M. McComas       |  |     | 58 |                   |  | President and Chief Operating Officer                         
|                     |  |     |    |                   |  |                                                               
|Michael P. Donahoe   |  |     | 52 |                   |  | Director, Executive Vice President and
Chief Financial Officer
|                     |  |     |    |                   |  |                                                               
|James F. Barrasso    |  |     | 52 |                   |  | Executive Vice President, Foodservice Development             
|                     |  |     |    |                   |  |                                                               
|Michael D. Kelly     |  |     | 56 |                   |  | Executive Vice President, Marketing                           
|                     |  |     |    |                   |  |                                                               
|Jack W. Willingham   |  |     | 57 |                   |  | Executive Vice President, Restaurant Development              
|                     |  |     |    |                   |  |                                                               
|Daniel R. Durick     |  |     | 55 |                   |  | Vice President, Research and Development                      
|                     |  |     |    |                   |  |                                                               
|William S. Forgione  |  |     | 49 |                   |  | Vice President, Human Resources                               
|                     |  |     |    |                   |  |                                                               
|Clyde J. Harrington  |  |     | 44 |                   |  | Vice President, Operations Administration                     
|                     |  |     |    |                   |  |                                                               
|Robert J. Winters    |  |     | 51 |                   |  | Vice President, Franchise Development                         

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Donald N. Smith

Donald N. Smith has been the Chairman of the Board and Chief Executive Officer
of TRC since our organization in November 1985 and has been Chairman of the
Board and Chief Executive Officer of RHC since its organization in December
1999. Mr. Smith has been Chief Operating Officer of TRC since September 1998
and was previously the Chief Operating Officer from November 1985 through
November 1988. Mr. Smith has also served as Director of TRC Realty LLC since
December 1999. In August 2000, Mr. Smith was elected a Director and President
of TRCM. Mr. Smith also has been the Chairman of the Board of FICC since
September 1988 and was Chief Executive Officer of FICC from September 1998 to
February 2003.

Theresa A. Nibi

Theresa A. Nibi was elected a Director of TRC and RHC in October 2001. She is
a Managing Director of BancBoston Investments, Inc. and its affiliates where
she has been employed since 1989.

Hollis W. Rademacher

Hollis W. Rademacher was elected a Director of TRC and RHC in June 2000. For
more than the past five years Mr. Rademacher has been a Principal of Hollis W.
Rademacher & Company, a private consulting and investment company. Mr.
Rademacher also serves on the Boards of Directors of Wintrust Financial
Corporation, Schawk, Inc., Harkers Distribution, Inc., Continental Glass &
Plastics Company, Willis Stein & Partners, LLC, Jupiter Industries, Inc. and
Aurum Technology, Inc. among several other privately held companies.

Don M. McComas

Don M. McComas has been President and Chief Operating Officer of TRC since
November 2002. Since that date, he has also served as Vice President and Chief
Operating Officer of TRCM. Prior to joining TRC, Mr. McComas held the
following positions: President and Chief Executive Officer of Los Amigos
Restaurants, Inc., from 1996 to 2002; President and Chief Executive Officer of
Summit Family Restaurants, Inc., from 1994 to 1996; President and Chief
Operating Officer of El Torito Restaurants, Inc., from 1992 to 1994; and
President and Chief Executive Officer of Carrows Restaurants, Inc., from 1988
to 1992.

Michael P. Donahoe

Michael P. Donahoe has been Director, Executive Vice President and Chief
Financial Officer of TRC and RHC since September 2002. Since that date, he has
also been Vice President and Treasurer of TRC Realty, LLC; Director, Vice
President and Treasurer of TRCM; and Director, Vice President and Treasurer of
Perkins Finance Corporation. Prior to joining TRC, Mr. Donahoe was Senior Vice
President and Chief Financial Officer of Shoneys Restaurant Division, from
2000 to 2002 and Senior Vice President, Finance of Cracker Barrel Old Country
Store, from 1999 to 2000. Mr. Donahoe also served in various senior financial
positions within TRC, Perkins Restaurants, Inc., Perkins Management Company,
Inc. and Friendly Holding Company from 1986 through 1999.

James F. Barrasso

James F. Barrasso has been Executive Vice President, Foodservice Development of
TRC since February 1999. For more than two years prior, he was Vice President,
Foodservice Development for TRC. Mr. Barrasso has served in various executive
positions with TRC since September 1983.

52



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Michael D. Kelly

Michael D. Kelly has been Executive Vice President, Marketing of TRC since
March 1993.

Jack W. Willingham

Jack W. Willingham has been Executive Vice President, Restaurant Development of
TRC since April 1994. Mr. Willingham served as Vice President, Corporate
Development from July 1991 to April 1994.

Daniel R. Durick

Daniel R. Durick was elected Vice President, Research and Development of TRC in
July 2001. From June 1989 to July 2001 Mr. Durick served as President of
Emerging Food Technologies, L.C.

William S. Forgione

William S. Forgione has been Vice President, Human Resources of TRC since
August 1997. For more than one year prior, he was Vice President, Human
Resources of College Affiliated Medical Practice Group.

Clyde J. Harrington

Clyde J. Harrington has been Vice President, Operations Administration of TRC
since September 1996.

Robert J. Winters

Robert J. Winters has been Vice President, Franchise Development of TRC since
October 1996.

53



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##### Table of Contents






Item 11. Executive Compensation.

The following table summarizes all compensation paid or accrued for services
rendered to the Company in all capacities during each of the three years in the
period ended December 30, 2002 with respect to the Chief Executive Officer and
the four most highly compensated executive officers whose total annual salary
and bonus exceeded $100,000.

|                       |                          |      |                     |        |              |       |         |         |  |        |         |         |  |   |           |         |         |   |           |         |    |  
|---------------------- | ------------------------ | ---- | ------------------- | ------ | ------------ | ----- | ------- | ------- |  | ------ | ------- | ------- |  | - | --------- | ------- | ------- | - | --------- | ------- | -- | -
|                       |                          |      |                     |        |              |       |         |         |  |        |         |         |  |   | Long-Term |        
|                       |                          |      | Annual Compensation |        | Compensation |      
|                       |                          |      |                     |        |              |      
|                       |                          |      |                     |        |              |       |         |         |  |        |         |         |  |   |           |         |         |   | All Other |        
|                       |                          |      |                     |        |              |       |         |         |  |        |         |         |  |   | LTIP      |         | Compen- |  
|Principal Position     |                          | Year |                     | Salary |              | Bonus |         | Payouts |  | sation |        
|                       |                          |      |                     |        |              |       |         |         |  |        |        
|Donald N. Smith        |                          |      | 2002                |        |              | $     | 525,795 |         |  | $      | 225,615 |         |  |   |          |         |         |   |          |         |   
|                       | Chairman & Chief         |      |                     | 2001   |              |       |         | 505,480 |  |        |         | 237,988 |  |   |           |        |         |   |           |        |    |  
|                       | Executive Officer        |      |                     | 2000   |              |       |         | 472,305 |  |        |         | 518,063 |  |   |           |        |         |   |           |        |    |  
|Michael D. Kelly       |                          |      | 2002                |        |              | $     | 230,558 |         |  | $      | 0       |         |  | $ | 0         |         |         | $ | 6,000     | (1      | ) 
|                       | Exec. Vice President,    |      |                     | 2001   |              |       |         | 222,772 |  |        |         | 0       |  |   |           | 0       |         |   |           | 5,200   | (1 | )
|                       | Marketing                |      |                     | 2000   |              |       |         | 208,249 |  |        |         | 49,800  |  |   |           | 100,942 |         |   |           | 5,200   | (1 | )
|James Barrasso         |                          |      | 2002                |        |              | $     | 216,035 |         |  | $      | 20,000  |         |  | $ | 0         |         |         | $ | 6,000     | (1      | ) 
|                       | Exec. Vice President,    |      |                     | 2001   |              |       |         | 207,174 |  |        |         | 0       |  |   |           | 0       |         |   |           | 5,200   | (1 | )
|                       | Food Service Development |      |                     | 2000   |              |       |         | 175,580 |  |        |         | 44,700  |  |   |           | 69,866  |         |   |           | 5,200   | (1 | )
|Steven R. McClellan(3) |                          |      | 2002                |        |              | $     | 218,723 |         |  | $      | 0       |         |  | $ | 0         |         |         | $ | 5,481     | (1      | ) 
|                       | Exec. Vice President &   |      |                     | 2001   |              |       |         | 271,498 |  |        |         | 0       |  |   |           | 0       |         |   |           | 5,200   | (1 | )
|                       | Chief Financial Officer  |      |                     | 2000   |              |       |         | 252,128 |  |        |         | 63,800  |  |   |           | 100,700 |         |   |           | 5,200   | (1 | )
|Jack W. Willingham     |                          |      | 2002                |        |              | $     | 212,242 |         |  | $      | 0       |         |  | $ | 0         |         |         | $ | 128,500   | (2      | ) 
|                       | Exec. Vice President,    |      |                     | 2001   |              |       |         | 207,410 |  |        |         | 0       |  |   |           | 0       |         |   |           | 127,700 | (2 | )
|                       | Restaurant Development   |      |                     | 2000   |              |       |         | 194,930 |  |        |         | 47,400  |  |   |           | 92,877  |         |   |           | 46,033  | (2 | )



---

|(1) |  | Includes Perkins matching contributions allocated to the named executive
officers under the Perkins Retirement Savings Plan and the Deferred
Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Mr. Willingham is eligible for benefits payable annually after retirement
through a supplemental defined contribution retirement plan agreement
between the Company and Mr. Willingham. The total amount available to be
contributed to such plan on his behalf each year is $122,500. $40,833 is
guaranteed with the remaining $81,667 being discretionary subject to Mr.
Willingham meeting specific performance goals set by Mr. Smith. The
contribution on Mr. Willinghams behalf was $122,500, $122,500 and $40,833
for fiscal 2002, 2001 and 2000, respectively. In addition, Mr. Willingham
received matching contributions to the Perkins Retirement Savings Plan and
Deferred Compensation Plan of $6,000 in 2002 and $5,200 in 2001 and 2000.
|   
|(3) |  | Mr. McClellan is no longer employed by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

54



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Compensation of Directors.

Hollis W. Rademacher is paid $2,500 for each Board Meeting of TRC he attends.
Mr. Rademacher was paid for four meetings of the board in 2002. No other
Directors are compensated for their services as such.




Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

(a)  Security ownership of certain beneficial owners.

The following table sets forth the number of shares beneficially owned
indirectly on March 27, 2003 by BancBoston Ventures, Inc.

|               |  |                          |  |           |       |            |  |         |      |   |  | 
|-------------- |  | ------------------------ |  | --------- | ----- | ---------- |  | ------- | ---- | - |  | 
|               |  |                          |  |           |       | Amount and |  |         |      |  
|               |  |                          |  |           |       | Nature of  |  |         |      |  
|               |  |                          |  |           |       | Beneficial |  | Percent
|Title of Class |  | Name of Beneficial Owner |  | Ownership |       | of Class  
|               |  |                          |  |           |       |           
|Common Stock   |  | BancBoston Ventures, Inc |  |           | 2,267 | (1)        |  |         | 21.0 | %
|               |  | 100 Federal Street       |  |           |       |            |  |         |      |  
|               |  | Boston, MA   02110       |  |           |       |            |  |         |      |  

(1)  Owned indirectly through BancBoston Ventures, Inc.s ownership of RHC, the
sole shareholder of TRC.

(b)  Security ownership of management.

The following table sets forth the number of shares beneficially owned either
directly or indirectly on March 27, 2003 by all directors and the executive
officers named in the Executive Compensation Table above, including all
directors and officers as a group:

|               |  |                          |  |            |  |          |      |  
|-------------- |  | ------------------------ |  | ---------- |  | -------- | ---- | -
|               |  |                          |  | Amount and |  | Percent 
|               |  |                          |  | Nature of  |  | of Class
|               |  |                          |  | Beneficial |  | (* less 
|Title of Class |  | Name of Beneficial Owner |  | Ownership  |  | than 1%)
|               |  |                          |  |            |  |         
|Common Stock   |  | Donald N. Smith          |  | 7,574 (1)  |  |          | 70.0 | %
|              |  | Theresa A. Nibi          |  | 2,267 (2)  |  |          | 21.0 | %
|              |  | Hollis W. Rademacher     |  | 5 (3)      |  |          | *    |  



---

|(1) |  | Beneficially owned by Mr. Smith through two family trusts owning
seventy percent of the common stock of RHC, the sole shareholder of TRC.              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Owned indirectly by BancBoston Ventures, Inc. indirectly through its
ownership of RHC. Ms. Nibi is an officer and director of BancBoston
Ventures, Inc.
|   
|(3) |  | Owned indirectly through RHC.                                                                                                                          

55



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##### Table of Contents



(c)  Securities Authorized for Issuance Under Equity Compensation Plans.

TRC has no equity compensation plans.




Item 13. Certain Relationships and Related Transactions.

(a)  Transactions with Management and Others.

During 2002 and 2001, FICC purchased certain food products from Foxtail for
which we were paid approximately $463,000 and $618,000, respectively. We
believe that the prices paid to us for these products were no less favorable
than the prices that would have been paid for the same products by a
non-affiliated party in an arms length transaction.

FICC leases and formerly subleased certain land, buildings and equipment from
us. During 2002 and 2001, lease and sublease income was $79,000 and $254,000,
respectively. Our obligations under two leases were terminated and the
underlying leases were assumed by FICC during 2001. We believe that the terms
of the one remaining lease are no less favorable to us than could be obtained
if the transaction was entered into with an unaffiliated third party.

TRC Realty LLC leases an aircraft for use by both FICC and TRC. The operating
lease expires in November 2009. We currently share the cost with FICC of TRC
Realty LLCs generally fixed expenses. In addition, FICC and TRC incur actual
variable usage costs. Total expense reimbursed by FICC for the fiscal years
2002 and 2001 was $448,000 and $595,000, respectively.

(b)  Indebtedness of Management.

We had a revolving loan agreement with Mr. Smith, the terms of which were
modified during 2000. As a result, $626,000 of Mr. Smiths obligation,
representing accrued interest on the original principal amount, was
constructively forgiven effective August 22, 2000 through a dividend to RHC and
subsequent dividend by RHC to Mr. Smith. The remaining balance of $133,000
was paid on June 30, 2002.

In June 2000, James F. Barrasso, Executive Vice President, Foodservice
Development, borrowed $65,000 from us with interest at the prime rate. In
December 2002, Mr. Barrasso paid $6,000 of principal on the outstanding loan
balance. At December 29, 2002, the outstanding principal balance was $59,000.

In July 2001, Clyde J. Harrington, Vice President, Operations Administration,
borrowed $60,000 from us with interest at the prime rate. In April 2002, Mr.
Harrington borrowed an additional $25,000 from us with interest at the prime
rate. At December 29, 2002, the outstanding principal balance was $85,000.




Item 14. Controls and Procedures.

Based on their evaluation as of a date within 90 days of the filing date of
this Form 10-K, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in rule
13a-14(c) under the Securities Act of 1934, as amended) are effective. There
have been no significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation, including any corrective action with regard to significant
deficiencies and material weaknesses.

56



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PART IV




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

(a)  1. Financial Statements (including related Notes to Financial
Statements) filed as part of this report are listed below:

| |  |                                                                                                                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | Report of Independent Public Accountants.                                                                                                   
| |  | Consolidated Statements of Operations for the Years Ended December 29,
2002, December 30, 2001 and December 31, 2000.                       
| |  | Consolidated Balance Sheets at December 29, 2002 and
December 30, 2001.                                                                     
| |  | Consolidated Statements of Stockholders Investment for the Years Ended
December 29, 2002, December 30, 2001 and December 31,
2000.         
| |  | Consolidated Statements of Cash Flows for the Years Ended December 29,
2002, December 30, 2001 and December 31, 2000.                       
|
| |  | 2.  The following Financial Statement Schedules for the years
ended December 29, 2002, December 30, 2001 and December 31, 2000 are
included:
| |  |                                                                                                                                             
| |  | No.                                                                                                                                         
| |  |                                                                                                                                             
| |  | Report of Independent Public Accountants on Schedule.                                                                                       
| |  | II.    Valuation and Qualifying Accounts.                                                                                                   

Schedules I, III, IV and V are not applicable and have therefore been omitted.

3.     Exhibits:

|            |  |                                                                                                                                                                                                                                                                                                                  
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                  
|3.1         |  | Certificate of Incorporation of The Restaurant Company. (Filed as Exhibit 3.1 to The Restaurant Companys Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                        
|           
|3.2         |  | By-Laws of The Restaurant Company. (Filed as Exhibit 3.2 to The Restaurant Companys Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                             
|           
|3.3         |  | Amendment to Certificate of Incorporation of RHC. (Filed as Exhibit 3 to The Restaurant Companys report on Form 8-K on January 3, 2000)                                                                                                                                                                         
|           
|4.1         |  | Indenture dated as of May 18, 1998 among
the Issuer and the Trustee named therein. (Filed as Exhibit 4.1 to The Restaurant Companys Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                             
|           
|4.2         |  | Form of 11 1/4% Series B Senior Discount
Notes due 2008 (included in Exhibit 4.1). (Filed as Exhibit 4.2 to The Restaurant Companys Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                             
|           
|4.3         |  | Joinder and Amendment No. 2 dated as of
December 22, 1999 to Credit Agreement dated as of December
22, 1997. (Filed as Exhibit 4 to The Restaurant Companys report on Form 8-K on January 3, 2000)                                                                                                              
|           
|10.1        |  | Guaranty by Perkins Restaurant and Bakery,
L.P. and Perkins Restaurant and Bakery Operating Company,
L.P. in favor of BancBoston Leasing, Inc. dated as of May 1,
1994. (Filed as Exhibit 10.1 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)

57



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.2        |  | Guaranty dated July 5, 1995 among Perkins
Restaurants Operating Company, L.P. and BancBoston Leasing,
Inc. (Filed as Exhibit 10.2 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                                                                                                                                             
|           
|10.3        |  | Revolving Credit Agreement, by and among
Perkins Restaurant and Bakery, L.P., The Restaurant Company,
Perkins Restaurants, Inc., Perkins Finance Corp.,
BankBoston, N.A. and other financial institutions and
BankBoston N.A., as Agent and Administrative Agent with
NationsBank, N.A. as Syndication Agent and BancBoston
Securities, Inc. as Arranger dated as of December 22, 1997. (Filed as Exhibit 10.3 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)
|           
|10.4        |  | Registration Rights Agreement dated as of May
18, 1998 among the Issuer and the Initial Purchasers named
therein. (Filed as Exhibit 10.4 to The Restaurant Companys Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                                                                                                                                                             
|           
|10.5        |  | 10 1/8% Senior Notes Indenture dated as of
December 22, 1997 among Perkins Restaurant and Bakery, L.P.,
Perkins Finance Corp. and the Trustee named therein. (Filed as Exhibit 10.5 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                                                                                           
|           
|10.6        |  | Form of 10 1/8% Senior Notes due 2007 (included in Exhibit 10.5). (Filed as Exhibit 10.6 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                                                                                                                                                                                      
|           
|10.7(a)     |  | Lease agreement between TRC Realty LLC and General
Electric Capital Corporation dated November 9, 1999 for an
aircraft and related guaranty. (Filed as Exhibit 10.1 to The Restaurant Companys 1999 Third Quarter Report on Form 10-Q)                                                                                                                                                                                                                                                                                          
|           
|10.8        |  | Reimbursement Agreement between TRC Realty
LLC and Friendly Ice Cream Corporation for use of a leased
plane. (Filed as Exhibit 10.8 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                                                                                                                                           
|           
|10.9        |  | Revolving Loan Note made by Donald N. Smith
payable to the order of The Restaurant Company dated July
20, 1998, providing for a loan of up to $1,500,000. (Filed as Exhibit 10.9 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                                                                                              
|           
|10.10       |  | Amendment No. 4 to Revolving Credit
Agreement, by and among The Restaurant Company, Fleet
National Bank and other lending institutions, Fleet National
Bank as agent and administrative agent and Bank of America,
N.A. as syndication agent. (Filed as Exhibit 10.10 to The Restaurant Companys 2001 Third Quarter Report on Form 10-Q)                                                                                                                                                                                        
|           
|10.11       |  | First Amendment to Lease Agreement between
Crescent Forum Partnership, an Arkansas general partnership
and The Restaurant Company.*                                                                                                                                                                                                                                                                                                                                                                                              
|           
|21          |  | Subsidiaries of the Registrant. (Filed as Exhibit 21 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                                                                                                                                                                                                                          
|           
|24          |  | Power of Attorney (Included on Page 11-12). (Filed as Exhibit 24 to The Restaurant Companys Amendment No. 1 to the Registration Statement on Form S-4, Registration No. 333-57925)                                                                                                                                                                                                                                                                                                                                              
|           
|99.1        |  | Stockholders Agreement dated as of December 22, 1999, among RHC, BBV
and DNS. (Filed as Exhibit 99 to The Restaurant Companys report on Form 8-K filed on January 3, 2000)                                                                                                                                                                                                                                                                                                                                                     
|           
|99.2        |  | Letter of Registrant pursuant to Temporary
Note 3T to Article 3 of Regulation S-X. (Filed as Exhibit 99.2 to The Restaurant Companys 2001 Annual Report on Form 10-K)                                                                                                                                                                                                                                                                                                                                                           



---

|* | Filed herewith.
|- | ---------------

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(b)  Reports on Form 8-K.

No reports on Form 8-K were filed by The Restaurant Company during the
fourth quarter of 2002.

[Intentionally Left Blank]

59



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##### Table of Contents



Trademark Notice.

The following trademarks are used in this report to identify products and
services of The Restaurant Company: Perkins, Perkins Family Restaurant, Perkins
Restaurant and Bakery, Perkins Family Restaurant and Bakery and Perkins Bakery.

[Intentionally Left Blank]

60



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on our
behalf by the undersigned thereunto duly authorized, on this the 27th day of
March 2003.

THE RESTAURANT COMPANYBy:/s/ Donald N. SmithChief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on this the 27th day of March 2003.

|                                               |  |                                                                                                         
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------------------
|Signature                                      |  | Title                                                                                                   
|/s/ Donald N. Smith

Donald N. Smith           |  | Chairman of the Board, Chief Executive Officer
(Principal Executive Officer)                            
|                                               |  |                                                                                                         
|/s/ Theresa A. Nibi

Theresa A. Nibi           |  | Director                                                                                                
|                                               |  |                                                                                                         
|/s/ Hollis W. Rademacher

Hollis W. Rademacher |  | Director                                                                                                
|                                               |  |                                                                                                         
|/s/ Michael P. Donahoe

Michael P. Donahoe     |  | Director, Executive Vice President, Chief Financial
Officer (Principal Financial and Accounting Officer)

61



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##### Table of Contents






CERTIFICATIONS

I, Donald N. Smith, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of The Restaurant
Company.                                                                                                                                                                                                                                            
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report.
|
| | 3. |  | Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.                  
|
| | 4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        
|

| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the registrants board of directors:
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        
|

| | 6. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 27, 2003

| |                        
| | -----------------------
| | /s/ Donald N. Smith    
| |                        
| | Chief Executive Officer

62



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##### Table of Contents



I, Michael P. Donahoe, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of The Restaurant
Company.                                                                                                                                                                                                                                            
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report.
|
| | 3. |  | Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.                  
|
| | 4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                
|

| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        
|

| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the registrants board of directors:
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        
|

| | 6. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 27, 2003

| |                        
| | -----------------------
| | /s/ Michael P. Donahoe 
| |                        
| | Chief Financial Officer

63



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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To the Restaurant Company:

Our audit of the consolidated financial statements referred to in our report
dated March 20, 2003 included in this Form 10-K of The Restaurant Company and
subsidiaries also included an audit of the financial statement schedule listed
in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

PricewaterhouseCoopers LLP
Memphis, TN
March 20, 2003

64



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##### Table of Contents



SCHEDULE II

THE RESTAURANT COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |       | 
|----------------------------------- | ------------------------------- | -------- | ------------ | -------- | ---------- | -------- | --------- | -------- | ---------- | - | - | -------- |  | --------- | -------- | ---- | - | --- |  |  |  | - | --- | ----- | 
|Column A                            |                                 | Column B |              | Column C |            | Column D |           |          |            |   |   | Column E
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |         
|                                    |                                 |          |              |          |            |          | Additions |          |            |   |   |          |  |           |          |      |   |     | 
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     | 
|                                    |                                 |          | Balance at   |          | Charged    |          | Charged   |          | Deductions |   |   |          |  |           | Balance 
|                                    |                                 |          | Beginning of |          | to Costs & |          | to Other  |          | from       |   |   |          |  |           | at Close
|Description                         |                                 | Period   |              | Expenses |            | Accounts |           | Reserves |            |   |   |          |  | of Period
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |          
|FISCAL YEAR ENDED DECEMBER 29, 2002 |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      
|                                    | Allowance for Doubtful Accounts |          | $            | 1,115    |            |          | $         | 498      |            |   | $ |         |  |           | $        | (439 | ) | (a) |  |  |  |   | $   | 1,174 | 
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      
|Reserve for Disposition of Assets   |                                 | $        | 156          |          |            | $        |          |          |            | $ |  |          |  | $         |         |      |   |     |  |  |  | $ | 156 |      
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      
|FISCAL YEAR ENDED DECEMBER 30, 2001 |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      
|                                    | Allowance for Doubtful Accounts |          | $            | 818      |            |          | $         | 484      |            |   | $ |         |  |           | $        | (187 | ) | (a) |  |  |  |   | $   | 1,115 | 
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      
|Reserve for Disposition of Assets   |                                 | $        | 156          |          |            | $        |          |          |            | $ |  |          |  | $         |         |      |   |     |  |  |  | $ | 156 |      
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      
|FISCAL YEAR ENDED DECEMBER 31, 2000 |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      
|                                    | Allowance for Doubtful Accounts |          | $            | 1,159    |            |          | $         | 469      |            |   | $ |         |  |           | $        | (810 | ) | (a) |  |  |  |   | $   | 818   | 
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      
|Reserve for Disposition of Assets   |                                 | $        | 156          |          |            | $        |          |          |            | $ |  |          |  | $         |         |      |   |     |  |  |  | $ | 156 |      
|                                    |                                 |          |              |          |            |          |           |          |            |   |   |          |  |           |          |      |   |     |  |  |  |   |     |      



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|(a) |  | Represents uncollectible accounts written off, net of recoveries, and net costs associated
with direct financing sublease receivables for which a reserve was established.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

S-1