<PAGE>

                             [PRANDIUM LETTERHEAD]



                                                               November 7, 2001
MacKay Shields Financial Corporation
9 West 57th Street
New York, New York  10019
Attention:  Don E. Morgan, CFA


                           Re: Prandium Restructuring
                               ----------------------

Gentlemen:

          Reference is made (i) to that certain Note Agreement, dated as of
August 12, 1997, by and between FRI-MRD Corporation (the "Company") and each
                                                          -------
Purchaser of the 15% Senior Discount Notes (the "Senior Discount Notes") of the
                                                 ---------------------
Company due January 24, 2002, as amended, and (ii) to that certain Note
Agreement, dated as of June 9, 1998, between the Company and each Purchaser of
the 14% Senior Secured Discount Notes (the "Senior Secured Discount Notes,"
                                            -----------------------------
together with the Senior Discount Notes, the "Notes") of the Company due January
                                              -----
24, 2002, as amended (together, the "Note Agreements").  Capitalized terms used
                                     ---------------
herein and not otherwise defined have the meanings ascribed to them in the Note
Agreements.

          This letter agreement (this "Letter of Intent") confirms our mutual
                                       ----------------
intentions regarding restructuring (the "Restructuring") the capital structure
                                         -------------
of the Company and Prandium, Inc. ("Prandium") for the purpose of restructuring
                                    --------
the indebtedness of the Company to the Majority Holders under the Notes on the
terms set forth on the term sheet attached hereto as Exhibit A (the "Term
                                                                     ----
Sheet"). This Letter of Intent and the Term Sheet set forth the terms of our
-----
mutual understanding and will serve as the basis for definitive agreements
related to the Restructuring (collectively, the "Definitive Agreements") to be
                                                 ---------------------
negotiated in good faith by the parties.

1.   Definitive Agreements.  The parties will in good faith use their best
     ---------------------
     efforts to implement the Restructuring contemplated by the Term Sheet.
     However, each party acknowledges that the terms described on the Term Sheet
     only constitute a statement of our mutual intentions with respect to the
     terms of the Restructuring and acknowledge that the Term Sheet does not
     contain all matters upon which agreement must be reached in order to
     consummate a Restructuring and, therefore, this Letter of Intent and the
     Term Sheet do not constitute a binding commitment with respect to the
     Restructuring itself.

2.   Representations and Warranties.
     ------------------------------
    (a)  MacKay Shields Financial Corporation ("MacKay") represents and warrants
                                                ------
         that it is the representative of a majority of the Purchasers (the
         "Majority Holders") of each of (i) the issued and outstanding Senior
          ----------------
         Discount Notes and (ii) the issued and outstanding Senior Secured
         Discount Notes and that it is agreeing to the matters set forth herein
         on their behalf. Further, MacKay represents and warrants that it (i)
         has the requisite authority to execute and deliver this Letter of
         Intent and to perform its obligations hereunder; (ii) the execution and
         delivery of this Letter of Intent and the performance by it of its
         obligations hereunder have been
<PAGE>

         duly authorized by its governing body, and no other proceedings on its
         part are necessary for the execution and delivery of this Letter of
         Intent and the performance of its obligations provided for herein; and
         (iii) this Letter of Intent has been duly executed and delivered by it,
         and assuming this Letter of Intent is a binding obligation of the other
         parties, this Letter of Intent constitutes a valid and binding
         obligation of it enforceable against it in accordance with its terms.

    (b)  Each of Prandium and the Company represents and warrants, jointly and
         severally, that (i) it has the requisite authority to execute and
         deliver this Letter of Intent and to perform its obligations hereunder;
         (ii) the execution and delivery of this Letter of Intent and the
         performance by it of its obligations hereunder have been duly
         authorized by its governing body, and no other proceedings on its part
         are necessary for the execution and delivery of this Letter of Intent
         and the performance of its obligations provided for herein; and (iii)
         this Letter of Intent has been duly executed and delivered by it, and
         assuming this Letter of Intent is a binding obligation of the other
         parties, this Letter of Intent constitutes a valid and binding
         obligation of it enforceable against it in accordance with its terms.

3.   Standstill Agreement.  MacKay hereby agrees to refrain from taking any
     --------------------
     enforcement action under the Notes or the Note Agreements as long as (i)
     Prandium and the Company are in compliance with the terms of the Letter of
     Intent and Term Sheet, (ii) since the date of this Letter of Intent,
     neither Prandium nor the Company has suffered a material adverse change and
     (iii) other than as specifically contemplated by this Letter of Intent and
     Term Sheet, each of Prandium and the Company are being operated in the
     ordinary course consistent with prior practice.

4.   Confidentiality.  The letter agreement, dated as of February 15, 2001, by
     ---------------
     and among the parties hereto shall remain in full force and effect
     notwithstanding the execution and delivery of this Letter of Intent.

5.   Effect of Agreement.  Each of the parties hereto acknowledges that this
     -------------------
     Letter of Intent specifies our agreement regarding the material terms and
     conditions to our respective obligations to proceed in good faith to
     consummate a restructuring. However, the parties further acknowledge that
     the Term Sheet is an expression of intent only and is not legally binding
     upon any of the parties hereto. Furthermore, the parties agree that the
     implementation of the Hamlet Sale Procedure (as defined in the Term Sheet)
     shall begin immediately upon execution of this Letter of Intent.

6.   Governing Law.  The Note Agreements and the notes are governed by, and
     -------------
     construed in accordance with, the laws of the State of New York.
     Accordingly, the parties to this Letter of Intent hereby acknowledge and
     agree that this Letter of Intent is also governed by New York law.
     Furthermore, in order to avoid any confusion or misunderstanding, each of
     us also agrees that this Letter of Intent may only be amended in writing.

7.   Assignment and Transfer of Notes.  This Agreement shall be binding upon and
     --------------------------------
     inure to the benefit of the parties hereto and their respective successors
     and assigns. Except as provided herein, this Letter of Intent shall not be
     assignable by any party hereto without the prior written consent of the
     other party hereto. On behalf of the Majority Purchasers, MacKay agrees
     that prior to any sale of the Notes to any party other than a Majority
     Purchaser and as a condition thereto, each Majority Purchaser shall cause
     any such

                                       2
<PAGE>

     transferee to agree in writing to be bound by the terms and conditions of
     this Letter of Intent.

8.   Third Party Beneficiaries.  This Letter of Intent is solely for the benefit
     -------------------------
     of the parties hereto and is not intended to create any rights in any third
     parties other than permitted assignees.

9.   Counterparts.  This Letter of Intent may be executed in one or more
     ------------
     counterparts, each of which shall be deemed an original but all of which
     together shall constitute one and the same document.

          If this Letter of Intent accurately reflects our understanding, please
so indicate by signing and returning the enclosed copy.

                                       3
<PAGE>

                         Very truly yours,

                         PRANDIUM, INC.



                         By: /s/ R.T. Trebing, Jr.
                             ----------------------------------
                         Name:  R.T. Trebing, Jr.
                         Title: EVP/CFO



                         FRI-MRD CORPORATION



                         By: /s/ R.T. Trebing, Jr.
                             ---------------------------------
                         Name:  R.T. Trebing, Jr.
                         Title: President



ACCEPTED AND AGREED TO AS
OF THE DATE FIRST WRITTEN ABOVE

MACKAY SHIELDS FINANCIAL CORPORATION



By: /s/ Donald E. Morgan III
    ----------------------------------
Name:  Donald E. Morgan III
Title: Managing Director

                                       4
<PAGE>

                                   Exhibit A                        Confidential


 Proposed Terms and Conditions for Restructuring of FRI-MRD Corporation's $75MM
 ------------------------------------------------------------------------------
15% Senior Discount Notes dated 8/12/97 (the "15% Notes") and $24MM 14%  Senior
-------------------------------------------------------------------------------
Secured Discount Notes dated 6/9/98 (the "14% Secured Notes") in Connection with
--------------------------------------------------------------------------------
                             Prandium Restructuring
                             ----------------------


<TABLE>
<S>                                  <C>
Borrower:                            FRI-MRD Corporation.

Facilities:                          The 15% Notes and the 14% Secured Notes (collectively, the
                                     "Facilities") will be amended and restated to include the terms and
                                     changes outlined herein.  Except as contemplated herein, the
                                     Facilities will remain unchanged. Capitalized terms used herein and
                                     not otherwise defined shall have the meanings ascribed to them in
                                     the Note Agreements.

Final Maturity:                      January 31, 2005.

Interest Rate:                       Interest rate is 12%; no cash interest payments required.

Collateral:                          The 14% Secured Notes will continue to be secured by the existing
                                     collateral (or by any segregated proceeds received by Borrower in
                                     accordance with this term sheet) until the Hamlet Prepayment, after
                                     which time any 14% Secured Notes remaining outstanding will be
                                     unsecured.

                                     The 15% Notes will continue to be unsecured.

Scheduled Amortization:              None.

Call Premium:                        None.

Prepayments:                         Prepayments of the Facilities will be allowed at any time under
                                     terms outlined under Prepayment Discount section below.

Prepayment Discount:                 All prepayments will reduce the remaining principal balance, and
                                     interest accrued thereon, of the Facilities as follows:

                                     From the Closing Date up to and including December 31, 2002, by
                                     133.33% of the actual prepayment amount;

                                     From January 1, 2003 up to and including December 31, 2003, by
                                     117.65% of the actual prepayment amount;

                                     From January 1, 2004 up to and including September 30, 2004, by
                                     111.11% of the actual prepayment amount; and

                                     From October 1, 2004 up to and including January 31, 2005, by
                                     100.00% of the actual prepayment amount.
</TABLE>


                                  Page 1 of 6
<PAGE>

                                   Exhibit A                        Confidential
<TABLE>
<S>                           <C>
Application of Payments       Principal payments and prepayments will be applied pro-rata between
Among Facilities:             the Facilities, except for prepayments from net proceeds from the
                              sale of the stock or substantially all of the assets of The Hamlet
                              Group, Inc. ("Hamlet").  See the section entitled "Hamlet
                              Prepayment" below.

Hamlet Prepayment             Net proceeds from the sale of Hamlet will be applied as a
                              prepayment (the "Hamlet Prepayment"), upon the Closing Date, first
                              to reduce principal under the 14% Secured Notes until paid in full;
                              any excess will be applied to the 15% Notes.  The holders of the
                              Facilities shall consent to a sale of Hamlet prior to the
                              confirmation of the Plan of Reorganization (as defined) provided
                              such sale is consummated in accordance with the terms set forth in
                              this term sheet and on terms otherwise reasonably acceptable to the
                              holders of the Facilities and further provided that any proceeds
                              therefrom received prior to the Closing are segregated by Borrower
                              in accordance with the first paragraph of the section entitled
                              "Segregation of Cash" below.

Sale of Hamlet:               Borrower will market and sell the stock and/or assets of Hamlet in
                              an orderly fashion (the "Hamlet Sale Procedure").  The following
                              performance milestones will be put in place:

                                 1.  Execute an agreement for sale of stock and/or assets of
                                     Hamlet no later than October 31, 2001(or within such longer
                                     time period as MacKay Shields Financial Corporation ("MacKay
                                     Shields") may agree);

                                 2.  Consummate the sale no later than 90 days after the execution
                                     of such agreement (or within such longer time period as MacKay
                                     Shields may agree).

                              Sale of Hamlet may only be for all cash.

                              Failure to meet any milestone will result in a covenant breach.

                              The milestones may be waived in the sole discretion of the holders
                              of a majority of the outstanding indebtedness under each of the
                              Facilities.

                              Proceeds from the sale of Hamlet will be applied as described in
                              the Section entitled "Applications of Payments Among Facilities".

Sale of Anaheim Property:     Borrower will be allowed to sell the contiguous sites at 1751 S.
                              State College Blvd. and 1801 E. Katella Avenue in Anaheim, CA (the
                              "Anaheim Property") and retain 100% of the net proceeds up to $4.3
                              million and 25% of the net proceeds in excess of $4.3 million,
                              subject to the Section entitled "Segregation of Cash". As soon as
                              possible following any such sale, Borrower will use 75% of any net
                              proceeds in excess of $4.3 million to prepay the Facilities in
                              accordance with this term sheet (the "Anaheim Excess Proceeds").
</TABLE>

                                  Page 2 of 6
<PAGE>

                                   Exhibit A                        Confidential
<TABLE>
<S>                       <C>
Accrued Interest:         At the Closing Date, upon compliance with all the terms and
                          conditions set forth in this Term Sheet (including the payment of
                          the Cash Prepayment (as defined below) and the interest accrued
                          thereon), interest calculated with respect to the Facilities prior
                          to the Closing Date will be waived.

Cash Prepayment:          In addition to the Hamlet Prepayment and the payment of any Anaheim
                          Excess Proceeds, at the Closing Date, Borrower will pay to holders
                          of the Facilities $30 million in cash to be applied as a prepayment
                          (the "Cash Prepayment") to principal outstanding under the
                          Facilities in accordance with this term sheet.

Segregation of Cash:      Upon receipt of any net proceeds from the sale of Hamlet, Borrower
                          shall segregate such proceeds received in connection with such sale
                          for the purpose of making the Hamlet Prepayment at the Closing and
                          the 14% Secured Notes shall be collateralized by such segregated
                          proceeds until the Hamlet Prepayment is made.

                          Within three business days of the mutual execution of the letter of
                          intent, Borrower shall segregate $14 million in cash or cash
                          equivalents (the "Initial Segregated Amount") for the purpose of
                          making the Cash Prepayment at the Closing.  As of the date of this
                          term sheet, Borrower has provided approximately $12 million in cash
                          or cash equivalents to Foothill in order to cash collateralize
                          letters of credit outstanding under the Foothill facility.
                          Borrower agrees  to segregate any cash or cash equivalents returned
                          to Borrower by Foothill prior to the Closing (the "Foothill
                          Segregated Amount") for the purpose of making the Cash Prepayment
                          at the Closing. In addition, Borrower agrees to segregate up to $4
                          million of the net proceeds (the "Anaheim Segregated Amount,"
                          together with the Initial Segregated Amount and the Foothill
                          Segregated Amounted, the "Segregated Amount"), received from the
                          sale of the Anaheim Property no later than three business days
                          after the closing of such transaction for the purpose of making the
                          Cash Prepayment at the Closing.  Borrower agrees that it shall not
                          use such Segregated Amount for any purpose other than making the
                          Cash Prepayment.  Borrower agrees to pay to the holders of the
                          Facilities at the Closing Date an aggregate amount of interest in
                          cash calculated at an annual rate of  4.5% on the $30 million Cash
                          Prepayment accruing from the date of filing the Chapter 11 case to
                          the Closing Date.  Borrower shall not allow any person or persons,
                          including the holders of the Facilities, other than Foothill but
                          only to the extent provided under the current Foothill facility) to
                          hold a security interest in the segregated Cash Prepayment.

Financial Covenants:      No change.

Additional Covenants:     The amended and restated Facilities dated as of the Closing Date
                          will contain the following additional covenants:
</TABLE>

                                  Page 3 of 6
<PAGE>

                                   Exhibit A                        Confidential
<TABLE>
<S>                       <C>
                          From and after the Closing, Borrower and its subsidiaries will not
                          incur Indebtedness other than Maximum Permitted Indebtedness.  For
                          the purposes of this term sheet, "Maximum Permitted Indebtedness"
                          means, subject to the Capital Expenditures Limitations set forth
                          below and to any other limitations agreed upon by MacKay Shields
                          and Borrower: (i) Indebtedness evidenced by the Facilities; (ii)
                          Indebtedness under the senior secured credit facility to be entered
                          into with Hilco Capital LP (as it may be amended, restated or
                          replaced, the "Hilco Credit Facility") not to exceed $14 million at
                          any one time; (iii) Indebtedness of Borrower and its subsidiaries
                          outstanding as of April 1, 2001; (iv) Indebtedness relating to
                          insurance premium financing or in respect of workers' compensation
                          claims, in each case as incurred in the ordinary course of
                          business; (v) Indebtedness relating to Borrower's and its
                          subsidiaries' controlled disbursement accounts or in respect of
                          overdrafts of zero balance bank accounts, in each case as incurred
                          in the ordinary course of business; (vi) Indebtedness in respect of
                          Capitalized Lease Obligations or purchase money financings
                          (including the purchase price of inventory) if such Indebtedness is
                          secured only by the applicable asset; (vii) Indebtedness between
                          Borrower and a subsidiary or between Borrower's subsidiaries;
                          (viii) Indebtedness represented by surety and performance bonds and
                          similar obligations, in each case as incurred in the ordinary
                          course of business; (ix) Hedging Obligations of Borrower or its
                          subsidiaries incurred in the ordinary course of business; and (x)
                          Indebtedness issued or incurred in connection with the renewal,
                          expansion, refinancing or refunding of Indebtedness permitted by
                          the preceding clauses (i) through (ix); provided that any expansion
                          of such Indebtedness would otherwise satisfy the conditions of one
                          of the other clauses (i) through (ix).

                          From and after the Closing, to the extent permitted by the Hilco
                          Credit Facility, Borrower will agree to prepay the Facilities on a
                          pro rata basis with the net cash proceeds of any disposition of
                          assets (subject to de minimis carve outs and other than proceeds
                          received from the sale of Hamlet or the Anaheim Property) as
                          follows:  (1) 50% of the first $3 million of proceeds; and (ii)
                          100% of the proceeds thereafter.

                          From and after the Closing, Borrower will not, and will not permit
                          its subsidiaries to, make capital expenditures in excess of (each
                          instance, a "Capital Expenditures Limitation"):  (i) $11 million
                          for the period from January 1, 2002 up to and including December
                          31, 2002; (ii) $11 million for the period from January 1, 2003 up
                          to and including December 31, 2003; and (iii) $15 million for the
                          period from January 1, 2004 through the maturity date.  A carry
                          forward allowance will be included to adjust for spending patterns
                          of capital expenditures.

                          From and after the Closing, Borrower will not, and will not permit
                          its subsidiaries to, make any Restricted Payments
</TABLE>

                                  Page 4 of 6
<PAGE>

                                   Exhibit A                        Confidential
<TABLE>
<S>                       <C>
                          except that Borrower and its subsidiaries may make Restricted Payments
                          equal to the sum of (i) an amount not in excess of the Federal, state,
                          local and foreign taxes and assessments payable by Prandium and its
                          subsidiaries (determined on a consolidated basis) for such year, plus
                          (ii) the aggregate amount of all general corporate, operating and
                          administrative expenses incurred by Prandium (including, without
                          limitation, any such expenses incurred on behalf of its subsidiaries)
                          in the ordinary course of business consistent with past practice.

Waiver of Defaults:       All existing and prior defaults under the Facilities to be waived.

Legal Fees:               On or before the date of this term sheet, borrower will reimburse
                          MacKay Shields for reasonable legal costs incurred up to and
                          including July 31, 2001.  At the Closing Date borrower to reimburse
                          MacKay-Shields for reasonable legal costs incurred after July 31,
                          2001 through the Closing Date.
Conditions to Closing:    1)   The Hilco Credit Facility must be entered into under terms
                               substantially the same as described in the term sheet dated as of
                               August 10, 2001, but including:

                               .  Minimum facility availability of up to $14 million;

                               .  No requirement to cash collateralize L/Cs in excess of $1
                                  million;

                               .  Maturity date no earlier than 1 year from Closing Date;

                               .  No minimum cash balance required as a condition to partial or
                                  full repayment of the Facilities;

                               .  Other financial covenants and terms reasonably acceptable to
                                  Borrower.

                          2)   Restructuring of the debt and equity of Prandium, Inc. on
                               terms reasonably satisfactory to Prandium, Inc. and MacKay Shields.

                          3)   Confirmation of a plan of reorganization (the "Plan of Reorganization")
                               under the Bankruptcy Code as a pre-negotiated or pre-packaged Chapter 11
                               that incorporates the terms outlined in this Term Sheet, including
                               entering into the Hilco Credit Facility with terms described above and
                               restructuring of the existing debt and equity of Prandium, Inc., on
                               terms reasonably satisfactory to Prandium, Inc. and MacKay-Shields.

                          4)   MacKay-Shields must consent to the terms of the Hilco Credit
                               Facility and the sale of Hamlet.

Closing Date:             The effective date of the Chapter 11 bankruptcy plan described in
                          Conditions to Closing.
</TABLE>

                                  Page 5 of 6
<PAGE>

                                   Exhibit A                        Confidential
<TABLE>
<S>                       <C>
Governing Law             New York

Projected Dates:          Borrower will use its commercially reasonable efforts to file the
                          Plan of Reorganization under the Bankruptcy Code as a
                          pre-negotiated or pre-packaged Chapter 11 on or before 60 days from
                          the date of the Letter of Intent and will use its commercially
                          reasonable efforts to have such Plan of Reorganization confirmed
                          under the Bankruptcy Code on or before February 28, 2002.
</TABLE>

                                  Page 6 of 6