** **

**FORM 10-K**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 
| **(MARK  ONE)** |                                                                                        |
|-----------------|---------------------------------------------------------------------------------------------|
| **ý**      | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGE ACT OF 1934** |

**For the fiscal year ended January 2,2002**

**OR**
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE   SECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------------|

**Forthe transition period from                           to                        **

**Commission File Number:  333-62775**

**BERTUCCI’S CORPORATION**

(formerly NERestaurant Company, Inc.)

(Exact name of registrant as specified in its charter)
| **Delaware**                                                                  |   | **06-1311266**                          |
|-------------------------------------------------------------------------------|--------|-----------------------------------------|
| (State or other  jurisdiction of   incorporation or organization)             |   | (I.R.S. Employer    Identification No.) |
|                                                                          |   |                                    |
| **155  Otis Street, Northborough, MA**                                        |   | **01532**                               |
| (Address of  principal executive offices)                                     |   | (Zip Code)                              |
|                                                                          |   |                                    |
| Registrant’s  telephone number, including area code: **(508)  351-2500** |

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

| **Title of each class** |   | **Name of each exchange on which registered** |
|-------------------------|--------|-----------------------------------------------|
| None                    |   |                                          |

 

Securitiesregistered pursuant to Section 12(g) of the Act:

 

| **None**       |
|----------------|
| Title of class |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes  ý   No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this form 10-K or any amendment to this Form10-K.  ý

 
| **Documents Incorporated By Reference** |
|-----------------------------------------|
| None                                    |

** **

 

 

**CAUTIONARYSTATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF1995.**

** **

*Allstatements other than statements of historical facts included in this AnnualReport on Form 10-K, including, without limitation, statements set forth under“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” regarding the Company’s future financial position, businessstrategy, budgets, projected costs and plans and objectives of management forfuture operations, are forward-looking statements.  In addition, forward-looking statements generally can beidentified by the use of forward-looking terminology such as “may,”  “will,” “expect,” “intend,” “estimate,”“anticipate” or “believe” or the negative thereof or variations thereon orsimilar terminology.  Although theCompany believes that the expectations reflected in such forward-lookingstatements will prove to have been correct, it can give no assurance that suchexpectations will prove to have been correct. Investors are cautioned not toplace undue reliance on these forward-looking statements, which speak only asof the date hereof.  The Companyundertakes no obligation to publicly release any revisions to theseforward-looking statements to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events.  Factors that could cause or contribute tosuch differences include those discussed in the risk factors set forth in Item7 below (the “Risk Factors”) as well as those discussed elsewhere herein.*

 

**PART I**

**ITEM 1. BUSINESS**

** **

**Overview**

 

Bertucci’s Corporation, formerly NE RestaurantCompany, Inc. (the “Company”), through it’s wholly owned subsidiariesBertucci’s Restaurant Corp. and Bertucci’s, Inc. (“Bertucci’s”), owns andoperates a full service casual dining restaurant concept under the nameBertucci’s Brick Oven Pizzeria® (“Bertucci’s restaurants”).  The Company was originally formed as alimited partnership in 1991 to acquire 15 Chili’s Bar & Grill restaurants(“Chili’s”) from a prior franchisee. The Company was incorporated in Delaware in 1994.  The Company had grown through the additionof 25 new Chili’s and seven On The Border Café restaurants in New England.  The Company developed and operated theserestaurant franchises under franchise agreements with Brinker International,Inc., a publicly-owned company (“Brinker” or the “Franchisor”).

 

In July 1998, the Company completed its acquisition ofBertucci’s parent entity, Bertucci’s, Inc., a publicly-owned restaurant companyfor a purchase price, net of cash received, of approximately $89.4 million (the“Acquisition”).  The Company financedthe Acquisition primarily through the issuance of $100 million of 10 3/4%senior notes due 2008 (the “Senior Notes”). The Acquisition included 90 Bertucci’s restaurants and one Sal andVinnie’s Sicilian SteakhouseTM (“Sal and Vinnie’s”) restaurant located inMassachusetts.  Since 1999, the Companyclosed seventeen under performing Bertucci’s restaurants and the Bertucci’stest kitchen restaurant in Wakefield, Massachusetts.  In December 2000, the Company also closed  Sal and Vinnie’s.

 

On April 12, 2001, the Company sold the Chili’s and OnThe Border Café restaurants to Brinker (the “Brinker Sale”).  On August 16, 2001, NE Restaurant Company,Inc. formally changed its name to Bertucci’s Corporation.  As of January 2, 2002, the Company operated 74 Bertucci’s restaurants in nine statesand the District of Columbia.

** **

**Concept**

 

Bertucci’s restaurants feature Italian-style entreesmade from original recipes, including pizza and specialty pasta dishes.  Bertucci’s differentiates itself from otherrestaurants by offering a variety of freshly prepared foods using high-qualityingredients and brick-oven baking techniques. Bertucci’s also distinguishes itself with a contemporary European-styleand an open-kitchen design.  The firstBertucci’s was opened in Somerville, Massachusetts in 1981.

 

2

----

 

**Restaurant Overview and Menu**

 

Bertucci’s restaurants offer a distinctive menu and acontemporary European-style design that offers a unique dining experience at areasonable price.  Bertucci’s signatureproduct, pizza, is offered with a wide variety of cheese, vegetable and meattoppings and is prepared in brick ovens. Management believes that Bertucci’s original recipes and brick-ovenbaking techniques combine to produce a superior pizza that is difficult toduplicate.  In addition to pizzas,Bertucci’s menu features a variety of pasta items, appetizers, soups, salads,calzones and desserts that are prepared according to Bertucci’s originalrecipes.  Natural, fresh ingredients area cornerstone of the Bertucci’s concept. In an effort to ensure the uniform high-quality and freshness of itsmenu offerings, Bertucci’s prepares all of its own dough and sauces.  Wine and beer are available at allBertucci’s locations and full bar service is available at some Bertucci’srestaurants.  Price points are $6.99 forlunch entrees and generally range from $7.99 to $16.99 for dinner entrees.  Most items on the menu may be purchased fortake-out service or delivery, which together accounted for approximately 23.8%of net sales in fiscal 2001.

** **

**Restaurant Design**

 

Bertucci’s restaurants are freestanding or in-linebuildings averaging approximately 6,200 square feet in size with a seatingcapacity of approximately 170 people. Each Bertucci’s restaurant features a contemporary European-style,open-kitchen design centered around brick ovens.  Ingredients are displayed and food is prepared on polishedgranite counters located in front of the brick ovens, in plain view ofdiners.  Bertucci’s restaurantshistorically have been built in varying sizes and designs, with no two interiordecors exactly alike.  Becausemanagement believes unit economics benefit from a standardized design, theCompany has developed a prototype design incorporating approximately 5,500square feet and 175 seats.  Key featuresof the prototype design are a separate carryout designation, a bar/waiting areaand modification of interior elements, including new floor and ceilingmaterials, and new furniture.

** **

**Restaurant Development**

* *

*Expansion. *The Company expects tocontinue its steady growth strategy through the opening of new Bertucci’srestaurants over the next several years. Bertucci’s plans to open restaurants quickly in markets to establishpenetration and media efficiency.  TheCompany expects to finance the development of Bertucci’s through a combinationof cash from operations, proceeds from the Brinker Sale, and loans fromrestaurant industry institutional lenders. See “Item 7.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources” and Notes 5, 6 and 7 to the ConsolidatedFinancial Statements.  Management hasdesigned a new Bertucci’s restaurant prototypical kitchen and take-out area inpreparation for restaurant expansion of the Bertucci’s concept.  The first restaurant with the newprototypical design opened in Danbury, Connecticut in late January 2001.  A total of four new restaurants were openedin fiscal 2001.

* *

*SiteSelection and Construction. *Management’ssite selection strategy for new restaurants focuses on high-density,high-traffic, high-visibility sites which are, for the most part, positionedwithin existing markets to take advantage of certain operationalefficiencies.  Management seeks outsites with a mixture of retail, office, residential and entertainmentconcentration which promote both lunch and dinner business.  Management devotes significant time andresources to identify and analyze potential sites, as it believes that siteselection is crucial to its success. Management also believes that multiple locations focused in definedgeographic areas will result in increased market penetration and brandrecognition, and will permit advertising, management, purchasing andadministrative efficiencies.  Thetypical time period required to select a site and build and open a full-servicerestaurant averages 12 months.

* *

*Franchising. *Management believes thatfranchising will be an efficient vehicle to develop restaurants in markets farfrom the current locations.  The Companybelieves that the franchise plan should be consistent with Bertucci’s corporateplan of quickly establishing strong market penetration and media efficiency infranchised markets.  Franchisingprovides an alternative development strategy that requires minimal cash outlay.  Additional costs would be required infranchise sales, operations, marketing, purchasing, and training.  The royalty fees should exceed these costsafter a reasonable start-up period.

 

3

----

 

**Quality Control**

 

Each Bertucci’s restaurant typically has a generalmanager and two to three assistant managers who are responsible for assuringcompliance with Bertucci’s operating procedures and for the training andsupervision of restaurant employees. The general managers report to district managers who oversee, onaverage, between four and eight Bertucci’s restaurants.  The Company believes that quality controloperations of Bertucci’s can be further enhanced through improved centralizedtraining, a consistent and independent shopper’s program, and other support fordistrict managers.

** **

**Management Incentive Programs**

 

Management has developed a profit-based reward systemfor its restaurant level managers such that their bonus levels are directlytied to each restaurant’s quality of food and service as well as restaurantprofitability.  The Company believesthis incentive program has contributed significantly to the entrepreneurialspirit of its restaurants and, ultimately, to overall guest satisfaction andCompany profitability.  In 2001,Bertucci’s implemented a Managing Partner (“MP”) Program  which allows general managers with over twoyears’ experience at Bertucci’s to earn a higher rate of bonus, options forCompany shares and other benefits.  TheCompany believes that the combination of these incentives improve stability ofthe restaurant management teams and such stability improves sales and profits.

** **

**Training**

 

The Company places significant emphasis on the propertraining of its employees.  Training isdesigned to increase product quality, operational safety, overall productivityand guest satisfaction and to foster the concept of ‘‘continuousimprovement.’’  The Company requires newnon-management employees to undergo extensive training administered byrestaurant-level managers to improve the confidence, productivity, proficiencylevel and customer relations skills of such employees.  The Company also requires all of itsmanagers to complete a comprehensive management training program developed bythe Company.  This program instructsmanagement trainees in detailed, concept-specific food preparation standardsand procedures as well as administrative and human resource functions.  This training is largely conducted atspecified restaurants which are designated as ‘‘training restaurants’’ and alsoincorporates training manuals and other written guides.  At the end of the process, trainee skillsare tested by a variety of means including a full-day written examination.  Initial instruction is typically followed upby periodic supplemental training.  Whenthe Company opens a new restaurant, management positions are typically staffedwith personnel who have had previous experience in a management position atanother restaurant.  In addition, ahighly experienced opening team assists in opening the restaurant.  Prior to opening, all staff personnelundergo a week of intensive training conducted by the restaurant opening team.

 

During 2001, the Company implemented the Bertucci’sUniversity (“B.U.”) program for restaurant management training.  The B.U. program consists of a one-week longclassroom session at the Company’s headquarters where new managers are taught,among other things, safety and security, computers and information systems,responsible alcohol service and applied foodservice sanitation.  Management believes that the testing duringB.U. is rigorous and that the managers who graduate from this program arebetter prepared for running Bertucci’s restaurants.

** **

**Advertising and Marketing**

 

The Company’s overall marketing objective is to growbrand equity by building revenues and increasing profitability.  Management utilizes strategies that createcustomer trial of new products/events so as to increase the share of visits andaverage guest check, yet maintain a unique dining experience and brandpersonality.  The Company recognizes theneed to build brand awareness in order to increase market share.  Its advertising plan is designed to increasebrand awareness, trial and share of visits from its target market by providingmedia coverage in markets where the Company has sufficient penetration tosupport media at competitive levels.  Inthose markets where the Company has its highest penetration, television andradio advertising is provided.  In itssecondary markets, the Company utilizes more cost-effective localized marketingvehicles including newspaper inserts, radio and direct mail.

 

4

----

 

**Purchasing**

 

The Company negotiates directly with suppliers of foodand beverage products and other restaurant supplies to ensure consistentquality and freshness of products and to obtain competitive prices.  Although the Company believes that essentialrestaurant supplies and products are available on short notice from severalsources, the Company uses one full-service distributor for the substantial portionof restaurant supplies and product requirements, with such distributor chargingthe Company fixed mark-ups over prevailing wholesale prices.  The Company has a five-year contract withits full-service distributor which is terminable by either party upon 120 daysprior notice.  The Company also hasarrangements with several smaller and regional distributors for the balance ofits purchases.  These distributionarrangements have allowed the Company to benefit from economies of scale andresulting lower commodity costs. Smaller day-to-day purchasing decisions are made at the individualrestaurant level.  The Company has notexperienced any significant delays in receiving food and beverage inventoriesor restaurant supplies.

** **

**Information Systems and RestaurantReporting**

* *

*Information Systems. *The Company’s informationsystems provide detailed monthly financial statements for each restaurant,bi-monthly restaurant inventories, menu mix, cash management and payrollanalysis.  Preliminary financial reportsare available within one day of the period close and the restaurant-levelinformation is consolidated at the Company’s headquarters.  Restaurant managers are able to respond tochanges in their business daily, weekly or monthly, as necessary.  Sales and basic operating information isprocessed daily and reported on the Company’s internal system. The other,varying levels of systems data are consolidated and processed by the Company atits headquarters daily, weekly or monthly, as management deems appropriate.

* *

*Point of Sale (“POS”). *The Company converted allrestaurants to the Micros 3700 systems during 2000 and 2001.  Management believes the consistency andreliability of the POS is the backbone of the technical infrastructure.  The consistency between restaurants providesefficiencies for multi-restaurant operators, training and support.  The POS data is retrieved from eachrestaurant daily and processed at the Company’s headquarters.

* *

*DataWarehouse. *TheCompany installed a data warehouse in 2001 that tracks information as minute asguest check detail.  Management believesthat the data warehouse will provide new ways of viewing operational data thatwill enable the Company to spot trends, evaluate price sensitivity and tracknew items/combinations that were previously not available.

 

**Trademarks, Servicemarks and OtherIntellectual Property**

 

Bertucci’s has registered, among others, the names‘‘Bertucci’s’’ and ‘‘Bertucci’s Brick Oven Pizzeria’’ as service marks andtrademarks with the United States Patent and Trademark Office.  Management is aware of names similar to thatof Bertucci’s used by third parties in certain limited geographical areas.  Such third-party use may prevent the Companyfrom licensing the use of the Bertucci’s mark for restaurants in suchareas.  Except for these areas,management is not aware of any infringing uses that could materially affect theBertucci’s business.

 

**Competition**

 

The Company’s business, and the restaurant industry ingeneral, is highly competitive and is often affected by changes in consumertastes and dining preferences, by local and national economic conditions and bypopulation and traffic patterns.  TheCompany competes directly or indirectly with all restaurants, from national andregional chains to local establishments, as well as with other foodserviceproviders.  Many of its competitors aresignificantly larger than the Company and have substantially greater resources.

** **

**Employees**

 

At January 2, 2002, the Company had approximately1,400 full-time employees (of whom approximately 80 are based at the Company’sheadquarters) and approximately 5,040 part-time employees.  None of the Company’s employees are coveredby a collective bargaining agreement. The Company surveyed its employees in 2001 to assess satisfaction anddetermine 

 

5

----

 

ways to improvecompany work conditions and relations. The survey supports the Company’s belief that its relations with itsemployees are good.

 

Management believes that the Company’s continued success will depend toa large degree on its ability to attract and retain good managementemployees.  While the Company expects tocontinually address the high level of employee attrition normal in the food-serviceindustry, the Company has taken steps to attract and keep qualified managementpersonnel through the implementation of a variety of employee benefit plans,including a management incentive plan, the MP Program, a 401(k) plan, and anon-qualified stock option plan for its management employees.

 

**Employee Loans**

 

In February 2002, the Company extended loans to 14members of Management (including eight officers).  The demand notes bear interest at 8%, payable quarterly.  As of March 15, 2002 a total of $166,328 wasoutstanding.

 

**Government Regulations**

 

Each of the Company’s restaurants is subject tolicensing and regulation by a number of governmental authorities, on matterswhich include health, safety, fire and alcoholic beverage control agencies inthe state or municipality in which the restaurant is located.  Difficulties or failures in obtainingrequired licenses or approvals could delay or prevent the opening of a newrestaurant in a particular area.

 

Alcoholic beverage control regulations require each ofthe Company’s restaurants to apply to a state authority and, in certainlocations, county or municipal authorities for a license or permit to sellalcoholic beverages on the premises and to provide service for extended hoursand on Sundays.  Typically, licenses orpermits must be renewed annually and may be revoked or suspended for cause atany time.  Alcoholic beverage controlregulations relate to numerous aspects of the daily operations of the Company’srestaurants, including minimum age of patrons and employees, hours ofoperation, advertising, wholesale purchasing, inventory control and handling,storage, and dispensing of alcoholic beverages.

 

The Company is also subject to various other federal,state and local laws relating to the development and operation of restaurants,including those concerning preparation and sale of food, relationships withemployees (including minimum wage requirements, overtime and working conditionsand citizenship requirements), land use, zoning and building codes, as well asother health, sanitation, safety and environmental matters.

 

**Environmental Compliance**

 

In connection with the sale of Bertucci’s headquarterslocated in Wakefield, Massachusetts, initial environmental testing disclosedisolated deposits of several volatile organic compounds.  Further testing confirmed the limitation andlocation of the deposit.  Bertucci’sexpended approximately $30,000 in environmental investigation and remediationcosts in 1999.  Pursuant to the salesagreement by and between Bertucci’s and the purchaser of the Wakefield headquartersproperty (“Wakefield Property Buyer”), all future costs related toenvironmental concerns shall be the responsibility of the Wakefield PropertyBuyer.  The sale of the Bertucci’sheadquarters was consummated in November 1999.

 

6

----

 

**ITEM 2.  PROPERTIES**

 

The Company’s executive office is located inNorthborough, Massachusetts.  The officeis occupied under the terms of a lease covering approximately 20,000 squarefeet that is scheduled to expire in 2006 and has two three-year options torenew.  One of the Company’s previousoffices in Westborough, Massachusetts is currently being sub-leased.  The Company sold a 60,000 square footWakefield, Massachusetts office building (previously the Bertucci’s headquarters)in November 1999.

 

**Restaurant Locations**

 

The table below identifies the location of the restaurants operated bythe Company during fiscal 2001.

 

| **State**             |   | **Open as of  01/03/2001** |       | **Openings** |       | **Closings** |   | **Open as of  01/02/2002** |
|-----------------------|--------|----------------------------|------------|--------------|------------|--------------|--------|----------------------------|
| Connecticut           |   | 9                          |       | 2            |       | 0            |   | **11**                     |
| District of  Columbia |   | 2                          |       | 0            |       | 0            |   | **2**                      |
| Maryland              |   | 5                          |       | 0            |       | 0            |   | **5**                      |
| Massachusetts         |   | 34                         |       | 2            |       | (1           | )      | **35**                     |
| New Hampshire         |   | 3                          |       | 0            |       | 0            |   | **3**                      |
| New Jersey            |   | 4                          |       | 0            |       | 0            |   | **4**                      |
| New York              |   | 3                          |       | 0            |       | 0            |   | **3**                      |
| Pennsylvania          |   | 6                          |       | 0            |       | 0            |   | **6**                      |
| Rhode Island          |   | 2                          |       | 0            |       | 0            |   | **2**                      |
| Virginia              |   | 4                          |       | 0            |       | (1           | )      | **3**                      |
| Total                 |   | **72**                     | ** ** | **4**        | ** ** | **(2**       | **)**  | **74**                     |

 

Of the 74 restaurants operated by the Company atJanuary 2, 2002, the Company owned the land for 12 restaurants and leased theland for all other restaurants.  Theleases for most of the existing restaurants are for terms of 15 years andprovide for additional option terms and, in the case of a limited number ofleases, a specified annual rental plus additional rents based on sales volumesexceeding specified levels.  Leases forfuture restaurants will likely include similar rent provisions.  Bertucci’s restaurant lease terms range fromless than one to 40 years.  The majorityof such leases provide for an option to renew for additional terms ranging fromfive years to 20 years.  All ofBertucci’s leases provide for a specified annual rental and most leases callfor additional rent based on sales volumes exceeding specified levels.

 

**ITEM 3.  LEGAL PROCEEDINGS**

 

The Company is involved in various legal proceedingsfrom time to time incidental to the conduct of its business.  In the opinion of management, any ultimateliability arising out of such proceedings will not have a material adverseeffect on the financial condition or results of operations of the Company.

 

Management is not aware of any litigation to which theCompany is a party that is likely to have a material adverse effect on theCompany.

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

7

----

 

**PART II**

 

**ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERMATTERS**

 

**Market Information**

 

As of March 15, 2002, there was no established publictrading market for any class of common equity security of the Company.

 

**Record Holders**

 

As of March 15, 2002, there were approximately 103holders of Common Stock of the Company, $.01 par value per share.  As of March 15, 2002, the Company did nothave any other class of common equity security issued and outstanding.

 

**Dividends**

 

In August 1997, the Company made a dividend and returnof capital payout to shareholders of $8.31 per share from additional paid-incapital, with the excess payout being charged to retained earnings.  In addition, the Company repurchased 716,429shares of common stock at $11.63 per share. The Company’s repurchase of shares of common stock was recorded astreasury stock, at cost, and resulted in a reduction of Stockholders’ Equity.

 

Other than the aforementioned dividend, the Companyhas not paid any other dividends to date. Furthermore, the Company does not foresee declaring or paying any cashdividends in the immediate future. Moreover, certain of the Company’s borrowing arrangements prohibit thepayment of cash dividends without the lender’s approval.

 

**Recent Sales of UnregisteredSecurities**

** **

None.

 

8

----

 

**ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA**

 

The data for fiscal years ended 1997 through 2001 arederived from audited financial statements of the Company.  Selected consolidated financial data shouldbe read in conjunction with Management’s Discussion and Analysis of FinancialCondition and Results of Operations and the Consolidated Financial Statementsand the Notes thereto included elsewhere in this Form 10-K.  Historical results are not necessarilyindicative of results to be expected in the future.  The Brinker Sale, the Acquisition of Bertucci’s in 1998, and the53rd week of fiscal 2000 affect the comparability of results on ayear-to-year basis.

 
|                                                                                                                              |   | **Income  Statement Data   Fiscal Year Ended** |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|
|                                                                                                                              |   | **January 2,  2002**                           |   | **January 3,    2001 (a)** |   | **December 29,   1999** |   | **December 30,   1998** |   | **December 31,   1997** |   |
|                                                                                                                              |   | **(in  thousands except per share amounts)**   |   |
| Net sales                                                                                                                         |   | $                                              | 186,638 |   | $ | 284,933 |   | $ | 267,665 |   | $ | 160,805 |   | $ | 81,364 |   |
| Cost of sales  and expenses                                                                                                       |   |                                           |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                                                                     |   | 44,855                                         |   | 74,266 |   | 73,860 |   | 44,377 |   | 23,384 |   |
| Operating  expenses (e)                                                                                                           |   | 111,795                                        |   | 162,577 |   | 154,750 |   | 91,596 |   | 44,642 |   |
| General and  administrative expenses (e)                                                                                          |   | 12,547                                         |   | 16,386 |   | 15,400 |   | 8,638 |   | 4,327 |   |
| Deferred rent,  depreciation, amortization and preopening expenses                                                                |   | 13,882                                         |   | 18,127 |   | 17,863 |   | 10,921 |   | 3,911 |   |
| Closed  restaurants charge                                                                                                        |   | 4,200                                          |   | — |   | — |   | — |   | — |   |
| Asset impairment  charge                                                                                                          |   | 1,800                                          |   | — |   | — |   | — |   | — |   |
| Loss on abandonment of  Sal & Vinnie's                                                                                        |   | —                                         |   | 2,031 |   | — |   | — |   | — |   |
| Cost of sales  and expenses                                                                                                       |   | 189,079                                        |   | 273,387 |   | 261,873 |   | 155,532 |   | 76,264 |   |
| (Loss) income from  operations                                                                                                    |   | (2,441                                         | ) | 11,546 |   | 5,792 |   | 5,273 |   | 5,100 |   |
| Other income  (expense)                                                                                                           |   |                                           |   |   |   |   |   |   |   |   |   |
| Gain on Brinker  Sale                                                                                                             |   | 36,932                                         |   | — |   | — |   | — |   | — |   |
| Interest  expense, net                                                                                                            |   | (10,626                                        | ) | (15,050 | ) | (14,007 | ) | (8,004 | ) | (1,918 | ) |
| Other income  (expense)                                                                                                           |   | 26,306                                         |   | (15,050 | ) | (14,007 | ) | (8,004 | ) | (1,918 | ) |
| Income (loss) before  income tax provision (benefit), extraordinary item and cumulative effect of  change in accounting principle |   | 23,865                                         |   | (3,504 | ) | (8,215 | ) | (2,731 | ) | 3,182 |   |
| Income tax  provision (benefit)                                                                                                   |   | 10,243                                         |   | (115 | ) | (2,357 | ) | (902 | ) | 1,083 |   |
| Income (loss) before  extraordinary item and cumulative effect of change in accounting principle                                  |   | 13,622                                         |   | (3,389 | ) | (5,858 | ) | (1,829 | ) | 2,099 |   |
| Gain on retirement of Senior Notes, net of tax                                                                                    |   | 1,338                                          |   | — |   | — |   | — |   | — |   |
| Net income (loss)  before cumulative effect of change in accounting principle                                                     |   | 14,960                                         |   | (3,389 | ) | (5,858 | ) | (1,829 | ) | 2,099 |   |
| Cumlative effect of change in accounting principle,  net of tax                                                                   |   | —                                         |   | — |   | (678 | ) | — |   | — |   |
| Net income  (loss)                                                                                                                |   | $                                              | 14,960 |   | $ | (3,389 | ) | $ | (6,536 | ) | $ | (1,829 | ) | $ | 2,099 |   |
|                                                                                                                              |   |                                           |   |   |   |   |   |   |   |   |   |
| Basic income (loss) per share before extraordinary  item and cumulative effect of change in accounting principle                  |   | $                                              | 4.57 |   | $ | (1.14 | ) | $ | (1.97 | ) | $ | (0.89 | ) | $ | 1.22 |   |
| Gain on retirement of Senior Notes, net of tax                                                                                    |   | 0.45                                           |   | — |   | — |   | — |   | — |   |
| Cumlative effect of change in accounting principle,  net of tax                                                                   |   | —                                         |   | — |   | (0.22 | ) | — |   | — |   |
| Basic income  (loss) per share                                                                                                    |   | $                                              | 5.02 |   | $ | (1.14 | ) | $ | (2.19 | ) | $ | (0.89 | ) | $ | 1.22 |   |
|                                                                                                                              |   |                                           |   |   |   |   |   |   |   |   |   |
| Diluted income (loss) per share before extraordinary  item and cumulative effect of change in accounting principle                |   | $                                              | 4.19 |   | $ | (1.14 | ) | $ | (1.97 | ) | $ | (0.89 | ) | $ | 1.22 |   |
| Gain on retirement of Senior Notes, net of tax                                                                                    |   | 0.41                                           |   | — |   | — |   | — |   | — |   |
| Cumlative effect of change in accounting principle,  net of tax                                                                   |   | —                                         |   | — |   | (0.22 | ) | — |   | — |   |
| Diluted income  (loss) per share                                                                                                  |   | $                                              | 4.60 |   | $ | (1.14 | ) | $ | (2.19 | ) | $ | (0.89 | ) | $ | 1.22 |   |
|                                                                                                                              |   |                                           |   |   |   |   |   |   |   |   |   |
| Other Financial  Data:                                                                                                            |   |                                           |   |   |   |   |   |   |   |   |   |
| EBITDA (in  thousands)  (b)                                                                                                  |   | $                                              | 17,441 |   | $ | 31,704 |   | $ | 23,655 |   | $ | 16,194 |   | $ | 9,012 |   |
| EBITDA margin  (c)                                                                                                                |   | 9.3                                            | % | 11.1 | % | 8.8 | % | 10.1 | % | 11.1 | % |
| Comparable  restaurant sales (d)                                                                                                  |   | 2.2                                            | % | 4.8 | % | 2.1 | % | 1.6 | % | 2.7 | % |

 

----

(a)       Fiscal2000 was comprised of 53 weeks.  Allother years presented were comprised of 52 weeks.

 

9

----

 

(b)      ‘‘EBITDA’’is defined as income from operations before deferred rent, depreciation,amortization, preopening costs, closed restaurants, asset impairment chargesand loss on abandonment of Sal & Vinnie’s. EBITDA is not a measure of performance defined by Generally AcceptedAccounting Principles (“GAAP”).  EBITDAshould not be considered in isolation or as a substitute for net income or thestatement of cash flows which have been prepared in accordance with GAAP.  The Company believes EBITDA provides usefulinformation regarding the Company’s ability to service its debt and the Companyunderstands that such information is considered by certain investors to be anadditional basis for evaluating a company’s ability to pay interest and repaydebt.  The EBITDA measures presentedherein may not be comparable to similarly titled measures of other companies.

 

(c)       EBITDAmargin represents EBITDA divided by net sales.

 

(d)                   TheCompany defines comparable restaurant sales as net sales from restaurants thathave been open for at least one full fiscal year.  The comparable sales in 2001 relate Bertucci’s only, 2000, 1999and 1998 relate to the combined company (Bertucci’s, Chili’s, On The Border and,for 1999 only, Sal & Vinnie’s); and the 1997 comparable sales relate toChili’s only (On The Border did not have a comparable restaurant as defineduntil Fiscal Year 1998).

 

(e)                    Prioryear costs (operating expenses and general and administrative expenses) havebeen restated to conform to current year presentation.

 

**ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

*Thefollowing discussion should be read in conjunction with “Item 1.  Business,” “Item 6.  Selected Financial Data,” the Company’sConsolidated Financial Statements and Notes thereto and the informationdescribed under the caption “Risk Factors” below.*

 

**General**

 

Bertucci’s Corporation, formerly NE RestaurantCompany, Inc. (the “Company”), through it’s wholly owned subsidiariesBertucci’s Restaurant Corp. and Bertucci’s, Inc. (“Bertucci’s”), owns andoperates a full service casual dining restaurant concept under the nameBertucci’s Brick Oven Pizzeria® (“Bertucci’s restaurants”).  The Company was originally formed as alimited partnership in 1991 to acquire 15 Chili’s Bar & Grill restaurants(“Chili’s”) from a prior franchisee. The Company was incorporated in Delaware in 1994.  The Company had grown through the additionof 25 new Chili’s and seven On The Border Café restaurants in New England.  The Company developed and operated theserestaurant franchises under franchise agreements with Brinker International,Inc., a publicly-owned company (“Brinker” or the “Franchisor”).

 

In July 1998, the Company completed its acquisition ofBertucci’s parent entity, Bertucci’s, Inc., a publicly-owned restaurant companyfor a purchase price, net of cash received, of approximately $89.4 million (the“Acquisition”).  The Company financedthe Acquisition primarily through the issuance of $100 million of 10 3/4%senior notes due 2008 (the “Senior Notes”). The Acquisition included 90 Bertucci’s restaurants and one Sal andVinnie’s Sicilian SteakhouseTM (“Sal and Vinnie’s”) restaurant located inMassachusetts.  Since 1999, the Companyclosed the Bertucci’s test kitchen restaurant in Wakefield, Massachusetts andclosed seventeen under performing Bertucci’s restaurants.  In December of 2000, the Company also closedthe sole Sal and Vinnie’s.

 

On April 12, 2001, the Company completed the sale of40 Chili’s and seven On The Border restaurants to Brinker (the “Brinker Sale”).Total consideration, subject to closing adjustments, was $93.5 million.  Brinker acquired the inventory, facilities,equipment and management teams associated with these restaurants, as well asthe four Chili’s restaurants that were under development by the Company.  Further, Brinker assumed the mortgage debton the Company’s Chili’s and On The Border restaurants.  The Company recorded a gain on Brinker Saleof $36.9 million before income taxes.

 

**Results of Operations**

 

For all the Company’s restaurants, net sales consistof food, beverage and alcohol sales. Cost of sales consists of food, beverage and alcohol costs as well assupplies used in carry-out and delivery sales. Total operating expenses consist of five 

 

10

----

 

primarycategories:  (i) labor expenses; (ii)restaurant operations; (iii) facility costs; (iv) office expenses; and (v) non-controllable expenses, which include such items as company advertisingexpenses, rent and insurance.  Generaland administrative expenses include costs associated with those departments ofthe Company that assist in restaurant operations and management of thebusiness, including accounting, management information systems, training,executive management, purchasing and construction.

 

The following table sets forth thepercentage-relationship to net sales, unless otherwise indicated, of certainitems included in the Company’s income statement, as well as certain operatingdata, for the periods indicated:

 
| ***Income Statement Data:***                                                                                                      |   | **For Fiscal Year Ended  (Percentage of Net Sales)** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                                                                                              |   | **January 2,  2002**                                 |   | **January 3,   2001** |   | **December 29,  1999** | ** ** |
| Net  sales                                                                                                                        |   | 100.0                                                |   | 100.0 |   | 100.0 |   |
| Cost  of sales and expenses                                                                                                       |   |                                                 |   |   |   |   |   |
| Cost  of sales                                                                                                                    |   | 24.0                                                 |   | 26.1 |   | 27.6 |   |
| Operating  expenses                                                                                                               |   | 59.9                                                 |   | 57.1 |   | 57.8 |   |
| General  and administrative expenses                                                                                              |   | 6.7                                                  |   | 5.8 |   | 5.8 |   |
| Deferred  rent, depreciation, amortization and preopening expenses                                                                |   | 7.4                                                  |   | 6.4 |   | 6.7 |   |
| Closed  restaurant charge                                                                                                         |   | 2.3                                                  |   | — |   | — |   |
| Asset  impairment charge                                                                                                          |   | 1.0                                                  |   | — |   | — |   |
| Loss  on abandonment of Sal & Vinnie's                                                                                        |   | —                                               |   | 0.7 |   | — |   |
| Cost  of sales and expenses                                                                                                       |   | 101.3                                                |   | 96.1 |   | 97.9 |   |
| (Loss)  income from operations                                                                                                    |   | (1.3                                                 | )      | 3.9 |   | 2.1 |   |
| Other  income (expense)                                                                                                           |   |                                                 |   |   |   |   |   |
| Gain  on Brinker Sale                                                                                                             |   | 19.8                                                 |   | — |   | — |   |
| Interest  expense, net                                                                                                            |   | (5.7                                                 | )      | (5.3 | ) | (5.2 | ) |
| Other  income (expense)                                                                                                           |   | 14.1                                                 |   | (5.3 | ) | (5.2 | ) |
| Income  (loss) before income tax provision (benefit), extraordinary item and  cumulative effect of change in accounting principle |   | 12.8                                                 |   | (1.4 | ) | (3.1 | ) |
| Provision  (benefit) for income taxes                                                                                             |   | 5.5                                                  |   | — |   | (0.9 | ) |
| Income  (loss) before extraordinary item and cumulative effect of change in  accounting principle                                 |   | 7.3                                                  |   | (1.4 | ) | (2.2 | ) |
| Gain  on retirement of Senior notes, net of tax                                                                                   |   | 0.7                                                  |   | — |   | — |   |
| Cumlative  effect of change in accounting principle, net of tax                                                                   |   | —                                               |   | — |   | (0.3 | ) |
| Net  income (loss)                                                                                                                |   | 8.0                                                  |   | (1.4 | ) | (2.5 | ) |

 

**Year Ended January 2, 2002 Comparedto Year Ended January 3, 2001**

 

*NetSales.*  Net salesdecreased $98.3 million, or 34.5%, to $186.6 in fiscal 2001 from $284.9 millionin fiscal 2000.  Most of the decreasewas attributable to the Brinker Sale. That was offset by a 2.2% sales increase for the 71 comparableBertucci’s restaurants and the addition of four new Bertucci’srestaurants.  The Company also closedtwo restaurants in fiscal 2001, one at the end of the third quarter at it’slease expiration and one at year end due to the landlord exercising the rightof recapture as provided in the lease. Bertucci’s plans to relocate both restaurants in the future.

 

*Costof Sales.*  Cost ofsales decreased by $29.4 million or 39.6%, to $44.9 million in fiscal 2001 from$74.3 million in fiscal 2000.  Theprimary reason for the dollar decrease was the Brinker Sale.  Expressed as a percentage of net sales, costof 

 

11

----

 

sales decreased by2.1% to 24.0% in fiscal 2001 from 26.1% in fiscal 2000.  The Company believes the decrease in bothdollar and percent resulted from several factors.  First, Bertucci’s continued to develop the theoretical costsystem which allowed management to pinpoint and control costs.  Second, product costs showed favorablemovement against 2000 due to a combination of purchasing practices(specifically poultry, flour, oils and produce) and favorable market conditions.  Third, price increases and new menu offeringfurther drove down cost percentages. Fourth, the Brinker Sale helped improve cost of sales, due to the factthat the Brinker Concept restaurants had a higher cost of sales ratio.

 

*OperatingExpenses.*  Operatingexpenses decreased by $50.8 million, or 31.2%, to $111.8 million in fiscal 2001from $162.6 million in fiscal 2000. Expressed as a percentage of net sales, operating expenses increased to59.9% in fiscal 2001 from 57.1% in fiscal 2000.  The dollar decrease was primarily attributable to the BrinkerSale.  The percentage increase was duein part to improved efficiency in the Bertucci’s restaurants, primarily laborand advertising costs, as well as improved leverage over fixed expenses.

 

*Generaland Administrative Expenses.* General and administrative expenses decreased $3.9 million or 23.8%, to$12.5 million in fiscal 2001 from $16.4 million in fiscal 2000.  Expressed as a percentage of net sales,general and administrative expenses increased to 6.7% in fiscal 2001 versus5.8% in fiscal 2000.  The dollardecrease was primarily due to the Brinker Sale while the percent increase was aresult of lower net sales from the sale of the Brinker Concept restaurants.

 

*DeferredRent, Depreciation, Amortization and Preopening Expenses.*  Deferred rent, depreciation, amortizationand preopening expenses decreased by $4.2 million, or 23.2%, to $13.9 millionin fiscal 2001 from $18.1 million in fiscal 2000 due mainly to the BrinkerSale.  Expressed as a percentage of netsales, deferred rent, depreciation, amortization and preopening expensesincreased to 7.4% in fiscal 2001 from 6.4% in fiscal 2000.  Bertucci’s restaurants expenses were ahigher percentage of sales than were the Brinker Concept restaurants.  Furthermore, Bertucci’s preopening expensestotaled $554,000 for 2001 compared to none in 2000.

 

*ClosedRestaurants Charge:* As discussed in Note 2 of Notes toConsolidated Financial Statements, the Company recorded a charge ofapproximately $4.2 million to provide for estimated lease commitments andcertain exit costs on closed restaurants.

 

*AssetImpairment Charge:* As discussed in Note 3 of Notes toConsolidated Financial Statements, the company recorded a charge ofapproximately $1.8 million to recognize the estimated impaired value of assetsat four restaurant locations.

 

*Otherincome (expense):* Total consideration received on the Brinker Sale, subject toclosing adjustments, was $93.5 million. This consideration, net of liabilities assumed, exceeded the Company’sbasis on assets sold, resulting in a gain of $36.9 million.  Interest expense decreased $4.4 million, or29.3%, to $10.6 million in fiscal 2001 from $15.0 million in fiscal 2000.  This decrease was attributable to theassumption of FFCA Loans by Brinker as a result of the Brinker Sale and theretirement of $14.7 million of Senior Notes. Interest was approximately $10 million on the Senior Notes, $1.1 millionon the FFCA Loans and $100,000 from the Company’s line of credit during fiscal2001, offset by interest income of $750,000. Interest income increased by $675,000 in fiscal 2001 versus 2000 due to availability of excess cashfrom the Brinker Sale.

 

*IncomeTax Provision (Benefit). *Infiscal 2001, the Company recorded a provision for income taxes of $10.2 millionon income before income tax provision and extraordinary item of approximately$23.9 million.

 

**Year Ended January 3, 2001 Comparedto Year Ended December 29, 1999**

 

*NetSales.*  Net salesincreased $17.3 million, or 6.5%, to $284.9 million in fiscal 2000, from $267.7million in fiscal 1999.  Most of theincrease was attributable to a 4.8% comparable sales increase at the Company’srestaurants.  The 53rd weekadded approximately $4.8 million of sales while two new Chili’s that openedduring fiscal 2000 and five Chili’s that opened in 1999 contributed anadditional $9.0 million.  Two new On TheBorder restaurants that opened in fiscal 2000 and one that opened in 1999supplied $6.6 million of incremental sales. These positive results were partially offset by the closings of 17Bertucci’s restaurants during 1999 and early 2000, which accounted for anunfavorable variance of $14.3 million. Average sales per restaurant increased 12.2% to $2.3 million in fiscal2000, from just under $2.1 million the previous year primarily due to strongcomparable sales growth at Bertucci’s, a greater proportion of Brinker ConceptRestaurants and the closing of the under-performing Bertucci’s previouslymentioned.

 

12

----

 

*Costof Sales.*  Cost ofsales increased by $406,000 or 0.5%, to $74.3 million in fiscal 2000 from $73.9million in fiscal 1999.  Expressed as apercentage of net sales, cost of sales decreased by 1.5% to 26.1% in fiscal2000 from 27.6% in  fiscal 1999.  The Company believes the reduction in costof sales resulted from several causal factors. First, Bertucci’s continued to develop the theoretical cost system whichallowed management to pinpoint and control costs.  Management believes that approximately 0.5% of the decrease is asa result of improved cost control measures. Second, product costs showed favorable movement against 1999 due to acombination of purchasing practices (specifically poultry, flour, oils and produce)and favorable market conditions (cheese costs during fiscal 2000 dipped to a 30- year low).  Third, price increases inJanuary and August at the Brinker Concept Restaurants further drove down costpercentages.  Fourth, the Company saw abenefit in gross margin as a result of closing the aforementionedunder-performing Bertucci’s restaurants. Last, menu engineering at Bertucci’s, specifically the introduction ofseveral poultry and seafood pasta offerings, partially offset the decrease asthese menu items were higher in cost percentage but also higher in dollarmargin.

 

*OperatingExpenses.*  Operatingexpenses increased by $7.8 million, or 5.1%, to $162.6 million in fiscal 2000from $154.8 million in fiscal 1999. Expressed as a percentage of net sales, operating expenses decreased to57.1% in fiscal 2000 from 57.8% in fiscal 1999.  The dollar increase was primarily attributable to new restaurantdevelopment, increased labor costs (partially offset by increasedproductivity), an increase in restaurant repairs and maintenance and the impactof the 53rd week of fiscal 2000. The Company believes that approximately $2.2 million of the fiscal 2000operating expenses resulted from the 53rd week of operations.  The percentage decrease was primarilyattributable to cost control measures, primarily at Bertucci’s, increasedleverage of higher sales against fixed costs, the favorable impact of theBertucci’s under-performing restaurant closings and the impact of the 53rdweek of operations which accounted for approximately 0.3% of the favorablevariance.

 

*Generaland Administrative Expenses.* General and administrative expenses increased $986,000, or 6.4%, to$16.4 million in fiscal 2000 from $15.4 million in fiscal 1999.  Expressed as a percentage of net sales, generaland administrative expenses remained constant at 5.8% for both 2000 and1999.  The dollar increase was primarilydue to increased payroll (mostly Bertucci’s operating, recruiting and trainingto further strengthen operations), increased bonus expense as a result ofimproved performance and twelve months of rent associated with the corporateheadquarters verses five months in 1999. The Company believes the impact of the 53rd week ofoperations accounts for approximately $200,000 of the increase.

 

*DeferredRent, Depreciation, Amortization and Preopening Expenses.*  Deferred rent, depreciation, amortizationand preopening expenses increased by $264,000, or 1.5%, to $18.1 million infiscal 2000 from $17.9 million in fiscal 1999. Expressed as a percentage of net sales, deferred rent, depreciation,amortization and preopening expenses decreased to 6.4% in fiscal 2000 from 6.7%in fiscal 1999.  The dollar increase wasprimarily due to increased capital improvements at Bertucci’s, opening fouradditional Brinker Concept Restaurants and incremental depreciation on thecorporate headquarters build-out partially offset by a $500,000 decrease inpreopening expenses.  During fiscal2000, preopening expenses amounted to approximately $900,000.

 

*Losson Abandonment of Sal & Vinnie’s.*  The Company closed the onlySal & Vinnie’s in late fiscal 2000 and abandoned the restaurant property inreturn for lease termination.  Thistransaction resulted in a loss of approximately $2.0 million in fiscal 2000.

 

*InterestExpense.*  Interestexpense increased $1.0 million, or 7.4%, to $15.0 million in fiscal 2000 from$14.0 million in fiscal 1999.  Thisincrease was attributable to new FFCA Loans entered into since 1999.  Interest was approximately $10.9 million onthe Senior Notes, $3.9 million on the FFCA Loans and $0.2 million from theCompany’s line of credit during fiscal 2000.

 

*IncomeTax Benefit. *Infiscal 2000, the Company recorded a benefit for income taxes of $115,000 on aloss before income tax expense of approximately $3.5 million.  The decrease in the benefit resultedprimarily from improved financial performance and the non-deductibility ofgoodwill associated with the Acquisition.

 

**Liquidity and Capital Resources**

 

The Company has met its capital expenditures andworking capital needs through a combination of operating cash flow, borrowingsunder the FFCA Loans, bank borrowings, the sale of the Senior Notes and thesale of Common Stock.

 

13

----

 

*FiscalYear Ended January 2, 2002. *Netcash flows from operating activities were $4.3 million for fiscal 2001 ascompared to $10.4 million for fiscal 2000. Net income from operations for this period was $15.0 million and thenon-cash reconciling items of deferred rent, depreciation, amortization,deferred taxes increased cash flows by $17.3 million.  This compares favorably by approximately $338,000 to the resultsin 2000.  A closed restaurant charge of$4.2 million and an asset impairment charge of $1.8 million increased cash by atotal of $6.0 million.  Accrued expensesdecreased by $4.6 million mostly as a result of a reduction of accrued payroll,restaurant closing reserves and occupancy expenses which were offset by anincrease in accrued taxes due to the utilization of net operating losscarryforwards.  The Company also usedcash from operations to increase working capital needs for four newly developedrestaurant locations.  Net cash providedby investing activities for fiscal 2001 was $24.3 million primarily a result of$36.3 million generated from the Brinker Sale. Approximately $12.2 million was used for developing, building andopening new restaurants, paying franchise fees, acquiring liquor licenses andfor capital additions at existing restaurants and approximately $200,000 ofcash was generated from the sale of one closed Bertucci’s restaurant.  Net cash used in financing activities was$13.0 million for fiscal 2001.  Duringthis period, $421,000 was used for repaying principle on FFCA mortgages,approximately $1.0 million was used to establish cash collateral for a Letterof Credit Facility and approximately $11.5 million was used to repurchase $14.7million face value Senior Notes.

 

As of January 2, 2002, the Company had $85.3 millionin consolidated indebtedness, all pursuant to the Senior Notes.  In July 2001, the Company retired $14.7million of the Senior Notes with a portion of the proceeds from the BrinkerSale.  An extraordinary gain of $1.3million, net of a $1.0 million tax liability was recorded which is depicted inthe Consolidated Statement of Operations net. The Senior Notes contain no financial covenants and the Company is incompliance with all non-financial covenants as of January 2, 2002.  The indenture governing the Senior Notesrequires the use of proceeds from an asset sale within one year of the transactiondate (April 12, 2002 for the Brinker Sale) and defines the acceptable uses,including repurchase of debt or investment in assets.  The Company believes it has met the terms of the indenture foruse of Brinker Sale proceeds. Furthermore, the Company believes that the cash flow generated from itsoperations with the current cash on hand should be sufficient to fund its debtservice requirements, lease obligations, current expected capital expendituresand other operating expenses through 2002. Beyond 2002, the Company expects to be able to service its debt, but thelack of short term borrowing availability may impede growth.

* *

*FiscalYear Ended January 3, 2001. *Netcash flows from operating activities were $10.4 million for fiscal 2000 ascompared to $6.5 million for fiscal 1999. Net loss from operations for this period was $3.4 million and thenon-cash reconciling items of deferred rent, depreciation, amortization,deferred taxes and non-cash loss on the Sal & Vinnie’s abandonmentincreased cash flows by $19.5 million. This compares favorably by approximately $3.0 million to the results in1999.  The Company believes the 53rdweek of operations accounts for approximately $500,000 of the favorablevariance which includes incremental cash from operations of approximately $1.3million offset by an $800,000 increase in prepaid expenses, mostly prepaidrents, applied to fiscal 2001.  Accruedexpenses decreased by $4.6 million mostly as a result of a reduction of accruedpayroll, restaurant closing reserves and occupancy expenses which werepartially offset by an increase in accrued taxes.  The Company also used cash from operations to increase workingcapital needs for four newly developed restaurant locations.  Net cash used in investing activities forfiscal 2000 was $12.1 million. Approximately $14.5 million was used for developing, building andopening new restaurants, paying franchise fees, acquiring liquor licenses andfor capital additions at existing restaurants including a point of sale (“POS”)computer upgrade at half of the Bertucci’s locations.  The sale of four Bertucci’s restaurants accounted forapproximately $1.7 million of cash inflow in addition to $648,000 of cashprovided by the sale of an adjacent parcel of land to one of the Chili’sproperties and the sale of a liquor license (the Company maintained a beer andwine license) at a Bertucci’s location. Net cash provided by financing activities was $1.8 million for fiscal2000.  During this period, $3.8 millionwas borrowed from FFCA Acquisition Corporation (“FFCA”) for new restaurantmortgages (Note 7 of the consolidated financial statements), $1.8 million wasused for repaying principle on FFCA mortgages and approximately $0.2 was usedfor capital lease payments and the purchase of common shares to treasury.

* *

*FiscalYear Ended December 29, 1999. *Netcash flows from operating activities were $6.5 million for fiscal 1999 ascompared to $17.2 million for fiscal 1998. Approximately $5.0 million of the $10.7 million difference was a resultof additional interest incurred on the Senior Notes in 1999 versus 1998.  Net loss from operations for this period was$6.5 million and the non-cash reconciling item of deferred rent, depreciation,amortization and pre-tax change in accounting principle increased cash flows by$17.6 million.  Accrued expensesdecreased by $4.5 million mostly as a result of a reduction of accrued payroll,restaurant closing reserves, occupancy expenses and other liabilities which werepartially offset by an increase in unredeemed gift certificates.  The Company also used cash from operationsto increase working capital needs for newly developed restaurant locations andfor the Bertucci’s restaurants acquired during fiscal 1998. Increases in

 

14

----

 

deferred taxes andaccounts payable were partially offset by a net decrease in other workingcapital accounts, a decrease in inventories and an increase in prepaidexpenses.  Net cash used in investingactivities for fiscal 1999 was $14.4 million. Approximately $19.2 million was used for developing, building andopening new restaurants, paying franchise fees and for capital additions atexisting restaurants.  The sale ofassets (primarily the former Bertucci’s headquarters located in Wakefield,Massachusetts) accounted for approximately $4.8 million of additional cash tothe Company in 1999.  Net cash providedby financing activities was $10.1 million for fiscal 1999.  During this period, $11.3 million wasborrowed from FFCA Acquisition Corporation (“FFCA”) for new restaurantmortgages (Note 7 of the consolidated financial statements), $1.0 million wasused for repaying principle on FFCA mortgages and approximately $0.2 was usedfor capital lease payments and return of capital.

 

The Company’s capital expenditures were $12.2 million,$14.2 million and $19.0 million, for fiscal 2001, 2000 and 1999,respectively.  In fiscal 2001, capitalexpenditures for remodeling, maintenance and repair of the Company’srestaurants and the new corporate office were approximately $7.0 million.  The remainder of the capital spending wasdirectly associated with new restaurant development.  The company expects to open five to six Bertucci’s restaurants in2002.

 

In August 1997, the Company paid a dividend and returnof capital distribution to shareholders of approximately $16.7 million fromadditional paid-in capital, with the excess payout being charged to retainedearnings.  In addition, as part of suchtransaction, the Company repurchased a portion of its capital stock, for anaggregate amount of approximately $8.3 million.  The Company’s repurchase of shares of common stock was recordedas treasury stock, at cost, and resulted in a reduction of shareholders’equity.  These payments were fundedthrough the use of proceeds from the FFCA Loan.

 

The Senior Notes bear interest at the rate of 10 3/4%per annum, payable semi-annually on January 15 and July 15, with payments thatcommenced on January 15, 1999.  TheSenior Notes are due in full on July 15, 2008. From July 15, 2003 through July 15, 2006, the Company may, at itsoption, redeem any or all of the Senior Notes at face value, plus a decliningpremium, which begins at approximately 5%. After July 15, 2006, the Senior Notes may be redeemed at facevalue.  Additionally, under certaincircumstances, including a change of control or following certain asset sales,the holders of the Senior Notes may require the Company to repurchase theSenior Notes, at a redemption price of 101%. See Note 5 of Notes to Consolidated Financial Statements.

 

From 1997 through 2000, the Company entered intovarious loan agreements with FFCA which resulted in the issuance of promissorynotes and mortgages collateralized by various Brinker Concept restaurants.  For the years ended January 2, 2002, January3, 2001 and December 29, 1999 interest related to the FFCA loans was $1.3,$3.9, and $3.0 million, respectively. The loans were assumed by Brinker as a result of the Brinker Sale withno continuing liability to the company.

 

The Senior Bank Facility provided the Company withavailable borrowing up to an aggregate amount of $20.0 million.  Concurrent with the completion of theBrinker Sale, the Company repaid the $300,000 balance outstanding at which timethe availability of the Senior Bank Facility was restricted.  On July 21, 2001, the Senior Bank Facilityexpired and was not replaced; the Company is currently operating without a lineof credit and is funding all of its growth, debt reductions and operating needsout of cash flows from operations and cash on hand.

 

During July 2001, the Company established a $2.0million (maximum) Letter of Credit Facility. As of January 2, 2002, this facility is collateralized with $1.0 millionof cash restricted from general use. Letters of Credit totaling $581,000 were outstanding on January 2, 2002.

 

The Company’s future operating performance and abilityto service or refinance the Senior Notes will be subject to future economicconditions and to financial, business and other factors, many of which arebeyond the Company’s control. Significant liquidity demands will arise from debt service on the SeniorNotes.

 

**Impact of Inflation**

 

Inflationary factors such as increases in labor, foodor other operating costs could adversely affect the Company’s operations.  The Company does not believe that inflationhas had a material impact on its financial position or results of operationsfor the periods discussed above. Management believes that through the proper leveraging of purchasingsize, labor scheduling, and restaurant development analysis, inflation will nothave a material adverse effect on income during the foreseeable future.  There can be no assurance that inflationwill not materially adversely affect the Company.

 

15

----

 

**Seasonality**

 

The Company’s quarterly results of operations havefluctuated and are expected to continue to fluctuate depending on a variety offactors, including the timing of new restaurant openings and relatedpre-opening and other startup expenses, net sales contributed by newrestaurants, increases or decreases in comparable restaurant sales, competitionand overall economic conditions.  TheCompany’s business is also subject to seasonal influences of consumer spending,dining out patterns and weather.  As isthe case with many restaurant companies, the Company typically experienceslower net sales and net income during the first and fourth fiscalquarters.  Because of these fluctuationsin net sales and net income (loss), the results of operations of any quarterare not necessarily indicative of the results that may be achieved for a fullfiscal year or any future quarter.

** **

**Significant Accounting Policies**

 

In April 1998, the AICPA issued its Statement ofPosition 98-5 (‘‘SOP 98-5’’), *Reporting on the Costs of Start-Up Activities*.  SOP 98-5 requires that costs incurred duringstart-up activities, including organization costs, be expensed asincurred.  SOP 98-5 is effective forfinancial statements for fiscal years beginning after December 15, 1998.  Application of SOP 98-5 is as of thebeginning of the fiscal year in which it is first adopted and is reported as acumulative effect of a change in accounting principle.

 

The Company adopted SOP 98-5 as of the first day offiscal 1999.  Upon adoption, the Companyincurred a pre-tax cumulative effect of a change in accounting principle ofapproximately $1.1 million.  This chargewas primarily for the write-off of unamortized preopening costs which were previouslyamortized over the 12-month period subsequent to a restaurant opening.

 

In 1996, the FASB issued Statement of FinancialAccounting Standards (SFAS) No. 121, *Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to BeDisposed Of*.  The Company’slong-lived assets primarily consist of goodwill, real estate and leaseholdimprovements related to its restaurant operations.  SFAS No. 121 requires management to consider whether long-livedassets held for use have been impaired by comparing undiscounted future cashflows expected to be generated from utilizing these assets to their carryingamounts.  If such cash flows are notsufficient to recover the carrying amount of the assets, impairment hasoccurred and the assets held for use would be written down if their fair marketvalues are less than their carrying value. Significant estimates and assumptions regarding future sales, costtrends, productivity and market maturity are required to be made by managementin order to test for impairment under this standard.  For long-lived assets to be disposed of, SFAS No. 121 requiresthat long-lived assets be reported at the lower of carrying amount or fairvalue less cost to sell.  During thethird quarter, the Company recorded approximately $1.8 million of impairmentcharges related to four restaurant locations. This impairment was charged to earnings and included in the accompanyingconsolidated statements of operations for 2001.

*** ***

***Accounting Pronouncements***

 

In June 1998, the FASB issued SFAS No. 133, *Accounting for Derivative Instruments and HedgingActivities*.  This statementestablished accounting and reporting standards requiring that every derivativeinstrument (including certain derivative instruments embedded in othercontracts and for hedging activities) be recorded in the balance sheet aseither an asset or liability measured at its fair value.  SFAS No. 133 requires that changes in thederivative’s fair value be recognized currently in earnings unless specifichedging accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains andlosses to offset related results on the hedged item in the income statement,and requires that a company must formally document, designate and assess theeffectiveness of transactions that receive hedge accounting.  SFAS No. 133 is effective for fiscal yearsbeginning after June 15, 2000.

 

In June 2000, the FASB issued SFAS No. 138, *Accounting for Derivative Instruments and HedgingActivities — An Amendment of FASB Statement No. 133*, which amendedSFAS No. 133 and added guidance for certain derivative instruments and hedgingactivities.  The new standard, SFAS No.133 as amended by SFAS No. 138, requires recognition of all derivatives aseither assets or liabilities at fair value. One of the primary amendments to SFAS No. 133 that is covered by SFASNo. 138 establishes an exemption for normal purchases and normal sales thatwill be delivered in quantities expected to be used or sold over a reasonableperiod in the normal course of business. The adoption of these standards did not have a material impact on theCompany’s fiscal position or results of operations

 

16

----

 

In July 2001, the FASB issued SFAS No. 142, *Goodwill And Other Intangible Assets*.  SFAS No. 142 addresses the method ofidentifying and measuring goodwill and other intangible assets acquired in abusiness combination, eliminates further amortization of goodwill and otherindefinite-lived intangibles, and requires periodic (at least annual)evaluations of impairment of goodwill balances. SFAS No. 142 is effective forfiscal years beginning after December 15, 2001.  The Company expects that its annualized goodwill amortization of$2.3 million will be eliminated beginning in 2002 and no goodwill impairmentcharge will be necessary.

 

In October 2001, the FASB issued SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* which replaces SFAS No. 121.  This statement addresses financialaccounting and reporting for the impairment or disposal of long-livedassets.  SFAS No. 144 retains thefundamental provisions of SFAS No. 121 regarding recognition/measurement ofimpairment of long-lived assets to be held and used and measurement oflong-lived assets to be disposed of by sale. Under SFAS No. 144, asset write-downs from discontinuing a businesssegment will be treated the same as other assets held for sale; however, itextends the method of accounting to all assets held for sale.  The new standard also broadens the financialstatement presentation of discontinued operations to include the disposal of anasset group (rather than a segment of a business).  SFAS No. 144 is effective beginning January 1, 2002 and,generally is to be applied prospectively. The Company is studying the potential financial impact of adopting thisnew standard, but does not expect it to have any significant material impact onfinancial position and results of operations.

 

**Risk Factors**

* *

*ThisReport contains forward-looking statements that involve risks and uncertainties,such as statements of the Company’s plans, objectives, expectations andintentions.  The cautionary statementsmade in this Report should be read as being applicable to all forward lookingstatements wherever they appear in this Report.  The Company’s actual results could differ materially from thosediscussed herein.  Factors that couldcause or contribute to such differences include those discussed below, as wellas those discussed elsewhere in this Report.*

* *

*SubstantialLeverage; Potential Inability to Service Indebtedness. *As a result of theAcquisition, the Company is highly leveraged. At the end of fiscal 2001, the Company’s aggregate outstandingindebtedness was $85.3 million, the Company’s shareholders’ equity was $19.0million and the Company’s working capital, deficiency of earnings to fixedcharges and losses were $3.8 million, $3.5 million and $3.4 million,respectively.  The Company’s ratio ofearnings to fixed charges for fiscal 2001 was 0.1 to 1.0.

 

The Company’s high degree of leverage could haveimportant consequences to holders of Senior Notes, including but not limited tothe following: (i) the Company’s ability to obtain additional financing forworking capital, capital expenditures, acquisitions, general corporate purposesor other purposes may be impaired in the future; (ii) a substantial portion ofthe Company’s cash flow from operations must be dedicated to the payment ofprincipal and interest on its indebtedness, thereby reducing the fundsavailable to the Company for its operations and other purposes, includinginvestments in development and capital spending; (iii) the Company may besubstantially more leveraged than certain of its competitors, which may placethe Company at a competitive disadvantage; and (iv) the Company’s substantialdegree of leverage may limit its flexibility to adjust to changing marketconditions, reduce its ability to withstand competitive pressures and make itmore vulnerable to a downturn in general economic conditions or in itsbusiness.  The Company’s ability torepay or to refinance its obligations with respect to its indebtedness willdepend on its future financial and operating performance, which, in turn, willbe subject to prevailing economic and competitive conditions and to certainfinancial, business, legislative, regulatory and other factors, many of whichare beyond the Company’s control.  Thesefactors could include operating difficulties, increased operating costs,product pricing pressures, the response of competitors, regulatorydevelopments, and delays in implementing strategic projects.  The Company’s ability to meet its debtservice and other obligations may depend in significant part on the extent towhich the Company can implement successfully its business strategy.  There can be no assurance that the Companywill be able to implement its strategy fully or that the anticipated results ofits strategy will be realized.

 

If the Company’s cash flow and capital resources areinsufficient to fund its debt service obligations, the Company may be forced toreduce or delay capital expenditures, sell assets, or seek to obtain additionalequity capital, or to refinance or restructure its debt.  There can be no assurance that the Company’scash flow and capital resources will be sufficient for payment of principal of,and premium, if any, and interest on, its indebtedness in the future, or thatany such alternative measures would be successful or would permit the Companyto meet its scheduled debt service obligations.

* *

*RestrictiveDebt Covenants. *The Indenturefor the Senior Notes impose significant operating and financial restrictions onthe Company (and its subsidiaries). Such restrictions will affect, and in many respects significantly limitor prohibit, 

 

17

----

 

among otherthings, the ability of the Company to incur additional indebtedness, paydividends or make other distributions, make certain investments, create certainliens, sell certain assets, enter into certain transactions with affiliates, orengage in certain mergers or consolidations involving the Company.  A failure by the Company to comply with therestrictions could lead to a default under the terms of the Indenture.  In the event of a default, the lender couldelect to declare all amounts borrowed pursuant thereto, and all amounts due maybe, immediately due and payable, together with accrued and unpaid interest, andthe lenders could terminate all commitments thereunder.  In such event, there can be no assurancethat the Company would be able to make such payments or borrow sufficient fundsfrom alternative sources to make any such payment.  Even if additional financing could be obtained, there can be noassurance that it would be on terms that are favorable or acceptable to theCompany.  The reduced size of theCompany as a result of the Brinker Sale may further affect the Company’sability to satisfy the debt covenants.

* *

*PotentialInability to Manage Geographic Expansion. *All of the restaurants operated by the Company priorto the Acquisition were located in New England.  As a result of consummation of the Acquisition, nearly one-thirdof the Company’s restaurants were outside of New England.  As of this filing, and partially as a resultof closing seventeen restaurants outside New England, two inside of New Englandand the Brinker Sale, approximately 30% of the Company’s restaurants arecurrently outside of New England.  Theability of the Company’s management to effectively recognize and account fordiverse regional conditions and to manage restaurants that are geographicallyremote will be critical to the success of the Company.  Any inability of the Company to successfullymanage its geographic expansion may have a material adverse effect on the Company.

 

The Company’s future operating results will dependlargely upon its ability to open and operate new or newly acquired restaurantssuccessfully and to manage a growing business profitably.  This will depend on a number of factors(some of which are beyond the control of the Company), including (i) selectionand availability of suitable restaurant locations, (ii) negotiation ofacceptable lease or financing terms, (iii) securing of required governmentalpermits and approvals, (iv) timely completion of necessary construction orremodeling of restaurants, (v) hiring and training of skilled management andpersonnel, (vi) successful integration of new or newly acquired restaurantsinto the Company’s existing operations and (vii) recognition and response toregional differences in guest menu and concept preferences.

 

There can be no assurance that the Company’s expansionplans can be achieved on a timely and profitable basis or that it will be ableto achieve results similar to those achieved in existing locations in priorperiods or that such expansion will not result in reduced sales at existingrestaurants that have been recently opened or newly acquired restaurants.  Any failure to successfully and profitablyexecute its expansion plans could have a material adverse effect on theCompany.

 

*Changesin Food Costs and Supplies; Key Supplier*.  The Company’s profitability is dependent on,among other things, its continuing ability to offer fresh, high quality food atmoderate prices.  Various factors beyondthe Company’s control, such as adverse weather, labor disputes or otherunforeseen circumstances, may affect its food costs and supplies.  While management has been able to anticipateand react to changing food costs and supplies to date through its purchasingpractices and menu price adjustments, there can be no assurance that it will beable to do so in the future.

 

The Company obtains approximately 75% to 80% of itssupplies through a single vendor pursuant to a contract for delivery anddistribution, with the vendor charging fixed mark-ups over prevailing wholesaleprices.  The Company has a five-yearcontract with this vendor which expires in 2007 and is otherwise terminable byeither party upon 120 days’ prior notice. The Company believes that it would be able to replace any vendor if itwere required to do so; however, any disruption in supply from vendors or theCompany’s inability to replace vendors, when required, may have a materialadverse effect on the Company.

* *

*PossibleAdverse Impact of Economic, Regional and Other Business Conditions on theCompany. *TheCompany’s business is sensitive to guests’ spending patterns, which in turn aresubject to prevailing regional and national economic conditions such asinterest rates, taxation and consumer confidence.  Most of the restaurants owned by the Company are located in thenortheastern and Mid-Atlantic United States, with a large concentration in NewEngland.  In addition, the Companyanticipates substantially all restaurants to be opened in fiscal 2002 will bein states where the Company presently has operations or in contiguous states.

* *

*DependenceUpon Key Personnel. *TheCompany’s business depends upon the efforts, abilities and expertise of itsexecutive officers and other key employees. The Company has no long-term employment contracts with, and does notmaintain ‘‘key-man’’ life insurance for, any of its executive officers or keyemployees.  The loss of the services ofcertain of 

 

18

----

 

these executiveofficers or key employees or the inability to retain key personnel would have amaterial adverse effect on the Company.

* *

*Competition. *The restaurant industry isintensely competitive with respect to, among other things, price, service,location and food quality.  The Companycompetes with many well-established national, regional and locally-ownedfoodservice companies with substantially greater financial and other resourcesand longer operating histories than the Company, which, among other things, maybetter enable them to react to changes in the restaurant industry.  With respect to quality and cost of food,size of food portions, decor and quality service, the Company competes withcasual dining, family-style restaurants offering eat-in and take-out menus,including Applebee’s International, Inc., TGI Friday’s Inc., Ruby Tuesday Inc.,Uno Restaurant Corporation and Olive Garden Restaurants.  As a result of the Brinker Sale, the Companyalso competes with Chili’s and, to a lesser extent, On the Border CaféRestaurants. Many of the Company’s restaurants are located in areas of highconcentration of such restaurants. Among other things, the Company also vies with all competitors inattracting guests, in obtaining premium locations for restaurants (includingshopping malls and strip shopping centers) and in attracting and retainingemployees.

* *

*PossibleAdverse Impact of Government Regulation on the Company. *The restaurant business issubject to extensive federal, state and local laws and regulations relating tothe development and operation of restaurants, including those concerningalcoholic beverage sales, preparation and sale of food, relationships withemployees (including minimum wage requirements, overtime and working conditionsand citizenship requirements), land use, zoning and building codes, as well asother health, sanitation, safety and environmental matters.  Compliance with such laws and regulationscan impede the operations of existing Company restaurants and may delay orpreclude construction and completion of new Company restaurants.  The Company is subject in certain states to‘‘dram-shop’’ statutes, which generally provide a person injured by anintoxicated person the right to recover damages from an establishment thatwrongfully served alcoholic beverages to the intoxicated person.  The Company carries liquor liabilitycoverage as part of its existing comprehensive general liabilityinsurance.  In addition, the Company mayalso in certain jurisdictions be required to comply with regulations limitingsmoking in restaurants.

* *

*Relianceon Information Systems. *TheCompany relies on various information systems to manage its operations andregularly makes investments to upgrade, enhance or replace such systems.  Any disruption affecting the Company’sinformation systems could have a material adverse effect on the Company.

* *

*Franchising. *The Company has no experiencein franchising restaurants and there can be no assurance that the Company will beable to successfully locate and attract suitable franchisees or that suchfranchisees will have the business abilities or sufficient access to capital toopen restaurants or will operate restaurants in a manner consistent with theCompany’s concept and standards or in compliance with franchiseagreements.  The success of theCompany’s franchising program will also be dependent upon certain otherfactors, certain of which are not within the control of the Company or itsfranchisees, including the availability of suitable sites on acceptable leaseor purchase terms, permitting and regulatory compliance and general economicand business conditions.

 

**ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.**

 

The Company has market risk associated with interestrate risk.  The Company manages itsexposure through its regular financing activities.  Interest rate changes would result in a change in the fair valueof the Company’s debt facilities due to the difference between the marketinterest rate and the rate at the date of issuance of the debt facilities.  Furthermore, the Company has no exposure tospecific risks related to derivatives or other “hedging” types of financialinstruments.

 

**ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

The financial statements and supplementary data arelisted under Part IV, Item 14 in this report.

 

19

----

 

**ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE**

 

None.

 

20

----

 

**PART III**

** **

**ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

The following table sets forth certain informationwith respect to the executive officers and directors of the Company at the timeof this filing:

 

| **Name**               |   | **Age** |   | **Position**                                                               |
|------------------------|--------|---------|--------|----------------------------------------------------------------------------|
| Benjamin R. Jacobson   |   | 57      |   | Chairman of the Board  of Directors, Chief Executive Officer and Treasurer |
| Raymond P. Barbrick    |   | 49      |   | President, Chief  Operating Officer and Director                           |
| Kurt J. Schnaubelt     |   | 38      |   | Senior Vice President –  Finance and Administration                   |
| Paul J. Seidman        |   | 45      |   | Senior Vice President –  Food & Beverage and Procurement          |
| Irene E. Cook          |   | 43      |   | Vice President –  Training                                            |
| Rosario Del Nero       |   | 49      |   | Vice President                                                             |
| Mark S. Eason          |   | 48      |   | Vice President –  Restaurant Operations                               |
| Lewis P. Holt          |   | 48      |   | Vice President –  Construction                                        |
| Gregory A. Pastore     |   | 37      |   | Vice President –  Development & General Counsel                   |
| Stephen F. Mandel, Jr. |   | 46      |   | Director                                                                   |
| James J. Morgan        |   | 59      |   | Director                                                                   |
| James R. Parish        |   | 55      |   | Director                                                                   |
| Stephen R. Karp        |   | 62      |   | Director                                                                   |

 

**BenjaminR. Jacobson. **Mr.Jacobson has served as Chairman of the Board of Directors of the Company since 1991and as Chief Executive Officer since October 1999.  Since 1989, Mr. Jacobson has served as the Managing GeneralPartner of Jacobson Partners, which specializes in direct equity investments.Mr. Jacobson is a director of Childtime, Inc. and a number of privately-heldcorporations.

** **

**RaymondP. Barbrick. **Mr.Barbrick has been employed in the restaurant industry for 31 years andcurrently serves as President, Chief Operating Officer and Director of theCompany.  He served as the Company’sVice President of Operations for the Brinker Concept Restaurants from January1998 until October 1999.  Prior to that,he served as Senior Director of Operations, from 1992 through 1997, withresponsibility for all of the Company’s Chili’s restaurants in Connecticut andwestern Massachusetts.  Prior to joiningthe Company, Mr. Barbrick was employed by Back Bay Restaurant Group, where heheld the position of director of regional operations from 1989 to 1992.

** **

**KurtJ. Schnaubelt. **Mr. Schnaubelt has been employed in the restaurantindustry for 21 years.  He has served asthe Company’s Director of Financial Reporting, Planning and Analysis fromJanuary 1999 until March 2001 when he was promoted to Senior VicePresident – Finance and Administration.  His responsibilities include allaccounting, finance, reporting, planning and analysis functions as well as riskmanagement and Information Technologies. Mr. Schnaubelt has held several other positions in the Company includingAssistant Controller, Accounting Manager and Restaurant Manager.  His other experience includes serving as theController for Quikava, a double drive through coffee and specialty beverageconcept located in New England.  Mr.Schnaubelt is a Certified Management Accountant and a Certified FinancialManager.

** **

**PaulJ. Seidman.**  Mr.Seidman has been employed in the restaurant industry for 28 years and hasserved as the Company’s Senior Vice President - Food & Beverage andProcurement since January 1998.  Mr.Seidman’s responsibilities include all food and beverage specifications,purchasing, and cost control as well as leading the menu and productdevelopment team.  Mr. Seidman has heldnumerous positions in the industry, most recently as Vice President of Food& Beverage and Corporate Executive Chef for the Bayport Restaurant Group.

** **

**IreneE. Cook. **Ms. Cook has been employed in the restaurantindustry for 26 years.  She has servedthe Company as Senior Director of Training from 1993 until her promotionto Vice President - Training in October 2000. Ms. Cook’s responsibilities include design and delivery of all trainingincluding new restaurant openings, management development, adherence to statemandated education requirements (foodservice safety and sanitation, alcoholservice training, etc.) and recruiting. Prior to joining the Company, Ms. Cook held several positions within theindustry including Director of Franchise Operations and Training for BostonMarket.

 

21

----

 

**RosarioDel Nero**.  Mr. DelNero has been employed in the restaurant industry for 18 years.  He has served as Corporate Executive Cheffor Bertucci’s since 1992 and was promoted to Vice President of the Company inJanuary 2000.  His responsibilitiesinclude product and ingredient development, recipe design and documentation,training and quality enhancement.  Hisvast and detailed knowledge of language, food and cuisine, especially those ofthe Mediterranean, provide for a foundation of authenticity.  Mr. Del Nero’s previous industry experience,both in the United States and abroad, includes positions as independentrestaurateur, culinary arts instructor and food consultant to restaurants andmanufacturers.

** **

**MarkS. Eason  **Mr. Eason hasbeen employed in the restaurant industry for over 15 years and currently servesas the Company’s Vice President — Restaurant Operations.  Mr. Eason joined Bertucci’s in 1999 as aRegional Vice President and was promoted to his current position in 2001. From1991 to 1999, Mr. Eason held various positions in restaurant operations withLone Star Steakhouse & Saloon, Inc., lastly as Regional Vice President.From 1985 to 1991, Mr. Eason was a General Manager and then Area Supervisor forthe Steak & Ale Division of S & A Restaurant Corp.

** **

**LewisP. Holt. **Mr. Holt has been employed in the restaurantindustry for 25 years and currently serves as the Company’s Vice President -Construction.  Mr. Holt’sresponsibilities include overseeing all phases of building and kitchen design,construction and permitting for all of the Company’s restaurants.  He is also responsible for overseeing thefacilities in of all restaurants including maintenance capital and renovationsand remodeling.  Mr. Holt has served asDirector of Construction for Legal Seafoods of Boston and he held constructionand design positions for Pizzeria Uno restaurants.  Mr. Holt has been employed by the Company since 1992.

** **

**GregoryA. Pastore. **Mr. Pastore serves as the Company’s VicePresident - Development, General Counsel and Secretary.  His responsibilities include employeerelations, restaurant and alternate venue development, and management of theCompany’s corporate and legal affairs. Prior to joining the Company in 1999, Mr. Pastore was affiliated withthe Boston law firm of Hutchins, Wheeler & Dittmar, where his internationalpractice concentrated on mergers and acquisitions, commercial real estatedevelopment and related financing.

** **

**StephenF. Mandel, Jr. **Mr.Mandel has served as a director of the Company since December 1997.  Since July 1997, Mr. Mandel has served asmanaging director, portfolio manager and consumer retail/analyst at Lone PineCapital LLC, a hedge fund which he founded. Prior to that, he served as seniormanaging director and consumer analyst at Tiger Management Corporation from1990 to 1997 and served on that company’s management committee, as director ofequities and portfolio manager.  Priorto 1990, Mr. Mandel served as a vice president and mass-market retailinganalyst at Goldman, Sachs and Co.

** **

**JamesJ. Morgan. **Mr. Morganhas served as a director of the Company since December 1997.  From 1963 until his retirement in 1997, Mr.Morgan was employed by Philip Morris U.S.A. where he served as President and Chief Executive Officer from 1994 untilhis retirement in 1997.  Prior to 1994,Mr. Morgan served in various capacities at Philip Morris including Senior VicePresident of Marketing, and Corporate Vice President of Marketing Planning ofthe Philip Morris Companies Inc.

** **

**JamesR. Parish. **Mr. Parishhas been employed in the restaurant industry for 23 years and has served as adirector of the Company since July 1998. Since 1991, Mr. Parish has served as Chief Executive Officer of ParishPartners, Inc.  From 1995 to 1996, Mr.Parish served as Chief Executive Officer of Sfuzzi, Inc. From 1983 to 1991, Mr.Parish served as Executive Vice President and Chief Financial Officer ofChili’s Inc. (now named Brinker International, Inc.).

** **

**StephenR. Karp. **Mr. Karp isChairman and CEO of New England Development, a leading developer of shoppingcenters and commercial property.  He isa member of the Greater Boston Real Estate Board and the Urban LandInstitute.  He is a past President andmember of the Board of Trustees of the International Council of ShoppingCenters.  He also serves as a trustee ofthe Belmont Hill Children’s Hospital, Dana Farber Cancer Institute and the NewEngland Aquarium and is Chairman of the Children’s Hospital.

 

**Term of Directors**

 

The Company’s directors serve in such capacity untilthe next annual meeting of the shareholders of the Company or until theirsuccessors are duly elected and qualified.

 

22

----

 

**ITEM 11.  EXECUTIVE COMPENSATION**

** **

**Executive Compensation**

 

The following table summarizes the compensation forthe most current three fiscal years for the Company’s Chief Executive Officerand each of its four other most highly compensated executive officers (theChief Executive Officer and such other officers, collectively, the ‘‘NamedExecutive Officers’’):

** **

**SummaryCompensation Table**

 
|                                                                   |    |   |    | **Annual Compensation** |   | **Long Term Compensation** |   |
|------------------------------------------------------------------------|---------|--------|---------|-------------------------|--------|----------------------------|--------|
| **Name and Principal Position**                                        |    |   |    | **Salary($)**           |   | **Bonus($)**               |   | **Other Annual  Compensation ($) (c)** |   | **Securities Underlying Options (#)** |   |
| Benjamin R. Jacobson  Chairman of the Board                            |    | 2001   |    | —                  |   | —                     |   | 13,221 |   | 224,599 |   |
| 2000                                                                   | —  | — | —  | 149,599                 |
|                                                                   |    | 1999   |    | —                  |   | —                     |   | — |   | 49,599 |   |
|                                                                   |    |   |    |                    |   |                       |   |   |   |   |   |
| Raymond P. Barbrick  President                                         |    | 2001   |    | 202,181                 |   | 133,382                    |   | 9,500 |   | 89,776 |   |
| 2000                                                                   | 164,038 | 75,070 | 8,400   | 44,776                  |
|                                                                   |    | 1999   |    | 133,962                 |   | 108,002                    |   | 8,100 |   | 29,776 |   |
|                                                                   |    |   |    |                    |   |                       |   |   |   |   |   |
| David J. Nace, Sr.   (a)  Executive Vice President                |    | 2001   |    | 155,769                 |   | 128,800                    |   | 35,956 | (b) | — |   |
| 2000                                                                   | 157,692 | — | 118,092 |                    | — |
|                                                                   |    | 1999   |    | —                  |   | —                     |   | — |   | — |   |
|                                                                   |    |   |    |                    |   |                       |   |   |   |   |   |
| Paul J. Seidman   Senior Vice President                                |    | 2001   |    | 136,355                 |   | 64,004                     |   | 8,400 |   | 37,360 |   |
| 2000                                                                   | 124,038 | — | 8,400   | 27,630                  |
|                                                                   |    | 1999   |    | 113,846                 |   | 21,379                     |   | 8,400 |   | 20,130 |   |
|                                                                   |    |   |    |                    |   |                       |   |   |   |   |   |
| Gregory A. Pastore   Vice President - Development and  General Counsel |    | 2001   |    | 120,000                 |   | 43,198                     |   | 8,400 |   | 16,500 |   |
| 2000                                                                   | 108,923 | 837    | 1,400   | 1,500                   |
| 1999                                                                   | 80,023  | 2,511  | —  | —                  |

 

----

(a)      Mr. Nace tendered his resignation with theCompany effective March 16, 2001.

(b)      Includes travel expenses and applicabletaxes.

(c)      Includes auto lease payments and autoallowance paid by the Company.

 

23

----

 

**Options Granted in Last Fiscal Year**

 

The following table sets forth information concerningoptions granted during fiscal 2001 to each of the Named Executive Officers.

 
|                    |   | **Number  of  Securities  Underlying  Options Granted (a)** |   | **%****of Total  Granted in********Fiscal  2001** |   |                 |   |   |       | **Realizable  Value  at Assumed Annual  Stock Price  Appreciation for  Option Term(c)** |   |
|-------------------------|--------|-------------------------------------------------------------|--------|---------------------------------------------------|--------|----------------------|--------|--------|------------|-----------------------------------------------------------------------------------------|--------|
|                    |   |                                                        |   |                                              |   |                 |   |   |
|                    |   |                                                        |   |                                              |   |                 |   |   |
|                    |   |                                                        |   |                                              |   |                 |   |   |
|                    |   |                                                        |   |                                              |   |                 |   |   |
| **Name**                |   |                                                        |   | **Exercise  Price (b)**                           |   | **Expiration  Date** |   | **5%** |       | **10%**                                                                                 |   |
| Benjamin R.  Jacobson   |   | 75,000                                                      |   | 22.6                                              | %      | $                    | 17.51  |   | 01/24/2011 |                                                                                    | $      | 825,900 |   | $ | 2,093,300 |   |
| Raymond P.  Barbrick    |   | 45,000                                                      |   | 13.5                                              | %      | $                    | 17.51  |   | 01/24/2011 |                                                                                    | $      | 495,500 |   | $ | 1,256,000 |   |
| Paul J. Seidman         |   | 10,000                                                      |   | 3.0                                               | %      | $                    | 17.51  |   | 01/24/2011 |                                                                                    | $      | 110,100 |   | $ | 279,100 |   |
| Gregory A.  Pastore     |   | 15,000                                                      |   | 4.5                                               | %      | $                    | 17.51  |   | 01/24/2011 |                                                                                    | $      | 165,200 |   | $ | 418,700 |   |
| David J. Nace,  Sr. (d) |   | —                                                      |   | —                                            |   | $                    | — |   | N/A        |                                                                                    | $      | — |   | $ | — |   |

 

----

(a)   Eachof the options granted becomes exercisable at the rate of 25% on or after eachof the second, third, fourth and fifth anniversaries of the date of grant.  Each of the options expires 5 years and 90days from the date of the grant.  See‘‘Stock Option and Other Plans for Employees—Stock Option Plan.’’

(b)  Theexercise price was fixed at the date of the grant and represented the fairmarket value per share of common stock on such date for those options grantedat $17.51.

(c)   Inaccordance with the rules of the Commission, the amounts shown on this tablerepresent hypothetical gains that could be achieved for the respective optionsif exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and10% compounded annually from the date the respective options were granted totheir expiration date and do not reflect the Company’s estimates or projectionsof future prices of the Company’s common stock.  The gains shown are net of the option exercise price, but do notinclude deductions for taxes or other expenses associated with theexercise.  Actual gains, if any, onstock option exercises will depend on the future performance of the Company’scommon stock, the option holders’ continued employment through the optionperiod, and the date on which the options are exercised.

(d)  Mr.Nace tendered his resignation with the Company effective March 16, 2001,forfeiting his options.

 

24

----

 

**Aggregated Option Exercises in LastFiscal Year and Fiscal Year-End Values**

 

The following table sets forth information concerningoption exercises during fiscal 2001, and the fiscal year-end value of unexercisedoptions for each of the Named Executive Officers.

 
| **Name**               |   | **Shares  Acquired on  Exercise** |   | **Value  Realized(a)** |   | **Number Of  Securities  Underlying At  Fiscal Year-End  Exerciseable/Unexercisable** |   | **Value Of  Unexercised  In-The-Money  Options At  Fiscal Year-End  Exerciseable  Unexerciseable(b)** |    |
|------------------------|--------|-----------------------------------|--------|------------------------|--------|---------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|---------|
| Benjamin R.  Jacobson  |   | 0                                 |   | $                      | 0      |                                                                                  | 87,199 | /                                                                                                     | 137,400 |   | $  452,600/$253,600 |   |
| Raymond P.  Barbrick   |   | 0                                 |   | 0                      |   | 18,903                                                                                | /      | 70,873                                                                                                |    | $  146,000/$282,200 |   |
| Paul J. Seidman        |   | 0                                 |   | 0                      |   | 12,693                                                                                | /      | 24,937                                                                                                |    | $  98,100/$126,200 |   |
| Gregory A.  Pastore    |   | 0                                 |   | 0                      |   | 0                                                                                     | /      | 16,500                                                                                                |    | $  0/$42,900 |   |
| David J. Nace,  Sr.(c) |   | 0                                 |   | 0                      |   | 0                                                                                     | /      | -                                                                                                     |    | $  0/$0 |   |
|                        |        |                                   |        |                        |        |                                                                                       |        |                                                                                                       |         |  |  |  |

 

----

(a)                                  Theamount “realized” reflects the appreciation on the date of exercise (based onthe fair market value of the shares on the date of exercise over the purchase price).

(b)                                 Basedupon a price of $19.36

(c)                                  Mr.Nace tendered his resignation with the Company effective March 16, 2001,forfeiting his options.

 

**Employment Agreements**

 

Executive officers of the Company are elected by theBoard of Directors and serve at the discretion of the Board.  At the date of this filing, the Company isnot party to any employment agreements with executive officers.

 

**Stock Option and Other Plans forEmployees**

* *

*StockOption Plan. *OnSeptember 15, 1997, the Board of Directors of the Company established the 1997Equity Incentive Plan, which includes a nonqualified stock option plan (the‘‘Stock Option Plan’’), for certain key employees and directors.  The Stock Option Plan is administered by theBoard of Directors of the Company and may be modified or amended by the Boardof Directors in any respect.

 

Options granted to employees under the Stock OptionPlan are generally exercisable cumulatively at the rate of 25% on or after eachof the second, third, fourth and fifth anniversaries of the date of grant andoptions granted to directors thereunder are generally exercisable immediatelyupon grant.  Options granted under theStock Option Plan to date expire 90 days following either the fifth or the tenthanniversary of the date of the grant.  BetweenSeptember 15, 1997 and December 31, 1997, 331,123 options were granted at aprice of $11.63 per share under the Stock Option Plan (of which 11,020 optionshave been exercised as of January 2, 2002). In addition, between July 21, 1998 and October 19, 1998, 58,429 optionswere granted at a price of $17.51 per share under the Stock Option Plan.  None of the options granted since July 21,1998 have been exercised as of January 2, 2002.  During 2000, a total of 199,750 options were granted, including100,000 at a price of $17.51 per share plus 99,750 options at a price of $9.22per share.  During 2001, a total of332,500 options were granted at a price of $17.51 per share.  On January 2, 2002, 2,978,955 shares ofcommon stock were outstanding.

* *

*ManagementIncentive Plan. *Certainmanagement employees of the Company, including regional directors ofoperations, district managers, managing partners (who are senior generalmanagers), general managers and assistant managers are eligible, at thediscretion of the Company, to participate in the Company’s management incentiveplan that provides incentives and rewards for performance with bonus awardsthat reflect a percentage of each restaurant’s cash contribution.  Payments under the management incentive planare payable monthly or in accordance with the then current payroll cycle of theCompany.

 

25

----

 

*Non-qualifiedDeferred Compensation Plan. *TheCompany had established the Bertucci’s Corporation Deferred Compensation Plan(the ‘‘Non-qualified Deferred Compensation Plan’’) pursuant to which certaineligible executives of the Company may elect to defer a portion of theirsalary. The Company maintained an irrevocable grantor trust which has beenestablished by the Company, as grantor, pursuant to The Merrill LynchNon-qualified Deferred Compensation Plan Trust Agreement, dated December 21,1993, by and between the Company and Merrill Lynch Trust Company of America, anIllinois corporation, as trustee, for the purpose of paying benefits under theNon-qualified Deferred Compensation Plan.

 

The trust assets were held separately from other fundsof the Company, but remained subject to claims of the Company’s generalcreditors in the event of the Company’s insolvency.  In January 2000, the Non-qualified Deferred Compensation Plan wasterminated and the balances were paid to the participants.

 

During 1999, the Company has also established theBertucci’s Corporation Executive Savings and Investment Plan (the “ExecutiveSavings and Investment Plan”) to which highly compensated executives of thecompany may elect to defer a portion of their salary and or earned bonus.  The Company maintains an irrevocable grantortrust which has been established by the Company, as grantor, pursuant to theScudder Kemper Investments Non-Qualified Deferred Compensation Plan TrustAgreement, dated September 20, 1999. The agreement is between the Company and Scudder Kemper Investments, astrustee, for the purpose of paying benefits under non-qualified deferredcompensation plan.

 

The trust assets are held separately from other fundsof the Company, but remain subject to claims of the Company’s general creditorsin the event of the Company’s insolvency. As of January 2, 2002, there were 18 participants in the plan with atotal market value of approximately $402,000.

 

*401(k*).  The Company maintains two definedcontribution plans: the Bertucci’s 401(k) Plan and the NE Restaurant 401(k)Plan.  Under the Bertucci’s 401(k) Plan,substantially all employees of the Company may defer a portion of their currentsalary, on a pretax basis, to the 401(k) Plan. The Company makes a matchingcontribution to the Bertucci’s 401(k) Plan that is allocated, based on aformula as defined by the Bertucci’s 401(k) Plan, to the Bertucci’s 401(k) Planparticipants.  The Company is currentlyin the process of terminating the NE Restaurant 401(k) Plan and as of May 1,1999 all eligible participants were transferred to the Bertucci’s 401(k) Planin order to consolidate the Plans after the Acquisition.  In connection with the termination of the NERestaurant 401(k) Plan, all amounts became fully vested.  Matching contributions made by the Companyfor the years ended January 2, 2002, January 3, 2001 and December 29, 1999were approximately $31,000, $138,000 and $89,000, respectively. Prior to thetermination of the NE Restaurant 401(k) Plan, two officers of the Company werealso the NE Restaurant 401(k) Plan’s trustees.

 

*Employee Loans.* InFebruary 2002, the Company extended loans to 14 members of Management(including eight officers) to facilitate their purchase of the Company’s commonstock from a former shareholder.  Thedemand notes bear interest at 8% payable quarterly.  As of March 15, 2002 a total of $166,328 was outstanding.

 

**Compensation of Directors**

 

Each of the Company’s directors is reimbursed for anyexpenses incurred by such director in connection with such director’sattendance at a meeting of the Board of Directors, or committee thereof.  In addition, all directors are eligible toreceive options under the Company’s stock option plans.  Directors receive no other compensation fromthe Company for serving on the Board of Directors.

 

**Compensation Committee Interlocks andInsider Participation**

 

Effective as of January 1, 1998, the Board ofDirectors appointed a Compensation Committee. Currently, the Compensation Committee is comprised of Messrs. Morgan,Mandel and Parish.

 

Prior to 1998, the Board of Directors of the Companydid not have a formal compensation committee and decisions with respect toexecutive officer compensation were made by Mr. Jacobson and othernon-management directors.  Mr. Jacobsonhas in the past and will in the future provide certain consulting services tothe Company.  See “Item 13.  Certain Relationships And RelatedTransactions.”

 

26

----

 

**ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

The following table provides information at March 28,2002, with respect to ownership of the Company’s common stock $0.01 par valueper share (the ‘‘Company Common Stock’’), by (i) each beneficial owner of fivepercent or more of the Company’s Common Stock, (ii) each director of theCompany, (iii) each of the Named Executive Officers and (iv) all directors andofficers as a group.  For the purpose ofcomputing the percentage of the shares of Company Common Stock owned by eachperson or group listed in this table, shares which are subject to optionsexercisable within 60 days after March 15, 2002 have been deemed to beoutstanding and owned by such person or group, but have not been deemed to beoutstanding for the purpose of computing the percentage of the shares ofCompany Common Stock owned by any other person.  Except as indicated in the footnotes to this table, the personsnamed in the table have sole voting and investment power with respect to allshares of Company Common Stock shown as beneficially owned by them.

 

| **Name  and Address of Beneficial Owner**                                             |   | **Beneficially  Owned** |   | **Percent  of Class** |   |
|---------------------------------------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
| Benjamin R. Jacobson (1) 595 Madison Avenue   New York, New York 10022                |   | 886,198                 |   | 29.75                 | %      |
|                                                                                  |   |                    |   |                  |   |
| Thomas R. Devlin(2)    1313 North Webb Road   P.O. Box 782170   Wichita, Kansas 67206 |   | 312,660                 |   | 10.50                 | %      |
|                                                                                  |   |                    |   |                  |   |
| Dennis D. Pedra  (3)                                                                  |   | 230,605                 |   | 7.74                  | %      |
|                                                                                  |   |                    |   |                  |   |
| Stephen F.  Mandel, Jr. (4)                                                           |   | 131,066                 |   | 4.40                  | %      |
|                                                                                  |   |                    |   |                  |   |
| Paul V. Hoagland  (5)                                                                 |   | 91,208                  |   | 3.06                  | %      |
|                                                                                  |   |                    |   |                  |   |
| James J. Morgan  (6)                                                                  |   | 47,705                  |   | 1.60                  | %      |
|                                                                                  |   |                    |   |                  |   |
| Raymond P.  Barbrick                                                                  |   | 31,237                  |   | 1.05                  | %      |
|                                                                                  |   |                    |   |                  |   |
| Stephen R. Karp  (7)                                                                  |   | 20,866                  |   | *                     |   |
|                                                                                  |   |                    |   |                  |   |
| Paul J. Seidman                                                                       |   | 16,099                  |   | *                     |   |
|                                                                                  |   |                    |   |                  |   |
| James R. Parish                                                                       |   | 11,422                  |   | *                     |   |
|                                                                                  |   |                    |   |                  |   |
| Gregory A.  Pastore                                                                   |   | 10,503                  |   | *                     |   |
|                                                                                  |   |                    |   |                  |   |
| All directors  and executive officers as a group (13 persons)                         |   | 497,663                 |   | 16.71                 | %      |

 

----

*              Less than 1%.

 

1)                  Includes (a) 613,273 shares of CompanyCommon Stock held by JPAF II, (b) 49,599 shares of Company Common Stockissuable upon exercise of outstanding stock options exercisable within 60 daysafter September 30, 1998 held by Jacobson Partners and (c) 21,217 shares ofCompany Common Stock held by trusts for the benefit of Mr. Jacobson’s children,with respect to which a third party is trustee and has voting control.  JPAF, Inc., a Delaware corporation, is thegeneral partner of JPAF II and Mr. Jacobson is president of JPAF, Inc. Mr.Jacobson is a general partner of Jacobson Partners, which is the soleshareholder of JPAF, Inc.  Mr. Jacobsondisclaims beneficial ownership of the shares described (i) in clause (a) above,except to the extent of his general partnership interest in JPAF II, and (ii)in clause (c) above.

2)                  Includes 67,834 shares of Company CommonStock held by J.P. Acquisition Fund II, L.P., a Delaware limited partnership(‘‘JPAF II’’), representing Mr. Devlin’s pro rata interest as a limited partnerof JPAF II.

 

27

----

 

 

3)                  Includes 33,000 shares of Company CommonStock held by trusts for the benefit of Mr. Pedra’s children, with respect towhich Mr. Pedra’s sister is trustee and has sole voting control.  Mr. Pedra disclaims beneficial ownership ofall such shares.

4)                  Includes 3,945 shares of Company Commonheld by Lone Spruce, L.P., 10,028 shares of Company Common Stock held by LoneBalsam, L.P. 9,756 shares of Company Common Stock held by Lone Sequoia, L.P.and 107,337 shares of Company Common Stock held by Lone Cypress, Ltd. Each ofLone Spruce, L.P., Lone Balsam, L.P. and Lone Sequoia, L.P., is a Delawarelimited partnership of which Lone Pine Associates LLC is the generalpartner.  Mr. Mandel is the managingmember of Lone Pine Associates LLC. Lone Cypress Ltd. is a Cayman Islands company of which Lone Pine CapitalLLC is the investment manager.  Mr.Mandel is the managing member of Lone Pine Capital LLC.  Mr. Mandel disclaims beneficial ownership ofall such shares.

5)                  Includes 14,000 shares of Company CommonStock held in custodial accounts for the benefit of Mr. Hoagland’s children,with respect to which Mr. Hoagland is custodian and has sole votingcontrol.  Mr. Hoagland disclaimsbeneficial ownership of all such shares.

6)                  Includes 8,482 shares of Company CommonStock held by JPAF II, representing Mr. Morgan’s pro rata interest as a limitedpartner of JPAF II.

7)                  Includes 20,866 shares of Company CommonStock held by trusts for the benefit of Mr. Karp’s children, with respect towhich a third party is trustee and has voting control.  Mr. Karp disclaims beneficial ownership ofall such shares.

 

**Shareholders Agreement**

 

The Company and the current shareholders of theCompany are parties to a Stockholders’ Agreement, dated as of March 14, 2000(the ‘‘Shareholders Agreement’’).

 

The Shareholders Agreement provides, among otherthings, that (i) a shareholder may not transfer his or its shares in theCompany, whether voluntarily or by operation of law, other than in certainlimited circumstances specified therein, including transfers through a right offirst refusal procedure, distributions by a partnership to its partners, andgifts, trust contributions or bequests to or in favor of family members, (ii)the Company shall have the option to purchase the shares of any shareholder whois a manager of the Company following the termination of such shareholder’semployment with the Company for any reason at a purchase price equal to bookvalue or fair market value depending upon the reason for such termination aspermitted under the Indenture, (iii) if the Company fails to exercise itsoption to purchase as described in the immediately preceding clause (ii), theremaining shareholders shall have the option to purchase the applicable shares,(iv) in certain circumstances, a shareholder seeking to transfer shares shallhave the option to require the Company to purchase such shareholder’s shares,(v) no transfer of shares may occur unless the transferee thereof agrees to bebound by the terms of the Shareholders Agreement and (vi) all share certificatesshall bear customary legends and all share transfers must be in compliance withapplicable securities laws.

 

**ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Benjamin R. Jacobson, Chairman of the Board ofDirectors, President, Chief Executive Officer and Treasurer is the ManagingPartner of Jacobson Partners Limited Partnership (“Jacobson Partners”).  Jacobson Partners was paid consulting feesand reimbursed for certain travel and other incidental expenses inconsideration of certain financial advisory services provided.  The amounts paid to Jacobson Partners forfinancial consulting fees were $250,000, $500,000 and $313,000 for each of thefiscal years ended January 2, 2002, January 3, 2001 and December 29, 1999,respectively.  In 2001 Jacobson Partnerswas also paid $750,000 in conjunction with the consummation of the BrinkerSale.  While in 2000 Jacobson Partnerswas paid an additional $125,000 for services performed in 1999. In connectionwith the Acquisition the Company entered into a financial advisory servicesagreement with Jacobson Partners.  Underthis agreement, Jacobson Partners provides various financial advisory servicesto the Company, including, among other things, assistance in preparing internalbudgets, performing cash management activities, maintaining and improvingaccounting and other management information systems, negotiating financingarrangements, complying with public reporting and disclosure requirements andcommunicating with creditors and investors. The Company believes the financial advisory services agreement was madeon terms that are no less favorable to the Company than those that could beobtained from an unrelated party. Jacobson Partners received $1.0 million from the Company in 1998 forservices as financial advisors in connection with the Acquisition and relatedfinancing.  Jacobson Partners is thesole shareholder of the corporate general partner of JPAF II, which ownsapproximately 16.1% of the outstanding common stock of the Company.

 

28

----

 

The Company had established the Bertucci’s CorporationDeferred Compensation Plan (the ‘‘Non-qualified Deferred Compensation Plan’’)pursuant to which certain eligible executives of the Company may elect to defera portion of their salary. The Company maintained an irrevocable grantor trustwhich has been established by the Company, as grantor, pursuant to The MerrillLynch Non-qualified Deferred Compensation Plan Trust Agreement, dated December21, 1993, by and between the Company and Merrill Lynch Trust Company ofAmerica, an Illinois corporation, as trustee, for the purpose of payingbenefits under the Non-qualified Deferred Compensation Plan.

 

During 1999, the Company has also established theBertucci’s Corporation, Inc. Executive Savings and Investment Plan (the“Executive Savings and Investment Plan”) to which highly compensated executivesof the company may elect to defer a portion of their salary and or earnedbonus. The Company maintains an irrevocable grantor trust which has beenestablished by the Company, as grantor, pursuant to the Scudder KemperInvestments non-qualified deferred compensation plan trust agreement, datedSeptember 20, 1999.  The agreement isbetween the Company and Scudder Kemper Investments, as trustee, for the purposeof paying benefits under non-qualified deferred compensation plan.

 

The trust assets are held separately from other fundsof the Company, but remain subject to claims of the Company’s general creditorsin the event of the Company’s insolvency. As of January 2, 2002, there were 18participants in the plan with a total market value of approximately $402,000.

 

In February 2002, the Company extended loans to 14members of Management (including eight officers).  The demand notes bear interest at 8%, payable quarterly.  As of March 15, 2002 a total of $166,328 wasoutstanding.

 

29

----

 

**PART IV**

 

**ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K**

 

(a)           The following documents are filed aspart of this report:

 

(1)     Financial Statements:

 

          Report of IndependentPublic Accountants.

 

          Consolidated Balance Sheetsas of January 2, 2002 and January 3, 2001.

 

          ConsolidatedStatements of Operations for each of the years ended January 2, 2002, January3, 2001, and December 29, 1999.

 

          ConsolidatedStatements of Stockholders’ Equity for each of the years ended January 2, 2002,January 3, 2001, and December 29, 1999.

 

          ConsolidatedStatements of Cash Flows for each of the years ended January 2, 2002, January3, 2001, and December 29, 1999.

 

          Notes toConsolidated Financial Statements.

 

(2)     Financial Statement Schedules:

ScheduleII:  Valuation and Qualifying Accounts

 

(3)     Exhibit Index

 

(b)           Reports on Form 8-K:

 

(1)     Companyfiled a Current Report on Form 8-K on April 27, 2001 announcing the completionof the Brinker Sale.

(2)               The Companyfiled a Current Report on Form 8-K on May 25, 2001 announcing a tender offerand consent solicitation for up to $43 Million of its outstanding $100 Million103⁄4% Senior Notes due 2008.

 

30

----

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|   | BERTUCCI’S CORPORATION |
|--------|-----------------------------|
|   | Registrant                  |
|   |                        |   |
|   |                        |   |
|   |                        |   |
|   | By:                         |         /s/ Benjamin R. Jacobson |   |
|   |                        | Benjamin R. Jacobson, Chairman of the Board |
|   |                        |   |
|   | Date: April 1, 2002         |

 

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

 
| **SIGNATURE**             |   | **TITLE**                                                                                  |   | **DATE**      |
|---------------------------|--------|--------------------------------------------------------------------------------------------|--------|---------------|
|                      |   |                                                                                       |   |          |
|                      |   |                                                                                       |   |          |
| /s/ Benjamin R.  Jacobson |   | Chairman of the Board  of Directors, Chief Executive Officer, Treasurer                    |   | April 1, 2002 |
| Benjamin R. Jacobson      |   | (Principal Executive  Officer)                                                             |   |          |
|                      |   |                                                                                       |   |          |
| /s/ Raymond Barbrick      |   | President, Chief  Operating Officer and Director                                           |   | April 1, 2002 |
| Raymond Barbrick          |   |                                                                                       |   |          |
|                      |   |                                                                                       |   |          |
| /s/ Kurt J. Schnaubelt    |   | Senior Vice President –  Finance and Administration  (Chief  Accounting Officer) |   | April 1, 2002 |
| Kurt J. Schnaubelt        |   |                                                                                       |   |          |
|                      |   |                                                                                       |   |          |
| /s/ Stephen F. Mandel     |   | Director                                                                                   |   | April 1, 2002 |
| Stephen F. Mandel         |   |                                                                                       |   |          |
|                      |   |                                                                                       |   |          |
| /s/ James J. Morgan       |   | Director                                                                                   |   | April 1, 2002 |
| James J. Morgan           |   |                                                                                       |   |          |

 

31

----

 

**EXHIBIT LISTING AND INDEX**

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 2.1*            |   | Agreement and Plan of  Merger, dated as of May 13, 1998 among Bertucci’s, Inc., NE Restaurant  Company, Inc. (“NERCO”) and NERC Acquisition Corp.                                                                                                                                                                                                                                                                                                                                                |
| 3.1*            |   | Certificate of  Incorporation of NERCO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.2*            |   | Certificate of  Amendment of Certificate of Incorporation of NERCO, dated August 1, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.3*            |   | Certificate of  Amendment of Certificate of Incorporation of NERCO, dated August 20, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.4*            |   | By-laws of NERCO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.5*            |   | Articles of  Incorporation of Bertucci’s of Baltimore County, Inc., as amended.                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.6*            |   | Bylaws of Bertucci’s of  Baltimore County, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.7*            |   | Articles of  Incorporation of Bertucci’s of White Marsh, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.8*            |   | Bylaws of Bertucci’s of  White Marsh, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.9*            |   | Articles of  Incorporation of Bertucci’s of Columbia, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.10*           |   | Bylaws of Bertucci’s of  Columbia, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.11*           |   | Articles of  Incorporation of Bertucci’s of Anne Arundel County, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.12*           |   | Bylaws of Bertucci’s of  Anne Arundel County, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.13*           |   | Articles of  Incorporation of Bertucci’s of Bel Air, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.14*           |   | Bylaws of Bertucci’s of  Bel Air, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.15*           |   | Articles of  Organization of Sal & Vinnie’s Sicilian Steakhouse, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.16*           |   | By-Laws of Sal &  Vinnie’s Sicilian Steakhouse, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.17*           |   | Articles of  Organization of Berestco, Inc., as amended                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.18*           |   | By-Laws of Berestco,  Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.19*           |   | Articles of Organization  of Bertucci’s Restaurant Corp., as amended                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.20*           |   | By-Laws of Bertucci’s  Restaurant Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.21*           |   | Articles of  Organization of Bertucci’s, Inc., as amended                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.22*           |   | By-Laws of Bertucci’s,  Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.23*           |   | Articles of  Organization of Bertucci’s Securities Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.24*           |   | By-Laws of Bertucci’s  Securities Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.25            |   | Certificate of  Amendment of Certificate of Incorporation of NERCO, dated August 16, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.1*            |   | Indenture, date July  20, 1998 between NERCO and United States Trust Company of New York (“U.S.  Trust”) as Trustee (including the form of 10 3⁄4% Senior Note due July 15,  2008).                                                                                                                                                                                                                                                                                                                |
| 4.2*            |   | Supplemental Indenture,  dated as of July 21, 1998 by and among Bertucci’s, Inc., Bertucci’s  Restaurant Corp., Bertucci’s Securities Corporation, Berestco, Inc., Sal  & Vinnie’s Sicilian Steakhouse, Inc., Bertucci’s of Anne Arundel County,  Inc., Bertucci’s of Columbia, Inc., Bertucci’s of Baltimore County, Inc.,  Bertucci’s of Bel Air, Inc. and Bertucci’s of White Marsh, Inc.  (collectively, the “Guarantors”), NERCO and U.S. Trust |
| 4.3*            |   | Purchase Agreement,  dated July 13, 1998 by and among NERCO, Chase Securities Inc. and BancBoston  Securities Inc.                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.4*            |   | Amendment No. 1 to the  Purchase Agreement, dated July 21, 1998 by and among NERCO, Chase Securities  Inc., BancBoston Securities Inc. and the Guarantors                                                                                                                                                                                                                                                                                                                                                       |
| 4.5*            |   | Exchange and  Registration rights Agreement, dated July 20, 1998 by and among NERCO, Chase  Securities Inc. and BancBoston Securities Inc.                                                                                                                                                                                                                                                                                                                                                                      |
| 4.6*            |   | Amendment No. 1 to  Exchange and Registration Rights Agreement, dated July 21, 1998 by and among  NERCO, Chase Securities Inc., BancBoston Securities Inc. and the Guarantors.                                                                                                                                                                                                                                                                                                                                  |
| 4.7*            |   | Form of Stockholders  Agreement, dated as of December 31, 1993 between the stockholders of NERCO  and NERCO.                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.8*            |   | Form of Stockholders  Agreement, dated September 15, 1997 by and among certain stockholders of  NERCO and NERCO.                                                                                                                                                                                                                                                                                                                                                                                                |

 

32

----

 
| 4.9     |   | Form of Stockholders  Agreement, dated March 14, 2000 by and among certain stockholders of NERCO  and NERCO.                                                                                                                                                                                                                                                                                                                                                             |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1*   |   | 1997 Equity Incentive  Plan of NERCO, dated September 15, 1997 for certain key employees and  directors of NERCO.                                                                                                                                                                                                                                                                                                                                                        |
| 10.2*   |   | Form of NE Restaurant  Company, Inc. 401(k) profit Sharing Plan, dated January 1, 1996.                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.3*   |   | Form of NE Restaurant  Company Deferred Compensation Plan for certain eligible executives of NERCO.                                                                                                                                                                                                                                                                                                                                                                      |
| 10.4*   |   | Employment Agreement by  and between NE Restaurant Company Limited Partnership, NE Restaurant  (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited  Partnership(collectively, the “Partnerships”), the respective general  partners of the Partnerships, NERCO,   NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc.  and Dennis D. Pedra, dated September 30, 1991 (the “Pedra Employment  Agreement”). |
| 10.5*   |   | Employment Agreement by  and between NE Restaurant Company Limited Partnership, NE Restaurant  (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited  Partnership (collectively, the “Partnerships”), the respective general  partners of the Partnerships, NERCO, NE Restaurant (Connecticut), Inc. and NE  Restaurant (Cambridge), Inc. and Paul V. Hoagland, dated September 30, 1991  (the “Hoagland Employment Agreement”).   |
| 10.6*   |   | Amendment to the Pedra  Employment Agreement, dated December 31, 1993.                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.7*   |   | Amendment to the  Hoagland Employment Agreement, dated December 31, 1993.                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.8*   |   | Form of Chili’s Grill  & Bar Restaurant Development Agreement, dated May 17, 1994 between  Brinker International, Inc. and NERCO.                                                                                                                                                                                                                                                                                                                               |
| 10.9*   |   | On The Border  Restaurant Development Agreement, dated June 23, 1997 between Brinker  International, Inc. and NERCO (including form of Franchise Agreement) as  amended                                                                                                                                                                                                                                                                                                  |
| 10.10*  |   | Lease of Headquarters  of the Company at 80A Turnpike Road, Westborough, Massachusetts, dated  September 30, 1997, as amended on March 25, 1998.                                                                                                                                                                                                                                                                                                                         |
| 10.11*  |   | Form of Credit  Agreement among BankBoston, N.A., Chase Bank of Texas, N.A. NERCO, the  Guarantors and Bertucci’s of Montgomery County, Inc., dated as of July 21,  1998.                                                                                                                                                                                                                                                                                           |
| 10.13*  |   | Loan Agreement, dated  August 6, 1997 by and between FFCA Acquisition Corporation and NERC Limited  Partnership.                                                                                                                                                                                                                                                                                                                                                         |
| 10.14*  |   | First Amendment to Loan  Agreement, dated August 6, 1997 by and between FFCA Acquisition Corporation  and NERC Limited Partnership.                                                                                                                                                                                                                                                                                                                                      |
| 10.15*  |   | Form of Promissory Note  between FFCA Acquisition Corporation and NERC Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                              |
| 10.18*  |   | Form of Amendment to NE  Restaurant Company, Inc. 401(k) Profit Sharing Plan, dated April 29, 1996.                                                                                                                                                                                                                                                                                                                                                                      |
| 10.19*  |   | Form of Amendment of  Chili’s Grill & Bar Restaurant Development Agreement, dated as of June 1,  1997 by and between Brinker International, Inc. and NE Restaurant Company,  Inc.                                                                                                                                                                                                                                                                               |
| 10.20*  |   | Form of Chili’s Grill  & Bar Restaurant Franchise Agreement between Brinker International, Inc.  and NE Restaurant Company, Inc.                                                                                                                                                                                                                                                                                                                                |
| 10.21*  |   | Financial Advisory  Services Agreement, dated July 21, 1998 by and  between the Company and Jacobson Partners.                                                                                                                                                                                                                                                                                                                                                      |
| 10.22*  |   | Loan Agreement, dated  June 30, 1998 by and between FFCA Acquisition Corporation and NERC Limited  Partnership II.                                                                                                                                                                                                                                                                                                                                                       |
| 10.23*  |   | Form of Promissory Note  between FFCA Acquisition Corporation and NERC Limited Partnership II.                                                                                                                                                                                                                                                                                                                                                                           |
| 10.28** |   | Second Amendment to the  On The Border Restaurant Development Agreement as of May 30, 1999 by and  between Brinker International, Inc. and NERCO                                                                                                                                                                                                                                                                                                                         |
| 10.29** |   | Primary Distribution  Agreement dated as of May 13, 1999 by and between Maines Paper & Food  Service, Inc. and NERCO                                                                                                                                                                                                                                                                                                                                                 |
| 10.30** |   | NERCO Savings and  Investment Plan dated as of April 29, 1999                                                                                                                                                                                                                                                                                                                                                                                                            |

 

33

----

 
| 10.31** |   | NE Restaurant Company,  Inc. Executive Savings and Investment Plan dated September 2, 1999                                                     |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.32** |   | Primary Distribution  Agreement dated as of May 13, 1999 by and between Maines Paper & Food  Service, Inc. and Bertucci’s Corporation |
| 12.1*   |   | Statement Regarding  Computation of Ratio of Earnings to Fixed Charges.                                                                        |
| 21.1    |   | Subsidiaries of Registrant.                                                                                                                    |
| 99-1*** |   | Asset Purchase and Sales Agreement dated  November 20, 2000 and fully executed on April 12, 2001                                               |
| 99-2    |   | Letter to Commission Pursuant to Temporary  Note 3T                                                                                            |

 

----

*                             Filedas an Exhibit, with the same Exhibit number, to Amendment No. 3 to theRegistrant’s registration statement on Form S-4 filed with the Securities andExchange Commission on November 12, 1998.

**                      Filedas an Exhibit, with the same Exhibit number to Registrant’s quarterly report onform 10-Q filed with the Securities and Exchange Commission on May 15, 2000.

***               Filedas an Exhibit, with the same Exhibit number to Registrant’s quarterly report onform 10-Q filed with the Securities and Exchange Commission on May 18, 2001.

 

34

----

**Report of Independent PublicAccountants**

 

To the Board of Directors of Bertucci’sCorporation:

 

We have audited the accompanying consolidated balance sheets ofBertucci’s Corporation (formerly NE Restaurant Company, Inc.), a DelawareCorporation (the Company), and its subsidiaries as of January 2, 2002 andJanuary 3, 2001, and the related consolidated statements of operations, changesin stockholders’ equity and cash flows for each of the three years in theperiod ended January 2, 2002.  Thesefinancial statements and the schedule referred to below are the responsibilityof the Company’s management.  Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in thefinancial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of Bertucci’sCorporation and its subsidiaries as of January 2, 2002 and January 3, 2001, andthe results of their operations and their cash flows for each of the threeyears in the period ended January 2, 2002, in conformity with accountingprinciples generally accepted in the United States.

 

Our audits were made for the purpose of forming an opinion on the basicfinancial statements taken as a whole. The schedule listed in the index of financial statements is presentedfor purposes of complying with the Securities and Exchange Commissions rulesand is not part of the basic financial statements.  This schedule has been subjected to the auditing proceduresapplied in the audits of the basic financial statements and, in our opinion,fairly states in all material respects the financial data required to be setforth therein in relation to the basic financial statements taken as a whole.

 
| /s/ Arthur Andersen LLP |   |   |
|-------------------------|--------|--------|
|                    |   |
|                    |   |
|                    |   |
| Boston, Massachusetts   |   |
| February 22, 2002       |   |

 

F-1

----

 

BERTUCCI'S CORPORATION

(formerly NE RestaurantCompany, Inc.)

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 
|                                                                      |   | **January 2,    2002** |    | **January 3,    2001** |   |
|---------------------------------------------------------------------------|--------|------------------------|---------|------------------------|--------|
| ASSETS                                                                    |   |                   |    |                   |   |
| Current Assets:                                                           |   |                   |    |                   |   |
| Cash and cash  equivalents                                                |   | $                      | 23,235  |                   | $      | 7,602 |   |
| Restricted cash                                                           |   | 1,013                  |    | —                 |   |
| Accounts receivable                                                       |   | 1,033                  |    | 838                    |   |
| Inventories                                                               |   | 805                    |    | 1,885                  |   |
| Prepaid expenses  and other current assets                                |   | 1,554                  |    | 2,617                  |   |
| Assets held for  sale - short term                                        |   | —                 |    | 200                    |   |
| Prepaid and  current deferred income taxes                                |   | —                 |    | 5,433                  |   |
| Total current assets                                                      |   | 27,640                 |    | 18,575                 |   |
|                                                                      |   |                   |    |                   |   |
| Property and  Equipment, at cost:                                         |   |                   |    |                   |   |
| Land and land  right                                                      |   | 2,647                  |    | 7,858                  |   |
| Buildings                                                                 |   | 6,624                  |    | 12,549                 |   |
| Leasehold  improvements                                                   |   | 49,654                 |    | 83,973                 |   |
| Furniture and  equipment                                                  |   | 29,058                 |    | 50,455                 |   |
|                                                                      |   | 87,983                 |    | 154,835                |   |
| Less -  Accumulated depreciation                                          |   | (23,081                | )       | (40,196                | )      |
|                                                                      |   | 64,902                 |    | 114,639                |   |
| Construction  work in process                                             |   | 139                    |    | 2,917                  |   |
| Net property and  equipment                                               |   | 65,041                 |    | 117,556                |   |
| Goodwill, net                                                             |   | 26,127                 |    | 28,404                 |   |
| Deferred Finance  Costs, net                                              |   | 4,384                  |    | 8,025                  |   |
| Liquor Licenses                                                           |   | 1,806                  |    | 3,014                  |   |
| Deferred Taxes,  noncurrent                                               |   | 7,697                  |    | 6,451                  |   |
| Other Assets,  net                                                        |   | 102                    |    | 1,569                  |   |
| TOTAL ASSETS                                                              |   | $                      | 132,797 |                   | $      | 183,595 |   |
|                                                                      |   |                   |    |                   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                      |   |                   |    |                   |   |
|                                                                      |   |                   |    |                   |   |
| Current  Liabilities:                                                     |   |                   |    |                   |   |
| Mortgage loans  payable - current portion                                 |   | $                      | —  |                   | $      | 1,541 |   |
| Accounts payable                                                          |   | 8,808                  |    | 14,510                 |   |
| Accrued expenses                                                          |   | 13,263                 |    | 18,531                 |   |
| Income taxes  payable                                                     |   | 1,196                  |    | 286                    |   |
| Capital lease  obligation - current portion                               |   | —                 |    | 37                     |   |
| Total current  liabiliites                                                |   | 23,267                 |    | 34,905                 |   |
| Mortgage Loan  Payable, net of current portion                            |   | —                 |    | 39,737                 |   |
| Senior Notes                                                              |   | 85,310                 |    | 100,000                |   |
| Other Long-Term  Liabilities                                              |   | 5,194                  |    | 4,887                  |   |
| Total liabilities                                                         |   | 113,771                |    | 179,529                |   |
| Commitments and  Contingencies (Note 6)                                   |   |                   |    |                   |   |
| Stockholders'  Equity:                                                    |   |                   |    |                   |   |
| Common stock,  $.01 par value                                             |   |                   |    |                   |   |
| Authorized  -  8,000,000 shares                                      |   |                   |    |                   |   |
| Issued -  3,666,370 at January 2, 2002 and January 3, 2001                |   | 37                     |    | 37                     |   |
| Less - Treasury  shares of 687,415 at January 2, 2002 and January 3, 2001 |   | (8,088                 | )       | (8,088                 | )      |
| Additional  paid-in capital                                               |   | 29,004                 |    | 29,004                 |   |
| Accumulated  deficit                                                      |   | (1,927                 | )       | (16,887                | )      |
| Total  stockholders' equity                                               |   | 19,026                 |    | 4,066                  |   |
| TOTAL  LIABILITIES AND STOCKHOLDERS' EQUITY                               |   | $                      | 132,797 |                   | $      | 183,595 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

F-2

----

 

BERTUCCI'S CORPORATION

(formerly NE Restaurant Company, Inc.)

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(Dollars inthousands except share and per share data)

 
|                                                                                                                              |   | **52 Weeks Ended** |    | **53 Weeks Ended** |   | **52 Weeks Ended** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------------------|--------|--------------------|--------|
|                                                                                                                              |   | **January 2,**     |    | **January 3,**     |   | **December 29,**   |   |
|                                                                                                                              |   | **2002**           |    | **2001**           |   | **1999**           |   |
| Net  sales                                                                                                                        |   | $                  | 186,638 |               | $      | 284,933            |   | $ | 267,665 |   |
|                                                                                                                              |   |               |    |               |   |               |   |
| Cost  of sales and expenses                                                                                                       |   |               |    |               |   |               |   |
| Cost  of sales                                                                                                                    |   | 44,855             |    | 74,266             |   | 73,860             |   |
| Operating  expenses                                                                                                               |   | 111,795            |    | 162,577            |   | 154,750            |   |
| General  and administrative expenses                                                                                              |   | 12,547             |    | 16,386             |   | 15,400             |   |
| Deferred  rent, depreciation, amortization and preopening expenses                                                                |   | 13,882             |    | 17,648             |   | 17,863             |   |
| Closed  restaurants charge                                                                                                        |   | 4,200              |    | 479                |   | —             |   |
| Asset  impairment charge                                                                                                          |   | 1,800              |    | —             |   | —             |   |
| Loss  on abandonment of Sal & Vinnie's                                                                                        |   | —             |    | 2,031              |   | —             |   |
| Cost  of sales and expenses                                                                                                       |   | 189,079            |    | 273,387            |   | 261,873            |   |
|                                                                                                                              |   |               |    |               |   |               |   |
| (Loss)  income from operations                                                                                                    |   | (2,441             | )       | 11,546             |   | 5,792              |   |
|                                                                                                                              |   |               |    |               |   |               |   |
| Other  income (expense)                                                                                                           |   |               |    |               |   |               |   |
| Gain  on Brinker Sale                                                                                                             |   | 36,932             |    | —             |   | —             |   |
| Interest  expense, net                                                                                                            |   | (10,626            | )       | (15,050            | )      | (14,007            | )      |
| Other  income (expense)                                                                                                           |   | 26,306             |    | (15,050            | )      | (14,007            | )      |
|                                                                                                                              |   |               |    |               |   |               |   |
| Income  (loss) before income tax provision (benefit), extraordinary item and  cumulative effect of change in accounting principle |   | 23,865             |    | (3,504             | )      | (8,215             | )      |
|                                                                                                                              |   |               |    |               |   |               |   |
| Income  tax provision (benefit)                                                                                                   |   | 10,243             |    | (115               | )      | (2,357             | )      |
| Net  income (loss) before extraordinary item and cumulative effect of change in  accounting principle                             |   | 13,622             |    | (3,389             | )      | (5,858             | )      |
|                                                                                                                              |   |               |    |               |   |               |   |
| Gain  on retirement of Senior Notes, net of tax                                                                                   |   | 1,338              |    | —             |   | —             |   |
| Net  income (loss) before cumulative effect of change in accounting principle                                                     |   | 14,960             |    | (3,389             | )      | (5,858             | )      |
|                                                                                                                              |   |               |    |               |   |               |   |
| Cumulative  effect of change in accounting principle, net of tax                                                                  |   | —             |    | —             |   | (678               | )      |
| Net  income (loss)                                                                                                                |   | $                  | 14,960  |               | $      | (3,389             | )      | $ | (6,536 | ) |
|                                                                                                                              |   |               |    |               |   |               |   |
| Basic  income (loss) per share before extraordinary item and cumulative effect of  change in accounting principle                 |   | $                  | 4.57    |               | $      | (1.14              | )      | $ | (1.97 | ) |
| Gain  on retirement of Senior Notes, net of tax                                                                                   |   | 0.45               |    | —             |   | —             |   |
| Cumulative  effect of change in accounting principle, net of tax                                                                  |   | —             |    | —             |   | (0.22              | )      |
| Basic  income (loss) per share                                                                                                    |   | $                  | 5.02    |               | $      | (1.14              | )      | $ | (2.19 | ) |
|                                                                                                                              |   |               |    |               |   |               |   |
| Weighted  Average Shares Outstanding - Basic                                                                                      |   | 2,978,955          |    | 2,981,414          |   | 2,988,050          |   |
|                                                                                                                              |   |               |    |               |   |               |   |
| Diluted  income (loss) per share before extraordinary item and cumulative effect of  change in accounting principle               |   | $                  | 4.19    |               | $      | (1.14              | )      | $ | (1.97 | ) |
| Gain  on retirement of Senior Notes, net of tax                                                                                   |   | 0.41               |    | —             |   | —             |   |
| Cumulative  effect of change in accounting principle, net of tax                                                                  |   | —             |    | —             |   | (0.22              | )      |
| Diluted  income (loss) per share                                                                                                  |   | $                  | 4.60    |               | $      | (1.14              | )      | $ | (2.19 | ) |
|                                                                                                                              |   |               |    |               |   |               |   |
| Weighted  Average Shares Outstanding - Diluted                                                                                    |   | 3,252,605          |    | 2,981,414          |   | 2,988,050          |   |

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-3

----

 

BERTUCCI'S CORPORATION

(formerly NE RestaurantCompany, Inc.)

STATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITY

(Dollars in thousands)

 
|                                           |   |                  |   |                |   |                  |     |       |   |                 |   |
|------------------------------------------------|--------|-----------------------|--------|---------------------|--------|-----------------------|----------|------------|--------|----------------------|--------|
|                                           |   | **Common  Stock**     |   | **Treasury  Stock** |   | **Additional**        |     |       |   | **Total**            |   |
|                                           |   | **Number of  Shares** |   | **Amount**          |   | **Number of  Shares** |     | **Amount** |   | **Paid In  Capital** |   | **Accumulated  Deficit** |   | **Stockholders  Equity'** |   |
| Balance December  30, 1998                     |   | 3,666,370             |   | $                   | 37     |                  | (679,748 | )          | $      | (8,017               | )      | $ | 29,054 |   | $ | (6,962 | ) | $ | 14,112 |   |
|                                           |   |                  |   |                |   |                  |     |       |   |                 |   |   |   |   |   |   |   |   |   |   |
| Net loss                                       |   | —                |   | —              |   | —                |     | —     |   | —               |   | (6,536 | ) | (6,536 | ) |
| Return of  capital                             |   | —                |   | —              |   | —                |     | —     |   | (50                  | )      | — |   | (50 | ) |
| Balance December  29, 1999                     |   | 3,666,370             |   | 37                  |   | (679,748              | )        | (8,017     | )      | 29,004               |   | (13,498 | ) | 7,526 |   |
|                                           |   |                  |   |                |   |                  |     |       |   |                 |   |   |   |   |   |
| Net loss                                       |   | —                |   | —              |   | —                |     | —     |   | —               |   | (3,389 | ) | (3,389 | ) |
| Repurchase of  7,667 shares at $9.23 per share |   | —                |   | —              |   | (7,667                | )        | (71        | )      | —               |   | — |   | (71 | ) |
| Balance January  3, 2001                       |   | 3,666,370             |   | 37                  |   | (687,415              | )        | (8,088     | )      | 29,004               |   | (16,887 | ) | 4,066 |   |
|                                           |   |                  |   |                |   |                  |     |       |   |                 |   |   |   |   |   |
| Net income                                     |   | —                |   | —              |   | —                |     | —     |   | —               |   | 14,960 |   | 14,960 |   |
| Balance January  2, 2002                       |   | 3,666,370             |   | $                   | 37     |                  | (687,415 | )          | $      | (8,088               | )      | $ | 29,004 |   | $ | (1,927 | ) | $ | 19,026 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

F-4

----

 

BERTUCCI'S CORPORATION

(formerly NE RestaurantCompany, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOW

(Dollars in thousands)

 
|                                                                                      |   | **52 Weeks  Ended**

**January 2,  2002** |   | **53 Weeks  Ended   January 3, 2001** |   | **52 Weeks  Ended   December 29, 1999** |   |
|-------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|--------|
| Cash Flows from  Operating Activities                                                     |   |                                      |   |                                  |   |                                    |   |
| Net Income (loss)                                                                         |   | $                                         | 14,960 |                                  | $      | (3,389                                  | )      | $ | (6,536 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |   |                                      |   |                                  |   |                                    |   |
| Gain on Brinker  Sale                                                                     |   | (36,932                                   | )      | —                                |   | —                                  |   |
| Gain on Senior  Notes retirement, net of tax                                              |   | (1,338                                    | )      | —                                |   | —                                  |   |
| Cumulative effect  of change in accounting principle                                      |   | —                                    |   | —                                |   | 1,135                                   |   |
| Non-cash loss on  abandonment of Sal & Vinnie's                                       |   | —                                    |   | 2,031                                 |   | —                                  |   |
| Closed  restaurant charge                                                                 |   | 4,200                                     |   | 479                                   |   | —                                  |   |
| Asset impairment  charge                                                                  |   | 1,800                                     |   | —                                |   | —                                  |   |
| Depreciation,  amortization and deferred rent                                             |   | 13,150                                    |   | 16,754                                |   | 16,418                                  |   |
| Deferred income  taxes                                                                    |   | 4,187                                     |   | 245                                   |   | (2,412                                  | )      |
| Changes in  operating assets and liabilities-                                             |   |                                      |   |                                  |   |                                    |   |
| Inventories                                                                               |   | 223                                       |   | (157                                  | )      | 260                                     |   |
| Prepaid  expenses, receivables and other                                                  |   | 1,211                                     |   | (1,165                                | )      | (317                                    | )      |
| Accrued expenses                                                                          |   | (4,210                                    | )      | (3,663                                | )      | (4,453                                  | )      |
| Income taxes  payable                                                                     |   | 6,390                                     |   | —                                |   | —                                  |   |
| Accounts payable                                                                          |   | (1,866                                    | )      | 16                                    |   | 3,072                                   |   |
| Other operating  assets and liabilities                                                   |   | 2,551                                     |   | (780                                  | )      | (708                                    | )      |
| Total  adjustments                                                                        |   | (10,634                                   | )      | 13,760                                |   | 12,995                                  |   |
|                                                                                      |   |                                      |   |                                  |   |                                    |   |
| Net cash  provided by operating activities                                                |   | 4,326                                     |   | 10,371                                |   | 6,459                                   |   |
|                                                                                      |   |                                      |   |                                  |   |                                    |   |
| Cash Flows from  Investing Activities                                                     |   |                                      |   |                                  |   |                                    |   |
| Additions to  property and equipment                                                      |   | (12,261                                   | )      | (14,191                               | )      | (18,983                                 | )      |
| Land and liquor  license sale proceeds                                                    |   | —                                    |   | 648                                   |   | —                                  |   |
| Proceeds from  sale of restaurants and office                                             |   | 200                                       |   | 1,648                                 |   | 4,753                                   |   |
| Franchise/development  fees paid                                                          |   | —                                    |   | (230                                  | )      | (240                                    | )      |
| Acquisition of  liquor licenses                                                           |   | —                                    |   | (65                                   | )      | —                                  |   |
| Net proceeds  from Brinker Sale                                                           |   | 36,325                                    |   | —                                |   | —                                  |   |
|                                                                                      |   |                                      |   |                                  |   |                                    |   |
| Net cash  provided by (used in) investing activities                                      |   | 24,264                                    |   | (12,190                               | )      | (14,470                                 | )      |
|                                                                                      |   |                                      |   |                                  |   |                                    |   |
| Cash Flows from  Financing Activities                                                     |   |                                      |   |                                  |   |                                    |   |
| Borrowings of  mortgage loans                                                             |   | —                                    |   | 3,825                                 |   | 11,272                                  |   |
| Repayments of  mortgage loans                                                             |   | (422                                      | )      | (1,819                                | )      | (995                                    | )      |
| Increase in  restricted cash                                                              |   | (1,013                                    | )      | —                                |   | —                                  |   |
| Return of  capital                                                                        |   | —                                    |   | —                                |   | (50                                     | )      |
| Repurchase of  treasury shares                                                            |   | —                                    |   | (71                                   | )      | —                                  |   |
| Principal  payments under capital lease obligations                                       |   | —                                    |   | (93                                   | )      | (93                                     | )      |
| Senior Notes  retirement                                                                  |   | (11,522                                   | )      | —                                |   | —                                  |   |
|                                                                                      |   |                                      |   |                                  |   |                                    |   |
| Net cash used in  (provided by) financing activities                                      |   | (12,957                                   | )      | 1,842                                 |   | 10,134                                  |   |
|                                                                                      |   |                                      |   |                                  |   |                                    |   |
| Net Increase in  Cash                                                                     |   | 15,633                                    |   | 23                                    |   | 2,123                                   |   |
| Cash, beginning  of year                                                                  |   | 7,602                                     |   | 7,579                                 |   | 5,456                                   |   |
| Cash, end of  year                                                                        |   | $                                         | 23,235 |                                  | $      | 7,602                                   |   | $ | 7,579 |   |
|                                                                                      |   |                                      |   |                                  |   |                                    |   |
| Supplemental  Disclosure of Cash Flow Information:                                        |   |                                      |   |                                  |   |                                    |   |
| Cash paid for  interest, net of amounts capitalized                                       |   | $                                         | 11,537 |                                  | $      | 10,437                                  |   | $ | 13,808 |   |
| Cash paid for  income taxes                                                               |   | $                                         | 6,103  |                                  | $      | 129                                     |   | $ | — |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

F-5

----

 

# **BERTUCCI’S CORPORATION**

# **(formerly NE Restaurant Company, Inc.)**

Notesto Consolidated Financial Statements

January2, 2002

 

(1)       ORGANIZATION AND OPERATIONS

 

NE Restaurant Company,Inc. (the Company)(a Delaware corporation) was incorporated on January 1, 1994,and formally changed its name to Bertucci’s Corporation on August 16,2001.  The Company was formed to acquireand operate Chili’s Grill & Bar and On The Border Café restaurants locatedin Massachusetts, New Hampshire, Maine, Vermont, Rhode Island, Connecticut andportions of New York.  The Company hadgrown through the addition of 25 new Chili’s and seven On The Border Caférestaurants in New England.  The Companydeveloped and operated these restaurant franchises under franchise agreementswith Brinker International, Inc., a publicly-owned company (“Brinker” or the“Franchisor”).** **As of January 2, 2002, the Company owned and operated74 full-service casual dining, Italian-style restaurants under the nameBertucci’s Brick Oven Pizzeria located primarily in the Northeastern andMid-Atlantic United States.

 

In July 1998, the Companycompleted its acquisition of Bertucci’s Inc. (Bertucci’s), a publicly ownedrestaurant company.  The Company hadoperated one Sal & Vinnie’s Sicilian Steakhouse located in Massachusettswhich was also part of the acquisition. During 2000, the Company abandoned the restaurant in exchange fortermination of its lease obligation and recorded an approximate $2.0 millionloss on abandonment.

 

On August 6, 1997, theCompany formed a wholly owned limited partnership, NERC Limited Partnership(NERCLP), to obtain mortgage loans from FFCA Acquisition Corporation (FFCA) asdiscussed below.  On April 3, 1998, theCompany formed a wholly owned limited partnership, NERC Limited Partnership II(NERCLPII) to obtain the additional FFCA loans, as discussed below.  All of the assets associated with NERCLP andNERCLPII were sold as a result of the Brinker Sale discussed below.

 

On April 12, 2001, theCompany completed its sale of 40 Chili’s and seven On The Border restaurants toBrinker (the Brinker Sale).  Totalconsideration, subject to closing adjustments, was $93.5 million. Brinkeracquired the inventory, facilities, equipment, management teams associated withthese restaurants, as well as the four Chili’s restaurants currently underdevelopment by the Company. Further, Brinker assumed the mortgage debt on theCompany’s Chili’s and On The Border restaurants.

 

*FiscalYear End*

 

The Company’s fiscal yearis the 52 or 53-week period ended on the Wednesday closest to December31st.  Fiscal year 2000 presentedconsists of 53 weeks while each of the other years presented consists of 52weeks.

 

(2)       ACQUISITION AND BRINKER SALE

 

On July 21, 1998, theCompany, through a wholly owned subsidiary, NE Restaurant Acquisition Corp.,completed its acquisition of Bertucci’s pursuant to the terms of an Agreementand Plan of Merger dated as of May 13, 1998 (the “Acquisition”).  The Company purchased all of the issued andoutstanding shares of Bertucci’s common stock at a price of $10.50 pershare.  The total purchase price wasapproximately $89.4 million.  NERestaurant Acquisition Corp. had no operations prior to the acquisition and wassubsequently merged into the Company. In connection with the Acquisition, the Company sold $100,000,000principal amount of 103⁄4% Senior Notes due July 15, 2008.  The net proceeds along with equity financingof approximately $29.0 million were used to consummate the Acquisition, repaycertain outstanding indebtedness of the Company and Bertucci’s and pay fees andexpenses incurred in connection with the financing and the Acquisition.

 

The purchase price,including expenses related to the Acquisition has been allocated to assets andliabilities based on estimated fair market values on July 21, 1998.  The difference between the purchase priceand the net assets acquired of $34 million has been recorded as goodwill and isbeing amortized over 15 years. Amortization expense was $2.3 million for each of the years endedDecember 29, 1999 and January 3, 2001, and January 2, 2002.

 

F-6

----

 

The purchase price wasallocated to assets acquired and liabilities assumed, as follows (dollars inthousands):

 
| Cash                             |   | $       | 3,669  |   |
|----------------------------------|--------|---------|--------|--------|
| Accounts receivable              |   | 204     |   |
| Inventories                      |   | 1,204   |   |
| Other current assets             |   | 2,982   |   |
| Property and equipment           |   | 67,976  |   |
| Assets held for sale             |   | 6,601   |   |
| Other assets                     |   | 7,353   |   |
| Accounts payable                 |   | (3,620  | )      |
| Accrued liabilities              |   | (12,851 | )      |
| Line of credit and notes payable |   | (13,525 | )      |
| Other liabilities                |   | (929    | )      |
|                             |   |    |   |
| Net assets acquired              |   | 59,064  |   |
|                             |   |    |   |
| Goodwill                         |   | 33,963  |   |
|                             |   |    |   |
| Total purchase price             |   | 93,027  |   |
| Cash acquired                    |   | (3,669  | )      |
|                             |   |    |   |
| Net purchase price               |   | $       | 89,358 |   |

 

The Company had operatedone Sal & Vinnie’s Sicilian Steakhouse as a result of the Acquisition. In December2000, the Company abandoned the restaurant in exchange for termination of itslease obligation and recorded an approximate $2.0 million loss on abandonment.

 

On April 12, 2001, theCompany completed its sale of 40 Chili’s and seven On The Border restaurants tothe chains’ franchisor Brinker International, Inc. of Dallas, Texas (Brinker)(the Brinker Sale).  Totalconsideration, subject to closing adjustments, was $93.5 million. Brinkeracquired the inventory, facilities, equipment, management teams associated withthese restaurants, as well as the four Chili’s restaurants currently underdevelopment by the Company. Further, Brinker assumed the mortgage debt on theCompany’s Chili’s and On The Border restaurants.

 

F-7

----

 

The assets Brinkerpurchased and liabilities assumed from the Company are detailed in the tablebelow (dollars in thousands).

 
| **Assets and  Liabilities**                      |   |    |   |
|--------------------------------------------------|--------|---------|--------|
| Cash                                             |   | $       | 530    |   |
| Inventory                                        |   | 857     |   |
| Land & land rights                           |   | 5,219   |   |
| Buildings                                        |   | 5,978   |   |
| Leasehold improvements                           |   | 39,032  |   |
| Furniture and equipment                          |   | 25,655  |   |
| Sub-Total                                        |   | 75,884  |   |
| Accumulated depreciation                         |   | (23,252 | )      |
| Sub-Total                                        |   | 52,632  |   |
| Construction work in process                     |   | 714     |   |
| Net property and  equipment                      |   | 53,346  |   |
|                                             |   |    |   |
| Liquor licenses                                  |   | 1,208   |   |
| TOTAL ASSETS                                     |   | 55,941  |   |
|                                             |   |    |   |
| Mortgage loans - total including current portion |   | 40,895  |   |
|                                             |   |    |   |
| NET ASSETS                                       |   | $       | 15,046 |   |
|                                                  |        |         |        |  |  |

 

The pro formaConsolidated Statements of Operations reflect (a) the recognition of theBrinker Sale; and (b) the abandonment of Sal & Vinnie’s as if the dispositionsoccurred on December 31, 1998. Accordingly, operating results of the Brinkerrestaurants are removed for all periods presented.  Sal & Vinnie’s operating results are removed for the fiscal1999 and fiscal 2000 only as it was abandoned in December 2000.

 

F-8

----

 

**BERTUCCI'SCORPORATION**

**(formerlyNE Restaurant Company, Inc.)**

**PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS**

(Unaudited)

(In thousands, exceptshare and per share data)

52 Weeks Ended January 2,2002

 
|                                                                        |   | **As  Reported** |    | **Brinker  Sale** |   | **Pro Forma** |   |
|-----------------------------------------------------------------------------|--------|------------------|---------|-------------------|--------|---------------|--------|
| Net sales                                                                   |   | $                | 186,638 |              | $      | (36,527       | )      | 150,111 |   |
|                                                                        |   |             |    |              |   |          |   |
| Cost of sales  and expenses                                                 |   |             |    |              |   |          |   |
| Cost of sales                                                               |   | 44,855           |    | (10,330           | )      | 34,525        |   |
| Operating  expenses                                                         |   | 111,795          |    | (21,643           | )      | 90,152        |   |
| General and  administrative expenses                                        |   | 12,547           |    | (1,329            | )      | 11,218        |   |
| Deferred rent,  depreciation, amortization and preopening expenses          |   | 13,882           |    | (4,410            | )      | 9,472         |   |
| Closed  restaurants charge                                                  |   | 4,200            |    | —            |   | 4,200         |   |
| Asset impairment  charge                                                    |   | 1,800            |    | —            |   | 1,800         |   |
| Cost of sales  and expenses                                                 |   | 189,079          |    | (37,712           | )      | 151,367       |   |
| (Loss) income  from operations                                              |   | (2,441           | )       | 1,185             |   | (1,256        | )      |
|                                                                        |   |             |    |              |   |          |   |
| Other income  (expense)                                                     |   |             |    |              |   |          |   |
| Gain on Brinker  Sale                                                       |   | 36,932           |    | (36,932           | )      | —        |   |
| Interest  expense, net                                                      |   | (10,626          | )       | 1,114             |   | (9,512        | )      |
| Other income  (expense)                                                     |   | 26,306           |    | (35,818           | )      | (9,512        | )      |
|                                                                        |   |             |    |              |   |          |   |
| Income (loss)  before income tax provision (benefit) and extraordinary item |   | 23,865           |    | (34,633           | )      | (10,768       | )      |
|                                                                        |   |             |    |              |   |          |   |
| Income tax  provision (benefit)                                             |   | 10,243           |    | (13,885           | )      | (3,642        | )      |
|                                                                        |   |             |    |              |   |          |   |
| Net income  (loss) before extraordinary item                                |   | 13,622           |    | (20,748           | )      | (7,126        | )      |
|                                                                        |   |             |    |              |   |          |   |
| Gain on  retirement of Senior Notes, net of tax                             |   | 1,338            |    | (1,338            | )      | —        |   |
| Net income  (loss)                                                          |   | $                | 14,960  |              | $      | (22,086       | )      | $ | (7,126 | ) |
|                                                                        |   |             |    |              |   |          |   |
| Basic income  (loss) per share before extraordinary item                    |   | $                | 4.57    |              | $      | (6.96         | )      | $ | (2.39 | ) |
| Gain on  retirement of Senior Notes, net of tax                             |   | 0.45             |    | (0.45             | )      | —        |   |
| Basic income  (loss) per share                                              |   | $                | 5.02    |              | $      | (7.41         | )      | $ | (2..39 | ) |
|                                                                        |   |             |    |              |   |          |   |
| Basic weighted  average shares outstanding                                  |   | 2,978,955        |    | 2,978,955         |   | 2,978,955     |   |

 

F-9

----

 

**BERTUCCI'SCORPORATION**

**(formerlyNE Restaurant Company, Inc.)**

**PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS**

(Unaudited)

(In thousands, exceptshare and per share data)

53 Weeks Ended January 3,2001

 
|                                                                         |   | **As  Reported** |    | **Brinker  Sale** |   | **Sal &  Vinnie's Abandonment** |    | **Pro Forma** |   |
|------------------------------------------------------------------------------|--------|------------------|---------|-------------------|--------|-------------------------------------|---------|---------------|--------|
| Net sales                                                                    |   | $                | 284,933 |              | $      | (138,410                            | )       | $             | (2,623 | ) | $ | 143,900 |   |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Cost of sales  and expenses                                                  |   |             |    |              |   |                                |    |          |   |
| Cost of sales                                                                |   | 74,266           |    | (38,152           | )      | (918                                | )       | 35,196        |   |
| Operating  expenses                                                          |   | 162,577          |    | (75,890           | )      | (1,669                              | )       | 85,018        |   |
| General and  administrative expenses                                         |   | 16,386           |    | (4,338            | )      | —                              |    | 12,048        |   |
| Deferred rent,  depreciation, amortization and preopening expenses           |   | 18,127           |    | (5,925            | )      | (177                                | )       | 12,025        |   |
| Loss on  abandonment of Sal & Vinnies                                    |   | 2,031            |    |              |   | (2,031                              | )  | —        |   |
| Cost of sales  and expenses                                                  |   | 273,387          |    | (124,305          | )      | (4,795                              | )       | 144,287       |   |
| Income (loss)  from operations                                               |   | 11,546           |    | (14,105           | )      | 2,172                               |    | (387          | )      |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Interest  expense, net                                                       |   | 15,050           |    | (3,866            | )      | —                              |    | 11,184        |   |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| (Loss) income  before income tax benefit                                     |   | (3,504           | )       | (10,239           | )      | 2,172                               |    | (11,571       | )      |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Income tax  benefit                                                          |   | (115             | )       | (3,993            | )      | 847                                 |    | (3,261        | )      |
| Net (loss)  income                                                           |   | $                | (3,389  | )                 | $      | (6,246                              | )       | $             | 1,325  |   | $ | (8,310 | ) |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Basic and  diluted (loss) income per share:                                  |   | $                | (1.14   | )                 | $      | (2.09                               | )       | $             | 0.44   |   | $ | (2.79 | ) |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Basic weighted  average shares outstanding                                   |   | 2,981,414        |    | 2,981,414         |   | 2,981,414                           |    | 2,981,414     |   |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| 52 Weeks Ended December  29, 1999                                            |   |
|                                                                         |   | **As  Reported** |    | **Brinker Sale**  |   | **Sal & Vinnie's Abandonment**  |    | **Pro Forma** |   |
| Net sales                                                                    |   | $                | 267,665 |              | $      | (117,464                            | )       | $             | (2,669 | ) | $ | 147,532 |   |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Cost of sales  and expenses                                                  |   |             |    |              |   |                                |    |          |   |
| Cost of sales                                                                |   | 73,860           |    | (33,405           | )      | (973                                | )       | 39,482        |   |
| Operating  expenses                                                          |   | 154,750          |    | (64,465           | )      | (1,742                              | )       | 88,543        |   |
| General and  administrative expenses                                         |   | 15,400           |    | (3,163            | )      | —                              |    | 12,237        |   |
| Deferred rent,  depreciation, amortization and preopening expenses           |   | 17,863           |    | (5,549            | )      | (184                                | )       | 12,130        |   |
| Cost of sales  and expenses                                                  |   | 261,873          |    | (106,582          | )      | (2,899                              | )       | 152,392       |   |
| Income (loss)  from operations                                               |   | 5,792            |    | (10,882           | )      | 230                                 |    | (4,860        | )      |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Interest  expense, net                                                       |   | 14,007           |    | (2,995            | )      | —                              |    | 11,012        |   |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Loss (income)  before income tax benefit                                     |   | (8,215           | )       | (7,887            | )      | 230                                 |    | (15,872       | )      |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Income tax  benefit                                                          |   | (2,357           | )       | (3,155            | )      | 90                                  |    | (5,422        | )      |
| Net income  (loss) before cumlative effect of change in accounting principle |   | (5,858           | )       | (4,732            | )      | 140                                 |    | (10,450       | )      |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Cumlative effect  of change in accounting principle, net of tax              |   | (678             | )       | —            |   | —                              |    | (678          | )      |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Net income  (loss)                                                           |   | $                | (6,536  | )                 | $      | (4,732                              | )       | $             | 140    |   | $ | (11,128 | ) |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Basic and  diluted income (loss) per share:                                  |   | $                | (2.19   | )                 | $      | (1.58                               | )       | $             | 0.05   |   | $ | (3.72 | ) |
|                                                                         |   |             |    |              |   |                                |    |          |   |
| Weighted average  shares outstanding                                         |   | 2,988,050        |    | 2,988,050         |   | 2,988,050                           |    | 2,988,050     |   |

* *

 

F-10

----

 

*AssetsHeld for Sale*

 

The acquisition ofBertucci’s included 90 Bertucci’s restaurants and one Sal & Vinnie’srestaurant.  The Company sold the formerBertucci’s headquarters located in Wakefield, Massachusetts, and closed theBertucci’s test kitchen restaurant located in the former Bertucci’sheadquarters.  The Company also closed17 other under-performing Bertucci’s restaurants.  The assets related to these locations, which are primarilyproperty and equipment, had been assigned a value of approximately $6.6 millionin 1999 based on estimated sale proceeds. For the year ended January 3, 2001 and from the date of the Acquisitionto January 3, 2001, these locations had combined net sales of approximately$418,000 and $22.1 million and an approximate combined loss from operations of$31,000 and $2.2 million, respectively. Any operating profit or loss related to these locations held for salehas been included in the consolidated statements of income through the date ofclosing, as the operating locations to be sold had not been identified at thedate of the Acquisition.  As of January2, 2002, all of these locations have been closed, including the formerBertucci’s headquarters.  The Companyhas received net proceeds from the sale of these assets of approximately $6.4million since the Acquisition, approximately $1.7 million of which was receivedin fiscal 2000 and $.2 million in fiscal 2001.

 

As of the date ofAcquisition, the Company accrued approximately $3.0 million related to closingthese locations, consisting of estimated lease commitments beyond the closingsand certain exit costs.  During fiscal1999 and 2000, the Company utilized approximately $0.8 million and $2.0million, respectively, of the store closing reserves.  During 2000, the Company accrued an additional $0.5 million ofcosts related to exiting the final four locations.  This accrual was charged to earnings and included in operatingexpenses in the accompanying statements of income.

 

During 2001 the Companyaccrued an additional $4.2 million of costs relating to net lease obligationsand other exit costs remaining on the 15 units for which the Company is stillprimarily liable.  This amount isincluded in the accompanying 2002 consolidated statement of operations as aclosed restaurant charge.

 

The accrued costs areincluded in accrued expenses and other long term liabilities in each of theconsolidated balance sheets presented above. The following presents the approximate unaudited pro forma consolidatedstatements of income of the Company for the years ended January 2, 2002,January 3, 2001 and December 29, 1999. The statements below give pro forma effect as if the closing of therestaurant locations discussed above had occurred on December 29, 1999 (dollarsin thousands).

 

F-11

----

 

|                                                                                                                              |   | **January 2, 2002** |    | **January 3, 2001** |   | **December 29, 1999** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|---------------------|--------|-----------------------|--------|
| Net sales                                                                                                                         |   | $                   | 186,638 |                | $      | 284,515               |   | $ | 252,920 |   |
|                                                                                                                              |   |                |    |                |   |                  |   |
| Cost of sales  and expenses                                                                                                       |   |                |    |                |   |                  |   |
| Cost of sales                                                                                                                     |   | 44,855              |    | 74,088              |   | 69,483                |   |
| Operating  expenses                                                                                                               |   | 111,795             |    | 162,077             |   | 142,448               |   |
| General and  administrative expenses                                                                                              |   | 12,547              |    | 16,079              |   | 15,721                |   |
| Deferred rent,  depreciation, amortization and preopening expenses                                                                |   | 13,882              |    | 18,127              |   | 17,863                |   |
| Closed  restaurants charge                                                                                                        |   | 4,200               |    | —              |   | —                |   |
| Asset impairment  charge                                                                                                          |   | 1,800               |    | —              |   | —                |   |
| Cost of sales  and expenses                                                                                                       |   | 189,079             |    | 270,371             |   | 245,516               |   |
| (Loss) income  from operations                                                                                                    |   | (2,441              | )       | 14,144              |   | 7,404                 |   |
| Other income  (expense)                                                                                                           |   |                |    |                |   |                  |   |
| Gain on Brinker  Sale                                                                                                             |   | 36,932              |    | —              |   | —                |   |
| Interest expense,  net                                                                                                            |   | (10,626             | )       | (15,050             | )      | (14,007               | )      |
| Other income  (expense)                                                                                                           |   | 26,306              |    | (15,050             | )      | (14,007               | )      |
| Income (loss) before  income tax provision (benefit), extraordinary item and cumulative effect of  change in accounting principle |   | 23,865              |    | (906                | )      | (6,603                | )      |
| Income tax  provision (benefit)                                                                                                   |   | 10,243              |    | 675                 |   | (1,826                | )      |
| Net income  (loss) before extraordinary item and cumulative effect of change in  accounting principle                             |   | 13,622              |    | (1,581              | )      | (4,777                | )      |
| Gain on  retirement of Senior Notes, net of tax                                                                                   |   | 1,338               |    | —              |   | —                |   |
| Net income  (loss) before cumulative effect of change in accounting principle                                                     |   | 14,960              |    | (1,581              | )      | (4,777                | )      |
| Cumlative effect  of change in accounting principle, net of tax                                                                   |   | —              |    | —              |   | (678                  | )      |
|                                                                                                                              |   |                |    |                |   |                  |   |
| Net income  (loss)                                                                                                                |   | $                   | 14,960  |                | $      | (1,581                | )      | $ | (5,455 | ) |

 

The pro forma informationpresented does not purport to be indicative of the results that would have beenreported if these transactions had occurred on January 1, 1999, or that may bereported in the future.

 

(3)       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

*Cashand Cash Equivalents*

 

Cash and equivalents arecomprised of demand and interest bearing accounts at various banks.  Maturities of invested funds are no morethan sixty days.

* *

*Reclassification*

 

Certain reclassificationshave been made to prior year financial statements to make them consistent withthe current year’s presentation.

 

*Use ofManagement Estimates*

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Significant estimatesinclude the reserve for closing restaurant locations (see Note 2).  Actual results could differ from thoseestimates.

 

F-12

----

 

*Inventories*

 

Inventories are carriedat the lower of first-in, first-out cost or market value, and consist of thefollowing (dollars in thousands):

 

|            |   | **2001** |   | **2000** |   |
|-----------------|--------|----------|--------|----------|--------|
| Food            |   | $        | 508    |     | $      | 1,186 |   |
| Liquor          |   | 216      |   | 614      |   |
| Supplies        |   | 81       |   | 85       |   |
| Total inventory |   | $        | 805    |     | $      | 1,885 |   |

 

*Propertyand Equipment*

 

Property and equipmentare carried at cost.  The Companyprovides for depreciation and amortization using the straight-line method tocharge the cost of properties to expense over the estimated useful lives of theassets.  The lives used are as follows:

 

| **Asset  Classification**           |   | **Estimated   Useful Life**                                                    |
|-------------------------------------|--------|--------------------------------------------------------------------------------|
| Buildings and building improvements |   | 20-40 years                                                                    |
| Leasehold improvements              |   | Shorter of term of the  lease (ranging   between 10-20 years) or life of asset |
| Furniture and equipment             |   | 3-10 years                                                                     |

 

Included in furniture andequipment in the accompanying consolidated balance sheets is the opening amountof small kitchen and dining room equipment and utensils including but notlimited to pots, pans, dishes, flatware and blenders (“Smallwares”). TheCompany capitalizes a normal complement of Smallwares for each location priorto the restaurant’s opening date and expenses all Smallwares purchased aftereach store’s opening date.

 

F-13

----

 

*Long-LivedAssets*

 

In 1996, the FASB issuedStatement of Financial Accounting Standards (SFAS) No. 121, *Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to Be Disposed Of*.  The Company’s long-lived assets primarilyconsist of goodwill, real estate and leasehold improvements related to itsrestaurant operations. SFAS No. 121 requires management to consider whetherlong-lived assets held for use have been impaired by comparing undiscountedfuture cash flows expected to be generated from utilizing these assets to theircarrying amounts.  If such cash flowsare not sufficient to recover the carrying amount of the assets, impairment hasoccurred and the assets held for use would be written down if their fair marketvalues are less than their carrying value. Significant estimates andassumptions regarding future sales, cost trends, productivity and marketmaturity are required to be made by management in order to test for impairmentunder this standard. For long-lived assets to be disposed of, SFAS No. 121requires that long-lived assets be reported at the lower of carrying amount orfair value less cost to sell.  During the third quarter, the Companyrecorded approximately $1.8 million of impairment charges related to fourrestaurant locations. This impairment was charged to earnings and included inthe accompanying consolidated statements of operations for 2001.

 

*CapitalizedInterest*

 

The Company capitalizesinterest costs during the construction period on capital expenditures funded bydebt. Total interest costs incurred and amounts capitalized are as follows(dollars in thousands):

 

|                       |   | **2001** |   | **2000** |   | **1999** |   |
|----------------------------|--------|----------|--------|----------|--------|----------|--------|
| Total interest  expense    |   | $        | 10,750 |     | $      | 15,118   |   | $ | 14,073 |   |
| Less - Amount  capitalized |   | 124      |   | 68       |   | 66       |   |
| Interest  expense, net     |   | $        | 10,626 |     | $      | 15,050   |   | $ | 14,007 |   |

 

*OtherAssets*

 

Other assets werepreviously comprised of development and franchise fees. Development fees wereamortized over seven years, and franchise fees were amortized over the life ofthe franchise agreements (20 years).  Asa result of the Brinker Sale these assets have been written off, net of theiraccumulated amortization, when recording the gain of the Brinker Sale.  Accumulated amortization of these assetsamounted to $867,212 at January 3, 2001.

 

*PreopeningExpenses*

 

In April 1998, theAmerican Institute of Certified Public Accountants (AICPA) issued its Statementof Position (SOP) 98-5, *Reporting on the Costs of Start-Up Activities*.  SOP 98-5 requires that costs incurred duringstart-up activities, including organization costs, be expensed as incurred. SOP98-5 was effective for financial statements for fiscal years beginning afterDecember 15, 1998.  The Company adoptedSOP 98-5 as of the first day of fiscal 1999. Upon adoption, the Companyrecorded a cumulative effect of a change in accounting principle ofapproximately $1.1 million (approximately $0.7 million net of tax) in 1999.This charge was to write off unamortized preopening costs that were previouslyamortized over the 12-month period subsequent to a restaurant opening.  These costs consist of costs incurred todevelop new restaurant management teams; travel and lodging for both thetraining and opening unit management teams; and the food, beverage and suppliescosts incurred to perform role-play testing of all equipment, concept systemsand recipes.  All preopening expensespost adoption of SOP-98.5 are expensed as incurred.

 

F-14

----

 

*AccruedExpenses*

 

Accrued expensesconsisted of the following as of January 2, 2002 and January 3, 2001 (dollarsin thousands):

 

|                                     |   | **2001** |   | **2000** |   |
|------------------------------------------|--------|----------|--------|----------|--------|
| Accrued  interest                        |   | $        | 4,324  |     | $      | 5,112 |   |
| Accrued  payroll and related benefits    |   | 4,249    |   | 6,372    |   |
| Other  accrued liabilities               |   | 1,740    |   | 1,315    |   |
| Unredeemed  gift certificates            |   | 1,482    |   | 2,256    |   |
| Store  closing reserves, current portion |   | 667      |   | 774      |   |
| Accrued  occupancy costs                 |   | 648      |   | 963      |   |
| Accrued  advertising                     |   | 153      |   | 1,085    |   |
| Accrued  royalties                       |   | —   |   | 654      |   |
| TOTAL                                    |   | $        | 13,263 |     | $      | 18,531 |   |

 

*DeferredFinance Costs*

 

Underwriting, legal andother direct costs incurred in connection with the issuance of the Senior Notesdiscussed below have been capitalized and are being amortized over the life ofthe related borrowings.  A prorataportion of the amount capitalized was netted against the gain recorded on theretirement of certain Senior Notes in 2001.

 

*LiquorLicenses*

 

Liquor licenses purchasedare accounted for at the lower of cost or market. Annual renewal fees areexpensed as incurred.

 

*FairValue of Financial Instruments*

 

The Company’s financialinstruments mainly consist of cash and cash equivalents, restricted cash,accounts receivable, accounts payable and long-term debt. The carrying amountsof the Company’s cash and cash equivalents, restricted cash, accountsreceivable and accounts payable approximate fair value due to the short-termnature of these instruments.  The fairvalue of the Company’s senior notes and mortgage loans based on quoted marketprices for similar issues approximate the current carrying value.

 

*ComprehensiveIncome*

* *

In June 1997, the FASBissued SFAS No. 130, *Reporting ComprehensiveIncome*. SFAS No. 130, which is effective for fiscal 1999,establishes standards for the reporting and display of comprehensive income andits components. Comprehensive income is defined as the change in equity of abusiness enterprise during a period from transactions and other events and circumstancesfrom non-owner sources. Comprehensive income for fiscal 2001, 2000 and 1999 isequal to net income as reported.

 

*SegmentReporting*

 

In June 1997, the FASBissued SFAS No. 131, *Disclosure AboutSegments of an Enterprise and Related Information*. SFAS No. 131requires that a company report annual and interim financial and descriptiveinformation about its reportable operating segments. Operating segments, asdefined, are components of an enterprise about which separate financialinformation is available that is evaluated regularly by the chief operatingdecision-maker in deciding how to allocate resources and in assessingperformance. SFAS No. 131 allows aggregation of similar operating segments intoa single operating segment if the businesses are considered similar under thecriteria. The Company believes it meets the aggregation criteria for itsoperating segments.

 

F-15

----

 

*AccountingPronouncements*

 

In June 1998, the FASBissued SFAS No. 133, *Accounting forDerivative Instruments and Hedging Activities*. This statementestablished accounting and reporting standards requiring that every derivativeinstrument (including certain derivative instruments embedded in othercontracts and for hedging activities) be recorded in the balance sheet aseither an asset or liability measured at its fair value. SFAS No. 133 requiresthat changes in the derivative’s fair value be recognized currently in earningsunless specific hedging accounting criteria are met. Special accounting forqualifying hedges allows a derivative’s gains and losses to offset relatedresults on the hedged item in the income statement, and requires that a companymust formally document, designate and assess the effectiveness of transactionsthat receive hedge accounting. SFAS No. 133 is effective for fiscal yearsbeginning after June 15, 2000.

 

In June 2000, the FASBissued SFAS No. 138, *Accounting forDerivative Instruments and Hedging Activities– An Amendment of FASB StatementNo. 133*, which amended SFAS No. 133 and added guidance for certainderivative instruments and hedging activities. The new standard, SFAS No. 133 as amended by SFAS No. 138, requiresrecognition of all derivatives as either assets or liabilities at fairvalue.  One of the primary amendments toSFAS No. 133 that is covered by SFAS No. 138 establishes an exemption fornormal purchases and normal sales that will be delivered in quantities expectedto be used or sold over a reasonable period in the normal course of business.  The adoption of these standards did not havea material impact on the Company’s fiscal position or results of operations

 

In July 2001, the FASBissued SFAS No. 142, *Goodwill And OtherIntangible Assets*.  SFAS No.142 addresses the method of identifying and measuring goodwill and otherintangible assets acquired in a business combination, eliminates furtheramortization of goodwill and other indefinite-lived intangibles, and requiresperiodic (at least annual) evaluations of impairment of goodwill balances. SFASNo. 142 is effective for fiscal years beginning after December 15, 2001.  The Company expects that its annualizedgoodwill amortization of $2.3 million will be eliminated beginning in 2002 andno goodwill impairment charge will be necessary.

 

In October 2001, the FASBissued SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets* which replaces SFAS No.121.  This statement addresses financialaccounting and reporting for the impairment or disposal of long-livedassets.  SFAS No. 144 retains thefundamental provisions of SFAS No. 121 regarding recognition/measurement ofimpairment of long-lived assets to be held and used and measurement oflong-lived assets to be disposed of by sale. Under SFAS No. 144, asset write-downs from discontinuing a businesssegment will be treated the same as other assets held for sale; however, itextends the method of accounting to all assets held for sale.  The new standard also broadens the financialstatement presentation of discontinued operations to include the disposal of anasset group (rather than a segment of a business).  SFAS No. 144 is effective beginning January 1, 2002 and,generally is to be applied prospectively. The Company is studying the potential financial impact of adopting thisnew standard, but does not expect it to have any significant material impact onfinancial position and results of operations.

 

(4)       INCOME TAXES

 

The Company accounts forincome taxes under the liability method in accordance with SFAS No. 109 *Accounting for Income Taxes*.  The components of the provision (benefit)for income taxes for the years ended January 2, 2002, January 3, 2001 andDecember 29, 1999 are as follows (dollars in thousands):

 

 

F-16

----

 

|                                             |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Current -                                        |   |     |   |     |   |     |   |
| Federal                                          |   | $        | 4,612  |     | $      | (329     | )      | $ | (277 | ) |
| State                                            |   | 2,399    |   | (103     | )      | (125     | )      |
|                                             |   | 7,011    |   | (432     | )      | (402     | )      |
| Deferred -                                       |   |     |   |     |   |     |   |
| Federal                                          |   | 4,173    |   | 242      |   | (1,659   | )      |
| State                                            |   | 14       |   | 75       |   | (753     | )      |
|                                             |   | 4,187    |   | 317      |   | (2,412   | )      |
| Total provision (benefit) for income taxes       |   | 11,198   |   | (115     | )      | (2,814   | )      |
| Provision for gain on retirement of Senior Notes |   | 955      |   | —   |   | —   |   |
| Benefit on change in accounting principle        |   | —   |   | —   |   | (457     | )      |
| Provision (benefit) on continuing income (loss)  |   | $        | 10,243 |     | $      | (115     | )      | $ | (2,357 | ) |

 

A reconciliation of theamount computed by applying the statutory federal income tax rate of 35% toloss before income tax provision (benefit) and extraordinary item for the yearended January 2, 2002, and 34% for the years ended January 3, 2001 and December29, 1999, respectively, are as follows (dollars in thousands):

 

|                                                                   |   | **2001** |   | **2000** |   | **1999** |   |
|------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Income  tax provision (benefit) computed at federal statutory rate     |   | $        | 8,144  |     | $      | (1,191   | )      | $ | (2,793 | ) |
| State  taxes, including expired state benefits, net of federal benefit |   | 1,728    |   | 599      |   | (28      | )      |
| FICA  tax credit                                                       |   | (426     | )      | (297     | )      | (340     | )      |
| Goodwill  amortization                                                 |   | 797      |   | 774      |   | 774      |   |
| Other                                                                  |   | —   |   | —   |   | 30       |   |
| Income  tax provision (benefit)                                        |   | $        | 10,243 |     | $      | (115     | )      | $ | (2,357 | ) |

 

F-17

----

 

Significant items givingrise to deferred tax assets and deferred tax liabilities at January 2, 2002 andJanuary 3, 2001 are as follows (dollars in thousands):

 

|                                      |   | **2001** |   | **2000** |   |
|-------------------------------------------|--------|----------|--------|----------|--------|
| Deferred tax assets–                 |   |     |   |
| Store closing write downs and liabilities |   | $        | 3,751  |     | $      | 2,608 |   |
| Depreciation                              |   | 1,638    |   | 834      |   |
| Deferred rent                             |   | 951      |   | 1,834    |   |
| Net operating loss carryforwards          |   | 934      |   | 5,571    |   |
| Accrued expenses and other                |   | 476      |   | 750      |   |
| Deferred and accrued compensation         |   | 463      |   | 1,295    |   |
|                                      |   | 8,213    |   | 12,892   |   |
| Deferred tax liabilities–            |   |     |   |     |   |
| Liquor licenses                           |   | (516     | )      | (418     | )      |
| Accelerated tax depreciation              |   | —   |   | (67      | )      |
| Other                                     |   | —   |   | (523     |   |
|                                      |   | (516     | )      | (1,008   | )      |
|                                      |   |     |   |     |   |
| Total net deferred tax assets             |   | $        | 7,697  |     | $      | 11,884 |   |
|                                      |   |     |   |     |   |
| Current portion                           |   | $        | — |     | $      | 5,433 |   |
|                                      |   |     |   |     |   |
| Noncurrent portion                        |   | $        | 7,697  |     | $      | 6,451 |   |

 

As of January 2, 2002,the Company had net operating loss carryforwards for federal purposes ofapproximately $3.4 million that are subject to review by the Internal RevenueService.  The net operating losscarryforwards begin to expire in 2014, and are subject to limitations on theiruse in any one year, if there should be a change in control of the Company.

 

No valuation allowancefor the Company’s net deferred tax assets has been provided, as the Companybelieves it is more likely than not that all of the net deferred tax assetswill be realized.

 

F-18

----

 

(5)       MORTGAGELOANS , NOTES AND SENIOR NOTES PAYABLE

 

From 1997 through 2000,the Company entered into various loan agreements with FFCA which resulted inthe issuance of promissory notes and mortgages collateralized by variousBrinker Concept restaurants.  For theyears ended January 2, 2002, January 3, 2001 and December 29, 1999 interestrelated to the FFCA loans was $1.3, $3.9, and $3.0 million, respectively.  The loans were assumed by Brinker as aresult of the Brinker Sale.

 

OnJuly 13, 1998, the Company issued $100 million of 10 3/4% Senior Notes due2008 (the Notes).  Interest on the Notesis payable semi-annually on January 15 and July 15, with payments commencing onJanuary 15, 1999. The net proceeds were $92.0 million, after expenses inconnection with the offering. The proceeds were used to fund the purchase priceof the acquisition of Bertucci’s, Inc. and its subsidiaries and, along withequity contributions, to repay outstanding bank debt.  After July 15, 2003, the Company may, at its option, redeem anyor all of the Notes at face value, plus a premium of up to approximately 5%through July 15, 2006.  Thereafter, theNotes may be redeemed at face value.  Under certain circumstances, including a change of control orfollowing certain asset sales, the holders of the Notes may require the Companyto repurchase the Notes, at a redemption price of 101%. The Notes are fully andunconditionally guaranteed, on a joint and several basis, on an unsecuredsenior basis, by all of the Company’s subsidiaries, other than those that are,or will become, parties to future secured financings. These Senior Notes wereexchanged for Senior Notes with the same terms pursuant to a registeredexchange offer that was completed in November 1998.  In July 2001, the Company retired $14.7 million of the SeniorNotes with a portion of the proceeds from the Brinker Sale.  An extraordinary gain of $1.3 million, netof a $1.0 million tax liability was recorded which is depicted in theConsolidated Statement of Operations net. The Senior Notes contain no financial covenants and the Company is incompliance with all non-financial covenants as of January 2, 2002.

 

Theindenture governing the Senior Notes requires the use of proceeds froman asset sale within one year of the transaction date (April12, 2002 for the Brinker Sale) anddefines the acceptable uses, including repurchase of debt or investment inassets. The Companybelieves it has met the terms of the indenture for use of Brinker Saleproceeds.  Furthermore, the Company believes that the cash flow generatedfrom its operations with the current cash on hand should be sufficient to fundits debt service requirements, lease obligations, current expected capitalexpenditures and other operating expenses through 2002.

 

During July 2001, theCompany established a $2.0 million (maximum) Letter of Credit Facility. As of January 2, 2002, this facility is collateralized with $1.0 million of cashrestricted from general use.  Letters ofCredit totaling $581,000 were outstanding on January 2, 2002.

 

(6)       COMMITMENTS AND CONTINGENCIES

 

*Operating**Leases*

 

The Company has enteredinto numerous lease arrangements, primarily for restaurant land, equipment andbuildings, which are noncancelable and expire on various dates through 2021.

 

Some operating leasescontain rent escalation clauses whereby the rent payments increase over theterm of the lease. Rent expense includes base rent amounts, percentage rentpayable periodically, as defined in each lease, and rent expense accrued torecognize lease escalation provisions on a straight-line basis over the leaseterm. Rent expense recognized in operating expenses in the accompanyingconsolidated statements of income was approximately $12,090,000, $15,061,000and $15,938,000 for the years ended January 2, 2002, January 3, 2001 andDecember 29, 1999, respectively. The excess of accrued rent over amounts paidis classified as deferred rent in the accompanying consolidated balance sheets.

 

F-19

----

 

The approximate minimumrental payments due under all noncancelable operating leases as of January 2,2002 are as follows (dollars in thousands):

 

| **Year –** |   |   |   |
|-----------------|--------|--------|--------|
| 2002            |   | $      | 10,661 |   |
| 2003            |   | 9,471  |   |
| 2004            |   | 8,442  |   |
| 2005            |   | 7,731  |   |
| 2006            |   | 7,449  |   |
| Thereafter      |   | 28,970 |   |
|            |   | $      | 72,024 |   |

 

Certain leases requirethe payment of an additional amount, calculated as a percentage of annualsales, as defined in the lease agreement, which exceeds annual minimum rentals.The percentage rent factors generally range from 3% to 6% of sales.

 

*Contingencies*

 

The Company is subjectto various legal proceedings that arise in the ordinary course of business.Based on discussion with the Company’s legal counsel, management believes thatthe amount of ultimate liability with respect to these actions will not bematerial to the financial position or results of operations of the Company.

 

(7)       RELATED PARTIES

 

Under the terms of thecorporation agreements, the stockholders have consented to the payment of anongoing financial consulting fee to Jacobson Partners, Limited Partnership(‘‘Jacobson Partners’’), a stockholder of the corporation. The amounts paid toJacobson Partners for financial consulting fees were $250,000, $625,000 and$313,000 for the years ended January 2, 2002, January 3, 2001 and December 29,1999, respectively, and are included in general and administrative expenses inthe accompanying consolidated statements of income. In addition, during fiscal2001, Jacobson Partners was paid $750,000 for consulting fees associated withconsummating the Brinker Sale.

 

Prior to the terminationof the NE Restaurant 401(k) Plan, two officers of the Company were also the NERestaurant 401(k) Plan’s trustees.

 

(8)       EMPLOYEE LOANS

 

In February 2002, theCompany extended loans to 14 members of Management (including eightofficers).  The demand notes bearinterest at 8%, payable quarterly.  Asof March 15, 2002 a total of $166,328 was outstanding.

 

(9)       401(K) PROFIT SHARING PLAN AND DEFERRED COMPENSATION PLAN(S)

 

The Company maintainstwo defined contribution plans: the Bertucci’s 401(k) Plan and the NERestaurant 401(k) Plan.  Under theBertucci’s 401(k) Plan, substantially all employees of the Company may defer aportion of their current salary, on a pretax basis, to the 401(k) Plan. TheCompany makes a matching contribution to the Bertucci’s 401(k) Plan that isallocated, based on a formula as defined by the Bertucci’s 401(k) Plan, to theBertucci’s 401(k) Plan participants. The Company is currently in the process of terminating the NE Restaurant401(k) Plan and as of May 1, 1999 all eligible participants were transferred tothe Bertucci’s 401(k) Plan in order to consolidate the Plans after theAcquisition.  In connection with thetermination of the NE Restaurant 401(k) Plan, all amounts became fullyvested.  Matching contributions made bythe Company for the years ended January 2, 2002, January 3, 2001 andDecember 29, 1999 were approximately $31,000, $138,000 and $89,000, respectively.

 

F-20

----

 

The Company hadestablished the Bertucci’s Corporation Deferred Compensation Plan (theNonqualified Deferred Compensation Plan) pursuant to which certain eligibleexecutives of the Company may elect to defer a portion of their salary. TheCompany maintained an irrevocable grantor trust which has been established bythe Company, as grantor, pursuant to The Merrill Lynch Nonqualified DeferredCompensation Plan Trust Agreement, dated December 21, 1993, by and between theCompany and Merrill Lynch Trust Company of America, an Illinois corporation, astrustee, for the purpose of paying benefits under the Nonqualified DeferredCompensation Plan.

 

During 1999, the Companyhas also established the Bertucci’s Corporation, Inc. Executive Savings andInvestment Plan (the Executive Savings and Investment Plan) to which highlycompensated executives of the company may elect to defer a portion of theirsalary and or earned bonus. The Company maintains an irrevocable grantor trustwhich has been established by the Company, as grantor, pursuant to the ScudderKemper Investments nonqualified deferred compensation plan trust agreement,dated September 20, 1999.  The agreementis between the Company and Scudder Kemper Investments, as trustee, for thepurpose of paying benefits under nonqualified deferred compensation plan.

 

The trust assets areheld separately from other funds of the Company, but remain subject to claimsof the Company’s general creditors in the event of the Company’sinsolvency.  As of January 2, 2002,there were 18 participants in the plan with a total market value ofapproximately $402,000.

 

(10)     STOCK OPTION PLAN

 

On September 15, 1997,the Board of Directors of the Company established the 1997 Equity IncentivePlan, which included a nonqualified stock option plan (the Option Plan), forcertain key employees and directors. The Option Plan is administered by theBoard of Directors of the Company and may be modified or amended by the Boardof Directors in any respect.

 

Between September 15,1997 and December 4, 1997, 331,123 options were granted.  Between July 21, 1998 and October 19, 1998,58,429 options were granted.  Optionsgranted during each of the last three fiscal years are as follows:

 

| **Year** |   | **Options** |   |
|----------|--------|-------------|--------|
| 1999     |   | 36,110      |   |
| 2000     |   | 199,750     |   |
| 2001     |   | 332,500     |   |

 

The options areexercisable as follows:

 

| Two years beyond option grant date   |   | 25%  |
|--------------------------------------|--------|------|
| Three years beyond option grant date |   | 50%  |
| Four years beyond option grant date  |   | 75%  |
| Five years beyond option grant date  |   | 100% |

 

A summary of the OptionPlan activity for the years ended January 2, 2002, January 3, 2001 and December29, 1999 is presented in the table and narrative below.

 

F-21

----

 

|                                                 |   | **2001**   |   | **2000**                                   |   | **1999**   |     |
|------------------------------------------------------|--------|------------|--------|--------------------------------------------|--------|------------|----------|
|                                                 |   | **Shares** |   | **Weighted   Average   Exercise****Price** |   | **Shares** |     | **Weighted   Average   Exercise****Price** |   | **Shares** |   | **Weighted   Average   Exercise****Price** |   |
| Outstanding at  beginning of year                    |   | 451,251    |   | $                                          | 13.01  |       | 414,642  |   | $ | 12.84 |   | 378,532 |   | $ | 12.67 |   |
| Granted                                              |   | 332,500    |   | $                                          | 17.50  |       | 199,750  |   | $ | 13.37 |   | 36,110 |   | $ | 15.00 |   |
| Forfeited                                            |   | (69,778    | )      | $                                          | (12.09 | )          | (163,141 | ) | $ | (13.02 | ) | — |   | $ | — |   |
| Outstanding at  end of year                          |   | 713,973    |   | $                                          | 15.19  |       | 451,251  |   | $ | 13.01 |   | 414,642 |   | $ | 12.84 |   |
|                                                 |   |       |   |                                       |   |       |     |   |   |   |   |   |   |
| Exercisable at  end of year                          |   | 169,775    |   | $                                          | 12.24  |       | 131,899  |   | $ | 13.06 |   | 80,026 |   | $ | 11.63 |   |
|                                                 |   |       |   |                                       |   |       |     |   |   |   |   |   |   |
| Weighted average fair value of   each option granted |   |       |   | $                                          | 3.81   |       |     |   | $ | 3.53 |   |   |   | $ | 3.28 |   |

 

The 713,973 optionsoutstanding at January 2, 2002 have a remaining weighted average contractuallife of approximately five years.

 

The Company accounts forthe Option Plan under APB Opinion No. 25, *Accountingfor Stock-Based Compensation*, under which no compensation cost hasbeen recognized since the number and exercise price of the options were fixedat the grant dates and all such options were granted at fair market value.

 

The fair value of eachoption grant is estimated on the date of grant using the Black-Scholes optionpricing model with the following assumptions used for grants in 2001: weightedaverage risk-free interest rates of 4.91%, weighted average expected lives offive years and expected volatility of 0%. The weighted average risk-free interest rates used were 6.31% for 2000and 5.66% for 1999 with the same assumptions used for expected lives andvolitility.

 

As permitted by SFAS No.123, *Accounting for Stock-Based Compensation*,the Company continues to apply APB Opinion No. 25 in accounting for its stockoption purchase plans.  As required, thefollowing table discloses pro forma net income and earnings per share hadcompensation cost for the Company’s stock-based compensation plans beendetermined on the fair value approach:

 

| Net income  (loss), in thousands |   |   |   |   |   |   |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|
| As reported                      |   | $      | 14,960 |   | $      | (3,389 | )      | $ | (6,536 | ) |
| Pro Forma                        |   | $      | 14,775 |   | $      | (3,563 | )      | $ | (6,801 | ) |
|                             |   |   |   |   |   |   |   |
| Basic income (loss) per share    |   |   |   |   |   |   |   |
| As reported                      |   | $      | 5.02   |   | $      | (1.14  | )      | $ | (2.19 | ) |
| Pro Forma                        |   | $      | 4.96   |   | $      | (1.14  | )      | $ | (2.19 | ) |
|                             |   |   |   |   |   |   |   |
| Diluted income (loss) per share  |   |   |   |   |   |   |   |
| As reported                      |   | $      | 4.60   |   | $      | (1.14  | )      | $ | (2.19 | ) |
| Pro Forma                        |   | $      | 4.54   |   | $      | (1.14  | )      | $ | (2.19 | ) |

 

Potentially dilutiveshares are excluded from dilutive shares outstanding for the years endedDecember 29, 1999 and January 3, 2001, because they are anti-dilutive due tothe losses of the Company.  The numberof potentially dilutive shares excluded from the earnings per share calculationwas 242,706 and 269,295 for the years ended December 29, 1999 and January 3,2001, respectively.

 

F-22

----

 

(11)     STOCKHOLDERS’ EQUITY

 

During 1999, the Companyreturned capital of $50,000 that was previously paid into the Company from twoemployees.  During 2000, the Companyrepurchased 7,667 shares at $9.23 per share from a previous shareholder.  The transaction is reflected in treasurystock on the accompanying statement of financial position.

 

F-23

----

 

BERTUCCI’S CORPORATION

(formerly NE Restaurant Company, Inc.)

 

Schedule II:VALUATION AND QUALIFYING ACCOUNTS

 

For the yearended January 2, 2002

 
| **Column A**                 |   | **Column B**                           |      |                                  |   | **Column C**                                              |   | **Column D**                          |   | **Column E**                  |   |
|------------------------------|--------|----------------------------------------|-----------|---------------------------------------|--------|-----------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------|--------|
| **Description (1)**          |   | **Balance at   beginning of   period** |      | **Charged to   costs and   expenses** |   | **Additions (1)  Charged to other   accounts --describe** |   | **(1)  Deductions —   describe** |   | **Balance at end of  period** |   |
| Closed restaurants reserves: |   |                                   |      |                                  |   |                                                      |   |                                  |   |                          |   |
| 1999                         |   | $                                      | 3,040,000 |                                  | $      | 0                                                         |   | $                                     | 0      |                          | $      | (758,476 | ) | $ | 2,281,524 |   |
| 2000                         |   | $                                      | 2,281,524 |                                  | $      | 479,443                                                   |   | $                                     | 0      |                          | $      | (1,987,182 | ) | $ | 773,785 |   |
| 2001                         |   | $                                      | 773,785   |                                  | $      | 4,200,000                                                 |   | $                                     | 0      |                          | $      | (1,622,356 | ) | $ | 3,351,429 |   |

 

----

(1) As describedin Note 2 to the consolidated financial statements, restaurant closing reserveshave been established as part of the Acquisition of Bertucci’s. These reservesare related to estimated future lease commitments and exit costs to close 18Bertucci’s locations.  Usage to dateincludes costs related to facility closings, restaurant employee severance andlegal fees associated with the restaurant closings.

 

F-24

----