** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

| **ý****ANNUAL REPORT VOLUNTARILY  FILED PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                        |   |
| **For  the fiscal year ended January 1, 2003**                                                                                                                                                                                              |
|                                                                                                                                                                                                                                        |
| **OR**                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                        |
| **o****TRANSITION REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                          |
|                                                                                                                                                                                                                                        |   |
| **For  the transition period from                    to                  ** |
|                                                                                                                                                                                                                                        |   |
| **Commission  File Number:  333-62775**                                                                                                                                                                                                |

 

**BERTUCCI’S CORPORATION**

(Exact name of registrantas 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)                            |
|                                                             |   |                                  |
| **(508)  351-2500**                                              |
| (Registrant’s telephone  number, including area code)       |
|                                                             |   |                                  |
| Securities registered  pursuant to Section 12(b) of the Act:     |

 

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

 

| Securities registered  pursuant to Section 12(g) of the Act: |
|--------------------------------------------------------------|
|                                                         |   |   |
| **None**                                                     |
| Title of class                                               |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

| Yes  ý |   | No  o |
|------------------|--------|------------|

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this form 10-K or anyamendment to this Form 10-K.  ý

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange ActRule 12b-2).

| Yes  o |   | No  ý |
|-------------|--------|-----------------|

 

Documents Incorporated By Reference

None

 

 

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**CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE  HARBOR” PROVISIONS OF THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995.**

 

*All statements other than statementsof historical facts included in this Annual Report on Form 10-K, including,without limitation, statements set forth under “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” regarding the Company’sfuture financial position, business strategy, budgets, projected costs andplans and objectives of management for future operations, are forward-lookingstatements.  In addition,forward-looking statements generally can be identified by the use of forward-lookingterminology such as “may,”  “will,”“expect,” “intend,” “estimate,” “anticipate” or “believe” or the negativethereof or variations thereon or similar terminology.  Although the Company believes that the expectations reflected insuch forward-looking statements will prove to have been correct, it can give noassurance that such expectations will prove to have been correct. Investors arecautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisionsto these forward-looking statements to reflect events or circumstances afterthe date hereof 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’sCorporation, formerly NE Restaurant Company, Inc. (the “Company”), through it’swholly owned subsidiaries Bertucci’s Restaurant Corp. and Bertucci’s, Inc.(“Bertucci’s”), owns and operates a full service casual dining restaurantconcept under the name Bertucci’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 grew through the addition of 25new Chili’s and seven On The Border 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, theCompany completed its acquisition of Bertucci’s Restaurant Corp.’s parententity, Bertucci’s, Inc., a publicly-owned restaurant company, for a purchaseprice, net of cash received, of approximately $89.4 million (the“Acquisition”).The Company financed the Acquisition primarily through theissuance of $100 million of 10 3/4% senior notes due 2008 (the “SeniorNotes”).  The Acquisition included 90Bertucci’s restaurants and one Sal & Vinnie’s restaurant.  Since 1999, the Company closed the Bertucci’stest kitchen restaurant in Wakefield, Massachusetts and closed seventeen underperforming Bertucci’s restaurants.  InDecember 2000, the Company also closed the Sal and Vinnie’s restaurant locatedin Massachusetts.

 

In April 2001, theCompany completed the sale of 40 Chili’s and seven On The Border restaurants toBrinker (the “Brinker Sale”).  Total consideration, subject to closingadjustments, was $93.5 million.  Brinker acquired the inventory,facilities, equipment and management teams associated with these restaurants,as well as the four Chili’s restaurants that were under development by theCompany. Further, Brinker assumed the mortgage debt on the Company’s Chili’sand On The Border restaurants.  The Company recorded a gain in 2001 on the Brinker Sale of $36.9 millionbefore income taxes.

 

In October 2001,the Company formed Bertucci’s Franchise Corp., a Delaware corporation, for thepurpose of selling development and licensing rights to investors wishing tooperate Bertucci’s restaurants.  Bertucci’sFranchise Corp. is a wholly owned subsidiary of the Company.  For the year ended January 1, 2003,Bertucci’s Franchise Corp. has incurred organization expenses, which have beenexpensed, but has not sold any development or licensing rights.

 

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As ofJanuary 1, 2003 the Company owned and operated 80 full-service, casual dining,Italian-style restaurants under the name Bertucci's Brick Oven Pizzeria®located primarily in New England and Mid-Atlantic United States.

**Concept**

                Bertucci's restaurants are full-service, casualdining restaurants that offer high-quality, moderately priced Italian food.Units are open seven days a week for lunch and dinner, appealing to bothfamilies and adult markets.  Bertucci'sdifferentiates itself from other restaurants by offering a variety of freshlyprepared foods using high-quality ingredients and brick oven bakingtechniques.  Bertucci's alsodistinguishes itself with a contemporary Tuscan-style and an open-kitchen design.  The first Bertucci's opened in Somerville,Massachusetts in 1981.

**Restaurant Overview andMenu**

                Bertucci'srestaurants offer a distinctive menu and a contemporary Tuscan-style designthat offers a unique dining experience at a reasonable price.  Bertucci’s specializes in a wide assortmentof Italian regional pasta, chicken, veal and seafood dishes, salads, andpremium brick oven pizza. The chain's signature pizza is prepared in brickovens that bake at unusually high temperatures, enabling the production of alight crust and preservation of natural flavors and moisture of toppings.Natural fresh ingredients are used to ensure high quality and freshness. TheCompany makes its own dough, sauces and toppings in each unit, thus preparingits menu fresh each day.  In addition,Bertucci's menu features a variety of appetizers, soups, calzones and dessertsthat are prepared according to Bertucci's original recipes.  Management believes that Bertucci's originalrecipes and brick oven baking techniques combine to produce superior productsthat are difficult to duplicate.    Wineand beer are available at all Bertucci’s locations and full bar service isavailable at most Bertucci's restaurants. Price points are $7.29 for lunch entrees and generally range from $7.99to $16.99 for dinner entrees.  Mostitems on the menu may be purchased for take-out service or delivery, whichtogether accounted for approximately 24% of net sales in fiscal 2002.

**Restaurant Design**

                Bertucci'srestaurants are freestanding or in-line buildings averaging approximately 6,200square feet in size with a seating capacity of approximately 170 people.  Each Bertucci's restaurant features acontemporary Tuscan-style, open-kitchen design centered around brickovens.  Ingredients are displayed andfood is prepared on polished granite counters located in front of the brickovens, in plain view of diners. Bertucci's restaurants historically have been built in varying sizes anddesigns, with no two interior decors exactly alike.  Most restaurants were re-imaged in recent years and feature arelaxing Tuscan atmosphere with similar and consistent elements.  Because management believes unit economicsbenefit from a standardized design, the Company has developed a prototypedesign incorporating approximately 5,500 square feet and 198 seats.  The first restaurant with the newprototypical design opened in Danbury, Connecticut in late January 2001.  A total of seven new restaurants were openedin fiscal 2002.  Key features of theprototype design are a separate carryout designation, a bar/waiting area andmodification of interior elements, including new floor and ceiling materials,and new furniture.

**RestaurantDevelopment**

                *Expansion*.   The Company expects to continue its steady growth strategythrough the opening of new Bertucci’s restaurants over the next severalyears.  Bertucci’s plans to openrestaurants quickly in new markets to optimize media and operationalefficiencies.  The Company expects tofinance the development of Bertucci’s through a combination of cash on hand,cash from operations, and a planned sale-leaseback transaction expected toclose in 2003. See Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations - Liquidity and Capital Resources. 

 

                *Site Selection and Construction*.   Management's site selection strategy fornew restaurants focuses on high-density, high-traffic, high-visibility siteswhich are, for the most part, positioned within existing markets to takeadvantage of certain operational efficiencies. Management seeks out sites with a mixture of retail, office, residentialand entertainment concentration which promote both lunch and dinnerbusiness.  Management devotessignificant time and resources to identify and analyze potential sites, as it believesthat site selection is crucial to its success. Management also believes that multiple locations focused in definedgeographic areas will result in increased market

 

3

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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.**                         *Managementbelieves that franchising will be an efficient vehicle to develop restaurantsin markets far from the current locations. The Company believes that the franchise plan should be consistent withBertucci’s corporate plan of quickly establishing strong market penetration andmedia efficiency in franchised markets. Franchising provides an alternative development strategy that requiresminimal cash outlay.  Additional costswould be required in franchise sales, operations, marketing, purchasing, andtraining.  The royalty fees should exceedthese costs after a reasonable start-up period.

 

**QualityControl**

 

Each Bertucci’srestaurant typically has a general manager and two to three assistant managerswho are responsible for assuring compliance with Bertucci’s operatingprocedures and for the training and supervision of restaurant employees.  The general managers report to districtmanagers who oversee, on average, between four and eight Bertucci’srestaurants.  The Company believes thatquality control operations of Bertucci’s are enhanced by the work of threeregional chefs who provide support to restaurant management and ensure qualityof food preparation.

 

**ManagementIncentive Programs**

 

Management hasdeveloped a profit-based reward system for its restaurant level managers suchthat their bonus levels are directly tied to each restaurant’s quality of foodand service as well as restaurant profitability.  The Company believes this incentive program has contributedsignificantly to the entrepreneurial spirit of its restaurants and, ultimately,to overall guest satisfaction and Company profitability.  In 2001, Bertucci’s implemented a ManagingPartner (“MP”) Program  which allowsgeneral managers with over two years’ experience at Bertucci’s to earn a higherrate of bonus, options for Company shares and other benefits.  The Company believes that the combination ofthese incentives improve stability of the restaurant management teams and suchstability improves sales and profits.

 

**Training**

 

The Company placessignificant emphasis on the proper training of its employees.  Training is designed to increase productquality, operational safety, overall productivity and guest satisfaction and tofoster the concept of ‘‘continuous improvement.’’  The Company requires new non-management employees to undergoextensive training administered by restaurant-level managers to improve theconfidence, productivity, proficiency level and customer relations skills ofsuch employees.  The Company alsorequires all of its managers to complete a comprehensive management trainingprogram developed by the Company.  Thisprogram instructs management trainees in detailed, concept-specific foodpreparation standards and procedures as well as administrative and humanresource functions.  This training islargely conducted at specified restaurants which are designated as ‘‘trainingrestaurants’’ and also incorporates training manuals and other writtenguides.  At the end of the process,trainee skills are tested by a variety of means including a full-day writtenexamination.  Initial instruction istypically followed up by periodic supplemental training.  When the Company opens a new restaurant,management positions are typically staffed with personnel who have had previousexperience in a management position at another restaurant.  In addition, a highly experienced openingteam assists in opening the restaurant. Prior to opening, all staff personnel undergo a week of intensivetraining conducted by the restaurant opening team.           The Company employs a separate trainingdepartment including a vice-president of training and training directors whoare responsible for most training functions.

 

During 2001, the Company implemented the Bertucci’sUniversity program for restaurant management training.  The Bertucci’s University program consistsof a one-week long classroom session at the Company’s headquarters where newmanagers are taught, among other things, safety and security, computers andinformation systems, responsible alcohol service and applied foodservicesanitation.  Management believes thatthe testing during Bertucci’s University is rigorous and that the managers whograduate from this program are better prepared for running Bertucci’srestaurants. Since its implementation there have been 141 graduates ofBertucci’s University.

 

4

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**Advertisingand Marketing**

 

The Company’s overall marketing objective is to growbrand recognition 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.

 

**Purchasing**

 

The Companynegotiates directly with suppliers of food and beverage products and otherrestaurant supplies to ensure consistent quality and freshness of products andto obtain competitive prices.  Althoughthe Company believes that essential restaurant supplies and products areavailable on short notice from several sources, the Company uses onefull-service distributor for the substantial portion of restaurant supplies andproduct requirements, with such distributor charging the Company fixed mark-upsover prevailing wholesale prices.  TheCompany has a five-year contract with its full-service distributor which isterminable by either party upon 120 days prior notice.  The Company also has arrangements withseveral smaller and regional distributors for the balance of itspurchases.  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 not experiencedany significant delays in receiving food and beverage inventories or restaurantsupplies.

 

**InformationSystems and Restaurant Reporting**

 

*InformationSystems.**                               *TheCompany’s information systems provide detailed monthly financial statements foreach restaurant, bi-monthly restaurant inventories, menu mix, cash managementand payroll analysis.  Preliminaryfinancial reports are available within one day of the period close and therestaurant-level information 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 othervarying levels of systems data are consolidated and processed by the Company atits headquarters daily, weekly or monthly, as management deems appropriate.

 

*Pointof Sale (“POS”). *All restaurants use the Micros 3700POS system.  Management believes theconsistency and reliability of the POS system is the backbone of the technicalinfrastructure.  The consistency betweenrestaurants provides efficiencies for multi-restaurant operators, training andsupport.  The POS data is retrieved fromeach restaurant daily and processed at the Company’s headquarters.

 

*Data Warehouse. *The Company installed a data warehouse in 2001 thattracks information as minute as guest check detail.  Management believes that the data warehouse will provide new waysof viewing operational data that will enable the Company to spot trends,evaluate price sensitivity and track new items/combinations previously notavailable.

 

**Trademarks, Servicemarks and OtherIntellectual Property**

 

Bertucci’s hasregistered, among others, the names ‘‘Bertucci’s®’’ and ‘‘Bertucci’s Brick OvenPizzeria®’’ as service marks and trademarks with the United States Patent andTrademark Office.  

 

Management isaware of names similar to that of Bertucci’s used by third parties in certainlimited geographical areas.  Suchthird-party use may prevent the Company from licensing the use of theBertucci’s mark for restaurants in such areas. Except for these areas, management is not aware of any infringing usesthat could materially affect the Bertucci’s business.

 

5

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**Competition**

 

The Company’sbusiness, and the restaurant industry in general, is highly competitive and isoften affected by changes in consumer tastes and dining preferences, by localand national economic conditions and by population and traffic patterns.  The Company competes directly or indirectlywith all restaurants, from national and regional chains to localestablishments, as well as with other foodservice providers.  Many of its competitors are significantlylarger than the Company and have substantially greater resources.

 

**Employees**

 

At January 1,2003, the Company had approximately 1,060 full-time employees (of whom 76 arebased at the Company’s headquarters) and approximately 5,000 part-timeemployees.  None of the Company’semployees are covered by a collective bargaining agreement.  The Company surveyed its employees in 2002and in 2001 to assess satisfaction and determine ways to improve Company workconditions and relations.  The surveysupports the Company’s belief that its relations with its employees are good.

 

Managementbelieves that the Company’s continued success will depend to a large degree onits ability to attract and retain good management employees.  While the Company expects to continuallyaddress 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 14 members of Management (including eightofficers).  The demand notes wereinterest bearing at 8%, payable quarterly. The demand notes totaled $157,000 at January 1, 2003 and were all paidin full as of February 13, 2003.

 

**GovernmentRegulations**

 

Each of theCompany’s restaurants is subject to licensing and regulation by a number ofgovernmental authorities, on matters which include health, safety, fire andalcoholic beverage control in the state or municipality in which the restaurantis located.  Difficulties or failures inobtaining required licenses or approvals could delay or prevent the opening ofa new restaurant in a particular area. In addition, failure to maintain a required license or approval couldresult in the temporary or permanent closure of an existing restaurant.

 

Alcoholic beveragecontrol regulations require each of the Company’s restaurants to apply to astate authority and, in certain locations, county or municipal authorities fora license or permit to sell alcoholic beverages on the premises and to provideservice for extended hours and on Sundays. Typically, licenses or permits must be renewed annually and may berevoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of thedaily operations of the Company’s restaurants, including minimum age of patronsand employees, hours of operation, advertising, wholesale purchasing, inventorycontrol and handling, storage, and dispensing of alcoholic beverages.

 

The Company isalso subject to various other federal, state and local laws relating to thedevelopment and operation of restaurants, including those concerningpreparation and sale of food, relationships with employees (including minimumwage requirements, overtime and working conditions and citizenshiprequirements), land use, zoning and building codes, as well as other health, sanitation,safety and environmental matters.

 

6

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**ITEM 2.  PROPERTIES**

 

The Company’sexecutive office is located in Northborough, Massachusetts.  The office is occupied under the terms of alease covering approximately 20,000 square feet that is scheduled to expire in2006 and has two three-year options to renew. One of the Company’s previous offices in Westborough, Massachusetts iscurrently being sub-leased.

 

**RestaurantLocations**

 

The table below identifies the location of the restaurants operated bythe Company during fiscal 2002.

 
| **State**            |   | **Open  as of   01/02/2002** |       | **Openings** |       | **Closings** |   | **Open  as of   01/01/2003** |       |
|----------------------|--------|------------------------------|------------|--------------|------------|--------------|--------|------------------------------|------------|
| Connecticut          |   | 11                           |       | 0            |       | 0            |   | **11**                       | ** ** |
| Delaware             |   | 0                            |       | 1            |       | 0            |   | **1**                        | ** ** |
| District of Columbia |   | 2                            |       | 0            |       | 0            |   | **2**                        | ** ** |
| Maryland             |   | 5                            |       | 0            |       | 0            |   | **5**                        | ** ** |
| Massachusetts        |   | 35                           |       | 4            |       | (1           | )      | **38**                       | ** ** |
| 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             |   | 3                            |       | 2            |       | 0            |   | **5**                        | ** ** |
| Total                |   | **74**                       | ** ** | **7**        | ** ** | **(1**       | **)**  | **80**                       | ** ** |

 

Of the 80restaurants operated by the Company at January 1, 2003, the Company owned theland and improvements for five restaurants and leased the land and improvementsfor all other restaurants.  The leasesfor most of the existing restaurants are for terms of 15 to 20 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 remainingrange from less than one to 24 years. The majority of such leases provide for an option to renew foradditional terms ranging from five years to 20 years.  All of Bertucci’s leases provide for a specified annual rentaland most leases call for additional rent based on sales volumes exceedingspecified levels.

 

**ITEM 3.****                      LEGALPROCEEDINGS**

 

The Company isinvolved in various legal proceedings from time to time incidental to the conductof its business.  In the opinion ofmanagement, any ultimate liability arising out of such proceedings will nothave a material adverse effect on the financial condition or results ofoperations of the Company.

 

Management is notaware of any litigation to which the Company is a party that is likely to havea material adverse effect on the Company.

 

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

 

None.

 

7

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**PART II**

 

**ITEM 5.****                      MARKET FORREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

**Market Information**

 

As of March 15,2003, there was no established public trading market for any class of commonequity security of the Company.

 

**Record Holders**

 

As of March 15,2003, there were 96 holders of Common Stock of the Company, $.01 par value pershare.  As of March 15, 2003, theCompany did not have any other class of common equity security issued andoutstanding.

 

**Dividends**

 

The Company hasnot paid any dividends in the last five years. 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.

 

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**ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA**

 

The data forfiscal years ended 1998 through 2002 are derived from audited financialstatements of the Company.  Selectedconsolidated financial data should be read in conjunction with Management’sDiscussion and Analysis of Financial Condition and Results of Operations andthe Consolidated Financial Statements and the Notes thereto included elsewherein this Form 10-K.  Historical resultsare not necessarily indicative of results to be expected in the future.  The Brinker Sale, the Acquisition ofBertucci’s in 1998, and the 53rd week of fiscal 2000 affect thecomparability of results on a year-to-year basis.

 
|                                                                                                                             |   | **Income  Statement Data (in thousands except per share amounts)  Fiscal Year Ended** |    |
|----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|---------|
|                                                                                                                             |   | **January 1,  2003**                                                                  |    | **January 2,  2002** |   | **January 3,  2001 (a)** |   | **December 29,  1999** |   | **December 30,  1998** |   |
| Net sales                                                                                                                        |   | $                                                                                     | 162,319 |   | $ | 186,638 |   | $ | 284,933 |   | $ | 267,665 |   | $ | 160,805 |   |
| Cost of sales and expenses (c)                                                                                                   |   |                                                                                  |    |   |   |   |   |   |   |   |   |
| Cost of sales                                                                                                                    |   | 35,667                                                                                |    | 44,855 |   | 74,266 |   | 73,184 |   | 44,377 |   |
| Operating expenses                                                                                                               |   | 96,413                                                                                |    | 111,795 |   | 162,098 |   | 155,426 |   | 91,596 |   |
| General and administrative expenses                                                                                              |   | 12,124                                                                                |    | 12,548 |   | 16,392 |   | 15,400 |   | 8,638 |   |
| Deferred rent, depreciation, amortization and preopening expenses                                                                |   | 10,733                                                                                |    | 13,142 |   | 17,333 |   | 17,055 |   | 10,597 |   |
| Closed restaurants charge                                                                                                        |   | 236                                                                                   |    | 4,200 |   | 479 |   | — |   | — |   |
| Asset impairment charge                                                                                                          |   | —                                                                                |    | 1,800 |   | — |   | — |   | — |   |
| Loss on abandonment of Sal & Vinnie’s                                                                                   |   | —                                                                                |    | — |   | 2,031 |   | — |   | — |   |
| Cost of sales and expenses                                                                                                       |   | 155,173                                                                               |    | 188,340 |   | 272,599 |   | 261,065 |   | 155,208 |   |
| Income (loss) from operations                                                                                                    |   | 7,146                                                                                 |    | (1,702 | ) | 12,334 |   | 6,600 |   | 5,597 |   |
| Other income (expense)                                                                                                           |   |                                                                                  |    |   |   |   |   |   |   |   |   |
| Gain on Brinker Sale                                                                                                             |   | —                                                                                |    | 36,932 |   | — |   | — |   | — |   |
| Interest expense, net (c)                                                                                                        |   | (9,587                                                                                | )       | (11,365 | ) | (15,838 | ) | (14,815 | ) | (8,328 | ) |
| Other  (expense) income                                                                                                     |   | (9,587                                                                                | )       | 25,567 |   | (15,838 | ) | (14,815 | ) | (8,328 | ) |
| (Loss) income before income tax provision (benefit), extraordinary  item and cumulative effect of change in accounting principle |   | (2,441                                                                                | )       | 23,865 |   | (3,504 | ) | (8,215 | ) | (2,731 | ) |
| Income tax provision (benefit)                                                                                                   |   | 2,697                                                                                 |    | 10,243 |   | (115 | ) | (2,357 | ) | (902 | ) |
| (Loss) income before extraordinary item and cumulative effect of  change in accounting principle                                 |   | (5,138                                                                                | )       | 13,622 |   | (3,389 | ) | (5,858 | ) | (1,829 | ) |
| Gain on retirement of Senior Notes, net of tax                                                                                   |   | —                                                                                |    | 1,338 |   | — |   | — |   | — |   |
| Cumulative effect of change in accounting principle, net of tax                                                                  |   | —                                                                                |    | — |   | — |   | (678 | ) | — |   |
| Net (loss) income                                                                                                                |   | $                                                                                     | (5,138  | ) | $ | 14,960 |   | $ | (3,389 | ) | $ | (6,536 | ) | $ | (1,829 | ) |
|                                                                                                                             |   |                                                                                  |    |   |   |   |   |   |   |   |   |
| Balance Sheet Data (in thousands):                                                                                               |   |                                                                                  |    |   |   |   |   |   |   |   |   |
| Working (deficit) capital                                                                                                        |   | $                                                                                     | (1,289  | ) | $ | 4,373 |   | $ | (16,330 | ) | $ | (16,209 | ) | $ | (18,188 | ) |
| Total assets                                                                                                                     |   | $                                                                                     | 125,422 |   | $ | 132,797 |   | $ | 183,595 |   | $ | 189,578 |   | $ | 186,732 |   |
| Total long-term debt                                                                                                             |   | $                                                                                     | 85,310  |   | $ | 85,310 |   | $ | 139,737 |   | $ | 138,075 |   | $ | 128,303 |   |
| Total stockholders’ equity                                                                                                  |   | $                                                                                     | 13,888  |   | $ | 19,026 |   | $ | 4,066 |   | $ | 7,526 |   | $ | 14,112 |   |
| Comparable restaurant sales % change (b)                                                                                         |   | 5.8                                                                                   | %       | 2.2 | % | 4.8 | % | 2.1 | % | 1.6 | % |

 

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a)              Fiscal 2000 wascomprised of 53 weeks.  All other yearspresented were comprised of 52 weeks.

 

b)             The Company definescomparable restaurant sales as net sales from restaurants that have been openfor at least one full fiscal year.  Thecomparable sales in 2002 and 2001 relate to Bertucci’s only, 2000, 1999 and1998 relate to the combined company (Bertucci’s, Chili’s, On The Border and,for 1999 and 1998 only, Sal & Vinnie’s).

 

c)              Certain amounts(operating expenses, general and administrative expenses, depreciation,amortization and preopening expenses, and interest expense, net) have beenreclassified to conform to the current year presentation.

 

9

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**ITEM 7.****     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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’sCorporation, formerly NE Restaurant Company, Inc. (the “Company”), through it’swholly owned subsidiaries Bertucci’s Restaurant Corp. and Bertucci’s, Inc.(“Bertucci’s”), owns and operates a full service casual dining restaurantconcept under the name Bertucci’s Brick Oven Pizzeria® (“Bertucci’srestaurants”).  The Company wasoriginally formed as a limited partnership in 1991 to acquire 15 Chili’s Bar& Grill restaurants (“Chili’s”) from a prior franchisee.  The Company was incorporated in Delaware in1994.  The Company grew through theaddition of 25 new Chili’s and seven On The Border’s 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, theCompany completed its acquisition of Bertucci’s Restaurant Corp.’s parententity, Bertucci’s, Inc., a publicly-owned restaurant company, for a purchaseprice, net of cash received, of approximately $89.4 million (the"Acquisition”). The Company financed the Acquisition primarily through theissuance of $100 million of 10 3/4% senior notes due 2008 (the “SeniorNotes”).  The Acquisition included 90Bertucci’s restaurants and one Sal & Vinnie’s restaurant.  Since 1999, the Company closed theBertucci’s test kitchen restaurant in Wakefield, Massachusetts and closedseventeen under performing Bertucci’s restaurants.  In December of 2000, the Company also closed the Sal and Vinnie’srestaurant located in Massachusetts.

 

On April 12, 2001,the Company completed the sale of 40 Chili’s and seven On The Borderrestaurants to Brinker (the “Brinker Sale”).  Total consideration, subjectto closing adjustments, was $93.5 million.  Brinker acquired theinventory, facilities, equipment and management teams associated with theserestaurants, as well as the four Chili’s restaurants that were underdevelopment by the Company. Further, Brinker assumed the mortgage debt on theCompany’s Chili’s and On The Border restaurants.   The Company recorded a gain in 2001 on theBrinker Sale of $36.9 million before income taxes.

 

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 30, 1999. Accordingly, operating results of the Brinkerrestaurants are removed for fiscal 2000 and fiscal 2001.  Sal & Vinnie’s operating results areremoved for fiscal 2000 only as it was abandoned in December 2000.

 

10

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**BERTUCCI’SCORPORATION**

**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                                        |   | 12,548           |    | (1,329           | )      | 11,219        |   |
| Deferred rent,  depreciation, amortization and preopening expenses          |   | 13,142           |    | (4,410           | )      | 8,732         |   |
| Closed  restaurants charge                                                  |   | 4,200            |    | —           |   | 4,200         |   |
| Asset impairment  charge                                                    |   | 1,800            |    | —           |   | 1,800         |   |
| Cost of sales  and expenses                                                 |   | 188,340          |    | (37,712          | )      | 150,628       |   |
| (Loss) income  from operations                                              |   | (1,702           | )       | 1,185            |   | (517          | )      |
|                                                                        |   |             |    |             |   |          |   |
| Other income  (expense)                                                     |   |             |    |             |   |          |   |
| Gain on Brinker  Sale                                                       |   | 36,932           |    | (36,932          | )      | —        |   |
| Interest  expense, net                                                      |   | (11,365          | )       | 1,114            |   | (10,251       | )      |
| Other income  (expense)                                                     |   | 25,567           |    | (35,818          | )      | (10,251       | )      |
|                                                                        |   |             |    |             |   |          |   |
| 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     |   |
|                                                                        |   |             |    |             |   |          |   |
| Diluted income  (loss) per share before extraordinary item                  |   | $                | 4.19    |             | $      | (6.96         | )      | $ | (2.77 | ) |
| Gain on  retirement of Senior Notes, net of tax                             |   | 0.41             |    | (0.41            | )      | —        |   |
| Diluted income  (loss) per share                                            |   | $                | 4.60    |             | $      | (7.37         | )      | $ | (2.77 | ) |
|                                                                        |   |             |    |             |   |          |   |
| Diluted weighted  average shares outstanding                                |   | 3,252,605        |    | 2,978,955        |   | 2,978,955     |   |

 

11

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**BERTUCCI’SCORPORATION**

**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                                                 |   | 162,098          |    | (75,890          | )      | (1,669                                   | )      | 84,539        |   |
| General and  administrative expenses                               |   | 16,392           |    | (4,338           | )      | —                                   |   | 12,054        |   |
| Deferred rent,  depreciation, amortization and preopening expenses |   | 17,333           |    | (5,925           | )      | (177                                     | )      | 11,231        |   |
| Closed  restaurant charge                                          |   | 479              |    |             |   |                                     |   | 479           |   |
| Loss on  abandonment of Sal & Vinnies                          |   | 2,031            |    |             |   | (2,031                                   | )      | —        |   |
| Cost of sales  and expenses                                        |   | 272,599          |    | (124,305         | )      | (4,795                                   | )      | 143,499       |   |
| Income from  operations                                            |   | 12,334           |    | (14,105          | )      | 2,172                                    |   | 401           |   |
|                                                               |   |             |    |             |   |                                     |   |          |   |
| Interest  expense, net                                             |   | (15,838          | )       | 3,866            |   | —                                   |   | (11,972       | )      |
|                                                               |   |             |    |             |   |                                     |   |          |   |
| Loss before  income tax benefit                                    |   | (3,504           | )       | (10,239          | )      | 2,172                                    |   | (11,571       | )      |
|                                                               |   |             |    |             |   |                                     |   |          |   |
| Income tax  benefit                                                |   | (115             | )       | (3,993           | )      | 847                                      |   | (3,261        | )      |
| Net loss                                                           |   | $                | (3,389  | )                | $      | (6,246                                   | )      | $             | 1,325  |   | $ | (8,310 | ) |
|                                                               |   |             |    |             |   |                                     |   |          |   |
| Basic and  diluted loss per share                                  |   | $                | (1.14   | )                | $      | (2.09                                    | )      | $             | 0.44   |   | $ | (2.79 | ) |
|                                                               |   |             |    |             |   |                                     |   |          |   |
| Basic and  diluted weighted average shares outstanding             |   | 2,981,414        |    | 2,981,414        |   | 2,981,414                                |   | 2,981,414     |   |

 

**Results of Operations**

 

For all theCompany’s restaurants, net sales consist of food, beverage and alcoholsales.  Cost of sales consists of food,beverage and alcohol costs as well as supplies used in carry-out and deliverysales.  Total operating expenses consistof five primary categories:  (i) laborexpenses; (ii) restaurant operations; (iii) facility costs; (iv) officeexpenses; and  (v) non-controllable expenses, which include such items ascompany advertising expenses, rent and insurance.  General and administrative expenses include costs associated withthose departments of the Company that assist in restaurant operations andmanagement of the business, including accounting, management informationsystems, training, executive management, purchasing and construction.

 

The followingtable sets forth the percentage-relationship to net sales, unless otherwiseindicated, of certain items included in the Company’s consolidated statementsof operation, and the pro forma consolidated statements of operations above,for the periods indicated:

 

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| *Income Statement Data:* | For Fiscal Year Ended     |
|--------------------------|---------------------------|
|                     | (Percentage of Net Sales) |

 
|                                                                        |   |                  |   |                  |   |                  |   | **Proforma  Bertucci’s** |   |
|-----------------------------------------------------------------------------|--------|-----------------------|--------|-----------------------|--------|-----------------------|--------|-------------------------------|--------|
|                                                                        |   | **January  1,  2003** |   | **January  2,  2002** |   | **January  3,  2001** |   | **January  2,  2002**         |   | **January  3,  2001** | * * |
|                                                                        |   |                  |   |                  |   |                  |   |                          |   |   |   |
| Net sales                                                                   |   | 100.0                 |   | 100.0                 |   | 100.0                 |   | 100.0                         |   | 100.0 |   |
| Cost of sales and expenses                                                  |   |                  |   |                  |   |                  |   |                          |   |   |   |
| Cost of sales                                                               |   | 22.0                  |   | 24.0                  |   | 26.1                  |   | 23.0                          |   | 24.5 |   |
| Operating expenses                                                          |   | 59.4                  |   | 59.9                  |   | 56.9                  |   | 60.1                          |   | 58.7 |   |
| General and administrative expenses                                         |   | 7.5                   |   | 6.7                   |   | 5.8                   |   | 7.5                           |   | 8.4 |   |
| Deferred rent, depreciation, amortization, and preopening expenses          |   | 6.6                   |   | 7.0                   |   | 6.1                   |   | 5.8                           |   | 7.8 |   |
| Closed restaurant charge                                                    |   | 0.1                   |   | 2.3                   |   | 0.2                   |   | 2.8                           |   | 0.3 |   |
| Asset impairment charge                                                     |   | —                |   | 1.0                   |   | —                |   | 1.2                           |   | — |   |
| Loss on abandonment of Sal & Vinnie’s                              |   | —                |   | —                |   | 0.7                   |   | —                        |   | — |   |
| Cost of sales and expenses                                                  |   | 95.6                  |   | 100.9                 |   | 95.7                  |   | 100.4                         |   | 99.7 |   |
| Income (loss) from operations                                               |   | 4.4                   |   | (0.9                  | )      | 4.3                   |   | (0.4                          | )      | 0.3 |   |
| Other income (expense)                                                      |   |                  |   |                  |   |                  |   |                          |   |   |   |
| Gain on Brinker Sale                                                        |   | —                |   | 19.8                  |   | —                |   | —                        |   | — |   |
| Interest expense, net                                                       |   | (5.9                  | )      | (6.1                  | )      | (5.5                  | )      | (6.8                          | )      | (8.3 | ) |
| Other (expense) income                                                      |   | (5.9                  | )      | 13.7                  |   | (5.5                  | )      | (6.8                          | )      | (8.3 | ) |
|                                                                        |   |                  |   |                  |   |                  |   |                          |   |   |   |
| (Loss) income before income tax provision (benefit) and extraordinary  item |   | (1.5                  | )      | 12.8                  |   | (1.2                  | )      | (7.2                          | )      | (8.0 | ) |
| Income tax provision (benefit)                                              |   | 1.7                   |   | 5.5                   |   | —                |   | (2.4                          | )      | (2.3 | ) |
|                                                                        |   |                  |   |                  |   |                  |   |                          |   |   |   |
| (Loss) income before extraordinary item                                     |   | (3.2                  | )      | 7.3                   |   | (1.2                  | )      | (4.8                          | )      | (5.7 | ) |
| Gain on retirement of Senior Notes, net of tax                              |   | —                |   | 0.7                   |   | —                |   | —                        |   | — |   |
| Net (loss) income                                                           |   | (3.2                  | )      | 8.0                   |   | (1.2                  | )      | (4.8                          | )      | (5.7 | ) |

 

**Year Ended January 1, 2003 Compared to Year Ended January 2,2002**

 

*Net Sales*.  Total Company net salesdecreased by $24.3 million, or 13.0%, to $162.3 million during fiscal 2002 from$186.6 million during fiscal 2001.  Thedecrease was due to the Brinker Sale. After removing the impact of the Brinker Sale, net sales for Bertucci’sfor fiscal 2002 increased by 8.1% or $12.2 million as compared to fiscal 2001due to seven new restaurants and a 5.8% increase in comparable restaurantsales, partially offset by two restaurant closings in 2001 and one restaurantclosing in 2002.  Comparable Bertucci’srestaurant dine-in guest counts increased over fiscal 2001 by 3.8%.  Bertucci’s comparable restaurant dine-insales increased 6.7% while comparable Bertucci’s restaurant carry-out anddelivery sales increased 2.7% for fiscal 2002. The Company believes that the majority of the comparable sales increaseshave been a result of increased guest visits combined with a shift in menu mixand an approximate 1.0% price increase in April 2002.

 

*Cost of Sales*.  Cost of sales decreased byapproximately $9.2 million, or 20.5%, to $35.7 million during fiscal 2002 from$44.9 million during fiscal 2001.  Thedecrease was due to the Brinker Sale. Expressed as a percentage of net 

 

13

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sales,overall cost of sales decreased to 22.0% during fiscal 2002 from 24.0% duringfiscal 2001.  The change was primarilydue to the Brinker Sale as Brinker Concept Restaurants ran a higher cost ofsales than Bertucci’s restaurants. After removing the impact of the Brinker Sale, cost of sales for theBertucci’s restaurants increased by $1.1 million, or 3.3%, to $35.7 millionduring fiscal 2002 from $34.5 million during fiscal 2001.  Expressed as a percentage of net sales,Bertucci’s cost of sales decreased to 22.0% during fiscal 2002 from the proforma cost of sales rate of 23.0% during fiscal 2001.  The Company believes that management efficiency, sound purchasingpractices and lower cost of ingredients combined to effectuate the favorablechange in Bertucci’s cost of sales percentage.

 

*Operating Expenses.* Operating expenses decreased by $15.4 million, or 13.8%, to $96.4million during fiscal 2002 from $111.8 million during fiscal 2001.  The dollar decrease was primarily due to theBrinker Sale.  Expressed as a percentageof net sales, operating expenses decreased to 59.4% in fiscal 2002 from 59.9%during fiscal 2001. After eliminating the impact of the Brinker Sale, operatingexpenses increased by $6.3 million, or 6.9%, to $96.4 million during fiscal 2002from $90.1 million during fiscal 2001. Expressed as a percentage of net sales, operating expenses forBertucci’s decreased to 59.4% in fiscal 2002 compared to the pro formaoperating expense rate of 60.1% in fiscal 2001.  The dollar increases are primarily due to a net increase inrestaurants open during the year as well as overall higher advertisingexpenses, increased labor costs from new restaurant inefficiencies and higherinsurance costs partially offset by reduced utility expenses.  The pro forma percent decrease is primarilydue to favorable changes in labor, supplies and occupancy costs in relation tonet sales partially offset by increased advertising and insurance expenses.

 

*General and Administrative Expenses.* General and administrative expensesdecreased by $424,000, or 3.4% to $12.1 million during fiscal 2002 from $12.5million during fiscal 2001.  Expressedas a percentage of net sales, general and administrative expenses increased to7.5% in fiscal 2002 from 6.7% during fiscal 2001.  The dollar decrease was primarily due to staff reduction as aresult of the Brinker Sale and, to a lesser degree, reduced corporate officerent due to the Company’s move to a smaller facility in August 2001 partiallyoffset by higher recruiting and training costs for new restaurant managers. Thepercentage increase is a result of unfavorable leverage of the sales reductiondue to the Brinker Sale combined with higher new restaurant managementrecruiting and training costs.

 

*Deferred Rent,**Depreciation, Amortization andPreopening Expenses*. Deferred rent, depreciation, amortization and preopening expensesdecreased by approximately $2.4 million or 18.3%, to $10.7 million duringfiscal 2002 from $13.1 million during fiscal 2001.  Expressed as a percentage of net sales, deferred rent,depreciation, amortization and preopening expenses decreased to 6.6% in fiscal2002 from 7.0% during fiscal 2001.  Thedollar decrease was primarily due to the elimination of goodwill amortizationresulting from the Company's adoption of SFAS No. 142 as discussed in Note 4 tothe Consolidated Financial Statements and, to a lesser extent, the BrinkerSale.  The percentage decrease resultedfrom the elimination of goodwill amortization partially offset by unfavorableleverage of the sales reduction due to the Brinker Sale.

 

*Interest Expense.*  Interest expense decreased byapproximately $1.8 million to $9.6 million during fiscal 2002 from $11.4million during fiscal 2001.  Thedecrease was due to: a) The Brinker Sale, as $40.9 million of mortgageindebtedness was assumed by Brinker; b) $14.7 million of Senior Notes wereretired in July 2001 by using a portion of the proceeds of the Brinker Salepartially offset by c) a reduction in interest income as a result of reducedinvestments combined with lower market interest rates.

 

*IncomeTaxes.* The current year tax provision of $2.7 millionresulted primarily from the recognition of a valuation allowance againstdeferred tax assets of $4.1 million. The future tax benefits which gave rise tothe original recognition of a deferred tax asset remain statutorily availableto the Company. The provisions of SFAS No. 109 require the Company to considerboth negative and positive evidence in determining if a valuation allowance isrequired. The Company’s 2001 results were favorably impacted by the BrinkerSale and without it the Company would have recorded a pre-tax loss. Thus, theCompany has an historical trend of recurring pre-tax losses since 1998excluding the Brinker Sale.  The currentyear’s loss and the Company’s current plan for continued development of Companyowned restaurants will burden pre-tax profits because of the recognition of preopening costs and initial yearinefficiencies associated with new restaurants. As a result, Management decidedto record a valuation allowance for the remaining value of deferred tax assetsin 2002.

 

**Year Ended January 2, 2002 Compared to Year Ended January 3,2001**

 

*Net Sales.*  Net sales decreased $98.3 million, or 34.5%, to $186.6 million infiscal 2001 from $284.9 million in fiscal 2000.  Most of the decreasewas attributable to the Brinker Sale. That was offset by a 2.2% sales increase for the 71 

 

14

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comparable Bertucci’srestaurants and the addition of four new Bertucci’s restaurants.The Companyalso closed two restaurants in fiscal 2001, one at the end of the third quarterat its lease expiration and one at year end due to the landlord exercising theright of recapture as provided in the lease. 

 

*Cost of Sales.*  Cost of sales decreased by $29.4 million, or 39.6%, to $44.9million in fiscal 2001 from $74.3 million in fiscal 2000.  The primary reason for the dollar decreasewas the Brinker Sale.  Expressed as apercentage of net sales, cost of sales decreased by 2.1% to 24.0% in fiscal2001 from 26.1% in fiscal 2000.  TheCompany believes the decrease in both dollar and percent resulted from severalfactors.  First, Bertucci’s continued todevelop a theoretical food cost system which allowed management to pinpoint andcontrol costs.  Second, product costsshowed favorable movement against 2000 due to a combination of purchasingpractices (specifically poultry, flour, oils and produce) and favorable marketconditions.  Third, price increases andnew menu offering further drove down cost percentages.  Fourth, the Brinker Sale helped improve costof sales, due to the fact that the Brinker Concept restaurants had a highercost of sales ratio.

 

*Operating Expenses.*  Operating expenses decreased by $50.3million, or 31.0%, to $111.8 million in fiscal 2001 from $162.1 million infiscal 2000.  Expressed as a percentageof net sales, operating expenses increased to 59.9% in fiscal 2001 from 56.9%in fiscal 2000.  The dollar decrease wasprimarily attributable to the Brinker Sale. The percentage increase was due in part to improved efficiency in theBertucci’s restaurants, primarily labor and advertising costs, as well asimproved leverage over fixed expenses.

 

*General and Administrative Expenses.*  General and administrative expensesdecreased $3.8 million, or 23.5%, to $12.5 million in fiscal 2001 from $16.4million in fiscal 2000.  Expressed as apercentage of net sales, general and administrative expenses increased to 6.7%in fiscal 2001 versus 5.8% in fiscal 2000. The dollar decrease was primarily due to the Brinker Sale while thepercent increase was a result of lower net sales from the sale of the BrinkerConcept restaurants.

 

*Deferred Rent, Depreciation, Amortization and PreopeningExpenses.*  Deferredrent, depreciation, amortization and preopening expenses decreased by $4.2million, or 24.2%, to $13.1 million in fiscal 2001 from $17.3 million in fiscal2000 due mainly to the Brinker Sale. Expressed as a percentage of net sales, deferred rent, depreciation,amortization and preopening expenses increased to 7.0% in fiscal 2001 from 6.1%in fiscal 2000. Bertucci’s restaurants expenses were a higher percentage ofsales than were the Brinker Concept restaurants.  Furthermore, Bertucci’s preopening expenses totaled $554,000 for2001 compared to none in 2000.

 

*Closed Restaurants 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.

 

*Asset Impairment 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.

 

*Interest Expense.*  Interest expense decreased $4.5 million, or28.2%, to $11.4 million in fiscal 2001 from $15.8 million in fiscal 2000.  This decrease was attributable to theassumption of Franchise Finance Corporation of America (“FFCA”) Loans by Brinkeras a result of the Brinker Sale and the retirement of $14.7 million of SeniorNotes.  Interest was approximately $10million on the Senior Notes, $1.1 million on the FFCA Loans and $100,000 fromthe Company’s line of credit during fiscal 2001, offset by interest income of$750,000.  Interest income increased by$675,000 in fiscal 2001 versus 2000 due to availability of excess cash from theBrinker Sale.

 

*Income Tax Provision. *In fiscal 2001, the Company recorded a provision forincome taxes of $10.2 million, a rate of 43%, primarily due to the $36.9million gain on the Brinker Sale.

 

**Liquidityand Capital Resources**

 

The Company hashistorically met its capital expenditures and working capital needs through acombination of operating cash flow, bank and mortgage borrowings, the sale ofthe Senior Notes and the sale of Common Stock. 

 

15

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Future capital andworking capital needs are expected to be funded from operating cash flow andplanned sale-leaseback transactions. If the Company fails to obtain theproceeds from the planned sale-leaseback transactions, it may not be able tofund its planned growth.

 

Net cash flowsfrom operating activities were $8.2 million for fiscal 2002 as compared to $4.3million for fiscal 2001. Cash from operations includes a $3.5 million taxrefund. These funds, plus the $23.2 million of cash on hand at the beginning offiscal 2002, allowed the Company to fund capital expenditures totaling $17.2million, increase restricted cash supporting outstanding letters of credit by$1.4 million, and still have $13.1 million in cash on hand at January 1, 2003.

 

As of January 1,2003, the Company had $85.3 million in consolidated indebtedness, all pursuantto the Senior Notes. The Senior Notes contain no financial covenants andthe Company is in compliance with all non-financial covenants as of January 1,2003.  The Company believes the cashflow generated from its operations, current cash on hand, and a plannedsale-leaseback transaction of approximately $7 million relating to threerestaurants owned by the Company expected to close in the first half of 2003,should be sufficient to fund its debt service requirements, lease obligations,expected capital expenditures and other operating expenses through 2003. Beyond 2003, the Company expects to be able to service its debt, but the lackof short term borrowing availability may impede growth.

 

The Company’scapital expenditures were $17.2 million, $12.3 million and $14.2 million, forfiscal 2002, 2001 and 2000, respectively. In fiscal 2002, capital expenditures for corporate needs and remodelingand upgrading facilities in existing restaurants were approximately $7.6million.  The remaining $9.6 million ofthe capital spending was directly associated with new restaurantdevelopment.  The Company expects toopen ten to fifteen Bertucci’s restaurants in 2003, requiring new restaurantcapital of $13.8 to $20.8 million. The Company may not be able to achieve its growthplans if it does not obtain the proceeds of the planned sale-leasebacktransactions.

 

The Senior Notesbear interest at the rate of 10 3/4% per annum, payable semi-annually onJanuary 15 and July 15, with payments that commenced on January 15, 1999.  The Senior Notes are due in full on July 15,2008.  From July 15, 2003 through July15, 2006, the Company may, at its option, redeem any or all of the Senior Notesat face value, plus a declining premium, which begins at approximately 5%.  After July 15, 2006, the Senior Notes may beredeemed at face value. Additionally, under certain circumstances, including achange of control or following certain asset sales, the holders of the SeniorNotes may require the Company to repurchase the Senior Notes, at a redemptionprice of 101%.  See Note 6 of Notes toConsolidated Financial Statements.

 

The Company iscurrently operating without a line of credit and is funding all of its growth,debt reductions and operating needs out of cash flows from operations and cashon hand.

 

The Company hasestablished a $3.0 million (maximum) Letter of Credit Facility.  As ofJanuary 1, 2003, this facility is collateralized with $2.5 million of cashrestricted from general use.  Letters ofCredit totaling $2.5 million were outstanding on January 1, 2003.

 

The Company’s futureoperating performance and ability to service or refinance the Senior Notes willbe subject to future economic conditions and to financial, business and otherfactors, many of which are beyond the Company’s control.  Significantliquidity demands will arise from debt service on the Senior Notes.

 

The table below depicts the Company's future Contractual CashObligations committed as of January 1, 2003.

 
|                                |   | **Payments  Due by Period** |    |
|-------------------------------------|--------|-----------------------------|---------|
|                                |   | **(Dollars in Thousands)**  |    |
| **Contractual Obligations:**        |   | **Total**                   |    | **Less than 1   year** |   | **1 - 3 years** |   | **4 - 5 years** |   | **After 5 years** |   |
| Operating Leases                    |   | $                           | 118,098 |   | $ | 13,660 |   | $ | 39,266 |   | $ | 20,321 |   | $ | 44,851 |   |
| Senior Notes                        |   | 85,310                      |    |   |   |   |   |   |   | 85,310 |   |
| Closed  restaurant reserve          |   | 2,499                       |    | 642 |   | 1,347 |   | 255 |   | 255 |   |
| Total  Contractual Cash Obligations |   | $                           | 205,907 |   | $ | 14,302 |   | $ | 40,613 |   | $ | 20,576 |   | $ | 130,416 |   |

 

**Impact of Inflation**

 

Inflationary factors such as increases inlabor, food or other operating costs could adversely affect the Company’soperations.  The Company does notbelieve that inflation has had a material impact on its financial position orresults 

 

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ofoperations for 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.

 

**Seasonality**

 

The Company’s quarterly results ofoperations have fluctuated and are expected to continue to fluctuate dependingon a variety of factors, including the timing of new restaurant openings andrelated preopening and other startup expenses, net sales contributed by new restaurants,increases or decreases in comparable restaurant sales, competition and overalleconomic conditions.  The Company’sbusiness is also subject to seasonal influences of consumer spending, diningout patterns and weather.  As is thecase with many restaurant companies, the Company typically experiences lowernet sales and net income during the first and fourth fiscal quarters.  Because of these fluctuations in net salesand net income (loss), the results of operations of any quarter are notnecessarily indicative of the results that may be achieved for a full fiscalyear or any future quarter.

 

**Critical Accounting Policies**

 

The Company’ssignificant accounting policies are disclosed in Note 3 to the Company’sconsolidated financial statements. The following discussion addresses theCompany’s most critical accounting policies, which are those that are mostimportant to the portrayal of the Company’s financial condition and results,and that require significant judgment.

 

*Property and Equipment*

 

Property andequipment are depreciated on a straight-line basis over the estimated usefullives of the assets.  The useful livesof the assets are based upon the Company’s expectations for the period of timethat the asset will be used to generate revenue.  The  Company  periodically reviews  the assets  for  changes in  circumstances which mayimpact their useful lives.

 

*Impairment of Long-Lived Assets*

 

The Companyreviews property and equipment for impairment when events or circumstancesindicate it might be impaired. The Company tests impairment  using  historical cash flows  and  other relevant  facts  and circumstances as the primary basis forits estimates of future cash flows.  This  process requires  the  use of estimates and  assumptions which  are subject  to  ahigh degree of judgment. In addition, at least annually, the Company assessesthe recoverability of goodwill and other intangible assets related to itsrestaurant concepts. These impairment tests require  the Company  to estimate  fair  values of its restaurant  concepts by  making assumptions  regarding future  cash flows  and other  factors.  If these assumptions change in the future,the Company may be required to record impairment  charges  for  these assets.

 

*Self-Insurance*

 

The Company isself-insured for certain losses related to general liability, group healthinsurance, and workers’ compensation. The Company maintains stop loss coverage with third party insurers tolimit its total exposure.  Theself-insurance liability represents an estimate of the ultimate cost of claimsincurred as of the balance sheet date. The estimated liability is not  discounted  and is established based upon analysis of historical data and actuarialestimates, and  is  reviewed by the Company on a quarterly basis to ensure  that  the liability  is appropriate.  If actual trends,including the severity or frequency of claims, differ from the Company’sestimates, the Company’s financial results could be impacted.

 

*ClosedRestaurant Reserve*

 

The Company remainsprimarily liable on approximately 15 leases for closed restaurants. Managementreviews the specifics of each site on a quarterly basis to estimate theCompany’s net remaining liability over the remaining lease term. Certainlocations have subtenants in place while others remain vacant. Estimates mustbe made of future sublease income or lease assignment possibilities. Ifsubtenants default on their subleases or projected future 

 

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subtenants are not arranged,actual results could differ from the Company’s estimates, thereby impacting theCompany’s financial results.

* *

***Recent Accounting Pronouncements***

 

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 eliminated annual goodwillamortization of $2.3 million beginning in 2002 and believes no goodwillimpairment charge is necessary.

 

In June 2001, the FASB issued SFAS No.143, *Accountingfor Asset Retirement Obligations*. This Statement addresses financial accounting and reporting forobligations associated with the retirement of tangible long-lived assets andthe associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement oflong-lived assets that result from the acquisition, construction, developmentand (or) the normal operation of a long-lived asset, except for certainobligations of lessees. The Company is currently evaluating the impact, if any,that adopting this statement will have on its financial position and results ofoperations.

 

In August 2001, the FASBissued SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets*. This statement supersedes SFAS No.121, *Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to beDisposed Of* and the accounting and reporting provisions ofAccounting Principles Board Opinion No. 30, *Reporting the Results of Operations-Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions*. SFAS No. 144 retainsthe fundamental provisions of SFAS No. 121, but eliminates the requirement toallocate goodwill to long-lived assets to be tested for impairment.  This statement also requires discontinuedoperations to be carried at the lower of cost or fair value less costs to selland broadens the presentation of discontinued operations to include a componentof an entity rather than a segment of a business.  SFAS No. 144 is effective for fiscal years beginning afterDecember 15, 2001, and interim periods within those fiscal years, with earlyapplication encouraged.  The adoption ofthis standard did not have a material impact on the Company’s fiscal positionor results of operations.

 

In April 2002, the FASBissued SFAS No. 145, *Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No.13, and Technical Corrections*. Uponadoption of SFAS No. 145, gains and losses from extinguishment of debt will nolonger be classified as extraordinary items, but rather will be classified aspart of other income (expense) on the Company’s consolidated statement ofoperations. Any such gains or losses classified as extraordinary items in priorperiods will be reclassified in future financial statement presentations uponthe adoption of SFAS No. 145. The Company will adopt the provisions of SFAS No.145 for all reporting periods subsequent to January 1, 2003.

 

In June 2002, the FASBissued SFAS No.  146, *Accountingfor Costs Associated with Exit or Disposal Activities*. SFAS No. 146supersedes Emerging Issues Task Force (“EITF”) No. 94-3, *Liability Recognition for CertainEmployee Termination Benefits and Other Costs to Exit an Activity (IncludingCertain Costs Incurred in a Restructuring)*. SFAS No. 146 eliminatesthe provisions of EITF No.  94-3 thatrequired a liability to be recognized for certain exit or disposal activitiesat the date an entity committed to an exit plan.  SFAS No. 146 requires a liability for costs associated with anexit or disposal activity to be recognized when the liability is incurred.  SFAS No. 146 is effective for exit ordisposal activities that are initiated after December 31, 2002.

 

In December 2002, theFASB issued SFAS No.  148, *Accounting for Stock-Based Compensation - Transition and Disclosure, anamendment of SFAS No 123*.  ThisStatement amends SFAS No. 123, *Accountingfor Stock-Based Compensation*,to provide alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation.  In addition, this Statement amends thedisclosure requirements of SFAS No. 123 to require prominent disclosures inboth annual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults.  SFAS No. 

 

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148 is effective for fiscal years beginning after December 15, 2002.The disclosure requirements of SFAS No. 148 have been implemented as of January1, 2003 and the interim reporting requirements will be adopted by the Companyin the first quarter of 2003.  TheCompany does not expect the adoption of this statement to have a materialimpact on its results of operations or financial position.

 

In January 2003,the FASB issued FASB Interpretation No. 46 (“FIN 46”), *Consolidation of Variable Interest Entities,an Interpretation of ARB No. 51*. FIN 46 requires certain variableinterest entities to be consolidated by the primary beneficiary of the entityif the equity investors in the entity do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties. FIN 46 is effective for all new variable interestentities created or acquired after January 31, 2003. For variable interestentities created or acquired prior to February 1, 2003, the provisions of FIN46 must be applied for the first interim or annual period beginning after June15, 2003. The Company does not expect the adoption of this statement to have amaterial impact on its results of operations or financial position.

 

# **Risk Factors**

 

*This Report contains forward-lookingstatements that involve risks and uncertainties, such as statements of theCompany’s plans, objectives, expectations and intentions.  The cautionary statements made in thisReport should be read as being applicable to all forward looking statementswherever they appear in this Report. The Company’s actual results could differ materially from thosediscussed herein.  Factors that could causeor contribute to such differences include those discussed below, as well asthose discussed elsewhere in this Report.*

 

*Substantial Leverage; PotentialInability to Service Indebtedness. *Asa result of the Acquisition, the Company is highly leveraged.  At the end of fiscal 2002, the Company’saggregate outstanding indebtedness was $85.3 million, the Company’sshareholders’ equity was $13.9 million and the Company’s working deficit was$1.3 million.

 

The Company’s highdegree of leverage could have important consequences, including but not limitedto the 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, regulatory developments,and delays in implementing strategic projects. The Company’s ability to meet its debt service and other obligations maydepend in significant part on the extent to which the Company can implementsuccessfully its business strategy. There can be no assurance that the Company will be able to implement itsstrategy fully or that the anticipated results of its strategy will berealized.

 

If the Company’scash flow and capital resources are insufficient to fund its debt serviceobligations, the Company may be forced to reduce or delay capital expenditures,sell assets, or seek to obtain additional equity capital, or to refinance orrestructure its debt.  There can be noassurance that the Company’s cash flow and capital resources will be sufficientfor payment of principal of, and premium, if any, and interest on, itsindebtedness in the future, or that any such alternative measures would besuccessful or would permit the Company to meet its scheduled debt serviceobligations.

 

*Dependence Upon Sale-LeasebackTransactions.* If theCompany fails to consummate the planned sale-leaseback transactions, theCompany may be forced to reduce or delay capital expenditures, sell assets, orseek to obtain additional equity capital, or to refinance or restructure itsdebt. There can be no assurance that the Company's cash flow and capitalresources will be sufficient for payment of principal of, and premium, if any,and interest on, its indebtedness in the future, or that any such alternativemeasures would be successful or would permit the Company to meet its scheduleddebt service obligations.

 

*Restrictive Debt Covenants. *The Indenture for theSenior Notes imposes significant operating and financial restrictions on theCompany and its subsidiaries.  Suchrestrictions will affect, and in many respects significantly limit or prohibit,among other things, the ability of the Company to incur additionalindebtedness, pay dividends or make other distributions, make certaininvestments, create certain liens, sell certain assets, enter into certaintransactions with affiliates, or engage in certain mergers or consolidationsinvolving the Company.  A failure by theCompany to 

 

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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 unpaidinterest.  In such event, there can beno assurance that the Company would be able to make such payments or borrowsufficient funds from alternative sources to make any such payment.  Even if additional financing could beobtained, there can be no assurance that it would be on terms that arefavorable or acceptable to the Company.

 

*Potential Inability to ManageGeographic Expansion.  *Allof the restaurants operated by the Company prior to the Acquisition werelocated in New England.  As a result ofconsummation of the Acquisition, nearly one-third of the Company’s restaurantswere outside of New England.  As of thisfiling, and partially as a result of closing seventeen restaurants outside NewEngland, two inside of New England and the Brinker Sale, approximately 30% ofthe Company’s restaurants are currently outside of New England.  The ability of the Company’s management toeffectively recognize and account for diverse regional conditions and to managerestaurants that are geographically remote will be critical to the success ofthe Company.  Any inability of theCompany to successfully manage its geographic expansion may have a materialadverse effect on the Company.

 

The Company’sfuture operating results will depend largely upon its ability to open andoperate new or newly acquired restaurants successfully and to manage a growingbusiness profitably.  This will dependon a number of factors (some of which are beyond the control of the Company),including (i) selection and availability of suitable restaurant locations, (ii)negotiation of acceptable lease or financing terms, (iii) securing of requiredgovernmental permits and approvals, (iv) timely completion of necessaryconstruction or remodeling of restaurants, (v) hiring and training of skilledmanagement and personnel, (vi) successful integration of new or newly acquiredrestaurants into the Company’s existing operations and (vii) recognition andresponse to regional differences in guest menu and concept preferences.

 

There can be noassurance that the Company’s expansion plans can be achieved on a timely andprofitable basis or that it will be able to achieve results similar to thoseachieved in existing locations in prior periods or that such expansion will notresult in reduced sales at existing restaurants that have been recently openedor newly acquired restaurants.  Any failureto successfully and profitably execute its expansion plans could have amaterial adverse effect on the Company.

 

*Changes in Food Costs and Supplies;Key Supplier*.  TheCompany’s profitability is dependent on, among other things, its continuingability to offer fresh, high quality food at moderate prices.  Various factors beyond the Company’scontrol, such as adverse weather, labor disputes or other unforeseencircumstances, 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 Companyobtains approximately 75% to 80% of its supplies through a single vendorpursuant to a contract for delivery and distribution, with the vendor chargingfixed mark-ups over prevailing wholesale prices.  The Company has a five-year contract with this vendor which expiresin 2007 and is otherwise terminable by either party upon 120 days’ priornotice.  The Company believes that itwould be able to replace any vendor if it were required to do so, however, anydisruption in supply from vendors or the Company’s inability to replacevendors, when required, may have a material adverse effect on the Company.

 

*Possible Adverse Impact of Economic,Regional and Other Business Conditions on the Company. *The Company’s business issensitive to guests’ spending patterns, which in turn are subject to prevailingregional and national economic conditions such as interest rates, taxation andconsumer confidence.  Most of therestaurants owned by the Company are located in the northeastern andMid-Atlantic United States, with a large concentration in New England.  In addition, the Company anticipatessubstantially all restaurants to be opened in fiscal 2003 will be in stateswhere the Company presently has operations or in contiguous states.  As a result, if the New England and/or Mid-Atlanticregions of the country suffer prolonged adverse economic conditions, this mayhave a material adverse effect on the Company.

 

*Dependence Upon Key Personnel. *The Company’s businessdepends upon the efforts, abilities and expertise of its executive officers andother key employees.  The Company has nolong-term employment contracts with, and does not maintain life insurancepolicies on any of its executive officers or key employees.  The loss of the services of certain of theseexecutive officers or key employees or the inability to retain key personnelwould have a material adverse effect on the Company.

 

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*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. Many of theCompany’s restaurants are located in areas of high concentration of suchrestaurants.  Among other things, theCompany also vies with all competitors in attracting guests, in obtainingpremium locations for restaurants (including shopping malls and strip shoppingcenters) and in attracting and retaining employees.

 

*Possible Adverse Impact ofGovernment Regulation on the Company. *Therestaurant business is subject to extensive federal, state and local laws andregulations relating to the development and operation of restaurants, includingthose concerning alcoholic beverage sales, preparation and sale of food,relationships with employees (including minimum wage requirements, overtime andworking conditions and citizenship requirements), land use, zoning and buildingcodes, as well as other health, sanitation, safety and environmentalmatters.  Compliance with such laws andregulations, or the loss or failure to obtain licenses under these laws andregulations, can impede the operations of existing Company restaurants and maydelay or preclude 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 liability insurance.  In addition, the Company may also in certainjurisdictions be required to comply with regulations limiting smoking inrestaurants.

 

*Reliance on InformationSystems. *The Companyrelies on various information systems to manage its operations and regularlymakes 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. *TheCompany has no experience in franchising restaurants and there can be noassurance that the Company will be able to successfully locate and attractsuitable franchisees or that such franchisees will have the business abilitiesor sufficient access to capital to open and operate restaurants in a mannerconsistent with the Company’s concept and standards or in compliance withfranchise agreements. The success of the Company’s franchising program willalso be dependent upon certain other factors, certain of which are not withinthe control of the Company or its franchisees, including the availability ofsuitable sites on acceptable lease or purchase terms, permitting and regulatorycompliance and general economic and business conditions.

 

 

**ITEM7A.  QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISKS.**

 

The Company has noexposure to specific risks related to derivatives or other “hedging” types offinancial instruments.

 

**ITEM8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

The financialstatements and supplementary data are listed under Part IV, Item 15 in thisreport.

 

**ITEM9.  CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

On May 2, 2002 theCompany’s Board of Directors decided to no longer engage Arthur Andersen LLP(“Andersen”) as the Company’s independent auditors and engaged Deloitte &Touche LLP to serve as the Company’s independent auditors for the fiscal year2002.

 

Andersen’s reportson the Company’s consolidated financial statements for each of the years endedJanuary 2, 2002 and January 3, 2001 did not contain an adverse opinion ordisclaimer of opinion, nor were they qualified or modified as to uncertainty,audit scope, or accounting principles. During the years ended January 2, 2002and January 3, 2001 and through May 2, 2002, there were no disagreements withAndersen on any matter of accounting principles or practices, financialstatement disclosure, or auditing scope or procedure which, if not resolved toAndersen’s satisfaction, would have caused it to make reference to the subjectmatter in connection with its report on the Company’s consolidated financialstatements for such years. There were no reportable events as defined in Item304 (a)(1)(v) of Regulation S-K.

 

The Companyprovided Andersen with a copy of the foregoing disclosures. A letter fromAndersen dated May 6, 2002 and addressed to the Securities and ExchangeCommission (“SEC”) is included as Exhibit 99.3 to the Company’s Current Reporton Form 8-K filed with the SEC on May 8, 2002 and states Andersen agrees withsuch disclosure.

 

During the yearsended January 2, 2002 and January 3, 2001 and through May 2, 2002, the Companydid not consult Deloitte & Touche LLP with respect to the application ofaccounting principles to a specified transaction, either completed or proposed,or the type of audit opinion that might be rendered on the Company’sconsolidated financial statements, or any other matter that was either thesubject of a disagreement (as defined in Item 304 (a)(1)(iv) of Regulation S-K)or a reportable event (as described in 304 (a)(1)(v) of Regulation S-K).

 

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**PART III**

 

**ITEM10.  DIRECTORS AND EXECUTIVE OFFICERS OFTHE REGISTRANT**

 

The followingtable sets forth certain information with respect to the executive officers anddirectors of the Company at the time of this filing:

 
| **Name**               |   | **Age** |   | **Position**                                                                      |
|------------------------|--------|---------|--------|-----------------------------------------------------------------------------------|
| Benjamin R. Jacobson   |   | 58      |   | Chairman of the Board of Directors, Chief Executive  Officer and Treasurer        |
| Raymond P. Barbrick    |   | 50      |   | President, Chief Operating Officer and Director                                   |
| Kurt J. Schnaubelt     |   | 39      |   | Senior Vice President – Finance and Administration,  Chief Financial Officer |
| Paul J. Seidman        |   | 46      |   | Senior Vice President – Marketing and Product  Development                   |
| Irene E. Cook          |   | 44      |   | Vice President – Training                                                    |
| Rosario Del Nero       |   | 48      |   | Vice President                                                                    |
| Mark S. Eason          |   | 46      |   | Vice President – Restaurant Operations                                       |
| Lewis P. Holt          |   | 49      |   | Vice President – Construction                                                |
| Gregory A. Pastore     |   | 38      |   | Vice President – Development & General Counsel                           |
| James D. Lux           |   | 37      |   | Vice President – Information Technology                                      |
| Stephen F. Mandel, Jr. |   | 47      |   | Director                                                                          |
| James J. Morgan        |   | 60      |   | Director                                                                          |
| James R. Parish        |   | 56      |   | Director                                                                          |
| Stephen R. Karp        |   | 63      |   | Director                                                                          |
| Stephen V. Clark       |   | 49      |   | Director                                                                          |

 

**Benjamin R. Jacobson.****                   **Mr.Jacobson has served as Chairman of the Board of Directors of the Company since1991 and as Chief Executive Officer since October 1999.  Since 1989, Mr. Jacobson has served as theManaging General Partner of Jacobson Partners, which specializes in directequity investments. Mr. Jacobson is a director of Childtime, Inc. and a numberof privately-held corporations.

 

**RaymondP. Barbrick.  **Mr.Barbrick has been employed in the restaurant industry for 31 years and hasserved as President, Chief Operating Officer of the Company since December2001. Further, he has been a Director of the Company since January 2001. He wasthe Chief Operating Officer from November 1999 through November 2001. Prior tothat, he served as the Company’s Vice President of Operations for the BrinkerConcept Restaurants from January 1998 until October 1999 and was  the Senior Director of Operations from 1992through 1997, with responsibility for all of the Company’s Chili’s restaurantsin Connecticut and western Massachusetts. Prior to joining the Company, Mr. Barbrick was employed by Back BayRestaurant Group, where he held the position of regional director of operationsfrom 1989 to 1992.

 

**Kurt J. Schnaubelt. **Mr. Schnaubelt has been employed in the restaurant industry for 23years.  He had served as the Company’sDirector of Financial Reporting, Planning and Analysis from January 1999 untilMarch 2002 when he was promoted to Senior Vice President – Finance andAdministration.  He was promoted to Chief Financial Officerin May 2002. His responsibilities include all accounting, finance,reporting, planning and analysis functions as well as risk management andinformation technologies.  Mr.Schnaubelt has held several other positions in the Company including AssistantController, 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.

 

**Paul J. Seidman.**      Mr. Seidman has been employed in the restaurantindustry for 29 years and has served as the Company’s Senior Vice President –Marketing and Product Development since May 2002. Mr. Seidman’sresponsibilities include all marketing and advertising programs as well asleading the menu and product development team. Mr. Seidman previously served asSenior Vice President - Food & Beverage and Procurement from January 1998through May 2002 and has been employed by the Company since 1996.  He has held numerous positions in theindustry, most recently as Vice President of Food & Beverage and CorporateExecutive Chef for the Bayport Restaurant Group.

 

**Irene E. Cook. **Ms. Cook has been employed in the restaurant industry for 26 years.  She had served the Company as SeniorDirector of Training from 1993 until her promotion to Vice President -Training in October 2000.  Ms. Cook’sresponsibilities include design and delivery of all training including newrestaurant openings, management development, adherence to state mandatededucation requirements (foodservice safety and sanitation, alcohol service 

 

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training, etc.) andrecruiting.  Prior to joining theCompany, Ms. Cook held several positions within the industry including Directorof Franchise Operations and Training for Boston Market.

 

**Rosario Del Nero**.  Mr. Del Nero has been employed in therestaurant industry for 18 years.  Hehas served as Corporate Executive Chef for Bertucci’s since 1992 and waspromoted to a Vice President of the Company in January 2000.  His responsibilities include productdevelopment and documentation.  Hisknowledge of language, food and cuisine, especially those of the Mediterranean,provide for a foundation of authenticity. Mr. Del Nero’s previous industry experience, both in the United Statesand abroad, includes positions as independent restaurateur, culinary artsinstructor and food consultant to restaurants and manufacturers.

 

**Mark S. Eason  **Mr. Eason has beenemployed in the restaurant industry for over 18 years and currently serves asthe Company’s Vice President – Restaurant Operations.  Mr. Eason joined Bertucci’s in 1999 as a Regional Vice Presidentand was promoted to his current position in November 2001. Mr. Eason isresponsible for all aspect of operations for the Company’s restaurantsincluding the quality of product execution and service, cost control andstaffing. From 1991 to 1999, Mr. Eason held various positions in restaurantoperations with Lone Star Steakhouse & Saloon, Inc., lastly as RegionalVice President. From 1985 to 1991, Mr. Eason was a General Manager and then AreaSupervisor for the Steak & Ale Division of S & A Restaurant Corp.

 

**Lewis P. Holt.  **Mr. Holt has been employed in the restaurant industry for 25 years andcurrently serves as the Company’s Vice President - Construction.  Mr. Holt’s responsibilities include overseeingall phases of building and kitchen design, construction and permitting for allof the Company’s restaurants.  He isalso responsible for overseeing the facilities in all restaurants includingmaintenance capital and renovations and remodeling.  Mr. Holt has served as Director of Construction for LegalSeafoods of Boston and he held construction and design positions for PizzeriaUno restaurants.  Mr. Holt has beenemployed by the Company since 1992.

 

**Gregory A. Pastore.  **Mr. Pastore has served as the Company’s Vice President - Development,General Counsel and Secretary since April 1999.  His responsibilities include employee relations, restaurant andalternate venue development, and management of the Company’s corporate andlegal affairs.  Prior to joining theCompany in 1999, Mr. Pastore was affiliated with the Boston law firm ofHutchins, Wheeler & Dittmar, where his international practice concentratedon mergers and acquisitions, commercial real estate development and relatedfinancing.

 

**James D. Lux.  **Mr. Lux has been employed in the restaurant industry for 22 yearsand has served as the Company’s Vice President – Information Technology since December 2002.  Prior to that he served as the Director - InformationTechnology.  His responsibilities include technologystrategy, implementation and support for both restaurant and corporate computerand telecommunications systems.  Priorto joining the Company in 2000, Mr. Lux was  District OperationsManager  with Micros, Inc. for the  New England region. Additionally, Mr. Lux has held various operations positions in severalrestaurant companies including TGI Friday’s.

 

**Stephen F. Mandel, Jr.  **Mr. Mandel has served asa director of the Company since December 1997. Since July 1997, Mr. Mandel has served as managing director, portfoliomanager and consumer retail/analyst at Lone Pine Capital LLC, a hedge fundwhich he founded. Prior to that, he served as senior managing director andconsumer analyst at Tiger Management Corporation from 1990 to 1997 and servedon that company’s management committee, as director of equities and portfoliomanager.  Prior to 1990, Mr. Mandelserved as a vice president and mass-market retailing analyst at Goldman, Sachsand Co.

 

**James J. Morgan.  **Mr. Morgan has served asa director of the Company since December 1997. From 1963 until his retirement in 1997, Mr. Morgan was employed byPhilip Morris U.S.A.  where he served asPresident and Chief Executive Officer from 1994 until his retirement in1997.  Prior to 1994, Mr. Morgan servedin various capacities at Philip Morris including Senior Vice President ofMarketing, and Corporate Vice President of Marketing Planning of the PhilipMorris Companies Inc.

 

**James R. Parish.  **Mr.Parish has been employed in the restaurant industry for 28 years and has servedas a director of the Company since July 1998. From 1983 to 1991, Mr. Parishserved as Executive Vice President and Chief Financial Officer of Chili’s Inc.(now named Brinker International, Inc.). Since 1991, Mr. Parish has served asChief Executive Officer of Parish Partners, Inc.  From 1995 to 1996, Mr. Parish also served as Chief Executive 

 

23

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Officer of Sfuzzi, Inc., and as Chairman and ChiefExecutive Officer of Z’Tejas, Inc. from 1999 through January 2003.

 

**Stephen R. Karp.  **Mr. Karp is Chairman andCEO of New England Development, a leading developer of shopping centers andcommercial property and has served as a director of the Company since April2001.  He is a member of the GreaterBoston Real Estate Board and the Urban Land Institute.  He is a past President and member of theBoard of Trustees of the International Council of Shopping Centers.  He also serves as a trustee of the BelmontHill School, Dana Farber Cancer Institute and the New England Aquarium and isChairman of the Board of Trustees of Children’s Hospital.

 

**Stephen V. Clark.  **Mr. Clark has been thePresident and Chief Executive Officer of Taco Bueno, a quick service Mexicanrestaurant chain of over 120 stores, since June 2001 and has served as adirector of the Company since April 2002. He previously served as Taco Cabana Inc.’s Chief Executive Officer fromNovember 1996 through June 2001 and was previously the President, ChiefOperating Officer, and Director at Taco Cabana from April 1995 through November1996.  Prior to that, Mr. Clark heldvarious positions with Church’s Chicken, a division of America’s FavoriteChicken, over seventeen years, the last having been Senior Vice President andConcept General Manager.

 

**Term ofDirectors**

 

The Company’sdirectors serve in such capacity until the next annual meeting of theshareholders of the Company or until their successors are duly elected andqualified.

 

**ITEM11.  EXECUTIVE COMPENSATION**

 

**ExecutiveCompensation**

 

The followingtable summarizes the compensation for the most current three fiscal years forthe Company’s Chief Executive Officer and each of its four other most highlycompensated executive officers (the Chief Executive Officer and such otherofficers, collectively, the ‘‘Named Executive Officers’’):

 

**Summary Compensation Table**

 
| **Name and Principal Position**                 |   |   |   | **Salary($)** |   | **Bonus($)** |   | **Other Annual  Compensation ($) (*)** |   | **Securities Underlying   Options (#)** |   |
|-------------------------------------------------|--------|--------|--------|---------------|--------|--------------|--------|----------------------------------------|--------|-----------------------------------------|--------|
|                                            |   |   |   |          |   |         |   |                                   |   |                                    |   |
| Benjamin R.  Jacobson                           |   | 2002   |   | —        |   | —       |   | 5,119                                  |   | 224,599                                 |   |
| Chairman of the  Board, Chief Executive Officer |   | 2001   |   | —        |   | —       |   | 13,221                                 |   | 224,599                                 |   |
|                                            |   | 2000   |   | —        |   | —       |   | —                                 |   | 149,599                                 |   |
|                                            |   |   |   |          |   |         |   |                                   |   |                                    |   |
| Raymond P.  Barbrick                            |   | 2002   |   | 216,240       |   | 153,531      |   | 527                                    |   | 99,776                                  |   |
| President, Chief  Operating Officer             |   | 2001   |   | 202,181       |   | 152,155      |   | 9,500                                  |   | 89,776                                  |   |
|                                            |   | 2000   |   | 171,731       |   | 133,382      |   | 8,400                                  |   | 44,776                                  |   |
|                                            |   |   |   |          |   |         |   |                                   |   |                                    |   |
| Mark S. Eason                                   |   | 2002   |   | 150,577       |   | 106,910      |   | 8,400                                  |   | 19,666                                  |   |
| Vice President  Operations                      |   | 2001   |   | 133,624       |   | 100,883      |   | 8,400                                  |   | 16,166                                  |   |
|                                            |   | 2000   |   | 126,803       |   | 39,799       |   | 7,200                                  |   | 4,166                                   |   |
|                                            |   |   |   |          |   |         |   |                                   |   |                                    |   |
| Paul J. Seidman                                 |   | 2002   |   | 146,154       |   | 87,819       |   | 8,400                                  |   | 42,360                                  |   |
| Senior Vice  President                          |   | 2001   |   | 136,355       |   | 82,060       |   | 8,400                                  |   | 37,360                                  |   |
|                                            |   | 2000   |   | 124,038       |   | 64,004       |   | 8,400                                  |   | 27,630                                  |   |
|                                            |   |   |   |          |   |         |   |                                   |   |                                    |   |
| Kurt J.  Schnaubelt                             |   | 2002   |   | 125,721       |   | 75,535       |   | 6,588                                  |   | 17,000                                  |   |
| Senior Vice  President, Chief Financial Officer |   | 2001   |   | 111,533       |   | 61,844       |   | —                                 |   | 12,000                                  |   |
|                                            |   | 2000   |   | 88,577        |   | 21,967       |   | —                                 |   | 2,000                                   |   |

 

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(*) - Includesauto lease payments and auto allowance paid by the Company.

 

**OptionsGranted in Last Fiscal Year**

 

The followingtable sets forth information concerning options granted during fiscal 2002 toeach of the Named Executive Officers. 

 
| **Name**             |   | **Number  of  Securities  Underlying  Options  Granted (a)** |   | **% of  Total  Granted in  Fiscal 2002** |   | **Exercise  Price (b)** |    | **Expiration  Date** |      | **Potential  Realizable Value  at Assumed Annual  Stock Price  Appreciation for  Option Term (c)** |   |
|----------------------|--------|--------------------------------------------------------------|--------|------------------------------------------|--------|-------------------------|---------|----------------------|-----------|----------------------------------------------------------------------------------------------------|--------|
|                 |   |                                                         |   |                                     | **5%** |                    | **10%** |                 |
| Benjamin R. Jacobson |   | —                                                       |   | 0.0                                      | %      | $                       | 17.51   |                 | 3/12/2012 |                                                                                               | $      | — |   | $ | — |   |
| Raymond P. Barbrick  |   | 10,000                                                       |   | 40.8                                     | %      | $                       | 17.51   |                 | 3/12/2012 |                                                                                               | $      | 285,200 |   | $ | 454,200 |   |
| Mark S. Eason        |   | 2,500                                                        |   | 10.2                                     | %      | $                       | 17.51   |                 | 3/12/2012 |                                                                                               | $      | 71,300 |   | $ | 113,550 |   |
| Paul J. Seidman      |   | 5,000                                                        |   | 20.4                                     | %      | $                       | 17.51   |                 | 3/12/2012 |                                                                                               | $      | 142,600 |   | $ | 227,100 |   |
| Kurt J. Schnaubelt   |   | 5,000                                                        |   | 20.4                                     | %      | $                       | 17.51   |                 | 3/12/2012 |                                                                                               | $      | 142,600 |   | $ | 227,100 |   |

 

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(a)               Each of the optionsgranted becomes exercisable at the rate of 25% on or after each of the second,third, fourth and fifth anniversaries of the date of grant.  Each of the options expires 10 years and 90days from the date of the grant.  See‘‘Stock Option and Other Plans for Employees—Stock Option Plan.’’

 

(b)              The exercise pricewas fixed at the date of the grant and represented the fair market value pershare of common stock at the date of the Acquisition (July 21, 1998), and theexercise price was at or above the fair market value of the stock at the dateof the grant.

 

(c)               In accordance withthe rules of the Commission, the amounts shown on this table represent hypotheticalgains that could be achieved for the respective options if exercised at the endof the option term.  These gains arebased on assumed rates of stock appreciation of 5% and 10% compounded annuallyfrom the date the respective options were granted to their expiration date anddo not reflect the Company’s estimates or projections of future prices of theCompany’s common stock.  The gains shownare net of the option exercise price, but do not include deductions for taxesor other expenses associated with the exercise.  Actual gains, if any, on stock option exercises will depend onthe future performance of the Company’s common stock, the option holders’continued employment through the option period, and the date on which theoptions are exercised.

 

**Aggregated Option Exercises in Last Fiscal Year and FiscalYear-End Values**

 

The followingtable sets forth information concerning options held at the fiscal year-end2002 and the fiscal year-end value of unexercised options for each of the NamedExecutive Officers. 

 
| **Name**              |   | **Shares  Acquired on  Exercise** |       | **Value  Realized** |   | **Number Of  Securities  Underlying At  Fiscal Year-End  Exerciseable/Unexercisable** |       | **Value Of****Unexercised  In-The-Money  Options At  Fiscal Year-End  Exerciseable/  Unexerciseable (a)** |   |
|-----------------------|--------|-----------------------------------|------------|---------------------|--------|---------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|--------|
|                  |   |                              | ** ** |                |   |                                                                                  | ** ** |                                                                                                      |   |   |   |   |   |   |   |   |   |
| Benjamin R.  Jacobson |   | 0                                 |       | $                   | 0      |                                                                                  | 118,349    |                                                                                                      | /      |   | 106,250 |   | $ | 291,600 |   | / |   | $ | 0 |   |
| Raymond P.  Barbrick  |   | 0                                 |       | 0                   |   | 47,224                                                                                |       | /                                                                                                         |   | 52,552 |   | $ | 197,100 |   | / |   | $ | 240,600 |   |
| Mark S. Eason         |   | 0                                 |       | 0                   |   | 5,625                                                                                 |       | /                                                                                                         |   | 13,542 |   | $ | 13,500 |   | / |   | $ | 11,400 |   |
| Paul J. Seidman       |   | 0                                 |       | 0                   |   | 25,463                                                                                |       | /                                                                                                         |   | 17,167 |   | $ | 121,400 |   | / |   | $ | 33,400 |   |
| Kurt J.  Schnaubelt   |   | 0                                 |       | 0                   |   | 3,500                                                                                 |       | /                                                                                                         |   | 13,500 |   | $ | 8,300 |   | / |   | $ | 8,300 |   |
|                       |        |                                   |            |                     |        |                                                                                       |            |                                                                                                           |        |  |  |  |  |  |  |  |  |  |  |  |

 

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(a)               Based upon a priceof $17.51.

 

25

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**EmploymentAgreements**

 

Executive officersof the Company are elected by the Board of Directors and serve at thediscretion of the Board.  At the date ofthis filing, the Company is not party to any employment agreements withexecutive officers.

 

**Stock Option and Other Plans for Employees**

 

*Stock Option 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 toemployees under the Stock Option Plan are generally exercisable cumulatively atthe rate of 25% on or after each of the second, third, fourth and fifthanniversaries of the date of grant and options granted to directors thereunderare generally exercisable immediately upon grant.  Options granted under the Stock Option Plan to date expire 90days following either the fifth or the tenth anniversary of the date of thegrant.  Between September 15, 1997 andDecember 31, 1997, 331,123 options were granted at a price of $11.63 per shareunder the Stock Option Plan (of which 11,020 options have been exercised as ofJanuary 1, 2003).  In addition, betweenJuly 21, 1998 and October 19, 1998, 58,429 options were 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 asof January 1, 2003.  During 2000, atotal of 199,750 options were granted, including 100,000 at a price of $17.51per share plus 99,750 options at a price of $9.22 per share.  During 2001 and 2002, options totaling332,500 and 26,000, respectively, were granted at a price of $17.51 pershare.  On January 1, 2003, 97,451shares of common stock were available for grants under the Stock Option Plan. 

 

*Management Incentive Plan. *Certain managementemployees of the Company, including district managers, managing partners (whoare senior general managers), general managers and assistant managers areeligible, at the discretion of the Company, to participate in the Company’smanagement incentive plan that provides incentives and rewards for performancewith bonus awards that reflect a percentage of each restaurant’s cashcontribution.  Payments under themanagement incentive plan are payable monthly or in accordance with the thencurrent payroll cycle of the Company. 

 

*Non-qualified Deferred CompensationPlan. *The Company hadestablished the Bertucci’s Corporation Deferred Compensation Plan pursuant towhich certain eligible executives of the Company were able to elect to defer aportion of their salary. The Company maintained an irrevocable grantor trustwhich had 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. 

 

The trust assetswere held separately from other funds of the Company, but remained subject toclaims of the Company’s general creditors in the event of the Company’sinsolvency.In January 2000, the Non-qualified Deferred Compensation Plan wasterminated and the balances were paid to the participants.

 

During 1999, theCompany established the Bertucci’s Corporation Executive Savings and InvestmentPlan to which highly compensated executives of the company may elect to defer aportion of their salary and (or) earned bonus. 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 the Executive Savings and Investment Plan. 

 

The trust assetsare held separately from other funds of the Company, but remain subject toclaims of the Company’s general creditors in the event of the Company’sinsolvency.  As of January 1, 2003  there were 18 participants in the plan witha total market value of approximately $316,000.

 

26

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*401(k*).The Company maintains the Bertucci’s 401(k) Plan, a defined contribution plan.Under the Bertucci’s 401(k) Plan, substantially all employees of the Companymay defer a portion of their current salary, on a pretax basis, to the 401(k)Plan. The Company makes a matching contribution to the Bertucci’s 401(k) Planthat is allocated, based on a formula as defined by the Bertucci’s 401(k) Plan,to the Bertucci’s 401(k) Plan participants. The Company has effectively terminated the NE Restaurant 401(k) Plan. Asof May 1, 1999 all eligible participant balances were transferred to theBertucci’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 1, 2003, January 2, 2002, and January3, 2001 were approximately $27,000, $31,000, and $138,000, respectively. Priorto the termination of the NE Restaurant 401(k) Plan, two officers of theCompany were also the NE Restaurant 401(k) Plan’s trustees.

 

*EmployeeLoans.* In February 2002, the Company extended loans to 14members of Management (including eight officers). The demand notes bearinterest at 8% payable quarterly.  As ofFebruary 13, 2003 all demand notes were paid in full.

 

**Compensation of Directors**

 

Each of theCompany’s directors is reimbursed for any expenses incurred by such director inconnection with such director’s attendance at a meeting of the Board ofDirectors, or committee thereof.  Inaddition, all directors are eligible to receive options under the Company’sstock option plans.  Directors receiveno other compensation from the Company for serving on the Board ofDirectors.  

 

**Compensation Committee Interlocks and Insider Participation**

 

Effective as ofJanuary 1, 1998, the Board of Directors appointed a CompensationCommittee.  Currently, the CompensationCommittee is comprised of Messrs. Morgan, Mandel and Parish.

 

Mr. Jacobson hasin the past and will in the future provide certain consulting services to theCompany.  See “Item 13.  Certain Relationships And RelatedTransactions.”  

 

**ITEM 12.  SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

The followingtable provides information at March 28, 2003, with respect to ownership of theCompany’s common stock $0.01 par value per share (the ‘‘Company CommonStock’’), by (i) each beneficial owner of five percent or more of the Company’sCommon Stock, (ii) each director of the Company, (iii) each of the NamedExecutive Officers and (iv) all directors and officers as a group.  For the purpose of computing the percentageof the shares of Company Common Stock owned by each person or group listed inthis table, shares which are subject to options exercisable within 60 daysafter March 15, 2003 have been deemed to be outstanding and owned by suchperson or group, but have not been deemed to be outstanding for the purpose ofcomputing the percentage of the shares of Company Common Stock owned by anyother person.  Except as indicated inthe footnotes to this table, the persons named in the table have sole votingand investment power with respect to all shares of Company Common Stock shown asbeneficially owned by them. 

 

27

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| **Name  and Address of Beneficial Owner**                         |   | **Shares  Beneficially  Owned** |   | **Percent  of Class** |   |
|-------------------------------------------------------------------|--------|---------------------------------|--------|-----------------------|--------|
|                                                              |   |                            |   |                  |   |
| Benjamin R. Jacobson(1)                                           |   | 953,076                         |   | 30.77                 | %      |
| 595 Madison  Avenue                                               |   |                            |   |                  |   |
| New York, New  York 10022                                         |   |                            |   |                  |   |
|                                                              |   |                            |   |                  |   |
| Thomas R.  Devlin(2)                                              |   | 315,160                         |   | 10.57                 | %      |
| 1313 North Webb  Road                                             |   |                            |   |                  |   |
| P.O. Box 782170                                                   |   |                            |   |                  |   |
| Wichita, Kansas  67206                                            |   |                            |   |                  |   |
|                                                              |   |                            |   |                  |   |
| Dennis D.  Pedra(3)                                               |   | 230,605                         |   | 7.73                  | %      |
|                                                              |   |                            |   |                  |   |
| Stephen F.  Mandel, Jr.(4)                                        |   | 132,195                         |   | 4.43                  | %      |
|                                                              |   |                            |   |                  |   |
| Raymond P.  Barbrick(6)                                           |   | 78,461                          |   | 2.59                  | %      |
|                                                              |   |                            |   |                  |   |
| James J.  Morgan(7)                                               |   | 48,833                          |   | 1.64                  | %      |
|                                                              |   |                            |   |                  |   |
| Paul J.  Seidman(8)                                               |   | 41,562                          |   | 1.38                  | %      |
|                                                              |   |                            |   |                  |   |
| Stephen R.  Karp(9)                                               |   | 20,866                          |   |                  | *      |
|                                                              |   |                            |   |                  |   |
| James R.  Parish(10)                                              |   | 14,422                          |   |                  | *      |
|                                                              |   |                            |   |                  |   |
| Kurt J.  Schnaubelt(11)                                           |   | 12,271                          |   |                  | *      |
|                                                              |   |                            |   |                  |   |
| Mark S.  Eason(12)                                                |   | 10,719                          |   |                  | *      |
|                                                              |   |                            |   |                  |   |
| Stephen V. Clark                                                  |   | 8,488                           |   |                  | *      |
|                                                              |   |                            |   |                  |   |
| All directors  and executive officers as a group (14 persons)(13) |   | 1,395,152                       |   | 43.05                 | %      |

 

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*                      Less than1%.

 

(1)               Includes (a)613,273 shares of Company Common Stock held by JPAF II, (b) 118,349 shares ofCompany Common Stock issuable upon exercise of outstanding stock options withinthe parameters described above, and (c) 21,217 shares of Company Common Stockheld by trusts for the benefit of Mr. Jacobson’s children, with respect towhich 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 sharesof Company Common Stock held by J.P. Acquisition Fund II, L.P., a Delawarelimited partnership (‘‘JPAF II’’), representing Mr. Devlin’s pro rata interestas a limited partner of JPAF II. 

(3)               Includes 33,000shares of Company Common Stock held by trusts for the benefit of Mr. Pedra’schildren, with respect to which Mr. Pedra’s sister is trustee and has solevoting control.  Mr. Pedra disclaimsbeneficial ownership of all such shares. 

(4)               Includes (a) 3,889shares of Company Common held by Lone Spruce, L.P., (b) 9,885 shares of CompanyCommon Stock held by Lone Balsam, L.P. (c) 9,617 shares of Company Common Stockheld by Lone Sequoia, L.P., (d) 105,804 shares of Company Common Stock held byLone Cypress, Ltd., and (e) 3,000 shares of Company Common Stock issuable uponexercise of outstanding stock options within the parameters described above.Each of Lone Spruce, L.P., Lone Balsam, L.P. and Lone Sequoia, L.P., is aDelaware limited partnership of which Lone Pine Associates LLC is the generalpartner.  Mr. Mandel is the managingmember of Lone Pine 

 

28

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AssociatesLLC.  Lone Cypress Ltd. is a CaymanIslands company of which Lone Pine Capital LLC is the investment manager.  Mr. Mandel is the managing member of LonePine  Capital LLC.  Mr. Mandel disclaims beneficial ownership ofall such shares. 

(5)               Not used.

(6)               Includes 47,224shares of Company Common Stock issuable upon exercise of outstanding stockoptions within the parameters described above.

(7)               Includes 8,482shares of Company Common Stock held by JPAF II, representing Mr. Morgan’s prorata interest as a limited partner of JPAF II.

(8)               Includes 25,463shares of Company Common Stock issuable upon exercise of outstanding stockoptions within the parameters described above.

(9)               Includes 20,866shares of Company Common Stock held by trusts for the benefit of Mr. Karp’schildren, with respect to which a third party is trustee and has votingcontrol.  Mr. Karp disclaims beneficialownership of all such shares. 

(10)         Includes 3,000 shares ofCompany Common Stock issuable upon exercise of outstanding stock options withinthe parameters described above. 

(11)         Includes 3,500 shares ofCompany Common Stock issuable upon exercise of outstanding stock options withinthe parameters described above.

(12)         Includes 5,625 shares ofCompany Common Stock issuable upon exercise of outstanding stock options withinthe parameters described above.

(13)         Includes 262,000 sharesof Company Common Stock issuable upon exercise of outstanding stock optionswithin the parameters described above.

 

**Shareholders Agreement**

 

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

 

The ShareholdersAgreement provides, among other things, that (i) a shareholder may not transferhis or its shares in the Company, whether voluntarily or by operation of law,other than in certain limited circumstances specified therein, includingtransfers through a right of first refusal procedure, distributions by certainlegal entities to the constituents of such entities (i.e. a partnership to itspartners), transfers by will or intestate succession, transfers to an affiliateof a shareholder or to another shareholder, if approved by the Board, transfersto family members or trusts for their benefit, and any transfer unanimouslyapproved by the Board, (ii) the Company shall have the option to purchase theshares of any shareholder who is an employee of the Company following thetermination of such shareholder’s employment with the Company for any reason ata purchase price equal to the fair market value  or original purchase price depending upon the reason for such termination,(iii) the Company shall have the option to purchase the shares of anyshareholder who is an employee of the Company following certain transferevents, including such shareholders’ bankruptcy or a court-ordered transfer ofsuch shareholders stock, (iv) if the Company fails to exercise its option topurchase as described in the immediately preceding clause (iii), the remainingshareholders shall have the option to purchase the applicable shares, (v) inthe event an employee shareholder leaves the Company due to death, disabilityor hardship or is terminated by the Company without cause, such shareholdershall have a one-time option to require the Company to purchase suchshareholder’s shares at the greater of fair market value or the originalpurchase price, (vi) no transfer of shares may occur unless the transfereethereof agrees to be bound by the terms of the Shareholders Agreement and (vii)all share certificates shall bear customary legends and all share transfersmust be in compliance with applicable securities laws.

 

**EquityCompensation Plan Information**

 

The Companymaintains an equity compensation plan for employees, officers, directors andothers whose efforts contribute to its success.  The table below sets forth certain information as our fiscal yearended January 1, 2003 regarding the shares of the Company’s Common Stockavailable for grant or granted under the equity compensation plan that (i) wereapproved by Company stockholders; and (ii) were not approved by Companystockholders (none).

 
| **Plan Category**                                                  |   | **Number of securities to be  issued upon exercise of outstanding options, warrants and rights** |   | **Weighted-average exercise  price of outstanding options, warrants and rights** |   | **Number of securities  remaining available for future issuance under equity compensation plans  (excluding securities reflected in column (a))** |
|--------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                               |   | (a)                                                                                              |   | (b)                                                                              |   | (c)                                                                                                                                               |
| Equity  compensation plans approved by security holders            |   | 652,549                                                                                          |   | $15.44                                                                           |   | 97,451                                                                                                                                            |
| Equity compensation plans not approved by security  holders (none) |   | —                                                                                           |   | —                                                                           |   | —                                                                                                                                            |
| Total                                                              |   | 652,549                                                                                          |   | $15.44                                                                           |   | 97,451                                                                                                                                            |

 

 

 

**ITEM13.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

 Benjamin R. Jacobson, Chairman of the Boardof Directors, Chief Executive Officer, and Treasurer is the Managing Partner ofJacobson Partners Limited Partnership (“Jacobson Partners”).  Jacobson Partners was paid consulting feesand reimbursed for certain travel and other incidental expenses inconsideration of certain financial advisory service provided.  The amount paid to Jacobson Partners forfinancial consulting fees was $250,000 the fiscal year ended January 1,2003.  In connection with theAcquisition the Company entered into a financial advisory services agreementwith Jacobson Partners.  

Under this 

 

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agreement, JacobsonPartners provides various financial advisory services to the Company,including, among other things, assistance in preparing internal budgets,performing cash management activities, maintaining and improving accounting andother management information systems, negotiating financing arrangements,complying with public reporting and disclosure requirements and communicatingwith creditors and investors.  TheCompany believes the financial advisory services agreement was made on termsthat are no less favorable to the Company than those that could be obtainedfrom an unrelated party.  JacobsonPartners is the sole shareholder of the corporate general partner of JPAF II,which owns approximately 20.6% of the outstanding common stock of the Company. 

 

During 1999, theCompany established the Bertucci’s Corporation, Inc. Executive Savings andInvestment Plan to which highly compensated executives of the Company may electto defer a portion of their salary and (or) earned bonus. The Company maintainsan irrevocable grantor trust which has been established by the Company, asgrantor, pursuant to the Scudder Kemper Investments non-qualified deferredcompensation plan trust agreement, dated September 20, 1999.  The agreement is between the Company andScudder Kemper Investments, as trustee, for the purpose of paying benefitsunder non-qualified deferred compensation plan.

 

The trust assetsare held separately from other funds of the Company, but remain subject toclaims of the Company’s general creditors in the event of the Company’sinsolvency. As of January 1, 2003, there were 18 participants in the plan witha total market value of approximately $316,000.

 

In February 2002,the Company extended loans to 14 members of Management (including eightofficers).  The demand notes bearinterest at 8%, payable quarterly.  Asof February 13, 2003 all demand notes were paid in full.

 

**ITEM 14. CONTROLS AND PROCEDURES**

 

As of January 1,2003, an evaluation was performed under the supervision and with theparticipation of the Company’s management, including the Chief ExecutiveOfficer and Chief Accounting Officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures.  Based onthat evaluation, the Company’s management, including the Chief ExecutiveOfficer and Chief Accounting Officer, concluded that the Company’s disclosurecontrols and procedures were effective as of January 1, 2003.  There havebeen no significant changes in the Company’s internal controls and proceduresor in other factors that could significantly affect the Company's internalcontrols and procedures subsequent to the Company's last evaluation of itsinternal controls and procedures.

 

**PART IV**

 

**ITEM15.  EXHIBITS, FINANCIAL STATEMENTSCHEDULES AND REPORTS ON FORM 8K **

 
| (a)    | The following documents  are filed as part of this report: |
|--------|------------------------------------------------------------|
|   |                                                       |
|   | (1)  Financial Statements:                            |
|   |                                                       |
|   |                                                       | Independent Auditors' Report. |
|   |                                                       |
|   |                                                       | Consolidated Balance Sheets as of January 1, 2003  and January 2, 2002. |
|   |                                                       |
|   |                                                       | Consolidated Statements of  Operations for the years ended January 1, 2003, January 2, 2002, and January  3, 2001. |

 

30

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|   |                    | Consolidated Statements of  Stockholders’ Equity for the years ended January 1, 2003, January 2, 2002,  and January 3, 2001. |
|--------|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
|   |                    |                                                                                                                              |
|   |                    | Consolidated Statements of Cash  Flows for the years ended January 1, 2003, January 2, 2002, and January 3,  2001.                |
|   |                    |                                                                                                                              |
|   |                    | Notes to Consolidated Financial  Statements.                                                                                      |
|   |                    |                                                                                                                              |
|   | (2)  Exhibit Index |
|   |                    |                                                                                                                              |
| (b)    | Reports on Form 8-K:    |
|   |                    |                                                                                                                              |
|   | (1)                     | The Company did not  file any Current Reports on Form 8-K during the last quarter for the period  covered by this report.         |

 

31

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SIGNATURES

 

Pursuant to therequirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934,the Company has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|   | BERTUCCI’S CORPORATIONBy: |
|--------|--------------------------------|
|   |                           |
|   |                           |
|   | By:                            | /s/ Benjamin R.  Jacobson |   |
|   |                           | Benjamin R. Jacobson, Chairman of the Board |
|   |                           |   |
|   | Date: March 28, 2003           |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated.

 
| **SIGNATURE**            |   | **TITLE**                                                          |   | **DATE**       |
|--------------------------|--------|--------------------------------------------------------------------|--------|----------------|
|                     |   |                                                               |   |           |
| /s/ Benjamin R. Jacobson |   | Chairman of the Board of Directors,                                |   | March 28, 2003 |
| Benjamin R. Jacobson     |   | Chief Executive Officer, Treasurer   (Principal Executive Officer) |   |           |
|                     |   |                                                               |   |           |
| /s/ Raymond Barbrick     |   | President, Chief Operating Officer and Director                    |   | March 28, 2003 |
| Raymond Barbrick         |   |                                                               |   |           |
|                     |   |                                                               |   |           |
| /s/ Kurt J. Schnaubelt   |   | Senior Vice President — Finance and                           |   | March 28, 2003 |
| Kurt J. Schnaubelt       |   | Administration   (Chief Accounting Officer)                   |   |           |
|                     |   |                                                               |   |           |
| /s/ Stephen F. Mandel    |   | Director                                                           |   | March 28, 2003 |
| Stephen F. Mandel        |   |                                                               |   |           |
|                     |   |                                                               |   |           |
| /s/ James J. Morgan      |   | Director                                                           |   | March 28, 2003 |
| James J. Morgan          |   |                                                               |   |           |

 

32

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**CERTIFICATION**

 

I, Benjamin R. Jacobson, certify that: 

 

1.                  Ihave reviewed this annual report on Form 10-K of Bertucci’s Corporation; 

2.                  Based on my knowledge, this annual reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respectto the period covered by this annual report;

3.                  Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Company as of,and for, the periods presented in this annual report; 

4.                  TheCompany’s other certifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Company and have: 

a.               designedsuch disclosure controls and procedures to ensure that material informationrelating to the Company, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in whichthis annual report is being prepared; 

b.              evaluatedthe effectiveness of the Company’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

c.               presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date; 

5.                  TheCompany’s other certifying officer and I have disclosed, based on our most recentevaluation, to the Company’s auditors and the Company’s board of directors: 

a.               allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the Company’s ability to record, process, summarize andreport financial data and have identified for the Company’s auditors anymaterial weaknesses in internal controls; and 

b.              anyfraud, whether or not material, that involves management or other employees whohave a significant role in the Company’s internal controls; and 

6.                  TheCompany’s other certifying officer and I have indicated in this annual reportwhether there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

 
| Date: March 28, 2003 |                               |
|----------------------|------------------------------------|
|                 |                               |
|                 |                               |
|                 | By:                                | /s/ Benjamin R. Jacobson |   |
|                 | Benjamin R. Jacobson               |
|                 | Chairman of the Board of Directors |
|                 | Chief Executive Officer, Treasurer |
|                 | (Principal Executive Officer)      |

 

33

----

 

**CERTIFICATION**

 

I, Kurt J. Schnaubelt, certify that: 

 

1.                  Ihave reviewed this annual report on Form 10-K of Bertucci’s Corporation; 

2                     Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report; 

3.                  Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Company as of,and for, the periods presented in this annual report; 

4.                  TheCompany’s other certifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Company and have: 

a.               designed such disclosure controls andprocedures to ensure that material information relating to the Company,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared; 

b.              evaluatedthe effectiveness of theCompany’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the “Evaluation Date”); and 

c.               presentedin this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date; 

5.                  TheCompany’s other certifying officer and I have disclosed, based on our most recentevaluation, to the Company’s auditors and the Company’s board of directors: 

a.               allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the Company’s ability to record, process, summarize andreport financial data and have identified for the Company’s auditors anymaterial weaknesses in internal controls; and 

b.              anyfraud, whether or not material, that involves management or other employees whohave a significant role in the Company’s internal controls; and

6.                  TheCompany’s other certifying officer and I have indicated in this annual reportwhether there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses. 

 

 
| Date: March 28,  2003 |                                                    |
|-----------------------|---------------------------------------------------------|
|                  |                                                    |
|                  |                                                    |
|                  | By:                                                     | /s/ Kurt J. Schnaubelt |   |
|                  | Kurt J. Schnaubelt                                      |
|                  | Chief Financial Officer,                                |
|                  | Senior Vice President – Finance and Administration |
|                  |  (Chief  Accounting Officer)                       |

 

34

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**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.                                                                                                                                                                                                                                                                                                                                                                                                 |

 

35

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| **Exhibit  No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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                                                                                                                                                                                                                                                                                                                                                                                                           |

 

36

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| **Exhibit  No.** |   | **Description**                                                                                                                                |
|------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
| 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                                                                                            |
| 99-3*****        |   | Letter  to Commission from Arthur Andersen LLP agreeing with disclosures in Form 8-K.                                                          |

 

----

*                                 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. 

***      Filed asan 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. 

****    Filed asan Exhibit, with the same Exhibit number to Registrant’s annual report on form10-K filed with the Securities and Exchange Commission on April 1, 2002.

*****  Filed asan Exhibit, with the same Exhibit number to Registrant’s annual report on form8-K filed with the Securities and Exchange Commission on May 8, 2002.  

 

37

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**Independent Auditors' Report**

 

 

To the Board of Directors of Bertucci’s Corporation:

 

We have audited the accompanying consolidated balance sheet ofBertucci’s Corporation and subsidiaries (“the Company”) as of January 1, 2003,and the related consolidated statements of operations, stockholders’ equity,and cash flows for the year then ended. These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on the 2002 financial statements based on our audit.  The financial statements as of January 2,2002 and for each of the years in the two-year period then ended, before theinclusion of the disclosures discussed in Note 4 to the consolidatedfinancial statements, wereaudited by other auditors who have ceased operations.  Those auditors expressed an unqualified opinion on thoseconsolidated financial statements in their report dated February 22, 2002.

 

We conducted our audit in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audit provides a reasonable basis for our opinion.

 

In our opinion, the 2002 consolidated financial statements presentfairly, in all material respects, the financial position of the Company as ofJanuary 1, 2003, and the results of its operations and its cash flows for theyear then ended in conformity with accounting principles generally accepted inthe United States of America.

 

As discussed inNote 4 to the consolidated financial statements, on January 3, 2002, theCompany adopted the provisions of Statement of Financial Accounting Standards(“SFAS”) No. 142 “Goodwill and Other Intangible Assets”.

 

As discussedabove, the financial statements of the Company as of January 2, 2002, and forthe two years in the period then ended, were audited by other auditors who haveceased operations.  As described in Note4, these financial statements have been revised to include the transitionaldisclosures required by SFAS No. 142. Our audit procedures with respect to the disclosures in Note 4 withrespect to 2001 and 2000 included (i) comparing the previously reported netincome to the previously issued financial statements and the adjustments toreported net income representing amortization expense (including any relatedtax effects) recognized in those periods related to goodwill to the Company’sunderlying analysis obtained from management, and (ii) testing the mathematicalaccuracy of the reconciliation of adjusted net income to reported net income,and the related earnings per share amounts. In our opinion, the disclosures for fiscal 2001 and 2000 in Note 4 areappropriate.  However, we were notengaged to audit, review, or apply any procedures to the 2001 and 2000consolidated financial statements of the Company other than with respect tosuch disclosures and, accordingly, we do not express an opinion or any otherform of assurance on the 2001 and 2000 financial statements taken as a whole.

 

/s/ Deloitte & Touche LLP

 

Boston, Massachusetts

March 17, 2003

 

 

38

----

 

**This is a copy of a report previously issued by ArthurAndersen LLP. This report has not been reissued by Arthur Andersen LLP nor hasArthur Andersen LLP provided a consent to the inclusion of its report in thesefinancial statements. The financial statements as of January 3, 2001 and forthe year ended December 29, 1999 are not presented herein.**  

 

**Reportof Independent Public Accountants**

 

To the Board of Directorsof Bertucci’s Corporation: 

 

We have audited theaccompanying consolidated balance sheets of Bertucci’s Corporation (formerly NERestaurant Company, Inc.), a Delaware Corporation (the Company), and itssubsidiaries as of January 2, 2002 and January 3, 2001, and the relatedconsolidated statements of operations, changes in stockholders’ equity and cashflows for each of the three years in the period ended January 2, 2002. These financial statements and the schedule referred to below are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on these financial statements and schedule based on ouraudits. 

 

We conducted our auditsin accordance with auditing standards generally accepted in the UnitedStates.  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of Bertucci’s Corporation and its subsidiariesas of January 2, 2002 and January 3, 2001, and the results of their operationsand their cash flows for each of the three years in the period ended January 2,2002, in conformity with accounting principles generally accepted in the UnitedStates.

 

Our audits were made forthe purpose of forming an opinion on the basic financial statements taken as awhole.  The schedule listed in the index of financial statements ispresented for purposes of complying with the Securities and ExchangeCommissions rules and is not part of the basic financial statements.  Thisschedule has been subjected to the auditing procedures applied in the audits ofthe basic financial statements and, in our opinion, fairly states in allmaterial respects the financial data required to be set forth therein inrelation to the basic financial statements taken as a whole

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

 

39

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BERTUCCI’S CORPORATION

CONSOLIDATEDBALANCE SHEETS

(Dollars in thousands)

 
|                                                                                                                    |   | **January 1,  2003** |    | **January 2,  2002** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|----------------------|--------|
| ASSETS                                                                                                                  |   |                 |    |                 |   |
| Current Assets:                                                                                                         |   |                 |    |                 |   |
| Cash and cash  equivalents                                                                                              |   | $                    | 13,133  |                 | $      | 23,235 |   |
| Restricted cash                                                                                                         |   | 2,468                |    | 1,013                |   |
| Accounts  receivable                                                                                                    |   | 1,733                |    | 1,033                |   |
| Inventories                                                                                                             |   | 900                  |    | 805                  |   |
| Prepaid expenses  and other current assets                                                                              |   | 1,995                |    | 1,554                |   |
| Total current  assets                                                                                                   |   | 20,229               |    | 27,640               |   |
|                                                                                                                    |   |                 |    |                 |   |
| Property and  Equipment, at cost:                                                                                       |   |                 |    |                 |   |
| Land                                                                                                                    |   | 2,468                |    | 2,647                |   |
| Buildings                                                                                                               |   | 6,671                |    | 6,624                |   |
| Leasehold  improvements                                                                                                 |   | 57,130               |    | 49,654               |   |
| Furniture and  equipment                                                                                                |   | 36,660               |    | 29,058               |   |
|                                                                                                                    |   | 102,929              |    | 87,983               |   |
| Less -  Accumulated depreciation                                                                                        |   | (31,555              | )       | (23,081              | )      |
|                                                                                                                    |   | 71,374               |    | 64,902               |   |
| Construction  work in process                                                                                           |   | 1,830                |    | 139                  |   |
| Net property and  equipment                                                                                             |   | 73,204               |    | 65,041               |   |
|                                                                                                                    |   |                 |    |                 |   |
| Goodwill, net                                                                                                           |   | 26,127               |    | 26,127               |   |
| Deferred finance  costs, net                                                                                            |   | 3,714                |    | 4,384                |   |
| Liquor licenses                                                                                                         |   | 1,763                |    | 1,806                |   |
| Deferred taxes,  noncurrent                                                                                             |   | —               |    | 7,697                |   |
| Other assets,  net                                                                                                      |   | 385                  |    | 102                  |   |
| TOTAL ASSETS                                                                                                            |   | $                    | 125,422 |                 | $      | 132,797 |   |
|                                                                                                                    |   |                 |    |                 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                               |   |                 |    |                 |   |
|                                                                                                                    |   |                 |    |                 |   |
| Current  Liabilities:                                                                                                   |   |                 |    |                 |   |
| Accounts payable                                                                                                        |   | $                    | 7,986   |                 | $      | 8,808 |   |
| Accrued expenses                                                                                                        |   | 13,532               |    | 14,459               |   |
| Total current  liabilities                                                                                              |   | 21,518               |    | 23,267               |   |
| Senior Notes                                                                                                            |   | 85,310               |    | 85,310               |   |
| Other Long-Term  Liabilities                                                                                            |   | 4,706                |    | 5,194                |   |
| Total liabilities                                                                                                       |   | 111,534              |    | 113,771              |   |
| Commitments and  Contingencies (Note 7)                                                                                 |   |                 |    |                 |   |
| Stockholders’  Equity:                                                                                             |   |                 |    |                 |   |
| Common stock,  $.01 par value  Authorized - 8,000,000 shares  Issued - 3,666,370 at January 1, 2003 and January 2, 2002 |   | 37                   |    | 37                   |   |
| Less - Treasury  shares of 687,415 at January 1, 2003 and January 2, 2002                                               |   | (8,088               | )       | (8,088               | )      |
| Additional  paid-in capital                                                                                             |   | 29,004               |    | 29,004               |   |
| Accumulated  deficit                                                                                                    |   | (7,065               | )       | (1,927               | )      |
| Total  stockholders’ equity                                                                                        |   | 13,888               |    | 19,026               |   |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                        |   | $                    | 125,422 |                 | $      | 132,797 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

40

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BERTUCCI’S CORPORATION

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(Dollars in thousandsexcept share and per share data)

 
|                                                                               |   | **52 Weeks Ended  January 1,  2003** |    | **52 Weeks Ended  January 2,  2002** |   | **53 Weeks Ended  January 3,  2001** |   |
|------------------------------------------------------------------------------------|--------|--------------------------------------|---------|--------------------------------------|--------|--------------------------------------|--------|
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Net sales                                                                          |   | $                                    | 162,319 |                                 | $      | 186,638                              |   | $ | 284,933 |   |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Cost of sales  and expenses                                                        |   |                                 |    |                                 |   |                                 |   |
| Cost of sales                                                                      |   | 35,667                               |    | 44,855                               |   | 74,266                               |   |
| Operating  expenses                                                                |   | 96,413                               |    | 111,795                              |   | 162,098                              |   |
| General and  administrative expenses                                               |   | 12,124                               |    | 12,548                               |   | 16,392                               |   |
| Deferred rent,  depreciation, amortization and preopening expenses                 |   | 10,733                               |    | 13,142                               |   | 17,333                               |   |
| Closed  restaurants charge                                                         |   | 236                                  |    | 4,200                                |   | 479                                  |   |
| Asset impairment  charge                                                           |   | —                               |    | 1,800                                |   | —                               |   |
| Loss on  abandonment of Sal & Vinnie’s                                    |   | —                               |    | —                               |   | 2,031                                |   |
| Cost of sales  and expenses                                                        |   | 155,173                              |    | 188,340                              |   | 272,599                              |   |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Income (loss)  from operations                                                     |   | 7,146                                |    | (1,702                               | )      | 12,334                               |   |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Other income  (expense)                                                            |   |                                 |    |                                 |   |                                 |   |
| Gain on Brinker  Sale                                                              |   | —                               |    | 36,932                               |   | —                               |   |
| Interest  expense, net                                                             |   | (9,587                               | )       | (11,365                              | )      | (15,838                              | )      |
| Other (expense)  income                                                            |   | (9,587                               | )       | 25,567                               |   | (15,838                              | )      |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| (Loss)  income  before income tax provision  (benefit) and extraordinary item |   | (2,441                               | )       | 23,865                               |   | (3,504                               | )      |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Income tax  provision (benefit)                                                    |   | 2,697                                |    | 10,243                               |   | (115                                 | )      |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Net (loss)  income before extraordinary item                                       |   | (5,138                               | )       | 13,622                               |   | (3,389                               | )      |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Gain on  retirement of Senior Notes, net of tax                                    |   |                                 |    | 1,338                                |   | —                               |   |
| Net (loss)  income                                                                 |   | $                                    | (5,138  | )                                    | $      | 14,960                               |   | $ | (3,389 | ) |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Basic (loss)  income per share before extraordinary item                           |   | $                                    | (1.72   | )                                    | $      | 4.57                                 |   | $ | (1.14 | ) |
| Gain on  retirement of Senior Notes, net of tax                                    |   | —                               |    | 0.45                                 |   | —                               |   |
| Basic (loss)  income per share                                                     |   | $                                    | (1.72   | )                                    | $      | 5.02                                 |   | $ | (1.14 | ) |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Basic weighted  average shares outstanding                                         |   | 2,978,955                            |    | 2,978,955                            |   | 2,981,414                            |   |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Diluted (loss)  income per share before extraordinary item                         |   | $                                    | (1.72   | )                                    | $      | 4.19                                 |   | $ | (1.14 | ) |
| Gain on  retirement of Senior Notes, net of tax                                    |   | —                               |    | 0.41                                 |   | —                               |   |
| Diluted (loss)  income per share                                                   |   | $                                    | (1.72   | )                                    | $      | 4.60                                 |   | $ | (1.14 | ) |
|                                                                               |   |                                 |    |                                 |   |                                 |   |
| Diluted weighted  average shares outstanding                                       |   | 2,978,955                            |    | 3,252,605                            |   | 2,981,414                            |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

# ** **

# **41**

# ****

#  

# **BERTUCCI’SCORPORATION**

# **CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

# **(Dollarsin thousands)**

# ** **

|                                           |   | **Common Stock**      |   | **Treasury Stock** |   | **Additional Paid  In Capital** |     | **Accumulated  Deficit** |   | **Total  Stockholders'  Equity** |   |
|------------------------------------------------|--------|-----------------------|--------|--------------------|--------|---------------------------------|----------|--------------------------|--------|----------------------------------|--------|
|                                           |   | **Number of  Shares** |   | **Amount**         |   | **Number of  Shares**           |     | **Amount**               |   |                             |   |   |
|                                           |   |                  |   |               |   |                            |     |                     |   |                             |   |   |   |   |   |
| 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 |   |
|                                           |   |                  |   |               |   |                            |     |                     |   |                             |   |   |   |   |   |
| Net loss                                       |   | —                |   | —             |   | —                          |     | —                   |   | —                           |   | (5,138 | ) | (5,138 | ) |
| Balance January  1, 2003                       |   | 3,666,370             |   | $                  | 37     |                            | (687,415 | )                        | $      | (8,088                           | )      | $ | 29,004 |   | $ | (7,065 | ) | $ | 13,888 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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BERTUCCI’SCORPORATION

CONSOLIDATED STATEMENTSOF CASH FLOW

(Dollars inthousands)

 
|                                                                                                 |   | **52 Weeks  Ended  January 1, 2003** |   | **52 Weeks  Ended  January 2, 2002** |   | **53 Weeks  Ended  January 3, 2001** |   |
|------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
|                                                                                                 |   |                                 |   |                                 |   |                                 |   |
| Cash Flows from  Operating Activities                                                                |   |                                 |   |                                 |   |                                 |   |
| Net (loss)  income                                                                                   |   | $                                    | (5,138 | )                                    | $      | 14,960                               |   | $ | (3,389 | ) |
| Adjustments to  reconcile net (loss) income to net cash provided by (used in) operating  activities: |   |                                 |   |                                 |   |                                 |   |
| Gain on Brinker  Sale, net of tax                                                                    |   | —                               |   | (22,150                              | )      | —                               |   |
| Gain on Senior  Notes retirement, net of tax                                                         |   | —                               |   | (1,338                               | )      | —                               |   |
| Gain on sale of  property                                                                            |   | (235                                 | )      | —                               |   | —                               |   |
| Non-cash loss on  abandonment of Sal & Vinnie’s                                             |   | —                               |   | —                               |   | 2,031                                |   |
| Closed  restaurant charge                                                                            |   | 236                                  |   | 4,200                                |   | 479                                  |   |
| Asset impairment  charge                                                                             |   | —                               |   | 1,800                                |   | —                               |   |
| Deferred rent,  depreciation, and amortization                                                       |   | 9,860                                |   | 13,150                               |   | 16,754                               |   |
| Deferred income  taxes                                                                               |   | 7,697                                |   | 4,187                                |   | 245                                  |   |
| Changes in  operating assets and liabilities                                                         |   |                                 |   |                                 |   |                                 |   |
| Inventories                                                                                          |   | (95                                  | )      | 223                                  |   | (157                                 | )      |
| Prepaid  expenses, receivables and other                                                             |   | (1,126                               | )      | 1,211                                |   | (1,165                               | )      |
| Other accrued  expenses                                                                              |   | (1,131                               | )      | (4,210                               | )      | (3,663                               | )      |
| Income taxes  payable                                                                                |   | (1,149                               | )      | (8,392                               | )      | —                               |   |
| Accounts payable                                                                                     |   | (822                                 | )      | (1,866                               | )      | 16                                   |   |
| Other operating  assets and liabilities                                                              |   | 75                                   |   | 2,551                                |   | (780                                 | )      |
| Total  adjustments                                                                                   |   | 13,310                               |   | (10,634                              | )      | 13,760                               |   |
|                                                                                                 |   |                                 |   |                                 |   |                                 |   |
| Net cash  provided by operating activities                                                           |   | 8,172                                |   | 4,326                                |   | 10,371                               |   |
|                                                                                                 |   |                                 |   |                                 |   |                                 |   |
| Cash Flows from  Investing Activities                                                                |   |                                 |   |                                 |   |                                 |   |
| Additions to  property and equipment                                                                 |   | (17,215                              | )      | (12,261                              | )      | (14,191                              | )      |
| Land and liquor  license sale proceeds                                                               |   | —                               |   | —                               |   | 648                                  |   |
| Proceeds from  sale of restaurants and office                                                        |   | 413                                  |   | 200                                  |   | 1,648                                |   |
| Franchise/development  fees paid                                                                     |   | —                               |   | —                               |   | (230                                 | )      |
| Acquisition of  liquor licenses                                                                      |   | (17                                  | )      | —                               |   | (65                                  | )      |
| Net proceeds  from Brinker Sale                                                                      |   | —                               |   | 36,325                               |   | —                               |   |
|                                                                                                 |   |                                 |   |                                 |   |                                 |   |
| Net cash (used  in) provided by investing activities                                                 |   | (16,819                              | )      | 24,264                               |   | (12,190                              | )      |
|                                                                                                 |   |                                 |   |                                 |   |                                 |   |
| Cash Flows from  Financing Activities                                                                |   |                                 |   |                                 |   |                                 |   |
| Borrowings of  mortgage loans                                                                        |   | —                               |   | —                               |   | 3,825                                |   |
| Repayments of  mortgage loans                                                                        |   | —                               |   | (422                                 | )      | (1,819                               | )      |
| Cash collateral  fundings for LOC facility                                                           |   | (1,455                               | )      | (1,013                               | )      | —                               |   |
| Repurchase of  treasury shares                                                                       |   | —                               |   | —                               |   | (71                                  | )      |
| Principal  payments under capital lease obligations                                                  |   | —                               |   | —                               |   | (93                                  | )      |
| Senior Notes  retirement                                                                             |   | —                               |   | (11,522                              | )      | —                               |   |
|                                                                                                 |   |                                 |   |                                 |   |                                 |   |
| Net cash (used  in) provided by financing activities                                                 |   | (1,455                               | )      | (12,957                              | )      | 1,842                                |   |
|                                                                                                 |   |                                 |   |                                 |   |                                 |   |
| Net (decrease)  increase in Cash                                                                     |   | (10,102                              | )      | 15,633                               |   | 23                                   |   |
| Cash, beginning  of year                                                                             |   | 23,235                               |   | 7,602                                |   | 7,579                                |   |
| Cash, end of  year                                                                                   |   | $                                    | 13,133 |                                 | $      | 23,235                               |   | $ | 7,602 |   |
|                                                                                                 |   |                                 |   |                                 |   |                                 |   |
| Supplemental  Disclosure of Cash Flow Information:                                                   |   |                                 |   |                                 |   |                                 |   |
| Cash paid for  interest, net of amounts capitalized                                                  |   | $                                    | 9,052  |                                 | $      | 11,537                               |   | $ | 10,437 |   |
| Income taxes (refunded)  paid                                                                        |   | $                                    | (3,863 | )                                    | $      | 6,103                                |   | $ | 129 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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BERTUCCI’S CORPORATION

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

JANUARY 1, 2003

 

(1)                                  ORGANIZATIONAND OPERATIONS

 

Bertucci’s Corporation (the “Company”) (a Delawarecorporation) was incorporated on January 1, 1994 as NE Restaurant Company,Inc., and formally changed its name to Bertucci’s Corporation on August 16, 2001.  The Company was formed to acquire andoperate Chili’s Grill & Bar and On The Border restaurant franchises locatedin Massachusetts, New Hampshire, Maine, Vermont, Rhode Island, Connecticut andportions of New York. The Company developed and operated these restaurantfranchises under franchise agreements with Brinker International, Inc., apublicly-owned company (“Brinker” or the “Franchisor”).** **Asof January 1, 2003, the Company owned and operated 80 full-service casualdining, Italian-style restaurants under the name Bertucci’s Brick OvenPizzeria® located primarily in the Northeastern and Mid-Atlantic United States.

 

In July 1998, the Company completed its acquisition ofBertucci’s Inc. (“Bertucci’s”), a publicly owned restaurant company.  The Company had operated one Sal &Vinnie’s Sicilian Steakhouse located in Massachusetts which was also part ofthe acquisition.  During 2000, theCompany abandoned the restaurant in exchange for termination of its lease obligationand recorded an approximate $2.0 million loss on abandonment.

 

On April 12, 2001, the Company completed its sale of40 Chili’s and seven On The Border restaurants to Brinker (the “BrinkerSale”).  Total consideration, subject toclosing adjustments, was $93.5 million. Brinker acquired the inventory,facilities, equipment, management teams associated with these restaurants, aswell as the four Chili’s restaurants then under development by the Company.Further, Brinker assumed the mortgage debt on the Company’s Chili’s and On TheBorder restaurants.

 

In October 2001, the Company formed Bertucci’sFranchise Corp., a Delaware corporation, for the purpose of selling developmentand licensing rights to investors wishing to operate Bertucci’srestaurants.  Bertucci’s Franchise Corp.is a wholly owned subsidiary of the Company. For the year ended January 1, 2003, Bertucci’s Franchise Corp. hasincurred organization expenses, which have been expensed,  but has not sold any development orlicensing rights.

 

*FiscalYear End*

 

The Company’s fiscal year is the 52 or 53-week periodended on the Wednesday closest to December 31st.  Fiscal year 2000 presented consists of 53 weeks while each of theother years presented consists of 52 weeks.

 

(2)                                  ACQUISITIONAND BRINKER SALE

 

On July 21, 1998, the Company, through a wholly ownedsubsidiary, NE Restaurant Acquisition Corp., completed its acquisition ofBertucci’s pursuant to the terms of an Agreement and Plan of Merger dated as ofMay 13, 1998 (the “Acquisition”).  TheCompany purchased all of the issued and outstanding shares of Bertucci’s commonstock at a price of $10.50 per share. The total purchase price was approximately $89.4 million.  NE Restaurant Acquisition Corp. had no operationsprior to the acquisition and was subsequently merged into the Company.  In connection with the Acquisition, theCompany sold $100 million principal amount of 103⁄4% Senior Notes due July 15,2008.  The net proceeds along withequity financing of approximately $29.0 million were used to consummate theAcquisition, repay certain outstanding indebtedness of the Company andBertucci’s and pay fees and expenses incurred in connection with the financingand the Acquisition.  

 

The purchase price, including expenses related to theAcquisition has been allocated to assets and liabilities based on estimatedfair market values on July 21, 1998. The difference between the purchase price and the net assets acquired of$34 million has been recorded as goodwill.

 

On April 12, 2001, the Company completed the BrinkerSale.  Total consideration was $93.5million. Brinker acquired the inventory, facilities, equipment, managementteams associated with 40 Chili's and seven On The Border restaurants, as wellas the

 

44

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four Chili’s restaurants then under development by theCompany. Further, Brinker assumed the mortgage debt on the Company’s Chili’sand On The Border restaurants.

 

The assets Brinker purchased and liabilities assumedfrom the Company are detailed in the table below (dollars in thousands). 

 
| Assets and Liabilities                            |   |    |   |
|---------------------------------------------------|--------|---------|--------|
| Cash                                              |   | $       | 530    |   |
| Inventory                                         |   | 857     |   |
| Property and  equipment:                          |   |    |   |
| Land & land rights                            |   | 5,219   |   |
| Buildings                                         |   | 5,978   |   |
| Leasehold  improvements                           |   | 39,032  |   |
| Furniture and  equipment                          |   | 25,655  |   |
| Accumulated  depreciation                         |   | (23,252 | )      |
| 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 |   |

 

*AssetsHeld for Sale*

 

The acquisition of Bertucci’s included90 Bertucci’s restaurants and one Sal & Vinnie’s restaurant.

 

The Company sold the former Bertucci’s headquarterslocated in Wakefield, Massachusetts, and closed the Bertucci’s test kitchenrestaurant located in the former Bertucci’s headquarters.  The Company also closed 17 otherunder-performing Bertucci’s restaurants. The assets related to these locations, which are primarily property andequipment, had been assigned a value of approximately $6.6 million in 1999based on estimated sale proceeds. Assets held for sale are reported at thelower of carrying amount or fair value less costs to sell. For the year endedJanuary 3, 2001 and from the date of the Acquisition through January 3, 2001,these locations had combined net sales of approximately $418,000 and $22.1million, respectively, 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 January3, 2001, all of these locations had been closed, including the formerBertucci’s headquarters.

 

As a result of the purchase accounting adjustment onthe Acquisition, the Company accrued approximately $3.0 million related toclosing these locations, consisting of estimated lease commitments beyond theclosings and certain exit costs. During 2000, the Company accrued an additional$0.5 million of costs related to exiting the final four locations. During 2001the Company accrued an additional $4.2 million of costs relating to net leaseobligations and other exit costs remaining on the 15 units for which theCompany is still primarily liable. These amounts are included in the accompanying consolidated statementsof operations as closed restaurant charges. It was originally expected theCompany would be able to exit these locations, sublease the locations orotherwise be released from the related leases.  However, due to marketconditions, the Company has been

 

45

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unable to sell, sublease or exit certain of theseleases.  Additionally, in 2002, the Company closed one restaurant andrecorded a charge of $236,000 primarily related to estimated lease terminationcosts.

 

Activity within the reserve was as follows:

 
|                                        |   | **2002** |   | **2001** |   | **2000** |   |
|---------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Balance,  beginning of year                 |   | $        | 3,352  |     | $      | 774      |   | $ | 2,282 |   |
| Additonal  reserves charged to operations   |   | 236      |   | 4,200    |   | 479      |   |
| Lease and  related costs charged to reserve |   | (1,089   | )      | (1,622   | )      | (1,987   | )      |
| Balance, end of  year                       |   | $        | 2,499  |     | $      | 3,352    |   | $ | 774 |   |
|                                        |   |     |   |     |   |     |   |
| Current portion                             |   | $        | 642    |     | $      | 667      |   | $ | 774 |   |
| Noncurrent  portion                         |   | 1,857    |   | 2,685    |   | —   |   |
|                                        |   | $        | 2,499  |     | $      | 3,352    |   | $ | 774 |   |

 

(3)                                  SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

*RevenueRecognition*

 

The Company records revenue from the sale of food,beverage and alcohol when sales occur. Proceeds from the sale of gift cards are recorded as deferred revenueand recognized as income when redeemed by the holder.

 

*Cashand Cash Equivalents*

 

Cash and equivalents are comprised of demand andinterest bearing accounts with original maturities of no more than sixty days.

 

*Inventories*

 

Inventories are carried at the lower of cost(first-in, first-out) or market value, and consist of the following (dollars inthousands): 

 
|            |   | **2002** |   | **2001** |   |
|-----------------|--------|----------|--------|----------|--------|
|            |   |     |   |     |   |
| Food            |   | $        | 493    |     | $      | 508 |   |
| Liquor          |   | 332      |   | 216      |   |
| Supplies        |   | 75       |   | 81       |   |
| Total inventory |   | $        | 900    |     | $      | 805 |   |

 

*Propertyand Equipment*

 

Property and equipment are carried at cost.  The Company provides for depreciation andamortization using the straight-line method to charge the cost of propertiesand equipment to expense over the estimated useful lives of the assets.  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                                                                   |

 

46

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The Company evaluates property and equipment held andused in the business for impairment whenever events or changes in circumstancesindicate that the carrying amount of a restaurant’s assets may not berecoverable.  An impairment isdetermined by comparing estimated undiscounted future operating cash flows fora restaurant to the carrying amount of its assets.  If an impairment exists, the amount of impairment is measured asthe excess of the carrying amount over the estimated discounted futureoperating cash flows of the asset and the expected proceeds upon sale of theasset.  In 2001, the Company recordedapproximately $1.8 million of impairment charges related to four restaurantlocations.  This impairment was chargedto earnings and included in the accompanying consolidated statements ofoperations for 2001.

 

*CapitalizedInterest*

 

The Company capitalizes interest costs (in leaseholdimprovements) based on new restaurant capital expenditures. Total interestcosts incurred and amounts capitalized are as follows (dollars in thousands):

 
|                       |   | **2002** |   | **2001** |   | **2000** |   |
|----------------------------|--------|----------|--------|----------|--------|----------|--------|
|                       |   |     |   |     |   |     |   |
| Total interest  expense    |   | $        | 9,713  |     | $      | 11,489   |   | $ | 16,062 |   |
| Less - Amount  capitalized |   | 126      |   | 124      |   | 224      |   |
| Interest  expense, net     |   | $        | 9,587  |     | $      | 11,365   |   | $ | 15,838 |   |

 

*Self-Insurance*

 

The Company is self-insuredfor certain losses related to general liability, group health insurance, andworkers’ compensation.  The Companymaintains stop loss coverage with third party insurers to limit its total exposure.  The self-insurance liability represents anestimate of the ultimate cost of claims incurred as of the balance sheetdate.  The estimated liability is  not discounted  and  is established based upon analysis ofhistorical data and estimates.

 

*AccruedExpenses*

 

Accrued expenses consisted of the following as ofJanuary 1, 2003 and January 2, 2002 (dollars in thousands):

 
|                                     |   | **2002** |   | **2001** |   |
|------------------------------------------|--------|----------|--------|----------|--------|
|                                     |   |     |   |     |   |
| Accrued interest                         |   | $        | 4,299  |     | $      | 4,324 |   |
| Accrued payroll  and related benefits    |   | 3,927    |   | 4,249    |   |
| Unredeemed gift certificates             |   | 2,402    |   | 1,906    |   |
| Other accrued  liabilities               |   | 1,551    |   | 1,316    |   |
| Store closing  reserves, current portion |   | 642      |   | 667      |   |
| Accrued  occupancy costs                 |   | 581      |   | 648      |   |
| Accrued  advertising                     |   | 83       |   | 153      |   |
| Income taxes  payable                    |   | 47       |   | 1,196    |   |
|                                     |   |     |   |     |   |
| TOTAL                                    |   | $        | 13,532 |     | $      | 14,459 |   |

 

*DeferredFinance Costs*

 

Underwriting, legal and other direct costs incurred inconnection with the issuance of the Senior Notes have been capitalized and arebeing amortized into interest expense over the life of the related borrowings.  A pro rata portion of the amount capitalizedwas netted against the gain recorded on the retirement of certain Senior Notesin 2001.

 

47

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*LiquorLicenses*

 

Transferable liquor licenses purchased are accountedfor at the lower of cost or market and are not amortized. Annual renewal feesare expensed as incurred.

 

*FairValue of Financial Instruments*

 

The Company’s financial instruments mainly consist ofcash and cash equivalents, restricted cash, accounts receivable, accountspayable and long-term debt. The carrying amounts of the Company’s cash and cashequivalents, restricted cash, accounts receivable and accounts payableapproximate fair value due to the short-term nature of these instruments.The fairvalue of the Company’s senior notes loans based on quoted market prices forsimilar issues approximate the current carrying value.

 

*ComprehensiveIncome*

 

Comprehensive income isequal to net income as reported for all three fiscal years reported herein

 

*PreopeningExpenses*

 

In accordance with the provisions of the AmericanInstitute of Certified Public Accountants Statement of Position 98-5, *Reporting onthe Costs of Start-Up Activities*, preopening costs are expensed asincurred. These costs include the training of new restaurant management teams;travel and lodging for both the training and opening unit management teams; andthe food, beverage and supplies costs incurred to perform the training andtesting of all equipment, concept systems and recipes.

 

*Advertising*

 

Advertising costs are expensed as incurred.Advertising costs were $5.3 million, $4.5 million, and $7.1 million in fiscal2002, 2001, and 2000, respectively, and are included in operating expenses inthe consolidated statements of operations.

 

*NetIncome Per Share*

 

Basic earnings per share is computed by dividing net(loss) income by the weighted average number of common shares outstanding forthe reporting period. Diluted earnings per share reflects the potentialdilution that could occur if securities or other contracts to issue commonstock were exercised or converted into common stock. For the calculation ofdiluted net income per share (only applicable to the fiscal year ended January2, 2002), the basic weighted average number of shares is increased by thedilutive effect of stock options using the treasury stock method. For thefiscal years ended January 1, 2003 and January 3, 2001 options representing652,549 and 451,251 shares of common stock, respectively, were excluded fromthe calculation of diluted loss per share because of their anti-dilutiveeffect.

 

*Stock-BasedCompensation*

 

As allowed by SFAS No. 123, *Accounting for Stock-BasedCompensation,*the Company has elected to account for stock-basedcompensation at intrinsic value with disclosure of the effects of fair valueaccounting on net income and earnings per share on a pro forma basis. Thecompany’s stock-based compensation plan is described more fully in Note 10. TheCompany accounts for this plan under the recognition and measurement principlesof APB Opinion No. *25, Accounting for Stock Issued to Employees,*andrelated Interpretations. No stock-based employee compensation cost related tostock options is reflected in net income, as all options granted had anexercise price equal to, or in excess of, the market value of the underlyingcommon stock on the date of grant. The following table illustrates the effecton net income and earnings per share if the Company had applied the fair valuerecognition provisions of SFAS No. 123.

 

48

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|                             |   | **2002** |   | **2001** |   | **2000** |   |
|----------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Net income  (loss), in thousands |   |     |   |     |   |     |   |
| As reported                      |   | $        | (5,138 | )        | $      | 14,960   |   | $ | (3,389 | ) |
| Pro Forma                        |   | $        | (5,282 | )        | $      | 14,775   |   | $ | (3,563 | ) |
|                             |   |     |   |     |   |     |   |
| Basic income  (loss) per share   |   |     |   |     |   |     |   |
| As reported                      |   | $        | (1.72  | )        | $      | 5.02     |   | $ | (1.14 | ) |
| Pro Forma                        |   | $        | (1.77  | )        | $      | 4.96     |   | $ | (1.20 | ) |
|                             |   |     |   |     |   |     |   |
| Diluted income  (loss) per share |   |     |   |     |   |     |   |
| As reported                      |   | $        | (1.72  | )        | $      | 4.60     |   | $ | (1.14 | ) |
| Pro Forma                        |   | $        | (1.77  | )        | $      | 4.54     |   | $ | (1.20 | ) |

 

*SegmentReporting*

 

In June 1997, the Financial Accounting Standards Board(“FASB”) issued SFAS No. 131, *DisclosureAbout Segments of an Enterprise and Related Information*. SFAS No.131 requires 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 operates a single operating segment under thecriteria of SFAS No. 131.

 

*AccountingPronouncements*

 

In June 2001, the FASB issued SFAS No.143, *Accountingfor Asset Retirement Obligations*. This Statement addresses financial accounting and reporting forobligations associated with the retirement of tangible long-lived assets andthe associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-livedassets that result from the acquisition, construction, development and (or) thenormal operation of a long-lived asset, except for certain obligations oflessees.  SFAS No. 143 is effective forthe Company’s fiscal 2003. The Company is currently evaluating the impact, ifany, that adopting this statement will have on its financial position andresults of operations.

 

In August 2001, the FASB issued SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*. This statementsupersedes SFAS No.121, *Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to be Disposed Of* and the accounting andreporting provisions of Accounting Principles Board Opinion No. 30, *Reportingthe Results of Operations-Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions*. SFAS No. 144 retains the fundamental provisions ofSFAS No. 121, but eliminates the requirement to allocate goodwill to long-livedassets to be tested for impairment. This statement also requires discontinued operations to be carried atthe lower of cost or fair value less costs to sell and broadens thepresentation of discontinued operations to include a component of an entityrather than a segment of a business. SFAS No. 144 is effective for fiscal years beginning after December 15,2001, and interim periods within those fiscal years, with early applicationencouraged.The adoption of this standard did not have a material impact on theCompany’s fiscal position or results of operations.

 

In April 2002, the FASB issued SFAS No. 145, *Rescissionof FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.13, andTechnical Corrections*. Upon adoption of SFAS No. 145, gains andlosses from extinguishment of debt will no longer be classified asextraordinary items, but rather will be classified as part of other income(expense) on the Company’s consolidated statement of operations. Any such gainsor losses classified as extraordinary items in prior periods will bereclassified in future financial statement presentations upon the adoption ofSFAS No. 145. The Company will adopt the provisions of SFAS No. 145 for allreporting

 

49

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periods subsequent to January 1, 2003.

 

In June 2002, the FASB issued SFAS No.  146, *Accounting for Costs Associated with Exit or DisposalActivities*. SFAS No. 146 supersedes Emerging Issues Task Force(“EITF”) No. 94-3, *Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (Including CertainCosts Incurred in a Restructuring)*. SFAS No. 146 eliminates theprovisions of EITF No.  94-3 thatrequired a liability to be recognized for certain exit or disposal activitiesat the date an entity committed to an exit plan.  SFAS No. 146 requires a liability for costs associated with anexit or disposal activity to be recognized when the liability is incurred.  SFAS No. 146 is effective for exit ordisposal activities that are initiated after December 31, 2002.

 

In December 2002, the FASB issued SFAS No.  148, *Accounting for Stock-Based Compensation —Transitionand Disclosure, an amendment of SFAS No 123*.  This Statement amends SFAS No. 123, *Accounting for Stock-Based Compensation*, to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFASNo. 123 to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results.  The Company will continue to account forstock-based compensation under APB No. 25, *Accounting for Stock Issued to Employees*.The annual disclosure requirements of SFAS No. 148 have been implemented as ofJanuary 1, 2003.

 

In January 2003, the FASB issued FASB InterpretationNo. 46 (“FIN 46”), *Consolidation of Variable Interest Entities, anInterpretation of ARB No. 51*. FIN 46 requires certain variable interestentities to be consolidated by the primary beneficiary of the entity if theequity investors in the entity do not have the characteristics of a controllingfinancial interest or do not have sufficient equity at risk for the entity tofinance its activities without additional subordinated financial support fromother parties. FIN 46 is effective for all new variable interest entitiescreated or acquired after January 31, 2003. For variable interest entitiescreated or acquired prior to February 1, 2003, the provisions of FIN 46 must beapplied for the first interim or annual period beginning after June 15, 2003.The Company does not expect the adoption of this statement to have a materialimpact on its results of operations or financial position.

 

*Reclassification*

 

Certain reclassifications have been made to prior yearfinancial statements to make them consistent with the current yearpresentation.

 

*Use ofManagement Estimates*

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Significant estimates include the reserve for closed restaurantlocations and insurance reserves. Actual results could differ from those estimates.

 

(4)                                  GOODWILL

 

On January 3, 2002, the Company adopted the provisionsof Statement of Financial Accounting Standard (SFAS) No. 142, *Goodwill and Other Intangible Assets.*  SFAS No. 142 supercedes APB Opinion No. 17, *Intangible Assets,*and requires thatgoodwill and other intangible assets with indefinite lives no longer beamortized, but reviewed for impairment at least annually.  Accordingly, the Company ceased amortizinggoodwill on January 3, 2002.  Amortizationexpense totaling $2,278,000 is recorded in the Consolidated Statement ofOperations for each of the fiscal years 2001 and 2000.

 

In accordance with SFAS No. 142, the effect of thisaccounting change is reflected prospectively. Had the Company accounted forgoodwill in accordance with SFAS No. 142 in 2001 and 2000, net loss and lossper

 

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share for the periods presented would have been asfollows (in thousands, except per share amounts):

 
|                                                 |   | **52 Weeks  Ended  January 2  2002** |   | **53 Weeks  Ended  January 3,  2001** |   |
|------------------------------------------------------|--------|--------------------------------------|--------|---------------------------------------|--------|
| Reported net income (loss) before extraordinary item |   | $                                    | 13,622 |                                  | $      | (3,389 | ) |
| Goodwill amortization                                |   | 2,278                                |   | 2,278                                 |   |
| Adjusted net income (loss) before extraordinary item |   | $                                    | 15,900 |                                  | $      | (1,111 | ) |
|                                                 |   |                                 |   |                                  |   |
| Reported net income (loss)                           |   | $                                    | 14,960 |                                  | $      | (3,389 | ) |
| Goodwill amortization                                |   | 2,278                                |   | 2,278                                 |   |
| Adjusted net income (loss)                           |   | $                                    | 17,238 |                                  | $      | (1,111 | ) |
|                                                 |   |                                 |   |                                  |   |
| Basic income (loss) per share:                       |   |                                 |   |                                  |   |
| Reported income (loss) per share                     |   | $                                    | 5.02   |                                  | $      | (1.14 | ) |
| Goodwill amortization                                |   | 0.76                                 |   | 0.76                                  |   |
| Adjusted basic income (loss) per share               |   | $                                    | 5.78   |                                  | $      | (0.38 | ) |
|                                                 |   |                                 |   |                                  |   |
| Diluted income (loss) per share:                     |   |                                 |   |                                  |   |
| Reported income (loss) per share                     |   | $                                    | 4.60   |                                  | $      | (1.14 | ) |
| Goodwill amortization                                |   | 0.70                                 |   | 0.76                                  |   |
| Adjusted diluted income (loss) per share             |   | $                                    | 5.30   |                                  | $      | (0.38 | ) |

 

(5)                                  INCOMETAXES

 

The Company accounts for income taxes under theliability method in accordance with SFAS No. 109 *Accounting for Income Taxes*.  The components of the provision (benefit) for income taxes forthe years ended January 1, 2003, January 2, 2002 and January 3, 2001 are asfollows (dollars in thousands):

 
|                                              |   | **2002** |   | **2001** |   | **2000** |   |
|---------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Current -                                         |   |     |   |     |   |     |   |
| Federal                                           |   | $        | (5,000 | )        | $      | 4,612    |   | $ | (329 | ) |
| State                                             |   | —   |   | 2,399    |   | (103     | )      |
|                                              |   | (5,000   | )      | 7,011    |   | (432     | )      |
| Deferred -                                        |   |     |   |     |   |     |   |
| Federal                                           |   | 2,552    |   | 4,173    |   | 242      |   |
| State                                             |   | 1,074    |   | 14       |   | 75       |   |
|                                              |   | 3,626    |   | 4,187    |   | 317      |   |
|                                              |   |     |   |     |   |     |   |
| Valuation  allowance                              |   | 4,071    |   | —   |   | —   |   |
|                                              |   |     |   |     |   |     |   |
| Total provision  (benefit) for income taxes       |   | 2,697    |   | 11,198   |   | (115     | )      |
| Provision for  gain on retirement of Senior Notes |   | —   |   | 955      |   | —   |   |
| Provision  (benefit) on continuing income (loss)  |   | $        | 2,697  |     | $      | 10,243   |   | $ | (115 | ) |

 

A reconciliation of the amount computed by applyingthe statutory federal income tax rate of 35% to the (loss) income before incometax provision (benefit) and extraordinary item for the years ended January 1,2003, and January 2, 2002, and 34% for the year ended January 3, 2001,respectively, is as follows (dollars in thousands):

 

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|                                                                   |   | **2002** |   | **2001** |   | **2000** |   |
|------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Income tax  (benefit) provision computed at federal statutory rate     |   | $        | (855   | )        | $      | 8,144    |   | $ | (1,191 | ) |
| State taxes,  including expired state benefits, net of federal benefit |   | (122     | )      | 1,728    |   | 599      |   |
| FICA tax credit                                                        |   | (397     | )      | (426     | )      | (297     | )      |
| Goodwill  amortization                                                 |   | —   |   | 797      |   | 774      |   |
| Valuation  allowance                                                   |   | 4,071    |   | —   |   | —   |   |
| Income tax  provision (benefit)                                        |   | $        | 2,697  |     | $      | 10,243   |   | $ | (115 | ) |

 

Significant items giving rise to deferred tax assetsand deferred tax liabilities at January 1, 2003 and January 2, 2002 are asfollows (dollars in thousands):

 
|                                            |   | **2002** |   | **2001** |   |
|-------------------------------------------------|--------|----------|--------|----------|--------|
| Deferred tax  assets–                      |   |     |   |     |   |
| Store closing write downs and liabilities       |   | $        | 3,215  |     | $      | 3,751 |   |
| Net operating loss and tax credit carryforwards |   | 2,159    |   | 934      |   |
| Deferred rent                                   |   | 1,144    |   | 951      |   |
| Accrued expenses and other                      |   | 448      |   | 476      |   |
| Deferred and accrued compensation               |   | 260      |   | 463      |   |
| Depreciation                                    |   | —   |   | 1,638    |   |
|                                            |   | 7,226    |   | 8,213    |   |
| Deferred tax  liabilities–                 |   |     |   |     |   |
| Liquor licenses                                 |   | (442     | )      | (516     | )      |
| Depreciation                                    |   | (2,713   | )      | —   |   |
|                                            |   | (3,155   | )      | (516     | )      |
|                                            |   |     |   |     |   |
| Total net  deferred tax assets                  |   | 4,071    |   | 7,697    |   |
| Valuation  allowance                            |   | (4,071   | )      | —   |   |
| Carrying value  of net deferred tax assets      |   | $        | — |     | $      | 7,697 |   |

 

The Company recorded a valuation allowance againstdeferred tax assets of $4.1 million in 2002. The future tax benefits which gaverise to the deferred tax asset remain statutorily available to the Company. TheCompany considered both negative and positive evidence in determining if avaluation allowance is required. The Company’s 2001 results were favorablyimpacted by the Brinker Sale and without it the Company would have recorded apre-tax loss. The Company’s has an historical trend of recurring pre-tax lossessince 1998 excluding the Brinker Sale. Based on the current year loss, thehistorical trend of losses excluding the Brinker Sale, and the Company’s fiscal2003 plan, the Company concluded a valuation allowance for the net deferred taxasset should be provided for in 2002.

 

(6)                                  SENIORNOTES PAYABLE

 

From 1997 through 2000, the Company entered intovarious loan agreements with the Franchise Finance Corporation of America(“FFCA”) which resulted in the issuance of promissory notes and mortgagescollateralized by various Brinker Concept restaurants.  For the years ended January 2, 2002, andJanuary 3, 2001 interest related to the FFCA loans was $1.3 and $3.9 million,respectively.  The loans were assumed byBrinker as a result of the Brinker Sale.

 

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On July 13, 1998, the Company issued $100 million of10 3/4% Notes due 2008. 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. These Notes wereexchanged for Senior Notes with the same terms pursuant to a registered exchangeoffer that was completed in November 1998. Interest on the Senior Notes ispayable semi-annually on January 15 and July 15. After July 15, 2003, theCompany may, at its option, redeem any or all of the Notes at face value, plusa premium of up to approximately 5% through July 15, 2006.  Thereafter, the Senior Notes may be redeemedat face value.  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%. The Senior Notes are fully andunconditionally guaranteed, on a joint and several basis, on an unsecuredsenior basis, by all of the Company’s subsidiaries. In July 2001, the Companyretired $14.7 million of the Senior Notes with a portion of the proceeds fromthe Brinker Sale.  An extraordinary gainof $1.3 million, net of a $1.0 million tax liability was recorded which isdepicted in the Consolidated Statement of Operations net.  The Senior Notes contain no financialcovenants and the Company is in compliance with all non-financial covenants asof January 1, 2003.

 

The indenture governing the Senior Notes requires theuse of proceeds from an asset sale within one year of the transaction date(April 12, 2002 for the Brinker Sale) and defines the acceptable uses,including repurchase of debt or investment in assets. The Company believesit has met the terms of the indenture for use of Brinker Sale proceeds.

 

(7)                                  COMMITMENTSAND CONTINGENCIES

 

*Letterof Credit Facility*

 

During July 2001, the Company established a $3.0million (maximum) Letter of Credit Facility.  As of January 1, 2003, thisfacility is collateralized with $2.5 million of cash restricted from generaluse.  Letters of Credit totaling$2,462,000 were outstanding on January 1, 2003.

 

*OperatingLeases*

 

The Company has entered into numerous leasearrangements, primarily for restaurant land, equipment and buildings, which arenon-cancelable and expire on various dates through 2027.

 

Some operating leases contain rent escalation clauseswhereby the rent payments increase over the term of the lease. Rent expenseincludes base rent amounts, percentage rent payable periodically, as defined ineach lease, and rent expense accrued to recognize lease escalation provisionson a straight-line basis over the lease term. Rent expense recognized inoperating expenses in the accompanying consolidated statements of income wasapproximately $11.4 million, $12.1 million, and $15.1 million for the yearsended January 1, 2003, January 2, 2002, and January 3, 2001, respectively. Theannual difference of accrued rent versus amounts paid is classified as deferredrent in the accompanying consolidated statements of operations and thecumulative difference is included in other long-term liabilities in theaccompanying consolidated balance sheets. Certain leases require the payment ofan additional amount, calculated as a percentage of annual sales, as defined inthe lease agreement, which exceeds annual minimum rentals. The percentage rentfactors generally range from 3% to 6% of sales. Percentage rent expense was$260,000 for fiscal 2002.

 

Future minimum rental payments due under allnon-cancelable operating leases as of January 1, 2003 are as follows (dollarsin thousands):

 

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| **Year-**  |   |   |    |
|------------|--------|--------|---------|
| 2003       |   | $      | 13,660  |   |
| 2004       |   | 13,727 |    |
| 2005       |   | 12,995 |    |
| 2006       |   | 12,544 |    |
| 2007       |   | 11,013 |    |
| Thereafter |   | 54,159 |    |
|       |   | $      | 118,098 |   |

 

*Contingencies*

 

The Company is subject to various legal proceedingsthat arise in the ordinary course of business. Based on consultation with theCompany’s legal counsel, management believes that the amount of ultimateliability with respect to these actions will not be material to the financialposition or results of operations of the Company.

 

(8)                                  RELATEDPARTIES

 

Under the terms of a financial services agreement, thestockholders have consented to the payment of an ongoing financial consultingfee to Jacobson Partners, Limited Partnership (‘‘Jacobson Partners’’), astockholder of the corporation. The amounts paid to Jacobson Partners forfinancial consulting fees were $250,000, $250,000, and $625,000 for the yearsended January 1, 2003, January 2, 2002, and January 3, 2001, respectively, andare included in general and administrative expenses in the accompanyingconsolidated statements of operations. In addition, during fiscal 2001,Jacobson Partners was paid $750,000 for consulting fees associated withconsummating the Brinker Sale.

 

Prior to the termination of the NE Restaurant 401(k)Plan, two officers of the Company were also the NE Restaurant 401(k) Plan’strustees.

 

In February 2002, the Company extended loans to 14members of Management (including eight officers).  The demand notes were interest bearing at 8%, payable quarterly.The demand notes totaled $157,000 at January 1, 2003 and were all paid in fullwith accrued interest as of February 13, 2003.

 

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

 

The Company maintains a defined contribution planknown as the Bertucci’s 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. Matching contributions made by the Company for the years endedJanuary 1, 2003, January 2, 2002, and January 3, 2001 were approximately$27,000, $31,000, and $138,000, respectively.

 

During 1999, the Company established the Bertucci’sCorporation, Inc. Executive Savings and Investment Plan to which highlycompensated executives of the Company may elect to defer a portion of their salaryand or earned bonus. The Company maintains an irrevocable grantor trust whichhas been established by the Company, as grantor, pursuant to the Scudder KemperInvestments nonqualified 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 nonqualified 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 1, 2003, there were 18 participants in the plan with atotal market value of approximately $316,000. The assets of the trust, $316,000at January 1, 2003, are included in other assets in the consolidated balancesheet. A corresponding liability is included in other long term liabilities.

 

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(10)                            STOCKOPTION PLAN

 

On September 15, 1997, the Board of Directors of theCompany established the 1997 Equity Incentive Plan, which included anonqualified stock option plan (the “Option Plan”), for certain key employeesand directors. The Option Plan is administered by the Board of Directors of theCompany and may be modified or amended by the Board of Directors in anyrespect. As of January 1, 2003 there are 97,451 authorized shares remainingunder the Option Plan.

 

The options are exercisable 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 Option Plan activity for the yearsended January 1, 2003, January 2, 2002, and January 3, 2001 is presented in thetable and narrative below.

 
|                                                |   | **2002**       |   | **2001**                                 |   | **2000**       |    |
|-----------------------------------------------------|--------|----------------|--------|------------------------------------------|--------|----------------|---------|
|                                                |   | **Shares**     |   | **Weighted  Average  Exercise****Price** |   | **Shares**     |    | **Weighted  Average  Exercise  Price** |   | **Shares** |   | **Weighted  Average  Exercise  Price** |   |
| Outstanding at  beginning of year                   |   | 713,973        |   | $                                        | 15.19  |           | 451,251 |   | $ | 13.01 |   | 414,642 |   | $ | 12.84 |   |
| Granted                                             |   | 26,000         |   | $                                        | 17.51  |           | 332,500 |   | $ | 17.50 |   | 199,750 |   | $ | 13.37 |   |
| Forfeited                                           |   | (87,424        | )      | $                                        | (13.38 | )              | (69,778 | ) | $ | (12.09 | ) | (163,141 | ) | $ | (13.02 | ) |
| Outstanding at  end of year                         |   | 652,549        |   | $                                        | 15.44  |           | 713,973 |   | $ | 15.19 |   | 451,251 |   | $ | 13.01 |   |
|                                                |   |           |   |                                     |   |           |    |   |   |   |   |   |   |
| Exercisable at  end of year                         |   | 322,714        |   | $                                        | 14.28  |           | 169,775 |   | $ | 12.24 |   | 131,899 |   | $ | 13.06 |   |
|                                                |   |           |   |                                     |   |           |    |   |   |   |   |   |   |
| Range of  Exercise Price per share                  |   | $9.22 - $17.51 |   | $9.22 - $17.51                           |   | $9.22 - $17.51 |    |
| Weighted average  fair value of each option granted |   |           |   | $                                        | 3.53   |           |    |   | $ | 3.81 |   |   |   | $ | 3.53 |   |

 

The 652,549 options outstanding at January 1, 2003have a remaining weighted average contractual life of approximately sevenyears. Options granted under the Stock Option Plan to date expire 90 daysfollowing either the fifth or the tenth anniversary of the date of the grant.There were no options exercised during the last three fiscal years.

 

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes option pricing model with thefollowing assumptions used for grants in 2002: weighted average risk-freeinterest rates of 4.50%, weighted average expected lives of five years andexpected volatility of 0%.  The weightedaverage risk-free interest rates used were 4.91% for 2001 and 6.31% for 2000with the same assumptions used for expected lives and volatility.

 

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(11)                            QUARTERLYRESULTS (UNAUDITED)

 

BERTUCCI’SCORPORATION

 

(Dollars inthousands except share and per share data)

 
|                                                                   |   | **Quarter 1  April 3,  2002** |   | **Quarter 2  July 3,  2002** |   | **Quarter 3  October 2,  2002** |   | **Quarter 4  January 1,  2003** |   | **Year  January 1,  2003** |   |
|------------------------------------------------------------------------|--------|-------------------------------|--------|------------------------------|--------|---------------------------------|--------|---------------------------------|--------|----------------------------|--------|
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Net sales                                                              |   | $                             | 36,683 |                         | $      | 41,307                          |   | $                               | 41,664 |                       | $      | 42,665 |   | $ | 162,319 |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Cost of sales  and expenses                                            |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Cost of sales                                                          |   | 8,323                         |   | 9,351                        |   | 8,953                           |   | 9,040                           |   | 35,667                     |   |
| Operating  expenses                                                    |   | 21,445                        |   | 25,267                       |   | 24,973                          |   | 24,728                          |   | 96,413                     |   |
| General and  administrative expenses                                   |   | 2,993                         |   | 3,049                        |   | 3,070                           |   | 3,012                           |   | 12,124                     |   |
| Closed  restaurant expenses                                            |   | —                        |   | 175                          |   | 61                              |   | —                          |   | 236                        |   |
| Deferred rent,  depreciation, amortization and preopening expenses (1) |   | 2,304                         |   | 2,594                        |   | 3,153                           |   | 2,682                           |   | 10,733                     |   |
| Cost of sales  and expenses                                            |   | 35,065                        |   | 40,436                       |   | 40,210                          |   | 39,462                          |   | 155,173                    |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Income from  operations                                                |   | 1,618                         |   | 871                          |   | 1,454                           |   | 3,203                           |   | 7,146                      |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Interest  expense, net (1)                                             |   | (2,397                        | )      | (2,391                       | )      | (2,447                          | )      | (2,352                          | )      | (9,587                     | )      |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| (Loss)  income  before income tax (benefit)  provision            |   | (779                          | )      | (1,520                       | )      | (993                            | )      | 851                             |   | (2,441                     | )      |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Income tax  (benefit) provision (2)                                    |   | (273                          | )      | (532                         | )      | (347                            | )      | 3,849                           |   | 2,697                      |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Net loss                                                               |   | $                             | (506   | )                            | $      | (988                            | )      | $                               | (646   | )                          | $      | (2,998 | ) | $ | (5,138 | ) |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Basic and  diluted loss per share                                      |   | $                             | (0.17  | )                            | $      | (0.33                           | )      | $                               | (0.22  | )                          | $      | (1.01 | ) | $ | (1.72 | ) |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Basic and diluted  weighted average shares outstanding                 |   | 2,978,955                     |   | 2,978,955                    |   | 2,978,955                       |   | 2,978,955                       |   | 2,978,955                  |   |

 

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BERTUCCI’SCORPORATION

(Dollars inthousands except share and per share data)

 
|                                                                   |   | **Quarter 1  April 4,  2001** |   | **Quarter 2  July 4,  2001** |   | **Quarter 3  October 3,  2001** |   | **Quarter 4  January 2,  2001** |   | **Year  January 2,  2001** |   |
|------------------------------------------------------------------------|--------|-------------------------------|--------|------------------------------|--------|---------------------------------|--------|---------------------------------|--------|----------------------------|--------|
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Net sales                                                              |   | $                             | 69,813 |                         | $      | 41,013                          |   | $                               | 37,806 |                       | $      | 38,006 |   | $ | 186,638 |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Cost of sales  and expenses                                            |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Cost of sales                                                          |   | 18,069                        |   | 9,801                        |   | 8,381                           |   | 8,604                           |   | 44,855                     |   |
| Operating  expenses                                                    |   | 40,466                        |   | 25,225                       |   | 23,032                          |   | 23,072                          |   | 111,795                    |   |
| General and  administrative expenses                                   |   | 3,809                         |   | 2,830                        |   | 2,716                           |   | 3,193                           |   | 12,548                     |   |
| Closed  restaurant expenses                                            |   | —                        |   | 250                          |   | 3,950                           |   | —                          |   | 4,200                      |   |
| Asset impairment  charge                                               |   | —                        |   | —                       |   | 1,800                           |   | —                          |   | 1,800                      |   |
| Deferred rent,  depreciation, amortization and preopening expenses (1) |   | 4,279                         |   | 3,184                        |   | 3,080                           |   | 2,599                           |   | 13,142                     |   |
| Cost of sales  and expenses                                            |   | 66,623                        |   | 41,290                       |   | 42,959                          |   | 37,468                          |   | 188,340                    |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Income (loss)  from operations                                         |   | 3,190                         |   | (277                         | )      | (5,153                          | )      | 538                             |   | (1,702                     | )      |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Gain on Brinker  Sale                                                  |   | —                        |   | 37,432                       |   | (500                            | )      | —                          |   | 36,932                     |   |
| Interest  expense, net (1)                                             |   | (3,977                        | )      | (2,709                       | )      | (2,663                          | )      | (2,016                          | )      | (11,365                    | )      |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| (Loss) income  before income tax (benefit) provision                   |   | (787                          | )      | 34,446                       |   | (8,316                          | )      | (1,478                          | )      | 23,865                     |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Income tax  (benefit) provision                                        |   | (132                          | )      | 14,068                       |   | (3,287                          | )      | (406                            | )      | 10,243                     |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Net (loss)  income before extraordinary item                           |   | (655                          | )      | 20,378                       |   | (5,029                          | )      | (1,072                          | )      | 13,622                     |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Gain on  retirement of Senior Notes, net of tax                        |   | —                        |   | —                       |   | 1,338                           |   | —                          |   | 1,338                      |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Net (loss)  income                                                     |   | $                             | (655   | )                            | $      | 20,378                          |   | $                               | (3,691 | )                          | $      | (1,072 | ) | $ | 14,960 |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Basic (loss)  income per share before extraordinary item               |   | $                             | (0.22  | )                            | $      | 6.84                            |   | $                               | (1.69  | )                          | $      | (0.36 | ) | $ | 4.57 |   |
| Gain on  retirement of Senior Notes, net of tax                        |   | —                        |   | —                       |   | 0.45                            |   | —                          |   | 0.45                       |   |
| Basic income  (loss) per share                                         |   | $                             | (0.22  | )                            | $      | 6.84                            |   | $                               | (1.24  | )                          | $      | (0.36 | ) | $ | 5.02 |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Basic weighted  average shares outstanding                             |   | 2,978,955                     |   | 2,978,955                    |   | 2,978,955                       |   | 2,978,955                       |   | 2,978,955                  |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Diluted (loss)  income per share before extraordinary item             |   | $                             | (0.22  | )                            | $      | 6.27                            |   | $                               | (1.69  | )                          | $      | (0.36 | ) | $ | 4.19 |   |
| Gain on  retirement of Senior Notes, net of tax                        |   | —                        |   | —                       |   | 0.41                            |   | —                          |   | 0.41                       |   |
| Diluted income  (loss) per share                                       |   | $                             | (0.22  | )                            | $      | 6.27                            |   | $                               | (1.28  | )                          | $      | (0.36 | ) | $ | 4.60 |   |
|                                                                   |   |                          |   |                         |   |                            |   |                            |   |                       |   |
| Diluted weighted  average shares outstanding                           |   | 2,978,955                     |   | 3,252,605                    |   | 2,978,955                       |   | 2,978,955                       |   | 3,252,605                  |   |

 

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(1)                   Reflectreclassifications of amounts from those presented in Form 10-Q filed with theSecurities and Exchange Commission.

 

(2)                   During thefourth quarter ended January 1, 2003 the Company recorded a valuation allowanceof $4.1 million associated with its deferred tax assets.

 

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