** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

**FORM 10-K**

 

| **ý** | **Annual report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934 (Fee required)** |
|------------|----------------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December31, 2001**

**or**

 

| **o** | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934 (No fee required)** |
|-------|-----------------------------------------------------------------------------------------------------------------|

 

**For the transition period from           to           .**

 

**Commission file number:     33-48183**

 

**AmericanRestaurant Group, Inc**

Exact Name of Registrant as Specified in Its Charter

 

| **Delaware**                                               |   | **33-0193602**       |
|------------------------------------------------------------|--------|----------------------|
| (State or Other  Jurisdiction of                           |   | (I.R.S. Employer     |
| Incorporation or  Organization)                            |   | Identification  No.) |
|                                                       |   |                 |
| **4410  El Camino Real - Suite 201**                       |   |                 |
| **Los  Altos, California**                                 |   | **94022**            |
| (Address of  Principal Executive Offices)                  |   | (Zip Code)           |
|                                                       |   |                 |
| **(650)  949-6400**                                        |
| (Registrant’s  Telephone Number, Including Area Code) |

 

Securities registered pursuant to Section 12(b) of theAct:

 

|   |                    | **Name of Each Exchange** |
|--------|-------------------------|---------------------------|
|   | **Title of Each Class** |                      |   |   | **on Which Registered** |   |
| None   |                    | None                      |
|        |                         |                           |  |  |  |  |

 

Securities registered pursuant to Section 12(g) of theAct:  **None**

 

Indicate by a check markwhether the registrant:  (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.      Yes         ý     No         o

 

Indicate by a check markif disclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of theregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part II of this Form 10-K or any amendments tothis Form 10-K.  ý

 

The number of outstandingshares of the Registrant’s Common Stock (one cent par value) as of March 4,2001, was 128,081.

 

 

**AMERICANRESTAURANT GROUP, INC.**

 

**INDEX**

 
| **PART I**   |                                                                                        |
|--------------|---------------------------------------------------------------------------------------------|
|         |                                                                                        |
| ITEM 1.      | BUSINESS                                                                                    |
|         |                                                                                        |
| ITEM 2.      | PROPERTIES                                                                                  |
|         |                                                                                        |
| ITEM 3.      | LEGAL PROCEEDINGS                                                                           |
|         |                                                                                        |
| ITEM  4.     | SUBMISSION  OF MATTERS TO A VOTE OF SECURITYHOLDERS                                         |
|         |                                                                                        |
|         |                                                                                        |
| **PART II**  |                                                                                        |
|         |                                                                                        |
| ITEM  5.     | MARKET  FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |
|         |                                                                                        |
|         |                                                                                        |
| ITEM 6.      | SELECTED FINANCIAL  DATA                                                                    |
|         |                                                                                        |
| ITEM 7.      | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|         |                                                                                        |
| ITEM  8.     | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                |
|         |                                                                                        |
| ITEM 9.      | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  ON ACCOUNTING AND FINANCIAL DISCLOSURE       |
|         |                                                                                        |
|         |                                                                                        |
| **PART III** |                                                                                        |
|         |                                                                                        |
| ITEM  10.    | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                         |
|         |                                                                                        |
| ITEM 11.     | EXECUTIVE COMPENSATION                                                                      |
|         |                                                                                        |
| ITEM  12.    | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                             |
|         |                                                                                        |
| ITEM  13.    | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                             |
|         |                                                                                        |
|         |                                                                                        |
| **PART IV**  |                                                                                        |
|         |                                                                                        |
| ITEM  14.    | EXHIBITS,  FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K                         |

 

 

i

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**PARTI**

 
| **ITEM  1.** |   | **BUSINESS** |
|--------------|--------|--------------|

 

**Introduction**

 

The Company,through its subsidiaries, competes predominately in the midscale segment of theUnited States restaurant industry. (References to “the Company,” “we,” “us,”and “our” refer to American Restaurant Group, Inc., a Delaware corporation.)The Company was formed on August 13, 1986 to acquire certain operations of SagaCorporation, a wholly owned subsidiary of Marriott Corporation (the“Acquisition”). The Acquisition was completed in February 1987.  (Prior to the completion of the Acquisition,the Company had no significant operations.) The Company is a subsidiary of American Restaurant Group Holdings, Inc.,a Delaware corporation (“Holdings”).

 

As of December 31,2001, the Company had three wholly owned direct subsidiaries: ARG Enterprises,Inc., ARG Property Management Corporation, and ARG Terra, Inc. ARG Enterprises,Inc. is the parent to one wholly owned subsidiary, Black Angus Enterprises ofIdaho, Inc.

 

The only operatingsegment is Black Angus, which operates a western-style steakhouse specializingin steak and prime rib.  We previouslyoperated various restaurant chains. In June 2000, however, we sold all of thestock (the “Stock Sale”) of four wholly owned subsidiaries (Grandy’s, Inc.,Spoons Restaurants. Inc., Spectrum Foods, Inc., and Local Favorite, Inc.,collectively, the “Non-Black Angus Subsidiaries”) to Spectrum Restaurant Group,Inc. (formerly known as NBACo, Inc.; see discussion below in Item 7,“Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” in the segment captioned “Net Income (Loss) from DiscontinuedOperations” and in Item 13, “Certain Relationships and Related Transactions”).

 

**Overview**

 

As of December 31,2001, Black Angus operated 107 Stuart Anderson’s Black Angus and StuartAnderson’s Cattle Company steakhouses located primarily in California, thePacific Northwest, and Arizona.  Thechain was founded in Seattle in 1964. Black Angus restaurants are typically located in highly visible andheavily traveled areas in or near retail and commercial businesses.  The restaurants are freestanding and rangein size from 6,500 to 12,000 square feet, seating approximately 220 to 350customers.  Black Angus restaurants aredistinctly Western in their design and feature booth seating for dining. Theyare generally open for lunch from 11:30 a.m. to 4:00 p.m. and for dinner from4:00 p.m. to 10:00 p.m.

 

Black Angusdeveloped a new restaurant prototype in 1995. This new prototype is smaller,approximately 6,500 square feet, and offers the same number of dining seats asthe larger restaurants. Black Angus opened 20 restaurants using the newprototype, including 7 in the fiscal years 2000 and 2001.  We intend to continue to expand Black Angususing the new prototype in existing and adjacent markets.

 

1

----

 

**Restaurant Operations**

 

Black Angus isorganized functionally with separate operations, marketing, accounting,finance/treasury, real estate/risk management, human resources/payroll, andlegal departments.

 

The Company’s cashmanagement system is highly sophisticated with controls down to the serverlevel.  Restaurants are required to makedaily deposits of cash, and the Company uses a centralized cash-concentrationsystem that sweeps all of its major cash accounts on a daily basis. The centralaccounts payable and check-writing system profiles approximately 6,400 vendors.

 

We use acombination of in-house and outside-contracted services for our managementinformation system needs.  In-housesystems include a point-of-sale system for each restaurant and stand-alonecomputing at the restaurant and corporate levels.  We contract for payroll services and for mainframe-based dataprocessing.

 

Each restaurant isstaffed with a General Manager who is directly responsible for the operation ofthe restaurant, including product quality, cleanliness, service, inventory,cash control, and the appearance and conduct of employees. Each restaurant alsohas one or two restaurant Managers and a Chef. Managers and supervisorypersonnel train other restaurant employees in accordance with detailedprocedures and guidelines.

 

General Managersare supervised by District Managers, each of whom is responsible forapproximately seven restaurants. District Managers, General Managers, Managers, and Chefs are eligiblefor bonuses under an extra-compensation program that has goals and objectivesbased on the profitability, sales, and other factors relating to therestaurants.  However, issuance of allbonuses or incentive pay is at management's discretion.

 

**Purchasing and Distribution**

 

To ensurestandards of quality and to maximize pricing efficiencies, a central purchasingdepartment coordinates the supply of almost all restaurant items.  We purchase products throughout the UnitedStates and abroad through agreements with various food-service vendors.  None of our vendors supplies the Companyexclusively and no material agreements exist. We routinely uses public, cold-storage facilities and makes short-termcommitments in order to establish the availability and price of key food itemssuch as beef and seafood.  Weconcentrate our distribution in order to achieve more favorable terms, butbelieve that we could replace any distributor, if necessary, on a timely basis.

 

**Competition and Markets**

 

All aspects of therestaurant business are highly competitive. Price, restaurant location, food quality, service, and attractiveness offacilities are important aspects of competition. The competitive environment isoften affected by factors beyond a particular restaurant management’s control,including changes in the public’s taste and eating habits, population andtraffic patterns, economic conditions, and changes in the politicalenvironment.  Our restaurants competewith a wide variety of restaurants, ranging from national and regionalrestaurant chains to locally owned restaurants. Competition from otherrestaurant chains typically represents the more important competitiveinfluence, principally because of their significant marketing and financialresources.  Many of our competitors havesubstantially greater financial, marketing, personnel, and other resources thanus.  In addition, competition is notlimited to a particular segment of the restaurant industry because fast-foodrestaurants, steakhouses, and casual-dining restaurants are all competing forthe consumer’s dining dollars.  Webelieve that our principal competitive strengths lie in the distinctiveatmosphere and food presentation offered; the value, variety, and quality offood products served; the quality and training of our employees; the experienceand ability of management; and the economies of scale enjoyed by us because ofour size and geographic concentration. We monitor consumer tastes and adjust and update our menus accordingly.

 

2

----

 

**Employees**

 

At December 31,2001, we employed approximately 7,400 persons, of whom approximately 6,850 werehourly employees in restaurants, approximately 460 were salaried employees inrestaurants (Managers and Chefs), and approximately 90 were hourly and salariedemployees in divisional and corporate management and administration.Approximately 65% of the hourly restaurant employees work on a part-time basis(25 hours or less per week).  Nofacility is unionized.  We believe weprovide competitive compensation and benefits to our employees and that ouremployee relations are good.

 

**Regulations**

 

Each restaurant issubject to licensing and regulation by state and local health, sanitation,safety, fire, and other departments.  Inaddition, each restaurant is subject to licensing with respect to the sale ofalcoholic beverages.  The loss oflicenses or permits by our restaurants to sell alcohol would interrupt orterminate our ability to serve alcoholic beverages at those restaurants and, ifa significant number of restaurants were affected, could have a materialadverse effect on us.  We believe wehave good relations with the various alcoholic beverage authorities.

 

We are subject tothe Fair Labor Standards Act and various state laws governing such matters asminimum wages, overtime, and other working conditions. Many of our restaurantemployees are paid at rates related to the Federal and state minimum-wagerates.  Accordingly, increases in theminimum wages increase our labor costs.

 

**Service Marks**

 

We regard ourservice marks and trademarks as important to the identification of ourrestaurants and believe they have significant value in the conduct of ourbusiness. We have registered various service marks and trademarks with theUnited States Patent and Trademark Office. In addition, we have registered certain marks in various foreigncountries.

 

**Seasonality**

 

Our restaurantrevenues and profitability are not subject to significant seasonalfluctuations.

 

3

----

 

 
| **ITEM 2.** |   | **PROPERTIES** |
|-------------|--------|----------------|

 

The followingtable sets forth, as of December 31, 2001, the number of properties owned orleased by the Company:

 
|                     |   | **Lease Land  and Own  Building** |   | **Lease Land  and  Building** |   | **Total** |   |
|--------------------------|--------|-----------------------------------|--------|-------------------------------|--------|-----------|--------|
| Operated  by the Company |   | 33                                |   | 74                            |   | 107       |   |

 

All but one of ourrestaurants are freestanding and range from approximately 6,500 to 12,000square feet. Most of our restaurant leases provide for the payment of thegreater of a set base rental or a percentage rental of up to 6% of grossrevenues, plus real estate taxes, insurance, and other expenses.

 

We lease officespace for our corporate and Black Angus headquarters in Los Altos,California.  We also lease office spacein Santa Ana, California.

 

The followingtable sets forth, as of December 31, 2001, the number of Black Angusrestaurants by state of operation:

 

| California |   | 57  |   |
|------------|--------|-----|--------|
| Arizona    |   | 11  |   |
| Washington |   | 11  |   |
| Minnesota  |   | 6   |   |
| Colorado   |   | 5   |   |
| Indiana    |   | 3   |   |
| Nevada     |   | 3   |   |
| Oregon     |   | 3   |   |
| Utah       |   | 3   |   |
| Hawaii     |   | 2   |   |
| Alaska     |   | 1   |   |
| Idaho      |   | 1   |   |
| New Mexico |   | 1   |   |
| Total      |   | 107 |   |

 

4

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**ITEM3.****                                                                            LEGALPROCEEDINGS**

** **

We are involved invarious litigation matters incidental to our business, including claims arisingout of personal injuries, employment practices, workers’ compensation cases,and contract lawsuits.  The claimssometimes assert substantial damages. Based on information presently available,management does not believe that the outcome of such litigation will have amaterial adverse effect on our financial position, business, or results ofoperations.

 

**ITEM 4                                    SUBMISSIONOF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

No matters weresubmitted to a vote of the common stockholders of the Company in the fourthquarter of 2001.

 

The holders of ourpreferred stock consented in the fourth quarter of 2001 to amend the terms ofthe preferred stock.  The amendments (a)provide that if we do not redeem the preferred stock for cash on August 15,2003 in accordance with its terms, the preferred stock will be automaticallyredeemed for shares of our common stock at that time and all the rights of thepreferred stock will terminate, including any rights of acceleration; (b)eliminate provisions that allow the holders to exchange preferred stock for newsubordinate debt; and (c) modify the covenants of the preferred stock so thatthey are substantially similar to the covenants under the New Notes issued aspart of the Refinancing (described below in Item 7 in the segment captioned“Liquidity and Capital Resources”).

 

**PARTII**

 
| **ITEM 5.**

  |   | **MARKET FOR REGISTRANT’S COMMON  EQUITY AND RELATED STOCKHOLDER MATTERS** |
|---------------------|--------|---------------------------------------------------------------------------------|

 

**Common Stock**

 

As of December 31,2001, there were five holders of record of the 128,081 outstanding shares ofthe Company’s common stock. We have never paid dividends to common stockholdersand have no plans to do so.  There iscurrently no market for the Company’s common stock, nor is such anticipated inthe near future.

 

**Cumulative Preferred Stock,Mandatorily Redeemable**

 

As of December 31,2001, there were five holders of record of the 58,883 outstanding shares of ourmandatorily redeemable 12% senior pay-in-kind exchangeable preferredstock.  Dividends accrue at a rate of12% to 15% per annum, payable semiannually on February 15 and August 15 of eachyear.  We may, at our option, pay dividendsin cash or in additional shares of cumulative preferred stock.

 

As part of arecapitalization plan in February 1998, we issued 35,000 preferred stock units(the “Units”) of the Company.  Each Unitconsists of $1,000 initial liquidation preference of 12% senior pay-in-kindexchangeable preferred stock and one common-stock purchase warrant with rightsto purchase 2.66143 shares of the common stock at an initial exercise price ofone cent per share.  Our preferred stockis mandatorily redeemable on August 15, 2003. If on August 15, 2003 we do not redeem our preferred stock for cash at aprice per share equal to 110% of the then-applicable liquidation preference,our preferred stock will be automatically redeemed for shares of our commonstock at that time. Management believes that the preferred stock will convertto common stock.

 

In the secondquarter of 2000, we agreed to an interpretation of the financial covenants usedto determine the dividend rate of our preferred stock.  The result was an increase in the dividendrate from 12% to 15% and additional dividends issued on August 15, 2000 of2,503 shares (relating to holders at August 1999 and February 2000). Stockdividends of 5,872 (including the adjustment), 3,618 shares, 3,889 shares, and4,181 shares were made on August 15, 2000, February 15, 2001, August 15, 2001,and February 15, 2002, respectively. There were 58,883 shares of preferred stock outstanding and accrued atDecember 31, 2001. There is currently no market for our preferred stock, nor issuch anticipated in the near future.

 

5

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| **ITEM  6.** |   | **SELECTED  FINANCIAL DATA** |
|--------------|--------|------------------------------|

 

The followingselected historical consolidated financial data for the fiscal year-end 2001and each of the four prior fiscal years is derived from the auditedconsolidated financial statements of the Company, and should be read inconjunction with Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” and the consolidated financial statementsand notes thereto included elsewhere in this Form 10-K.

 
|                                                                                 |   | **Fiscal  Year ended** |       |
|--------------------------------------------------------------------------------------|--------|------------------------|------------|
|                                                                                 |   | **Dec. 29,**

**1997** |       | **Dec. 28,**

**1998** |   | **Dec. 27,**

**1999** |   | **Dec. 25,**

**2000** |   | **Dec. 31,**

**2001(1)** |   |
|                                                                                 |
|                                                                                 |   |                   | ** ** | **(dollars in thousands)** |   |   |   |
| INCOME  STATEMENT DATA:                                                              |   |                   |       |   |   |   |   |   |   |   |   |
| REVENUES:                                                                            |   | $                      | 264,175    |   | $ | 265,536 |   | $ | 263,561 |   | $ | 299,822 |   | $ | 302,160 |   |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| RESTAURANT  COSTS:                                                                   |   |                   |       |   |   |   |   |   |   |   |   |
| Food  and beverage                                                                   |   | 89,103                 |       | 89,521 |   | 88,110 |   | 103,339 |   | 100,982 |   |
| Payroll                                                                              |   | 73,819                 |       | 74,912 |   | 75,114 |   | 82,818 |   | 87,921 |   |
| Direct  operating                                                                    |   | 65,010                 |       | 63,260 |   | 63,033 |   | 69,721 |   | 74,323 |   |
| Depreciation  and amortization                                                       |   | 14,975                 |       | 10,115 |   | 9,396 |   | 9,554 |   | 8,731 |   |
| Total  restaurant costs.                                                             |   | 242,907                |       | 237,808 |   | 235,653 |   | 265,432 |   | 271,957 |   |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| General  and administrative expenses                                                 |   | 16,891                 |       | 11,780 |   | 11,975 |   | 11,108 |   | 10,417 |   |
| Costs  of Note exchange                                                              |   | —                 |       | — |   | — |   | — |   | 5,496 |   |
| Non-cash  charges for impairment of assets                                           |   | 2,283                  |       | 149 |   | 459 |   | — |   | — |   |
| Closed  restaurant concepts(2)                                                       |   | (258                   | )          | — |   | — |   | — |   | — |   |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| Operating  profit                                                                    |   | 1,836                  |       | 15,799 |   | 15,474 |   | 23,282 |   | 14,290 |   |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| Interest  expense, net                                                               |   | 23,985                 |       | 20,269 |   | 19,450 |   | 19,036 |   | 17,825 |   |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| Income/(loss)  from continuing operations(3)                                         |   | $                      | (22,179    | ) | $ | (4,537 | ) | $ | (4,046 | ) | $ | 4,061 |   | $ | (3,605 | ) |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| Income/(loss)  from discontinued operations(4)                                       |   | $                      | 1,887      |   | $ | (4,879 | ) | $ | (1,622 | ) | $ | 3,474 |   | — |   |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| Extraordinary  gain /(loss) on the extinguishment of debt from continuing operations |   | —                 |       | 9,559 |   | — |   | (473 | ) | (435 | ) |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| Net  income/(loss)                                                                   |   | $                      | (20,292    | ) | $ | 143 |   | $ | (5,668 | ) | $ | 7,062 |   | $ | (4,040 | ) |
|                                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| BALANCE  SHEET DATA:                                                                 |   |                   |       |   |   |   |   |   |   |   |   |
| Property  and equipment, net from continuing operations                              |   | $                      | 49,793     |   | $ | 51,147 |   | $ | 51,468 |   | $ | 53,370 |   | $ | 51,103 |   |
| Total  assets                                                                        |   | 152,011                |       | 150,459 |   | 142,729 |   | 89,575 |   | 89,704 |   |
| Net  long-term obligations, including current portion                                |   | 178,368                |       | 164,816 |   | 164,712 |   | 147,799 |   | 160,269 |   |
| Preferred  stock, net                                                                |   | —                 |       | 36,081 |   | 41,914 |   | 49,891 |   | 58,219 |   |
| Common  stockholders’ (deficit)                                                 |   | (111,738               | )          | (119,175 | ) | (129,957 | ) | (157,659 | ) | (170,208 | ) |

 

----

(1)                                  The year ended December 31, 2001 included53 weeks.

(2)                                  Includes operations associated withVelvet Turtle restaurants, the last of which was closed in February 1997.

(3)                                  Continuing operations is defined asAmerican Restaurant Group, Inc. and its current subsidiaries, excluding theNon-Black Angus Subsidiaries, and excludes the provision for income taxes.

(4)                                  Discontinued operations refers to theNon-Black Angus Subsidiaries.

 

6

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**ITEM7.****                                                    MANAGEMENT’SDISCUSSION AND ANALYSIS**

**                                                                                OFFINANCIAL CONDITION AND**

**                                                                                     RESULTSOF OPERATIONS**

 

**Results of Continuing Operations**

 

*Fiscal Years Ended December 27,1999, December 25, 2000, and December 31, 2001:*

 

*Revenues*. Black Angus revenues were $263.6million in 1999, increased 13.8% to $299.8 million in 2000, and increased 0.8%to $302.2 million in 2001.  The increasein 2000 was the result of strong same-store sales and strong new-store performance.Same-store sales increased 11.4% in 2000, and the new restaurants contributed2.4% to the total sales increase. The increase in 2001 was driven entirely bythe seven new restaurants that opened in 2000 and 2001.  Same-store sales declined 4.1% (excludingthe effect of the 53rd week) in 2001 with the 100% of the decline in the thirdand fourth quarters.  The 100 comparablerestaurants declined 8.7% (excluding the effect of the 53rd week) in the secondhalf of 2000, as a result of three major factors: (1) the magnitude of theincrease (14.6%) in the second half of 2000 made same-store sales comparisonsextremely difficult; (2) the general economic softness during the second halfof 2001; and (3) the general decline in consumer dining following the terroristevents of September 11, 2001.  Therewere 102, 105, and 107 restaurants operating at the end of 1999, 2000, and2001, respectively.

 

*Food and Beverage Costs*. As a percentage of revenues, food and beverage costs were 33.4% in 1999,increased to 34.5% in 2000, and then decreased to 33.4% in 2001.  The increase in 2000 relates primarily tohigher meat and seafood costs.  Thedecrease in 2001 relates primarily to savings from the cutting of steaks ateach restaurant and favorable meat prices, especially in the fourth quarter.

 

*Payroll Costs*.  As a percentage of revenues, labor costs were 28.5% in 1999,decreased to 27.6% in 2000, and then increased to 29.1% in 2001. The decreasein 2000 is primarily from leveraging the fixed cost of labor component over ahigher Black Angus sales base.  The increasein 2001 is primarily a result of the difficulty in balancing our projections ofunit staff levels necessary to maintain our high level of customer serviceagainst the unpredictable and volatile revenue shifts following the terroristevents of September 11, 2001, as well as increases in Federal and stateminimum-wage rates.  Also, to improvecustomer service, we reduced the number of assigned tables per food server.

 

*Direct Operating Costs.* Direct operating costs consist of occupancy, advertising, and otherexpenses incurred by individual restaurants. As a percentage of revenues, these costs were 23.9% in 1999, 23.3% in2000, and 24.6% in 2001.  The increasein 2001 relates primarily to a one time revision to our estimates of unredeemedgift certificates ($1.2 million), increased utility expenses ($1.3 million),primarily in California, and repair-and-maintenance expenses related toenergy-conservation measures ($500,000) that were implemented by the Company in2001 to combat the rising utility costs.

 

*Depreciation and Amortization.* Depreciation and amortization consists of depreciation of fixed assetsused by individual restaurants and at the Black Angus and corporate offices, aswell as amortization of intangible assets. As a percentage of revenues, depreciation and amortization was 3.6% in1999, decreased to 3.2% in 2000, and decreased to 2.9% in 2001.  The decrease in 2000 relates primarily tocorporate assets not retained by us pursuant to the Stock Sale and leveragingcosts over a higher sales base.  Thedecrease in 2001 relates primarily to an $800,000 reduction in amortization inconnection with the $16 million principal paydown of Old Notes (described belowin this Item 7 in the segment captioned "Liquidity and CapitalResources") in December 2000.

 

7

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*General and Administrative Expenses.* General and administrative expenses as a percentage of revenues were4.5% in 1999, 3.7% in 2000, and 3.5% in 2001. The decrease in 2000 and 2001 is primarily from a $1 million decrease incorporate overhead resulting from the Stock Sale and a continuing reduction ofother overhead expenses as a result of the new corporate structure.

 

*Costs of Note Exchange.* We recognized a one time charge ofapproximately $5.5 million in the fourth quarter of 2001. The exchange of ourOld Notes for our New Notes (described below in Items 7 in the segmentcaptioned "Liquidity and Capital Resources") was a transactioninvolving instruments that were substantially the same in the present value oftheir cash flows.  As a result, thecosts associated with the exchange were expensed as incurred.  We incurred additional costs associated withthe issuance of the New Notes, which costs have been capitalized and will beamortized over the term of the New Notes.

 

*Non-Cash Charge for Impairment ofLong-Lived Assets*.  During 1999, certain assets, including fixedassets and related intangible assets, were revalued at less than their historiccosts, this resulted in a non-cash charge of $459,000. There was no similarcharge required for 2000 and 2001.

 

*Operating Profit from ContinuingOperations.*  As a result of the items discussed above,operating profit was $15.5 million in 1999, improved to $23.3 million in 2000,and then declined to $14.3 million in 2001.

 

*Interest Expense - Net.* Interest expense was $19.5 million in 1999, decreased to $19.0million in 2000, and decreased to $17.8 million in 2001.  Borrowings (excluding capitalized leaseobligations) were $160.1 million in 1999, decreased to $144.1 million in 2000,and then increased to $157.2, net of unamortized discounts of $9.0 million, in2001.  The reduction in 2000 was theresult of a $16.0 million principal payment on the Old Notes in December 2000.  The increase in 2001 was the result of theRefinancing and the net issuance of $28.5 million in New Notes combined with apaydown of $15.2 million principal of the Old Notes on October 31, 2001.

 

*Provision for Income Taxes.* Our provision for income taxes was $70,000 in 1999, increased to $185,000in 2000, and then decreased to $70,000 in 2001.  The tax provision against our pre-tax income in 1999, 2000, and2001 consisted of liabilities for certain state income taxes and estimatedFederal income tax. We previously established a valuation allowance againstnet-operating-loss carryforwards.

 

***Net Income / (Loss) from Discontinued Operations****.*  The following chart summarizes thecalculation of the net income / (loss) for discontinued operations for thefiscal years ended 1999 and 2000. There was no activity in the discontinuedoperations in 2001.

 
|                                              |   | **December  27,**

**1999** |    | **December  25,**

**2000** |   |
|---------------------------------------------------|--------|-----------------------------|---------|-----------------------------|--------|
|                                              |   |                        |    |
|                                              |   | **($000)**                  |    |
| Revenues                                          |   | $                           | 144,424 |                        | $      | 65,111 |   |
| Food  and Beverage Costs                          |   | 40,157                      |    | 17,124                      |   |
| Payroll  Costs                                    |   | 49,713                      |    | 21,645                      |   |
| Direct  Operating Costs                           |   | 38,715                      |    | 16,848                      |   |
| Depreciation  and Amortization                    |   | 4,055                       |    | 1,763                       |   |
| General  and Administrative Expense               |   | 11,783                      |    | 3,376                       |   |
| Non-Cash  Charge for Impairment                   |   | 1,040                       |    | 112                         |   |
| Grandy’s  Conversion                         |   | 583                         |    | 752                         |   |
| Income  / (Loss) before Taxes                     |   | (1,622                      | )       | 3,491                       |   |
| Provision  for Income Taxes                       |   | 0                           |    | 17                          |   |
| Net  Income / (Loss) from Discontinued Operations |   | (1,622                      | )       | 3,474                       |   |
|                                                   |        |                             |         |                             |        |  |  |

 

8

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*Extraordinary Gain. *There was no extraordinary gain or loss in 1999.  We prepaid $16 million of principal inDecember 2000, and recorded a $473,000 extraordinary loss to write off therelated unamortized deferred financing costs. We prepaid $15.2 million ofprincipal on October 31, 2001, and recorded a $435,000 extraordinary loss towrite off the related unamortized deferred financing costs.

 

**Liquidity and Capital Resources**

 

Our primary sources ofliquidity are cash flows from operations and borrowings under our creditfacilities.  We require capitalprincipally for the acquisition and construction of new restaurants, theremodeling of existing restaurants, and the purchase of new equipment andleasehold improvements. As of December 31, 2001, we had approximately $10.1million of cash.

 

In general, restaurantbusinesses do not have significant accounts receivable because sales are madefor cash or by credit-card vouchers, which are ordinarily paid within three tofive days.  The restaurants do notmaintain substantial inventory as a result of the relatively brief shelf life andfrequent turnover of food products. Additionally, restaurants generally areable to obtain trade credit in purchasing food and restaurant supplies.  As a result, restaurants are frequently ableto operate with working capital deficits, i.e., current liabilities exceedcurrent assets.  At December 31, 2001,our working capital deficit was $18.5 million.

 

We estimate that capitalexpenditures of $3.0 million to $6.0 million are required annually to maintainand refurbish our existing restaurants. Other capital expenditures, which are generally discretionary, areprimarily for the construction of new restaurants and for expanding,reformatting, and extending the capabilities of existing restaurants and forgeneral corporate purposes.  Totalcapital expenditures for continuing operations were $6.2 million in 1999, $7.9million in 2000, and $3.8 million in 2001. We estimate that capital expenditures in 2002 will be approximately $5.0million.  We intend to open new restaurantswith small capital outlays and to finance most of the expenditures throughleases.

 

On October 31, 2001, wecompleted a debt financing (the “Debt Financing”) in which we issued $30million face value amount of 111⁄2% Senior Secured Notes due 2006. We used thenet proceeds to refinance existing indebtedness, to pay the accrued and unpaidinterest with respect to our 111⁄2% Senior Secured Notes due 2003 (the “OldNotes”), and to use for general corporate purposes.  On October 1, 2001, we commenced an offer to exchange (the “DebtExchange”) all of our outstanding Old Notes for up to $131.7 million face valueamount of 111⁄2% Senior Secured Notes due 2006 (together with the notes issuedpursuant to the Debt Financing, the “New Notes).

 

The principal elements ofthe refinancing (the “Refinancing”) were: (a) the issuance of the New Notes; (b)the exchange of the Old Notes (approximately $124 million aggregate principalamount of Old Notes were exchanged for approximately $132 million aggregateprincipal amount New Notes); (c) the consent of the holders of our outstandingpreferred stock to amend the terms of the preferred stock to provide that if wedo not redeem the preferred stock for cash on August 15, 2003 in accordancewith its terms, then the preferred stock will automatically be redeemed forshares of our common stock at that time and all the rights of the preferredstock will terminate, including any rights of acceleration; to eliminateprovisions that allow the holders to exchange preferred stock for newsubordinate debt, and to amend the covenants of the preferred stock so that theyare substantially similar to the covenants under the New Notes; and, (d) theconsent of the lender under our former revolving credit facility (“Old CreditFacility”) to permit the issuance of the New Notes and any other aspects of theRefinancing requiring the lender’s consent.

 

9

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There was approximately$3.4 million outstanding of the Old Notes at December 31, 2001.

 

Under the Old Notes, weare obligated to make semiannual interest payments on February 15 and August 15through February 2003.  Accordingly, wemade interest payments of $8.2 million in February and August 2001. We alsopaid $3.2 million in accrued interest on October 31, 2001 in connection withthe Refinancing.   Under the New Notes, weare obligated to make semiannual interest payments on May 1 and November 1through November 2006. We have an additional $1.5 million in long-term debtthat relates to mortgages/loans on capital equipment.

 

On December 17, 2001, weentered into a loan agreement for a revolving credit facility (“New CreditFacility”) with Foothill Capital Corporation to replace the Old CreditFacility.  Our New Credit Facilitypresently provides for up to $15 million in borrowings, including support forletters of credit. As of December 31, 2001, we had approximately $5.9 millionof letters of credit outstanding and no borrowings, leaving approximately $9.1million remaining under the New Credit Facility.  The New Credit Facility expires in December 2005.

 

The Company and itsdirect subsidiaries do not guaranty the debt of any other parties.

 

The Company’s contractualobligations can be summarized as follows (in thousands):

 
| **Contractual Obligations** |   | **Total** |    | **Less Than  1 Year** |   | **1-3 Years** |   | **4-5 Years** |    | **After 5  Years** |    |
|-----------------------------|--------|-----------|---------|-----------------------|--------|---------------|--------|---------------|---------|--------------------|---------|
| Long-Term Debt-Interest     |   | $         | 93,608  |                  | 18,996 |          | 37,404 |          | 37,208  |               | 0       |   |
| Long-Term Debt-Principal    |   | $         | 166,694 |                  | 402    |          | 3,476  |          | 161,867 |               | 949     |   |
| Capital Leases              |   | $         | 3,748   |                  | 1,077  |          | 1,092  |          | 464     |               | 1,115   |   |
| Operating Leases            |   | $         | 260,078 |                  | 17,085 |          | 34,189 |          | 28,528  |               | 180,276 |   |
| Employment Agreements       |   | $         | 500     |                  |   | 500           |   |          | 0       |               |    | 0 |   |   | 0 |   |
| Total Contractual Cash      |   | $         | 524,628 |                  | $      | 38,060        |   | $             | 76,161  |               | $       | 228,067 |   | $ | 182,340 |   |

 

 

In the second quarter of2000, we agreed to an interpretation of the financial covenants used todetermine the dividend rate of our preferred stock.  The result was an increase in the dividend rate from 12% to 15%and our issuing additional dividends of 2,503 shares on August 15, 2000(relating to holders at August 1999 and February 2000). Preferred stock dividendsof 5,872 (including the adjustment), 3,618 shares, 3,889 shares, and 4,181shares were issued on August 15, 2000, February 15, 2001, August 15, 2001, andFebruary 15, 2002, respectively.  Therewere 58,883 shares of preferred stock outstanding and accrued at December 31,2001. Our preferred stock is mandatorily redeemable on August 15, 2003.  If we do not redeem our preferred stock forcash at a price per share equal to 110% of the then-applicable liquidationpreference, our preferred stock will be automatically redeemed for shares ofour common stock at that time and all of the rights of the preferred stock willterminate. Management believes that the preferred stock will convert to commonstock.

 

Substantially all ourassets are pledged to our senior lenders. In addition, our direct subsidiaries guarantee most of our indebtednessand such guarantees are secured by substantially all of the assets of thesubsidiaries. In connection with such indebtedness, contingent and mandatoryprepayments may be required under certain specified conditions and events.  There are no compensating balancerequirements.

 

Although we are highlyleveraged, based upon current levels of operations and anticipated growth, weexpect that cash flows generated from operations together with our otheravailable sources of liquidity will be adequate to make required payments ofprincipal and interest on our indebtedness, to make anticipated capitalexpenditures, and to finance working capital requirements for the next severalyears. We do not, however, expect to generate sufficient cash flows fromoperations in the future to pay fully the principal of all the seniorindebtedness upon maturity and, accordingly, we expect to refinance all or aportion of such debt, obtain new financing, or possibly sell assets.

 

**Recent Accounting Pronouncements**

 

Statement of FinancialAccounting Standards (“SFAS”) Number 133, “Accounting for DerivativeInstruments and Hedging Activities,” issued in June 1998, establishesaccounting and reporting standards for derivative instruments and hedgingactivities.  SFAS No. 137, “Accountingfor Derivative and Hedging Activities — Deferral of the Effective Date of FASBStatement No. 133,” issued in June 1999, deferred the effective date of SFASNo. 133 until the Company’s first quarter financial statements in fiscal2001.  We are not currently engaged inhedging activities, but will apply the requirement of this statement if andwhen it becomes appropriate.

 

In June 2001, theFinancial Accounting Standards Board issued Statements of Financial AccountingStandards (SFAS) No. 141, "Business Combinations" and SFAS No. 142,"Goodwill and Other Intangible Assets." These new standards areeffective for fiscal years beginning after December 15, 2001. Under the newstandards, goodwill will no longer be amortized, but will be subject to anannual impairment test. The standards also promulgate new requirements foraccounting for other intangible assets. The impact of the new standards on ourfinancial position and results of operations has not yet been determined, butwe believe they will not be material.

 

In August 2001, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandard No. 144, "Accounting for the Impairment of Disposal of Long-LivedAssets."  FASB Statement No. 144retains FASB Statement No. 121's "Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of,"fundamental provisions for the: (1) recognition and measurement of impairmentof long-lived assets to be held and used; (2) measurement of long-lived assetsto be disposed of by sale.  We do notbelieve that FASB Statement No. 144 will have a material impact on ourfinancial position or results of operations. Statement No. 144 is effective for fiscal years beginning after December15, 2001.

 

10

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**Critical Accounting Policies**

 

*Revenue Recognition. *We recognize revenue based upon sales to customers inour restaurants at the time that meals and related services are provided.  No revenue is recognized in advance ofservices being provided.  Because of thenature of our business, refunds on services provided are minimal andinfrequent.  The majority of sales arepaid for in cash or by major credit card and, therefore, collection risk forunpaid amounts is considered to be low. We sell gift certificates for use in our restaurants, but only recognizerevenue at the time the services are actually rendered.  We do not believe that there are othermethods of accounting for our revenue that would cause revenue recognized inany particular period to be materially different than the amounts that we havereported.

 

*Use of Estimates. *The preparation of financial statements inconformity with generally accepted accounting principles in the United Statesrequires our management to make estimates and assumptions that affect thereported amounts of assets and liabilities, the disclosure of contingent assetsand liabilities, and the reported amounts of revenues and expenses.  Actual results could differ from thoseestimates.

 

We believe that ourfinancial statements are a reasonable representation of the realizable valuesof our assets, the level of our liabilities, and the amounts of revenues andexpenses incurred in any given period.  Thereare estimates inherent in these amounts. It is possible that we may not be able to recover that value of all ofour assets, such as property and equipment or intangible assets, ifcircumstances cause us to close restaurants or we experience a decline inrevenues.  It is also possible that ouractual liabilities for matters, such as self-insurance or discontinuedoperations, could be significantly higher or lower than our estimates if actualconditions are ultimately different than the assumptions used in determiningthe estimates.

 

*Leases*. We lease equipment and operating facilities under both capital andoperating leases.  In future periods,leases for similar equipment or facilities may not qualify for the accountingapplied historically because of changes in terms or our credit status.  This would mean that we may be required torecognize more leases as capital leases in the future than we have in the past,causing a corresponding increase in our assets and liabilities, and the associateddepreciation and interest expense. Conversely, if many leases were classified as operating leases, rentalexpense would increase.

 

*Valuation Allowance for Deferred TaxAssets. *We provided a valuation allowance of $37.0 million and$34.1 million against the entire amount of our deferred tax assets as of fiscalyear-end 2000 and 2001, respectively. The valuation allowance was recorded given the losses we have incurredhistorically and uncertainties regarding future operating profitability andtaxable income.  Had we assumed that ourdeferred tax assets were fully realizable, a deferred tax benefit (provision)of $1,903,000, ($2,655,000), and $1,035,000 would have been recognized in thestatements of operations for fiscal year-end 1999, 2000, and 2001,respectively.

 

**Market Risk Exposure**

 

We generally are notexposed to market risks related to fluctuations in interest rates because ourOld Notes, New Notes, and preferred stock are at fixed rates. Changes ininterest rates affect the fair market value of fixed-rate debt, but not theCompany’s earnings or cash flows. Interest-rate risk and changes in fair market value would not have asignificant impact on our fixed-rate debt until we undertake a refinancing.

 

We are exposed tomarket risks related to fluctuations in interest rates on short-term borrowingson our New Credit Facility.  Althoughthe Company may borrow on its revolver from time to time, no loan amounts wereoutstanding at 2001 fiscal year-end.

 

11

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We do not utilizeinterest-rate swaps, forward or option contracts on foreign currencies orcommodities, or other types of derivative financial instruments.  We do not believe future market-rate riskswill materially affect us or our future operating results. A change in interestrates, however, could have an impact when we refinance.

 

**Impact of Inflation**

 

Although inflationaryincreases in food, labor, or operating costs could adversely affect operations,we generally have been able to offset increases in cost through priceincreases, revisions to our labor scheduling, and other management actions.

 

**Forward-looking Statements**

 

Certainstatements contained in this Form 10-K are forward-looking regarding cash flowsfrom operations, restaurant openings, capital requirements, and other matters. Theseforward-looking statements involve risks and uncertainties and, consequently,could be affected by general business conditions, the impact of competition,governmental regulations, and inflation.

 

**ITEM 8.                                          FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

See the Index toConsolidated Financial Statements on page F-1.

 

**ITEM9.****                                      CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS**

**                                                                ONACCOUNTING AND FINANCIAL DISCLOSURE**

 

 

None.

 

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**PART III**

 

**ITEM 10.****                                  DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

**Directors and Executive Officers**

 

Thefollowing table sets forth certain information about our current directors andeach of our executive officers and key management personnel: 

 
| **Name**            |   |   |   | **Age**                                                   |   |   | **Position** |   |
|---------------------|--------|--------|--------|-----------------------------------------------------------|--------|--------|--------------|--------|
| George  G. Golleher |   | 54     |   | Chairman,  Director                                       |
| Ralph  S. Roberts   |   | 59     |   | Chief  Executive Officer, President, Director             |
| Patrick  J. Kelvie  |   | 50     |   | Vice  President, Treasurer, Secretary and General Counsel |
| Anwar  S. Soliman   |   | 63     |   | Director                                                  |
| Robert  D. Beyer    |   | 42     |   | Director                                                  |
| M.  Brent Stevens   |   | 41     |   | Director                                                  |

 

Officers are elected by the Board of Directors and serve at thediscretion of the Board.

 

*George G. Golleher*. Mr. Golleher was electedas a Director in 1998 and as Chairman of the Board in 2000. Mr. Golleher is aconsultant and private equity investor. He previously served as President andChief Operating Officer and as a Director, of Fred Meyer, Inc. fromMay 1998 to June 1999. Prior to that, Mr. Golleher was the ChiefExecutive Officer and a Director of Ralphs Grocery Company from June 1995until its merger with Fred Meyer, Inc. in May 1998. Mr. Golleherwas a Director of Food 4 Less Supermarkets, Inc. since its inception in1989 and was the President and Chief Operating Officer of Food 4 LessSupermarkets, Inc. from January 1990 until its merger with Ralphs.Mr. Golleher serves as a Director of Simon Worldwide, Inc., and of RiteAid Corporation.

 

*Ralph S. Roberts*. Mr. Roberts became theChief Executive Officer in 2000. He has served as a Director since 1991 and hasserved as the President and Chief Operating Officer since 1986.Mr. Roberts has over 30 years of experience in the restaurantindustry. Before joining us, he was Deputy Group Executive of Operations of theGrace Restaurant Group and Vice President of W.R. Grace & Co.(“Grace”). Prior to joining Grace in 1980, he was Vice President of theStouffer Restaurant Division and President and co-founder of the Rusty Scupperrestaurants. Mr. Roberts received a B.A. from Princeton University.

 

*Patrick J. Kelvie*. Mr. Kelvie has served as ourGeneral Counsel since 1987 and our Secretary since 1989. Mr. Kelvie becamea Vice President in 1998 and Treasurer in 2000. From 1987 to 1989,Mr. Kelvie was an Assistant Secretary. Between 1978 and 1987,Mr. Kelvie held various legal counsel positions for Saga Corporation,predecessor owner of Black Angus. Mr. Kelvie received an A.B. from theUniversity of California at Berkeley and a J.D. from Harvard Law School.

 

*Anwar S. Soliman*. Mr. Soliman has served asa Director since we were organized in 1986. Mr. Soliman served as Chairmanand Chief Executive Officer from 1987 until June 2000. Mr. Soliman isnow the Chief Executive Officer of Spectrum Restaurant Group, Inc., whichacquired the Non–Black Angus Subsidiaries from us in June 2000.Prior to 1986, Mr. Soliman was Executive Vice President of Grace and GroupExecutive of the Grace Restaurant Group, which he started in 1977.Mr. Soliman spent 22 years with Grace in various executive positions.Mr. Soliman received both a B.A. Commerce and an M.B.A. from AlexandriaUniversity and a Ph.D. from New York University.

 

*Robert D. Beyer*. Mr. Beyer has served as aDirector since 1998. Mr. Beyer is President of Trust Company of the West(“TCW”) where he has been employed since 1995. Mr. Beyer was Co-ChiefExecutive Officer of Cresent Capital Corporation, a registered investmentadvisor, from 1991 until its acquisition by TCW in 1995. From 1986 to 1991,Mr. Beyer was a member of the Investment Banking Department of DrexelBurnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a memberof the Investment Banking Department of Bear, Stearns & Co., Inc.Mr. Beyer is also a Director of TCW

 

13

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and The Kroger Co., and acommissioner of the Los Angeles City Employees Retirement System.

 

*M. Brent Stevens*. Mr. Stevens has served asa Director since 1999. Mr. Stevens is an Executive Vice President of theCorporate Finance Department of Jefferies & Company, Inc., wherehe has served since 1990. From 1989 to 1990, Mr. Stevens was a member ofthe Investment Banking Department of Drexel Burnham Lambert, Incorporated.

 

**ITEM 11.****                                                                   EXECUTIVECOMPENSATION**

 

The following table setsforth the cash compensation for services rendered in all capacities that theCompany paid to, or accrued for, the Chief Executive Officer and each of theexecutive officers.

 

**SUMMARYCOMPENSATION TABLE**

 
|                                |   | **Long-Term  Compensation** |       |        |       |
|-------------------------------------|--------|-----------------------------|------------|-------------|------------|
| **Annual Compensation**             |   | **Awards**                  |       | **Payouts** |       |   |   |
| **Name and   Principal Position**   |   | **Year**                    |       | **Salary**  |       | **Bonus** |   | **Other   Annual   Compen-  sation(a)** |   | **Restricted  Stock  Award(s)** |   | **Number of Options/  SARS** |   | **LTIP  Payouts** |   | **All Other   Compen-  sation(b)** |   |
| Ralph S. Roberts                    |   | 2001                        | (c)        | $           | 518,872    |   | $ | 245,000 |   | $ | 77,765 |   | — |   | — |   | — |   | $ | 12,250 |   |
| (CEO and  President)                |   | 2000                        |       | 473,364     |       | **—** |   | 15,608 |   | — |   | — |   | — |   | 8,250 |   |
|                                |   | **1999**                    | ** ** | **422,961** | ** ** | **—** | ** ** | **119,315** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **10,620** | ** ** |
|                                |   |                        | ** ** |        | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Patrick J. Kelvie**               |   | **2001**                    | **(c)**    | **237,077** | ** ** | **92,000** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **8,625** | ** ** |
| **(Vice President, Secretary,**     |   | **2000**                    | ** ** | **222,692** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **7,572** | ** ** |
| **Treasurer, and** General Counsel) |   | 1999                        |       | 195,000     |       | **—** |   | **—** |   | — |   | — |   | — |   | 1,348 | ** ** |
|                                |   |                        | ** ** |        | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Anwar S. Soliman**                |   | **2001**                    | ** ** | **—**  | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| **(Former Chairman and CEO)**       |   | **2000**                    | **(d)**    | **210,000** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **285,322** | ** ** |
|                                |   | 1999                        |       | 740,188     |       | **—** |   | 293,831 |   | — |   | — |   | — |   | 29,646 |   |
|                                |   |                        | ** ** |        | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **William J. McCaffrey, Jr.**       |   | **2001**                    | ** ** | **—**  | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| **(Former Vice President)**         |   | **2000**                    | **(d)**    | **161,250** | ** ** | **—** | ** ** | **7,731** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **412,700** | ** ** |
|                                |   | **1999**                    | ** ** | **195,000** | ** ** | **—** | ** ** | **3,702** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **9,620** | ** ** |
|                                |   |                        | ** ** |        | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Ken A. Di Lillo**                 |   | **2001**                    | ** ** | **—**  | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| (Former  V.P. Finance,              |   | 2000                        | (d)        | 138,365     |       | **—** |   | **—** |   | — |   | — |   | — |   | 980 |   |
| **Treasurer, and**Asst. Secretary)  |   | 1999                        |       | 171,538     |       | 30,000 |   | **—** |   | — |   | — |   | — |   | 1,278 | ** ** |
|                                     |        |                             |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(a)                                  Amountsshown in this column for the last fiscal year include group term life insurancepremiums of $77,765 for Mr. Roberts.

 

(b)                                 Amountsshown in this column for the last fiscal year include auto allowance for Mssrs.Roberts and Kelvie.  Amounts alsoinclude Company matching contributions to a 401(k) plan for Mr. Kelvie.  2000 fiscal year amounts showninclude severance and vacation payments of $281,322 for Mr. Soliman and$407,500 for Mr. McCaffrey.

 

(c)                                  Wehad two executive officers in 2001.

 

(d)                                 Amountsshown in 2000 are for partial years for Mssrs. Soliman, McCaffrey, and DiLillo. There were no payments made to these individuals in 2001.

 

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**Employment Agreements**

 

The following table setsforth, with respect to any executive officer who has entered into an employmentagreement with the Company, the base salary together with the termination dateof such agreement:

 
| **Name of Individual** |   |                                   | **Capacity  in Which Served** | ** ** | **Base   Salary** | ** ** | **Termination  Date** | ** ** |
|------------------------|--------|----------------------------------------|-------------------------------|------------|-------------------|------------|-----------------------|------------|
| Ralph  S. Roberts      |   | Chief Executive Officer  and President |                          | $          | 500,000           |       | 12/31/02              |       |
|                        |        |                                        |                               |            |                   |            |                       |            |  |

 

Wehave entered into an employment agreement with Ralph S. Roberts, our ChiefExecutive Officer and President. The agreement provides, among other things,for adjustments to Mr. Roberts’ base salary and automatic extension of theagreement. The agreement also provides for certain other benefits including amaximum of one year’s pay in the event of death and salary for the remainder ofthe calendar year in the event of disability. The employment agreement providesfor payment until the earlier of six months or the end of the employment termif Mr. Roberts terminates his employment for cause, but does not providefor any salary in the event we terminate him for cause.

 

Inaddition, we entered into a consulting agreement with George G. Golleher,Chairman and Director. The agreement provided for monthly payments forconsulting services and expenses for a total amount of $348,000 for the periodfrom January 1, 2001 through December 31, 2001 and was terminable withoutcause by either party upon 90 days’ notice. We expect to continue aconsulting arrangement with Mr. Golleher, and to enter into a new writtenagreement.

 

**Savings Plan**

 

The American RestaurantGroup Savings and Investment Plan (the “Savings Plan”) is our 401(k) planestablished for the benefit of employees who satisfy certain requirements.  These requirements include completion of oneyear of service with a minimum of 1,000 hours worked.  Subject to applicable limits imposed on tax-qualified plans,eligible employees may elect pre-tax contributions up to 20.0% of aparticipant’s total earnings for a calendar year (but not in excess of $10,500for 2001).  The Company makes matchingcontributions to the Savings Plan equal to 25% of the participant’scontributions up to 6% of the participant’s earnings.  A participant is entitled to a distribution from the Savings Planupon termination of employment and any such distribution will be in a lump-sumform.  Distributable benefits are basedon the value of the participant’s individual account balance that is investedat the direction of the participant in one or a combination of six investmentfunds, none of which include investments in the Company.  Under certain circumstances, a participantmay borrow amounts held in his account under the Savings Plan.  Based upon the Savings Plan vestingschedule, as of 2001, 100% of the Company matching contributions were vestedfor Mr. Kelvie.

 

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**ITEM 12.****                SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

Thefollowing table sets forth certain information regarding the beneficialownership of our common stock (as if all outstanding warrants were exercised),as of February 26, 2001, by (i) each of our directors, (ii) ourChief Executive Officer and certain other highly compensated executiveofficers, (iii) all executive officers and directors as a group, and(iv) each person believed to own beneficially more than 5% of ouroutstanding common stock. Pursuant to a voting trust agreement, Anwar S.Soliman controls Holdings and, accordingly, together with his direct ownershipof common stock and a second voting trust agreement (described in footnote (8)below), effectively controls the voting of all (without giving effect to the exerciseof any outstanding warrants) our outstanding common stock, subject to the termsof a securityholders’ agreement. 

 
| **Name of****Beneficial Owner**                   |   | **Number  of****Shares** |   | **Percent of****Outstanding  Class** |   | **Percent****Ownership(1)** |   |
|---------------------------------------------------|--------|--------------------------|--------|--------------------------------------|--------|-----------------------------|--------|
| Anwar  S. Soliman                                 |   | 22,416                   | (2)    | 17.5                                 | %      | 9.6                         | %      |
| Roberts Family Limited Partnership                |   | 9,702                    |   | 7.6                                  |   | 4.2                         |   |
| Patrick J. Kelvie                                 |   | 387                      |   | 0.3                                  |   | 0.2                         |   |
| Robert D. Beyer (3)                               |   | —                   |   | —                               |   | —                      |   |
| George G. Golleher (4)                            |   | —                   |   | —                               |   | —                      |   |
| M. Brent Stevens (5)                              |   | —                   |   | —                               |   | —                      |   |
| American Restaurant Group Holdings, Inc. (6)      |   | 93,150                   |   | 72.7                                 |   | 40.0                        |   |
| All directors and officers as a group (6 persons) |   | 32,505                   |   | 25.4                                 |   | 14.0                        |   |
| TCW Investors (7)                                 |   | 57,226                   | (8)    | —                               |   | 24.6                        |   |

----

(1)           Gives effect to the exercise of alloutstanding warrants. Excludes the effect of the potential conversion of the preferredstock to common stock, as allowed by amendments to the preferred stock done inconnection with the Refinancing.

 

(2)           Does not include 12,515 shares of ourcommon stock that Mr. Soliman is deemed to be the owner of pursuant to avoting trust agreement.

 

(3)           Does not include shares deemed to bebeneficially owned by the TCW Investors (as defined herein). Robert D. Beyer isa President of TCW, of which TCW Group (see footnote (8) below) and theTCW Investors are affiliates. Mr. Beyer shares investment power for thefollowing TCW Investors: TCW Shared Opportunity Fund II L.P., TCW LeveragedIncome Trust, L.P., and TCW Shared Opportunity Fund IIB, LLC. See footnote(7) below.

 

(4)           George G. Golleher was electedDirector of the Company, as nominee of the TCW Investors.

 

(5)           Does not include shares deemed to bebeneficially owned by Jefferies & Company, Inc.

 

(6)           Anwar S. Soliman owns 228,577 sharesof common stock of Holdings, representing 49.2% of the outstanding common stockof Holdings. In addition, Mr. Soliman is deemed to be the owner, pursuantto a voting trust agreement, of an additional 147,396 shares of Holdings commonstock, representing an additional 31.7% of the outstanding common stock ofHoldings. Accordingly, Mr. Soliman exercises the beneficial ownership of80.9% of Holdings common stock.

 

(7)           TCW Shared Opportunity Fund II, L.P.,TCW Leveraged Income Trust, L.P., Brown University and TCW Shared OpportunityFund IIB, LLC.

 

(8)           Represents warrants that areimmediately exercisable at a nominal price per share. Includes warrantsbeneficially owned by the TCW Investors and of which TCW Asset ManagementCompany and certain affiliates, which control voting and investment power intheir capacity as general partner, investment manager, or manager of the TCWInvestors (the “TCW Group”), disclaim beneficial ownership. Excludes the effectof the changes to the terms of the preferred stock in connection with theRefinancing.

 

16

----

 

Both of our presentmanagement stockholders and certain other stockholders (collectively, the“Management Shareholders”) entered into a voting trust agreement datedFebruary 25, 1998 in accordance with which Anwar S. Soliman, Director,exercises, as voting trustee, all voting and substantially all other rights towhich such shareholders would otherwise be entitled until the earlier ofAugust 15, 2005 or the earlier termination of the voting trust agreement.As a result, Mr. Soliman is considered the beneficial owner of approximately100% of the outstanding shares of our common stock (approximately 55.0% on afully diluted basis, excluding the effect of changes to the terms of thepreferred stock after the Refinancing). In addition, the ManagementShareholders entered into other agreements pursuant to which such holders weregranted registration rights substantially identical to the rights granted tothe holders of the warrants pursuant to a securityholders’ agreement. Each ofthe Management Shareholders is also party to a subscription agreement withHoldings, which provides such stockholder certain rights with respect to sharesof Holdings common stock held by such stockholder.

 

As of December 31, 2001,holders of the Company’s preferred stock held warrants for 40% of the commonstock on a diluted basis, excluding the effect of changes to the terms of thepreferred stock after the Refinancing. If the preferred stock does convert to common stock, then the holders ofthe preferred stock may own more than 50% of the common stock on a fully dilutedbasis.

 

**SecurityholdersAgreement**

 

In connection with theFebruary 1998 recapitalization plan, each of Holdings, the ManagementShareholders, Jefferies & Company, Inc. (“Jefferies”), and TCW SharedOpportunity Fund II, L.P., TCW Leveraged Income Trust, L.P., Brown University,and TCW Shared Opportunity Fund IIB, LLC (collectively, the “TCW Investors”),and TCW Asset Management Company entered into a securityholders’ agreementconcerning the Company (the “Securityholders Agreement”). The SecurityholdersAgreement provides that the parties will agree to vote all of their shares ofthe Company’s equity securities so that the composition of the Company’s boardof directors consists of five members, two of whom will be management nominees,two of whom will be nominees of the TCW Investors, and one of whom, theremaining director, will be an independent director designated by Jefferies;provided that after the date that is 45 days after the date upon whichunderwritten primary public offerings of common stock of the Company pursuantto effective registration statements under the Securities Act have resulted in35% of the Company’s common stock (measured on a fully diluted basis aftergiving effect to such offerings) being sold to the public and in the Company’scommon stock being listed for trading on any of the New York Stock Exchange,the Nasdaq National Market, or the American Stock Exchange, the TCW Investorsand management will mutually choose the remaining director and Jefferies willno longer have any right to designate a director.  The Securityholders Agreement does not limit the rights of theholders of the preferred stock under the Certificate of Designation to electadditional directors to serve on the Company’s Board of Directors in certaincircumstances.

 

The SecurityholdersAgreement also provides that (i) in the event that Holdings sells or transfersany of its shares of Company equity securities, directly or indirectly, TCWInvestors will have the option to include its Company equity securities in suchsale or transfer on the same terms as Holdings’ sale or transfer, (ii) TCWinvestors will have a right of first refusal with respect to any sale of equitysecurities by the Company or a party to the Securityholders Agreement (otherthan Management Shareholders) to purchase the equity securities being sold; and(iii) TCW Investors have the nontransferable right to approve certain majorcorporate transactions concerning the Company, including mergers andconsolidations, sales of any capital stock of the Company’s subsidiaries, asale of a material amount of the assets and properties of the Company,transactions with affiliates, and amendments to the Company’s Certificate ofIncorporation and Bylaws. In addition, the Securityholders Agreement provides thatcertain of the TCW Investors’ purchasers will receive payments from the Companywith respect to withholding obligations as a result of their ownership of thepreferred stock, which amount shall not exceed $125,000 per year. The Companymade no such payments in 2001. None of the rights under the SecurityholdersAgreement are transferable by TCW Investors.

 

17

----

 

**ITEM 13.                                     CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

On June 28, 2000, we sold all of the outstanding stock of theNon-Black Angus Subsidiaries to Spectrum Restaurant Group, Inc. (formerlyknown as NBACo, Inc.), a company that is controlled by Anwar S.Soliman. There was no gain or loss recorded because of the related–partynature of the stock sale. We received $17.0 million in cash onJune 28, 2000, and transferred certain assets and liabilities to SpectrumRestaurant Group, Inc. Concurrent with the sale, advances between us andthe Non-Black Angus Subsidiaries were eliminated. Paid-in capital of $27.0million has been charged as a result of the sale. We retained the assets andliabilities associated with certain closed restaurants as well as certainliabilities, estimated on June 26, 2000 at $12.6 million, associatedwith the operating restaurants that were sold. The amount of estimatedliabilities remaining at December 31, 2001 was approximately $525,000. We arecurrently working to settle these liabilities. If needed, any adjustments tothe recorded balance, as a result of such settlement, will be recognized whenthe amount becomes known.  Managementdoes not believe, however, that such amounts, if any, will be material to theCompany’s financial position or results of operations.

 

Jefferies, the initial purchaser of the New Notes, ownsapproximately 2.5% of our common stock on a fully diluted basis, excluding theeffect of changes to the terms of the preferred stock after the Refinancing. Inconnection with its ownership of the common stock, Jefferies is a party to theSecurityholders Agreement concerning us, pursuant to which Jefferies isentitled to designate a member of our board of directors. M. Brent Stevens isthe current board member designated by Jefferies. Mr. Stevens is anExecutive Vice President of the Corporate Finance Department of Jefferies. Inaddition, from time to time, Jefferies and its affiliates have provided in thepast and may provide in the future investment banking and financial advisoryservices to the Company and its affiliates in the ordinary course of business.Jefferies or its affiliates, as applicable, has received or will receivecustomary compensation in connection with such services.

 

18

----

 

**PART IV**

 
| **ITEM 14** |   | **EXHIBITS FINANCIAL STATEMENTS SCHEDULES** |
|-------------|--------|---------------------------------------------|
|        |   | **AND REPORTS ON FORM 8-K**                 |

 

(a)                                  Consolidated Financial Statements.  See the Index to Consolidated FinancialStatements on page F-1.

 

(b)                                 List of Exhibits

 
| **Exhibit No.** |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                | **Description** |   |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|--------|
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 2.1             |   | Stock Purchase  Agreement, dated as of May 9, 2000 between the Company and NBACo, Inc.*****                                                                                                                                                                                                                                                                                                                                                         |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 2.2             |   | Amendment No. 1, dated  as of June 26, 2000, to Stock Purchase Agreement, dated May 9, 2000, between  the Company and NBACo, Inc.*****                                                                                                                                                                                                                                                                                                              |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.1             |   | Amended and Restated  Certificate of Incorporation of the Company filed with the Secretary of State  of Delaware on July 23, 1991.*                                                                                                                                                                                                                                                                                                                 |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.2             |   | Certificate of  Amendment to Amended and Restated Certificate of Incorporation of the Company  filed with the Secretary of State of Delaware on March 21, 1992. *                                                                                                                                                                                                                                                                                   |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.3             |   | Amended and Restated  Certificate of Incorporation of the Company filed with the Secretary of State  of Delaware on February 23, 1998. ***                                                                                                                                                                                                                                                                                                          |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.3A            |   | Amendment  to Certificate of the Designation of the Powers, Preferences and Relative,  Participating, Optional and Other Special Rights of the 12% Series A  Senior Pay-In-Kind Exchangeable Preferred Stock and the 12% Series B  Senior Pay-In-Kind Exchangeable Preferred Stock and Qualifications,  Limitations or Restrictions Thereof of the Company filed with the Secretary  of State of Delaware on October 31, 2001.****** |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.4             |   | By-Laws of the Company.  *                                                                                                                                                                                                                                                                                                                                                                                                                          |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.1             |   | Indenture dated as of  February 25, 1998 between the Company and U.S. Trust Company of California,  N.A., as Trustee (including specimen certificate of 11.5% Senior Secured Note  due 2003). ***                                                                                                                                                                                                                                                   |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.2             |   | Warrant Agreement dated  as of February 25, 1998 between the Company and U.S. Trust Company of  California, N.A., as warrant agent (including specimen certificate of  warrant). ***                                                                                                                                                                                                                                                                |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.3             |   | Registration Rights  Agreement dated as of February 25, 1998 between the Company and Jefferies  & Company, Inc. ***                                                                                                                                                                                                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4             |   | Securityholders’ and  Registration Right Agreement dated as of February 25, 1998 between the  Company and Jefferies & Company, Inc., as purchaser. ***                                                                                                                                                                                                                                                                                     |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5             |   | Management Registration  Right Agreement dated as of February 28, 1998 between the Company and the  Management Stockholders. ***                                                                                                                                                                                                                                                                                                                    |

 

19

----

 
| **Exhibit No.** |   |                                                                                                                                                                                                                                                                                                                                                             | **Description** |   |
|-----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|--------|
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 4.6             |   | Certificate of  Designation filed with the Secretary of State of Delaware on February 24,  1998. ***                                                                                                                                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 4.7             |   | Certificate of  Correction to the Certificate of Designation filed with the Secretary of  State of Delaware on February 25, 1998. ***                                                                                                                                                                                                                            |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 4.8             |   | Form of Indenture  relating to the 12% Senior Subordinated Debentures to be entered into between  the Company and a trustee (including specimen certificate of 12% Senior  Subordinated Debenture due 2003). ****                                                                                                                                                |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 4.9             |   | First Supplemental  Indenture, dated as of June 28, 2000, to Indenture dated as of February 25,  1998, between the Company and U.S. Trust Company, National Association  (formerly known as U.S. Trust Company of California, N.A.)*****                                                                                                                         |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 4.10            |   | Second  Supplemental Indenture, dated as of October 31, 2001, to Indenture,  dated as of February 25, 1998, between the Company and BNY Western Trust  Company (successor in interest to U.S. Trust Company, National Association,  formerly known as U.S. Trust Company of California, N.A.).******                                                   |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 4.11            |   | Registration  Rights Agreement dated as of October 31, 2001 between the Company and  Jefferies & Company, Inc.******                                                                                                                                                                                                                          |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 9.1             |   | Common Stock Voting  Trust and Transfer Agreement dated as of February 24, 1998 among the Company  and the stockholders parties thereto and Anwar S. Soliman, as voting trustee.  ***                                                                                                                                                                            |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 9.2             |   | Securityholders  Agreement dated as of February 25, 1998 among the Company, American  Restaurant Group Holdings, Inc., Jefferies & Company, Inc., TCW Asset  Management Company and the Management Stockholders. ***                                                                                                                                         |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 10.1            |   | Amended and Restated  Employment Agreement dated as of December 14, 1993 between the Company  and Ralph S. Roberts. **                                                                                                                                                                                                                                 |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 10.2            |   | Loan  Agreement dated as of December 17, 2001 between Foothill Capital  Corporation, as lender and the Company, ARG Enterprises, Inc., ARG  Property Management Corporation and ARG Terra, Inc., as borrowers.******                                                                                                                              |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 10.3            |   | Second  Amended and Restated Intercreditor and Collateral Agency Agreement dated as  of December 17, 2001 between BNY Western Trust Company, as collateral  agent and as trustee, the Company, ARG Enterprises, Inc., ARG Property  Management Corporation and ARG Terra, Inc., as borrowers, and Foothill  Capital Corporation, as lender.****** |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 10.4            |   | Amended and Restated  Master lease dated May 11, 1998 between ARG Properties I, LLC as Landlord and  ARG Enterprises, Inc. as Tenant.*******                                                                                                                                                                                                                     |
|            |   |                                                                                                                                                                                                                                                                                                                                                             |
| 10.5            |   | Amended and Restated  Master Lease dated May 11, 1998 between ARG Properties II, LLC as Landlord  and ARG Enterprises, Inc. as Tenant *******                                                                                                                                                                                                                    |

 

20

----

 
| **Exhibit No.** |   |                                                                                                                                                                                                                                           | **Description** |   |
|-----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|--------|
|            |   |                                                                                                                                                                                                                                           |
| 10.6            |   | Guaranty of Lease dated  May 11, 1998 by the Company in favor or ARG Properties I, LLC as  Landlord.*******                                                                                                                                    |
|            |   |                                                                                                                                                                                                                                           |
|            |   |                                                                                                                                                                                                                                           |
| 10.7            |   | Guaranty of Lease dated  May 11, 1998 by the Company in favor of ARG Properties II, LLC as Landlord.  *******                                                                                                                                  |
|            |   |                                                                                                                                                                                                                                           |
| 99.1            |   | Letter dated March 29,  2002 from the Company confirming certain assurances received from Arthur  Andersen LLP *******                                                                                                                         |
|            |   |                                                                                                                                                                                                                                           |
| *               |   | Incorporated by  reference to the Registrant’s Registration Statement No. 33-48183 on Form S-4  filed with the Securities and Exchange Commission on May 28, 1992 as amended  with Amendment No. 1 filed on September 11, 1992. |
|            |   |                                                                                                                                                                                                                                           |
| **              |   | Incorporated by  reference to the Registrant’s Registration Statement No. 33-74010 on Form S-4  filed with the Securities and Exchange Commission on January 12, 1994.                                                                    |
|            |   |                                                                                                                                                                                                                                           |
| ***             |   | Incorporated by reference  to the Registrant’s Annual Report on Form 10-K dated December 29, 1997 filed  with the Securities and Exchange Commission on March 30, 1998.                                                                   |
|            |   |                                                                                                                                                                                                                                           |
| ****            |   | Incorporated by  reference to the Registrant’s Registration Statement No. 333-55861 on  Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission  on July 29, 1998.                                                  |
|            |   |                                                                                                                                                                                                                                           |
| *****           |   | Incorporated by  reference to the Registrant’s Current Report on Form 8-K dated June 28, 2000  and filed with the Securities and Exchange Commission on July 12, 2000.                                                                    |
|            |   |                                                                                                                                                                                                                                           |
| ******          |   | Incorporated  by reference to the Registrant’s Registration Statement No. 333-76442 to  Form S-1 filed with the Securities and Exchange Commission on  January 8, 2002.                                                    |
|            |   |                                                                                                                                                                                                                                           |
| *******         |   | Filed herewith.                                                                                                                                                                                                                                |

 

21

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**SIGNATURE**

 

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

 
|   | AMERICAN RESTAURANT  GROUP, INC . |
|--------|-----------------------------------|
|   |                              |
|   | By:                               | /s/  Ralph S. Roberts |
|   | Ralph  S. Roberts                 |
|   | Chief  Executive                  |
|   | Officer  and President            |

 

Pursuant to therequirements of the Securities Act of 1934, this report has been signed belowby the following persons on behalf of the Registrant and in the capacities andon the dates indicated.

 
| /s/ George G. Golleher    |   |                           | Director and Chairman       | March 29, 2002 |
|---------------------------|--------|--------------------------------|-----------------------------|----------------|
|   George G. Golleher |   |                           |                        |
|                      |   |                           |                        |
| /s/ Ralph S. Roberts      |   |                           | President, Chief  Executive | March 29, 2002 |
|   Ralph S. Roberts   |   | Officer  and Director          |                        |
|                      |   |                           |                        |
|                      |   | (Principal Executive  Officer) |                        |
|                      |   |                           |                        |
| /s/ Patrick J. Kelvie     |   |                           | Vice  President, Treasurer, |           |
|   Patrick J. Kelvie  |   | Secretary  and General Counsel | March 29, 2002              |
|                      |   |                           |                        |
|                      |   | (Principal Financial  and      |                        |
|                      |   | Accounting Officer)            |                        |
|                      |   |                           |                        |
| /s/ Anwar S. Soliman      |   |                           | Director                    | March 29, 2002 |
|   Anwar S. Soliman   |   |                           |                        |
|                      |   |                           |                        |
| /s/ Robert D. Beyer       |   |                           | Director                    | March 29, 2002 |
|   Robert D. Beyer    |   |                           |                        |
|                      |   |                           |                        |
| /s/ M. Brent Stevens      |   |                           | Director                    | March 29, 2002 |
|   M. Brent Stevens   |   |                           |                        |
|                           |        |                                |                             |                |  |  |

 

22

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**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

 
| Report of  Independent Public Accountants                                                                                                               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                    |
| Consolidated Balance  Sheets as of December 25, 2000, and December 31, 2001                                                                             |
|                                                                                                                                                    |
| Consolidated  Statements of Operations for the Fiscal Years Ended December 27, 1999,  December 25, 2000, and December 31, 2001                          |
|                                                                                                                                                    |
| Consolidated  Statements of Common Stockholders’ (Deficit) for the Fiscal Years Ended  December 27, 1999, December 25, 2000, and December 31, 2001 |
|                                                                                                                                                    |
| Consolidated  Statements of Cash Flows for the Fiscal Years Ended December 27, 1999,  December 25, 2000, and December 31, 2001                          |
|                                                                                                                                                    |
| Notes to  Consolidated Financial Statements                                                                                                             |

 

F-1

----

 

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

 

To the Board of Directorsof

  American Restaurant Group, Inc.:

 

We have audited theaccompanying consolidated balance sheets of AMERICAN RESTAURANT GROUP, INC. (aDelaware corporation) AND SUBSIDIARIES as of December 25, 2000 and December 31,2001, and the related consolidated statements of operations, commonstockholders’ (deficit), and cash flows for the fiscal years ended December 27,1999, December 25, 2000, and December 31, 2001.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

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

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of American Restaurant Group, Inc. andsubsidiaries as of December 25, 2000 and December 31, 2001, and the results oftheir operations and their cash flows for the fiscal years ended December 27,1999, December 25, 2000, and December 31, 2001, in conformity with accountingprinciples generally accepted in the United States.

 
|   | /s/ ARTHUR ANDERSEN LLP |
|--------|-------------------------|

 

San Francisco,California

March 14, 2002

 

F-2

----

 

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDBALANCE SHEETS

DECEMBER 25, 2000 AND DECEMBER 31, 2001

 

ASSETS
|                                             |   | **December 25,  2000** |       | **December  31, 2001** |   |
|--------------------------------------------------|--------|------------------------|------------|------------------------|--------|
|                                             |   |
| CURRENT  ASSETS:                                 |   |                   |       |                   |   |
| Cash                                             |   | $                      | 8,532,000  |                   | $      | 10,053,000 |   |
| Accounts  receivable, net of                     |   |                   |       |                   |   |
| reserves  of $2,000 in 2000 and $252,000 in 2001 |   | 2,938,000              |       | 4,071,000              |   |
| Inventories                                      |   | 2,853,000              |       | 3,040,000              |   |
| Prepaid  expenses                                |   | 2,803,000              |       | 3,002,000              |   |
|                                             |   |                   |       |                   |   |
| Total  current assets                            |   | 17,126,000             |       | 20,166,000             |   |
|                                             |   |                   |       |                   |   |
| PROPERTY  AND EQUIPMENT:                         |   |                   |       |                   |   |
| Land  and land improvements                      |   | 2,629,000              |       | 2,598,000              |   |
| Buildings  and leasehold improvements            |   | 67,631,000             |       | 69,858,000             |   |
| Fixtures  and equipment                          |   | 48,629,000             |       | 48,914,000             |   |
| Property  held under capital leases              |   | 7,480,000              |       | 7,293,000              |   |
| Construction  in progress                        |   | 2,816,000              |       | 2,517,000              |   |
|                                             |   | 129,185,000            |       | 131,180,000            |   |
|                                             |   |                   |       |                   |   |
| Less  - Accumulated depreciation                 |   | 75,815,000             |       | 80,077,000             |   |
|                                             |   |                   |       |                   |   |
| Net  Property and equipment                      |   | 53,370,000             |       | 51,103,000             |   |
|                                             |   |                   |       |                   |   |
| OTHER  ASSETS:                                   |   |                   |       |                   |   |
| Intangible  assets                               |   | 2,531,000              |       | 2,531,000              |   |
| Deferred  debt costs                             |   | 9,970,000              |       | 11,206,000             |   |
| Leasehold  interests                             |   | 6,577,000              |       | 6,577,000              |   |
| Liquor  licenses and other                       |   | 4,156,000              |       | 4,167,000              |   |
| Cost  in excess of net assets acquired           |   | 12,450,000             |       | 12,450,000             |   |
|                                             |   |                   |       |                   |   |
|                                             |   | 35,684,000             |       | 36,931,000             |   |
| Less  - Accumulated amortization                 |   | 16,605,000             |       | 18,496,000             |   |
|                                             |   |                   |       |                   |   |
| Net  other assets                                |   | 19,079,000             |       | 18,435,000             |   |
|                                             |   |                   |       |                   |   |
| Total  assets                                    |   | $                      | 89,575,000 |                   | $      | 89,704,000 |   |

 

(consolidated balance sheets continued on followingpage)

 

The accompanying notes are an integral part of theseconsolidated statements.

 

F-3

----

 

LIABILITIES AND COMMONSTOCKHOLDERS’(DEFICIT)
|                                                                                                                                                                                                                      |   | **December  25,2000** |       | **December  31,2001** |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|------------|-----------------------|------------|
| CURRENT  LIABILITIES:                                                                                                                                                                                                     |   |                  |       |                  |       |
| Accounts  payable                                                                                                                                                                                                         |   | $                     | 15,193,000 |                  | $          | 12,528,000 |   |
| Accrued  liabilities                                                                                                                                                                                                      |   | 11,521,000            |       | 12,849,000            |       |
| Accrued  insurance                                                                                                                                                                                                        |   | 2,373,000             |       | 3,232,000             |       |
| Accrued  interest                                                                                                                                                                                                         |   | 6,251,000             |       | 3,447,000             |       |
| Accrued  payroll costs                                                                                                                                                                                                    |   | 7,069,000             |       | 4,853,000             |       |
| Current  portion of obligations under capital leases                                                                                                                                                                      |   | 713,000               |       | 796,000               |       |
| Current  portion of long-term debt                                                                                                                                                                                        |   | 432,000               |       | 402,000               |       |
| Liabilities  of discontinued operations                                                                                                                                                                                   |   | 2,945,000             |       | 525,000               |       |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| Total  current liabilities                                                                                                                                                                                                |   | 46,497,000            |       | 38,632,000            |       |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| LONG-TERM  LIABILITIES, net of current portion:                                                                                                                                                                           |   |                  |       |                  |       |
| Obligations  under capital leases                                                                                                                                                                                         |   | 2,588,000             |       | 1,799,000             |       |
| Long-term  debt, net of unamortized discount                                                                                                                                                                              |   | 144,066,000           |       | 157,272,000           |       |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| Total  long-term liabilities                                                                                                                                                                                              |   | 146,654,000           |       | 159,071,000           |       |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| DEFERRED  GAIN                                                                                                                                                                                                            |   | 4,192,000             |       | 3,990,000             |       |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| COMMITMENTS  AND CONTINGENCIES                                                                                                                                                                                            |   |                  |       |                  |       |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| CUMULATIVE  PREFERRED STOCK,                                                                                                                                                                                              |   |                  |       |                  |       |
| MANDATORILY  REDEEMABLE                                                                                                                                                                                                   |   |                  |       |                  |       |
| Senior  pay-in-kind exchangeable preferred stock, $0.01 par value; 160,000 shares  authorized; 50,953 shares accrued and outstanding at December 25, 2000 and  58,883 shares accrued and outstanding at December 31, 2001 |   | 49,891,000            |       | 58,219,000            |       |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| COMMON  STOCKHOLDERS’ (DEFICIT):                                                                                                                                                                                     |   |                  |       |                  |       |
|                                                                                                                                                                                                                      |   |                  | ** ** |                  | ** ** |
| **Common stock, $0.01 par value;  1,000,000 shares authorized; 128,081 shares issued and outstanding at  December 25,**2000  and December 31, 2001                                                                        |   | **1,000**             | ** ** | **1,000**             | ** ** |
| Paid-in  capital                                                                                                                                                                                                          |   | 15,788,000            |       | 7,279,000             |       |
| Accumulated  (deficit)                                                                                                                                                                                                    |   | (173,448,000          | )          | (177,488,000          | )          |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| Total  common stockholders’ (deficit)                                                                                                                                                                                |   | (157,659,000          | )          | (170,208,000          | )          |
|                                                                                                                                                                                                                      |   |                  |       |                  |       |
| Total  liabilities and common stockholders’ (deficit)                                                                                                                                                                |   | $                     | 89,575,000 |                  | $          | 89,704,000 |   |

 

The accompanying notes are an integral part of theseconsolidated statements.

 

F-4

----

 

AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDSTATEMENTS OF OPERATIONS

 

FOR THE FISCAL YEARS ENDED DECEMBER 27, 1999, DECEMBER 25, 2000,

 

AND DECEMBER 31, 2001

 
|                                                                       |   | **Fiscal  Year ended** |        |
|----------------------------------------------------------------------------|--------|------------------------|-------------|
|                                                                       |   | **December 27,  1999** |        | **December 25,  2000** |   | **December 31,  2001** |   |
| REVENUES                                                                   |   | $                      | 263,561,000 |   | $ | 299,822,000 |   | $ | 302,160,000 |   |
|                                                                       |   |                   |        |   |   |   |   |
| RESTAURANT  COSTS:                                                         |   |                   |        |   |   |   |   |
| Food  and beverage                                                         |   | 88,110,000             |        | 103,339,000 |   | 100,982,000 |   |
| Payroll                                                                    |   | 75,114,000             |        | 82,818,000 |   | 87,921,000 |   |
| Direct  operating                                                          |   | 63,033,000             |        | 69,721,000 |   | 74,323,000 |   |
| Depreciation  and amortization                                             |   | 9,396,000              |        | 9,554,000 |   | 8,731,000 |   |
|                                                                       |   |                   |        |   |   |   |   |
| GENERAL  AND ADMINISTRATIVE EXPENSES                                       |   | 11,975,000             |        | 11,108,000 |   | 10,417,000 |   |
|                                                                       |   |                   |        |   |   |   |   |
| COSTS  OF NOTE EXCHANGE                                                    |   | 0                      |        | 0 |   | 5,496,000 |   |
|                                                                       |   |                   |        |   |   |   |   |
| NON-CASH CHARGE FOR IMPAIRMENT OF LONG-LIVED ASSETS                        |   | 459,000                |        | 0 |   | 0 |   |
|                                                                       |   |                   |        |   |   |   |   |
| Operating profit from continuing operations                                |   | 15,474,000             |        | 23,282,000 |   | 14,290,000 |   |
|                                                                       |   |                   |        |   |   |   |   |
| INTEREST  EXPENSE, net                                                     |   | 19,450,000             |        | 19,036,000 |   | 17,825,000 |   |
|                                                                       |   |                   |        |   |   |   |   |
| Net  income /(loss) before provision for income taxes                      |   | (3,976,000)            |        | 4,246,000 |   | (3,535,000 | ) |
|                                                                       |   |                   |        |   |   |   |   |
| PROVISION  FOR INCOME TAXES                                                |   | 70,000                 |        | 185,000 |   | 70,000 |   |
|                                                                       |   |                   |        |   |   |   |   |
| Income/(Loss)  from continuing operations                                  |   | (4,046,000             | )           | 4,061,000 |   | (3,605,000 | ) |
|                                                                       |   |                   |        |   |   |   |   |
| Income/(Loss)  from discontinued operations                                |   | (1,622,000             | )           | 3,474,000 |   | 0 |   |
|                                                                       |   |                   |        |   |   |   |   |
| EXTRAORDINARY  (LOSS) ON EXTINGUISHMENT OF DEBT FROM CONTINUING OPERATIONS |   | 0                      |        | (473,000 | ) | (435,000 | ) |
|                                                                       |   |                   |        |   |   |   |   |
| Net  Income / (Loss)                                                       |   | $                      | (5,668,000  | ) | $ | 7,062,000 |   | $ | (4,040,000 | ) |

 

The accompanyingnotes are an integral part of these consolidated statements.

 

F-5

----

 

AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMMONSTOCKHOLDERS’(DEFICIT)

 

FOR THE FISCAL YEARSENDED DECEMBER 27, 1999, DECEMBER 25, 2000,

 

AND DECEMBER 31, 2001

 
|                                                                               |   | **CommonStock** |   | **Paid-inCapital** |   | **AccumulatedDeficit** |   | **Total**   |         |
|------------------------------------------------------------------------------------|--------|-----------------|--------|--------------------|--------|------------------------|--------|-------------|--------------|
| BALANCE,  December 28, 1998                                                        |   | $               | 1,000  |               | $      | 55,666,000             |   | $           | (174,842,000 | ) | $ | (119,175,000 | ) |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| Net  (Loss)                                                                        |   | —          |   | —             |   | (5,668,000             | )      | (5,668,000  | )            |
| Amortization  of preferred stock issuance costs                                    |   | —          |   | (399,000           | )      | —                 |   | (399,000    | )            |
| Dividends  payable, preferred stock                                                |   | —          |   | (4,715,000         | )      | —                 |   | (4,715,000  | )            |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| BALANCE,  December 27, 1999                                                        |   | $               | 1,000  |               | $      | 50,552,000             |   | $           | (180,510,000 | ) | $ | (129,957,000 | ) |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| Net  Income                                                                        |   | —          |   | —             |   | 7,062,000              |   | 7,062,000   |         |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| Net  book value of assets and liabilities transferred in Stock Sale                |   | —          |   | (26,788,000        | )      | —                 |   | (26,788,000 | )            |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| Amortization  of preferred stock issuance costs                                    |   | —          |   | (399,000           | )      | —                 |   | (399,000    | )            |
| Dividends  payable, preferred stock                                                |   | —          |   | (7,577,000         | )      | —                 |   | (7,577,000  | )            |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| BALANCE,  December 25, 2000                                                        |   | $               | 1,000  |               | $      | 15,788,000             |   | $           | (173,448,000 | ) | $ | (157,659,000 | ) |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| Net  (Loss)                                                                        |   | —          |   | —             |   | (4,040,000             | )      | (4,040,000  | )            |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| Adjustments  to net book value of assets and liabilities transferred in Stock Sale |   | —          |   | (181,000           | )      | —                 |   | (181,000    | )            |
| Amortization  of preferred stock issuance costs                                    |   | —          |   | (399,000           | )      | —                 |   | (399,000    | )            |
| Dividends  payable, preferred stock                                                |   | —          |   | (7,929,000         | )      | —                 |   | (7,929,000  | )            |
|                                                                               |   |            |   |               |   |                   |   |        |         |
| BALANCE,  December 31, 2001                                                        |   | $               | 1,000  |               | $      | 7,279,000              |   | $           | (177,488,000 | ) | $ | (170,208,000 | ) |

 

The accompanyingnotes are an integral part of these consolidated statements.

 

F-6

----

 

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 

FOR THE FISCAL YEARS ENDED DECEMBER 27, 1999, DECEMBER 25, 2000,

 

AND DECEMBER 31, 2001

 
|                                                                                                  |   | **Fiscal  Year ended** |        |
|-------------------------------------------------------------------------------------------------------|--------|------------------------|-------------|
|                                                                                                  |   | **December 27,  1999** |        | **December 25,  2000** |   | **December 31,  2001** |   |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                                                |   |                   |        |   |   |   |   |
| Cash  received from customers                                                                         |   | $                      | 263,562,000 |   | $ | 299,539,000 |   | $ | 301,027,000 |   |
| Cash  paid to suppliers and employees                                                                 |   | (229,650,000           | )           | (260,096,000 | ) | (282,421,000 | ) |
| Interest  paid, net                                                                                   |   | (19,473,000            | )           | (19,823,000 | ) | (20,629,000 | ) |
| Income  taxes, net                                                                                    |   | (71,000                | )           | (312,000 | ) | (70,000 | ) |
|                                                                                                  |   |                   |        |   |   |   |   |
| Net  cash provided by /(used in) continuing operating activities                                      |   | 14,368,000             |        | 19,308,000 |   | (2,093,000 | ) |
|                                                                                                  |   |                   |        |   |   |   |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                                                |   |                   |        |   |   |   |   |
| Capital  expenditures                                                                                 |   | (6,248,000             | )           | (7,872,000 | ) | (3,786,000 | ) |
| Net  (increase) in other assets                                                                       |   | (2,619,000             | )           | (1,221,000 | ) | (17,000 | ) |
| Proceeds  from disposition of assets                                                                  |   | 471,000                |        | 12,000 |   | 25,000 |   |
|                                                                                                  |   |                   |        |   |   |   |   |
| Net  cash (used in) investing activities                                                              |   | (8,396,000             | )           | (9,081,000 | ) | (3,778,000 | ) |
|                                                                                                  |   |                   |        |   |   |   |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                                                |   |                   |        |   |   |   |   |
| Proceeds  received from Stock Sale                                                                    |   | —                 |        | 17,000,000 |   | — |   |
| Payments  on indebtedness                                                                             |   | (15,376,000            | )           | (16,275,000 | ) | (15,324,000 | ) |
| Borrowings  on indebtedness                                                                           |   | 16,229,000             |        | — |   | — |   |
| Proceeds  received from New Notes                                                                     |   | —                 |        | — |   | 30,000,000 |   |
| Discount  on New Notes                                                                                |   | —                 |        | — |   | (1,500,000 | ) |
| Net  increase in deferred debt costs                                                                  |   | (243,000               | )           | — |   | (2,477,000 | ) |
| Payments  on capital lease obligations                                                                |   | (637,000               | )           | (637,000 | ) | (706,000 | ) |
| Net  cash provided by /(used in) financing activities                                                 |   | (27,000                | )           | 88,000 |   | 9,993,000 |   |
|                                                                                                  |   |                   |        |   |   |   |   |
| NET  INCREASE IN CASH FROM CONTINUING OPERATIONS                                                      |   | 5,945,000              |        | 10,315,000 |   | 4,122,000 |   |
|                                                                                                  |   |                   |        |   |   |   |   |
| NET  (DECREASE) IN CASH FROM DISCONTINUED OPERATIONS                                                  |   | (5,617,000             | )           | (10,099,000 | ) | (2,601,000 | ) |
|                                                                                                  |   |                   |        |   |   |   |   |
| NET  INCREASE IN CASH                                                                                 |   | 328,000                |        | 216,000 |   | 1,521,000 |   |
|                                                                                                  |   |                   |        |   |   |   |   |
| CASH,  at beginning of period                                                                         |   | 7,988,000              |        | 8,316,000 |   | 8,532,000 |   |
|                                                                                                  |   |                   |        |   |   |   |   |
| CASH,  at end of period                                                                               |   | $                      | 8,316,000   |   | $ | 8,532,000 |   | $ | 10,053,000 |   |
|                                                                                                  |   |                   |        |   |   |   |   |
| RECONCILIATION  OF NET INCOME (LOSS) TO NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES:         |   |                   |        |   |   |   |   |
|                                                                                                  |   |                   |        |   |   |   |   |
| Net income(loss)from continuing operations after  extraordinary items                                 |   | $                      | (4,046,000  | ) | $ | 3,588,000 |   | $ | (4,040,000 | ) |
|                                                                                                  |   |                   |        |   |   |   |   |
| Adjustments  to reconcile net income (loss) to net cash provided by continuing operating  activities: |   |                   |        |   |   |   |   |
|                                                                                                  |   |                   |        |   |   |   |   |
| Extraordinary  (gain) loss on extinguishment of debt                                                  |   | —                 |        | 473,000 |   | 435,000 |   |
| Depreciation  and amortization                                                                        |   | 9,396,000              |        | 9,554,000 |   | 8,731,000 |   |
| Loss  on disposition of assets                                                                        |   | 3,317,000              |        | 581,000 |   | — |   |
| Impairment  of assets                                                                                 |   | 459,000                |        | — |   |   |   |
| Amortization  of deferred gain                                                                        |   | (289,000               | )           | (203,000 | ) | (202,000 | ) |
| Amortization  of discounted notes                                                                     |   | —                 |        | — |   | (311,000 | ) |
|                                                                                                  |   |                   |        |   |   |   |   |
| (Increase)  decrease in current assets:                                                               |   |                   |        |   |   |   |   |
| Accounts  receivable, net                                                                             |   | 1,000                  |        | (283,000 | ) | (1,133,000 | ) |
| Inventories                                                                                           |   | 89,000                 |        | (98,000 | ) | (187,000 | ) |
| Prepaid  expenses                                                                                     |   | (834,000               | )           | 70,000 |   | (199,000 | ) |
| Increase  (decrease) in current liabilities:                                                          |   |                   |        |   |   |   |   |
| Accounts  payable                                                                                     |   | 2,193,000              |        | 1,566,000 |   | (2,665,000 | ) |
| Accrued  liabilities                                                                                  |   | 2,479,000              |        | 2,034,000 |   | 1,328,000 |   |
| Accrued  insurance                                                                                    |   | (513,000               | )           | (136,000 | ) | 859,000 |   |
| Accrued  interest                                                                                     |   | (23,000                | )           | (759,000 | ) | (2,493,000 | ) |
| Accrued  payroll costs                                                                                |   | 2,139,000              |        | 2,921,000 |   | (2,216,000 | ) |
|                                                                                                  |   |                   |        |   |   |   |   |
| Net  cash provided by / (used in) continuing operating activities                                     |   | $                      | 14,368,000  |   | $ | 19,308,000 |   | $ | (2,093,000 | ) |

 

The accompanyingnotes are an integral part of these consolidated statements.

 

F-7

----

 

AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 27, 1999, DECEMBER 25, 2000, AND DECEMBER 31, 2001

 

1.             Background and Summary of Significant AccountingPolicies

 

a.     Company

 

AmericanRestaurant Group, Inc. (the “Company”), a Delaware corporation, through itssubsidiary ARG Enterprises, Inc., operates middle-price full-servicerestaurants, primarily in California, the Pacific Northwest, and Arizona.  The Company is a subsidiary of AmericanRestaurant Group Holdings, Inc. (“Holdings”), also a Delaware corporation.  At fiscal year-end 1999, 2000, and 2001, theCompany, operated 102, 105, and 107 restaurants, respectively, in its onlycontinuing operating segment.

 

b.     Operations

 

The Company’soperations are affected by local and regional economic conditions, includingcompetition in the restaurant industry.

 

On October 31,2001, the Company consummated an exchange offer (the “Exchange”) pursuant towhich the Company offered to exchange its 111⁄2% Senior Secured Notes due 2006(the “New Notes”) for all of its $142,600,000 outstanding 111⁄2% Senior Secured Notesdue 2003 (the “Old Notes”) and an offering (the “Offering”) of $30,000,000aggregate principal amount of New Notes. After the consummation of the Exchange, the Offering, and relatedtransactions (collectively, the “Refinancing”), the Company has no furtherpayment obligations with respect to over 97.6% of the outstanding Old Notes(constituting all but $3,410,000 aggregate principal amount of the Old Notes)and assumed payment obligations equivalent to $161,774,000 of the New Notes.The Refinancing substantially eliminates debt principal payments until November2006.

 

Managementbelieves the Refinancing will also allow it to continue to effect changes inits operations and has implemented measures to reduce overhead costs.  The Company does not, however, expect togenerate sufficient cash flows from operations in the future to fully pay theprincipal on long-term debt upon maturity in the year 2006 and, accordingly, itexpects to refinance all or a portion of such debt, obtain new financing, orpossibly sell assets.

 

c.     Sale of Stock to Spectrum RestaurantGroup, Inc.

 

In June 2000, theCompany sold all of the outstanding stock of four wholly owned subsidiaries(“Non-Black Angus Subsidiaries”) to Spectrum Restaurant Group, Inc. formerlyknown as NBACo, Inc.)  There was no gainor loss recorded because of the related-party nature of the stock sale.  The Company received $17.0 million in cashon June 28, 2000, and transferred certain assets and liabilities to SpectrumRestaurant Group, Inc.  Concurrent withthe sale, advances between the Company and the Non-Black Angus Subsidiarieswere

 

F-8

----

 

eliminated.Paid-in capital of $27.0 million has been charged as a result of the sale. TheCompany retained the assets and liabilities associated with certain closedrestaurants as well as certain liabilities, estimated at the effective date ofthe stock sale, June 26, 2000, to be $12.6 million, associated with theoperating restaurants that were sold. The amount of estimated liabilities remaining at December 31, 2001 wasapproximately $525,000.

 

The Company iscurrently working to settle these liabilities. Any adjustments to the recorded balance, as a result of such settlement,will be recognized when the amount becomes known.  Management believes that such amounts, if any, will not bematerial to the Company's financial position or results of operations.

 

d.     Principles of Consolidation

 

The consolidatedfinancial statements include the accounts of the Company and its wholly ownedsubsidiaries.  All significantintercompany accounts and transactions have been eliminated.

 

e.     Use of Estimates in the Preparation ofFinancial Statements

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities, and the reported amounts ofrevenues and expenses.  Actual resultscould differ from those estimates.

 

f.      Inventories and Prepaid Expenses

 

Inventoriesconsist primarily of food, beverages, and supplies and are valued at the lowerof cost (first-in, first-out method) or market value.

 

g.     Advertising Costs

 

Advertising costsare accrued as a percentage of sales and expensed during the year. At year-end,production costs for advertisements that have not been aired are included inprepaid expenses.  Prepaid advertisingcosts of $1,022,000 and $686,148 were included in prepaid expenses at December25, 2000 and December 31, 2001, respectively. Advertising expenses included innet income (loss) were $13,515,000, $16,134,000, and $13,499,144 in fiscalyears 1999, 2000, and 2001, respectively.

 

h.     Property and Equipment

 

Property andequipment is carried at the lower of cost or, if impaired, at the estimatedfair value of the assets. The Company provides for depreciation andamortization based upon the estimated useful lives of depreciable assets usingthe straight-line method.  Estimateduseful lives are as follows:

 
| Land improvements                   |   | 20 years       |
|-------------------------------------|--------|----------------|
| Buildings                           |   | 30 to 35 years |
| Leasehold improvements              |   | Life of lease  |
| Fixtures and equipment              |   | 3 to 10 years  |
| Property held under  capital leases |   | Life of lease  |

 

When a restaurantis opened, the initial purchase of expendable equipment, such as china,glassware, and silverware, is recorded as an asset and is not depreciated. Allreplacements, however, are expensed. Substantially all of the Company’s and itsdirect subsidiaries' assets, including property and equipment, are pledged ascollateral on the senior debt of the Company.

 

F-9

----

 

i.      Interest Costs

 

Interest costsincurred during the construction period of restaurants are capitalized.  The Company capitalized approximately$44,000 for the year ended 1999. There were no interest costs capitalized in2000 or 2001.

 

j.      Other Assets

 

Other assetsinclude intangible assets, leasehold interests, franchise rights, liquorlicenses, and cost in excess of net assets acquired.  These costs are amortized using the straight-line method over theperiods estimated to be benefited, but not greater than 40 years.

 

Deferred debtcosts are amortized using the effective interest method over the related debtterm.

 

Estimated usefullives are as follows:

 

| Intangible assets                      |   | 3 to 40 years |
|----------------------------------------|--------|---------------|
| Deferred debt costs                    |   | Term of debt  |
| Leasehold interests                    |   | Life of lease |
| Liquor licenses                        |   | 40 years      |
| Cost in excess of net  assets acquired |   | 40 years      |

 

The followingtable details the components of intangible assets included in the accompanyingconsolidated balance sheets (in thousands):

 

|                      |   | **December  25,  2000** |   | **December  31,  2001** |   |
|---------------------------|--------|-------------------------|--------|-------------------------|--------|
| Trademarks/service  marks |   | $                       | 1,794  |                    | $      | 1,794 |   |
| Acquisition  costs        |   | 696                     |   | 696                     |   |
| Other                     |   | 41                      |   | 41                      |   |
|                      |   |                    |   |                    |   |
| Total                     |   | $                       | 2,531  |                    | $      | 2,531 |   |

 

As of December 25,2000 and December 31, 2001, no indicators of impairment exist.

 

k.     Insurance

 

TheCompany self-insures certain risks, including medical, workers’ compensation,property, and general liability, up to varying limits. Deductible andself-insured limits have varied historically, ranging from $0 to $500,000 perincident depending on the type of risk. The policy deductibles are $100,000 forannual medical and dental benefits per person. Reserves for losses areestablished based upon presently estimated obligations for the claim over timeand the deductible or self-insured retention in place at the time of the loss.

 

l.      Fair Value of Financial Instruments

 

The Company’sfinancial instruments consist primarily of cash, accounts receivable andpayable, and debt instruments.  Thecarrying values of all financial instruments, other than debt instruments, arerepresentative of their fair value due to their short-term maturity.  The fair value of the Company’s long-termdebt instruments is estimated based on the current rates offered to theCompany. The Company believes that the stated rate on the Company’s long-termdebt approximates the rate that would be currently available.

 

F-10

----

 

        m.    AccountingPeriod

 

The Company’sfiscal year ends on the last Monday in December.  The Company uses a 5-week/4-week/4-week quarterly accountingcycle.  As a result, the Company has a53-week fiscal year once every 5 years. 2001 is a 53-week fiscal year.

 

n.     Earnings per Share

 

Earnings per shareinformation is omitted because of the Company's history of operatinglosses.  These losses created anaccumulated deficit.  Therefore, anearnings per share disclosure is not meaningful.

 

o.     Reclassifications

 

Certain prior yearaccounts have been reclassified to conform with the current year’spresentation.

 

p.     New Accounting Pronouncements

 

In June 2001, theFinancial Accounting Standards Board issued Statements of Financial AccountingStandards (SFAS) No. 141, “Business Combinations” and SFAS No. 142, “Goodwilland Other Intangible Assets.” These new standards are effective for fiscalyears beginning after December 15, 2001. Under the new standards, goodwill willno longer be amortized, but will be subject to an annual impairment test. Thestandards also promulgate new requirements for accounting for other intangibleassets. The impact of the new standards on our financial position and resultsof operations has not yet been determined, but we believe they will not bematerial.

 

In August 2001,the Financial Accounting Standards Board issued Statement of FinancialAccounting Standard No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets*.” *FASB StatementNo. 144 retains FASB Statement No. 121’s “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed*,”*fundamental provisionsfor the: (1) recognition and measurement of impairment of long-lived assets tobe held and used; (2) measurement of long-lived assets to be disposed of bysale.  The Company does not believe thatFASB Statement No. 144 will have a material impact on its financial position orresults of operations.  Statement No.144 is effective for fiscal years beginning after December 15, 2001.

 

2.     Lease Obligations

 

TheCompany leases certain of its operating facilities under terms ranging up to 40years.  These leases are classified asboth operating and capital leases. Certain of the leases contain provisionscalling for rentals based on sales or other provisions obligating the Companyto pay related property taxes and certain other expenses.

 

Thefollowing is a summary of property held under capital leases and included inthe accompanying consolidated balance sheets (in thousands):

 

|                             |   | **December  25,  2000** |   | **December  31,  2001** |   |
|----------------------------------|--------|-------------------------|--------|-------------------------|--------|
| Property                         |   | $                       | 7,480  |                    | $      | 7,293 |   |
| Less  - Accumulated depreciation |   | 6,071                   |   | 6,233                   |   |
|                             |   |                    |   |                    |   |
|                             |   | $                       | 1,409  |                    | $      | 1,060 |   |

 

Thefollowing represents the minimum lease payments remaining under noncancelableoperating leases and capitalized leases as of December 31, 2001 (inthousands):

 
| **Fiscal years ending**                  |   | **Operating  Leases** |       | **Capitalized  Leases** |       |
|------------------------------------------|--------|-----------------------|------------|-------------------------|------------|
| 2002                                     |   | $                     | 17,085     |                    | $          | 1,077 |   |
| 2003                                     |   | 17,252                |       | 829                     |       |
| 2004                                     |   | 16,937                |       | 263                     |       |
| 2005                                     |   | 14,980                |       | 232                     |       |
| 2006                                     |   | 13,548                |       | 232                     |       |
| Thereafter                               |   | 180,276               |       | 1,115                   |       |
|                                     |   |                  |       |                    |       |
| Total  minimum lease payments            |   | $                     | 260,078    |                    | 3,748      |   |
|                                     |   |                  | ** ** |                    | ** ** |
| Less  - Imputed interest(8.75% to 15.5%) |   |                  |       | 1,153                   |       |
|                                     |   |                  | ** ** |                    | ** ** |
| Present  value of minimum lease payments |   |                  |       | 2,595                   |       |
|                                     |   |                  |       |                    |       |
| Less  - Current portion                  |   |                  |       | 796                     |       |
|                                     |   |                  |       |                    |       |
| Long-term  portion                       |   |                  |       | $                       | 1,799      |   |

 

Rental expense was$15,460,000, $16,650,000 and $18,609,000 during 1999, 2000, and 2001,respectively.

 

F-11

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3.     Long-Term Debt

 

Long-term debt issummarized as follows (in thousands):

 
|                                                                                                                        |   | **December  25,  2000** |    | **December  31,  2001** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|-------------------------|--------|
| Senior  secured notes, interest only due semi-annually beginning August 15, 1998 at  11.5%, principal due February 15, 2003 |   | $                       | 142,600 |                    | $      | 3,410 |   |
| Senior  secured notes, interest only due semi-annually beginning May 1, 2002 at  11.5%, principal due November 1, 2006      |   | —                  |    | 161,774                 |   |
| Unamortized  discount on 2006 Notes                                                                                         |   | —                  |    | (9,020                  | )      |
| Other                                                                                                                       |   | 1,898                   |    | 1,510                   |   |
|                                                                                                                        |   |                    |    |                    |   |
|                                                                                                                        |   | 144,498                 |    | 157,674                 |   |
| Less  - Current portion                                                                                                     |   | 432                     |    | 402                     |   |
|                                                                                                                        |   |                    |    |                    |   |
| Long-term  portion                                                                                                          |   | $                       | 144,066 |                    | $      | 157,272 |   |

 

Maturities of theremaining long-term debt during each of the five fiscal years following fiscalyear-end 2001 are $402,000, $3,441,000, $35,000, $44,000, and $161,823,000,with a balance of $949,000 due thereafter.

 

On December 17,2001, the Company entered into a loan agreement with Foothill CapitalCorporation for a new revolving credit facility (the “New Credit Facility”).The New Credit Facility replaced the Company’s former credit facility withFleet National Bank, which was to expire on June 30, 2002.  The New Credit Facility provides for cashborrowings and letters of credit in an aggregate amount of $15.0 million.  The New Credit Facility provides for anunused line fee payable monthly in arrears, fees payable on outstanding lettersof credit as well as certain additional fees. Borrowings under the New Credit Facility bear interest at the “primerate” announced by Wells Fargo Bank, National Association plus 1.5%.  The New Credit Facility terminates onDecember 17, 2005. As of December 31, 2001, the Company had $5.9 million ofletters of credit outstanding related to its self-insurance program and no cashborrowings on its new revolver.

 

Substantially allassets of the Company and its subsidiaries are pledged to senior lenders. Inconnection with such indebtedness, contingent and mandatory prepayments may berequired under certain specified conditions and events.  There are no compensating balancerequirements.

 

Managementbelieves the fair value of the debt approximates its carrying value.

 

 

F-12

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4.     Income Taxes

 

The Company’sstate income-tax provision, all of which was current, was $70,000, $185,000,and $70,000 in 1999, 2000, and 2001, respectively.  No provision for Federal income taxes was required in any year.

 

The income-taxeffects of temporary differences that give rise to significant portions of theCompany’s deferred income-tax assets and liabilities are as follows (inthousands):
|                                                                           |   | **Fiscal  year ended** |   |
|--------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                           |   | **December  25,2000**  |   | **December  31,2001** |   |
| Deferred  income-tax asset:                                                    |   |                   |   |   |   |
| Reserves  and other accrued expenses not currently deductible for tax purposes |   | $                      | 3,358  |   | $ | 3,237 |   |
| Long-lived  asset impairment not recognized on tax return                      |   | 2,813                  |   | 2,813 |   |
| Tax  gain on sale/leaseback transactions, net                                  |   | 2,978                  |   | 2,895 |   |
| Net-operating-loss  carryforward from continuing operations                    |   | 39,043                 |   | 34,016 |   |
|                                                                           |   |                   |   |   |   |
| Deferred  income-tax asset                                                     |   | 48,192                 |   | 42,961 |   |
|                                                                                |        |                        |        |  |  |  |  |

 
|                                                                           |   | **Fiscal  year ended**  |   |
|--------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                           |   | **December  25,  2000** |   | **December  31,  2001** |   |
| Deferred income-tax liability:                                                 |   |                    |   |   |   |
| Tax  depreciation greater than depreciation for financial reporting purposes   |   | (6,789                  | )      | (5,723 | ) |
| Costs  capitalized for financial reporting purposes and expensed on tax return |   | (4,087                  | )      | (2,721 | ) |
| Other,  net From continuing operations                                         |   | (350                    | )      | (410 | ) |
|                                                                           |   |                    |   |   |   |
| Deferred  income-tax liability                                                 |   | (11,226                 | )      | (8,854 | ) |
|                                                                           |   |                    |   |   |   |
| Deferred  asset, net of deferred liability                                     |   | 36,966                  |   | 34,107 |   |
| Valuation  allowance                                                           |   | (36,966                 | )      | (34,107 | ) |
|                                                                           |   |                    |   |   |   |
| Net  deferred income-tax asset                                                 |   | $                       | — |   | $ | — |   |
|                                                                                |        |                         |        |  |  |  |  |

 

TheCompany fully reserves its net deferred tax assets because of its history ofoperating losses.

 

F-13

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The effective tax rate differs from the Federalstatutory rate of 34 percent as a result of the following items (in thousands):
|                                                                  |   | **Fiscal year  ended** |       |
|-----------------------------------------------------------------------|--------|------------------------|------------|
|                                                                  |   |                   |       |   |   |   |   |
|                                                                  |   | **December  27,1999**  |       | **December  25,2000** |   | **December  31,2001** |   |
| Federal  income-tax provision (benefit) at statutory rates            |   | $                      | (1,903     | ) | $ | 2,655 |   | $ | (1,035 | ) |
| State  income-tax provision for which no Federal benefit was recorded |   | 1                      |       | 464 |   | 29 |   |
| Losses  for which no Federal benefit was recorded                     |   | 1,195                  |       | — |   | 1,219 |   |
| Nondeductible  items, principally intangible amortization             |   | 777                    |       | 159 |   | 117 |   |
| Benefit  of net-operating-loss carryforward                           |   | —                 |       | (3,093 | ) | — |   |
| **Cancellation of debt income**                                       |   | **—**             | ** ** | **—** | ** ** | **(260** | **)** |
| Provision  for income taxes                                           |   | $                      | 70         |   | $ | 185 |   | $ | 70 |   |

 

In connection with the 2001 Refinancing, the Companyrecorded cancellation of indebtedness income in the amount of $763,000.  Under certain circumstances, cancellation ofindebtedness income is not taxed for Federal income-tax purposes.  However U.S. income-tax law requires thatnet operating losses and other tax attributes be reduced.  At December 31, 2001, the Company had availablenet-operating-loss carryforwards for Federal income-tax purposes of $92,596,000expiring in 2003 to 2020, and Federal general-business-credit carryforwards of$7,452,000, expiring in 2009 to 2020. The Company fully reserves both the net-operating-loss andgeneral-business-credit carryforwards.

 

5.     Commitments and Contingencies

 

The Company is obligated under an employment agreementwith an officer. The obligation under the agreement is $500,000, provides forperiodic increases, and expires in 2002 unless extended.

 

The Company has been named as defendant in variouslawsuits.  Management’s opinion is thatthe outcome of such litigation will not materially affect the Company’sfinancial position or results of operations.

 

6.     Cumulative Preferred Stock, MandatorilyRedeemable

 

As part of a recapitalization plan in February 1998,the Company issued 35,000 preferred stock units (the “Units”) of theCompany.  Each Unit consists of $1,000initial liquidation preference of 12% senior pay-in-kind exchangeable preferredstock and one common-stock purchase warrant initially to purchase 2.66143shares of the common stock at an initial exercise price of one cent pershare.  The Company’s cumulativepreferred stock is mandatorily redeemable on August 15, 2003. If the Companydoes not redeem its preferred stock for cash at a price per share equal to 110%of the then applicable liquidation preference, its preferred stock will beautomatically redeemed for shares of common stock at that time and all rightsof the preferred stock will terminate. Management believes that the preferredstock will convert to common stock.

 

In the second quarter of 2000, the Company agreed toan interpretation of the financial covenants used to determine the dividendrate.  The result was an increase in thedividend rate from 12% to 15% and additional dividends issued on August 15,2000 of 2,503 shares (relating to holders at August 1999 and February 2000).Stock dividends of 5,872 (including the adjustment), 3,618 shares, 3,889shares, and 4,181 shares were made on August 15, 2000, February 15, 2001,August 15, 2001, and February 15, 2002, respectively. There were 58,883 sharesoutstanding and accrued at December 31, 2001.

 

F-14

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7.     Common Stock

 

As of December 29, 1997, all of the Company’s commonstock was owned by Holdings, and certain members of the Company’s management(the “Management Shareholders”). The Management Shareholders also own alloutstanding shares of Holdings common stock other than shares of Holdingscommon stock issued to holders of the debenture units and rights to acquireshares of Holdings common stock issuable upon exercise of warrants.

 

In conjunction with the 1998 recapitalization plan,the Company issued shares of common stock to the Management Shareholders in anaggregate amount equal to 15% of the common stock on a fully dilutedbasis.  Such Management Shareholdersentered into a voting trust agreement with Anwar Soliman to exercise all votingand substantially all other rights to which such Management Shareholders wouldotherwise be entitled until August 15, 2005, or the earlier termination of theagreement.  The Management Shareholdersalso entered into a shareholders’ agreement with the remaining Companyshareholders, which provides that the parties will agree to vote all of theirshares of the Company’s equity securities so that the Board of Directors of theCompany consists of five directors, with two directors designated by TCWInvestors, two by the Management Shareholders, with the remaining directorbeing an independent director initially designated by the initial purchaser ofthe Notes.

 

8.     Savings Plan

 

The American Restaurant Group Savings and InvestmentPlan (the “Savings Plan”) is a 401(k) plan established for the benefit ofemployees who satisfy certain requirements. These requirements include completion of one year of service with aminimum of 1,000 hours worked.  Subjectto applicable limits imposed on tax-qualified plans, eligible employees mayelect pre-tax contributions up to 20.0% of a participant’s total earnings for acalendar year (but not in excess of $10,500 for 2001).  The Company makes matching contributions tothe Savings Plan equal to 25% of the participant’s contributions up to 6% ofthe participant’s earnings. During fiscal 1999, 2000, and 2001, the Companycontributed approximately $225,000, $206,000, and $209,000 to the Savings Plan,respectively.  At December 31, 2001,there were approximately 2,500 employees eligible and 500 contributors to theplan.

 

 

F-15

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