# UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549FORM 10-K

# (Check One)

[X]    
          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934 [NO FEE REQUIRED]

# For The Fiscal Year
Ended June 29, 2003

[ ]    
          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:
0-22639

CHAMPPS ENTERTAINMENT, INC.(Exact name of registrant as
specified in its charter)

|Delaware                    
(State or other jurisdiction       
of incorporation or organization) | 04-3370491
(I.R.S. Employer
Identification No.)
|-------------------------------------------------------------------------------------------------- | -----------------------------------------------
|10375 Park Meadows Drive, Suite 560, Littleton, CO 
(Address of principal executive offices)       | 80124
(Zip Code)                               

303-804-1333(Registrants telephone number,
including area code)

Securities registered pursuant to
Section 12 (b) of the Act: None

Securities registered pursuant to Section
12 (g) of the Act:Common Stock, par value $.01 per share

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if the registrant is
an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): YES [X] NO [ ]

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

The aggregate market value of the
voting stock held by non-affiliates of the registrant based on the closing price of the
Common Stock of the registrant as quoted on the National Association of Securities Dealers
Automated Quotation System on September 19, 2003 was $63,267,969.

The aggregate market value of the
voting stock held by non-affiliates of the registrant based on the closing price of the
Common Stock of the registrant as quoted on the National Association of Securities Dealers
Automated Quotation System on December 29, 2002 was $81,408,215

Number of shares of Common Stock,
$.01 par value, outstanding at September 19, 2003: 12,778,050

---



DOCUMENTS INCORPORATED
BY REFERENCE

The sections of the Companys
definitive Proxy Statement, listed below, which have been or will be filed by the Company
with the Securities and Exchange Commission, are incorporated in this Annual Report by
reference and shall be deemed to be a part hereof:

| | The Companys definitive Proxy Statement mailed in connection with its Annual Meeting of
Stockholders to be held on or about December 3, 2003 pursuant to regulation 14A, which
involves the election of directors.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cross Reference Sheet
between Items ofRegistrants
Proxy Statement and Form 10-K

|PART III |                                                                                       
|-------- | --------------------------------------------------------------------------------------
|10       | Directors and Executive        Officers of the Registrant                             
|11       | Executive Compensation                                                                
|12       | Security Ownership of Certain  
        Beneficial Owners and      
        Management
|13       | Certain Relationships and
        Related Transactions                                

Copies of all documents incorporated
by reference other than exhibits to such documents will be provided without charge to each
person who receives a copy of this Annual Report upon written request addressed to:
Investor Relations, Champps Entertainment, Inc., 10375 Park Meadows Drive, Suite 560,
Littleton, Colorado 80124. The annual report is also available at our web site at
www.champps.com.

i

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# FORM 10-K INDEX

|PART I                                                   
|---------------------------------------------------------
|Item 1  
        Item 2  
        Item 3  
        Item 4

|PART II                                                                               
|--------------------------------------------------------------------------------------
|Item 5 
        Item 6 
        Item 7 
        Item 7a
        Item 8 
        Item 9

|PART III                                                                   
|---------------------------------------------------------------------------
|Item 10 
        Item 11 
        Item 12 
        Item 13 
        Item 14

|PART IV
|-------
|Item 15

ii

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# FORWARD-LOOKING
STATEMENTS

This Annual Report on Form 10-K
and the documents incorporated by reference into the Annual Report on Form 10-K include
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. We use words such as
may, believe, estimate, expect,
plan, intend, project, anticipate and
similar expressions to identify forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about future
events, activities or developments. Our actual results could differ materially from those
discussed in or implied by these forward-looking statements. Forward-looking statements
include statements relating to, among other things:

|(1) 
(2) 
(3) 
(4) 
(5) 
(6) 
(7) 
(8) 
(9) 
(10) 
(11) 
(12) 
(13) 
(14) | the highly competitive nature of the restaurant industry;
our ability to achieve and manage our planned expansion;
our ability to raise capital in the future;
changes in the availability and costs of food;
potential fluctuation in our quarterly operating results due to seasonality and other factors;
the continued service of key management personnel;
consumer perceptions of food safety;
changes in consumer preferences or consumer discretionary spending;
our ability to attract, motivate and retain qualified associates;
labor shortages or increased labor charges;
our ability to protect our name and logo and other proprietary information;
the impact of litigation;
the impact of federal, state or local government regulations relating to our associates or the
sale of food and alcoholic beverages; and,
the ability to fully utilze income tax operating loss and credit carryforwards.
|------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These forward-looking statements
are subject to numerous risks, uncertainties and assumptions about us, including the
factors described under Item 1. Business  Risk Factors. The
forward-looking events we discuss in this Annual Report on Form 10-K might not occur in
light of these risks, uncertainties and assumptions. We undertake no obligation and
disclaim any obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

Unless otherwise provided in this
Annual Report on Form 10-K, references to the Company, Champps,
we, us and our refer to Champps Entertainment, Inc.
and our consolidated subsidiaries. Our fiscal years ended June 29, 2003, June 30, 2002 and
July 1, 2001 are referred to as fiscal 2003, 2002 and 2001, respectively. Fiscal 2003,
2002 and 2001 each contained 52 weeks.

1

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# PART I

# Item 1.        Business.

# Overview

Champps offers an energetic, upscale
casual dining experience with uncompromising service and an extensive menu of freshly
prepared items, set in a comfortable atmosphere that promotes social interaction among our
guests. As of September 19, 2003, we owned and operated 44 restaurants in 16 states and
had 12 restaurants operating under franchise or license agreements in five states. Our
menu is comprised of approximately 86 items, primarily made from scratch on the premises.
We typically include a selection of 16 appetizers, ten main plate salads, 28 high-end
sandwiches and specialty burgers and 26 entrée selections, along with an additional
five to eight regularly changing specials. Our menu selection includes not only
traditional American favorites such as Champps Meatloaf and Grilled Salmon, but also
a variety of ethnic cuisine such as our Mongolian Egg Rolls and Wai Kan Chicken. This
diversity is designed to provide our guests with appropriate choices to meet their dining
preference throughout our four distinct day-parts: lunch, after-work, dinner and late
night. We believe that our enticing offerings and generous portions, combined with an
average check per dining room guest of approximately $13.03 in fiscal 2003, excluding
alcoholic beverages, offer our guests exceptional value.

Our restaurants are designed to
create an engaging and socially interactive dining experience. Through the use of multiple
levels and other design elements such as ceramic Italian style tile, slate style floors
and extensive wood accents, we are able to create a variety of dining atmospheres to
satisfy a wide range of diners including families with children, business professionals,
couples and singles, as well as sports fans of all ages. Our restaurants range from
approximately 7,500 to nearly 12,100 square feet and seat 217 to 360 guests. We position
multiple video walls and large televisions strategically throughout each restaurant to
create an energetic and participatory dining experience. Our bar area, which is located
away from the main dining area, creates a focal gathering point for our guests to
socialize. We offer music, television broadcasts and special promotional events to
increase guest traffic and promote repeat visits. During fiscal 2003, the average unit
sales of our restaurants opened for the entire 12 months was approximately $4.9 million,
which is among the highest in the casual dining industry.

We locate our restaurants in areas
that have a combination of commercial office space, residential housing and high traffic
areas such as shopping malls or multi-screen movie theaters to attract guests in all of
our day-parts. Our restaurants principally rely on frequent visits and loyalty from our
guests who work, reside or shop nearby, rather than tourist traffic. Typically, our
restaurants are located within large metropolitan areas that draw fan interest in
professional and collegiate sport teams to allow us to promote the broadcasting of these
sporting events in our restaurants.

We opened seven restaurants in fiscal
2003. We expect to open six to eight restaurants in fiscal 2004 by expanding our presence
in existing markets and selectively entering new markets. We have increased our number of
company-owned restaurants from 18 in fiscal 1999 to 41 restaurants in fiscal 2003,
representing a compounded annual growth rate of 22.8%. We believe that the flexibility of
our day-part model, the diversity and quality of our freshly prepared menu items, our
unique entertainment and excellent service have created an attractive, high sales volume
restaurant model that provides us with considerable growth opportunities to develop our
brand nationwide.

# Business strategy

Our objectives are to build our brand
awareness and guest loyalty and provide our guests with exceptional food, uncompromising
service and an exciting ambiance during each of our four day-parts. To achieve our
objectives, we have developed the following strategies:

2

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Offer a comprehensive menu
featuring enticing foods and beverages.We offer an extensive and varied menu in each
of our four day-parts. Our menu is designed to suit a wide variety of dining occasions
that broadens our consumer appeal and keeps the menu fresh for our frequent diners. In
contrast to many competing restaurant operations, substantially all of our menu items are
prepared on the premises from scratch using high quality, fresh ingredients and
proprietary recipes. Champps is recognized by our guests for providing exceptional value
by offering generous food portions at moderate prices. Our sophisticated, full service bar
offers approximately 18 selections of wine, 20 domestic and imported bottled and draft
beers, as well as premium liquor and specialty drinks. For fiscal 2003, sales of alcoholic
beverages represented approximately 29.5% of our total food and beverage sales.

Provide service that
WOWs our guests. We strive to personalize the dining experiences of our
guests by instilling both high standards and a sense of urgency among our associates to
exceed each guests dining expectations. We position associates to greet guests when
they enter our restaurants and train our managers to visit each table. We also encourage
our bartenders to introduce themselves to each patron at the bar, and our servers
typically are responsible for no more than three to four tables at a time. Our entire
staff is dedicated to executing our standard of delivering orders within 12 minutes of
being placed. We encourage a strong, team-oriented atmosphere among our associates that we
believe creates uncompromising guest service and a sense of pride in the Champps brand.

Create a fun, high energy, social
dining and entertainment experience. Our distinct dining experience features extensive
entertainment and socially interactive activities designed to encourage guest frequency
and attract guests outside of normal peak dining hours. For example, we increase guest
traffic in our late night day-part by encouraging guest participation in a variety of
promotional events we offer, such as the Big Bike Give-Away and Karaoke. Our
special design elements, multiple dining levels, patio areas and sizable bar area allow us
to comfortably serve guests seeking different dining experiences and further promote
frequent visits. Our two to three video walls and ten to 12 televisions located throughout
our restaurants, as well as our state-of-the-art audio systems, enable us to provide an
exciting and socially interactive environment to view major sporting events. Our open
display kitchens afford our guests the opportunity to observe our kitchen staff in action.

Capitalize on our proven multiple
day-part model. Champps restaurants generally are open seven days a week from 11:00
a.m. to 1:00 a.m. We serve our guests during lunch, after work, during dinner and after
dinner during our late night periods. For fiscal 2003, we generated 33.7% of our sales
during lunch, 60.3% after work and during dinner and 6.0% during late night, demonstrating
the versatility of our concept and our ability to serve guests for a variety of occasions
such as professional lunches and everyday dining, as well as social and special occasions.
We adjust our ambiance throughout the day by changing the music and choice of programming
for each day-part. According to a market research study of over 1,100 of our guests
completed during fiscal 2002, on average our guests visit Champps 2.7 times per month
while 10.0% of our guests visit our restaurants on an average of 11 times per month. By
operating in multiple day-parts, we are able to maximize revenue and leverage both
development and operating costs. We believe the versatility of our operating strategy has
allowed us to build strong guest loyalty with a high percentage of repeat business.

3

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Deliver strong unit economics.
We believe our company-owned restaurants provide strong unit level economics. Our
company-owned restaurants open throughout fiscal 2003 generated average restaurant sales
of approximately $4.9 million and restaurant level operating cash flows of approximately
$0.8 million1, or 16.3% of average annual restaurant sales. The average cash
investment cost for all of our restaurants opened since the beginning of fiscal 2001 was
approximately $1.7 million, excluding pre-opening expense, which averaged approximately
$0.4 million per restaurant. Although the reporting of restaurant level operating cash flows is
a non-GAAP measure of our performance, we believe that a prudent investor needs to understand
the economic model of Champps to make an informed investment decision.

Build awareness of the Champps
brand.We believe that the Champps name has achieved substantial brand equity among
our guests and has become well known within our markets for our high quality, innovative
menu items, generous portions, uncompromising service and a fun, engaging dining
experience. We have implemented a first time guest program that is intended to strengthen
our brand loyalty by educating our first time guests about the Champps concept. In
addition, we believe the most effective way to build brand awareness is to consistently
deliver a dining experience that exceeds our guests expectations.

# Growth strategy

We adhere to a disciplined growth
strategy and believe that there are significant opportunities to expand our concept in
existing and new markets throughout the United States. The future development of Champps
restaurants will be accomplished primarily through the development of company-owned
restaurants in existing markets. In addition, we plan to open approximately 25% to 30% of
our new restaurants in new markets. Opening multiple units in existing markets enables us
to leverage costs and gain efficiencies associated with regional supervision, marketing,
purchasing and hiring. We believe this approach reduces the risks involved with opening
new restaurants in markets where we better understand the existing competitive conditions,
consumer tastes, demographics and discretionary spending patterns. In addition, our
ability to hire qualified associates is enhanced in markets in which we are well known and
we are able to utilize existing associates in new restaurants and capitalize on our brand
awareness.

Our current expansion plans do not
include adding new franchisees. Although our existing franchisees do not have the right to
open additional restaurants, under certain circumstances we may permit our existing
franchisees to open additional restaurants from time-to-time. Currently, an existing
franchisee is negotiating to open a Champps restaurant in Des Moines, Iowa. Although we
have no obligation to do so, in the future, we may seek to acquire some or all of our 12
franchised restaurants from our franchisees. This may require additional capital.

In fiscal 2001, fiscal 2002 and
fiscal 2003, we opened four, six and seven new restaurants, respectively. We plan to open
six to eight restaurants in fiscal 2004. As of September 19, 2003, we have opened three
restaurants, begun construction on three restaurants and have signed agreements for four
additional restaurants that will open in fiscal 2004 or 2005. In addition, we have
identified multiple sites that meet our growth objectives for the remainder of fiscal 2004
and partially through fiscal 2005.

(1)
          Average restaurant level operating cash flow for 2003 (in 000's)

|                                                      | Total | Stores open greater
than one year | Stores open less
than one year
|----------------------------------------------------- | ----- | --------------------------------- | ------------------------------
|Income from operations                                |       |                                   |                               
|less franchise and royalty, net                       |       |                                   |                               
|plus general and administrative expense               |       |                                   |                               
|plus depreciation and amortization                    |       |                                   |                               
|plus pre-opening                                      |       |                                   |                               
|plus equipment operating leases                       |       |                                   |                               
|                                                      |       |                                   |                               
|Restaurant level operating cash flows                 |       |                                   |                               
|                                                      |       |                                   |                               
|Divided by stores open greater than one year          |       |                                   |                               
|                                                      |       |                                   |                               
|Average restaurant level operating cash flow for 2003 |       |                                   |                               
|                                                      |       |                                   |                               

4

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We believe that our site selection
strategy is critical to our success and we devote substantial effort to evaluating each
potential site at the highest levels within our organization. Our chief executive officer,
chief operating officer and the respective regional directors of operations must approve
each restaurant site. Our site selection criteria focuses on locating in larger
metropolitan areas with average household income of at least $75,000 and population
density in excess of 75,000 within a three mile radius. In addition, site visibility,
traffic patterns, accessibility, adequate parking, competitive restaurants, associate
availability, proximity to entertainment activities, as well as areas near a combination
of commercial office space, residential housing and high traffic areas, influence our site
selection criteria. Potential sites are also evaluated by our vice president of
development to insure we meet our construction obligations and capital expenditure
projections, our legal counsel to insure we negotiate favorable terms in our leases and
our chief financial officer to insure we meet our profit and investment return objectives.

# Unit level economics and
day-part allocation

Our current restaurants range in size
from approximately 7,500 to 12,100 square feet and have approximately 207 to 360 indoor
seats and approximately 42 additional patio seats on average. We lease 40 of our
restaurants and own one. During fiscal 2003, our base of restaurants opened for the entire
12-month period, generated average sales of approximately $4.9 million and restaurant
level operating cash flows of approximately $0.8 million, or 16.3% of restaurant sales.
Based on the Companys average net cash investment to build a restaurant of
approximately $1.7 million, our restaurants opened for the entire 12-month period
generated a cash-on-cash return of over 47.1%.

Our prototype restaurant is
approximately 9,000 square feet and has seating for approximately 320 guests. We have also
constructed a second smaller prototype of 7,500 square feet that has seating for
approximately 250 guests. The average net investment cost for our restaurants depends upon
whether we lease the restaurant or complete the restaurant through a build-to-suit
transaction, the terms of the lease entered into, the amount of tenant improvement
allowance we receive and whether we enter into an operating lease for any equipment. The
average cash investment cost for all of our restaurants opened since the beginning of
fiscal 2001 was approximately $1.7 million, net of tenant improvement allowance and
excluding pre-opening expense of $0.4 million.

Our success in four distinct
day-parts demonstrates the strength of our concept. The following table depicts the amount
and percentage of contribution to each day-part of overall company-owned restaurant sales
during fiscal 2003. During this period, our food and alcoholic beverage sales as a ratio
of total food and beverage sales was 70.5% and 29.5%, respectively.Our dinner
day-part includes our happy hour, which we refer to as sales of alcoholic beverages that
occur between 4:00 p.m. and 10:00 p.m. Our bar area produces approximately 20.5% of our
total restaurant sales, 63.3% of which are generated from 4:00 p.m. to 10:00 p.m., which
signifies our strong after work and happy hour business. Champps merchandise and other
sales totaled $408,000 and were 0.2% of overall sales and are not included below.

Sales  Fiscal 2003
(in 000s)

|                                  | Food Sales | Alcoholic
Beverage Sales | Food and Alcoholic
Beverage Sales
|--------------------------------- | ---------- | ------------------------ | ---------------------------------
|
|Lunch    Open to 4:00 p.m.        |            |                          |                                  
|Dinner    4:00 to 10:00 p.m.      |            |                          |                                  
|Late Night    10:00 p.m. to close |            |                          |                                  
|                                  |            |                          |                                  
|                                  |            |                          |                                  
|Total All Day                     |            |                          |                                  
|                                  |            |                          |                                  
|                                  |            |                          |                                  

5

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# Restaurant design and
ambiance

Our restaurants have an ambiance
enhanced by a layout that encourages social interaction and promotes a high-energy
environment. All of our restaurants have multiple levels that enable us to channel guests
towards a specific location depending upon their dining preferences while also creating an
open atmosphere and the ability for guests to have a panoramic view of the entire
restaurant. The majority of our restaurants have a large L shaped bar area,
located on the first level. The bars numerous angles and bends provide our guests
with a place to meet and socialize. We place large video walls and additional televisions
strategically throughout each restaurant, which together with a state of the art sound
system, provide a source of entertainment for our guests. We monitor the selection of our
broadcasts, music and volume in each dining area to create different dining environments.
We also use plasma televisions to incorporate the latest technologies and keep our
restaurants up to date.

Our restaurant interiors utilize a
combination of dark cherry stained wood and brick throughout the dining area, Italian
style ceramic tile in the kitchen and bathrooms, slate style tile in the bar area and
noise reducing carpet in the dining room. Our bars are generally stainless steel and we
use accented black granite or wood trim at our specially designed hostess stands to
enhance our contemporary feel. The majority of our restaurants include an indoor patio
area with a large fireplace and several have outdoor patios, all of which provide our
guests with multiple settings to choose from. Our display kitchens are presented behind a
floor-to-ceiling glass wall to provide a focal point for the dining room. We use a variety
of directional lighting and chandeliers are used frequently to create a warm environment
in our dining rooms and bar area.

The exterior of our restaurants
typically employ brick, stone and stucco to create a highly visible restaurant that
features a well-lit, large Champps sign and logo. We extensively landscape our restaurants
and where appropriate, vary the exterior design to coordinate with the surrounding area.
Lighted trees, directional lighting on our buildings and large entries further increase
our visual appeal.

# Menu

We offer our guests a comprehensive
selection of approximately 86 items, primarily made on the premises from scratch, which
typically includes a selection of 16 appetizers, ten main plate salads, 28 high-end
sandwiches and specialty burgers and 26 entrée selections. Our menu selection
includes not only traditional American favorites such as Champps Meatloaf and
Grilled Salmon, but also a variety of ethnic cuisine such as Mongolian Egg Rolls and Wai
Kan Chicken. For example, one of our most popular entrees is the Sicilian Parmesan Crusted
Chicken that is created with three large chicken breasts crusted with an Italian herb mix
and shredded parmesan cheese before pan frying in olive oil and accompanied by tender
angel hair noodles, our freshly prepared traditional marinara sauce and fresh garlic
buttered toasted crostini. We continuously experiment with food and beverage items to
develop proprietary recipes with high flavor profiles to ensure that our menu is
imaginative and exciting to our guests. We also feature five to eight specials that change
regularly, allowing us to continually refine our menu offerings and keep our selections
fresh for our frequent users. We believe that the broad range of our menu provides
multiple dining options during each of our day-parts.

We emphasize freshness and quality in
our food preparation and focus on maintaining our reputation for creative and high quality
menu offerings. Our fresh sauces, salad dressings, batters and mixes are prepared daily in
our restaurants using high-quality and fresh ingredients.

The food items on our menu range from
$4.95 to $12.95 for appetizers, $5.95 to $12.95 for burgers and sandwiches, and $7.45 to
$18.95 for dinner salads and entrees. For fiscal 2003, our average guest check in our
dining room was approximately $13.03, excluding alcoholic beverages. Our sophisticated,
full service bar offers approximately 18 selections of wine, most of which are available
by the glass, 20 draft and bottled domestic and imported beers, as well as premium liquor
and specialty drinks. Sales of alcoholic beverages represented approximately 29.5% of
total food and beverage sales during fiscal 2003.

6

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# Food preparation and
quality control

We believe our food quality and
control standards are among the highest in the industry. Our systems are designed to
provide freshly prepared items based on the specifications set by our corporate executive
chef and overseen by an assistant general manager and up to three management assistants.
We invest substantial time in training and testing of our kitchen associates to adhere to
our strict standards and preparation guidelines to maintain our quality control. The
design of our facilities enables us to ensure food is maintained in accordance with the
requirements of the Food and Drug Administration. We audit our sanitary conditions at each
restaurant and train all of our management associates regarding safe handling practices of
all perishable food products.

# Guest loyalty

We believe our restaurants generate
higher than average repeat visits due to our four day-part offerings of lunch, after work,
dinner and late night, as well as the increased guest traffic generated from the
broadcasting of major sporting events. Based upon a market research study of over 1,100 of
our guests completed during fiscal 2002, we determined that on average our guests visit
Champps 2.7 times per month as compared to approximately 1.9 visits per month for the
casual dining industry, while 10.0% of our guests visit our restaurants on average 11
times per month. The social interaction that is created within our restaurants also
provides our guests with a comfortable setting to meet family, friends and co-workers. We
rely on frequent visits and loyalty from our guests to generate the high volume of sales
in our restaurants.

# Marketing and advertising

Historically, we have relied
primarily on guest referrals rather than external marketing initiatives to promote our
brand. Within our restaurants we continually promote special events and upcoming
entertainment activities as well as special menu items or drinks to drive guest frequency
and sales. We have implemented a first time guest program that is intended to strengthen
our brand loyalty by educating our first time guests about the Champps concept. During
fiscal 2003, 2002 and fiscal 2001, our expenditures for advertising and promotions were
less than 1.5% of total restaurant sales.

Our associates are integral to the
success of our in-store marketing strategy. Our hosts introduce our specials to our guests
upon seating, and at the end of each dining experience, our wait staff is instructed to
inform our guests of upcoming special or promotional events. We communicate special events
to our guests with poster stanchions or special displays, as well as table displays.
Finally, when exiting our restaurants, the greeters thank each guest for coming to Champps
and invite them to come back soon.

On occasion, we engage in paid
advertising for individual restaurant locations, including newspaper and radio
advertisements, and have tested cable television advertising in select
markets. We utilize a variety of printed marketing materials, including restaurant
location brochures, hotel concierge cards, take-out menus and direct and electronic
mailings.

# Operations

Restaurant management. At
September 19, 2003, we had nine regional directors who typically oversee approximately
four to seven restaurants each. These regional directors supervise the general managers at
each restaurant in their region. Due to the complexity of our operations and to ensure our
high level of guest service, our restaurant management is divided into three areas, the
general manager, front-of-house managers and back-of-house managers, each of whom are
supported by additional staff members. Our managers are frequently promoted from within
Champps to encourage continuity and opportunities for development, as well as enhance our
corporate culture. We compensate our management team through a combination of base salary
and bonuses based on achieving established performance levels for revenue, profit and
guest service.

7

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Restaurant associates and service.We believe that our uncompromising service is one of our differentiating factors. Our
service is based on a team concept to ensure that guests are made to feel that any
associate can help them and that they are never left unattended. To maintain these high
standards, we seek to hire and train personnel who believe in our philosophy and are
passionate about guest service. We strive to personalize the dining experiences of our
guests by instilling both high standards and a sense of urgency among our associates. All
associates meet with their managers at two daily pre-shift motivational and informational
meetings in which service standards, restaurant promotions, specials and quality control
are reviewed. We frequently reward individual and restaurant achievement through several
recognition programs intended to build and maintain associate morale. For example, our
Pin Program rewards and recognizes the efforts of associates with pins that
are worn proudly on uniforms to publicly acknowledge their commitment to guest service.

Training.The restaurant management team is provided with an intensive eight-week
          training program to ensure they have appropriate knowledge to excel in their
          position. All members of management are required to receive kitchen training to
          understand the importance of the food preparation process and how the quality of
          our menu is a significant driver of repeat guest visits. In addition, all field
          management associates with a minimum of six months experience with Champps
          complete a one-week training program entitled Champps Management
          Leadership Conference. This program combines hands-on training and
          demonstrations with classroom instruction from each of the various corporate
          departments in order to educate them on Company policies, train them to be more
          effective managers and prepare them for promotional opportunities including
          general manager positions. We also host an annual general managers
          conference focusing on strategic issues in addition to conducting other training
          classes. This conference also serves as a platform to recognize the general
          managers who exceeded our expectations.

We provide all new associates with
complete orientation and training for their positions to ensure they are able to meet our
high standards and understand our company policies. For servers, we require a minimum of
six days training on how to serve our food, the composition and preparation techniques for
each menu item, direction on how to treat and serve our guests and ways to promote our
business. Our food preparation staff undergoes an intensive five-day hands-on training
program for their respective positions, which includes a review of our safety procedures.
The training encompasses classroom instruction, on-the-job training programs for each
position, and testing of the new associates progress at pre-determined stages within
the training schedule.

When we open a new restaurant, we
provide an extensive and varied level of training to associates in each position to ensure
the smooth and efficient operation of the restaurant from the first day it opens to the
public. This training helps provide our guests with a quality dining experience from
opening day on. Our training programs enable us to promote existing associates and
managers as new restaurants open. We believe that we can support our expansion strategy as
a result of having a large manager base in existing restaurants that can be promoted or
transferred to new restaurants, combined with our thorough training programs and hiring of
outside personnel.

# Restaurant franchise and
licensing agreements

As of September 19, 2003, we had 12
franchised restaurants that began operations between 1991 and 2000. The franchise in
Duluth, MN was closed by the franchisee in July 2002. For fiscal 2002, the Duluth
franchise recorded sales of approximately $1.0 million and we recorded net franchise
royalty income of approximately $18,000. Seven of our current franchised restaurants are
located in the Minneapolis, MN area. We also have one franchised restaurant in Charlotte,
NC, Sioux City, SD, Omaha, NE, and two in Milwaukee, WI. Three franchisees own eight of
the 12 franchised restaurants.

Our revenue from current franchisee
agreements represented approximately 0.3% of our revenue in fiscal 2003. The franchisee is
responsible for all direct costs involved in the construction and maintenance of their
restaurants. We provide menu development and marketing support on a limited basis.
Franchisees are required to provide periodic financial reports and annual financial
statements to our corporate office for performance measurement and fee calculations.
Currently, we are not actively seeking additional franchisees. Although our existing
franchisees do not have the right to open additional restaurants, under certain
circumstances we may permit our existing franchisees to open additional restaurants from
time-to-time. Currently, an existing franchisee is negotiating to open a Champps
restaurant in Des Moines, Iowa. Although we have no obligation to do so, we may seek to
acquire one or more of our existing franchised restaurants if they meet our acquisition
criteria.

8

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# Accounting and
management information systems

We use an automated data processing
system and standardized reporting procedures to provide each of our company-owned
restaurants with centralized financial and management controls. Our management information
system tracks each restaurants weekly sales reports, vendor invoices, payroll
information and other operating information which is connected to our centralized
accounting and management information systems at our corporate headquarters in real time.
By having a system where data can be input remotely and controlled centrally, the overhead
functions are streamlined and administrative expenses are reduced.

While we continue to monitor our
computer hardware and financial software for potential upgrades, we believe our existing
management information systems are sufficient to support our long-term expansion plans.

# Purchasing

We endeavor to obtain high quality
menu ingredients and other supplies and services for our operations from reliable sources
at competitive prices. We rely on SYSCO Corporation, a national food distributor, as the
primary supplier of our food. In August 2003, we entered into a new five-year distribution
agreement with SYSCO. By utilizing a distribution company with a national presence, we are
able to ensure consistent application of menu specifications throughout the country at a
pre-negotiated price. We also periodically enter into selective short-term agreements for
the products we use most extensively. This helps us to consistently maintain our product
costs. We believe that all essential food and beverage products are available from several
qualified suppliers at competitive prices should an alternative source be required.

To maximize purchasing efficiencies
and to provide for the freshest ingredients for our menu items, each restaurants
management determines the quantities of food and supplies required. Our centralized
purchasing staff, under the direction of our chief operating officer, specifies the
products to be used at our restaurants, designates the vendors and provides suppliers with
detailed ingredient specifications.

# Competition

The restaurant industry is highly
competitive. We compete with other national and international restaurant chains as well as
local and regional operations. Competition within the industry is based principally on the
quality, variety and price of food products served. Changes in consumer preferences,
economic conditions, environmental conditions, demographic trends and the location and
number of, and type of food served by, competing restaurants could adversely affect our
business as could the availability of experienced management and hourly associates. We
believe that the flexibility of our multiple day-part model, the diversity and quality of
our freshly prepared menu items and our unique entertainment and excellent service have
created an attractive, high sales volume restaurant model that provides us with
considerable growth opportunities to develop our brand nationwide.

# Associates

As of September 19, 2003, we had
approximately 5,270 associates on the Champps team, approximately 385 of which were
restaurant management and field support personnel and 40 whom worked at corporate
headquarters. We do not have any collective bargaining agreements. We consider our
associate relations to be good.

9

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# History

The original Champps concept began
operations in 1984 and grew to eight restaurants by December 1995. In 1996, William H.
Baumhauer, chief executive officer and president of DAKA International, Inc., a large
publicly traded food service management and restaurant company, led DAKAs purchase
of Champps to add to its portfolio of restaurant concepts. As part of a corporate
restructuring in 1997, DAKA spun off its food service businesses and the shareholders
retained ownership of the restaurant businesses, which included Champps, Fuddruckers, the
Great Bagel & Coffee Company, Casual Dining Ventures and Restaurant Consulting
Service. The new company was named Unique Casual Restaurants, Inc. At the end of 1998 and
early 1999, Fuddruckers and Restaurant Consulting Services were sold to separate buyers.
In June 1999, Unique Casual Restaurants closed Great Bagel & Coffee Company and Casual
Dining Ventures and changed its name to Champps Entertainment, Inc.

Shortly thereafter, Mr. Baumhauer,
who had left the DAKA organization in May 1998, was recruited back to Champps as president
and chief executive officer. Upon his return, Mr. Baumhauer set in motion a series of
strategic initiatives that included hiring a new management team, consolidating our
headquarters, improving our operational and financial reporting procedures, standardizing
the purchasing process and establishing new associate training and retention practices. As
a result, our restaurant level operating profit margin increased from 7.6% in 1999 to 10.5% in fiscal 2003. In addition, our income from continuing
operations increased from a negative $14.1 million in fiscal 1999 to a positive $3.9
million in fiscal 2003. We have also implemented a disciplined expansion strategy and have
added 27 restaurants since Mr. Baumhauers return.

# Operating Locations

We lease all but one of our
restaurants. The leases for our restaurants expire at varying times commencing in 2009.
Nearly all of our leases are for fifteen to twenty year terms with renewal options
extending our leases from five to twenty additional years. Currently, our leases, with
option periods, expire between 2010 and 2041.

10

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The following table sets forth data
regarding our 41 company-owned restaurants at June 29, 2003.

Company-owned restaurants

|State                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | City                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Approx.
Conditioned Square Footage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Approximate Total Seating                                                                                                                                                                                  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ARIZONA        
CALIFORNIA     
COLORADO       
               
FLORIDA        
               
GEORGIA        
ILLINOIS       
               
               
               
INDIANA        
               
MARYLAND       
MICHIGAN       
               
               
               
MINNESOTA      
               
               
NORTH CAROLINA 
               
NEW JERSEY     
               
OHIO           
               
               
               
               
               
               
PENNSYLVANIA   
TEXAS          
               
               
               
               
               
VIRGINIA | Phoenix           
Irvine            
Littleton         
Denver            
Ft. Lauderdale    
Tampa             
Alpharetta        
Lincolnshire      
Lombard           
Schaumburg        
Skokie            
Indianapolis      
Indianapolis      
Columbia          
Livonia           
Troy              
Utica             
West Bloomfield   
Eden Prairie      
Minnetonka        
Richfield         
Durham            
Raleigh           
Edison            
Marlton           
Cincinnati        
Columbus          
Columbus          
Columbus          
Dayton            
Lyndhurst         
Valley View       
King of Prussia   
Addison           
San Antonio       
Las Colinas       
Houston           
Houston           
Houston           
Reston            
Pentagon City | 8,047        
   9,809        
   9,163        
   9,810        
   8,517        
   8,697        
   10,182       
   9,165        
   10,480       
   10,967       
   9,846        
   10,270       
   9,500        
   8,590        
   10,059       
   10,059       
   7,565        
   7,498        
   9,040        
   12,085       
   7,890        
   9,596        
   8,114        
   7,619        
   10,150       
   7,918        
   8,170        
   8,930        
   10,128       
   9,368        
   8,170        
   9,163        
   9,160        
   9,900        
   8,878        
   10,182       
   11,384       
   9,160        
   10,180       
   11,469       
   9,487 | 251
 245
 300
 274
 257
 259
 288
 291
 302
 310
 328
 286
 273
 291
 285
 275
 261
 248
 299
 360
 241
 288
 288
 244
 287
 315
 291
 291
 317
 314
 224
 300
 334
 318
 217
 316
 331
 325
 328
 327
 293

Restaurants to open

As of September 19, 2003, we have
opened three additional restaurants during fiscal 2004, one in Lansing, Michigan, one in
Colorado Springs, Colorado and one in Richmond, Virginia. We have begun construction on restaurants located in
Wilmington, Delaware, Rochester, New York, and Fairfax, Virginia. We
also have signed agreements to open restaurants in Baltimore, Maryland, Westlake, Ohio,
Philadelphia, Pennsylvania and Orland Park, Illinois.

11

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Franchised restaurants

As of September 19, 2003, we have 12
franchised restaurants, seven of which are located in the Minneapolis, MN area, two in
Milwaukee, WI, and one in each of Charlotte, NC, Sioux City, SD and Omaha, NE. A franchise
located in Duluth, MN was closed by the franchisee in July 2002.

# Trademarks

Through our operating subsidiaries,
we have registered a number of trademarks and service marks with the United States Patent
and Trademark Office and with certain states, including, but not limited to the trade
names: Champs, Champps, and Champps Americana.

Pursuant to a Master Agreement dated
February 1, 1994, whereby Champps acquired the Champs and
Champps service marks, trademarks and trade names, we agreed to pay the seller
an annual fee. For fiscal 2004, the maximum fee is equal to the lesser of $322,422or one-quarter percent (0.25%) of the gross sales of certain Champps restaurants
excluding two of our oldest restaurants. The maximum fee payable is increased annually by
the lesser of the increase in the consumer price index or 4.0%. In fiscal 2003, we paid
$0.3 million under this agreement.

# Government regulation

Our business is subject to various
federal, state and local laws, including health, sanitation and safety standards, federal
and state labor laws, zoning restrictions and state and local licensing. We are also
subject to federal and state laws regulating franchise operations and sales, which impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises or impose substantive standards on the relationship between franchisor and
franchisee.

Our restaurants are subject to state
and local licensing and regulation with respect to selling and serving alcoholic
beverages. Typically, licenses must be renewed annually and may be revoked or suspended
for cause. The failure to receive or retain, or a delay in obtaining, a liquor license in
a particular location would adversely affect ours, or a franchisees, operation in
that location.

In addition, our restaurants are
subject to dram shop statutes in certain states, which generally give a person
injured by an intoxicated person the right to recover damages from the establishment that
has wrongfully served alcoholic beverages to the intoxicated person. We carry liquor
liability coverage in the amount of $1.0 million per occurrence subject to an aggregate
annual policy limit of $5.0 million, with a $0.25 million deductible per occurrence.

# Risk factors related to
our business

Our growth strategy depends on our
ability to open new restaurants, and we may not be able to achieve our planned unit
expansion

Our ability to expand our operations
through the opening of new restaurants is critical to our future success. Since fiscal
1997 through fiscal 2003, we have expanded our operations from 12 company-owned
restaurants in nine states to 41 company-owned restaurants in 16 states. We expect to open
an additional six to eight restaurants in fiscal 2004. We have experienced delays in
restaurant openings from time to time and may experience delays in the future. We cannot
guarantee that we will be able to achieve our expansion goals or that new restaurants will
be operated profitably. Further, we cannot assure that any restaurant we open will obtain
operating results similar to those of our existing restaurants or will not adversely
affect the results of other Champps restaurants in the same market. The success of our
planned expansion will depend upon numerous factors, many of which are beyond our control,
including the following:

12

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- identification and availability of suitable restaurant sites;
        -      competition for restaurant sites;
        -      negotiation of favorable lease terms;
        -      timely  development in certain cases of  commercial,  residential,  street or highway  construction near our           restaurants;
        -      management of construction and development costs of new restaurants;
        -      securing of required governmental approvals and permits in a timely manner, or at all;
        -      recruitment of qualified operating  personnel,  particularly  general managers and other restaurant managers
        -      competition in our markets;
        -      general economic conditions; and
        -      utilization of our income tax operating loss and credit carryforwards.

In addition, we contemplate entering
new markets in which we have no operating experience. These new markets may have different
demographic characteristics, competitive conditions, consumer tastes and discretionary
spending patterns than our existing markets, which may cause the new restaurants to be
less successful in these new markets than in our existing markets.

Our growth strategy may strain our
management, financial and other resources. For instance, our existing systems and
procedures, restaurant management systems, financial controls, information systems,
management resources and human resources may be inadequate to support our planned
expansion of new restaurants. We may not be able to respond on a timely basis to all of
the changing demands that the planned expansion will impose on our infrastructure and
other resources.

The inability to develop and
construct our restaurants within budget and projected time periods will adversely affect
our business and financial condition

Critical to our success is our
ability to construct our restaurants within budget and on a timely basis. Many factors may
affect the costs associated with the development and construction of our restaurants,
including:

|-      labor disputes;
        -      shortages of material and skilled labor;
        -      weather interference;
        -      unforeseen engineering problems;
        -      environmental problems;
        -      construction or zoning problems;
        -      local government regulations and approvals; and
        -      unanticipated increases in costs, any of which could give rise to delays or cost overruns.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we are unable to develop new
restaurants within anticipated budget or time periods, our revenue will not meet our
expectations and labor costs may exceed our projections. In addition, returns on our
investments may be impaired and the amount of capital available for other new restaurants
may not be available.

13

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The failure of our existing or new
restaurants to perform as anticipated could adversely affect our business

As of June 29, 2003, we owned and
operated 41 restaurants, seven of which were opened within the preceding 12-month period.
The results achieved by these restaurants may not be indicative of longer-term performance
or the potential market acceptance of restaurants in other locations. We cannot assure you
that any new restaurant that we open will have similar operating results to those of prior
restaurants. We anticipate that our new restaurants will take at least several months to
reach planned operating levels due to inefficiencies typically associated with new
restaurants, including lack of market awareness, inability to hire sufficient staff and
other factors.

Because of our small restaurant
base, our operating results could be materially and adversely affected by the negative
performance of a small number of restaurants

Due to our small restaurant base,
poor operating results at any one or more of our restaurants could materially and
adversely affect our business, financial condition, results of operations or cash flows.
In addition, we locate our restaurants close to areas that have a combination of
commercial office space, residential housing and high traffic areas, such as shopping
malls or multi-screen movie theaters. Changes in levels of office occupancy, new or
competing real estate development projects, or delays in the development of the projects
where we are located may adversely affect the performance of a restaurant. In addition,
our operating results achieved to date may not be indicative of our future operating
results with a larger number of restaurants.

We may require additional capital
to expand our business in accordance with our growth strategy

Changes in our operating plans,
acceleration of our expansion plans, lower than anticipated sales, increased expenses or
other events may cause us to seek additional debt or equity financing on an accelerated
basis. Financing may not be available on acceptable terms, or at all, and our failure to
raise capital when needed could negatively impact our growth and other plans, as well as
our financial condition and results of operations. Additional debt financing, if
available, may involve significant cash payment obligations and covenants or financial
ratios that restrict our ability to operate or grow our business. See Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
 Liquidity and Capital Resources.

Our franchisees could
take actions that could harm our business

Franchisees are independent operators
and are not employed by us. We provided training and support to franchisees, but any
number of factors beyond our control may diminish the quality of franchised restaurant
operations. Consequently, franchisees may not successfully operate restaurants in a manner
consistent with our standards and requirements or may not hire and train qualified
managers and other restaurant personnel. If franchisees do not operate in accordance with
our standards, our image and reputation may suffer materially and system-wide sales could
significantly decline. Also, the presence of franchised restaurants may limit our ability
to expand in a desired market.

Our operations are susceptible to
changes in food availability and costs, which could adversely affect our operating results

Our profitability depends in part on our
ability to anticipate and react to changes in food costs. We rely on SYSCO Corporation, a
national distributor, as the primary supplier of our food. Any increase in distribution
prices or failure of SYSCO to perform could cause our food costs to increase. There also
could be a significant short-term disruption in our supply chain if SYSCO failed to meet
our distribution requirements or our relationship was terminated. Further, various factors
beyond our control, including adverse weather conditions, governmental regulation,
production, availability and seasonality may affect our food costs or cause a disruption
in our supply. We cannot predict whether we will be able to anticipate and react to
changing food costs by adjusting our purchasing practices and menu prices, and a failure
to do so could materially and adversely affect our operating results.

14

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Changes in consumer preferences or
discretionary consumer spending could negatively impact our results of operations

Our continued success depends, in
part, upon the popularity of the menu items served in the Champps environment and our
dining style. Shifts in consumer preferences away from our cuisine or dining style could
materially and adversely affect our future profitability. In addition, our success depends
to a significant extent on numerous factors affecting discretionary consumer spending,
including economic conditions, disposable consumer income and consumer confidence. Adverse
changes in these factors could reduce guest traffic or impose practical limits on pricing,
either of which could materially and adversely affect our operating results.

Health concerns relating to the
consumption of our food products could negatively impact our results of operations

We are subject to the risk that
consumer preferences could be affected by health concerns about the consumption of
particular food products. Beef and chicken are the key ingredients in many of our menu
items. Negative publicity concerning food quality, illness and injury, publication of
government or industry findings concerning food products served by us, or other health
concerns or operating issues stemming from one restaurant or a limited number of
restaurants may adversely affect demand for our food and could result in a decrease in
guest traffic to our restaurants.

If we lose the services of our
president or other key associates, our business could suffer

Our future success significantly
depends on the continued service and performance of William H. Baumhauer, our president
and chief executive officer, as well as other key executives. Our future performance will
depend on our ability to motivate and retain Mr. Baumhauer and other executive officers
and key associates, such as regional directors of operation, restaurant general managers
and kitchen managers. Competition for these associates is intense. In May 2003, Mr.
Baumhauers employment agreement was amended and extended through June 30, 2005. The
loss of the services of Mr. Baumhauer or members of our senior management and key
associates or the inability to attract additional qualified personnel as needed could
materially harm our business. We do not currently have key person life insurance for any
of our officers or directors.

We face indemnification
liability from our predecessor companies

In connection with the spin-off in
late 1997 from DAKA International, Inc., we assumed certain contingent liabilities of DAKA
and its subsidiary, Daka, Inc. In March 2000, a former associate of Daka was awarded
approximately $0.2 million in compensatory damages, $4.8 million in punitive damages and
$0.3 million in legal fees in a jury trial based on the associates claim of
negligent supervision and retaliation due to alleged conduct that occurred in 1996 at a
former Daka food service location. The amount of these awards accrues interest at a rate
of 6.0% per annum. On September 20, 2000, Daka filed a Notice of Appeal with the Court of
Appeals for the District of Columbia and this matter is now pending in that court. On
February 9, 2001, Daka also filed its Notice of Appeal in connection with the courts
award of legal fees and this matter is pending in that court. Under our Post-Closing
Covenant Agreement with DAKA, we have been responsible for handling the defense of these
claims, including the appeals. At June 29, 2003, our consolidated balance sheet included
our accrual of approximately $0.3 million in respect of the potential award in this matter
and related legal expenses. If Daka does not prevail on its appeals in substantially all
material respects, we would be required to take a charge to net income in the amount by
which our final payout exceeds our reserve for this matter, and this charge could be a
significant amount in relation to our income from operations at the time. In addition, the
payment of a substantial amount of cash as a result of an adverse ruling by the Court of
Appeals could result in delays in our expansion plans or could result in our needing to
seek additional financing sources to support our expansion or our day-to-day operations.
It is also possible that Daka could settle this case in advance of a final judicial
determination, and the settlement amount itself could be substantial. Depending on the
timing and nature of the ruling by the Court of Appeals, or the timing of any settlement
of this case, we also could incur substantial additional legal expenses in pursuing
Dakas appeal and the ultimate resolution of this matter.

15

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We are also engaged in various tax
audits arising from the operations of these predecessor companies. In December 2001, the
State of Florida proposed to assess subsidiaries of DAKA $2.4 million in unpaid state
sales taxes, and an additional $2.9 million in penalties and interest through December
2001. We are contractually obligated to indemnify DAKA for this matter, and are currently
protesting this proposed assessment. A final determination of this matter requiring a
substantial payment by us would have the same adverse consequences as a substantial final
payment in the lawsuit referred to in the preceding paragraph.

We reserve in our financial
statements for these and other matters, which reserves are reviewed periodically to
determine their adequacy. Although we believe that our current reserves are proper under
generally accepted accounting principles in light of our analysis of the outcome of the
related matters, there can be no guarantees that we will not have torecognize
additional expenses as these matters are ultimately resolved, which expenses could be
significant.

Litigation could have a
material adverse affect on our business

We are subject to complaints or
allegations from current and former or prospective associates from time to time. In
addition, we are the subject of complaints or litigation from guests alleging illness,
injury or other food quality, health or operational concerns. We may be adversely affected
by publicity resulting from such allegations, regardless of whether such allegations are
valid, whether we are liable, or whether such allegations involve one of our franchisees
or licensees. A lawsuit or claim could result in an adverse decision or result that could
have a material adverse affect on our business.

We are also subject to state
dram shop laws and regulations, which generally provide that a person injured
by an intoxicated person may seek to recover damages from an establishment that wrongfully
served alcohol to such person. While we carry liquor liability coverage as part of our
existing comprehensive general liability insurance, we may still be subject to a judgment
in excess of our insurance coverage and we may not be able to obtain or continue to
maintain such insurance coverage at reasonable costs, or at all.

If we are unable to protect our
intellectual property rights, it could reduce our ability to capitalize on our brand names

Pursuant to a Master Agreement dated
February 1, 1994, we acquired the Champps, Champs and
Champps Americana service mark, trademark and trade name. Our business
prospects will depend, in part, on our ability to develop favorable consumer recognition
of the Champps name and logo. Our trademarks could be infringed in ways that leave us
without redress, such as by imitation. In addition, we rely on trade secrets and
proprietary know-how, and we employ various methods to protect our concepts and recipes.
However, such methods may not afford adequate protection and others could independently
develop similar know-how or obtain access to our know-how, concepts and recipes. Moreover,
we may face claims of infringement that could both interfere with our use of our
proprietary know-how, concepts, recipes, trade secrets or trademarks or subject us to
damages. Defending against such claims may be costly and, if unsuccessful, may prevent us
from continuing to use such proprietary information in the future.

Although Champps,
Champs and Champps Americana are federally registered
trademarks, there are other restaurants and bars that operate under similar names. If
these restaurants or bars are affected by negative publicity and consumers confuse these
competitors with our Champps branded restaurants, our operating results could be adversely
affected.

We are subject to extensive
governmental regulations concerning the sale and serving of alcoholic beverages and wages
paid to our associates that could adversely affect our operations and our ability to
expand and develop our restaurants

The restaurant industry is subject to
various federal, state and local governmental regulations. While at this time we have been
able to obtain and maintain the necessary governmental licenses, permits and approvals,
the failure to maintain these licenses, permits and approvals, including food and liquor
licenses, could adversely affect our operating results. Difficulties or failure in
obtaining the required licenses and approvals could delay or result in our decision to
cancel the opening of new restaurants. Local authorities may suspend, revoke or deny
renewal of our food and liquor licenses if they determine that our conduct does not meet
applicable standards or if there are changes in regulations.

16

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For fiscal 2003, approximately 29.5%
of our restaurant food and beverage sales was attributable to the sale of alcoholic
beverages, and we believe our ability to serve these beverages is an important factor in
attracting guests. Alcoholic beverage control regulations require each of our restaurants
to apply to a state authority and, in certain locations, county or municipal authorities
for a license or permit to sell alcoholic beverages on the premises and to provide service
for extended hours and on Sundays. Typically, licenses must be renewed annually and may be
revoked or suspended for cause at any time, which could include sales to minors or
intoxicated persons. Alcoholic beverage control regulations relate to numerous aspects of
daily operations of our restaurants. The failure of a restaurant to obtain or retain
liquor or food service licenses would adversely affect the restaurants operations.

Various federal and state labor laws
govern our relationship with our associates and affect our operating costs. These laws
include minimum wage requirements, overtime pay, unemployment tax rates, workers
compensation rates, and citizenship requirements. Additional government imposed increases
in minimum wages, overtime pay, paid leave of absence and mandated health benefits,
increased tax reporting and tax payment requirements for associates who receive gratuities
or a reduction in the number of states that allow tips to be credited toward minimum wage
requirements could harm our operating results.

On June 17, 2002, the United States
Supreme Court ruled that the Internal Revenue Service (IRS) can use aggregate
tip estimates to ensure that the employer is paying FICA taxes on allegedly underreported
tips. Under the ruling, the IRS does not need to examine individual associates
records and it is permissible for the IRS to estimate the amount of cash tips given to
associates based on tips included on credit card receipts.

The reporting of tips is the
responsibility of the associates receiving the tips. We encourage our associates to abide
by the law and report 100% of the tips that they receive. While we believe our associates
adequately report tips, we have implemented tip reporting policies and procedures that are
in full compliance with the recommended IRS policies and procedures as defined in our Tip
Reporting Alternative Commitment agreement that was executed by the Company and the IRS in
fiscal 2003.

Our success depends on our ability
to compete effectively in the restaurant industry

The restaurant industry is highly
competitive. Although we believe that our operating concept, quality of food, ambiance and
overall dining experience differentiates us from competitors, we may be unable to compete
effectively with new restaurant concepts or with larger, better-established competitors,
which have substantially greater financial resources and operating histories than ours.

We may not be able to generate
sufficient future taxable income to fully utilize our income tax operating loss and credit
carryforwards

As of June 29, 2003, we had federal
net operating loss (NOL) carryforwards of approximately $56.4 million and FICA
and targeted job tax credit carryforwards of approximately $3.5 million. The federal
NOLs expire at various times through 2020 and the FICA tip and targeted job tax
credits expire at various times through 2023. While we expect to fully utilize the
carryforwards to reduce our income tax liabilities, future income may not be sufficient
for full utilization of the carryforwards.

# Strategic Alternatives

From time to time, as a matter of
standard business practice, the management of the Company investigates various strategic
alternatives in an attempt to maximize shareholder value. These strategic alternatives
include potential acquisitions, mergers with other companies and go private transactions.
As of September 19, 2003, the Company has not entered into any definitive agreements
relative to any strategic alternative that has been considered or brought before
management. Should a strategic alternative be presented that has the potential to maximize
shareholder value, the board of directors would assign an independent committee to
determine the merits of the proposed transaction and seek shareholder approval, if
necessary.

17

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# Item 2.        Properties.

The Company leases approximately
12,600 square feet of office space at its corporate headquarters in Littleton (Douglas
County), Colorado, at an average annual rent of $275,000. The lease term for the office
space ends June 2008. See Item 1. Business  Operating Locations for a
listing of the Companys owned and franchised restaurant locations.

# Item 3.        Legal
Proceedings.

We assumed certain contingent
liabilities of DAKA and its subsidiary, Daka, Inc. in connection with their spin-off. In
the third quarter of fiscal 2000, a Washington, D.C. superior court jury awarded a former
Daka associate $0.2 million in compensatory damages, $4.8 million in punitive damages and
a subsequent award of $0.3 million for legal fees and costs, based on the associates
claim of negligent supervision and retaliation, due to alleged conduct that occurred in
1996 at a former Daka food service location. While Daka was formerly a subsidiary of DAKA
International and while DAKA International is now a subsidiary of Compass Group, PLC., the
events at issue in the case took place while a predecessor company of Champps owned Daka.
On September 20, 2000, Daka filed a Notice of Appeal with the Court of Appeals for the
District of Columbia. The Company may be liable for the payment of any amounts ultimately
due by Daka upon final determination of the case. The Company has not accrued any amounts
related to the punitive damages in this matter based upon relevant legal precedents the
Company believes, and its outside legal counsel concurs, that the punitive damages will
not be upheld. The Company has accrued approximately $0.3 million associated with this
matter based on our estimate of the ultimate compensatory damages and legal fees
anticipated to be awarded. Revisions to our estimate may be made in the future and will be
reported in the period in which additional information is known. Based upon our analysis,
and the advice of outside legal counsel, the Company believes that the ultimate outcome of
this matter will not have a material adverse effect on the Companys consolidated
financial position, results of operations or cash flows.

In December 2001, the State of
Florida proposed to assess subsidiaries of DAKA $2.4 million in unpaid state sales taxes,
and an additional $2.9 million in penalties and interest through December 2001. We are
contractually obligated to indemnify DAKA for this matter and are currently protesting
this proposed assessment. We believe that DAKA has meritorious legal and factual defenses
to these matters and have submitted the same to the State of Florida. Further, we are
engaged in various other actions arising in the ordinary course of business. We believe
based on managements analysis and the advice of outside counsel that the ultimate
collective outcome of these other matters will not have a material adverse effect on our
consolidated financial condition, results of operations or cash flows.

As of June 29, 2003, we had an
aggregate of approximately $0.6 million reserved for liabilities associated with
predecessor companies, $0.3 million of which are reserved for the Daka associate judgment
noted above and $0.2 million for the proposed sales tax assessment noted above. These
amounts have been reserved to fund the probable amounts that we expect to pay. We have not
reserved for the entire amounts of such judgments or claims based on our internal analysis
and consultation with outside counsel.

18

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# Item 4.        Submission of
Matters to a Vote of Security Holders.

The Companys Proxy Statement
dated April 30, 2003 for the Special Meeting of Stockholders held on June 4, 2003, as
filed with the Securities and Exchange Commission on April 29, 2003, is incorporated
herein by reference.

|A Special Meeting of Stockholders of the Company was held on June 4, 2003 at which the 2003
Stock Option and Incentive Plan covering 1,250,000 shares of common stock was approved by
the shareholders.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                       |                                 
|---------------------------------------------------------------------- | --------------------------------
|Votes For:        
        Votes Against:    
        Votes Abstained: | 6,193,540
 3,067,930
    232,715

# PART II

# Item 5.        Market for the
Registrants Common Stock and Related Stockholder Matters.

The Companys common stock is
listed on the NASDAQ National Market (Nasdaq) under the symbol
CMPP. The following table sets forth, for the periods indicated, the high and
low closing sales prices per share for the common stock as reported by Nasdaq.

|                                                                                                                                                                                                                                                                                                                   | High                                                                          | Low                                                    
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------- | -------------------------------------------------------
|Fiscal 2002
        First Fiscal Quarter      
        Second Fiscal Quarter     
        Third Fiscal Quarter      
        Fourth Fiscal Quarter     
        Fiscal 2003
        First Fiscal Quarter      
        Second Fiscal Quarter     
        Third Fiscal Quarter      
        Fourth Fiscal Quarter | $ 10.25  
   9.60  
  13.00  
  14.45  
  12.35  
  11.30  
   9.51  
   8.36 | $ 5.99
  6.20
  8.35
 10.85
  7.55
  7.19
  6.73
  4.45

On September 19, 2003, there were
approximately 2,462 holders of record of the Companys common stock. On September 19,
2003, the closing price of the Companys common stock was $7.13 per share.

The Company has never declared or
paid dividends on its common stock. The Company currently intends to retain future
earnings for use in the operation and expansion of its business and therefore does not
anticipate paying cash dividends in the foreseeable future. Moreover, certain of the
Companys credit arrangements prohibit the declaration or payment of any dividends or
other distributions on any shares of capital stock, subject to specified exceptions.

19

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# Item 6.        Selected
Financial Data.

# SELECTED FINANCIAL DATA

The following table presents selected
consolidated data from continuing operations and balance sheet data of the Company. Data
for 1999 have been restated to account for the Companys Fuddruckers segment as a
discontinued operation. The balance sheet data as of June 29, 2003, June 30, 2002, July 1,
2001, July 2, 2000 and June 27, 1999 and the statements of operations data for each of the
five fiscal years in the period ended June 29, 2003 presented below are derived from the
Companys audited consolidated financial statements.

For purposes of this Form 10-K and
financial reporting purposes, the Company has been treated as if it was a stand-alone
entity for all periods presented.

Certain amounts have been
reclassified for earlier periods to conform to the fiscal 2003 presentation. The
reclassifications have no impact on net income (loss) or earnings (loss) per share.

The selected consolidated financial
data should be read in conjunction with the consolidated financial statements and related
notes thereto of the Company and Managements Discussion and Analysis of
Results of Operations and Financial Condition included elsewhere in this Annual
Report on Form 10-K.

Amounts are in thousands except per
share data.



|                                                                      | As
of and for the Fiscal Years Ended
|--------------------------------------------------------------------- | ------------------------------------
|
|Statements of Operations Data:                                        |                                     
|Total revenue                                                         |                                     
|Income (loss) from continuing operations                              |                                     
|Net income (loss)                                                     |                                     
|Basic income (loss) per share from continuing operations              |                                     
|Diluted income (loss) per share from continuing operations            |                                     
|Basic weighted average shares (in thousands):                         |                                     
|Diluted weighted average shares (in thousands):                       |                                     
|Balance Sheet Data:                                                   |                                     
|Total assets                                                          |                                     
|Notes payable and capital lease obligations including current portion |                                     
|Total equity                                                          |                                     

20

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

# Overview

As of June 29, 2003, we owned and
operated 41 upscale casual dining restaurants in 16 states and had 12 restaurants
operating under franchise or license agreements in five states. Our restaurants offer an
extensive and varied menu in each of four distinct day-parts: lunch, after work, dinner
and late night. We believe that the flexibility of our multiple day-part model, the
diversity and quality of our freshly prepared menu items, our unique entertainment and
uncompromising service have created an attractive, high sales volume restaurant model that
provides us with considerable growth opportunities to develop our brand nationwide.

The original Champps concept began
operations in 1984 and grew to eight restaurants by December 1995. In 1996, William H.
Baumhauer, the chief executive officer and president of DAKA International, Inc., a large
publicly traded food service management and restaurant company, led DAKAs purchase
of Champps as an addition to DAKAs portfolio of restaurant concepts. As part of a
corporate restructuring in 1997, DAKA spun off its foodservice business and the
shareholders retained ownership of the restaurant businesses, which included Champps and
several other businesses (including Fuddruckers restaurants). The new company was named
Unique Casual Restaurants, Inc. During 1998 and the first half of 1999, Unique Casual
Restaurants sold or closed its businesses other than Champps and changed its name to
Champps Entertainment, Inc.

Shortly thereafter, Mr. Baumhauer,
who had left the DAKA organization in May 1998, was recruited back to Champps as president
and chief executive officer. Upon his return, Mr. Baumhauer hired a new management team,
consolidated our headquarters, implemented procedures to improve operational and financial
reporting procedures, standardized the purchasing process and established new associate
training and retention practices. As a result of the changes we implemented following Mr.
Baumhauers return in 1999, our restaurant-level operating profit increased $12.3
million or 183.6% from $6.7 million for fiscal 1999 to $19.0 million for fiscal 2003. As a
percent of restaurant sales, our restaurant-level operating profit margin increased from 7.6%
in fiscal 1999 to 10.5% in fiscal 2003.

Our restaurants open throughout
fiscal 2003 generated average unit sales of approximately $4.9 million, among the highest
in the casual dining industry. As a result of our existing high unit volumes, we do not
expect that increases in comparable restaurant sales will provide significant sources for
overall growth in our revenue, and our comparable restaurant sales will continue to
fluctuate over time. Instead, we anticipate that our disciplined expansion strategy will
be the principal driver for our future revenue growth. We opened seven restaurants in
fiscal 2003 and expect to open six to eight restaurants in fiscal 2004. We believe that
there are significant opportunities to expand our concept both in our existing markets and
in new markets throughout the United States. The majority of our growth will be in
existing markets, which will enable us to leverage costs and gain efficiencies associated
with regional supervision, marketing, purchasing and hiring in these markets.

Our growth strategy will have several
impacts on our financial results, in addition to increases in our restaurant sales. As we
open more restaurants, our aggregate pre-opening expense will increase. Pre-opening
expense has historically been approximately $0.4 million per location. Because our
openings will not necessarily be spaced evenly throughout a fiscal year, our pre-opening
expense will fluctuate, possibly significantly, on a quarterly basis. In addition, new
restaurants tend to have higher operating costs as a percentage of restaurant sales than
do more established restaurants, which will impact negatively our overall operating
margins in periods following large numbers of restaurant openings. On the other hand,
because a substantial portion of our general and administrative expense does not increase
proportionately with increases in restaurant sales and because we believe that our
corporate infrastructure is substantially in place to support our planned growth, we
expect that general and administrative expense as a percentage of restaurant sales will be
positively impacted over time as we grow our restaurant base. We are not pursuing new
franchise arrangements as part of our growth strategy and do not expect franchising and
royalty revenue to be significant in the future.

21

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# Critical accounting
policies

The preparation of our consolidated
financial statements requires us to make estimates and assumptions that affect the
reported amounts and disclosures in the consolidated financial statements. The estimates
and assumptions are evaluated on an ongoing basis and are based on historical experience
and on various other factors that are believed to be reasonable.

Items significantly impacted by
estimates and judgments include, but are not limited to, representations, warranties and
indemnities provided in connection with the spin-off of DAKA International, Inc. in 1997
and the subsequent sale of our Fuddruckers business unit in 1998, the useful lives and
recoverability of our long-lived assets such as property, equipment and intangibles, fair
value attributed to assets and liabilities of acquired businesses, valuation of deferred
tax assets, self-insured risks relating to workers compensation and general
liability claims and legal liabilities.

Loss contingencies and
self-insurance reserves

We maintain accrued liabilities and
reserves relating to the resolution of certain contingent obligations and reserves for
self-insurance. Significant contingencies include those related to litigation and state
tax assessments. We account for contingent obligations in accordance with Statement of
Financial Accounting Standards (SFAS) No. 5, Accounting for
Contingencies, which requires that we assess each contingency to determine estimates
of the degree of probability and range of possible settlement. Those contingencies that
are deemed to be probable and where the amount of such settlement is reasonably estimable
are accrued in our financial statements. If only a range of loss can be determined, we
accrue to the best estimate within that range; if none of the estimates within that range
is better than another, we accrue to the low end of the range. We determine reserves for
self-insurance based on the insurance companies incurred loss estimates and
managements judgment.

The assessment of loss contingencies
and self-insurance reserves is a highly subjective process that requires judgments about
future events. Contingencies are reviewed at least quarterly to determine the adequacy of
the accruals and related financial statement disclosure. The ultimate settlement of loss
contingencies and self-insurance reserves may differ materially from amounts we have
accrued in our financial statements.

Valuation of long-lived
assets

We evaluate the carrying value of
long-lived assets including property, equipment and related identifiable intangible assets
whenever events or changes in circumstances indicate that the carrying value may not be
recoverable in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Under SFAS No. 144, an assessment is made to
determine if the sum of the expected future undiscounted cash flows from the use of the
assets and eventual disposition is less than the carrying value. If the sum of the
expected undiscounted cash flows is less than the carrying value, an impairment loss is
recognized based on fair value.

We evaluate impairment of goodwill
and other unidentifiable intangible assets in accordance with SFAS No. 142 Goodwill
and Other Intangible Assets. Under the provisions of SFAS No. 142, we are required
to assess impairment at least annually by means of a fair value-based test. At June 29,
2003, we evaluated our goodwill and determined that the goodwill was not impaired. The
determination of fair value requires us to make certain assumptions and estimates related
to our business and is highly subjective. Actual amounts realized through operations or
upon disposition of related assets may differ significantly from our estimate.

22

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Leases

We lease most of our properties
including our corporate office. We account for our leases under the provisions of SFAS No.
13 Accounting for Leases and subsequent amendments which requires that leases
be evaluated and classified as operating leases or capital leases for financial reporting
purposes. In addition, the Company records the total rent payable during the lease term on
a straight-line basis over the term of the lease and records the difference between the
rent paid and the straight-line rent as a deferred rent liability. Lease incentive
payments (tenant improvement allowances) received from landlords are recorded
as deferred rent liabilities and are amortized on a straight-line basis over the lease
term as a reduction in rent. Future authoritative changes to the methods of accounting for
leases could have a material impact on the Companys reported results of operations
and financial position.

Valuation of deferred tax
assets

We recognize deferred tax assets and
liabilities for the future tax consequences attributable to differences between the
carrying value for financial reporting purposes and the tax basis of assets and
liabilities in accordance with SFAS No. 109, Accounting for Income Taxes.
Deferred tax assets and liabilities are recorded using the enacted tax rates expected to
apply to taxable income in the years in which such differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities, resulting from a
change in tax rates, is recognized as a component of income tax expense (benefit) in the
period that such change occurs. Net operating loss and other credit carryforwards,
including FICA tip tax credits and targeted jobs tax credits, are recorded as deferred tax
assets. A valuation allowance is recorded for the tax benefit of the deferred tax assets
not expected to be utilized based on projected future taxable income. As of June 29, 2003,
we had a net deferred tax asset of $24.7 million. As a result of our improved
profitability in recent years and our estimates of projected future taxable income, we
believe that it is more likely than not that we will be able to realize the majority of
these net deferred tax assets. As of June 29, 2003, we had federal net operating loss
carryforwards of approximately $56.4 million, expiring at various dates through 2020.

Our accounting policies are more
fully described in Note 1 to our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.

# Financial definitions

Revenue.Our revenue is comprised of restaurant sales, and net franchise royalties
          and fees. Our restaurant sales are comprised almost entirely of food and
          beverage sales, with less than 0.2% of the restaurant sales represented by sales
          of Champps merchandise and other revenue.

Comparable restaurant
sales.  In calculating company-owned comparable restaurant sales, we include
restaurants open at least 66 weeks. As of June 29, 2003, we had 33 company-owned
restaurants open at least 66 weeks.

Product costs.Product costs
are composed primarily of food and beverage expenses. The components of product costs are
variable and increase with sales volume.

Labor costs.Labor costs
include direct hourly and management wages, our restaurant associates wages while
training, bonuses, workers compensation and payroll taxes and benefits for our
restaurants.

Other operating expense.Other
operating expense includes restaurant supplies, marketing costs specifically related to
the restaurants activities, utilities, repairs and maintenance, banking fees and
credit card fees and other directly related costs of our restaurants. Other operating
expenses generally increase with sales volume but decline as a percentage of restaurant
sales.

Occupancy.Occupancy costs include equipment operating leases, fixed rent, percentage rent,
          common area maintenance charges, general liability and property insurance and
          real estate and personal property taxes.

Depreciation and amortization.Depreciation and amortization principally includes depreciation on capital
expenditures for restaurants. Typically, our assets are depreciated over their estimated
useful lives, which is generally seven years for restaurant equipment, five years for data
processing equipment and over the life of the lease, including certain option periods, for
leasehold improvements. Depreciation and amortization excludes corporate level
depreciation and amortization, which are included in general and administrative expense.

23

---

Restaurant level operating profit.Restaurant level operating profit is composed of restaurant sales less restaurant
operating costs, which includes product costs, labor costs, other operating expense,
occupancy and depreciation and amortization.

General and administrative.General and administrative includes all corporate and administrative functions that
support existing operations and provide infrastructure to facilitate our future growth.
Components include executive and management salaries, regional supervisory and staff
salaries, bonuses and related associate taxes and benefits, travel, information systems,
corporate rent and related occupancy and operating costs, corporate depreciation and
amortization and professional and consulting fees.

Pre-opening expense.Pre-opening expense, which is expensed as incurred, consists of the costs of hiring
and training the initial work force, travel, the cost of food and beverages used in
training, marketing costs and other costs directly related to the opening of a new
restaurant.

Expenses related to predecessor companies.
Expenses related to predecessor companies consists of expenses for obligations of indemnity related
to the Company's spin-off in 1997.

Interest expense and income, net.Interest expense and income, net consists of interest expense on notes payable and
capitalized lease obligations and amortization of loan fee costs partially offset by
interest income earned on excess cash balances and interest capitalized as a part of the
construction process.

Other (income) expense.
Other (income) expense generally consists of losses on asset disposals from asset replacements.

Loss from discontinued operations.
Loss from discontinued operations consists of expenses for obligations of indemnity related
to the Company's sale of Fuddruckers in 1998.

Income before provision for income
taxes. Net income before provision for income taxes is composed of restaurant level
operating profit and franchise and royalty income less general and administrative expense,
pre-opening expense, interest expense and income, net and other (income) expense. In
certain years, expenses related to predecessor companies, impairment, exit and other
charges, loss on sale of investments, debt extinguishment costs and losses on discontinued operations are also
included.

24

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# RESULTS OF OPERATIONS

The following table sets forth
certain financial information for the Company (dollars in 000s).

|                                          | Fiscal Year Ended
|----------------------------------------- | -----------------
|
|Revenue:                                  |                  
|Sales                                     |                  
|Franchising and royalty, net              |                  
|                                          |                  
|Total revenue                             |                  
|                                          |                  
|Restaurant operating expenses (as a       |                  
|percentage of restaurant sales)           |                  
|Product costs                             |                  
|Labor costs                               |                  
|Other operating expense                   |                  
|Occupancy                                 |                  
|Depreciation and amortization             |                  
|                                          |                  
|Restaurant operating expenses             |                  
|                                          |                  
|Restaurant level operating profit         |                  
|                                          |                  
|General and administrative expenses       |                  
|Pre-opening expense                       |                  
|                                          |                  
|Income from operations                    |                  
|Other (income) expense:                   |                  
|Expenses related to predecessor companies |                  
|Interest expense and income, net          |                  
|Debt extinguishment costs                 |                  
|Other (income) expense, net               |                  
|                                          |                  
|Total costs and expenses                  |                  
|                                          |                  
|Income from continuing operations         |                  
|Loss from discontinued operations         |                  
|                                          |                  
|Income before income taxes                |                  
|Income tax benefit (expense)              |                  
|                                          |                  
|Net income                                |                  
|                                          |                  

# Fiscal 2003 compared to
fiscal 2002

Total revenue. Total revenue
increased approximately $22.2 million, or 14.0%, to $180.7 million for fiscal 2003 from
$158.5 million for the comparable prior period. The increase was primarily due to the
full-year operation of six additional restaurants opened in fiscal 2002, seven additional
restaurants opened in fiscal 2003 and menu price increases having an impact on sales of
approximately 1%. This increase was partially offset by a decrease in comparable
restaurant sales of 1.6%. Comparable food sales increased 1.0% due largely to increases in
customer traffic partially offset by a lower guest check average; however, comparable
alcohol sales decreased 6.8%. The comparable alcohol sales decrease was due, in part, to a
strategic de-emphasis of the Companys late night promotions as the promotions are
costly and can alienate dinner guests. Sales in the January through March 2003 period were
also negatively affected by severe weather primarily in Ohio, Indiana, the mid-Atlantic
and Colorado markets. Furthermore, sales were negatively affected by weakening consumer
confidence and the impact of the war in Iraq. During fiscal 2003, food sales and alcoholic
beverage sales represented 70.5% and 29.5% of our total food and beverage sales,
respectively. During fiscal 2002, food sales and alcoholic beverage sales represented
67.8% and 32.2% of our total food and beverage sales, respectively.

25

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Restaurant operating
costs.

| | Product
costs. Product costs increased by $6.0 million, or 13.5%, to $50.6 million in fiscal
2003 from $44.6 million for the comparable prior period primarily as a result of our
increased restaurant base. Product costs as a percentage of restaurant sales in fiscal
2003 decreased to 28.1% from 28.2% for the comparable prior period. This improvement was
primarily the result of decreased commodity costs and stable produce prices in the first
half of fiscal 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Labor
costs. Labor costs increased by $7.1 million, or 13.9%, to $58.2 million in fiscal
2003 from $51.1 million for the comparable prior period primarily as a result of our
increased restaurant base. Labor costs as a percentage of restaurant sales decreased to
32.3% in fiscal 2003 from 32.4% for the comparable prior period primarily due to lower
staff costs due to efficiency improvements partially offset by higher health benefit and
payroll tax costs and the impact of lower average sales relative to fixed management
costs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
operating expense. Other operating expense increased $4.4 million, or 18.2%, to $28.6
million for fiscal 2003 from $24.2 million for the comparable prior period. Other
operating expense as a percentage of restaurant sales increased to 15.9% in fiscal 2003
from 15.3% for the comparable prior period primarily due to lower comparable restaurant
sales coupled with higher expenses for utilities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Occupancy
Occupancy expense increased $2.5 million, or 18.4%, to $16.1 million for fiscal
2003 from $13.6 million for the comparable prior period. Occupancy expense as a
percentage of restaurant sales increased to 8.9% for fiscal 2003 from 8.6% for
the comparable prior period primarily due to an increase in real estate taxes
coupled with lower comparable restaurant sales.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Depreciation
and Amortization. Depreciation and amortization expense increased $1.2 million, or
18.8%, to $7.6 million for fiscal 2003 from $6.4 million for the comparable prior period.
Depreciation and amortization expense as a percentage of restaurant sales increased to
4.3% for fiscal 2003 from 4.1% for the comparable prior period.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Restaurant level operating
profit. Restaurant level operating profit increased approximately $1.0 million, or
5.6%, to $19.0 million for fiscal 2003 compared with $18.0 million forthecomparable prior period. Restaurant level operating profit as a percentage of
restaurant sales decreased to 10.5% for fiscal 2003 from 11.4% for the comparable prior
period. The decrease was due to higher restaurant expenses as a percent of sales
associated with the opening of seven new restaurants in fiscal 2003. The income generated
from new restaurants is typically lower during the first four months of operation compared
to an existing restaurant. In addition, lower comparable restaurant sales resulted in a
higher percentage of fixed expenses during fiscal 2003.

General and administrative
expense. General and administrative expense increased $1.3 million, or 15.1%, to $9.9
million for fiscal 2003 from $8.6 million for the comparable prior period. The increase
was largely due to a $180,000 reversal of bad debt from a franchisee in fiscal 2002,
approximately $441,000 of litigation settlement costs, $160,000 of expenses related to
terminated projects and higher computer expense due to the new restaurants and increased
professional fees in fiscal 2003. General and administrative expense as a percentage of
total revenue increased to 5.5% for fiscal 2003 from 5.4% for the comparable prior period.

Pre-opening expense.
Pre-opening expense increased $0.5 million to $3.1 million during fiscal 2003 from $2.6
million for the comparable prior period. We opened seven new restaurants in fiscal 2003
and opened six new restaurants for the comparable prior period. Although pre-opening
expense is incurred prior to the opening of a new restaurant, we continue to incur
pre-opening expense for trainers up to two weeks after a new restaurant opens. Pre-opening
expense has historically been approximately $0.4 million per location.

Expenses related to predecessor
companies and loss from discontinued operations. Expenses related to the Daka spin-off
and Fuddruckers sale decreased $0.2 million to $0.3 million from $0.5 million. The
decrease is primarily the result of the length of time since these transactions were
completed in 1997 and 1998.

Interest expense and income, net.Interest expense and income, net increased $0.2 million to $1.8 million from $1.6
million in the prior period primarily due to interest expense on additional debt. As of
June 29, 2003, we had a total of $28.6 million in notes payable and capitalized leases
versus $21.8 million as of June 30, 2002.

26

---

Debt extinguishment costs.Debt extinguishment costs of $0.3 million were incurred in fiscal 2003 as a result of
the repayment of $5.2 million of notes payable before their scheduled maturity. No debt
extinguishment costs were incurred in the prior fiscal year.

Other (income) expense.The
Company recorded other expense of $0.3 million in fiscal 2003 compared to a nominal amount
in the prior fiscal year. The increase in expense resulted from losses on asset disposals
from asset retirements.

Income before provision for income
taxes. Income before provision for income taxes decreased $1.4 million, or 26.4%, to
$3.9 million from $5.3 million for the comparable prior period.

Provision for income tax
benefit/expense. For fiscal 2003, we recognized an income tax benefit of $13.2 million
compared to income tax expense of $0.2 million in fiscal 2002. The income tax benefit in
fiscal 2003 was primarily the result of a reversal of the remaining valuation allowance on
the Companys deferred tax assets associated with net operating loss carryforwards.
The reversal of the valuation allowance resulted from a determination by management that
the net operating loss carryforwards are not limited under tax law and the Companys
future taxable income will, more likely than not, be sufficient to realize the
carryforwards before expiration.

# Fiscal 2002 compared to
fiscal 2001

Total revenue. Total revenue
increased approximately $25.2 million, or 18.9%, to $158.5 million for fiscal 2002 from
$133.3 million for the comparable prior period. The increase was primarily due to the
operation of six additional restaurants in fiscal 2002 partially offset by a decrease in
comparable restaurant sales of 1.1%. Comparable restaurant sales decreased primarily as
the result of the terrorist attacks of September 11th and their subsequent effect on
consumer confidence and the economy in general. During fiscal 2002, food sales and
alcoholic beverage sales represented 67.8% and 32.2% of our total food and beverage sales,
respectively. During fiscal 2001, food sales and alcoholic beverage sales represented
66.8% and 33.2% of our total food and beverage sales, respectively.

Restaurant operating
costs.

| | Product
costs. Product costs increased by $6.3 million, or 16.4%, to $44.6 million in fiscal
2002 from $38.3 million for the comparable prior period primarily as a result of our
increased restaurant base. Product costs as a percentage of restaurant sales in fiscal
2002 decreased to 28.2% from 28.9% for the comparable prior period. This improvement is
primarily the result of decreased commodity costs and stable produce prices as well as the
continued positive impact of our profit improvement plan implemented in fiscal 1999.
During April 2001, we implemented a 1.0% price increase to offset the increasing cost of
beef.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Labor
costs. Labor costs increased by $9.2 million, or 22.0%, to $51.1 million in fiscal
2002 from $41.9 million for the comparable prior period primarily as a result of our
increased restaurant base. Labor costs as a percentage of restaurant sales increased to
32.4% in fiscal 2002 from 31.6% for the comparable prior period primarily due to higher
restaurant management payroll associated with new restaurant openings as well as an
increase in employment tax expense.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
operating expense. Other operating expense increased $4.1 million, or 20.4%, to $24.2
million for fiscal 2002 from $20.1 million for the comparable prior period. Other
operating expense as a percentage of restaurant sales increased to 15.3% in fiscal 2002
from 15.0% for the comparable prior period primarily due to lower comparable restaurant
sales coupled with higher expenses for planned repairs and maintenance and the recognition
of a one-time credit for fees on credit cards in fiscal 2001. The credit on credit card fees
totaled $0.2 million and resulted from fee over charges for fiscal years 1999, 2000 and 2001.
This increase was partially offset by lower utility expenses.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27

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| | Occupancy.
Occupancy expense increased $2.9 million, or 27.1%, to $13.6 million for fiscal
2002 from $10.7 million for the comparable prior period. Occupancy expense as a
percentage of restaurant sales increased to 8.6% for fiscal 2002 from 8.1% for
the comparable prior period primarily due to an increase in real estate taxes
and insurance expenses coupled with lower comparable restaurant sales.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Depreciation
and Amortization. Depreciation and amortization expense increased $0.9 million, or
16.4%, to $6.4 million for fiscal 2002 from $5.5 million for the comparable prior period.
Depreciation and amortization expense as a percentage of restaurant sales decreased to
4.1% for fiscal 2002 from 4.2% for the comparable prior period. During the comparable
prior period, we recognized $191,000 of goodwill amortization. As the result of the
adoption of SFAS No. 142 at the beginning of fiscal 2002, we did not recognize any
goodwill amortization for fiscal 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Restaurant level operating
profit. Restaurant level operating profit increased approximately $1.8 million, or
11.1%, to $18.0 million for fiscal 2002 compared with $16.2 million forthecomparable prior period. Restaurant level operating profit as a percentage of
restaurant sales decreased to 11.4% for fiscal 2002 from 12.2% for the comparable prior
period. The decrease was due to higher expenses associated with the opening of six new
restaurants in fiscal 2002 plus three new restaurants in late fiscal 2001. The income
generated from new restaurants is typically lower during the first four months of
operation compared to an existing restaurant. In addition, lower comparable restaurant
sales resulted in a higher percentage of fixed expenses during fiscal 2002.

General and administrative
expense. General and administrative expense increased $0.9 million, or 11.7%, to $8.6
million for fiscal 2002 from $7.7 million for the comparable prior period. The increase
was largely due to the addition of support personnel. However, general and administrative
expense as a percentage of total revenue decreased to 5.4% for fiscal 2002 from 5.8% for
the comparable prior period due to the larger revenue base in fiscal 2002.

Pre-opening expense.
Pre-opening expense increased $1.1 million to $2.6 million during fiscal 2002 from $1.5
million for the comparable prior period. We opened six new restaurants in fiscal 2002 and
opened four new restaurants for the comparable prior period. In addition, two of the
restaurants opened in the last quarter of fiscal 2001, were open only in the last week of
that quarter. Although pre-opening expense is incurred prior to the opening of a new
restaurant, we continue to incur pre-opening expense for trainers up to two weeks after a
new restaurant opens. Pre-opening expense has historically been approximately $0.4 million
per location.

Expenses related to predecessor
companies and loss from discontinued operations. Expenses related to the Daka spin-off
and Fuddruckers sale decreased $0.1 million to $0.5 million from $0.6 million. The
decrease is primarily the result of the length of time since these transactions were
completed in 1997 and 1998.

Interest expense and income, net.Interest expense and income, net increased $0.1 million to $1.6 million from $1.5
million in the prior period primarily due to interest expense on additional debt partially
offset by increased capitalized interest from higher construction spending. As of June 30,
2002, we had a total of $21.8 million in notes payable and capitalized leases versus $17.1
million as of July 1, 2001.

Income before provision for income
taxes. Income before provision for income taxes decreased $0.3 million, or 5.4%, to
$5.3 from $5.6 million for the comparable prior period. During fiscal 2002, $0.5 million
was added to reserves for predecessor company obligations and discontinued operations as
compared to $0.6 million for the comparable period.

Provision for income tax
benefit/expense. For fiscal 2002, we recognized a provision for state and local income
tax expense of $0.2 million compared to $0.3 million in fiscal 2001. For the comparable
prior year period, we recorded a benefit for income taxes of $7.9 million primarily
related to the recognition of a portion of our deferred tax assets.

28

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# FINANCIAL CONDITION
AND LIQUIDITY

The working capital needs of
companies engaged in the restaurant industry are generally low as sales are made for cash,
and purchases of food and supplies and other operating expenses are generally paid in 30
to 60 days after receipt of invoices and labor costs are paid bi-weekly.

Historically, our primary sources of
liquidity for funding our operations and expansion have been net cash from operations, and
standard restaurant financing methods, such as build-to-suit transactions, sale-leaseback
transactions, mortgage facilities, notes payable, tenant improvement allowances and
equipment financing. Capital expenditures for the purchase of property and equipment were
$24.5 million, $17.3 million and $15.2 million for fiscal 2003, 2002 and 2001,
respectively.

In December 2002, the Company
received $15.0 million of gross proceeds from the issuance of 5.5% convertible
subordinated notes (notes) and warrants. Approximately $1.5 million of
issuance costs were incurred relative to the notes. The notes are due December 2007 and
require interest only payments semi-annually on June 1st and December 1stin arrears. In the second quarter of fiscal 2003, the Company utilized a portion of
the notes and warrants proceeds for the repayment of $5.2 million of notes payable before
scheduled maturity plus prepayment costs of $0.2 million. The Company intends to use the
remaining proceeds for working capital and to build new restaurants.

Between December 2001 and February
2002, we entered into two term loans collateralized by equipment with General Electric
Capital Business Asset Funding Corporation (GE Capital). As of June 29, 2003,
we had approximately $3.7 million outstanding under these term loans. These loans bear
interest at the 30-day commercial paper rate, plus 3.75% and mature between December 2006
and February 2007. The GE Capital loans require that we maintain certain financial ratios
for maximum debt to net worth, a minimum debt coverage, a minimum earnings before
interest, taxes, depreciation and amortization compared to debt and for maximum funded
indebtedness. We were in compliance with all of these financial ratios as of June 29,
2003.

The Company has a build-to-suit
facility with AEI Fund Management, Inc. This agreement provides a commitment for the
completion of seven new restaurants with an additional funding commitment of $24.5 million.
At June 29, 2003, we had completed the construction of two restaurants under this
commitment located in Houston, Texas and in Cincinnati, Ohio. The third restaurant to be
completed under this commitment is currently being negotiated. The commitment expires the
earlier of November 30, 2005 or upon AEIs acceptance or rejection of seven
additional restaurant sites. The funding of this build-to-suit facility is subject to
various pre-closing conditions.

In February 2003, the Company entered
into a bank credit commitment with First National Bank of Colorado under which it may
borrow up to $8,000,000. The commitment has two components: $2,000,000 is available to
provide short-term working capital and to support the issuance of letters of credit; the
remaining $6,000,000 is available to provide interim financing associated with
construction of new restaurant locations. Advances under the $6,000,000 facility will be
in the form of individual promissory notes that require assignment of related tenant
improvement allowance proceeds and that will mature 90 days following estimated restaurant
opening date. The commitment expires on January 2005 at which time all outstanding
borrowings are due. As of June 29, 2003, the Company had not borrowed under these
facilities. In July 2003, the Company borrowed $350,000 under the construction facility
and placed letters of credit in the amount of $488,000 pursuant to the short-term working
capital facility. The $350,000 construction facility loan was repaid in September 2003.

At June 29, 2003, our unrestricted
cash was $5.1 million and restricted cash was $0.7 million.Restricted cash
includes certificates of deposits to serve as cash collateral for stand-by letters of
credit and are classified as current assets in the accompanying consolidated balance
sheets. We anticipate that our operations will continue to generate positive operating
cash flow for fiscal 2004. However, there are also significant cash expenditures
anticipated related to the opening of new restaurants and the remodeling and improvements
of existing restaurants.

29

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In September 2002, the Company
executed a proposal for an additional $5.0 million term loan collateralized with equipment
with GE Capital. The Company received $0.5 million of proceeds in fiscal 2003 and received
the remaining $4.5 million proceeds in August 2003. The loan amortizes on a straight-line
basis with a final payment due in August 2008. These funds are intended to supplement
funding for the construction of the six to eight restaurants in fiscal 2004.

During fiscal 2003, we generated
positive cash flow from operating activities of $10.1 million. During the year, we
received $15.0 million from the issuance of notes and warrants, $0.5 million from the GE
Capital term loans and landlord contribution in the form of landlord tenant improvement
allowances totaling $6.4 million.

During fiscal 2003, we opened seven
restaurants. For fiscal 2003, total capital expenditures for new restaurants were
approximately $21.7 million and $2.8 million for renovations to existing restaurants and
corporate upgrades.

During fiscal 2002, we generated
positive cash flow from operating activities of $8.9 million. During the same period, we
received $11.4 million associated primarily with the proceeds from the GE Capital term
loans of $5.0 million and landlord tenant improvement allowances totaling $6.4 million.

During fiscal 2002, we opened six
restaurants. For fiscal 2002, total capital expenditures for new restaurants were
approximately $14.0 million and $3.3 million for renovations to existing restaurants and
corporate upgrades. This amount was partially offset from receipts from equipment capital
leases of $1.8 million.

During fiscal 2001, we generated cash
flow from operating activities of $9.7 million. During the same period, we received $3.6
million primarily from the sale-leaseback of our Las Colinas, Texas restaurant for $3.1
million and $0.5 million from the sale of a former Fuddruckers restaurant location.

During fiscal 2001, we opened four
restaurants. Total capital expenditures for new restaurants during fiscal 2001 were
approximately $12.9 million before the receipt of $0.5 million from a tenant improvement
note payable in fiscal 2001. Capital expenditures for remodels and improvements to
existing restaurants were approximately $2.3 million in fiscal 2001.

During fiscal 2004, we anticipate
opening six to eight restaurants. As of September 10, 2003, we had opened two restaurants,
begun construction on four restaurants and had signed agreements for four additional
restaurants. We have identified multiple potential sites and are negotiating contracts on
additional sites for restaurants to be opened in fiscal 2004 and 2005. Our capital
expenditures for fiscal 2004 are expected to be approximately $18.4 million for new
restaurants and $2.4 million for remodeling and improvements in existing restaurants and
for capital expenditures for our corporate office. These expenditures will be funded
through our unrestricted cash, cash flow from operations, tenant improvement allowances
and additional financing. We anticipate the receipt of tenant improvement allowances to
offset capital expenditures of approximately $5.1 million in fiscal 2004.

We also anticipate that we will make
cash payments in fiscal 2004 associated with liabilities previously recorded in fiscal
1998 and 1999 for prior year insurance claims, tax audits and legal settlements related to
our indemnification obligations arising from the spin-off of DAKA and the Fuddruckers sale
transaction. During fiscal 2003, 2002 and 2001, we made payments of $1.0 million, $1.4
million and $2.7 million, respectively, to reduce these liabilities. Anticipated
expenditures for these liabilities are estimated to range between $0.5 million and $0.6
million for 2004, based upon current estimates. Additionally, the Company anticipates
paying on-going legal costs of between $0.2 million and $0.4 million in fiscal 2004
related to these liabilities.

Currently the Company has
approximately $0.6 million accrued for liabilities associated with predecessor companies
related to the McCrea judgment and the Florida Department of Revenues proposed
assessment. Although the Company believes, and outside legal counsel concurs, that the
punitive damages in the McCrea case will not be upheld and the Company believes it has
meritorious legal and factual defenses regarding the Florida Department of Revenues
proposed assessment, if the McCrea punitive damages are upheld or if the Florida
Department of Revenue finalizes their assessment for an amount similar to their proposed
assessment and the assessment is ultimately paid, the Companys consolidated
financial position, results of operations and cash flows would be impacted. Although the
Company believes that it has sufficient liquidity to make payments in these matters, the
future growth plans of the Company may be impacted.

30

---

We believe our end of the year cash
balance of $5.1 million plus the proceeds from the $4.5 million GE financing, the $6.0
million interim construction financing commitment and anticipated tenant improvement
allowances of approximately $5.1 million, together with our cash flow from operations,
will be sufficient to fund our operations, debt repayment and expansion at least through
the end of fiscal 2004. However, changes in our operating plans, acceleration of our
expansion plans, lower than anticipated sales, increased expenses or other events,
including those described in Item 1 Business-Risk Factors, may cause us to
seek additional debt or equity financing on an accelerated basis. Financing may not be
available on acceptable terms, or at all, and our failure to raise capital when needed
could negatively impact our growth plans and our financial condition and results of
operations. Any additional equity financing may be dilutive to the holders of our common
stock and debt financing, if available, may involve significant cash payment obligations
and covenants and/or financial ratios that restrict our ability to operate our business.

# Contractual obligations
and commitments

# Payments, including
interest, due by period as of June 29, 2003 (in 000s)

|ContractualObligations | Total | One year and
less | Two to three
years | Four to
five years | After five
years
|---------------------- | ----- | ----------------- | ------------------ | ------------------ | ----------------
|Operating leases       |       |                   |                    | $221,049           |                 
|Capital leases         |       |                   |                    | 1,291              |                 
|Notes payable          |       |                   |                    | 38,298             |                 
|Letters of credit      |       |                   |                    | 741                |                 
|Construction           |       |                  
|commitments            |       |                   |                    | 9,933              |                 
|Build-to-suit          |       |                  
|construction           |       |                  
|commitments            |       |                   |                    | 314                |                 

We are obligated under non-cancelable
operating leases for our headquarters and all but one of our restaurants. The fixed terms
of the restaurant leases range up to 20 years and generally contain multiple renewal
options for various periods ranging from five to 20 years. Our restaurant leases also
contain provisions that require additional payments based on sales performance and the
payment of common area maintenance charges and real estate taxes. Amounts in this table do
not reflect any of these additional amounts.

# Impact of inflation

The primary inflationary factors
affecting our operations are food, alcoholic beverages and labor costs. A large number of
our restaurant associates are paid at rates based on the applicable minimum wage, and
increases in the minimum wage directly affect our labor costs. Many of our leases require
us to pay property taxes, maintenance, repairs, insurance and utilities, all of which are
generally subject to inflationary increases. We believe inflation has not had a material
impact on our results of operations in recent years. We cannot predict whether inflation
will have an impact on our results of operations in the future.

# Recent accounting
developments

SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity,
establishes standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. This statement is
effective for financial instruments entered into or modified after May 2003 and is otherwise effective June 30, 2003. This statement did not have any
impact on our Consolidated Financial Statements.

31

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In January 2003, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No.
(FIN) 46, Consolidation of Variable Interest Entities.  This
interpretation provides guidance on the identification of, and financial reporting for,
variable interest entities.  Variable interest entities are entities that lack the
characteristics of a controlling financial interest or lack sufficient equity to finance
its activities without additional subordinated financial support.  FIN 46 requires a
company to consolidate a variable interest entity if that company is obligated to absorb
the majority of the entitys expected losses or entitled to receive the majority of
the entitys residual returns, or both.  FIN 46 also requires disclosures about
variable interest entities that a company is not required to consolidate but in which it
has a significant variable interest.  FIN 46 is applicable immediately to variable
interest entities created after January 31, 2003.  For all variable interest entities
created prior to February 1, 2003, FIN 46 is applicable to periods beginning after June
15, 2003.  The Company currently does not have any variable interest entities that
fall under the scope of this interpretation.

# Item 7A.        Quantitative
and Qualitative Market Risk Disclosures

The market risk exposure inherent in
the Companys financial instruments and consolidated financial position represents
the potential losses arising from adverse changes in interest rates. The Company is
exposed to such interest rate risk primarily in its significant investment in cash and
cash equivalents and the use of fixed and variable rate debt to fund its acquisitions of
property and equipment in past years and the implicit interest rates in the Companys
sale-leaseback arrangements.

Market risk for cash and cash
equivalents and fixed rate borrowings is estimated as the potential change in the fair
value of the assets or obligations resulting from a hypothetical ten percent adverse
change in interest rates, which would not have been significant to the Companys
financial position or results of operations during fiscal 2003. The effect of a similar
hypothetical change in interest rates on the Companys variable rate debt and the
investment rates implicit in the Companys sale-leaseback arrangements also would
have been insignificant due to the immaterial amounts of borrowings outstanding under the
Companys credit arrangements. For additional information about the Companys
financial instruments and these financing arrangements, see Notes to Consolidated
Financial Statements.

# Item 8.        Financial Statements and
Supplementary Data.

The information required under this
Item 8 is set forth on pages F-1 through F-26 of this Report.

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

On August 2, 2002, the Company
determined not to renew the engagement of Arthur Andersen LLP as independent accountants
for the Company and the Company engaged KPMG LLP as the independent accountants to audit
and report upon the Companys financial statements for the current fiscal year ending
June 30, 2002. The determination by management and the Audit Committee not to renew the
engagement of Arthur Andersen LLP, which followed the recent announcement by the
Securities and Exchange Commission (SEC) regarding the ability to use Arthur
Andersen LLP to provide independent attestation of filings with the SEC, was approved by
the Board of Directors. For the fiscal years ended July 1, 2001 and July 2, 2000, Arthur
Andersen LLP had audited and reported upon the Companys financial statements and had
served as the Companys independent accountants.

During the Companys two fiscal
years ended July 2, 2000 (fiscal 2000) and July 1, 2001 (fiscal
2001), and during subsequent interim periods through August 2, 2002, there were no
disagreements with Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to their satisfaction would have caused them to make
reference to the subject matter of the disagreement in connection with their reports. In
addition, during the above period, there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K.

Although the Company requested a
letter from Arthur Andersen LLP stating its agreement with such statements and although
the Company used reasonable efforts to obtain such letter, the Company was not able to
obtain the letter.

32

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During the two most recent fiscal
years ended July 2, 2000 and July 1, 2001 and the period from July 1, 2001 to August 2,
2002, we did not consult with KPMG LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our consolidated financial statements, or any other
matters or reportable events described in Items 304(a)(2)(i) and (ii) of Regulation S-K.

# PART III

# Item 10.        Directors and
Executive Officers of the Registrant.

Our directors and executive officers
include the following persons:



|Name                                                                                                                                                                                                                                                                                                                                                                                                                                 | Age                                                                                    | Positions                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|William H. Baumhauer            
Donnie N. Lamb                  
Frederick J. Dreibholz          
Donna L. Depoian                
David J. Miller                 
Timothy R. Barakett (3)         
Stephen F. Edwards (3)          
James Goodwin (1) (3)           
Ian Hamilton (1) (2) (3)        
Michael P. O'Donnell (1) (2) (3)
Charles G. Phillips (1) (2) (3) 
Nathaniel Rothschild (3)        
Alan D. Schwartz (2) (3) | 55   
 50   
 48   
 43   
 52   
 38   
 40   
 47   
 47   
 47   
 55   
 32   
 53 | Chairman, President and Chief Executive Officer
 Senior Vice President, Chief Operating Officer
 Vice  President,  Treasurer  and  Chief  Financial Officer
 Vice President, Secretary and General Counsel
 Vice President of Construction and Design
 Director
 Director
 Director
 Director
 Director
 Director
 Director
 Director

|(1)        Member of audit committee
(2)        Member of compensation committee
(3)        Member of nominating committee
|--------------------------------------------------------------------------------------------------------------------------

All executive officers hold office at
the discretion of the board of directors.

William H. Baumhauer. Mr.
Baumhauer is our chairman of the board and has been an officer of Champps since June 1999
and a director since August 1999. Mr. Baumhauer also held these positions with our
predecessors or us from September 1988 until July 24, 1998, when he left the Company to
serve as president and chief operating officer of Planet Hollywood International, Inc., a
position he held until his return to Champps in June 1999.

Donnie N. Lamb. Mr. Lamb was
appointed our senior vice president and chief operating officer in August 2002. Mr. Lamb
started his employment with the Company in August 1996. He served as a director of
operations from August 1996 through August 1999 when he was promoted to vice president
 operations. Prior to August 1996, Mr. Lamb held multi-unit management positions
with Houlihans and Ruby Tuesday, Inc.

Frederick J. Dreibholz. Mr.
Dreibholz has served as vice president, chief financial officer and treasurer since
October 1999. From November 1998 to October 1999, Mr. Dreibholz acted as a consultant to
numerous restaurant and food service clients in South Florida and New York City. From
April 1998 to November 1998, he served as chief financial officer of Unique Restaurant
Concepts, Inc. and Sforza Enterprises, Inc. From November 1987 to April 1998, he served as
chief financial officer of Flik International Corp.

33

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Donna L. Depoian. Ms. Depoian
has served as our vice president, general counsel and secretary since May 1998. From
February 1998 to May 1998, Ms. Depoian served as our acting general counsel and assistant
secretary and from July 1997 to February 1998, as our corporate counsel and assistant
secretary. From April 1994 to July 1997, Ms. Depoian served as corporate counsel and
assistant secretary for DAKA International, Inc.

David J. Miller.Mr. Miller
has served as our vice president of construction and design since October 1999. He started
with the Company in May 1996 and served in the capacities of construction manager until
October 1997 when he was promoted to corporate director of construction.

Timothy R. Barakett. Mr.
Barakett has served as a director since March 1999. Since October 1995, Mr. Barakett has
been the chairman and chief executive officer of Atticus Capital, L.L.C., a private
investment management company. Mr. Barakett is also a principal and/or chief executive
officer of other Atticus affiliates. Mr. Barakett also serves on the boards of RIT Capital
Partners, plc and Vivarte, S.A. (formerly known as Groupe Andre, S.A.).

Stephen F. Edwards. Mr.
Edwards has served as a director since May 2001. From July 2002 to present, Mr. Edwards
has been the senior managing director of Atticus Capital, L.L.C., a private investment
management company. From 1995 to June 2002, Mr. Edwards was a senior partner at Bruckman,
Rosser, Sherrill & Co., LLC, a private equity investment firm specializing in the food
service industry. He previously served on the board of directors of Town Sports
International, Inc., Au Bon Pain, Inc., OSullivan Industries, Inc., Unwired PLC and
American Paper Holdings, Inc. until June 2002.

James Goodwin. Mr. Goodwin has
served as a director since March 1999. Since 1998, Mr. Goodwin has served as the chairman
and managing member of Half Moon Capital Management, L.L.C.

Ian Hamilton. Mr. Hamilton has
served as a director since December 2002. Mr. Hamilton is the founder of the Hamilton
Group, a Sports Marketing and Entertainment Company, and currently serves as the executive
producer of the Professional Bowlers Association on ESPN. Mr. Hamilton previously served
as the global director of Tennis Sports Marketing for Nike, Inc. and also as the president
of Planet Hollywood Internationals Official All Star Café. Mr. Hamilton
serves as a board member of U.S. Sports Development, Inc. and the Tim & Tom Gullikson
Foundation.

Michael P. ODonnell. Mr.
ODonnell was appointed a director in September 2002. On September 8, 2003, Mr. O'Donnell
was appointed president, chief executive officer and a member of the board of director's of
Sbarro, Inc.  From August 1998 through May
2002, he served in various capacities for Outback Steakhouse, Inc. including president and
chief executive officer of Roys, a joint venture between Outback Steakhouse and Roy
Yamaguchi. He also served as chief executive officer for all new businesses for Outback
Steakhouse while serving on the board of directors of Roys, Flemings, Carrabbas
Italian Grill, and Cheeseburger in Paradise, all Outback joint ventures. From June 1995 to
August 1998, Mr. ODonnell was president, chief operating officer and partner of Ale
House Restaurants, Inc. From January 1990 to May 1995, Mr. ODonnell was chief
executive officer and chairman of Ground Round Restaurants, Inc. Mr. ODonnell also
serves as a director of Boston Inner City Schools.

Charles G. Phillips.Mr.
Phillips has served as a director since December 2002. Mr. Phillips served as president of
Gleacher Partners from 1997 to 2001, where he also served as a managing director for
eleven years. Prior to joining Gleacher Partners, Mr. Phillips held senior positions at
other leading investment banking firms, including nine years at Morgan Stanley where he
served as a managing director and founded and led that firms high yield finance
activities in 1984. Mr. Phillips has been a director of several public and private
companies and investment funds; he also serves on the governing bodies of a number of
educational and non-profit organizations.

34

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Nathaniel Rothschild. Mr.
Rothschild has served as a director since August 1999. Since August 1999, he has been the
president of Atticus Capital, L.L.C., a private investment management company. Mr.
Rothschild is also a principal and/or president of other Atticus affiliates. Since
February 2003, Mr. Rothschild has been the chairman and a director of JNR (UK) Ltd., a
London-based investment banking boutique specializing in emerging markets. In addition,
Mr. Rothschild has been serving as the chairman of the board of directors (President du
Conseil dadministration) of Vivarte, S.A. (formerly known as Groupe Andre, S.A.)
since April 2000. From April 1997 to August 1999, Mr. Rothschild was a vice president of
Atticus Management (Bermuda) Ltd. Mr. Rothschild is a member of the Belfer Centers
International Council at Harvards John F. Kennedy School of Government.

Alan D. Schwartz.Mr. Schwartz
has served as a director of our Company or our predecessors since September 1988.
Currently, Mr. Schwartz is president, co-chief operating officer, a member of the
executive committee and sits on the board of directors of The Bear Stearns Companies, Inc.
Mr. Schwartz graduated from Duke University, where he is chairman of Fuquas Board of
Visitors. Mr. Schwartz also serves on the boards of the American Foundation for AIDS
Research, St. Vincents Services, Mt. Sinai-NYU Medical Center, the New York Blood
Center and The National Mentoring Partnership.

Our board of directors is divided
into three classes, each class consisting as nearly as possible to one-third of the total
number of directors. Directors hold office for staggered terms of three years or until
their successors have been duly elected and qualified. Directors in one of the three
classes are elected each year at the annual meeting of stockholders to succeed the
directors whose terms are expiring. Class I directors are Timothy R. Barakett, James
Goodwin and Charles G. Phillips, and will serve as directors until the 2003 annual
meeting. Class II directors are William H. Baumhauer, Michael P. ODonnell and
Nathaniel Rothschild, and will serve as directors until the 2004 annual meeting. Class III
directors are Stephen F. Edwards, Ian Hamilton and Alan D. Schwartz, and will serve as
directors until the 2005 annual meeting.

# Item 11.        Executive
Compensation.

The information required by this Item
is incorporated by reference to the section captioned Executive Compensation
in the Proxy Statement.

# Item 12.        Security
Ownership of Certain Beneficial Owners and Management.

The information required by this Item
is incorporated by reference to the section captioned Security Ownership of Certain
Beneficial Owners and Management contained in the Proxy Statement.

# Item 13.        Certain
Relationships And Related Transactions.

The information required by this Item
is incorporated by reference from the sections captioned Certain Relationship and
Related Transactions contained in the Proxy Statement.

# Item 14.        Controls and
Procedures.

(a)       
          Under the supervision and with the participation of our management, including
          our principal executive officer and principal financial officer, we conducted an
          evaluation of our disclosure controls and procedures, as such term is defined
          under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as
          amended (the Exchange Act), within 90 days of the filing date of
          this report. Based on their evaluation, our principal executive officer and
          principal financial officer concluded that our disclosure controls and
          procedures are effective.

(b)       
          There have been no significant changes, including corrective actions with regard
          to significant deficiencies or material weaknesses, in our internal controls or
          in other factors that could significantly affect these controls subsequent to
          the date of the evaluation referenced in paragraph (a) above.

35

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# PART IV

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

The following are being filed as part
of this Annual Report on Form 10-K.

# A.        
Financial Statements:

Independent Auditors Report

Consolidated Balance Sheets  June 29, 2003 and June 30, 2002

Consolidated
Statements of Operations  Fiscal years ended June 29, 2003, June 30, 2002 and July
1, 2001

Consolidated Statements of Changes in Stockholders Equity  Fiscal years ended June 29,
2003, June 30, 2002 and July 1, 2001

Consolidated Statements of Cash Flows  Fiscal years ended June 29, 2003, June 30, 2002 and July
1, 2001

Notes to Consolidated Financial Statements for the fiscal years ended June 29, 2003, June 30, 2002 and July 1, 2001

# B.        Financial Statement
Schedules:

| |  | There are
no Financial Statement Schedules required to be filed. Information required by Article 12
of Regulation S-X with respect to Valuation and Qualifying Accounts has been included in
the Notes to the Consolidated Financial Statements.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# C.        Exhibits:

|2.1 |  | Agreement
and Plan of Merger, dated as of May 27, 1997, by and among Compass Interim, Inc. (Compass
Interim), Compass Holdings, Inc. (Purchaser), Compass Group PLC (Parent)
and DAKA International, Inc. (DAKA International), incorporated herein by
reference to the Companys Registration Statement on Form 10 filed June 3, 1997, as
amended.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 |  | Reorganization
Agreement dated as of May 27, 1997, by and among DAKA International, Daka, Inc. (Daka),
the Company, Parent and Compass Holdings, together with certain exhibits thereto),
incorporated herein by reference to the Companys Registration Statement on Form 10
filed June 3, 1997, as amended.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 |  | Agreement
and Plan of Merger among Champps Entertainment, Inc. (Champps), DAKA and CEI
Acquisition Corp., dated as of October 10, 1995, incorporated herein by reference to DAKAs
Registration Statement on Form S-4 (File No. 33-65425) (1996 DAKA Form S-4).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.4 |  | Series
D Convertible Preferred Stock and Warrant Purchase Agreement, dated as of January 12,
1996, by and among La Salsa Holding Co. and Casual Dining Ventures, Inc. Pursuant to Item
601(b)(2) of Regulation S-K, the Schedules to the Series D Convertible Preferred Stock
and Warrant Purchase Agreement are omitted. The Company hereby undertakes to furnish
supplementally a copy of any omitted Schedule to the Commission upon request.
Incorporated herein by reference to the Annual Report on Form 10-K of DAKA International
for the year ended June 29, 1996.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.5 |  | Stock
Purchase Agreement, dated as of March 18, 1996, by and among Casual Dining Ventures,
Inc., DAKA, Champps Development Group, Inc., Steven J. Wagenheim, Arthur E. Pew, III, PDS
Financial Corporation, Douglas B. Tenpas and certain other stockholders of Americana
Dining Corp. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the Stock
Purchase Agreement are omitted. The Company hereby undertakes to furnish supplementally a
copy of any omitted Schedule to the Commission upon request. Incorporated herein by
reference to the Annual Report on Form 10-K of DAKA International for the year ended June
29, 1996.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

---

|2.6 |  | Asset
Purchase  Agreement,  dated March 18, 1996,  between  Americana Dining Corp., as Seller,
 and New  Brighton  Ventures,  Inc.,  as Buyer.  Pursuant  to Item  601(b)(2)  of
 Regulation  S-K,  the Schedules to the Asset Purchase  Agreement are omitted.  The
Company  hereby  undertakes to furnish supplementally a copy of any omitted Schedule to
the Commission upon request.  Incorporated  herein by reference to the Annual  Report on
Form 10-K of DAKA  International  for the year ended June 29, 1996.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.7 |  | Stock
Purchase  Agreement,  dated as of March 29, 1996, by and among DAKA, The Great Bagel and Coffee
Franchising Corp., GBC Credit Company,  Gemini Production Facility,  Inc., The Great
Bagel and Coffee Company,  Mark C. Gordon, Brian H. Loeb, Jason R. Olivier,  Michael F.
Zerbib,  Nicholas D. Zerbib, and Thierry E. Zerbib.  Pursuant to Item  601(b)(2) of
 Regulation  S-K, the Schedules to the Stock Purchase  Agreement are omitted.  The
Company hereby  undertakes to furnish  supplementally  a copy of any omitted  Schedule to
the Commission  upon request.  Incorporated  herein by reference to the Annual Report on
Form 10-K of DAKA International for the year ended June 29, 1996.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.8 |  | Stock
Purchase Agreement, dated as of March 31, 1996, by and among Casual Dining Ventures,
Inc., DAKA and Edgebrook, Inc. Pursuant to Item 601(b)(2) of Regulation S-K, the
Schedules to the Stock Purchase Agreement are omitted. The Company hereby undertakes to
furnish supplementally a copy of any omitted Schedule to the Commission upon request.
Incorporated herein by reference to the Annual Report on Form 10-K of DAKA International
for the year ended June 29, 1996.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.9 |  | Certificate
 of  Ownership  and Merger  between  Champps  Entertainment,  Inc.  and  Unique  Casual
Restaurants, Inc., dated July 26, 1999.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|3.1 |  | Amended
and Restated Certificate of Incorporation of the Company, incorporated herein by
reference to the Companys Registration Statement on Form 10 filed June 3, 1997, as
amended.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Amended
and Restated By-laws of the Company incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 |  | Certificate
of Designations, Preferences and Rights of a Series of Preferred Stock of the Company,
dated January 30, 1998, incorporated herein by reference to the Companys Current
Report on Form 8-K filed February 2, 1998.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Specimen
Stock Certificate for shares of the UCRI Common Stock, incorporated herein by reference
to the Companys Registration Statement on Form 10 filed June 3, 1997, as amended.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Amended
and Restated Shareholder Rights Agreement, dated as of January 30, 1998, between the
Company and American Stock Transfer and Trust Company, as Rights Agent, incorporated
herein by reference to the Companys Current Report on Form 8-K filed February 2,
1998.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 |  | First
Amendment to the Shareholder Rights Agreement between Champps Entertainment, Inc. and
American Stock Transfer and Trust Company, dated December 8, 1999, incorporated herein by
reference to Annual Report on Form 10-K for Champps Entertainment Inc. dated June 30,
2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | Form
of 5.5% Convertible Subordinated Note Due 2007, incorporated herein by reference to the
Companys Current Report on Form 8-K filed December 16, 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 |  | Form
of Warrant to Purchase Common Stock, incorporated herein by reference to the Companys
Current Report on Form 8-K filed December 16, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|4.6 |  | Registration
 Rights Agreement dated as of December 12, 2002 by and between Champps  Entertainment,
Inc., U.S. Bancorp Piper Jaffray,  Inc. and the Buyers as defined therein,  incorporated
 herein by reference to the Company's Current Report on Form 8-K filed December 16, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37

---

|10.1 |  | Tax
Allocation Agreement dated as of May 27, 1997, by and among DAKA, the Company, and
Parent, incorporated herein by reference to the Companys Registration Statement on
Form 10 filed June 3, 1997, as amended.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Post-Closing
Covenants Agreement, dated as of May 27, 1997, by and among DAKA, Daka, Inc., the
Company, Champps, Fuddruckers, Inc., Purchaser and Parent, incorporated herein by
reference to the Companys Registration Statement on Form 10 filed June 3, 1997, as
amended.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Stock
Purchase Agreement, dated as of May 26,1997, between DAKA, Parent, Purchaser, First
Chicago Equity Corporation, Cross Creek Partners I and the other holders of Series A
Preferred Stock of DAKA, incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 |  | 1997
Stock Option and Incentive Plan, incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 |  | 1997
Stock Purchase Plan, incorporated herein by reference to the Companys Registration
Statement on Form 10 filed June 3, 1997, as amended.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|10.6 |  | Indemnification
Agreement, by and between the Company and directors and officers of DAKA, incorporated
herein by reference to the Companys Registration Statement on Form 10 filed June 3,
1997, as amended.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 |  | Third
Amended and Restated Registration Rights Agreement, dated as of January 12, 1996, by and
among La Salsa Holding Co., FMA High Yield Income L.P., WSIS Flexible Income Partners
L.P., WSIS High Income L.P., Howdy S. Kabrins, La Salsa, Inc., Crown Associates III,
L.P., Crown-Glynn Associates, L.P., Nueberger & Berman as Trustee for the Crown
Trust, Theodore H. Ashford, Noro-Moseley Partners II, L.P., Seidler Salsa, L.P., Bankers
Trust Company as Master Trustee for Hughes Aircraft Retirement Plans, Charles A. Lynch,
Sienna Limited Partnership I, Sienna Limited Partnership II, Sienna Holdings, Inc., as
Nominee, InterWest Partners IV, Donald Benjamin, Vicki Tanner, Ronald D. Weinstock, Inc.,
Frank Holdraker, and Casual Dining Ventures, Inc. Incorporated herein by reference to the
Annual Report on Form 10-K of DAKA International for the year ended June 29, 1996.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 |  | Fourth
Amended and Restated Restricted Stock Agreement, dated as of January 12, 1996, by and
among La Salsa Holding Co., Howdy S. Kabrins, La Salsa, Inc., InterWest Partners IV,
Sienna Holding, Inc., Sienna Limited Partnership I, Charles A. Lynch, Theodore H.
Ashford, Crown Associates III, L.P., Crown-Glynn Associates, L.P., Nueberger & Berman
as Trustee for The Crown Trust, Noro-Moseley Partners II, L.P., Seidler Salsa, L.P.,
Bankers Trust Company, as Master Trustee, for Hughes Aircraft Retirement Plans, FMA High
Yield Income L.P., WSIS Flexible Income Partners L.P., WSIS High Yield Income L.P.,
Sienna Limited Partnership II, Donald Benjamin, Vicki Tanner, Ronald D. Weinstock, Inc.,
Frank Holdraker, and Casual Dining Ventures, Inc. Incorporated herein by reference to the
Annual Report on Form 10-K of DAKA International for the year ended June 29, 1996.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 |  | La
Salsa Holding Co. Warrant to Purchase Shares of Series D Convertible Preferred Stock,
dated as of January 12, 1996, issued to Casual Dining Ventures, Inc. by La Salsa Holding
Co. Incorporated herein by reference to the Annual Report on Form 10-K of DAKA
International for the year ended June 29, 1996.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Severance,
Non-Competition and Confidentiality Agreement, dated as of March 18, 1996, between Steven
J. Wagenheim and Americana Dining Corp. Incorporated herein by reference to the Annual
Report on Form 10-K of DAKA International for the year ended June 29, 1996.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | La
Salsa License Agreement, dated as of February 14, 1996, by and between La Salsa
Franchise, Inc. and La Salsa Holding Co. Incorporated herein by reference to the Annual
Report on Form 10-K of DAKA International for the year ended June 29, 1996.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38

---

|10.12 |  | Separation
Agreement, dated as of February 2, 1998, by and among Dean P. Vlahos, the Company and
Champps, incorporated herein by reference to the Annual Report on Form 10-K of Unique
Casual Restaurants, Inc. for the year ended June 28, 1998.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 |  | Asset
Purchase Agreement, dated as of February 2, 1998, by and between Dean P. Vlahos and
Champps, incorporated herein by reference to the Annual Report on Form 10-K of Unique
Casual Restaurants, Inc. for the year ended June 28, 1998.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | Champps
Restaurant Development Agreement, dated as of February 2, 1998, by and between Dean P.
Vlahos and Champps, incorporated herein by reference to the Annual Report on Form 10-K of
Unique Casual Restaurants, Inc. for the year ended June 28, 1998.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 |  | Stock
Purchase Agreement, dated as of July 31, 1998, by and between King Cannon, Inc. and
Unique Casual Restaurants, Inc., incorporated herein by reference to the Annual Report on
Form 10-K of Unique Casual Restaurants, Inc. for the year ended June 27, 1999.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 |  | Termination
Agreement and General  Release,  dated July 21, 1999, by and between
 Champps Entertainment,  Inc.,  Champps Operating  Corporation and Donald C. Moore,
 incorporated  herein by reference to the Annual Report on Form 10-K of Unique Casual
 Restaurants,  Inc. for the year ended July 2, 2000.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Non-negotiable
 Promissory  Note,  dated  August 2,  1999,  payable  by Donald C.  Moore to Champps
Entertainment,  Inc.,  incorporated herein by reference to the Annual Report on Form 10-K
of Unique Casual Restaurants, Inc. for the year ended July 2, 2000.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Asset
Purchase Agreement, dated April 6, 2000, made by and between Prairie Restaurant Group,
Inc. and Champps Operating Corporation, incorporated herein by reference to the Annual
Report on Form 10-K of Unique Casual Restaurants, Inc. for the year ended July 2, 2000.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Asset
Purchase Agreement, dated April 6, 2000, made by and between Dean P. Vlahos and the
Breagan Investment Group, Inc. and Champps Operating Corporation, incorporated herein by
reference to the Annual Report on Form 10-K of Unique Casual Restaurants, Inc. for the
year ended July 2, 2000.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | Stock
Redemption and Debt Restructuring Agreement, dated May 24, 1999, made by and among
Champps Entertainment, Inc., Theodore M. Mountzuris and Restaurant Consulting Services,
Inc., incorporated herein by reference to the Annual Report on Form 10-K of Unique Casual
Restaurants, Inc. for the year ended July 1, 2001.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 |  | Loan
Agreement, dated April 21, 2000, by and between Champps Operating Corporation and Finova
Capital Corporation, incorporated herein by reference to the Annual Report on Form 10-K
of Champps Entertainment, Inc. for the year ended June 30, 2002.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.22 |  | Securities
Purchase Agreement dated as of December 12, 2002 by and between Champps Entertainment,
Inc. and the Buyers as defined therein, incorporated herein by reference to the Companys
Current Report on Form 8-K filed December 16, 2002.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23 |  | First
Amendment to Multi-Site Agreement, dated January 8, 2003, by and between Champps
Entertainment Inc. and AEI Fund Management, Inc., incorporated herein by reference to the
Quarterly Report on Form 10-Q of Champps Entertainment, Inc. for the quarter ended
December 29, 2002.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.24 |  | Master
Credit Facility Agreement, dated as of February 14, 2003, by and between Champps
Entertainment, Inc. and First National Bank of Colorado, incorporated herein by reference
to the Quarterly Report on Form 10-Q of Champps Entertainment, Inc. for the quarter ended
March 30, 2003.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.25 |  | Amended
and Restated Employment Contract, dated as of May 22, 2003, by and between Champps
Entertainment, Inc. and William H. Baumhauer, incorporated herein by reference to the
Companys Current Report on Form 8-K dated May 28, 2003.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

---

|10.26 |  | 2003
Stock Option and Incentive Plan, incorporated herein by reference to the Companys
definitive proxy statement filed April 29, 2003.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|10.27 |  | Amended
and Restated  Agreement,  dated as of May 22, 2003, by and between  Champps
 Entertainment, Inc. and Sysco.
|----- |  | -------------------------------------------------------------------------------------------------------------------

|21.1 |  | Subsidiaries
of the Company.
|---- |  | ----------------------------

|23.1 |  | Consent
of KPMG LLP.
|---- |  | --------------------

|24.1 |  | Powers
of Attorney.
|---- |  | -------------------

|31.1 |  | Certification
by William H. Baumhauer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | ------------------------------------------------------------------------------------------------

|31.2 |  | Certification
by Frederick J. Dreibholz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | --------------------------------------------------------------------------------------------------

|32.1 |  | Certification
by William H. Baumhauer pursuant to Section 1350, Chapter 63 of Title 18, United States
Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 |  | Certification
by Frederick J. Dreibholz pursuant to Section 1350, Chapter 63 of Title 18, United States
Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# D.        Reports on Form 8-K

During the fourth quarter ended June
30, 2003, we filed the following reports on Form 8-K:

The
Company filed a Form 8-K on April 23, 2003, announcing results for its third quarter of
fiscal 2003 ended March 30, 2003.

The
Company filed a Form 8-K on May 28, 2003, announcing an amended and restated employment
contract for its chief executive officer, William H. Baumhauer was executed on May 22,
2003 and William H. Baumhauer on May 27, 2003, extended the expiration date of his stock
trading plan from June 30, 2003 to September 30, 2003.

In addition, we filed the following
reports on Form 8-K subsequent to the close of the fourth quarter of fiscal 2003:

The
Company filed a Form 8-K on August 19, 2003, announcing its results for the fourth quarter
and fiscal year ended June 29, 2003.

40

---

# SIGNATURES

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

CHAMPPS ENTERTAINMENT,
INC.(Registrant)

| | By: /s/ William H. Baumhauer
William H. Baumhauer
Chairman of the Board, President
 and Chief Executive Officer
(Principal Executive Officer)
Date: September 24, 2003           
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | By: /s/ Frederick J. Dreibholz
Frederick J. Dreibholz
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: September 24, 2003

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



|Signature                                                                                                                                                                                                                                 | Title                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------
|William H. Baumhauer      
Timothy Barakett*         
Stephen F. Edwards*       
James Goodwin*            
Ian Hamilton*             
Michael O'Donnell*        
Charles G. Phillips*      
Nathaniel Rothschild*     
Alan D. Schwartz* | Chairman of the Board
Director
Director
Director
Director
Director
Director
Director
Director

* Executed pursuant to a power of
attorney

|                                                                                                                                    | 
|----------------------------------------------------------------------------------------------------------------------------------- | 
|By: /s/ Frederick J. Dreibholz
Frederick J. Dreibholz
Vice President, Chief Financial Officer
and TreasurerDate: September 24, 2003

41

---

# Independent
Auditors Report

The Board of Directors
and ShareholdersChampps Entertainment, Inc.:

We have audited the accompanying
consolidated balance sheets of Champps Entertainment, Inc. (the Company) and
subsidiaries as of June 29, 2003 and June 30, 2002, and the related consolidated
statements of operations, changes in shareholders equity, and cash flows for each of
the years in the three-year period ended June 29, 2003. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Champps Entertainment, Inc. and subsidiaries as of June 29, 2003 and
June 30, 2002, and the results of their operations and their cash flows for each of the
years in the three-year period ended June 29, 2003, in conformity with accounting
principles generally accepted in the United States of America.

KPMG LLP

Denver, Colorado
August 15, 2003

F-1

---

CHAMPPS ENTERTAINMENT,
INC.CONSOLIDATED BALANCE
SHEETSAs of June 29, 2003 and
June 30, 2002(In thousands, except share data)

|                                                           | June 29, 2003 | June 30, 2003
|---------------------------------------------------------- | ------------- | -------------
|ASSETS                                                     |               |              
|Current assets:                                            |               |              
|Cash and cash equivalents (Note 1)                         |               |              
|Restricted cash (Note 1)                                   |               |              
|Accounts receivable (Note 1)                               |               |              
|Inventories (Note 1)                                       |               |              
|Prepaid expenses and other current assets (Notes 1 and 3)  |               |              
|Deferred tax asset (Notes 1 and 8)                         |               |              
|                                                           |               |              
|Total current assets                                       |               |              
|Property and equipment, net (Notes 1  and 2)               |               |              
|Goodwill (Note 1)                                          |               |              
|Deferred tax asset, net of current portion (Notes 1 amd 8) |               |              
|Other assets, net (Notes 1 and 4)                          |               |              
|                                                           |               |              
|Total assets                                               |               |              
|                                                           |               |              

|                                                           |  | 
|---------------------------------------------------------- |  | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                       |  | 
|Current liabilities:                                       |  | 
|Accounts payable                                           |  | 
|Accrued expenses (Note 5)                                  |  | 
|Current portion of capital lease obligations (Note 6)      |  | 
|Current portion of notes payable (Note 7)                  |  | 
|                                                           |  | 
|Total current liabilities                                  |  | 
|Capital lease obligations, net of current portion (Note 6) |  | 
|Notes payable, net of current portion (Note 7)             |  | 
|Other long-term liabilities (Note 5)                       |  | 
|                                                           |  | 
|Total liabilities                                          |  | 
|                                                           |  | 

|                                                              |  | 
|------------------------------------------------------------- |  | 
|Commitments and contingencies (Note 9)                        |  | 
|Shareholders' equity (Notes 1, 10 and 11):                    |  | 
|Preferred stock (authorized 5,000,000 shares, none issued)    |  | 
|Common stock ($.01 par value per share; authorized 30,000,000 |  | 
|shares; 13,235,638 and 12,174,524 issued at June 29, 2003 and |  | 
|June 30, 2002, respectively)                                  |  | 
|Additional paid-in capital                                    |  | 
|Accumulated deficit                                           |  | 
|Treasury stock, at cost (471,588 shares at June 29, 2003)     |  | 
|                                                              |  | 
|Total shareholders' equity                                    |  | 
|                                                              |  | 
|Total liabilities and shareholders' equity                    |  | 
|                                                              |  | 

See accompanying notes to
consolidated financial statements.

F-2

---

CHAMPPS ENTERTAINMENT,
INC.CONSOLIDATED STATEMENTS OF OPERATIONSFiscal Years Ended June 29, 2003, June 30, 2002 and July 1,
2001(In thousands, except
per share data)



|                                                   | Fiscal Year Ended
|-------------------------------------------------- | -----------------
|
|Revenue:                                           |                  
|Sales (Note 1)                                     |                  
|Franchising and royalty, net (Note 1)              |                  
|                                                   |                  
|Total revenue                                      |                  
|                                                   |                  
|Costs and expenses:                                |                  
|Cost of sales and operating expenses               |                  
|General and administrative expenses                |                  
|Depreciation and amortization                      |                  
|                                                   |                  
|Income from operations                             |                  
|Other (income) expense:                            |                  
|Expenses related to predecessor companies (Note 9) |                  
|Interest expense and income, net                   |                  
|Debt extinguishment costs (Note 7)                 |                  
|Other (income) expense, net                        |                  
|                                                   |                  
|Income from continuing operations                  |                  
|Loss from discontinued operations                  |                  
|                                                   |                  
|Income before income taxes                         |                  
|Income tax benefit (expense) (Note 8)              |                  
|                                                   |                  
|Net income                                         |                  
|                                                   |                  
|Basic income (loss) per share (Note 10):           |                  
|Income before discontinued operations              |                  
|Loss from discontinued operations                  |                  
|                                                   |                  
|Net income                                         |                  
|                                                   |                  
|Diluted income (loss) per share (Note 10):         |                  
|Income before discontinued operations              |                  
|Loss from discontinued operations                  |                  
|                                                   |                  
|Net income                                         |                  
|                                                   |                  
|Basic weighted average shares outstanding          |                  
|                                                   |                  
|Diluted weighted average shares outstanding        |                  
|                                                   |                  

See accompanying notes to
consolidated financial statements.

F-3

---

CHAMPPS ENTERTAINMENT,
INC.CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITYFiscal Years Ended June 29, 2003,
June 30, 2002 and July 1, 2001(In thousands, except share data)

|                                                          | Common Stock |  |  | Treasury Stock | 
|--------------------------------------------------------- | ------------ |  |  | -------------- | 
|
|Balance, July 2, 2000                                     |              |  |  | 11,659,416     | 
|                                                          |              |  |  |                | 
|Common shares issued (Note 11)                            |              |  |  | 358,231        | 
|Non-cash stock compensation (Note 11)                     |              |  |  | -              | 
|Loan for exercise of stock options (Note 13)              |              |  |  | -              | 
|Interest on loan for exercise of stock options (Note 13)  |              |  |  | -              | 
|Net income                                                |              |  |  | -              | 
|                                                          |              |  |  |                | 
|Balance, July 1, 2001                                     |              |  |  | 12,017,647     | 
|Common shares issued (Note 11)                            |              |  |  | 156,877        | 
|Income tax benefit of stock options exercised             |              |  |  | -              | 
|Non-cash stock compensation                               |              |  |  | -              | 
|Interest on loan for exercise of stock options (Note 13)  |              |  |  | -              | 
|Net income                                                |              |  |  | -              | 
|                                                          |              |  |  |                | 
|Balance, June 30, 2002                                    |              |  |  | 12,174,524     | 
|Common shares issued (Note 11)                            |              |  |  | 1,061,114      | 
|Income tax benefit stock options exercised                |              |  |  | -              | 
|Fair value of common stock warrants issued (Note 10)      |              |  |  | -              | 
|Repurchase of common shares (Note 11)                     |              |  |  | -              | 
|Interest on loan for exercise of stock options (Note 13)  |              |  |  | -              | 
|Repayment of loan for exercise of stock options (Note 13) |              |  |  | -              | 
|Net income                                                |              |  |  | -              | 
|                                                          |              |  |  |                | 
|Balance, June 29, 2003                                    |              |  |  | 13,235,638     | 
|                                                          |              |  |  |                | 

See accompanying notes to
consolidated financial statements.

F-4

---

CHAMPPS ENTERTAINMENT,
INC.CONSOLIDATED
STATEMENTS OF CASH FLOWSFiscal Years Ended June 29, 2003, June 30, 2002 and July 1,
2001(In thousands)

|                                                             | Fiscal Years Ended
|------------------------------------------------------------ | ------------------
|
|Cash flows from operating activities:                        |                   
|                                                             |                   
|Net income                                                   |                   
|Adjustments to reconcile net income to net cash provided by  |                   
|operating activities:                                        |                   
|Depreciation and amortization (Notes 1, 2 and 4)             |                   
|Amortization of notes payable discount                       |                   
|(Gain) loss on disposal of assets                            |                   
|Non-cash compensation (Note 11)                              |                   
|Income tax benefit of stock options exercised                |                   
|Interest on loan for exercise of stock options (Note 13)     |                   
|Deferred tax benefit (Note 8)                                |                   
|Changes in assets and liabilities                            |                   
|Accounts receivable (Note 1)                                 |                   
|Inventories (Note 1)                                         |                   
|Prepaid expenses and other current assets (Notes 1 and 3)    |                   
|Accounts payable                                             |                   
|Accrued expenses (Note 5)                                    |                   
|Other assets (Notes 1 and 4)                                 |                   
|Other long-term liabilities (Note 5)                         |                   
|                                                             |                   
|Net cash provided by operating activities                    |                   
|                                                             |                   
|Cash flows from investing activities:                        |                   
|Purchase of property and equipment                           |                   
|Change in restricted cash                                    |                   
|Repayment of loan for exercise of stock options              |                   
|Net proceeds from asset disposals                            |                   
|                                                             |                   
|Net cash used in investing activities                        |                   
|                                                             |                   
|Cash flows from financing activities:                        |                   
|Proceeds from issuance of common stock (Note 11)             |                   
|Proceeds from issuance of convertible subordinated ntoes     |                   
|and common stock warrants (Notes 7 and 10)                   |                   
|Issuance costs for subordinated convertible notes and common |                   
|stock warrants (Notes 7 and 10)                              |                   
|Repurchase of common stock (Note 11)                         |                   
|Repayment of notes payable and capitalized lease obligations |                   
|Proceeds from notes payable issuance                         |                   
|Proceeds from sale-leaseback                                 |                   
|Proceeds from capital lease transactions                     |                   
|Proceeds from tenant improvement allowances                  |                   
|                                                             |                   
|Net cash provided by financing activities                    |                   
|                                                             |                   
|Net increase (decrease) in cash and cash equivalents         |                   
|Cash and cash equivalents at beginning of year               |                   
|                                                             |                   
|Cash and cash equivalents at end of year (Note 1)            |                   
|                                                             |                   

CONTINUED

F-5

---

CHAMPPS ENTERTAINMENT,
INC.CONSOLIDATED
STATEMENTS OF CASH FLOWS  CONTINUED  Fiscal Years Ended June 29, 2003, June 30,
2002 and July 1, 2001(In thousands)

|                                                                         | Fiscal Years Ended
|------------------------------------------------------------------------ | ------------------
|
|Supplemental disclosures of cash flow information:                       |                   
|Cash paid during the year for:                                           |                   
|Interest, net of amount capitalized                                      |                   
|Income taxes, net of refunds                                             |                   
|Supplemental disclosures of non-cash investing and financing activities: |                   
|Tenant improvement allowances not yet received                           |                   
|Loan for exercise of stock options - Note 13                             |                   

See accompanying notes to
consolidated financial statements.

F-6

---

CHAMPPS ENTERTAINMENT,
INC.NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSFiscal Years Ended
June 29, 2003, June 30, 2002 and July 1, 2001

# 1.         Summary of
Significant Accounting Policies

Background

Champps Entertainment, Inc. (the
Company), is a Delaware corporation formed on May 27, 1997 in connection with
the spin-off to holders of the common stock of DAKA International, Inc. (DAKA
International). At June 29, 2003, the Company operated one business segment. The
Companys principal business activity is to own, operate and franchise Champps casual
dining restaurants that serve customers in upscale restaurant settings in nineteen states
throughout the United States.

Basis of Presentation

The accompanying consolidated
financial statements include the accounts of the Champps Entertainment, Inc. and its
consolidated subsidiaries. Significant inter-company balances and transactions have been
eliminated in consolidation. Certain accounts have been reclassified in prior years
consolidated financial statements to be consistent with the June 29, 2003 presentation.

Fiscal Year

The Companys fiscal year ends
on the Sunday closest to June 30th. For purposes of these consolidated financial
statements, the fiscal years ended June 29, 2003, June 30, 2002 and July 1, 2001, are
referred to as 2003, 2002, and 2001, respectively. Fiscal 2003, 2002 and 2001 each
consisted of 52 weeks.

Significant Estimates

In the process of preparing its
consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America, the Company estimates the carrying value of
certain assets and liabilities that are subjective in nature. The primary estimates
included in the Companys consolidated financial statements include allowances for
potential bad debts on accounts and notes receivable, the useful lives and recoverability
of property and equipment, the recoverability of goodwill, the recognition of deferred tax
assets, accruals for the self insured risk relating to workers compensation and
general liability, accruals for loss contingencies and accruals relating to
representations and warranties provided in connection with the Spin-off Transaction and
Fuddruckers Sale. Management bases its estimates on certain assumptions, which they
believe are reasonable in the present circumstances. Actual results could differ from
those estimates.

Cash and Cash Equivalents
and Restricted Cash

Cash and cash equivalents consist of
cash and highly liquid investments with maturities of three months or less at the date of
purchase. These investments are carried at cost, which approximates fair value due to
their short-term maturities. The Company placed certificates of deposit to serve as cash
collateral for stand-by letters of credit in the amount of $741,000 and $1,030,000 at June
29, 2003 and June 30, 2002, respectively. Such collateral commitments expire within the
twelve-month period after the balance sheet dates presented and accordingly, have been
classified as current assets in the accompanying consolidated balance sheets.

Accounts Receivable

Accounts receivable largely consist
of credit card receivables representing three to four days credit card sales that
have not, at the balance sheet date, been processed by the credit card processor and
remitted to the Company. Accounts receivable also includes amounts due from the
Companys franchisees for the payment of franchise royalty fees that are paid monthly
in arrears and other receivables that may arise in the ordinary course of business. The
Companys allowance for uncollectible accounts receivable and related bad debt
expense are not significant.

F-7

---

Concentration of Credit
Risk

Financial instruments that
potentially subject the Company to a concentration of credit risk are cash and cash
equivalents, restricted cash and accounts receivable. The Company maintains its day-to-day
operating cash, temporary excess cash and restricted cash balances with two major
financial institutions that, in turn, invest in investment-grade commercial paper and
other corporate obligations, certificates of deposit, government obligations and other
investments and marketable securities. At most times, cash balances are in excess of
Federal Deposit Insurance Corporation (FDIC) insurance limits. The Company considers the
concentration of credit risk for accounts receivable to be minimal as a result of the
short-term nature of credit card receivables, the credit worthiness of the credit card
processor and payment histories of the Companys franchisees.

Inventories

Inventories are stated at the lower
of cost, principally determined using the first-in, first-out method, or market value.
Inventories include the initial cost of smallwares. Subsequent purchases of smallwares are
charged to expense when purchased. Approximately 80% of the Companys food products
and supplies are purchased under a distribution contract with Sysco Corporation.
Management believes that it could obtain its food products and supplies from alternative
sources under terms that are similar to those received currently.

The components of inventories were as
follows (in 000s):

|                         | June 29,
2003 | June 30,
2002
|------------------------ | ------------- | -------------
|Food and liquor products |               |              
|Smallwares               |               |              
|Supplies                 |               |              
|                         |               |              
|Total inventory          |               |              
|                         |               |              

Prepaid Expenses and
Other Current Assets

The Company has cash outlays in
advance of expense recognition for items such as rent, insurance, interest, financing
fees, income taxes and service contracts. All amounts identified as prepaid expenses and
other current assets will be utilized during the twelve-month period after the balance
sheet dates presented and accordingly, have been classified as current assets in the
accompanying consolidated balance sheets.

Capitalized Construction
Costs

The Company capitalizes as part of
its new restaurants construction certain directly related pre-construction development and
site acquisition costs primarily consisting of broker and site investigation costs.
Additionally, direct external construction management oversight and insurance builders
risk costs are capitalized as part of the projects.

The Company also capitalizes interest
as part of its new restaurant construction. Interest capitalized is based upon the
weighted-average of accumulated expenditures. The interest capitalization period commences
when expenditures are made to prepare an asset for its intended use and interest costs are
incurred. The interest capitalization period ends when the restaurant opens or when the
asset is substantially complete and ready for service. The Company utilizes an interest
rate based upon the weighted average of the rates applicable to other borrowings of the
enterprise during the assets acquisition or construction period, unless the interest
expense is directly related to the construction project. If interest expenses are not
incurred during the acquisition or construction periods, no interest capitalization is
recorded.

The Company accumulates its costs in
its construction-in-progress account until the restaurant opens. At that time, the costs
accumulated to date are reclassified as property, plant and equipment and are depreciated
over their useful lives.

F-8

---

Renovations, Improvements
and Repairs and Maintenance

As is typical in the restaurant
industry, the Company renovates, remodels or improves its restaurants (all or a portion
depending on need), replaces aged equipment and periodically upgrades equipment to more
current technology. Each of these expenditures provides a future economic benefit and is
capitalized accordingly. While the Company believes its useful lives used for depreciation
purposes are representative of the assets actual useful lives, the Company has an
asset retirement policy and any assets that are replaced are retired. In fiscal years
2003, 2002 and 2001, the Company capitalized $2.7 million, $2.7 million and $2.2 million,
respectively, related to renovations, remodels and improvements to existing restaurants. The Company
currently has a capitalization threshold of $1,500 and any costs for singular items below
this threshold are expensed.

The Company routinely has repairs and
maintenance to its facilities and equipment. In fiscal years 2003, 2002 and 2001, the
Company recorded repair and maintenance expense of $3.4 million, $2.8 million and $2.1
million, respectively. These repairs and maintenance costs generally relate to repairs to
existing equipment, fixtures or facilities (e.g. electrical, plumbing, refrigeration, air
conditioning, heating, painting, tile work, roof repairs and wood repairs).

Property and Equipment

Property and equipment are stated at
cost. Property and equipment under capital leases are stated at the present value of
minimum lease payments. Property and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements and assets
capitalized pursuant to capital lease obligations are amortized over the shorter of the
initial lease term, contract term or the assets estimated useful life. Useful lives
range from 15 to 20 years for buildings and leasehold improvements and 5 to 7 years for
restaurant equipment. Useful lives for software are generally three years and five years
for computer equipment.

Other Assets

Other assets predominantly consist of
long-term lease, utility and other deposits, deferred financing fees and liquor licenses.
Deferred financing fees are amortized to interest expense over the life of the related
loan. Liquor licenses are amortized using the straight-line method over the term of the
related restaurant lease.

Impairment or Disposal of
Long-Lived Assets and Goodwill

The Company evaluates the carrying
value of long-lived assets including property, equipment and related identifiable
intangible assets in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Under SFAS No. 144, an assessment is made to
determine if the sum of the expected future undiscounted cash flows from the use of the
assets and eventual disposition is less than the carrying value. If the sum of the
expected undiscounted cash flows is less than the carrying value, an impairment loss is
recognized based on fair value. The Company evaluates each individual restaurant for
impairment. Each restaurant has cash flows that are largely independent and its assets and
liabilities are largely independent from other assets and liabilities. In addition, the
Company evaluates each individual restaurant for impairment after it has been open
eighteen months as the initial six months of operations are generally characterized by
operating inefficiencies associated with start-up operations. Impairment testing is
completed whenever events or changes in circumstances indicate that the assets
carrying amount may not be recoverable. The Company considers four consecutive quarters of
negative cash flow or losses to be a potential for an individual restaurant to be impaired
and utilizes a present value technique in determining fair value. The present value
technique used utilizes a single set of estimated cash flows and a single interest rate
that is commensurate with the risk of the operation.

F-9

---

Beginning in fiscal 2002, the Company
evaluated impairment of goodwill and other unidentifiable intangible assets in accordance
with SFAS No. 142 Goodwill and Other Intangible Assets. Under the provisions
of SFAS No. 142, the Company is required to assess impairment at least annually by means
of a fair value-based test. The determination of fair value requires the Company to make
certain assumptions and estimates related to its business and is highly subjective. Actual
amounts realized through operations or upon disposition of related assets may differ
significantly from these estimates.

The Company discontinued amortizing
goodwill in the year ended June 30, 2002 in accordance with adopting SFAS No. 142. The
Company recorded goodwill amortization expense of $191,000 in 2001. Had SFAS No. 142 been
adopted in 2001, net income would have been $13,720,000 compared to the reported
$13,537,000, basic earnings per share would have been $1.16 compared to the reported $1.14
and diluted earnings per share would have been $1.11 compared to the reported $1.10.

Loss Contingencies and Self-Insurance Reserves

The Company maintains accrued
liabilities and reserves relating to the resolution of certain contingent obligations and
reserves for self-insurance. Significant contingencies include those related to litigation
and state tax assessments. Contingent obligations are accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for
Contingencies, which requires that the Company assess each contingency to determine
estimates of the degree of probability and range of possible settlement. Those
contingencies that are deemed to be probable and where the amount of such settlement is
reasonably estimable are accrued in the Companys financial statements. If only a
range of loss can be determined, the best estimate within that range is accrued; if none
of the estimates within that range is better than another, the low end of the range is
accrued. Reserves for self-insurance are determined based on the insurance companies
incurred loss estimates and managements judgment.

The assessment of contingencies is a
highly subjective process that requires judgments about future events. Contingencies are
reviewed at least quarterly to determine the adequacy of the accruals and related
financial statement disclosure. The ultimate settlement of contingencies may differ
materially from amounts accrued in the financial statements.

Leases

The Company leases most of its
properties including its corporate office. Leases are accounted for under the provisions
of SFAS No. 13 Accounting for Leases and subsequent amendments which requires
that leases be evaluated and classified as operating leases or capital leases for
financial reporting purposes.

The Company periodically enters into
sale/leaseback transactions with unrelated third parties in connection with the
construction of new restaurants. Such transactions qualify as sales under SFAS No. 66,
Sales of Real Estate because they include a normal leaseback, adequate initial
and continuing investment by the buyer/lessor and the transfer of all risks and rewards of
ownership to the buyer/lessor. The Company has not incurred gains or losses in
connection with its sale/leaseback transactions.

Deferred Rent Liabilities

For leases that contain rent
escalations, the Company records the total rent payable during the lease term on a
straight-line basis over the term of the lease and records the difference between the rent
paid and the straight-line rent as a deferred rent liability. In addition, lease incentive
payments (tenant improvement allowances) received from landlords are recorded
as deferred rent liabilities and are amortized on a straight-line basis over the lease
term as a reduction of rent expense.

Revenue Recognition

Revenue from restaurant sales is
recognized when food and beverage product are sold.

F-10

---

Franchising and Royalty
Income

Royalty revenues from franchised
restaurants are recognized as revenues when earned in accordance with the respective
franchise agreement. The Company recognized royalty revenues of $616,000, $648,000 and
$644,000 during 2003, 2002 and 2001, respectively.

Franchise fees for new franchises are
recognized as revenue when substantially all commitments and obligations have been
fulfilled, which is generally upon commencement of operations by the franchisee. No
franchise fees for new franchises were recognized in fiscal 2003, 2002 or 2001.

Income Taxes

Income taxes are accounted for under
the asset and liability method. The Company recognizes deferred tax assets and liabilities
for the future tax consequences attributable to differences between the carrying value for
financial reporting purposes and the tax basis of assets and liabilities. Deferred tax
assets and liabilities are recorded using the enacted tax rates expected to apply to
taxable income in the years in which such differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities resulting from a change in tax
rates is recognized as a component of income tax expense (benefit) in the period that such
change occurs. Net operating loss and other credit carryforwards, including FICA tip tax
credits and targeted jobs tax credits, are recorded as deferred tax assets. A valuation
allowance is recorded for the tax benefit of the deferred tax assets not expected to be
utilized.

Accounting for
Stock-Based Compensation

The Company maintains stock option
plans under which the Company may grant incentive stock options and non-qualified stock
options to associates, consultants and non-employee directors. Stock options have been
granted with exercise prices at or above the fair market value on the date of grant.
Options vest and expire according to the terms established at the grant date.

Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
encourages, but does not require, companies to record compensation cost for stock-based
employee compensation plans based on the fair market value of options granted. The Company
has chosen to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, because the grant price equals or is above the market price on the date of
grant for options issued by the Company, no compensation expense is generally recognized
for stock options initially issued to employees.

On December 31, 2002, The Financial
Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for
Stock Based Compensation  Transition and Disclosure, which amends SFAS No.
123. SFAS No. 148 requires more prominent and frequent disclosures about the effects of
stock-based compensation. The Company intends to continue to account for its stock-based
compensation according to the provisions of APB Opinion No. 25 until more definitive
pronouncements are issued requiring companies to record compensation costs upon the
issuance of options.

Had compensation cost for the
Companys stock options been recognized based upon the estimated fair value on the
grant date under the fair value methodology prescribed by SFAS No. 123, as amended by SFAS
No. 148, the Companys net earnings and earnings per share would have been as
follows:

F-11

---

|                                           | June 29,
2003 | June 30,
2002 | July 1,
2001
|------------------------------------------ | ------------- | ------------- | ------------
|Net earnings, as reported                  |               |               |             
|Add: Stock-based employee compensation     |               |              
|expense included in net income, net of     |               |              
|related tax effects                        |               |               |             
|Deduct: Total stock-based employee         |               |              
|compensation expense determined under fair |               |              
|value based method for all awards, net of  |               |              
|related tax effects                        |               |               |             
|                                           |               |               |             
|Pro forma net income                       |               |               |             
|                                           |               |               |             
|Earnings per share:                        |               |              
|Basic - as reported                        |               |               |             
|Basic - pro forma                          |               |               |             
|Diluted - as reported                      |               |               |             
|Diluted - pro forma                        |               |               |             

The fair value of each stock option
granted in 2003, 2002 and 2001 under the Companys stock option plans was estimated
on the date of grant using the Black-Scholes option-pricing model. The following key
assumptions were used to value grants issued for each year:

|     | Weighted Average Risk FreeRate | Average Expected Life | Volatility | Dividend Yield
|---- | ------------------------------ | --------------------- | ---------- | --------------
|2001 |                                |                       |            | 5.43          
|2002 |                                |                       |            | 3.25          
|2003 |                                |                       |            | 1.40          

New Accounting
Pronouncements

SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity,
establishes standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. This statement is
effective for financial instruments entered into or modified after May 2003 and is otherwise
effective June 30, 2003. This statement did not have any
impact on the Companys consolidated financial statements.

In January 2003, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No.
(FIN) 46, Consolidation of Variable Interest Entities.  This
interpretation provides guidance on the identification of, and financial reporting for,
variable interest entities.  Variable interest entities are entities that lack the
characteristics of a controlling financial interest or lack sufficient equity to finance
its activities without additional subordinated financial support.  FIN 46 requires a
company to consolidate a variable interest entity if that company is obligated to absorb
the majority of the entitys expected losses or entitled to receive the majority of
the entitys residual returns, or both.  FIN 46 also requires disclosures about
variable interest entities that a company is not required to consolidate but in which it
has a significant variable interest.  FIN 46 is applicable immediately to variable
interest entities created after January 31, 2003.  For all variable interest entities
created prior to February 1, 2003, FIN 46 is applicable to periods beginning after June
15, 2003.  The Company currently does not have any variable interest entities that
fall under the scope of this interpretation.

F-12

---

# 2.        
 Property and Equipment

Property and equipment consisted of
the following (in 000s):

|                                          | June 29,
2003 | June 30,
2002
|----------------------------------------- | ------------- | -------------
|Land                                      |               |              
|Buildings and leasehold improvements      |               |              
|Software                                  |               |              
|Equipment                                 |               |              
|Equipment under capital lease             |               |              
|Construction in progress                  |               |              
|                                          |               |              
|                                          |               |              
|Accumulated depreciation and amortization |               |              
|                                          |               |              
|Total property and equipment              |               |              
|                                          |               |              

Accumulated depreciation for
equipment under capital lease totaled $1,921,000 and $2,968,000 at June 29, 2003 and June
30, 2002, respectively.

General and administrative expense on the consolidated balance statement of operations
includes $377,000, $366,000 and $343,000 of depreciation and amortization expense for the years ended
June 29, 2003, June 30, 2002 and July 1, 2001, respectively.

# 3.        
 Prepaid Expenses and
Other Current Assets

The components of prepaid expenses
and other current assets were as follows (in 000s):

|                                                   | June 29,
2003 | June 30,
2002
|-------------------------------------------------- | ------------- | -------------
|Prepaid rents, real estate taxes and related costs |               |              
|Prepaid insurance (1)                              |               |              
|Prepaid income taxes                               |               |              
|Prepaid licenses and permits                       |               |              
|Prepaid contracts and other                        |               |              
|Build-to-suit construction costs (2)               |               |              
|                                                   |               |              
|                                                   |               |              
|                                                   |               |              

(1)    
          Increase due to new insurance program collateral requirements.

(2)    
          Increase due to level of spending differences for build-to-suit construction
          projects that the Company is considered the owner.

F-13

---

# 4.        
 Other Assets, Net

The components of other assets were
as follows (in 000s):

|                             | June 29, 2003 | June 30, 2002
|---------------------------- | ------------- | -------------
|Deferred financing costs (1) |               |              
|Liquor licenses              |               |              
|Long-term deposits           |               |              
|Other                        |               |              
|                             |               |              
|                             |               |              
|                             |               |              

(1)    
          Increase due to financing costs associated with convertible subordinated notes
          issued in December 2002.

Accumulated amortization for other
assets, net totaled $426,000 and $394,000 at June 29, 2003 and June 30, 2002,
respectively.

# 5.        
 Accrued Expenses and
Other Long-Term Liabilities

The components of accrued expenses
were as follows (in 000s):

|                                                           | June 29, 2003 | June 30, 2002
|---------------------------------------------------------- | ------------- | -------------
|Salaries, wages and related taxes                          |               |              
|Accrued taxes, predominantly sales and property            |               |              
|Build-to-suit construction liability                       |               |              
|Accrued insurance                                          |               |              
|Predecessor obligations (sales taxes, legal and insurance) |               |              
|Other                                                      |               |              
|                                                           |               |              
|                                                           |               |              
|                                                           |               |              

The components of other long-term
liabilities were as follows (in 000s):

|                                                           | June 29,
2003 | June 30,
2002
|---------------------------------------------------------- | ------------- | -------------
|Tenant improvement allowances (1)                          |               |              
|Deferred rents                                             |               |              
|Accrued insurance                                          |               |              
|Predecessor obligations (sales taxes, legal and insurance) |               |              
|Other                                                      |               |              
|                                                           |               |              
|                                                           |               |              
|                                                           |               |              

(1)    
          Increase due to $6.4 million of tenant improvement allowances received for new
          restaurants in the year ended June 29, 2003.

F-14

---

# 6.        
 Leases

The Company has entered into lease
agreements for certain restaurant facilities and office space. The fixed terms of the
leases range up to 20 years and, in general, contain multiple renewal options for various
periods ranging from 5 to 20 years. Nearly all of the leases contain escalation clauses.
Certain leases contain provisions that require additional payments based on sales
performance (contingent rentals) and the payment of common area maintenance
charges and real estate taxes. Contingent rentals are accrued monthly as the liabilities
are incurred utilizing pro-rated monthly sales targets.

The Company has a commitment for
the development and/or sale/leaseback of up to seven restaurants from AEI
Fund Management, Inc. (AEI) that provides a maximum $24.5 million financing
commitment through an agreement executed January 8, 2003. Under the agreement, AEI
purchases the land and funds a substantial portion of the construction costs of new
restaurants selected by the Company for participation under the agreement. The Company
serves as the developer of the site and is responsible for completing the project on time
and within budget. Once the project is completed per the terms of the development
agreement, the Company enters into a lease with AEI for the property. The Company, as seller-lessee,
has no continuing involvement in the property other than that of lessee. For accounting
purposes, the Company is considered the owner of the property during the construction
period due to the Companys obligation to develop the property and AEIs option
to sell the funded assets to the Company in the event of a default under the development
agreement.

As of June 29, 2003 and June 30,
2002, the Company had $2.7 million and $1.1 million, respectively, of construction costs
that had been funded by AEI. Since the projects were not complete as of those dates and
the Company had additional obligations relative to the development agreements, the Company
is considered the owner of the projects during the construction period. These amounts are
classified as prepaid expenses and other current assets and accrued expenses on the
consolidated balance sheets. At June 29, 2003, the Company estimates that additional
construction costs of $0.3 million will be required to finish existing projects being
funded under the AEI agreement.

Future minimum lease payments
pursuant to leases with non-cancelable lease terms excluding option periods in excess of
one year at June 29, 2003 were as follows (in 000s):

|Fiscal Years Ending                              | Operating Leases | Capital Leases
|------------------------------------------------ | ---------------- | --------------
|2004                                             | $13,882          | $616          
|2005                                             | 15,234           | 552           
|2006                                             | 15,391           | 123           
|2007                                             | 15,332           | -             
|2008                                             | 15,340           | -             
|Thereafter                                       | 145,870          | -             
|                                                 |                  |               
|Total future minimum lease payments              | $221,049         | 1,291         
|                                                 |                  |               
|Less amount representing interest                |                  | (128)         
|                                                 |                  |               
|Present value of future minimum lease payments   |                  | $1,163        
|                                                 |                  |               
|Current portion of capital lease obligations     |                  | 528           
|                                                 |                  |               
|Capital lease obigations, net of current portion |                  | $635          
|                                                 |                  |               

Total rent expense in 2003, 2002 and
2001 approximated $11,800,000, $10,160,000 and $7,648,000, respectively. Contingent
rentals in rent expense for 2003, 2002 and 2001 approximated $382,000, $526,000 and
$539,000, respectively.

F-15

---

# 7.        
 Notes Payable

Notes payable consisted of the
following (in 000s):

|Lender                                      | Interest
      rate | Face
      amount | June 29,
      2003 | June 30,
      2002 | Nature of
      debt | Nature of
      collateral | Maturity
|------------------------------------------- | ------------------- | ----------------- | ------------------- | ------------------- | -------------------- | -------------------------- | --------
|Convertible Subordinated
    Notes          |                     |                   | 5.50%               |                     |                      |                            | $15,000 
|FINOVA                                      |                     |                   | 10.23%              |                     |                      |                            | 5,000   
|FINOVA                                      |                     |                   | 10.36%              |                     |                      |                            | 4,750   
|FINOVA                                      |                     |                   | 10.36%              |                     |                      |                            | 4,750   
|Gateway
      Center                        |                     |                   | 12.00%              |                     |                      |                            | 500     
|GE
    Capital                              |                     |                   | CP +3.75%           |                     |                      |                            | 3,022   
|GE
    Capital                              |                     |                   | CP +3.75%           |                     |                      |                            | 1,978   
|GE
    Capital                              |                     |                   | CP +3.75%           |                     |                      |                            | 500     
|Former
      employee                       |                     |                   | 10.00%              |                     |                      |                            | 500     
|                                            |                     |                   |                     |                     |                      |                            |         
|                                            |                     |                   |                     |                     |                      |                            |         
|                                            |                     |                   |                     |                     |                      |                            |         
|Less current
      portion                  |                     |                   |                     |                     |                      |                            |         
|                                            |                     |                   |                     |                     |                      |                            |         
|Notes payable,
      net of current portion |                     |                   |                     |                     |                      |                            |         
|                                            |                     |                   |                     |                     |                      |                            |         

On December 16, 2002, the Company
issued, through a private placement, $15,000,000 of 5.5% Convertible Subordinated Notes
due 2007 (the Notes) and related warrants (the Warrants) to
purchase shares of the Companys Common Stock (the Common Stock) (see
Note 10). The securities were sold to accredited investors in reliance on Regulation D
under the Securities Act of 1933, as amended. The Notes were recorded at their estimated
fair market value of $13,995,000 based upon a $1,005,000 valuation attributable to the
Warrants. The Notes discount of $1,005,000 is being accreted to interest expense
over the term of the Notes. Origination issuance costs of $1,395,000 were incurred with
the issuance of the Notes, are classified as an other asset on the accompanying
consolidated balance sheet and are being amortized as interest expense over the term of
the Notes. The Notes mature on December 15, 2007. Interest is payable semi-annually in
arrears on June 1 and December 1, beginning on June 1, 2003.

The Notes are convertible at the option of the holder at any time prior to maturity into shares of Common Stock, at a
conversion price of $10.66 per share, subject to adjustment upon certain events. If a
holder elects to convert the Notes prior to December 15, 2003, the Company must make an
additional cash payment with respect to the Notes in an amount equal to $55.00 per $1,000
principal amount of the Notes converted (representing approximately twelve months of
interest), less the amount of any interest actually paid on the Notes prior to the
conversion date.

At any time on or after December 15, 2005, the Company may redeem some or
all of the Notes at par plus accrued and unpaid interest. All of the Notes will be
automatically converted, at the Companys option, into shares of common stock at the
then effective conversion price if the closing price of the common stock exceeds 150% of
the then effective conversion price for any 15 out of 20 consecutive trading days at any
time within three years after the first issuance date of the Notes. If the automatic
conversion date occurs prior to December 15, 2004, the Company will make an additional
cash payment with respect to the Notes in an amount equal to $110.00 per $1,000 principal
amount of the Notes converted (representing 24 months of interest), less the amount of
interest actually paid on the Notes prior to the automatic conversion date.

Upon certain change in control events
or if the Common Stock is no longer traded on a national exchange or an established
automated over-the-counter trading market in the United States, a Noteholder may require
the Company to repurchase such holders Notes in cash at 110% of the principal amount
of the Notes, plus accrued but unpaid interest, if any.

The Notes are subordinated in right
of payment to existing and future senior indebtedness and other liabilities of the Company
and its subsidiaries. The Company and its subsidiaries are not prohibited from incurring
senior indebtedness or other debt under the Agreement governing the Notes.

F-16

---

In December 2002, the Company repaid
certain debt with existing balances totaling $5,243,000 before scheduled maturities with
the proceeds of the Notes. Related prepayment costs and unamortized debt issuances costs
totaling $290,000 were recorded as debt extinguishment costs in the accompanying
consolidated statement of operations.

In February 2003, the Company
finalized a commitment for bank financing under which it may borrow up to $8,000,000. The
commitment has two parts: $2,000,000 is available to provide short-term working capital
and to support the issuance of letters of credit; the remaining $6,000,000 is available to
provide interim financing associated with construction of new restaurant locations.
Advances under the $6,000,000 facility will be in the form of individual promissory notes
that require assignment of related construction improvement allowance proceeds and will
mature 90 days following the estimated restaurant opening date. The agreement will expire
in January 2005 at which time all outstanding borrowings are due. Outstanding borrowings
bear interest at the Wall Street Journal Prime Rate and require monthly interest payments.
There was an initial commitment fee of $42,500. The Company is required to maintain a
Funded Debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratio
of not more than 2 to 1 and a debt to tangible net worth ratio not to exceed 1.25 to 1.
Also, the Company is limited to $5,000,000 of annual replacement capital expenditures and
the $2,000,000 working capital line must be repaid for 10 consecutive days each quarter.
No amounts were drawn under the commitment as of June 29, 2003. In July 2003, the Company
borrowed $350,000 and placed letters of credit totaling $488,000 under this commitment.

The Finova Capital term loans require
that Champps Operating Corp, a fully owned subsidiary of Champps Entertainment, Inc.,
maintain a minimum debt service coverage ratio, a minimum fixed charge coverage ratio and
a maximum leverage ratio. The Finova Capital term loans also contain covenants that,
subject to specified exceptions, restrict the Companys ability to incur additional
debt, incur liens, engage in mergers or acquisitions, incur contingent liabilities, make
dividends or distributions, pay indebtedness for borrowed money, make investments or
loans, develop new restaurants, change facility sites, sell or transfer assets, amend
specified agreements, acquire additional properties, issue capital stock and engage in
transactions with affiliates. As of June 29, 2003, the Company was in compliance with all
financial ratios and covenants.

The GE Capital loans require that the
Company maintain a maximum debt to net worth ratio, a minimum debt coverage ratio, a
minimum ratio of earnings before interest, taxes, depreciation and amortization compared
to debt and a maximum funded indebtedness ratio. The Company was in compliance with all of
these financial ratios as of June 29, 2003.

In September 2002, the Company
executed a proposal for an additional $5.0 million term loan collateralized with equipment
with GE Capital. The Company received $0.5 million of proceeds in fiscal 2003 and received
the remaining $4.5 million from the loan in August 2003.

The Company incurred interest expense
of $2,372,000, $2,039,000 and $1,845,000 in fiscal years 2003, 2002 and 2001,
respectively. Of these amounts, $310,000, $271,000 and none were capitalized in each
respective year.  Interest income totaled $236,000, $155,000 and $374,000 in 2003, 2002 and 2001, respectively.

Principal amounts of notes payable
outstanding as of June 29, 2003 due during each of the five succeeding fiscal years were
$1,244,000 in 2004, $1,341,000 in 2005, $1,427,000 in 2006, $1,017,000 in 2007,
$14,521,000 in 2008 and $7,837,000 thereafter.

F-17

---

# 8.        
 Income Taxes

Deferred tax assets and (liabilities)
were comprised of the following (in 000s):

|                                                  | June 29,  2003 | June 30,2002
|------------------------------------------------- | -------------- | ------------
|                                                  |                |             
|Deferred tax assets:                              |                |             
|Net operating loss carryforwards                  |                |             
|Deferred rent                                     |                |             
|FICA tip and targeted jobs tax credit             |                |             
|Accrued expenses                                  |                |             
|Capital leases                                    |                |             
|Other                                             |                |             
|                                                  |                |             
|Total deferred tax assets                         |                |             
|                                                  |                |             
|Less valuation allowance                          |                |             
|                                                  |                |             
|Net deferred tax assets after valuation allowance |                |             
|                                                  |                |             
|Deferred tax liabilities:                         |                |             
|Property and equipment                            |                |             
|Goodwill                                          |                |             
|                                                  |                |             
|Total deferred tax liabilities                    |                |             
|                                                  |                |             
|Net deferred tax assets                           |                |             
|                                                  |                |             
|Current portion                                   |                |             
|Long-term                                         |                |             

The following is a reconciliation of
income taxes at the federal statutory rate to the Companys income tax expense
(benefit) (in 000s):

|                                                             | Fiscal Year Ended
|------------------------------------------------------------ | -----------------
|
|Income tax provision (benefit) computed at statutory federal |                  
|income tax rates                                             |                  
|FICA tip and targeted job tax credit                         |                  
|Non- deductible costs                                        |                  
|Decrease in the valuation allowance                          |                  
|State income tax provision, net of federal benefit           |                  
|Expired net operating loss carryforward                      |                  
|Other, net                                                   |                  
|                                                             |                  
|Income tax expense (benefit)                                 |                  
|                                                             |                  
|                                                             |                  

Total income tax expense includes
current income tax expense of $2,762,000, $768,000 and $260,000 and deferred income tax
benefit of $15,963,000, $559,000 and $8,153,000 in 2003, 2002 and 2001, respectively. As
of June 29, 2003, the Company had federal net operating loss carryforwards of
approximately $56.4 million expiring at various dates through 2020. The Companys
FICA tip and targeted job tax credits may be used to offset federal income taxes and
expire at various dates through in 2023. During fiscal 2003, the Company determined that it was more likely than
not that it would realize the tax benefits of its deferred tax assets based on projections
of future taxable income and the reversal of deferred tax liabilities. As a result, the
valuation allowance on deferred tax assets decreased $15,195,000 in fiscal 2003. The
valuation allowance on deferred tax assets decreased $1,763,000 and $9,977,000 in fiscal
2002 and 2001, respectively.

F-18

---

# 9.        
 Commitments and
Contingencies

Fuddruckers
Representations and Indemnity

The agreement whereby Fuddruckers was
sold contains various representations and warranties by the Company. Certain of these
representations and warranties survived the closing and expired on December 31, 2000. The
remaining representations and warranties will continue in effect as stated in the
Agreement.

The maximum aggregate liability of
the Company on account of any breach of any representation or warranty is limited to the
amount of the final purchase price. There is no limit on the liability of the Company to
the purchaser on account of any breach by the Company of any of its covenants or
agreements under the agreement or on account of indemnification obligations covering
matters other than breaches of representations and warranties, provided that, if the
purchaser is entitled to recover any losses in excess of the final purchase price, the
Company may either (i) require the purchaser to reconvey to the Company full ownership and
control of the shares and all assets (to the extent then owned by the purchaser or
Fuddruckers) that were transferred pursuant to the agreement in such a manner as to
rescind the transactions contemplated by the agreement based upon a formula price. During
2003, no claims for indemnification were presented by the purchaser and the Company
believes the risk for significant claims for indemnification being presented in the future
by the purchaser is remote.

Spin-Off Indemnifications

The Company agreed to assume certain
liabilities in connection with the spin-off of DAKA International and its subsidiaries to
Compass. In addition, the Company entered into a post-closing covenants agreement that
provided for post-closing payments by the Company to Compass under certain circumstances.
The Company also agreed to indemnify Compass for certain losses on liabilities existing
prior to the effective date of the spin-off but unidentified at such date. This
indemnification began to expire on December 31, 1999. The Company believes the risk of a
significant claim for indemnification being presented by Compass is remote.

Accrued Insurance Costs

The Company is self-insured for
certain losses related to workers compensation claims, general liability and
medical/dental claims. The Company has purchased stop-loss coverage in order to limit its
exposure to significant levels of such claims. Self-insured reserves are accrued based
upon the Companys estimates of the aggregate liability for uninsured claims incurred
using certain assumptions that are based upon historical experience. Actual amounts
required to settle those obligations may exceed those estimates.

Through June 29, 1997, the Company
was self-insured for workers compensation, general liability, and various other
risks up to specified limits. The Companys share of prior workers compensation
and general liability programs of DAKA International through June 29, 1997 were allocated
using labor costs and the aggregate costs of such programs were determined through
actuarial studies which determined the estimated amount required to be provided for
incurred incidents. In connection with the spin-off transaction fro DAKA, the Company is
obligated to indemnify Compass for all claims arising subsequent to the effective date of
the spin-off including claims related to associates of DAKA International not continuing
with the Company after the spin-off, that relate to events occurring prior to the
effective date of the spin-off. The Company believes that any claims related to its
obligation to further indemnify Compass after June 29, 2003 are adequately accrued.

Tax Contingencies

In December 2001, the State of
Florida proposed to assess subsidiaries of DAKA $2.4 million in unpaid state sales taxes,
and an additional $2.9 million in penalties and interest as of December 2001. The Company
is contractually obligated to indemnify DAKA for this matter and is currently protesting
this proposed assessment. The Company believes that DAKA has meritorious legal and factual
defenses to these matters.

F-19

---

Additionally, the Company and its
predecessors, from time-to-time, have been party to various other assessments of taxes,
penalties and interest from Federal and state agencies. As of June 29, 2003, the Company
is in the process of settling several such assessments. Substantially all of the claims
relate to predecessor businesses for which the Company has agreed to assume obligations.
Tax reserves are accrued based upon the Companys estimates of the ultimate
settlement of the contingencies. As of June 29, 2003, the Company had $648,000 accrued for
tax liabilities associated with Fuddruckers pre-closing events and DAKA International
events occurring prior to the Spin-off Transaction Date. The Company believes that amounts
are adequately accrued. Actual amounts required to settle those obligations may exceed
those estimates.

Reserves

The Company had previously recorded
liabilities as of June 27, 1999 associated with the activities of certain predecessor
companies which were either spun-off or sold to other entities. In addition, the Company
had recorded reserves for Champps obligations, including self-insurance claims and exit
costs associated with the Companys relocation to Denver, Colorado. Adjustments to
the reserves are recorded as a charge or credit to expense based upon changes in
managements estimate of the amount of the ultimate settlement. The Company believes
that these reserves are adequate to provide for the outcome of the related contingencies.
Such amounts are expected to be paid over the next two years as the amounts become known
and payable.

The following table displays the
activity and balances relating to the reserves (in 000s):

|                             | Predecessor 
  Obligations | Assets Held  
   for Sale | Total
   Reserves
|---------------------------- | -------------------------- | ------------------------- | -----------------
|Balance at July 2, 2000      |                            |                           |                  
|Expense (income) recognition |                            |                           |                  
|Payments                     |                            |                           |                  
|                             |                            |                           |                  
|Balance at July 1, 2001      |                            |                           |                  
|Expense recognition          |                            |                           |                  
|Payments                     |                            |                           |                  
|                             |                            |                           |                  
|Balance at June 30, 2002     |                            |                           |                  
|Expense recognition          |                            |                           |                  
|Payments                     |                            |                           |                  
|                             |                            |                           |                  
|Balance at June 29, 2003     |                            |                           |                  
|                             |                            |                           |                  

During fiscal 2003, the Company
recognized additional liabilities of $282,000 associated with legal expenses and other
expenses of predecessor companies, all of which are identified as expenses related to
predecessor companies on the consolidated statement of operations.

During fiscal 2002, the Company
recognized additional liabilities of $541,000 associated with additional anticipated legal
and other expenses of the predecessor companies. This amount consisted of $305,000
identified as expenses related to predecessor companies on the consolidated statement of
operations and $236,000, less a tax benefit of $83,000, identified as a loss from
discontinued operations.

During fiscal 2001, the Company
recognized additional liabilities of $653,000 associated with additional anticipated legal
and other expenses of the predecessor companies. This amount consisted of $534,000
identified as expenses related to predecessor companies on the consolidated statement of
operations and $119,000, less a tax benefit of $42,000, identified as a loss from
discontinued operations.

The predecessor obligations reserves
were incorporated into the balances for accrued expenses and other long-term liabilities.

Litigation

The Company has agreed to assume
certain contingent liabilities of DAKA International in connection with the Spin-off and
has agreed to assume certain contingent liabilities of Fuddruckers for periods prior to
its sale to

F-20

---

King Cannon. Further, the Company is also engaged in various actions arising
in the ordinary course of business. The Company believes, based upon consultation with
legal counsel, that the ultimate collective outcome of these matters will not have a
material adverse effect on the Companys consolidated financial condition, results of
operations or cash flows.

In the third quarter of fiscal 2000,
a Washington, D.C. superior court jury awarded a former Daka associate $188,000 in
compensatory damages, $4.8 million in punitive damages and a subsequent award of $276,000
for legal fees and costs, based on the associates claim of negligent supervision and
retaliation, due to alleged conduct that occurred in 1996 at a former Daka food service
location. While Daka was formerly a subsidiary of DAKA International and while DAKA
International is now a subsidiary of Compass Group, PLC, the events at issue in the case
took place while a predecessor company of Champps owned Daka. On September 20, 2000, Daka
filed a Notice of Appeal with the Court of Appeals for the District of Columbia. The
Company may be liable for the payment of any amounts ultimately due by Daka upon final
determination of the case. The Company has not accrued any amounts related to the punitive
damages in this matter based upon relevant legal precedents the Company believes, and its
outside legal counsel concurs, that the punitive damages will not be upheld. The Company
has accrued approximately $0.3 million associated with this matter based on an estimate of
the ultimate compensatory damages and legal fees anticipated to be awarded. Revisions to
the estimate may be made in the future and will be reported in the period in which
additional information is known. Based upon the Companys analysis, and the advice of
outside legal counsel, the Company believes that the ultimate outcome of this matter will
not have a material adverse effect on the Companys consolidated financial position
or results of operations.

From time-to-time, additional
lawsuits are filed against the Company in the ordinary course of business. Such lawsuits
typically involve claims from customers and others related to operational issues common to
the food service industry. A number of such claims may exist at any given time. In
addition, the Company also encounters complaints and allegations from former and current
associates or others from time-to-time that are believed to be common for businesses such
as the Companys. In addition to the matters described above, the Company is currently not
a party to any litigation that management believes could have a material adverse effect on
the Companys consolidated financial position or results of operations and the
Company is not aware of any such threatened litigation.

# 10.         Shareholders
Equity and Income (Loss) Per Share

The authorized capital stock of the
Company consists of 30.0 million shares of common stock, of which 12,764,050 and
12,174,524 shares were issued and outstanding as of June 29, 2003 and June 30, 2002,
respectively. The Company also has 5.0 million shares of authorized preferred stock, none
of which is issued.

On December 16, 2002, the Company
issued Warrants to purchase 386,961 shares of common stock of the Company in conjunction
with the issuance of the Notes described in Note 7. Each Warrant is exercisable for one
share of common stock at an initial exercise price of $11.10 per share, subject to
adjustment upon certain events. The Warrants are exercisable (in whole or in part) at any
time on or before December 15, 2007, unless terminated earlier at the Companys
option upon certain events. At any time after December 15, 2004, if the closing price of
common stock exceeds 175% of the then effective exercise price of the Warrants for any 15
out of 20 consecutive trading days, the Company may terminate the Warrants. Any
unexercised Warrants as of the date of termination will automatically be deemed exercised
in full pursuant to a cashless exercise. The Warrants had an estimated fair market value
of $1,005,000 as of the date of issuance and were recorded as additional paid-in capital,
net of issuance costs of $100,000.

F-21

---

The following table sets forth the
computation of basic and diluted earnings per share (in 000s except per share data):

|                                                        | Fiscal Year Ended
|------------------------------------------------------- | -----------------
|
|Basic income per share:                                 |                  
|Income before discontinued operations                   |                  
|Loss from discontinued operations                       |                  
|                                                        |                  
|Net income                                              |                  
|                                                        |                  
|                                                        |                  
|Weighted average shares outstanding                     |                  
|Income before discontinued operations per share - basic |                  
|Loss from discontinued operations per share - basic     |                  
|                                                        |                  
|Net income per share - basic                            |                  
|                                                        |                  
|                                                        |                  

|Diluted income per share:                                      |  |  |  |         |   |  |        |   |  |         |  
|-------------------------------------------------------------- |  |  |  | ------- | - |  | ------ | - |  | ------- | -
|Income before discontinued operations                          |  |  |  | $17,093 |   |  | $5,287 |   |  | $13,614 |  
|Plus income impact of assumed conversion of 5.5%               |  | 
|convertible subordinated notes                                 |  |  |  | 415     |   |  | (b     | ) |  | (b      | )
|                                                               |  |  |  |         |   | 
|Income before discontinued operations plus assumed conversions |  |  |  | 17,508  |   |  | 5,287  |   |  | 13,614  |  
|                                                               |  |  |  |         |   | 
|Loss from discontinued operations                              |  |  |  | -       |   |  | (153   | ) |  | (77     | )
|                                                               |  |  |  |         |   | 
|Net income plus assumed conversions                            |  |  |  | $17,508 |   |  | $5,134 |   |  | $13,537 |  
|                                                               |  |  |  |         |   | 
|Weighted average shares outstanding                            |  |  |  | 12,536  |   |  | 12,104 |   |  | 11,871  |  
|Net effect of dilutive stock options based on the              |  | 
|treasury stock method using average market price (a)           |  |  |  | 389     |   |  | 760    |   |  | 492     |  
|Net effect of dilutive warrants based on the                   |  | 
|treasury stock method using average market price               |  |  |  | (c      | ) |  | (b     | ) |  | (b      | )
|Assumed conversion of 5.5% convertible subordinated notes      |  |  |  | 758     |   |  | (b     | ) |  | (b      | )
|                                                               |  |  |  |         |   | 
|Total shares outstanding for computation of per share earnings |  |  |  | 13,683  |   |  | 12,864 |   |  | 12,363  |  
|                                                               |  |  |  |         |   | 
|Income before discontinued operations per share - diluted      |  |  |  | $1.28   |   |  | $0.41  |   |  | $1.10   |  
|Loss from discontinued operations per share - diluted          |  |  |  | -       |   |  | (0.01  | ) |  | -       |  
|                                                               |  |  |  |         |   | 
|Net income per share - diluted                                 |  |  |  | $1.28   |   |  | $0.40  |   |  | $1.10   |  
|                                                               |  |  |  |         |   | 
|                                                               |  |  | 

| | (a) | For the years ended June 29, 2003, June 30, 2002 and July 1, 2001, 67,154,
               11,800 and 112,466 stock options, respectively, would have been anti-dilutive
               and, therefore, were not considered in the computation of diluted income per
               share.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Not included in calculation because the securities had not yet been issued.
| | --- | ---------------------------------------------------------------------------

| | (c) | Not included in calculation because the assumed conversion of warrants into
               386,961 common shares was anti-dilutive.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------

| | 11. | Stock Options and Employee Benefit Plans
| | --- | ----------------------------------------

Stock Options

In 1997 and 2003, the Company adopted
stock option and incentive plans for the benefit of the associates and non-employee
directors of the Company whereby the Company authorized and reserved for issuance an
aggregate of 2,615,000 shares of common stock.

On November 4, 1999, the Company
authorized and reserved for issuance 750,000 shares of common stock in connection with a
non-qualified stock option agreement with William H. Baumhauer, the Companys chief

F-22

---

executive officer. The options were to expire on June 30, 2001 and are exercisable at
$4.00 per share. On September 28, 2000, the employment agreement of the Companys
chief executive officer was amended and restated. At that time the expiration date of the
options previously granted on November 4, 1999 were extended to June 30, 2003. The Company
recorded non-cash compensation expense of $189,000 and $286,000 for the years ended June
30, 2002 and July 1, 2001, respectively, related to the extension of termination dates on
these options which resulted in a remeasurement date. Although the price of the options
extended were above the fair market value on the original grant date, the price of the
options were below the fair market value of the underlying stock on the extension date.
The non-cash compensation expense was included in general and administrative expenses.

On September 13, 2002, Mr. William
Baumhauer announced he had entered into a stock trading plan, which complies with the
requirements of Rule 10b5-1 of the Securities and Exchange Commission. Under the plan, Mr.
Baumhauer may sell enough shares of stock which he owns to pay the price to exercise
1,009,000 stock options, pay the withholding taxes associated with the exercise of the
stock options and repay a loan to the Company of $550,000. Rule 10b5-1 permits employees
to adopt written plans at a time when they are not aware of material nonpublic information
and to sell shares according to the plan on a regular basis, regardless of any subsequent
nonpublic information they receive or the price of the stock at the time of the sale.
Plans permitted under this rule allow an employee to minimize the effects of sales by
spreading them over a more extended period than the traditional trading
windows permitted under typical insider trading policies, and also avoid being
prohibited from selling any shares for long periods of time due to nonpublic information
they may possess during traditional windows.

In fiscal 2003, Mr. Baumhauer
exercised options to purchase 1,009,000 shares of common stock of the Company under this
plan with an aggregate exercise price of approximately $4,620,000. Mr. Baumhauer satisfied
the exercise price of options and paid certain of his withholding tax liabilities by
tendering to the Company 471,588 common shares held more than six months and having a fair
market value of approximately $3,583,000.

On July 31, 2003, the stock trading plan
entered into by Mr. Baumhauer on September 13, 2002 was terminated.

The Company has granted options to
the Companys board of directors, its executive officers, managers and directors in
the corporate office, the regional directors of operations and the general managers of the
restaurants. In addition, options have been granted to the corporate office associates
below the level of manager and director.

F-23

---

The following table presents activity
under the Companys stock option plans:

|                             | Number of Options | Weighted Average ExercisePrice | WeightedAverage GrantDate Fair Value
|---------------------------- | ----------------- | ------------------------------ | ------------------------------------
|Outstanding at July 2, 2000  |                   |                                |                                     
|Granted                      |                   |                                |                                     
|Exercised                    |                   |                                |                                     
|Forfeited                    |                   |                                |                                     
|                             |                   |                                |                                     
|Outstanding at July 1, 2001  |                   |                                |                                     
|Granted                      |                   |                                |                                     
|Exercised                    |                   |                                |                                     
|Forfeited                    |                   |                                |                                     
|                             |                   |                                |                                     
|Outstanding at June 30, 2002 |                   |                                |                                     
|Granted                      |                   |                                |                                     
|Exercised                    |                   |                                |                                     
|Forfeited                    |                   |                                |                                     
|                             |                   |                                |                                     
|Outstanding at June 29, 2003 |                   |                                |                                     
|                             |                   |                                |                                     
|                             |                   |                                |                                     

The number of options exercisable at
the dates presented below and their weighted average exercise price were as follows:

|              | Options Exercisable | Weighted Average Exercisable Price
|------------- | ------------------- | ----------------------------------
|
|July 1, 2001  |                     |                                   
|June 30, 2002 |                     |                                   
|June 29, 2003 |                     |                                   

The following table sets forth
information regarding options outstanding at June 29, 2003:

|Number of Options | Range of Prices | Weighted Average Price | Weighted Average RemainingContractual Life | NumberCurrentlyExercisable | Weighted AveragePrice for CurrentlyExercisable
|----------------- | --------------- | ---------------------- | ------------------------------------------ | -------------------------- | ----------------------------------------------
|                  | 111,701         |                        |                                            | $4.00 - $4.82              |                                               
|                  | 335,936         |                        |                                            | 4.94 - 5.75                |                                               
|                  | 33,250          |                        |                                            | 6.03 - 7.11                |                                               
|                  | 231,467         |                        |                                            | 7.50 - 13.80               |                                               

F-24

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Employee Stock Purchase
Plan

The Company has reserved 400,000
shares of its common stock to be offered under its 1997 Stock Purchase Plan (the
Purchase Plan). Under the Purchase Plan, eligible associates of the Company
may participate in quarterly offerings of shares made by the Company. The participating
associates purchase shares at a discount from the lower of fair value at the beginning or
end of each quarterly offering period through payroll deductions. In fiscal 2001,
associates purchased approximately 40,000 shares for a total of $173,000. In fiscal 2002,
associates purchased 32,000 shares for a total of $207,000. In fiscal 2003, associates
purchased 34,000 shares for a total of $252,000.

Employee Benefit Plan

The Company sponsors a 401(k)
retirement plan and, prior to the Transaction Date, the Companys associates
participated in a 401(k) retirement plan sponsored by DAKA. Both plans enabled associates
to contribute up to 15% of their annual compensation. The Companys discretionary
contributions to the 401(k) Plan have been determined by the Board for fiscal 2002, 2001
and 2000, and by DAKA before the spin-off. The Companys contribution to the Plan for
fiscal years 2002 and 2001 were $74,000 and $27,000, respectively. For fiscal 2003, the
Companys discretionary contribution estimate of $73,000 has been accrued and is
pending approval by the Board of Directors.

# 12.         Fair Value of
Financial Instruments

The estimated fair value of financial
instruments has been determined by the Company using available market information and
appropriate valuation methodologies. The following methods and assumptions were used to
estimate the fair value of the Companys financial instruments for which it was
practicable to estimate that value:

Current assets and liabilities 
The carrying amount of cash, accounts receivable, accounts payable and accrued expenses
approximates fair value because of the short-term maturity of these instruments.

Notes payable  The carrying
value of notes payable approximates fair value based upon current market rates available
to the Company for similar instruments.

# 13.         Related Party
Transactions

In fiscal 2001, the Company amended
Mr. William Baumhauers employment contract. Mr. Baumhauer is the Companys
chairman of the board, president and chief executive officer. As part of the amended
employment contract, the Company loaned $550,000 to Mr. Baumhauer. The loan is evidenced
by a promissory note that bears interest at 9.0% and is due on September 30, 2003. The
proceeds of the loan were used to exercise options to purchase 178,000 shares of the
Companys common stock and pay related tax liabilities. The loan is secured by a
pledge of the purchased stock. In fiscal 2003, Mr. Baumhauer repaid $350,000 of the loan.
The remainder of the loan of $200,000 plus accrued interest of $116,000 was repaid in July
2003.

F-25

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# 14.         Quarterly Financial
Data (Unaudited)

The Companys quarterly results
of operations for fiscal years 2003 and 2002 are summarized as follows (in 000s
except per share data):

Fiscal 2003

|                                          | Quarter ended
|----------------------------------------- | -------------
|
|Revenue                                   |              
|Pre-opening expense                       |              
|Expenses related to predecessor companies |              
|Debt extinguishment costs                 |              
|Income from continuing operations         |              
|Net income                                |              
|Basic income per share:                   |              
|Net income                                |              
|Diluted income per share:                 |              
|Net income                                |              

|(a) | Net income in the fourth quarter of fiscal 2003 included a benefit for income
          taxes of $13.4 million as a result of the reversal of previously recorded
          deferred tax valuation allowance.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fiscal 2002

|                                          | Quarter ended
|----------------------------------------- | -------------
|
|Revenue                                   |              
|Pre-opening expense                       |              
|Expenses related to predecessor companies |              
|Income from continuing operations         |              
|Loss from discontinued operations         |              
|Net income                                |              
|Basic income per share:                   |              
|Income from continuing operations         |              
|Net income                                |              
|Diluted income per share:                 |              
|Income from continuing operations         |              
|Net income                                |              

F-26

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