10-K 1 d10k.txt FORM 10-K U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2001 Commission file number 0-24982 Silver Diner, Inc. (Exact name of the registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 04-3234411 (I.R.S. employer identification no.) 11806 Rockville Pike Rockville, Maryland 20852 301-770-0333 (Address and telephone number of the registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.00074 Par Value Indicated 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation 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 this Form 10-K or any amendment to this Form 10-K. At March 13, 2002, the registrant had 11,777,045 shares of common stock (the "Common Stock") outstanding, and the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $1,885,865. The aggregate market value was determined based on the closing price of the Common Stock on the OTC Bulletin Board ("OTCBB") on March 13, 2002. 1 PART I Item 1. Business. General Silver Diner, Inc. (the "Company" or "Silver Diner") was incorporated in Delaware in April 1994 under the name Food Trends Acquisition Corporation ("FTAC"). In March 1996, a subsidiary of the Company merged with Silver Diner Development, Inc., a Virginia corporation ("SDDI"), which was formed in and operated Silver Diner restaurants since 1987. Silver Diner Limited Partnership ("SDLP"), of which SDDI was the general partner, operated the first three Silver Diner restaurants. In June 1996, the Company acquired all of the limited partner interests in SDLP for a purchase price of $2.472 million and 84,000 warrants to purchase shares of the Common Stock at $8.00 per share. Unless the context otherwise requires, references to the Company or Silver Diner also include FTAC, SDDI and their wholly owned subsidiaries. The Company's executive offices are located at 11806 Rockville Pike, Rockville, Maryland 20852 and its telephone number is (301) 770-0333. The Company's Common Stock presently trades on The OTC Bulletin Board ("OTCBB") under the symbol "SLVR" (See Item 5). Business The Company currently operates ten Silver Diner restaurants in the Washington Metropolitan Area, one in Cherry Hill, New Jersey, and one in Virginia Beach, Virginia, serving breakfast, lunch, dinner and late night meals. The Company targets the growing number of customers tired of traditional fast food whose need for a quick, high-quality, reasonably priced meal is not being adequately served by existing family or casual theme restaurants; the Company capitalizes on the timeless diner theme to uniquely address this need. By attracting a broad range of customer segments, and maintaining extended operating hours, a diverse menu and convenient locations, the Company is able to compete effectively in the fast food, family and casual dining segments of the restaurant industry, contributing to the significant sales volumes of its units. The Company also offers Silver Diner To Go, which features a range of carry out/delivery options targeting the growing "home meal replacement" market. The restaurants typically are open for business from 7:00 a.m. to midnight on weekdays and from 7:00 a.m. to 3:00 a.m. on weekends. The Silver Diner menu strategy is to serve generous portions of made-from-scratch cooking at prices competitive with traditional family dining restaurants. The average check per customer is approximately $8.50 and the average dining time is approximately 45 minutes. For the last fiscal year the Silver Diner restaurants, in operation for the full year, had sales ranging from $1.7 million to $4.3 million with average unit sales of $2.5 million and an average of 222 seats. Management attributes the sales volumes of its units to its ability to attract a broad range of customer segments, extended operating hours, diverse menu and convenient locations. Management believes it has established a strong company mission and culture by emphasizing a sense of ownership and entrepreneurship in its employees and by providing frequent training, recognition and development of its operations management team. Diners have been indigenous to the United States for more than 100 years. Since opening the first Silver Diner restaurant in 1989, the Company has capitalized on the diner restaurant theme to uniquely address the customers' need of where to go for quick, high quality meals at reasonable prices. Key elements that differentiate Silver Diner restaurants from other restaurants include: Broad and diverse menu combining "traditional diner" items with contemporary regional specialties - The menu includes a broad range of made-from-scratch meal choices featuring traditional home-style diner fare and all-day breakfast, as well as more contemporary "heart healthy" selections and regional specialty items. Each Silver Diner restaurant bakes most of its pies and cakes on the premises and features a carryout section offering its full menu. Classic, readily recognizable diner exterior, in combination with a comfortable diner interior decor and atmosphere - The visually striking exterior of the Silver Diner restaurants is both familiar and distinctive, combining polished stainless steel, glass block and neon lighting traditional to old-style diners with more contemporary tile, accent colors and a 25-foot clock tower. Similarly, the Silver Diner restaurants' interior combines traditional diner motifs such as a counter area with seating, booths and tabletop old style jukeboxes with a contemporary open kitchen and ambient dining room lighting. The result of these contrasting elements produces a high energy, fun, nostalgic atmosphere that is also comfortable. Extended operating hours with four meal periods - Silver Diner's breadth of entree selection, its beer and wine service and night time ambiance allow it to generate close to 50% of its business at dinner and late night, the most profitable meal periods. Additionally, the Silver Diner's extended hours and diverse menu affords it two extra meal periods - breakfast and late night. Together, these four meal periods provide the Silver Diner the opportunity to generate significantly greater customer counts per facility than traditional two- or three-meal period full-service restaurants. Rapid meal service resulting in a table turnover rate significantly above industry averages for full service restaurants - Silver Diner's menu, food preparation techniques and kitchen engineering account for its rapid meal service. The Silver Diner's physical plant and kitchen layout allow it to serve the majority of meals in approximately 10 minutes, providing quick turnover and further improving productivity. The Silver Diner employs a food preparation and storage process that incorporates a type of "sous vide" production technique enabling it to efficiently make a wide range of scratch-cooking recipes with reduced labor hours, kitchen preparation and raw ingredient storage area. As a result, Silver Diner restaurants are able to achieve high quality, consistency and excellent productivity despite the broad menu. Generous portions and moderate prices with entrees from $6.99 and up - Management believes the Silver Diner delivers outstanding value by providing generous portions of fresh, high quality food at affordable prices. Appetizers start at $4.99, entrees range from $6.99 to $12.99, and full meals are available at moderate prices including a 10% senior citizen discount and "blue plate specials." 2 Restaurants. The following sets forth certain information regarding the Company's existing restaurants. Approximate Approximate Number Operating Locations Date Opened Square Feet of Seats ------------------- ----------- ----------- -------- Rockville, Maryland February 1989 5,500 256 Laurel, Maryland September 1990 4,680 153 Potomac Mills, Virginia October 1991 4,675 164 Fair Oaks, Virginia April 1995 5,675 240 Tysons Corner, Virginia December 1995 5,675 240 Clarendon, Virginia December 1996 5,675 240 Merrifield, Virginia February 1997 5,675 240 Springfield, Virginia April 1997 5,675 240 Reston, Virginia June 1997 5,675 240 Cherry Hill, New Jersey November 1997 5,675 240 Virginia Beach, Virginia June 2000 4,950 184 Gaithersburg, Maryland September 2000 4,200 152 The Company leases its corporate offices at 11806 Rockville Pike, Rockville, Maryland, which is the location of the original Silver Diner restaurant. All operating units except the Reston, Virginia location are leased. Management's near-term focus is to continue to improve operations in the existing restaurants, to maximize the cash flow generation of the business and to refine opportunities for future growth. The Company believes the greater Washington area can support twelve to fifteen Silver Diner restaurants. Under the right circumstances, the Company may resume its penetration of this market in order to take advantage of increased name recognition and economies of scale in advertising, management and overhead. Management believes that there are other major metropolitan areas in the Mid-Atlantic region that can support a similar concentration of Silver Diner restaurants and may, in the future, pursue expansion in these markets in a manner similar to the greater Washington area. Expansion into any markets outside of the Mid-Atlantic region may include area joint ventures or franchises. There is no assurance that the Company's expansion plans will be realized or that future Silver Diner restaurants will be favorably received. Marketing. Management focuses on providing its customers with superior food quality, service and perceived value in a distinctive atmosphere and has relied primarily on its eye-catching appearance, customer satisfaction and word of mouth to obtain repeat customers as well as to attract new clientele. Since 1998, the Company has focused its marketing efforts on direct marketing, which allows the Company to target customers and create a relationship in the neighborhoods surrounding each restaurant. The Company's penetration in its core Washington Metro market has generated economies of scale. 3 Menu. The Silver Diner menu includes a broad range of dining alternatives featuring traditional diner fare, including soups, sandwiches, hamburgers, "blue plate specials" as well as more contemporary "heart healthy" items, salads, grilled chicken, seafood, pasta and regional specialties. Silver Diner's full breakfast menu, including omelets, pancakes and waffles, is available throughout the day and night. The menu includes numerous entrees that rotate on a seasonal basis, as well as signature homemade pies and cakes baked on premises. High-quality ingredients are used for all menu items, including Silver Diner's own unique gravies, sauces and dressings. Silver Diner's recipes are prepared for the way management believes people eat today with an emphasis on fresh ingredients, low salt and cholesterol-free oil. In addition, Silver Diner's "heart healthy" menu features several low-fat popular items formulated to exceed USDA "heart healthy" dietary guidelines. Silver Diner restaurants also serve beer and wine in all locations except Cherry Hill, New Jersey, and non-alcoholic specialty beverages. Purchasing. The Company purchases items on a centralized basis and negotiates directly with suppliers for food and beverage products to ensure consistent quality and freshness of products as well as to obtain competitive prices. Food and supplies are shipped directly to the Silver Diner restaurants. Upon delivery, a kitchen manager or supervisor inspects all food and beverage products for quality and freshness. The Company does not maintain a central product warehouse or commissary. The Company's food and supplies are available from a wide number of suppliers. Therefore, Silver Diner is not dependent on any particular source of supplies. Customer Satisfaction/Quality Control. The Company has a variety of programs to measure its customer satisfaction, including comment cards, exit interviews, and frequent visits by supervisory management. Through the use of these techniques, senior management receives valuable feedback from customers and through prompt action, demonstrates a continued interest in meeting customer needs and desires. In addition, Silver Diner staff performs a variety of quality checks and are authorized to not serve any products that do not meet Silver Diner's quality standards. Competition The restaurant industry is intensely competitive with respect to price, service, location and food quality. The Company competes with fast food and family style restaurants with ready to cook food and take-out. Silver Diner restaurants are located in areas of high concentration of such restaurants. There are many well-established food service competitors with substantially greater financial and other resources than the Company and with substantially longer operating histories. These competitors will compete with the Company in obtaining premium locations for restaurants (e.g., shopping malls and strip shopping centers) and in attracting and retaining employees. In addition, national food service chains or other companies could introduce a multi-unit chain of food service establishments that use one or more of the concepts that resemble those of the Company. The restaurant industry is also affected by changes in consumer tastes and eating patterns of the general public; national, regional or local economic conditions; demographic trends; traffic patterns; as well as the type, number and location of competitors. In addition, factors such as inflation, increased food, labor and benefit costs and a lack of experienced management and hourly employees may adversely affect the restaurant industry in general and the Company in particular. In addition, the poor performance of the Company's stock has hindered the ability to attract and retain qualified employees. The Company believes that its distinctive diner concept, attractive price-value relationship and quality of food and service enable it to differentiate itself from its competitors. While the Company believes that its restaurants are distinctive in design and operating concept, it is aware of restaurants that operate with similar concepts. The Company believes that its ability to compete effectively will continue to depend upon its ability to offer high-quality, moderately priced food in a full-service distinctive dining environment. 4 Employees As of December 30, 2001, the Company had 894 employees, of whom 12 are corporate personnel, 51 are restaurant management personnel (including managers-in-training), and the remainder are hourly restaurant personnel. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its employee relations to be good. The management staff of a typical Silver Diner restaurant consists of one Operating Partner (general manager) and four assistant managers, including a kitchen manager and a service manager. Each Silver Diner restaurant also employs approximately 75 associates on a part-time and full-time basis. Restaurant Personnel. The Company has established a strong company mission focusing on culture and values and emphasizing a sense of ownership and entrepreneurship that empowers its people to achieve professional and personal excellence. Management believes that its people are its most valuable asset and has a variety of programs to provide training, recognition and development of its management and associates to their full potential. Non-management employees' performance is tracked daily through productivity measurements that are established as an integral part of a system of frequent incentive awards. Restaurant Operating Partner Program. To attract and retain talented management, the Company's compensation program is very competitive. Management believes that a key component for long-term success is for each restaurant to be led by a general manager who lives in the community and has a long-term commitment to that restaurant's success. Accordingly, management has established a Restaurant Operating Partner Program. Under the Program, the Operating Partner receives an annual salary and periodic, profit based, cash bonuses equal to a percentage of the restaurant's operating income. In addition, each operating partner is required to purchase $5,000 of Common Stock at market value and can potentially receive an annual award up to $5,000 and 3,000 shares of Common Stock, dependent upon achievement of performance criteria as established and evaluated by the Board of Directors. This program is a successor to previous Operating Partner plans. The stock awards under these plans are awarded at the discretion of the Company's Board of Directors. Selection, Training and Supervision. Management has developed specific profiles and protocols used to interview and select its management and associate staff. Management personnel are required to participate in a sixty-day training program emphasizing the Company's operating procedures as well as management development programs. Each associate also participates in a standardized training program ranging from two to eight days (depending on position), which utilizes testing results to ensure all associates achieve a specified standard of performance. Government Regulations The Company is subject to numerous federal, state and local laws affecting health, sanitation and safety standards as well as to state and local licensing regulation of the sale of alcoholic beverages. The Company has appropriate licenses from regulatory authorities allowing it to sell beer, wine and liquor (except in Cherry Hill, New Jersey where the Company does not sell alcohol), and has food service licenses from local health authorities. The Company's licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause, including violation by the Company or its employees of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age of patrons or employees, advertising, wholesale purchasing and inventory control. The Company's failure to obtain or retain liquor or food service licenses could have a material adverse effect on its operation. To reduce this risk, each restaurant is operated with procedures in accordance with complete compliance with applicable code and regulations. There can be no assurance, however, that such approvals and licenses for new restaurants will be obtained and, if obtained, will be renewed or not revoked. 5 The Company is subject in certain states to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance. The Company has never been named as a defendant in a lawsuit involving "dram-shop" statutes. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. The Company's operations are also subject to federal and state minimum wage laws governing such matters as working conditions, overtime and tip credits and other employee matters. Management believes it is in compliance with all current applicable regulations relating to restaurant accommodations for the disabled including the Federal Americans With Disabilities Act of 1992. Trademarks Management believes that its trademarks and servicemarks are valuable to the marketing of its restaurants and that it has substantial rights in such trademarks and servicemarks for the Silver Diner name, based upon the Company's actual usage and constructive usage derived from its U.S. trademark. The Company intends to aggressively protect its marks from infringement and competing claims. However, there can be no assurance that the Company's marks, even as, and if, registered do not or will not violate the proprietary rights of others, that the marks will be upheld if challenged, or that the Company will not be prevented from using the marks, any of which could have a material adverse effect on the Company. Management's policy is to pursue registration of its marks whenever possible and to oppose vigorously any infringements of its marks, the success of which cannot be assured. Executive Officers of the Company The name, age, period of service and position held of each of the executive officers of the Company are as follows:

All of the officers have had the principal occupation indicated under "Position(s) Held" for the previous five years except that prior to May 2001 Mr. Meskell was Senior Vice President, Human Resources. Item 2. Property. On November 16, 2001, the Company entered into a lease termination agreement to close its diner in Towson, Maryland. The Company incurred $295,726 of expense in connection with terminating its lease and closing the diner. These expenses were offset by a write-off of $186,986 of deferred rent related to the Towson diner, resulting in a net expense of $108,740. The cash expenditures related to the closing of the diner were $254,673. Additional information concerning the registrant's property is set forth under "Restaurants" in Item 1 of Part I. Item 3. Legal Proceedings. There are no pending matters that should have a material adverse effect on the Company. Item 4. Submission of Matters to a Vote of Security-Holders. Not Applicable. 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Market Information. Since May 7, 2001 the Company's Common Stock has been quoted on the OTC Bulletin Board under the symbol SLVR. From March 27, 1996 to May 6, 2001 the Common Stock was listed on The NASDAQ Stock Market under the symbol SLVR. The following table sets forth the high and low closing prices for the Common Stock for the periods indicated: Quarter High Low ------- ---- --- 2000 First $1.125 $0.84 Second $1.06 $0.78 Third $1.38 $0.84 Fourth $1.03 $0.75 2001 First $0.94 $0.44 Second $0.59 $0.20 Third $0.44 $0.15 Fourth $0.35 $0.15 Dividends. Since the Company's inception, no dividends have been paid on the Common Stock. Holders. As of December 30, 2001, there were 962 record holders of the Common Stock. 7 Item 6. Selected Financial Data

(i) Selected financial data as of and for the years ended December 30, 2001, December 31, 2000 and January 2, 2000 were obtained from the Company's audited financial statements. Selected financial data as of and for the years ended January 3, 1999 and December 28, 1997 were obtained from the Company's financial statements audited by another accounting firm whose opinion was unqualified. 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward Looking Disclosure Certain information included herein contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities as well as operating costs, capital spending, financial sources and the effects of competition. Such forward-looking information is subject to changes and variations which are not reasonably predictable and which could significantly affect future results. Accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These changes and variations which could significantly affect future results include, but are not limited to, development and construction activities, including delays in opening new diners, acceptance of the Silver Diner concept, increased competition in the restaurant industry, weather conditions, the quality of the Company's restaurant operations, the adequacy of operating and management controls, dependence on discretionary consumer spending, dependence on existing management, inflation and general economic conditions, and changes in federal or state laws or regulations. General The following discussion includes comments and data relating to the Company's financial condition and results of operations for the three-year period ended December 30, 2001. As of this date, the Company operates 12 diners, 10 in the Washington metropolitan area, one in Cherry Hill, New Jersey and one in Virginia Beach, Virginia. The Company is currently working to improve the performance of its existing units and is not expanding. If satisfactory results are achieved by the existing restaurants, the Company, may, under the appropriate circumstances, resume expansion. Future plans may include expanding the Silver Diner chain in the Mid-Atlantic region through opening Company-owned restaurants and possibly through the development of franchise or joint venture relationships. The following table reflects the change in number of restaurants over the three-year period. Restaurants 1999 2000 2001 ----------- ---- ---- ---- In operation, beginning of year 11 11 13 Newly opened 0 2 0 Closed 0 0 1 ------ ------ ------ In operation, end of year 11 13 12 ------ ------ ------ The Company has a 52 or 53-week fiscal year that ends on the Sunday nearest December 31. Fiscal quarters consist of accounting periods of 16, 12, 12 and 12 or 13 weeks, respectively. Fiscal years 2001, 2000 and 1999 consisted of 52 weeks and ended on December 30, 2001, December 31, 2000 and January 2, 2000, respectively. 9 Results Of Operations The following table sets forth the percentage relationship to net sales of items included in the consolidated statements of operations for the periods indicated:

10 Year Ended December 30, 2001 Compared to the Year Ended December 31, 2000 Net sales for the fiscal year ended December 30, 2001 ("Fiscal 2001") of $31,833,252 increased $273,717 or .9% compared to the fiscal year ended December 31, 2000. ("Fiscal 2000"). Full year of operations during fiscal 2001 in Virginia Beach, Virginia and Gaithersburg, Maryland ("New Stores") resulted in an increase of $1,531,161 while same store sales (sales for Silver Diner restaurants open throughout both periods being compared, excluding the initial six months of operations during which sales are typically higher than normal) decreased $1,257,444 or 4.3% compared to Fiscal 2000. Sales for the twelve weeks ended December 30, 2001 (Fourth Quarter 2001) showed increased same store sales of $84,160, or 1.3% while new store sales declined $272,133 or 23.2%. Cost of sales, consisting of food and beverage costs, increased from 26.7% of net sales in Fiscal 2000 to 27.4% of net sales in Fiscal 2001. The increase of 0.7% was attributable to higher food costs as well as an increasing emphasis on value oriented menu offerings. Labor, which consists of restaurant management and hourly employee wages and bonuses, payroll taxes, workers' compensation insurance, group health insurance and other benefits increased 0.8% to 35.5% of net sales for Fiscal 2001. The increase of $360,262 was due, in part, to higher hourly labor costs. Labor for same stores decreased 0.6%, or $63,604, offset by new store labor increases of $423,866. Operating expenses, which consist of all restaurant operating costs other than cost of sales, labor, occupancy and depreciation, including supplies, utilities, repairs and maintenance and advertising decreased 2.1% to 16.6% of net sales for Fiscal 2001, compared to 18.7% for Fiscal 2000. A decrease of $450,000 in promotion and marketing expenses as well a reduction of $185,000 in administrative costs accounted for a substantial portion of the change. Occupancy, which is composed primarily of rent, property taxes and property insurance, increased $514,096 for Fiscal 2001 compared to Fiscal 2000. As a percentage of net sales occupancy expenses increased 1.5% in Fiscal 2001 to 11.2% compared to 9.7% in Fiscal 2000. The majority of the dollar increase, or $279,000 was attributable to the New Stores full year of operations. In addition, higher property insurance premiums and common area maintenance costs contributed to higher occupancy expenses in Fiscal 2001. Restaurant depreciation and amortization decreased $50,837 to $1,253,409 for Fiscal 2001. Depreciation and amortization expense for same stores decreased approximately $158,000, a result of the Company write-down, in Fiscal 2000, of the assets of two restaurants. The Company periodically evaluates its asset base for potential impairment of long-lived assets, including goodwill, utilizing projections of undiscounted cashflows in order to determine the future recoverability of an asset or group of assets. In Fiscal 2000, the trends of operations of two restaurants indicated the undiscounted cashflows from their operations would be less than the net book value of the assets of the two restaurants. As a result, during the fourth quarter of Fiscal 2000 the Company recorded an impairment loss of $1,980,116. Management believes that it has taken all of the appropriate actions regarding the carrying value of its' assets and that no further material impairment exists at this time. The Company will adopt the provisions of SFAS No. 142 on December 31, 2001 and will complete its initial assessment of goodwill impairment by June 29, 2002. The impact of impairment, if any, will be recorded as a cumulative effect of a change in accounting principle during the first quarter of fiscal 2002. On November 16, 2001, the Company entered into a lease termination agreement to close its diner in Towson, Maryland. The Company incurred $295,726 of expense in connection with terminating its lease and closing the diner. These expenses were offset by a write-off of $186,986 of deferred rent related to the Towson diner for a net expense of $108,740. The Company had cash expenditures of $254,673 related to the closing of the diner. Preopening expenses of $318,282 in Fiscal 2000 were principally labor costs (wages, taxes and benefits) incurred prior to opening the New Stores. There were no pre-opening expenses in Fiscal 2001. 11 General and administrative expenses include the cost of corporate administrative personnel and functions, multi-unit management and restaurant management recruitment and initial training. Such expenses were $2,873,327 for Fiscal 2001, a decrease of $506,631. As a percentage of net sales, the Company's administrative overhead decreased 1.7% to 9.0% in Fiscal 2001 from 10.7% in Fiscal 2000. This was primarily due to a decrease in investor relations expenses, professional fees and travel costs. Abandoned site costs were $267,448 in Fiscal 2001. The decision to abandon plans to construct a diner in the Pentagon Row site in Arlington Virginia led to Fiscal 2001 expenses of $267,448 for the lease termination and other fees. Legal, architectural and design costs of $102,012 for Pentagon Row were written off in Fiscal 2000. The Company earned $65,641 in investment income for Fiscal 2001, compared to investment income of $91,759 for Fiscal 2000. The decrease is primarily a result of reduced levels of cash available for investment as well as lower yields. Interest expense was $191,155 for Fiscal 2001 and $85,963 for Fiscal 2000. The increase in interest expense was attributable to the increase in funds borrowed under the Company's line of credit. Net loss for Fiscal 2001 was $1,899,451 or $0.16 per share, compared to a net loss of $4,195,564 or $0.36 per share in Fiscal 2000. Excluding the impact of the charge for impairment of long-lived assets, the net loss for fiscal year 2000 was $2,215,448 or $0.19 per share. Weighted average shares outstanding remained essentially unchanged in 2001 versus 2000. Management expects that the Company will continue to incur losses, but at reduced levels due to reductions in administrative expenses, until revenues and operating efficiencies are sufficient to absorb the general and administrative expenses associated with developing and running the company. Year Ended December 31, 2000 Compared to the Year Ended January 2, 2000 Net sales for the fiscal year ended December 31, 2000 ("Fiscal 2000") of $31,559,535 increased $2,402,169 or 8.2% compared to the fiscal year ended January 2, 2000 ("Fiscal 1999"). Substantially all of the increased sales were attributable to new unit openings in Virginia Beach, Virginia and Gaithersburg, Maryland. Comparable Company sales (sales for Silver Diner restaurants open throughout both periods being compared, excluding the initial six months of operations during which sales are typically higher than normal) were flat compared to Fiscal 1999. Same store customer counts were down 5.2%, while check averages increased 5.8%. The Company also had a 6.5% decrease in take-out sales further eroding the gains achieved in the average check. The Company believes the reversal of nine consecutive quarters of same store sales increases was primarily caused by three factors. First, the more contemporary menu implemented in April 2000 did not meet the expectations of our customers; second, the price action taken at the time of the new menu implementation met some consumer resistance and lastly, the marketing activities employed in 2000 were not adequate to move the business above the record levels achieved in Fiscal 1999. Cost of sales, consisting primarily of food and beverage costs, increased from 26.1% of net sales in Fiscal 1999 to 26.7% of net sales in Fiscal 2000. The increase of 0.6% was attributable to increased costs in the existing stores and higher costs in the New Stores related to slightly different menu offerings as well as the initial cost escalation normally associated with the new unit openings. Labor, which consists of restaurant management and hourly employee wages and bonuses, payroll taxes, workers' compensation insurance, group health insurance and other benefits increased 0.9% to 34.7% of net sales for Fiscal 2000. The increase was largely due to the overstaffing of New Stores during the first several periods of operation. Operating expenses, which consist of all restaurant operating costs other than cost of sales, labor, occupancy and depreciation, including supplies, utilities, repairs and maintenance and advertising increased 0.7% to 18.7% of net sales for Fiscal 2000, compared to 18.0% for Fiscal 1999. Increased supply, utility, maintenance costs, credit card fees and advertising expenses accounted for the majority of the increase. The New Stores had only a minimal impact on these expenses. Occupancy, which is composed primarily of rent, property taxes and property insurance, increased $175,369 for Fiscal 2000 compared to Fiscal 1999. As a percentage of net sales occupancy expenses decreased 0.2% 12 in Fiscal 2000 to 9.6% compared to 9.8% in Fiscal 1999. Nearly all of the dollar increase was attributable to the New Stores and was offset by a $59,311 rent refund, relating to a partial taking of the parking lot under the right of eminent domain at the Springfield location. The company does not anticipate a significant negative impact on sales as a result of the partial taking of the parking lot. Restaurant depreciation and amortization increased $131,849 to $1,304,246 for Fiscal 2000. Approximately two thirds of the increase was a result of depreciation associated with the addition of the New Stores. The remainder of the increase was a product of upgrading the existing asset base. General and administrative expenses include the cost of corporate administrative personnel and functions, multi-unit management and restaurant management recruitment and initial training. Such expenses were $3,379,958 for Fiscal 2000, an increase of $246,885, or 7.9%, compared to Fiscal 1999. The dollar increase in expenses was largely due to the recruitment and hiring of a vice president of operations coupled with a re-alignment of field management personnel and the recruitment, hiring and training of store management personnel for the New Stores. As a percentage of net sales, general and administrative expenses remained flat at 10.7% for Fiscal 2000. The Company's administrative overhead as a percentage of net sales remains above the industry average primarily due to the cost of the corporate management team required to support the Company's growth plans, which have been slower than anticipated. Preopening expenses of $318,282 were principally labor costs (wages, taxes and benefits) incurred prior to opening the New Stores. The Company periodically evaluates its' asset base for potential impairment of long-lived assets, including goodwill, utilizing projections of undiscounted cashflows in order to determine the future recoverability of an asset or group of assets. Based on that evaluation, the trends of operations of two restaurants indicated the undiscounted cashflows from their operations would be less than the net book value of the assets of the two restaurants. As a result, during the fourth quarter of Fiscal 2000 the Company recorded an impairment loss of $1,980,116. Management believes that it has taken all of the appropriate actions regarding the carrying value of its' assets and that no further material impairment exists at this time. The $102,012 write off of abandoned site costs is related to legal, architectural and design costs for the Pentagon Row site in Arlington, Virginia which the Company decided not to construct. The Company earned $91,759 in investment income for Fiscal 2000, compared to investment income of $100,917 for Fiscal 1999. The decrease is primarily a result of reduced levels of cash available for investment, stemming from the construction of the New Stores. Interest expense was $85,963 for Fiscal 2000 and $23,826 for Fiscal 1999. The increase in interest expense was attributable to the increase in funds utilized under the Company's line of credit. Net loss for Fiscal 2000 was $4,195,564 or $0.36 per share, compared to a loss of $971,879 or $0.08 per share in Fiscal 1999. Excluding the impact of the charge for impairment of long-lived assets, the net loss for Fiscal 2000 was $2,215,448 or $0.19 per share. Weighted average shares outstanding remained essentially unchanged in 2000 versus 1999. Management expects that the Company will continue to incur losses until such time as revenue generation from increased market penetration operating efficiencies are sufficient to absorb the general and administrative infrastructure costs currently in place. 13 Recent Accounting Pronouncement The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets" which requires that upon adoption, amortization of goodwill will cease, and instead, the carrying value of goodwill will be evaluated for impairment on an annual basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 142 is effective for fiscal years beginning after December 15, 2001. As of the date of adoption, the Company expects to have unamortized goodwill in the amount of $1.7 million, which will be subject to the transition provisions of SFAS 142. Amortization expense related to goodwill was $185,000 for the fiscal year ended December 30, 2001. The Company will adopt the provisions of SFAS No. 142 on December 31, 2001, and will complete its initial assessment of goodwill impairment by June 29, 2002. The impact of impairment, if any is determined during such an assessment, will be recorded as a cumulative effect of a change in accounting principle during the first quarter of fiscal 2002. Liquidity and Capital Resources The Silver Diner's operations are subject to significant external influences beyond its control. Any one, or any combination of such factors, could materially impact the actual results of the Diner's operations. Those factors include, but are not limited to: (I) changes in general economic conditions, (II) changes in consumer spending habits (III) changes in the availability and cost of raw materials, (IV) changes in the availability of capital resources, (V) changes in the prevailing interest rates, (VI) changes in the competitive environment and (VII) changes in Federal or State laws. At December 30, 2001, the Company's cash and cash equivalents were $1,839,091, an increase of $1,293,860 over Fiscal 2000 as a result of additional borrowings on available credit facilities. The Company's working capital deficit was $230,593 compared to a deficit of $893,151 at December 31, 2000, an improvement of $662,558 during 2001 as a result of additional borrowings. Additionally, the Company's long-term debt was $2,557,317 and stockholders' equity was $11,459,263. Based on the Company's current operating plan, the Company believes that the cash generated from operating activities, coupled with borrowings on its line of credit facility and additional cost reductions, where necessary, will be sufficient to meet the anticipated needs for working capital, capital expenditures and non-cancelable lease obligations for at least the next 12 months. Thereafter, if cash generated from operations is insufficient to satisfy the Company's liquidity needs, the Company may seek to obtain additional capacity on its line of credit, sell convertible debt securities, subject to consent being received from the Company's bank, or sell additional equity securities. However, no assurances can be given that any such addition financing sources will be available on acceptable terms or at all. The Company closed its diner in Towson, Maryland on November 18, 2001. Expenses related to termination of the lease and closure of the diner were $295,726, offset by a write off of deferred rent of $186,986, for a net expense of $108,740. The cash expenditures related to the closing of the diner were $254,673. The Company has a loan agreement with its bank whereby the Company may borrow, through December 31, 2002 up to $3,000,000. As of December 30, 2001, the Company has borrowed $2,500,000 under the agreement. Terms of the loan agreement limit the Company's ability to incur new debt, which may restrict the Company's ability to expand and to finance working capital requirements. As defined in the loan agreement, the Company may draw additional funds only to the extent that its cash flow is equal to or greater than 1.3 times the debt service coverage requirements. The amount borrowed in 2000, $1,000,000, was payable interest only until December 1, 2001. Principal and interest are payable monthly beginning January 1, 2002 through December 1, 2007. The amount borrowed in 2001, $1,500,000, is payable interest only until December 1, 2002. Principal and interest are payable monthly beginning January 1, 2003 through December 1, 2008. Annual principal payments are $166,667 in 2002, $416,667 in 2003 thru 2007 and $250,000 in 2008. Currently, the Company does not meet the debt service coverage requirements of the loan agreement. Future borrowings under the agreement may be dependent on the Company meeting the debt service coverage requirements at the time of the additional borrowing. However, the Company's failure to maintain the debt service 14 coverage ratio for any quarter including the quarter ended December 30, 2001, shall not be a default under the loan agreement, if, during the immediately succeeding quarter the Company achieves a material improvement in the debt service coverage ratio and demonstrates a reasonable prospect of achieving the debt service coverage ratio by the beginning of the next quarter. Impact of Inflation Management does not believe that inflation has materially affected the Company's operating results. Substantial increases in costs and expenses, particularly food, supplies, labor and operating expenses, could have a significant impact on the Company's operating results to the extent that such increases cannot be passed along to customers. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Not applicable. 15 Item 8. Financial Statements INDEPENDENT AUDITORS' REPORT 17 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 30, 2001 AND DECEMBER 31, 2000 18 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000 19 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000 20 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22 16 [LETTERHEAD OF REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Board of Directors Silver Diner, Inc. We have audited the accompanying consolidated balance sheets of Silver Diner, Inc. and Subsidiary (the "Company") as of December 30, 2001 and December 31, 2000, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000. The 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 audits 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 Silver Diner, Inc. and Subsidiary as of December 30, 2001 and December 31, 2000, and the results of their operations and their cash flows for the fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ Reznick Fedder & Silverman Bethesda, Maryland February 28, 2002 17 Silver Diner, Inc. and Subsidiary CONSOLIDATED BALANCE SHEETS December 30, 2001 and December 31, 2000

The accompanying notes are an integral part of these financial statements 18 Silver Diner, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements 19 Silver Diner Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000

The accompanying notes are an integral part of these financial statements 20 Silver Diner, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements 21 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 30, 2001, December 31, 2000 and January 2, 2000 1. Organization Silver Diner, Inc. (the "Company") and its subsidiary develop and operate the Silver Diner restaurant chain. At December 30, 2001, the Company owned and operated 10 diners in the Washington metropolitan area, one in Cherry Hill, New Jersey and one in Virginia Beach, Virginia. 2. Summary Of Significant Accounting Policies Basis of Presentation and Consolidation --------------------------------------- The consolidated financial statements include the accounts and operations of the Company and its subsidiary, Silver Diner Development, Inc. (SDDI). All significant intercompany balances and transactions have been eliminated in consolidation. Fiscal Year ----------- The Company operates on a 52- or 53-week fiscal year that ends on the Sunday nearest December 31. The fiscal quarters for the Company consist of accounting periods of 16, 12, 12, and 12 or 13 weeks, respectively. Fiscal years 2001, 2000 and 1999 consisted of 52 weeks and ended on December 30, 2001, December 31, 2000 and January 2, 2000, respectively. Cash and Cash Equivalents ------------------------- The Company considers all highly liquid short-term investments with maturity of three months or less, when acquired, to be cash equivalents. Cash and cash equivalents are stated at cost which approximates fair value. Inventory --------- Inventory consists of food and supplies and is stated at the lower of cost (first-in, first-out) or market value. Property, Equipment and Improvements ------------------------------------ Property, equipment and improvements are recorded at cost. Buildings and leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the respective anticipated lease period including renewal options, ranging from 20 to 35 years, with a provision for salvage value for the Rockville building. Furniture and equipment are depreciated over the estimated useful lives of the related assets, ranging from two to ten years. Depreciation is computed using the straight-line method. Deferred Lease Costs -------------------- Deferred lease costs represent brokerage commissions, legal fees and zoning-related costs primarily related to leases on the land upon which the Company constructed its restaurants and are amortized on a straight-line basis over the life of the respective lease agreement. 22 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 2. Summary Of Significant Accounting Policies (Continued) Pre-opening Costs ----------------- In accordance with Statement of Position (SOP) No. 98-5, "Reporting on the Cost of Start-Up Activities," costs associated with start-up activities, such as opening a new facility, are expensed as incurred. Goodwill -------- Cost in excess of fair value of net assets acquired related to the acquisition of the minority interest in SDLP is amortized on a straight-line basis over 15 years. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets" which requires that upon adoption, amortization of goodwill will cease, and instead, the carrying value of goodwill will be evaluated for impairment on an annual basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 142 is effective for fiscal years beginning after December 15, 2001. As of the date of adoption, the Company expects to have unamortized goodwill in the amount of $1.7 million, which will be subject to the transition provisions of SFAS 142. Amortization expense related to goodwill was $185,000 for the fiscal year ended December 30, 2001. The Company will adopt the provisions of SFAS No. 142 on December 31, 2001. The Company will complete its initial assessment of goodwill impairment by June 29, 2002. The impact of impairment, if any is determined during such an assessment, will be recorded as a cumulative effect of a change in accounting principle during the first quarter of fiscal 2002. Deferred Finance Costs ---------------------- Deferred finance costs consist primarily of legal expenses incurred in connection with the credit facility are amortized over the term of the loan agreement using the straight-line method. Amortization expense for fiscal years 2001, 2000 and 1999 was $25,260, $13,948 and $-0-, respectively. Deferred Rent ------------- Deferred rent is recorded and amortized to the extent the total minimum rental payments allocated to the current period on a straight-line basis exceed or are less than the cash payments required. Income Taxes ------------ The provision for income taxes is based on earnings reported in the financial statements. Deferred income taxes are provided for temporary differences between financial assets and liabilities and those reported for income tax purposes. 23 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 2. Summary Of Significant Accounting Policies (Continued) Net Loss Per Common Share ------------------------- Net loss per common share is computed based upon the weighted average number of common shares outstanding during the period. The Company implemented Statement of Financial Accounting Standards (SFAS) No. 128, which requires presentation of basic and diluted earnings per share amounts and a reconciliation of the respective calculations. The Company incurred a net loss for the fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000; therefore, all potential common shares are antidilutive and are not included in the calculation of diluted net loss per share. At December 30, 2001, December 31, 2000 and January 2, 2000, there were, respectively, 177,888, 206,151 and 80,713 restricted shares of common stock outstanding, issued pursuant to the Restaurant Operating Partner Program. Evaluation of Long-Lived Assets ------------------------------- In accordance with Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets," the Company evaluates the potential impairment of long-lived assets, including goodwill, and property and equipment on a restaurant-by-restaurant basis, based upon projections of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. At December 31,2000 based on that evaluation, the trends of operations of two restaurants indicated the undiscounted cash flows from their operations would be less than the carrying value of the long-lived assets of the two restaurants. As a result, during the fourth quarter of 2000, the carrying values were written down to the Company's estimates of fair value and an impairment charge of $1,980,116 related to the two restaurants was recorded. Fair value was estimated utilizing the best information available using estimates, judgments and projections. During fiscal years 2001, 2000 and 1999, the Company wrote off equipment with a net book value of $30,065, $52,126 and $41,400, respectively, which is included in depreciation and amortization within the statement of operations. The write-off resulted from the elimination of the operational usefulness for certain equipment and the identification of obsolete or no-longer-in-service equipment. Management believes no additional material impairment of these assets exists at December 30, 2001. Abandoned Site Costs -------------------- Abandoned site costs includes deferred site costs including legal, design and development costs for potential restaurant sites the Company is no longer pursuing. On March 2, 2001, the Company executed a lease modification agreement in connection with the proposed Silver Diner at Pentagon Row. The agreement in part preserved the Company's interest in the location until September 7, 2001. On March 30, 2001, the Company exercised its option to terminate the lease agreement. During fiscal 2000, the Company recorded $102,012 of abandoned site costs related to legal, architectural and design costs for the Pentagon Row site. During fiscal year 2001, abandoned site costs in connection with the lease termination agreement were $267,448. 24 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 2. Summary Of Significant Accounting Policies (Continued) Diner Closing Costs ------------------- On November 16, 2001, the Company entered into a lease termination agreement to close its diner in Towson, Maryland. The Company incurred $295,726 of expense in connection with terminating its lease and closing the diner. These expenses were offset by a write-off of $186,986 of deferred rent related to the Towson diner. Stock-Based Compensation ------------------------ Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on fair value of the equity instrument awarded (see Note 12). The Company has chosen to continue to account for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees, and Related Interpretations." Accordingly, compensation costs for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount the employee must pay to acquire the stock. Reclassification ---------------- Certain prior year balances have been reclassified to conform to the 2001 presentation. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 3. Proceeds from Fire Insurance In March 2001, the Tysons Corner Silver Diner sustained property damage resulting from a fire. The Company received insurance proceeds to repair the damaged property and was reimbursed for lost income, net of expenses, during the period the diner was closed for repairs, in the amount of $114,098. 4. Acquisition of Minority Interest in Silver Diner Limited Partnership On June 13, 1996, the Company purchased all of the limited partnership interests in Silver Diner Limited Partnership (SDLP) from the original investors for $2,472,000 and 84,000 warrants (New Warrants) to purchase common stock at $8.00 per share. The New Warrants were exercisable until the earlier of 30 days following a public offering of common stock or January 31, 1998. The acquisition was accounted for under the purchase method and the entire cost of the transaction, $2.8 million, has been allocated to goodwill based on the Company's estimate that the fair value of the tangible assets acquired approximates book value. The goodwill is being amortized on a straight-line basis over 15 years. Amortization expense related to goodwill is $185,000 in fiscal years 2001, 2000 and 1999. 25 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 5. Property, Equipment and Improvements The major components of property, equipment and improvements are as follows: December 30, December 31, 2001 2000 ------------ ------------ Land $ 1,737,655 $ 1,737,655 Buildings and leasehold improvements 11,648,642 11,580,836 Furniture, fixtures and equipment 6,008,395 5,819,627 Deferred lease costs 883,337 883,680 ------------ ------------ 20,278,787 20,021,798 ------------ ------------ Less accumulated depreciation and amortization 7,036,242 5,802,085 ------------ ------------ $ 13,241,787 $ 14,219,713 ============ ============ Depreciation expense was $1,287,032, $1,344,247 and $1,269,055 for fiscal 2001, 2000 and 1999, respectively. 6. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following: December 30, December 31, 2001 2000 ------------ ------------ Trade payables $ 1,235,364 $ 1,561,715 Payroll and related taxes 671,121 612,595 Sales and use taxes 211,860 210,724 ------------ ------------ $ 2,118,345 $ 2,385,034 ============ ============ 7. Credit Facilities Loan Agreement -------------- In October 1999, the Company entered into a loan agreement with its lead bank to extend a $3,000,000 credit facility bearing interest at the rate of prime + .50% (5.25% at December 30, 2001). The agreement was amended in May 2000 and a replacement agreement was executed. During 2000, the Company borrowed $1,000,000 to finance development and construction of new restaurants. During 2001, the Company borrowed $1,500,000 to finance working capital requirements. The $1,000,000 credit facility is payable in monthly interest-only installments through December 2001 and in principal and interest installments thereafter through December 2007. The $1,500,000 credit facility is payable in monthly interest-only installments through December 2002 and in principal and interest installments thereafter through December 2008. The credit facility is collateralized by equipment and inventory of the Company. For the fiscal years ended December 30, 2001 and December 31, 2001, the Company incurred $173,574 and $61,945, respectively, in interest expense related to the credit facility 26 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 7. Credit Facilities (Continued) Loan Agreement (Continued) -------------- The Company may only draw additional funds to the extent it continues to remain in compliance with the facility's debt service coverage requirements. As of December 30, 2001, the Company is not in compliance with the debt service coverage requirements. However, the Company's failure to maintain the debt service coverage ratio for any quarter including the quarter ended December 30, 2001, shall not be a default under the loan agreement, if, during the immediately succeeding quarter, the Company achieves a material improvement in the debt service coverage ratio and demonstrates a reasonable prospect of achieving the debt service coverage ratio by the beginning of the next quarter. Note Payable ------------ In June 1997, the Company entered into a note agreement in the amount of $267,000 with a bank to purchase a parcel of land from the Company's president. The principal balance of the note, originally due in June 1999, was extended through June 2000. In July 2000, the note was extended through June 2003. Interest was paid monthly at an annual rate of 9.25% through July 2000. In August 2000, the Company began paying principal in the amount of $1,483 monthly plus interest at the prime rate (4.75% at December 30, 2001). The note is collateralized by the land purchased. The Company incurred $17,581, $24,018 and $23,826 in interest expense for fiscal 2001, 2000 and 1999, respectively. Aggregate maturities of credit facilities for the five years following December 30, 2001 are as follows: Fiscal years 2002 $ 184,466 2003 640,650 2004 416,667 2005 416,667 2006 416,667 8. Notes Receivable During 1997, the Company entered into note agreements totaling $132,000 with an outside party, which owns and maintains the jukeboxes in four Silver Diner units. The Company receives principal and interest payments on these notes on a monthly basis. The outstanding balance, classified as deferred charges and other, was $80,251 and $87,355 at December 30, 2001 and December 31, 2000. Principal payments are based on the amount of monthly cash flow generated by the jukeboxes, net of interest calculated at a rate of 9% annually. For fiscal years 2001, 2000 and 1999, the Company has received $7,104, $10,544 and $15,830 in principal payments, respectively, and $7,128, $8,802 and $11,587 in interest income, respectively. 27 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 9. Related Party Transactions Silver Diner Potomac Mills, Inc. -------------------------------- The Company leases the diner at Potomac Mills pursuant to two lease agreements with Silver Diner Potomac Mills, Inc., a corporation wholly-owned by the president of the Company. The leases expire October 14, 2011 and include annual CPI adjustments to base rent and percentage rent based on gross receipts. The amount of property leased was reduced in 1997 by the land purchase described in Note 7. For the fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000, occupancy costs include $515,050, $356,000 and $360,000, respectively, in rent and related pass-through costs associated with the leases. Construction and Real Estate Consulting and Management Services --------------------------------------------------------------- The Company has from time to time entered into contracts with a Director of the Company and certain affiliates of the Director to provide construction, real estate consulting and real estate management services to the Company. During fiscal years ended December 30, 2001 and December 31, 2000 the Company incurred costs of $193,191 and $1,050,648, respectively, for the construction of the Virginia Beach and Lakeforest Mall locations and for renovation of existing diners. During fiscal years 2001 and 2000, $0 and $5,400, was paid, respectively, for real estate consulting services. In addition, the Company paid an affiliate of the Director, which manages the real estate operations for the Merrifield Silver Diner, $210,259 and $189,359, during fiscal 2001 and 2000, respectively, in rent and real estate taxes. Keyman Life Insurance --------------------- The Company is paying premiums for life insurance policies owned by two officers. Expenses of $99,976, $85,362 and $84,596 for 2001, 2000 and 1999, respectively consists of premiums paid less the cash surrender value of the policies. Due from Related Parties ------------------------ In connection with a 1998 employment continuity agreement, the Company made a $100,000 loan to an officer of the Company. The note, collateralized by the Company's common stock owned by the officer, bears interest at 5.25%. The loan and accrued interest is to be repaid by the officer through the application of annual bonuses in the amount of $20,000, plus accrued interest, by the officer over a five-year period The balance due at December 30, 2001 and December 31, 2000 was $40,000 and $60,000, respectively. 10. Commitments and Contingencies Operating Leases ---------------- The Company leases restaurant land and buildings under noncancelable operating leases with terms expiring at dates through 2017. Certain of these leases are with related parties (see Note 9). These leases include minimum lease payments, reimbursable operating costs and real estate taxes. Also, certain of these leases contain renewal options for a maximum of 20 years beyond the original term, have provisions for additional rent based on sales at the individual locations and annual increases based on the consumer price index. The leases provide for certain rent holidays and escalations in payments over the lease terms. The effect of the holidays and escala- 28 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 10. Commitments and Contingencies (Continued) Operating Leases (Continued) ---------------- tions has been reflected in rent expense on a straight-line basis over the initial lease terms. The excess of expense over cash payments has been reflected in the consolidated financial statements as deferred rent. Future minimum annual lease payments as of December 30, 2001 are: 2002 $ 2,476,087 2003 2,529,132 2004 2,567,868 2005 2,670,315 2006 2,544,989 Thereafter 10,427,143 Rent expense under the leases for fiscal years 2001, 2000 and 1999 was approximately $2,701,000, $2,382,000 and $2,296,000, respectively. Employment Continuity Agreements -------------------------------- SDDI has entered into employment continuity agreements with certain executives. The agreements are for one to five years in length and provide for minimum salary levels, as adjusted for minimum percentage increases and include incentive bonuses based on specified management goals. The aggregate minimum commitment for future salaries, excluding bonuses, as of December 30, 2001 is approximately $1,080,000. 11. Income Taxes At December 30, 2001, the Company has a net operating loss carryforward of approximately $9,059,000 for income tax purposes that expires in 2009 through 2021, which may be used to reduce future income tax expense and tax liabilities. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: December 30, December 31, 2001 2000 ------------ ------------ Net operating loss carryforwards $ 3,602,485 $ 3,399,479 Book over (under) tax depreciation/ Amortization 223,207 88,011 Deferred rent 457,718 536,501 ------------ ------------ Deferred tax assets 4,283,410 4,023,991 Less: valuation allowance (4,283,410) (4,023,991) ------------ ------------ Net deferred tax asset $ - $ - ============ ============ 29 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 11. Income Taxes (Continued) As a result of the Company's history of cumulative losses, a valuation allowance equal to the calculated deferred tax benefit has been recorded at December 30, 2001 and December 31, 2000, respectively. 12. Stock Compensation Plans The Company has the following stock-based compensation plans: 1996 Employee Stock Purchase Plan --------------------------------- The 1996 Employee Stock Purchase Plan was adopted in September 1996 by the Company's Board of Directors and approved by shareholders in June 1997, and continues in effect for a term of 10 years. The Company is authorized to issue 300,000 shares under the plan to employees who customarily work at least 20 hours per week and more than five months in a calendar year, and who have been continuously employed by the Company for six months. Under the terms of the plan, employees can choose each quarter to have up to 10 percent of their base earnings (not to exceed $21,250 annually) withheld to purchase the Company's common stock. The purchase price of the stock is 85% of the lower of its beginning-of-quarter or end-of-quarter market price. The Company implemented the plan in August 1998. During fiscal 2001, 2000 and 1999, 38,279 shares, 27,744 shares and 15,050 shares, respectively, were issued under the plan. 1996 Stock Option Plan ---------------------- The 1996 Stock Option Plan was adopted by the Company's Board of Directors in September 1996 and approved by the shareholders in June 1997, and continues in effect for 10 years. The plan provides for incentive stock options and nonqualified stock options. Options may be granted to any director, officer, key employee or outside consultant of the Company. Terms of the options are set by the Company's Board of Directors and range from five to ten years, with the ability to accelerate vesting upon the Company achieving certain performance measurements, as predetermined by the Board. The Company has reserved 1,750,000 shares of common stock for issuance under the plan. A total of 141,500, 163,000 and 600,400 options were granted under this plan during fiscal 2001, 2000 and 1999, respectively. A total of 264,800 options are outstanding under the plan at December 30, 2001. Restaurant Operating Partners and Restaurant Management Team Programs --------------------------------------------------------------------- The Restaurant Operating Partner and Restaurant Management Team Programs were adopted by the Company's Board of Directors in December 1996 and implemented in fiscal year 1997. The programs provide for general managers (Operating Partners) and the store manager team (Store Managers) of each of the Company's restaurants to share in the profits of their restaurant and to participate as equity owners of the Company. To participate in the program, employees who became Operating Partners prior to January 4, 1999 were required to make an initial investment in discounted Company common stock, which may not be sold or otherwise transferred by the Operating Partner for a period of five years from the date of purchase. Should the 30 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 12. Stock Compensation Plans (Continued) Restaurant Operating Partners and Restaurant Management Team ------------------------------------------------------------ Programs (Continued) -------- Operating Partner's employment terminate for any reason other than death or disability, the company has the right to repurchase the stock from the Operating Partner for the amount of his or her investment. Employees who become Operating Partners between January 4, 1999 and December 31, 2001 are required to purchase 8,000 shares of Company common stock at market value and could potentially receive an annual award up to 10,000 shares of common stock, dependent upon achievement of performance criteria as established and evaluated by the Board. During 2001, the Board elected to pay $60,500 in cash awards in lieu of stock to certain operating partners. On December 13, 2001, the Board amended the program such that employees who become Operating Partners beginning January 1, 2002 and thereafter are required to purchase 5,000 shares of Company common stock at market value and can potentially receive an annual award of a $5,000 contribution into a new 401(k) program and 3,000 shares of common stock, dependent upon achievement of performance criteria as established and evaluated by the Board. The 401(k) program will be established effective January 1, 2003. The first contribution to the 401 (k) program will consist of cash awards otherwise payable as of December 31, 2002. The plan also provided for annual restricted commons stock awards to Store Managers. In 1999, the Company determined that no future stock awards would be made to Store Managers subsequent to the January 1, 1999 stock award issuances. For employees who became Operating Partners prior to January 4, 1999, stock awarded at the end of the first year generally vests after the fourth anniversary of the award date. For each year thereafter, stock awards generally vest after the third anniversary of the award date. For employees who became Operating Partners between January 4, 1999 and December 31, 2001, stock awarded at the end of the first year vests after the fifth anniversary of the award date, stock awarded at the end of the second year vests after the fourth anniversary of the award date, and stock awarded in each subsequent year vests after the third anniversary of each award date. For employees who became Operating Partners beginning January 1, 2002 and thereafter, stock awarded will vest in the same manner as the existing plan. However, for cash awards contributed into the 401(k) program, employees become fully vested after having performed five full years of service consisting of five full calendar years during which the employee works at least 1,000 hours starting with (i) the calendar year in which the plan is first established or (ii) if later, the calendar year in which the individual is first hired. The stock awards under these plans are awarded at the discretion of the Company's Board of Directors. The Company has reserved 415,000 shares of common stock for issuance under the plan. No shares were issued under the plan during fiscal years 2001, 2000 and 1999. Associate Ownership and Profit Sharing Plan--Year 2000 ------------------------------------------------------ The Associate Ownership and Profit Sharing Plan for the Year 2000, which was adopted by the Company's Board of Directors in December 1999 for implementation in fiscal year 2000 and amended in March 2001, provides for associates of each of the Company's restaurants to share in the profits of their restaurant and to participate as equity owners of the Company. All associates employed by the Company as of January 1, 2000 31 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 12. Stock Compensation Plans (Continued) Associate Ownership and Profit Sharing Plan--Year 2000 (Continued) ------------------------------------------------------ were eligible to receive 100 shares of common stock if still employed by the Company on January 1, 2001. In addition, associates were also eligible to receive shares of common stock from each store's profit pools based on the numbers of hours worked by each employee during fiscal year 2000, with associates working 749 hours or less receiving no profit sharing; associates working between 750 and 1,499 hours receiving a one-half portion and associates working 1,500 hours or more receiving a full profit sharing portion. The Company has reserved 100,000 shares of common stock for issuance under the plan. The Company issued 79,536 shares of common stock on April 23, 2001 to participating employees. Associate Ownership and Profit Sharing Plan--Year 2001 ------------------------------------------------------ The Associate Ownership and Profit Sharing Plan for the year 2001 was adopted by the Company's Board of Directors in December 2000 for implementation in fiscal year 2001. As amended in March 2001, it provided for associates of each of the Company's restaurants to share in the profits of their restaurant. Eligible associates would receive common stock from each store's profit pool based on the numbers of hours worked by each associate during fiscal year 2001, with associates working 749 hours or less receiving no profit sharing; associates working between 750 and 1,499 hours receiving a one-half portion and associates working 1,500 hours or more receiving a full profit sharing portion. Each associate was required to be employed by the Company on the last business day of fiscal year 2001 in order to participate in the profit sharing. Pursuant to resolutions adopted by the Company's Board of Directors on December 13, 2001, the Company will pay the participants in cash rather than in shares of common stock. As of December 30, 2001, $37,700 has been accrued. 1996 Consultant Stock Option and Stock Purchase Plan ---------------------------------------------------- The 1996 Consultant Stock Option and Stock Purchase Plan was adopted by the Company's Board of Directors in September 1996, and continues in effect for a term of 10 years. The plan provides for the Company's consultants to purchase (i) options to purchase shares of common stock in the Company or (ii) shares of common stock in the Company, and apply a portion of the fees otherwise payable to them by the Company to pay the purchase price for such options or common stock. Options under the plan are granted with an exercise price at the fair market value of the common stock on the first day of each calendar quarter, and are exercisable at any time in whole or in part for a period of three years from date of grant and vest immediately. The Company records the transactions at the fair value of the options granted to the consultant, using the Black-Scholes option-pricing model. The Company has reserved 100,000 shares of common stock for issuance under the plan. During fiscal years 2001, 2000 and 1999, no options were issued to consultants under this plan. There are no options outstanding under the plan at December 30, 2001. The 1996 Non-Employee Director Stock Option Plan ------------------------------------------------ The 1996 Non-Employee Director Stock Option Plan was adopted by the Company's Board of Directors in September 1996 and approved by shareholders in June 1997, and continues in effect for 10 years. Under the plan, as originally adopted, each non-employee director was granted an option to purchase 1,000 shares of the Company's common stock at fair market value on the first day of each calendar quarter. The plan originally 32 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 12. Stock Compensation Plans (Continued) The 1996 Non-Employee Director Stock Option Plan (Continued) ------------------------------------------------ provided that options granted under the plan would be exercisable at any time in whole or in part for a period of three years from date of grant, and would vest immediately. The plan was subsequently amended in 1999 to provide that each non-employee director shall be granted an option to purchase 4,000 shares of the Company's common stock at fair market value on the date of grant. The options are exercisable at any time in whole or in part commencing one year after the date of grant, and expire ten years after the date of grant. The Company has reserved 150,000 share of common stock for issuance under the plan. A total of 20,000, 20,000 and 27,000 options were granted under this plan during fiscal years 2001, 2000 and 1999, respectively. There are 5,000 options outstanding under the plan at December 30, 2001. Second Amended and Restated 1991 Stock Option Plan -------------------------------------------------- The Second Amended and Restated 1991 Stock Option Plan for directors, officers, key employees and consultants provides for incentive and non-qualified stock options. The options generally expire 10 years from the date of grant and are exercisable over the period stated in each option. The Board of Directors determines the option price (not to be less than fair market value for incentive options) at the date of grant. Options under the plan are exercisable in full if the Company executes a merger agreement or consolidates with another company, if more than 50% of the Company's voting stock is acquired by another person or group in an other than capital stock transaction, or if Robert T. Giaimo ceases to President of the Company. The plan expired in 2001, but all remaining options will remain outstanding for the balance of their terms. At December 30, 2001, 193,276 options are outstanding and no options are available for future grants under the plan. Second Amended and Restated Earned Ownership Plan ------------------------------------------------- The Second Amended and Restated Earned Ownership Plan for key employees provides for non-qualified stock options. The options generally expire 10 years from the date of grant, have an option price of $0.0003 and vest 20% at date of grant and 20% on each of the next four anniversaries following the grant date. Options under the plan are exercisable in full if the Company executes a merger agreement or consolidates with another company, if more than 50% of the Company's voting stock is acquired by another person or group in an other than capital stock transaction, or if Robert T. Giaimo ceases to be President of the Company. The plan has no fixed expiration date. At December 30, 2001, 34,271 options are outstanding and no options are available for future grants under the plan. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Compensation cost charged against income under the Company's plans was $129,026, $160,142 and $108,627 for the fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000, respectively. Had compensation cost been determined in accordance with FASB Statement No. 123, the Company's net loss and net loss per share would have been the pro forma amounts indicated below: 33 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 12. Stock Compensation Plans (Continued)

Options granted during the fiscal year ended December 30, 2001 were issued pursuant to the 1996 Non-Employee Director Stock Option Plan and the 1996 Stock Option Plan. The fair value of each option grant under these plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0.0% and expected volatility of 140.94%. In addition, in estimating the fair value of the options granted under the 1996 Non-Employee Director Stock Option Plan and the 1996 Stock Option Plan, the following weighted-average assumptions were used: risk free interest rate of 4.88% and an expected life of 10 years. Options granted during the year ended December 31, 2000 were issued pursuant to the 1996 Non-Employee Director Stock Option Plan and the 1996 Stock Option Plan. The fair value of each option grant under these plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumption: dividend yield of 0.0% and expected volatility of 48.33%. In addition, in estimating the fair value of the options granted under the 1996 Non-Employee Director Stock Option Plan and the 1996 Stock Option Plan, the following weighted-average assumptions were used: risk free interest rate of 6% and an expected life ranging from 3 to 10 years. Options granted during the year ended January 2, 2000 were issued pursuant to the 1996 Non-Employee Director Stock Option Plan and the 1996 Stock Option Plan. The fair value of each option grant under these plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumption: dividend yield of 0.0% and expected volatility of 46.48%. In addition, in estimating the fair value of the options granted under the 1996 Non-Employee Director Stock Option Plan and the 1996 Stock Option Plan, the following weighted-average assumptions were used: risk free interest rate of 6% and an expected life ranging from 3 to 10 years. 34 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 12. Stock Compensation Plans (Continued) A summary of the status of the Company's stock option plans as of December 30, 2001, December 31, 2000 and January 2, 2000 and changes during the years ended on these dates is:

35 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 12. Stock Compensation Plans (Continued) The following table summarizes information about stock options outstanding at December 30, 2001.

13. Employee Benefit Plan The Company has a plan to provide retirement benefits under the provision of Section 401(k) of the Internal Revenue Code (the "Plan") for all employees who have completed one year of service and meet other criteria as described in the Plan Document. Benefits under the Plan are limited to the assets of the Plan. The Company may elect for any plan year to make a matching contribution of up to 100% of the employee's contribution, of the first 6% of the employee's compensation, as defined in the Plan Document. Employees may elect to contribute up to 15% of their eligible compensation on a pretax basis up to a prescribed maximum. During fiscal years 2001, 2000 and 1999, the Company made no contributions to the Plan. 36 Silver Diner, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 30, 2001, December 31, 2000 and January 2, 2000 14. Quarterly Results of Operations (Unaudited) The following table summarized the consolidated quarterly results of operations for fiscal years 2001 and 2000: Year Ended December 30, 2001 ---------------------------- Quarters Ended:

Year Ended December 31, 2000 ---------------------------- Quarters Ended:

37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE PART III Item 10. Directors and Executive Officers of the Company The Directors, Executive Officers and key employees of the Company are as follows:

ROBERT T. GIAIMO has been the Company's Chairman of the Board, President, Chief Executive Officer and Treasurer since March 1996. In 1987 Mr. Giaimo developed and popularized the Silver Diner concept with Ype Von Hengst after conducting a one-year national tour of diner-style restaurants. Mr. Giaimo has been the Co-Founder, Director, President, Chief Executive Officer and Treasurer of Silver Diner Development, Inc. since its inception in 1987. Mr. Giaimo was president, chief executive officer and director of Monolith Enterprises, Inc. ("Monolith") from 1971 to January 1987. From 1972 through 1976, Mr. Giaimo co-founded and operated, through Monolith, Blimpies Restaurant in Georgetown. In 1977, Mr. Giaimo co-founded and operated, through Monolith, The American Cafe restaurant, an innovative, award-winning restaurant chain that was one of the first restaurants to promote "American cuisine" and helped popularize the croissant sandwich. In 1985, Mr. Giaimo sold The American Cafe to W.R. Grace & Co. Mr. Giaimo graduated from the Business School of Georgetown University in 1974 and Harvard University's Smaller Company Management Program in 1982. He is a member of the Young President's Organization and serves as a Director and Co-chairman of Development. In 1993, Mr. Giaimo received an "Entrepreneur of the Year" award from Inc. Magazine in conjunction with Ernst & Young and Merrill Lynch. Mr. Giaimo is married to Catherine Britton. Mr. Giaimo currently serves on the board of directors of Panera Bread Co., a publicly traded company headquartered in St. Louis, Missouri, with annual sales in excess of $200 million. CATHERINE BRITTON has been a Director since March 1996 and was a director of Silver Diner Development, Inc. from July 1995 until March 1996. She assisted with marketing and design of Silver Diner restaurants and has been involved with menu development and concept evolution since Silver Diner Development, Inc.'s inception. She also participated extensively in the development of Silver Diner restaurants. Ms. Britton graduated from Georgetown University in 1975, receiving a Bachelor of Arts degree in Philosophy. Ms. Britton earned a Masters Degree in Special Education from George Washington University in 1978. Ms. Britton is married to Robert T. Giaimo. MICHAEL COLLIER has been a Director since March 1999. Mr. Collier is the President of Uniwest Group, Inc. and Uniwest Construction, Inc., companies which are in the real estate development and general 38 contracting business and serve as the developer and general contractor for the Company's diners. He is also President of Atlantic Environmental Services, Incorporated, a full-service environmental company. YPE VON HENGST has been a Director, Vice President, Executive Chef and Secretary since March 1996 and co-founder, director, vice president of culinary operations, and executive chef of Silver Diner Development, Inc. since 1987. Mr. Hengst was a director of operations of "Dominiques" restaurant in Washington, D.C. from May through September 1987. From 1984 to 1987, Mr. Hengst was corporate executive chef and director for Food Service for The American Cafe and was responsible for the central kitchen and bakeshop, menu changes, and food preparation for all seven American Cafe restaurants. From 1981 to 1984, Mr. Hengst was corporate executive chef for Restaurant Associates in New York, New York, where he supervised over fifteen diverse full-service restaurants. From 1976 to 1981, Mr. Hengst held executive chef positions in Charlotte, North Carolina, Cleveland, Ohio, Houston, Texas, and New York, New York. Prior to 1976, Mr. Hengst worked as a chef in Europe. EDWARD H. KAPLAN has been a Director since March 1996 and was a director of Silver Diner Development, Inc. from 1987 until March 1996. He is a real estate developer and investor and has served since 1983 as a Director of Palmer National Bank, Washington, D.C. and subsequently, its successor, George Mason Bankshares until April 2, 1998, when George Mason merged into United Bankshares and now serves on the board of directors of United Bank of Virginia. Mr. Kaplan received his B.A. from the University of Pennsylvania, Wharton School in 1961. He currently is a member of the Maryland Public Television Commission and the Maryland Public Television Foundation board of directors. LOUIS P. NEEB has been a Director since March 1996 and was a director of Silver Diner Development, Inc. from 1994 until March 1996. Mr. Neeb is currently President of Neeb Enterprises, Inc., a corporation that provides management consulting services and Chairman of the Board of Mexican Restaurants, Inc. He was the president and chief executive officer of The Spaghetti Warehouse, Inc. from July 1991 until January 1994 and of Geest Food USA from 1989 until 1991. From 1982 until 1987, he served as president and chief executive officer of Creative Food N Fun, a subsidiary of W.R. Grace & Co. From 1985 until 1987, he served as president and chief executive officer of a W.R. Grace & Co., affiliate; Taco Villa, Inc. Mr. Neeb was employed by The Pillsbury Company from 1973 until 1982. From 1980 to 1982, he served as an executive vice president of The Pillsbury Company and as chairman and chief executive officer of its affiliate, Burger King Corporation. In 1973, he was director of operations at Steak & Ale Restaurants, Inc., another affiliate of The Pillsbury Company. His leadership role with Steak & Ale Restaurants, Inc. continued until 1980, after serving as vice president of operations and eventually president and chief operating officer. Currently, Mr. Neeb serves as a director of CEC Entertainment and Franchise Finance Corporation of America, Inc., both publicly traded companies. Mr. Neeb received a BBA in marketing from the University of Notre Dame in 1961 and an MBA from George Washington University in 1969. CHARLES M. STEINER has been a Director since March 1996. Mr. Steiner was a director of Silver Diner Development, Inc. from 1987 until March 1996. He was the chief executive officer of Branch Group, Inc., an electric distributor. In 1975, Mr. Steiner founded IMARK, an electric cooperative, and in 1991 founded EDIC, a distribution insurance company. He is a former director and officer of the National Association of Electric Distributors (NAED). He received a B.B.A. in Accounting from the University of Pittsburgh in 1963. Mr. Steiner is currently a private investor. There is no family relationship between any of the Company's directors or officers except that Catherine Britton is the wife of Robert T. Giaimo. There are no arrangements between any director of the Company and any other person pursuant to which he was selected as a director. 39 NON-DIRECTOR EXECUTIVE OFFICER PATRICK MESKELL has been Executive Vice President, Operations, since May 2001. From January 1996 to May 2001 he held the position of Senior Vice President, Human Resources. Mr. Meskell was an independent consultant to institutions, specializing in the areas of risk management system design and implementation from 1988 to 1992 and Director of Organizational Development & Management & Operations Training for the Student Loan Marketing Association from 1992 to 1995. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE To the Company's knowledge, based solely upon a review of reports and other information furnished to it by its directors, officers, greater than 10% beneficial owners of the Company, and other persons subject to the reporting requirements (collectively, the "Reporting Persons"), all reports required to be filed by such Reporting Persons under Section 16(a) of the Securities Exchange Act of 1934, as amended, were duly filed during the year ended December 31, 2001, with one exception. Michael Collier, a director, exercised an option for 8,861 shares of Common Stock on August 6, 2001 but did not file a Form 4 during September 2001 reporting such exercise. A Form 4 covering this transaction was filed on February 15, 2002. Item 11. Executive Compensation The following table sets forth summary information concerning compensation paid by the Company to each of the Company's executive officers whose aggregate annual cash compensation exceeded $100,000 for fiscal year 2001. Summary Compensation Table

----------------------------- (1) Pursuant to resolutions unanimously approved by the Company's Board of Directors on December 19, 2001, Mr. Giaimo agreed to surrender for cancellation options for 400,000 shares exercisable at $1.2375 per share, expiring on December 14, 2003 and which would have become 100% exercisable at December 40 29, 2001. The Board agreed to grant Mr. Giaimo new options for 400,000 shares on July 31, 2002, which options will (i) have an exercise price equal to 110% of the fair market value of the shares on July 31, 2002 (or February 1, 2003, as applicable), (ii) be 100% vested on July 31, 2002 (or February 1, 2003, as applicable) and (iii) expire on July 30, 2007, provided that Mr. Giaimo has the right at any time prior to July 31, 2002 to elect, for federal income tax purposes, to delay until February 1, 2003 issuance of a portion of the new options to be issued to him. (2) Represents the annual premiums the Company paid on a $3,000,000 split dollar life insurance policy on the life of Mr. Giaimo. (3) Pursuant to resolutions unanimously approved by the Company's Board of Directors on December 19, 2001, Mr. Von Hengst agreed to surrender for cancellation options for an aggregate of 355,000 shares, as follows: (i) an option for 150,000 shares, which would have become 100% exercisable at $1.125 per share on December 29, 2001 and expiring on December 28, 2007: (ii) an option for 55,000 shares, exercisable at $0.625 per share on December 31, 2005 and expiring on December 15, 2008; and (iii) an option for 150,000 shares, exercisable at $1.00 per share, with 60% becoming exercisable on January 1, 2002, 80% on January 1, 2003 and 100% on January 1, 2004, and expiring on December 7, 2009. The Board agreed to grant Mr. Von Hengst new options for an aggregate 355,000 shares on July 31, 2002, which options will (i) have an exercise price equal to the fair market value of the shares on July 31, 2002 (or February 1, 2003, as applicable) and (ii) vest on the same dates and expire on the same dates as would have the previously-described canceled options, provided that Mr. Von Hengst has the right at any time prior to July 31, 2002 to elect, for federal income tax purposes, to delay until February 1, 2003 issuance of a portion of the new options to be issued to him. (4) Option was canceled pursuant to resolutions approved by the Company's Board of Directors on December 19, 2001, as described in Note 3. (5) Represents the annual premiums the Company paid on a $1,500,000 split dollar life insurance policy on the life of Mr. Von Hengst. (6) Pursuant to resolutions unanimously approved by the Company's Board of Directors on December 19, 2001, Mr. Meskell agreed to surrender for cancellation options for an aggregate of 430,012 shares as follows: (i) an option for 100,000 shares, which would have become 100% exercisable at $1.125 per share on December 29, 2001 and expiring on December 28, 2007; (ii) an option for 55,000 shares, exercisable at $0.625 per share on December 31, 2005 and expiring on December 15, 2008; (iii) an option for 200,000 shares, exercisable at $1.00 per share, with 60% becoming exercisable on January 1, 2002, 80% on January 1, 2003 and 100% on January 1, 2004 and expiring on December 7, 2009; and (iv) an option for 75,012 shares exercisable at $4.05 per share on the date of cancellation and expiring on December 30, 2005. The Board agreed to grant Mr. Meskell new options for an aggregate 430,012 shares on July 31, 2002, which options will (i) have an exercise price equal to the fair market value of the shares on July 31, 2002 (or February 1, 2003, as applicable) and (ii) vest on the same dates and expire on the same dates as would have the previously-described canceled options, provided that Mr. Meskell has the right at any time prior to July 31, 2002 to elect, for federal income tax purposes, to delay until February 1, 2003 issuance of a portion of the new options to be issued to him. (7) Option was canceled pursuant to resolutions approved by the Board of Directors on December 19, 2001 as described in Note 6. (8) Mr. Abbott acquired 100,000 shares in connection with his initial employment in March of 2000 by the Company, for an aggregate purchase price of $50,000, representing 50% of the fair market value of the 41 shares on March 24, 2000, i.e. 50% of $1.00 per share. Under the terms of Mr. Abbott's employment agreement, the Company had the right to buy back the shares at their purchase price within 60 days if Mr. Abbott terminated his employment with the Company during the first three years. Also, the Company had the right to apply up to 55,000 of the shares purchased by Mr. Abbott from the Company, at the original purchase price of $0.50 per share, to repay the outstanding balance on a non-interest bearing promissory note from Mr. Abbott to the Company in the amount of $32,500, if Mr. Abbott terminated his employment with the Company prior to December 31, 2001. The proceeds of the promissory note were used by Mr. Abbott to defray moving expenses. Following the termination of Mr. Abbott's employment by the Company on May 24, 2001, the Company elected not to purchase any of the foregoing shares and waived repayment by Mr. Abbott of any outstanding balance due under the foregoing promissory note. (9) Consists of an option to purchase 100,000 shares at $1.00 per share through March 23, 2010, which vested as follows: 30,000 shares on December 31, 2001, 20,000 shares on December 31, 2002, 20,000 shares on December 31, 2003, and 30,000 shares on December 31, 2004. The option expired on May 24, 2001, upon the termination of Mr. Abbott's employment on that date. (10) Upon the termination of Mr. Abbott's employment on May 24, 2001, the Company forgave the $32,500 promissory note referenced in note 8 above. (11) Mr. Abbott's employment terminated on May 24, 2001. Per the terms of his employment contract, Mr. Abbott's salary was continued until November 18, 2001. $72,115 of his salary was paid after the May 24, 2001 termination. STOCK OPTIONS No stock appreciation rights have been granted or are outstanding. No stock options were granted to the Company's executive officers during the year ended December 31, 2001. Pursuant to resolutions unanimously adopted by the Company's Board of Directors as of December 19, 2001, the Company has agreed to grant options to the following individuals on July 31, 2002, or on February 1, 2003, if the individual elects to defer the grant date of a portion of the options to enable the options to qualify for federal income tax purposes as incentive stock options, for the following number of shares: (i) Robert T. Giaimo: 400,000 shares; (ii) Ype Von Hengst: 355,000 shares; and (iii) Patrick Meskell: 430,012 shares. The Company agreed to grant these options, which are more fully described in Notes 1, 3 and 6 of the Summary Compensation Table included in this Proxy Statement, in connection with the cancellation of equal numbers of options held by the foregoing individuals. The following table provides information as to the outstanding options at December 30, 2001 held by the following executive officers. No stock appreciation rights are outstanding. 42 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES

BENEFIT PLANS The Company provides insurance benefits to its officers and other employees, including health, dental, and life insurance, subject to certain deductibles and co-payments by employees. EMPLOYMENT AGREEMENTS FOUNDER'S EMPLOYMENT AGREEMENT. The Company and Robert T. Giaimo entered into a Founder's Employment Agreement on August 28, 1995, effective as of March 27, 1996, and amended on November 9, 1998. The base compensation under the Founder's Employment Agreement is $240,000 per annum, increased annually at a minimum amount equal to the increase in the Consumer Price Index for the Washington, D.C., Maryland, and Virginia metropolitan area (the "Base Compensation"). Benefits under the agreement include four weeks paid vacation, health and dental insurance, life and disability insurance, director and officer liability insurance and a $3,000,000 "split-dollar" life insurance agreement. Perquisites include an up to $500 per month car allowance, an education fee of $1,000 per month, and free shift meals. The Founder's Employment Agreement had an initial term of five years and, starting on its first anniversary, was renewable for five years from each anniversary. If at any such anniversary the Board does not renew, the agreement will expire five years from such anniversary (the five-year period beginning on such anniversary is referred to as the "Expiration Term"). The Founder's Employment Agreement was renewed on December 15, 1999 and, as renewed, expires in March 2005. During the Expiration Term, Mr. Giaimo may, upon at least sixty days prior written notice, terminate the Founder's Employment Agreement immediately and such termination shall be an "Involuntary Resignation." If an Involuntary Resignation occurs, Mr. Giaimo shall be entitled to a severance amount equal to: (i) his base compensation, including all bonuses, for the immediately preceding fiscal year (the "Annual Amount"), (ii) divided by 365, and (iii) multiplied by the number of days remaining in the Expiration Term, provided that the severance amount paid to Mr. Giaimo due to an Involuntary Resignation shall not exceed three times the Annual Amount. 43 Mr. Giaimo may also terminate the agreement by reason of a material breach by the Company (as specified in the Founder's Employment Agreement). If Mr. Giaimo terminates the Founder's Employment Agreement within the first five years of the agreement for a material breach by the Company, he shall be entitled to receive the Annual Amount multiplied by ten. If the material breach occurs after the first five years of the agreement, the Annual Amount shall be multiplied by five. Additionally, if a termination for a material breach occurs prior to the earlier of (i) the end of the first five years of the agreement, or (ii) the completion of an underwritten public offering of the Company's Shares from which it realizes $15,000,000, then the Company shall be obligated, at the employee's option, to purchase all of Mr. Giaimo's Shares at fair market value. The Company may terminate the agreement upon the death or disability of Mr. Giaimo or for cause. If terminated for death, the Mr. Giaimo's estate shall be entitled to receive all accrued compensation plus a severance amount equal to one year's Base Compensation (as adjusted to the date of death). The decedent's family will also be provided health insurance for one year from date of death. If terminated for disability, Mr. Giaimo shall be entitled to receive all accrued compensation plus a severance amount equal to his then current Base Compensation for a period of five years, but reduced dollar for dollar by all amounts received by the employee under disability insurance. If terminated for cause, Mr. Giaimo shall be entitled to receive all accrued compensation. EXECUTIVE EMPLOYMENT AGREEMENT. The Company and Ype Von Hengst entered into an Employment Agreement effective as of November 9, 1998. The base salary under the Employment Agreement is $125,000 per annum through December 31, 1998, $150,000 per annum from January 1, 1999 through December 31, 1999, and increased annually at a minimum amount equal to the increase in the Consumer Price Index for the Washington, D.C., Maryland, and Virginia metropolitan area beginning January 1, 2000 (the "Base Salary"). Benefits under the agreement include health and dental insurance, life and disability insurance, and participation in stock options, bonus plans and other benefit plans customarily made available to executive employees of the Company. In consideration of Mr. Von Hengst entering into the agreement, the Company extended a $100,000 non-recourse loan (the "Loan") to Mr. Von Hengst, subject to his execution of a promissory note and secured by his 182,881 Shares in the Company (the "Collateral"). Beginning December 31, 1999, Mr. Von Hengst is also entitled to an annual bonus of an amount equal to $20,000 plus accrued and unpaid interest on the Loan (the "Bonus"). The Bonus is not paid directly to Mr. Von Hengst, but is applied to repay the outstanding principal and interest under the Loan. The term of the Employment Agreement is from November 9, 1998 to December 31, 2003. Under the Employment Agreement, Mr. Von Hengst agrees, except as required by the performance of his duties, not to disclose or use any Confidential Information of the Company or its affiliates, which is defined as all information disclosed to him or known by him as a consequence of or through his employment with the Company where such information is not generally known in the trade or industry and where such information refers or relates in any manner to the business activities of the Company. During the term of the Employment Agreement and for a period of twelve consecutive months after the termination of the Employment Agreement, Mr. Von Hengst agrees, except as required by the performance of his duties, not to induce, attempt to induce, counsel, advise, solicit or encourage any person to leave the employ of the Company or, with respect to any person who had left the employ of the Company within the previous six months, not to engage in any of the above activities in connection with such former employee's acceptance of employment with any person or entity other than the Company. For a period of twelve consecutive months after the termination of the Employment Agreement for any reason other than a termination without cause, Mr. Von Hengst agrees not to (i) engage in the "diner business" anywhere in the United States; (ii) engage in competition with the Company within a 10 mile radius of any Company owned or franchised facility or planned facility; or (iii) directly or indirectly, either individually or in any other capacity, work for, consult with or otherwise assist Movenpick, its parent corporation, affiliates and subsidiaries, in the development of "diners." Mr. Von Hengst may terminate his Employment Agreement at any time upon sixty days written notice ("Voluntary Resignation"). Upon receipt of such notice, the Company may elect to relieve Mr. Von Hengst of any or all of his duties or terminate him immediately. The Company may terminate the agreement for cause (as that term is 44 defined in the Employment Agreement), upon the death or disability of Mr. Von Hengst, or without cause. If the agreement is terminated by Voluntary Resignation or for cause, (i) the Company's obligation to pay the Base Salary, Bonus and medical benefits shall cease immediately on the date of termination; and (ii) the principal balance under the Loan shall be extinguished, and all right, title and interest in the Collateral shall vest immediately with the Company. If the agreement is terminated for death (i) the Company's obligation to pay the Base Salary, Bonus and medical benefits shall cease immediately on the date of termination; and (ii) the principal balance under the Loan shall be extinguished, and all right, title and interest in the Collateral shall vest with Mr. Von Hengst (or his estate or heirs). If terminated for disability, defined as the inability to perform the essential function of the job, with or without accommodation, for at least 180 consecutive days, (i) Mr. Von Hengst's right to the Base Salary and Bonus shall cease on the date of termination, (ii) the Company shall make the medical benefits available to Mr. Von Hengst for a period of eighteen months following termination, the costs of which shall be paid by the Company for the first twelve months of such period; and (iii) the principal balance under the Loan shall be extinguished, and all right, title and interest in the Collateral shall vest with Mr. Von Hengst (or his estate or heirs). If terminated without cause, (i) Mr. Von Hengst shall be entitled to the Base Salary, Bonus, and medical benefits for a one year period commencing with the date of termination; and (ii) the principal balance under the Loan shall be extinguished, and all right, title and interest in the Collateral shall vest with Mr. Von Hengst (or his estate or heirs). OFFICER EMPLOYMENT AGREEMENTS. The Company has an employment agreement with Patrick Meskell through March 4, 2004. Although the agreement was not amended, Mr. Meskell was promoted from Senior Vice President, Human Resources, to Executive Vice President, Operations with an increase in his base salary to $150,000, with future adjustments to his base salary to be determined by the Board. In addition, he is entitled to (i) participate in bonus and stock option plans made available to executive employees of the Company; (ii) receive a $500 per month car allowance, (iii) receive life insurance coverage of $500,000; (iv) participate in group health and dental plans generally offered to employees of the Company; (v) receive long term disability insurance coverage in amount of approximately 60% of the employee's base salary per month, subject to a 90 day initial waiting period; (vi) receive three weeks paid vacation that does not accrue or carry over from one year to the next; and (vii) receive sick leave and other benefits, in accordance with the Company's policies for its executives. The employee has a confidentiality and non-competition agreement with the Company. The agreement is terminable at any time by either party thereto. However, if the Company terminates the agreement, the Company will pay the employee all base salary earned but unpaid on the date of resignation plus three months base salary. If the employee resigns and provides at least three months notice, the Company will pay the employee all base salary earned but unpaid on the date of resignation plus three months base salary payable after resignation on the same schedule as the salary that was paid before resignation. If the employee resigns without providing at least three months prior notice, (i) all stock options and all stock purchase rights granted under the Stock Option Plan to the employee (a) subsequent to March 1, 1999, (b) on December 15, 1997, and (c) to Mr. Meskell on December 29, 1997 will be terminated on the date of resignation; and (ii) the employee will sell and the Company will purchase all Shares of the Company acquired by the employee pursuant to stock options or stock purchase rights within six months prior to the date of resignation at a purchase price equal to the price paid for the Shares. NON-EMPLOYEE DIRECTOR COMPENSATION During the year ended December 31, 2001, each of the Company's non-employee directors received an option to purchase 4,000 Shares on June 15, 2001 under the 1996 Non-Employee Director Stock Option Plan. Such options were exercisable at a price equal to 100% of the fair market value on the date of grant, and were to vest at any time, in whole or in part for period of ten years beginning one year after the date of the grant. Pursuant to resolutions unanimously approved by the Company's Board of Directors on December 19, 2001, each non-employee director agreed to surrender for cancellation options for an aggregate of 12,000 shares under the 1996 Non-Employee Director Stock Option Plan, including the foregoing options, as follows: (i) an option for 4,000 shares, fully vested, exercisable at $1.00 per share and expiring on June 17, 2009; (ii) an option for 4,000 shares, fully vested, exercisable at $0.844 per share and expiring on June 15, 2010; and (iii) an option for 4,000 shares, 45 exercisable at $0.40 per share beginning on June 15, 2002 and expiring on June 14, 2011. In addition, Mr. Kaplan and Mr. Steiner each also agreed to surrender for cancellation an option under the Second Amended and Restated 1991 Stock Option Plan for 5,000 shares, fully vested, exercisable at $4.05 per share and expiring on December 30, 2005. The Board agreed to grant each non-employee director new options under the 1996 Stock Option Plan on July 31, 2002, exercisable for the same number of shares as those that were canceled, and having the same vesting and termination terms as the canceled options, but which will have exercise prices equal to the fair market value of the shares on July 31, 2002. Also pursuant to the foregoing resolutions, all non-employee directors, except for Mr. Collier, each agreed to cancel the following options for an aggregate of 2,000 shares under the 1996 Non-Employee Director Stock Option Plan in exchange for new options under the 1996 Stock Option Plan with similar vesting and exercise prices, but which do not expire until December 18, 2011: (i) a fully vested option for 1,000 shares exercisable at $0.8125 per share and expiring December 31, 2001; and (ii) a fully vested option for 1,000 shares exercisable at $0.938 per share and expiring March 31, 2002. Mr. Collier agreed to the cancellation of his option for 1,000 shares under the 1995 Non-Employee Director Stock Option Plan, fully vested and exercisable at $0.938 per share and expiring March 31, 2002, in exchange for a new option for 1,000 shares under the 1996 Stock Option Plan, fully vested on the date of grant, exercisable at $0.938 per share and which expires on December 18, 2011. Other than the option grants and the reimbursement of certain expenses, non-employee directors received no other compensation for service as directors for the year ended December 30, 2001. Mr. Louis Neeb received $2,000 in 2001 as payment for consulting services. 46 Item 12. Security Ownership of Certain Beneficial Owners and Management. As of December 30, 2001, the Company had 11,761,004 Shares issued and outstanding. The following table sets forth, to the Company's knowledge as of December 30, 2001, the beneficial ownership of Shares by each person or entity beneficially owning more than 5% of the Shares, each director, each nominee, and certain executive officers, individually, and all directors and executive officers as a group.

47 (4) Includes: (a) 2,443,609 directly owned Shares; (b) options to purchase 2,000 Shares granted under the 1996 Stock Option Plan, 1,000 of which have an exercise price of $0.8125 per share, and 1,000 of which have an exercise price of $0.938 per share; and (c) 20,003 shares assigned to Ms. Britton by Robert T. Giaimo which are subject to an option held by Mr. Clinton A. Clark at an exercise price of $3.60 per share through April 5, 2004. Does not include 409,065 shares beneficially owned by Mr. Giaimo, Ms. Britton's spouse. Ms. Britton disclaims beneficial ownership of the Shares beneficially owned by Mr. Giaimo. (5) Includes (a) 61,658 directly owned shares; (b) options to purchase 17,268 shares granted under the 1991 Stock Option Plan at an exercise price of $.003 per share; and (c) options to purchase 1,000 shares granted under the 1996 Stock Option Plan at an exercise price of $0.938 per share. (6) Includes 409,065 directly owned shares. Does not include any shares beneficially owned by Catherine Britton, Mr. Giaimo's spouse. Mr. Giaimo disclaims any beneficial ownership of shares beneficially owned by Catherine Britton (7) Includes 183,881 directly owned shares. (8) Includes: (a) 1,000,000 directly owned Shares; and (b) options to purchase 2,000 shares granted under the 1996 Stock Option Plan, 1000 of which have an exercise price of $0.8125 per share, and 1,000 of which have an exercise price of $0.938 per share. (9) Includes: (a) 47,570 directly owned Shares; and (b) options to purchase 25,004 Shares granted under the Earned Ownership Plan at an exercise price of $.0003 per Share. (10) Includes: (a) options to purchase 12,572 shares granted under the 1991 Stock Option Plan at the exercise price of $.003 per share; and (b) options to purchase 2,000 shares granted under the 1996 Stock Option Plan, 1,000 of which have an exercise price of $0.8125 per share, and 1,000 of which have an exercise price of $0.938 per share. (11) Includes: (a) 564,729 Shares held of record by the Steiner Family Partnership (Mr. Steiner owns a 25% interest in and is the managing partner of The Steiner Family Partnership and, therefore, may be deemed to beneficially own all Shares held of record by such partnership. Except to the extent of his 25% ownership interest in The Steiner Family Partnership, Mr. Steiner disclaims beneficial ownership of such Shares); and (b) options to purchase 2,000 Shares under the 1996 Stock Option Plan, 1,000 of which have an exercise price of $0.8125 per share, and 1,000 of which have an exercise price of $0.938 per share. (12) The total Shares beneficially owned by all directors and executive officers as a group was calculated by taking the sum of all Shares beneficially-owned by each director and executive officer, as reflected in the table. Item 13. Certain Relationships and Related Transactions. SILVER DINER POTOMAC MILLS, INC. Pursuant to lease agreements dated October 14, 1991 and May 27, 1992, the Company leases the Silver Diner restaurant in Potomac Mills, Virginia (the "Potomac Mills Restaurant") from Silver Diner Potomac Mills, Inc ("SDPMI"), a corporation wholly owned by Robert T. Giaimo, the Chairman and President of the Company. The leases require the payment of an annual base rent, with annual adjustments based on the Consumer Price Index, and the payment of percentage rent based on gross receipts. The leases expire in late 2011. For the years ended December 30, 2001, December 31, 2000 and January 2, 2000, occupancy costs were $515,050, $356,000 and $360,000 respectively, under terms of the leases. 48 ROBERT GIAIMO DEVELOPMENT, INC. On June 17, 1997, the Company purchased from Robert Giaimo Development, Inc. ("RGDI"), a corporation wholly owned by Robert T. Giaimo, the Chairman and President of the Company, an undivided 70% interest in the parcel of land used as a parking lot for the Potomac Mills Restaurant. The total purchase price of the land was $408,000, of which $267,000 was borrowed from a bank, secured by the land, bearing interest at the prime rate (4.75% at December 31, 2001), and matures in June 2003. The Company assumed a management agreement entered into between RGDI with SDPMI (the "Management Agreement"), which provides that the Company is the exclusive manager of the Potomac Mills Restaurant, is entitled to receive all of the net profits (as defined in the Management Agreement) from the Potomac Mills Restaurant, and is responsible for paying all operating costs and expenses of the restaurant, including rent. The Management Agreement is unlimited in duration and can only be terminated by mutual agreement of the Company and SDPMI, or following notice that the Company failed to meet its management obligations and responsibilities. RGDI has granted the Company an option to purchase the Potomac Mills Restaurant for an amount equal the fair market value, on the date of purchase, as determined by an appraisal. LOAN TO YPE VON HENGST. In connection with his entering into an employment agreement with the Company on November 9, 1998, Ype Von Hengst, a Director and officer of the Company, received a $100,000 loan from the Company, secured by his 182,881 Shares in the Company and bearing interest at 5.25% annually. The loan and accrued interest is to be repaid annually by applying an annual bonus received by Mr. Von Hengst beginning December 31, 1999. At December 30, 2001 $40,000 was outstanding. MICHAEL COLLIER AND UNIWEST GROUP, INC. AND AFFILIATES The Company has from time to time entered into contracts with Michael Collier, a Director, and with Uniwest Group, Inc., a construction company and certain of its affiliates, of which Michael Collier is President and a stockholder. The company paid $193,191 to Uniwest Construction for miscellaneous construction and renovation of the existing diners. The Company paid Uniwest Management Inc., which manages the real estate operations for the Merrifield diner, approximately $210,000 for rent and real estate taxes. No consulting fees were paid to Mr. Collier in 2001. At December 30, 2001, $11,796 is payable to the Director and affiliates of the Director. In 1995, the Company entered into a ground lease with 2909 Gallows LC, landlord, covering the Merrifield facility. The landlord is a partnership in which Michael Collier owns a significant limited partnership interest. The lease provides for minimum annual rent of $110,000 in 1998 with fixed escalations in rent payments over the lease term through 2012. Uniwest Construction, Inc. acted as the general contractor for the construction of the diner on the Merrifield property. Michael Collier was not a director of the Company when the lease and construction contract were entered into. 49 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Lists of Documents Filed as Part of this Report 1. Financial Statements

2. Schedules All Schedules are omitted because the required information is inapplicable or it is presented in the Consolidated Financial Statements or the notes thereto. 3. Exhibits Exhibit Number Description of Document -------------- ----------------------- 3. Articles of incorporation and bylaws 3.1.1 Company's Certificate of Incorporation as amended by Certificates of Amendment incorporated by reference to Exhibit 3.01 of the Company's Form 8-K dated March 27, 1996. 3.2 Company's Bylaws incorporated by reference to Exhibit 3.3 of the Company's Form S-4 (File No. 33-8844). 9.0 Form of Voting and Lockup Agreement with respect to Stock Option Agreements incorporated by reference to Exhibit 9.01 of the Company's Form 8-K dated March 27, 1996. 9.1 Form of SDDI Voting and Lockup Agreement among SDDI, Robert T. Giaimo and certain shareholders of SDDI, together with Schedule of executed Voting and Lockup Agreements incorporated by reference to Exhibit 9.04 of the Company's Form 8-K dated March 27, 1996. 50 9.2 FTAC Voting and Lockup Agreement dated as of September 15, 1995 by and among the Company and George A. Naddaff, Douglas M. Suliman, Jr., Ralph J. Guarino and Charles A. Cocotas incorporated by reference to Exhibit 9.05 of the Company's Form 8-K dated March 27, 1996. 9.3 Assumption of SDDI Voting and Lockup Agreement, SDDI Affiliate Lockup Agreement and Stockholder Lockup Agreement dated March 27, 1996, pursuant to Section 5.14(c) of merger agreement by and among FTAC, FTAC Transition Corporation and SDDI, incorporated by reference to Exhibit 9.06 of the Company's Form 8-K dated March 27, 1996. 10. Material Contracts Material Contracts -- Real Property Rockville, Maryland 10.1 Lease Agreement between Federal Realty Investment Trust (Landlord) and SDLP (Tenant) dated July 13, 1988 as amended by Lease Modification dated August 17, 1988, Second Lease Modification dated February 3, 1989, Third Amendment to Lease dated January 20, 1993, and Fourth Lease Modification Agreement dated October 17, 1994 incorporated by reference to Exhibit 10.01 of the Company's Form 8-K dated March 27, 1996. Laurel, Maryland. 10.2 Lease between CG Beltsville Limited Partnership (Landlord) and SDLP (Tenant) dated January 26, 1990, as amended by Letter Agreement dated October 28, 1995 incorporated by reference to Exhibit 10.02 of the Company's Form 8-K dated March 27, 1996. Dale City, Virginia (Potomac Mills) 10.3 Lease between RGDI (Landlord) and SDPMI (Tenant), dated June 10, 1991, as amended by First Amendment to Lease, dated October 14, 1991, as amended by Second Amendment to Lease dated October 30, 1995 incorporated by reference to Exhibit 10.03 of the Company's Form 8-K dated March 27, 1996. Parking Lot (parcel 11-B-1A), Dale City, Virginia (located adjacent to Silver Diner Restaurant at Potomac Mills) 10.4 Lease between Robert Giaimo Development, Inc. ("RGDI") (Landlord) and SDPMI (Tenant) dated May 27, 1992, as amended by Amendment to Lease dated October 30, 1995 incorporated by reference to Exhibit 10.04 of the Company's Form 8-K dated March 27, 1996. 10.4.1 Amendment No. 2, effective as of July 1, 1997 to Lease Agreement dated May 27, 1992 by and between Robert Giaimo Development, Inc., as Landlord, and Silver Diner Potomac Mills, Inc., as tenant, as amended.* Towson, Maryland 10.5 Lease Agreement between Towson Town Center Associates (Landlord) and the Company (Tenant) effective January 30, 1992 incorporated by reference to Exhibit 10.05 of the Company's Form 8-K dated March 27, 1996. 10.5.1 Lease Termination Agreement between Towson Town Center Associates (Landlord) and the 51 Company dated November 16, 2001 effective November 30, 2001. Fair Lakes, Virginia (Fair Oaks) 10.6 Ground Lease Agreement between F.L. Promenade L.P. (Landlord) and the Company (Tenant) dated July 12, 1994, as amended by First Amendment to Ground Lease Agreement dated February 15, 1995, and Second Amendment to Ground Lease Agreement dated April 4, 1995 incorporated by reference to Exhibit 10.06 of the Company's Form 8-K dated March 27, 1996. Tysons Corner, Virginia 10.7 Ground Lease between Lehndorff Tysons Joint Venture (Landlord) and the Company (Tenant) dated December 29, 1994), as amended by First Amendment to Lease dated May 14, 1995 incorporated by reference to Exhibit 10.07 of the Company's Form 8-K dated March 27, 1996. Springfield, Virginia 10.8 Springfield Mall Lease between Franconia Associates (Landlord) and the Company (Tenant) effective May 1, 1996 incorporated by reference to Exhibit 10.08 of the Company's Form 8-K dated March 27, 1996. Merrifield, Virginia 10.9 Agreement of Lease dated September 14, 1995 by and between 2909 Gallows LC (Landlord) and the Company (Tenant) incorporated by reference to Exhibit 10.09 of the Company's Form 8-K dated March 27, 1996. Reston, Virginia 10.10 Purchase and Sale Agreement dated December 29, 1995 by and between Reston Land Corporation (Seller) and the Company (Buyer) incorporated by reference to Exhibit 10.10 of the Company's Form 8-K dated March 27, 1996. Clarendon, Virginia 10.11 Lease dated February 12, 1996 between Wilson Limited Partnership (Landlord) and the Company (Tenant) incorporated by reference to Exhibit 10.11 of the Company's Form 8-K dated March 27, 1996. Kendall, Florida 52 10.12 Purchase Agreement dated October 4, 1996 by and between Documentation Corp. And Bersin Development Corp. (Sellers) and the Company (Buyer). Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996, is incorporated herein by reference. Cherry Hill, New Jersey 10.13 Lease Agreement dated September 30, 1996 by and between Cherry Hill Associates L.P. (Landlord) and the Company (Tenant). Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996 is incorporated herein by reference. Gaithersburg, Maryland 10.13.1 Composite of Lease dated November 2, 1999 by and between Lake Forest Associates LLC (Landlord) and Silver Diner Development, Inc. (Tenant), is incorporated by reference to Exhibit 10.13.1 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. Virginia Beach, Virginia 10.13.2 Form of Lease dated August 11, 1999 between Interface Properties, Inc. (Landlord) and Silver Diner Development, Inc. (Tenant), is incorporated by reference to Exhibit 10.13.2 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. Pentagon City, Virginia 10.13.3 Form of Deed of Lease dated September 22, 2000 between Street Retail, Inc., as Landlord, and Silver Diner Development Inc., as Tenant (the "Deed of Lease"), is incorporated by reference to Exhibit 10.13.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 10.13.4 Form of Letter Agreement dated January 29, 2001 between Street Retail, Inc. and Silver Diner Development Inc. amending the Deed of Lease, is incorporated by reference to Exhibit 10.13.4 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 10.13.5 Form of Lease Modification Agreement dated March 2, 2001 between Street Retail, Inc., as Landlord, and Silver Diner Development Inc., as Tenant, is incorporated by reference to Exhibit 10.13.5 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 10.13.6 Form of Lease Termination Letter Agreement dated March 30, 2001 between Street Retail, Inc., as Landlord, and Silver Diner Development Inc., as Tenant, is incorporated by reference to Exhibit 10.13.6 of the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2001. 53 Material Contracts--Stock Plans 10.14 SDDI Second Amended and Restated 1991 Stock Option Plan, together with forms of incentive stock option agreement and non- qualified stock option agreement incorporated by reference to Exhibit 10.14 of the Company's Form 8-K dated March 27, 1996. 10.15 SDDI Second Amended and Restated Earned Ownership Plan, together with form of non-qualified stock option agreement incorporated by reference to Exhibit 10.15 of the Company's Form 8-K dated March 27, 1996. 10.16 Silver Diner, Inc. 1996 Non-employee Director Stock Option Plan together with form of stock option agreement incorporated by reference to Exhibit 4(a) of the Company's Form S-8 filed December 20, 1996. 10.17 Silver Diner, Inc. 1996 Consultant Stock Option and Stock Purchase Plan together with form of stock option agreement, form of stock purchase agreement, form of election to purchase common stock and form of election to purchase options, incorporated by reference to Exhibit 4(b) of the Company's Form S-8 filed December 20, 1996. 10.18 Certificate and Agreement of Participation, Silver Diner, Inc. Restaurant Operating Partner Program and Addenda incorporated by reference to Exhibit 4 of the Company's Form S-8 filed February 14, 1997. 10.19 Silver Diner, Inc. Stock Option Plan together with form of Stock Option Agreement. Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996, is incorporated herein by reference. 10.20 Silver Diner, Inc. Employee Stock Purchase Plan together with form of Subscription Agreement and Notice of Withdrawal. Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996, is incorporated herein by reference. 10.20.1 Form of Certificate and Agreement of Participation-Restaurant Operating Partner Program, as approved by the Board on December 15, 1998, incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.20.2 Form of Addendum to a Certain Certificate and Agreement of Participation in the Silver Diner, Inc. Restaurant Operating Partner Program (Version for 1997 Certificates issued after January 1, 1997), as approved by the Board on December 15, 1998, incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.20.3 Form of Addendum to a Certain Certificate and Agreement of Participation in the Silver Diner, Inc. Restaurant Operating Partner Program (Version for 1997 Certificates issued on January 1, 1997), as approved by the Board on December 15, 1998, incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.20.4 Silver Diner, Inc. Stock Option Plan (as amended March 4, 1998), incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 54 10.20.5 Form of Stock Option Plan Agreement between Silver Diner, Inc. and certain Executive Officers, Date of Grant: December 15, 1998, together with Performance Criteria for each of: Craig Kendall; Patrick Meskell; Timothy Cusick; and Ype Von Hengst, incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.20.6 Stock Option Plan Agreement between Silver Diner, Inc. and Robert T. Giaimo for grant of 400,000 Shares on December 15, 1998, incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.20.7 Form of Restated Stock Option Plan Agreement between Silver Diner, Inc. and Certain Executive Officers Granting Shares on December 29, 1997, incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.20.8 1996 Non-Employee Director Stock Option Plan, as amended March 4, 1998, incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.20.9 1996 Employee Stock Purchase Plan, as amended, is incorporated by reference to Exhibit 10.20.9 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 10.20.10 1996 Non-Employee Director Stock Option Plan (as amended March 4, 1998 and March 18, 1999) is incorporated by reference to Exhibit 10.20.10 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 10.20.11 Form of Performance Criteria (for January 2, 1999-December 31, 1999), as amended by the Compensation Committee on December 8, 1999, for options granted December 15,1998 to each of: Craig Kendall; Patrick Meskell; Timothy Cusick; and Ype Von Hengst, is incorporated by reference to Exhibit 10.20.11 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 10.20.12 Form of Performance Criteria (for January 1, 2000-December 31, 2000), as adopted by the Compensation Committee on December 8, 1999, for options granted December 15,1998 to each of: Craig Kendall; Patrick Meskell; Timothy Cusick; and Ype Von Hengst, is incorporated by reference to Exhibit 10.20.12 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. Material Contracts--Agreements with Executive Officers/Directors 10.22 Letter Agreement dated December 4, 1996 between the Company and Patrick Meskell regarding terms of employment, as amended by Letter Agreement dated March 26, 1996 incorporated by reference to Exhibit 10.19 of the Company's Form 8-K dated March 27, 1996. 10.22.1 Letter Agreement dated March 4, 1999 between the Company and Patrick Meskell, is incorporated by reference to Exhibit 10.22.1 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 10.23 Founder's Employment Agreement dated August 28, 1995 by and between the Company and 55 Robert T. Giaimo incorporated by reference to Exhibit 10.20 of the Company's Form 8-K dated March 27, 1996. 10.24 Assumption of Founder's Employment Agreement dated March 27, 1996 pursuant to Section 5.14(b) of merger agreement by and among FTAC, FTAC Transition Corporation and SDDI, incorporated by reference to Exhibit 10.21 of the Company's Form 8-K dated March 27, 1996. 10.25 Indemnity Agreement dated August 29, 1995 by and between Robert T. Giaimo, as indemnitee, and the Company incorporated by reference to Exhibit 10.22 of the Company's Form 8-K dated March 27, 1996. 10.25.1 Letter Agreement dated March 4, 1999 between the Company and Craig Kendall, is incorporated by reference to Exhibit 10.25.1 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 10.25.2 Letter Agreement dated March 4, 1999 between the Company and Timothy Cusick, is incorporated by reference to Exhibit 10.25.2 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 10.25.3 Employment Agreement dated November 9, 1998, between Silver Diner, Inc. and Ype Von Hengst, including Promissory Note in principal amount of $100,000, incorporated by reference to Exhibit 10.39 of the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.25.4 Letter Agreement dated November 9, 1998 between Robert T. Giaimo and Silver Diner, Inc. Re: Founder's Employment Agreement, incorporated by reference to Exhibit 10.40 of the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. 10.25.5 Form of Letter Agreement dated March 17, 2000 between Silver Diner, Inc. and Jon Abbott in connection with the employment of Jon Abbott is incorporated by reference to Exhibit 10.25.5 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 10.25.6 Form of Stock Purchase Agreement dated March 2000 between Silver Diner, Inc. and Jon Abbott is incorporated by reference to Exhibit 10.25.6 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 10.25.7 Form of Stock Option Plan Agreement dated March 24, 2000 between Silver Diner, Inc. and Jon Abbott in connection with the grant of option for 100,000 shares is incorporated by reference to Exhibit 10.25.7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 10.25.8 Form of Promissory Note dated March 2000 in the amount of $32,500, from Jon Abbott in favor of the Company is incorporated by reference to Exhibit 10.25.8 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 56 Material Contracts--Miscellaneous 10.26 Option to Purchase dated January 26, 1990 between CG Beltsville Limited Partnership (Optionor), and SDLP (Optionee) regarding land parcel on which the Silver Diner Restaurant in Laurel, Maryland, is incorporated by reference to Exhibit 10.36 of the Company's Form 8-K dated March 27, 1996. 10.27 Amendment No. 1 to the Stock Escrow Agreement dated as of March 26, 1996 among the Company, George A. Naddaff, Douglas M. Suliman, Jr., Ralph J. Guarino, Charles A. Cocotas and Continental Stock Transfer & Trust Company, together with letter dated March 27, 1996 from the Company to Continental Stock Transfer & Trust Company, incorporated by reference to Exhibit 10.37 of the Company's Form 8-K dated March 27, 1996. 10.28 Affiliate Warrant Exchange and Custodial Agreement dated September 15, 1996, by and among George A. Naddaff, Douglas M. Suliman, Jr. and Charles A. Cocotas, as Warrant Holders, SDDI and Douglas M. Suliman, Jr., as Custodian incorporated by reference to Exhibit 10.38 of the Company's Form 8-K dated March 27, 1996. 10.29 Escrow Agreement dated as of February 1, 1996 by and between GKN Securities Corp., certain affiliates thereof, the SDDI and Arent Fox, as Escrow Agent incorporated by reference to Exhibit 10.39 of the Company's Form 8-K dated March 27, 1996. 10.30 Option Agreement dated March 27, 1996 by and between RGDI and SDDI granting option to SDDI for the purchase of Potomac Mills real estate parcels incorporated by reference to Exhibit 10.34 of the Company's Form 8-K dated March 27, 1996. 10.31 Agreement dated February 29, 2000 between Silver Diner Development, Inc. (Owner) and Uniwest Construction, Inc. (Contractor) for Silver Diner at Lakeforest Mall (Project), is incorporated by reference to Exhibit 10.31 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 10.32 Letter Agreement dated January 7, 2000 between Uniwest and Silver Diner Development, Inc. regarding Silver Diner at Columbus Square East, Virginia Beach, Virginia, together with Agreement dated December 1, 1999 between the parties, is incorporated by reference to Exhibit 10.32 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 10.33 Form of Amended and Restated Loan Agreement dated May 10, 2000, between Branch Banking and Trust Company, Silver Diner, Inc. for itself and on behalf of its affiliates Silver Diner Development, Inc., Silver Diner Potomac Mills, Inc. and Silver Diner Limited Partnership is incorporated by reference to Exhibit 10.33 of the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2000. 10.33.1 Form of Promissory Note (Year 2000) dated May 10, 2001, from Silver Diner, Inc. in favor of Branch Banking and Trust Company in the principal amount of $3,000,000 is incorporated by reference to Exhibit 10.33.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 57 10.33.2 Form of Allonge to Promissory Note (Year 2000) effective as of January 19, 2001, from Silver Diner, Inc. in favor of Branch Banking and Trust Company is incorporated by reference to Exhibit 10.33.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 10.33.3 Form of Promissory Note (Year 2001) dated January 19, 2001, from Silver Diner, Inc. in favor of Branch Banking and Trust Company in the principal amount of $1,200,000 is incorporated by reference to Exhibit 10.33.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 10.33.4 Form of Promissory Note dated April 20, 2001, from Silver Diner, Inc. in favor of Branch Banking and Trust Company in the principal amount of $300,000.* 10.33.5 Form of Promissory Note dated January 15, 2002, from Silver Diner, Inc. in favor of Branch Banking and Trust Company in the principal amount of $500,000.* 10.34 Form of Memorandum of Agreement between Silver Diner Development, Inc. and Three J.B. Inc. dated March 9,2001, as amended by Addendums thereto dated March 9,2001 and March 9, 2001 is incorporated by reference to Exhibit 10.34 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 21. Subsidiaries of the Company. (a) Silver Diner Development, Inc., a Virginia Corporation. 22. Accountants Consent 23.1 Consent of Reznick Fedder & Silverman P.C. (b) Reports on Form 8-K Report on Form 8-K for the registration of 100,000 Shares under the Company's Associate Ownership and Profit Sharing Plan (File No. 333-96399). * Filed herewith. All other exhibits have been previously filed as indicated. 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Silver Diner, Inc. By: /s/ Robert T. Giaimo ------------------------------------- Robert T. Giaimo President and Chief Executive Officer April 1, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ Robert T. Giaimo President, Chief Executive April 1, 2002 ---------------------- Robert T. Giaimo Officer and Director /s/ Catherine Britton Director April 1, 2002 ---------------------- Catherine Britton /s/ Ype Von Hengst Director April 1, 2002 ---------------------- Ype Von Hengst /s/ Edward H. Kaplan Director April 1, 2002 ---------------------- Edward H. Kaplan /s/ Michael Collier Director April 1, 2002 ---------------------- Michael Collier /s/ Louis P. Neeb Director April 1, 2002 ---------------------- Louis P. Neeb /s/ Charles Steiner Director April 1, 2002 ---------------------- Charles Steiner 59

SILVER DINER INC /DE/ 10-K