FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 1-12692
---------------------------------------------------------
MORTON'S RESTAURANT GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3490149
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
3333 New Hyde Park Road, Suite 210, New Hyde Park, New York 11042
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
516-627-1515
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 |_|
As of August 9, 1999, the registrant had 5,772,960 Shares of its Common Stock,
$.01 par value, outstanding.
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
INDEX
Part I - Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of July 4, 1999 and January 3, 1999 3-4
Consolidated Statements of Income for the three and six month
periods ended July 4, 1999 and June 28, 1998 5
Consolidated Statements of Cash Flows for the six month periods
ended July 4, 1999 and June 28, 1998 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-13
Part II - Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Stockholders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
Item 1. Financial Statements
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
July 4, January 3,
1999 1999
---- ----
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,225 $ 2,117
Accounts receivable 768 894
Inventories 6,142 6,400
Landlord construction receivables, prepaid expenses and other
current assets 2,679 3,920
Deferred income taxes 5,931 6,005
------- -------
Total current assets 17,745 19,336
------- -------
Property and equipment, at cost:
Furniture, fixtures and equipment 21,847 20,658
Leasehold improvements 28,780 25,422
Land 5,379 4,287
Construction in progress 1,342 3,248
------- -------
57,348 53,615
Less accumulated depreciation and amortization 8,837 7,804
------- -------
Net property and equipment 48,511 45,811
------- -------
Intangible assets, net of accumulated amortization of $4,065 at
July 4, 1999 and $3,861 at January 3, 1999 11,930 12,134
Other assets and deferred expenses, net of accumulated
amortization of $652 at July 4, 1999 and $2,075 at
January 3, 1999 6,605 9,237
Deferred income taxes 8,704 8,466
------- -------
$93,495 $94,984
======= =======
</TABLE>
(Continued)
3
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
July 4, January 3,
1999 1999
---- ----
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,873 $ 6,553
Accrued expenses 15,765 19,466
Current portion of obligations to financial institutions
and capital leases 2,211 1,801
Accrued income taxes 220 372
-------- --------
Total current liabilities 23,069 28,192
Obligations to financial institutions and capital leases,
less current maturities 51,765 40,254
Other liabilities 3,658 3,581
-------- --------
Total liabilities 78,492 72,027
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value per share. Authorized 3,000,000
shares, no shares issued or outstanding -- --
Common stock, $.01 par value per share. Authorized
25,000,000 shares, issued and outstanding 6,752,475 shares at
July 4, 1999 and 6,661,370 shares at January 3, 1999 68 67
Nonvoting common stock, $.01 par value per share. Authorized
3,000,000 shares, no shares issued or outstanding -- --
Additional paid-in capital 62,775 62,717
Accumulated other comprehensive income (loss) (39) (34)
Accumulated deficit (32,545) (35,597)
Less treasury stock at cost, 878,290 shares at July 4, 1999 and
234,400 shares at January 3, 1999 (15,256) (4,196)
-------- --------
Total stockholders' equity 15,003 22,957
-------- --------
$ 93,495 $ 94,984
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 48,775 $ 45,604 $ 101,522 $ 93,315
Food and beverage costs 16,520 15,530 34,640 31,927
Restaurant operating expenses 21,593 19,840 44,019 39,882
Pre-opening costs, depreciation, amortization and
non-cash charges 1,165 2,128 2,721 4,614
General and administrative expenses 3,880 3,407 8,109 6,816
Marketing and promotional expenses 1,514 1,226 2,941 2,453
Interest expense, net 1,071 602 1,981 1,182
--------- --------- --------- ---------
Income before income taxes and cumulative
effect of a change in an accounting principle 3,032 2,871 7,111 6,441
Income tax expense 758 718 1,778 1,610
--------- --------- --------- ---------
Income before cumulative effect of a change
in an accounting principle 2,274 2,153 5,333 4,831
Cumulative effect of a change in an accounting principle, net of
income tax benefit of $1,357 -- -- 2,281 --
--------- --------- --------- ---------
Net income $ 2,274 $ 2,153 $ 3,052 $ 4,831
========= ========= ========= =========
Net income per share - basic:
Before cumulative effect of a change in an accounting principle $ 0.38 $ 0.32 $ 0.86 $ 0.73
Cumulative effect of a change in an accounting principle -- -- (0.37) --
--------- --------- --------- ---------
Net income $ 0.38 $ 0.32 $ 0.49 $ 0.73
========= ========= ========= =========
Net income per share - diluted:
Before cumulative effect of a change in an accounting principle $ 0.37 $ 0.31 $ 0.84 $ 0.70
Cumulative effect of a change in an accounting principle -- -- (0.36) --
--------- --------- --------- ---------
Net income $ 0.37 $ 0.31 $ 0.48 $ 0.70
========= ========= ========= =========
Weighted average common and potential common shares
outstanding:
Basic 6,037 6,644 6,195 6,625
========= ========= ========= =========
Diluted 6,163 6,956 6,352 6,925
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
July 4, June 28,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,052 $ 4,831
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of a change in an accounting principle 2,281 --
Depreciation, amortization and other non-cash charges 2,093 4,614
Deferred income taxes 1,193 1,396
Change in assets and liabilities:
Accounts receivable 127 296
Inventories 258 (123)
Prepaid expenses and other assets 118 42
Accounts payable, accrued expenses and other liabilities (6,649) (6,222)
Accrued income taxes (152) (145)
-------- --------
Net cash provided by operating activities 2,321 4,689
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (2,227) (4,939)
Capitalized payments for pre-opening costs and other deferred expenses -- (1,050)
-------- --------
Net cash used by investing activities (2,227) (5,989)
-------- --------
Cash flows from financing activities:
Principal reduction on obligations to financial institutions (3,987) (2,635)
Proceeds from obligations to financial institutions 14,958 1,500
Purchases of treasury stock (11,060) --
Net proceeds from issuance of stock 59 484
-------- --------
Net cash used by financing activities (30) (651)
-------- --------
Effect of exchange rate changes on cash 44 (67)
-------- --------
Net increase (decrease) in cash and cash equivalents 108 (2,018)
Cash and cash equivalents at beginning of period 2,117 3,437
-------- --------
Cash and cash equivalents at end of period $ 2,225 $ 1,419
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 4, 1999 and June 28, 1998
1) The accompanying unaudited, consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include all information and footnotes normally included in financial statements
prepared in conformity with generally accepted accounting principles. They
should be read in conjunction with the consolidated financial statements of
Morton's Restaurant Group, Inc. (the "Company") for the fiscal year ended
January 3, 1999 filed by the Company on Form 10-K with the Securities and
Exchange Commission on March 31, 1999.
The accompanying financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments and accruals) that
management considers necessary for a fair presentation of its financial position
and results of operations for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the entire year.
Certain items previously reported in specific financial statement captions
have been reclassified to conform to the fiscal 1999 presentation.
The Company uses a fiscal year which consists of 52 weeks. Approximately
every six or seven years, a 53rd week will be added. Fiscal 1998 consisted of 53
weeks.
2) For the purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. The Company paid cash interest and fees,
net of amounts capitalized, of approximately $1,671,000 and $1,155,000, and
income taxes of approximately $706,000 and $351,000, for the six months ended
July 4, 1999 and June 28, 1998, respectively. During the first six months of
fiscal 1999 and 1998, the Company entered into capital lease arrangements for
approximately $2,057,000 and $571,000, respectively, for restaurant equipment.
3) Based on a strategic assessment of recent trends and a downturn in comparable
revenues of Bertolini's Authentic Trattorias, during the fourth quarter of
fiscal 1998, pursuant to the approval of the Board of Directors, the Company
recorded a nonrecurring, pre-tax charge of $19,925,000 representing the
write-down of impaired Bertolini's restaurant assets, the write-down and accrual
of lease exit costs associated with the closure of specified Bertolini's
restaurants as well as the write-off of the residual interests in Mick's and
Peasant restaurants. The Company performed an in-depth analysis of historical
and projected operating results and, as a result of significant operating
losses, identified several nonperforming restaurants which have all been closed.
At July 4, 1999 and January 3, 1999, included in "Accrued expenses" in the
accompanying consolidated balance sheets is approximately $3,696,000 and
$4,165,000 representing the lease disposition liabilities related to the closing
of these nonperforming restaurants. Additionally, the analysis identified
several underperforming restaurants, which reflected a pattern of historical
operating losses and negative cash flow, as well as continued projected negative
cash flow and operating results for 1999 and 2000. Accordingly, the Company
recorded an impairment charge in the fourth quarter of fiscal 1998 to write-down
these impaired assets and will contemplate their potential closure upon future
operating results. As of July 4, 1999, none of these restaurants have been
closed.
7
<PAGE>
4) In April 1998, Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-up Activities", was issued. SOP 98-5 requires that costs incurred
during start-up activities, including pre-opening costs, be expensed as
incurred. The Company adopted SOP 98-5 in the first quarter of fiscal 1999 and
recorded a charge for the cumulative effect of a change in an accounting
principle of approximately $2,281,000, net of income tax benefits of
approximately $1,357,000.
5) During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". The components of
comprehensive income for the six months ended July 4, 1999 and June 28, 1998 are
as follows:
July 4, 1999 June 28, 1998
------------ -------------
(amounts in thousands)
Net Income $ 3,052 $ 4,831
Other comprehensive income (loss):
Foreign currency translation (5) (73)
------- -------
Total comprehensive income $ 3,047 $ 4,758
======= =======
6) The Company is involved in various legal actions. See "Part II - Other
Information, Item 1. Legal Proceedings" on page 14 of this Form 10-Q for a
discussion of these legal actions.
8
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues increased $3.2 million, or 7.0%, to $48.8 million for the three
month period ended July 4, 1999, from $45.6 million during the comparable 1998
period. Of the increase in revenues, $3.8 million was attributable to
incremental restaurant revenues from eight new restaurants opened after December
29, 1997 and $0.1 million, or 0.1%, was attributable to additional comparable
revenues from restaurants open all of both periods. Average revenue per
restaurant open for a full period decreased 0.7%. Revenues for the three closed
Bertolini's restaurants (see Note 3) decreased by $0.7 million compared to the
second quarter of fiscal 1998.
Revenues increased $8.2 million, or 8.8%, to $101.5 million for the six
month period ended July 4, 1999, from $93.3 million for the comparable 1998
period. Of the increase in revenues, $9.0 million was attributable to
incremental restaurant revenues from eight new restaurants opened after December
29, 1997 and $0.2 million, or 0.2%, was attributable to additional comparable
revenues from restaurants open all of both periods. Average revenue per
restaurant open for a full period increased 0.1%. Revenues for the three closed
Bertolini's restaurants (see Note 3) decreased by $1.0 million compared to the
first six months of fiscal 1998.
Percentage changes in comparable restaurant revenues for the three and six
month periods ended July 4, 1999 versus June 28, 1998 for restaurants open all
of both periods are as follows:
Three Months Six Months
Ended July 4, 1999 Ended July 4, 1999
Percentage Change Percentage Change
----------------- -----------------
Morton's 0.7% 1.3%
Bertolini's -3.5% -5.8%
Total 0.1% 0.2%
Food and beverage costs increased from $15.5 million for the three month
period ended June 28, 1998 to $16.5 million for the three month period ended
July 4, 1999 and increased from $31.9 million for the six month period ended
June 28, 1998 to $34.6 million for the six month period ended July 4, 1999.
These costs as a percentage of revenues decreased from 34.1% for the three month
period ended June 28, 1998 to 33.9% for the comparable 1999 period and decreased
from 34.2% for the six month period ended June 28, 1998 to 34.1% for the
comparable 1999 period.
Restaurant operating expenses, which include labor, occupancy and other
operating expenses, increased from $19.8 million for the three month period
ended June 28, 1998 to $21.6 million for the three month period ended July 4,
1999, an increase of $1.8 million. For the six months ended July 4, 1999, these
costs increased from $39.9 million during the 1998 period, to $44.0 million for
the comparable 1999 period. Those costs as a percentage of revenues increased
0.8% from 43.5% for the three month period ended June 28, 1998 to 44.3% for the
three month period ended July 4, 1999 and increased 0.7% from 42.7% for the six
month period ended June 28, 1998 to 43.4% for the comparable 1999 period.
9
<PAGE>
Pre-opening costs, depreciation, amortization and non-cash charges
decreased from $2.1 million for the three month period ended June 28, 1998 to
$1.2 million for the three month period ended July 4, 1999 and decreased as a
percentage of revenues by 2.3%. For the six months ended July 4, 1999, such
costs were $2.7 million versus $4.6 million for the comparable 1998 period.
Beginning in fiscal 1999, in accordance with the adoption of SOP 98-5 (see Note
4), the Company expenses all costs incurred during start-up activities,
including pre-opening costs, as incurred. Pre-opening costs incurred and
recorded as expense for the three and six month periods ended July 4, 1999 were
$0.2 million and $0.6 million, respectively. The amount of pre-opening costs
recorded for fiscal 1998 represents pre-opening costs which were amortized over
the 12 months following opening. This amortization expense for the three and six
month periods ended June 28, 1998 was $1.1 million and $2.6 million,
respectively. The timing of restaurant openings affects the amount of such
costs.
General and administrative expenses for the three month period ended July
4, 1999 were $3.9 million, which increased from $3.4 million for the three month
period ended June 28, 1998. For the six months ended July 4, 1999, such costs
were $8.1 million versus $6.8 million for the comparable 1998 period. The
increase in such expense is driven by incremental costs associated with
increased restaurant development. Such costs as a percentage of revenues were
8.0% for the three month period ended July 4, 1999, an increase of 0.5% from the
three month period ended June 28, 1998 and 8.0% for the six months ended July 4,
1999, an increase of 0.7% from the six month period ended June 28, 1998.
Marketing and promotional expenses were $1.5 million, an increase of $0.3
million, for the three month period ended July 4, 1999 and $2.9 million, an
increase of $0.5 million, for the six month period ended July 4, 1999. Such
costs as a percentage of revenues were 3.1% for the three month period ended
July 4, 1999, an increase of 0.4% from the three month period ended June 28,
1998 and 2.9% for the six month period ended July 4, 1999, an increase of 0.3%
from the comparable 1998 period.
Interest expense, net of interest income, increased to $1.1 million for
the three month period ended July 4, 1999 from $0.6 million for the three month
period ended June 28, 1998. For the six month periods ended July 4, 1999 and
June 28, 1998, interest expense was $2.0 million and $1.2 million, respectively.
The increase in interest expense was due to increased borrowings.
Income tax expense of $1.8 million for the six month period ended July 4,
1999 represents Federal income taxes, which were partially offset by the
establishment of additional deferred tax assets relating to FICA and other tax
credits that were generated during fiscal 1999, as well as state income taxes.
Liquidity and Capital Resources
In the past, the Company has had, and may have in the future, negative
working capital balances. The Company does not have significant receivables or
inventories and receives trade credit based upon negotiated terms in purchasing
food and supplies. Funds available from cash sales not needed immediately to pay
for food and supplies or to finance receivables or inventories are used for
noncurrent capital expenditures and or payments of long-term debt balances under
revolving credit agreements.
The Company and BankBoston, N.A. ("BBNA") entered into the Second Amended
and Restated Revolving Credit and Term Loan Agreement dated as of June 19, 1995,
as amended from time to time (the "Credit Agreement"), pursuant to which the
Company's credit facility (the "Credit Facility") is $75,000,000, consisting of
a $25,000,000 term loan (the "Term Loan") and a $50,000,000 revolving credit
facility (the "Revolving Credit"). The final maturity date of the Term Loan and
Revolving Credit is December 31, 2004. Loans made pursuant to the Credit
Agreement bear interest at a rate equal to the lender's base rate (plus
applicable margin) or, at the Company's option, the Eurodollar Rate (plus
applicable margin). At July 4, 1999, the Company's applicable margin, calculated
pursuant to the Credit Agreement, was 0.00% on base
10
<PAGE>
rate loans and 1.75% on Eurodollar Rate loans. BBNA has syndicated portions of
the Credit Facility to First Union Corporation and Imperial Bank.
As of July 4, 1999 and January 3, 1999, the Company had outstanding
borrowings of $35,875,000 and $29,475,000, respectively, under the Credit
Agreement. At July 4, 1999, $185,000 was restricted for letters of credit issued
by the lender on behalf of the Company. Unrestricted and undrawn funds available
to the Company under the Credit Agreement were $38,940,000 and the weighted
average interest rate on all borrowings under the Credit Facility was 7.1%. In
addition, the Company is obligated to pay fees of 0.25% on unused loan
commitments less than $10,000,000, 0.375% on unused loan commitments greater
than $10,000,000 and a per annum letter of credit fee (based on the face amount
thereof) equal to the applicable margin on the Eurodollar Rate loans.
Availability under the Credit Agreement is scheduled to reduce on March
31, 2000. Quarterly principal installments on the Term Loan of $250,000 will be
due at the end of each calendar quarter from March 31, 2000 through December 31,
2002, $2,500,000 from March 31, 2003 through December 31, 2003 and $3,000,000
from March 31, 2004 through December 31, 2004. The Revolving Credit will be
payable in full on December 31, 2004. Borrowings under the Credit Agreement are
secured by all tangible and intangible assets of the Company. Total amounts of
principal payable by the Company under the Credit Agreement during the five
years subsequent to July 4, 1999 amount to $0 in 1999, $1,000,000 in 2000,
$1,000,000 in 2001, $1,000,000 in 2002 and $10,000,000 in 2003. The borrowings
under the Credit Agreement have been classified as non-current on the Company's
consolidated balance sheet since the Company may borrow amounts due under the
Term Loan from the Revolving Credit, including the Term Loan principal payments
commencing in March 2000.
The Credit Agreement, among other things, contains certain restrictive
covenants with respect to the Company that create limitations (subject to
certain exceptions) on: (i) the incurrence or existence of additional
indebtedness or the granting of liens on assets or contingent obligations; (ii)
the making of certain investments; (iii) mergers, dispositions of assets or
consolidations; (iv) prepayment of certain other indebtedness; (v) making
capital expenditures above specified amounts; and (vi) the ability to make
certain fundamental changes or to change materially the present method of
conducting the Company's business. The Credit Agreement also requires the
Company to satisfy certain financial ratios and tests. As of July 4, 1999, the
Company believes it was in compliance with such covenants.
On April 7, 1998 and May 29, 1998, the Company entered into interest rate
swap agreements with BBNA on notional amounts of $10,000,000 each. The terms of
the agreements are for three years and may be extended for an additional two
years at the option of BBNA.
In March 1997, a subsidiary of the Company and CNL Financial I, Inc.
("CNL") entered into a $2,500,000 loan agreement (the "CNL Loan"), which matures
on April 1, 2007 and has a 10.02% per annum interest rate. Principal and
interest payments will be made over the term of the loan. At July 4, 1999, the
outstanding principal balance of the CNL loan was approximately $2,132,000, of
which approximately $192,000 is payable within the next fiscal year and
therefore has been included in "Current portion of obligations to financial
institutions and capital leases" in the accompanying consolidated balance sheet
as of July 4, 1999.
During 1998, various subsidiaries of the Company and FFCA Acquisition
Corporation ("FFCA") entered into loan commitments, aggregating $12,000,000, to
fund the purchases of land and the construction for four restaurants. During
1998, $5,315,000 was funded, and during 1999 $4,757,000 was funded, with the
interest rates ranging from 7.68% to 8.06% per annum. During the remainder of
1999 an additional $1,928,000 is expected to be funded. Monthly principal and
interest payments are scheduled over twenty-year periods. At July 4, 1999, the
aggregate outstanding principal balance due to FFCA was approximately
$9,998,000, of which approximately $198,000 of principal is payable within the
next fiscal year and therefore has been included in
11
<PAGE>
"Current portion of obligations to financial institutions and capital leases" in
the accompanying consolidated balance sheet for the period ended July 4, 1999.
During the first six months of fiscal 1999, the Company's net investment
in fixed assets and related investment costs, net of capitalized leases
approximated $2.9 million. The Company estimates that it will expend up to an
aggregate of $12.0 million in 1999 to finance ordinary refurbishment of existing
restaurants and capital expenditures, net of landlord development and rent
allowances and net of equipment lease and mortgage financing, for new
restaurants. The Company has entered into various equipment lease and mortgage
financing agreements with several financial institutions of which approximately
$9.9 million in the aggregate is available for future fundings. The Company
anticipates that funds generated through operations and funds available through
equipment lease and mortgage financing commitments as well as funds available
under the Credit Agreement will be sufficient to fund planned expansion.
New Accounting Pronouncement
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"), was issued which is effective for fiscal years beginning after June 15,
2000. Statement 133 standardizes the accounting for derivative instruments and
requires that all derivative instruments be carried at fair value. The Company
has not determined the impact that Statement 133 will have on its financial
statements and believes that such determination will not be meaningful until
closer to the date of initial adoption in January 2001.
Year 2000
The Company has instituted a company wide initiative to examine the
implications of the Year 2000 on the Company's computer systems and applications
to ensure that the Company's computer systems will function properly in the Year
2000 and thereafter. The Company's Year 2000 project is substantially complete
with continuous re-testing to be performed until the end of the year. The
Company believes that the Year 2000 issue will not pose significant operational
problems for its computer systems. The Company has also initiated communications
with suppliers and other third parties with which it has a business relationship
regarding compliance with Year 2000 requirements. Where practicable, the Company
will assess and attempt to mitigate its risks with respect to the failure of
these entities to be Year 2000 compliant. The effect, if any, on the Company's
results of operations from the failure of such parties to be Year 2000 compliant
is not reasonably estimable. Management currently believes that the costs
related to the Company's compliance with the Year 2000 issue should not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows. While the Company has developed plans to test its
business critical computer systems prior to the Year 2000, there can be no
assurance that the systems of other parties upon which the Company's business
also relies will be Year 2000 compliant on a timely basis.
Forward-Looking Statements
This Form 10-Q contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements, written, oral or otherwise made, represent the Company's expectation
or belief concerning future events. Without limiting the foregoing, the words
"believes," "thinks," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. The Company cautions that
these statements are further qualified by important economic and competitive
factors that could cause actual results to differ materially, or otherwise, from
those in the forward-looking statements, including, without limitation, risks of
the restaurant industry, including a highly competitive environment and industry
with many well-established competitors with greater financial and
12
<PAGE>
other resources than the Company, and the impact of changes in consumer tastes,
local, regional and national economic and market conditions, restaurant
profitability levels, expansion plans, demographic trends, traffic patterns,
employee availability and benefits, cost increases, and other risks detailed
from time to time in the Company's periodic earnings releases and reports filed
with the Securities and Exchange Commission. In addition, the Company's ability
to expand is dependent upon various factors, such as the availability of
attractive sites for new restaurants, the ability to negotiate suitable lease
terms, the ability to generate or borrow funds to develop new restaurants and
obtain various government permits and licenses and the recruitment and training
of skilled management and restaurant employees. Accordingly, such
forward-looking statements do not purport to be predictions of future events or
circumstances and therefore there can be no assurance that any forward-looking
statement contained herein will prove to be accurate.
13
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
An employee (Plaintiff) of a subsidiary of the Company, initiated legal
action against Morton's of Chicago, Quantum Corporation and unnamed "Doe"
defendants on February 8, 1996 in California Superior Court in San Francisco.
Plaintiff's, Ms. Wendy Kirkland, complaint alleged under California law, among
other things, wrongful constructive termination, sex discrimination and sexual
harassment. Plaintiff sought general, special, and punitive damages in
unspecified amounts, as well as attorneys' fees and costs. The case was
subsequently removed to the US District Court for the Northern District of
California. By order dated October 14, 1997, the Court granted Plaintiff's
motion for partial summary judgment, finding that an employer is strictly liable
under California law for the sexually harassing conduct of the employer's
supervisory employees. On November 25, 1997, a jury in the U.S. District Court
for the Northern District of California awarded a judgment to the Plaintiff. In
conjunction with the judgment, the Company recorded a 1997 fourth quarter
nonrecurring, pre-tax charge of $2,300,000, representing compensatory damages of
$250,000 (reduced by the Court to $150,000 in fiscal 1998), punitive damages of
$850,000, and an estimate of the Plaintiff's and the Company's legal fees and
expenses. The Company filed an appeal and on July 12, 1999, settled all claims
relating to the lawsuit. The amount of the final settlement, including all
related legal and other costs, will not result in an adverse impact on the
Company's results of operations or financial position.
During fiscal 1998, the Company identified several nonperforming
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants which have all been closed. The Company is involved in
various legal actions relating to such closures, however, the Company does not
believe that the ultimate resolution of these actions will have a material
effect beyond that recorded during fiscal 1998. See Note 3 to the Company's
consolidated financial statements.
The Company is involved in other various legal actions incidental to the
normal conduct of its business. Management does not believe that the ultimate
resolution of these actions will have a material adverse effect on the Company's
consolidated financial position, equity, results of operations, liquidity and
capital resources.
Item 4. Submission of Matters to a Vote of Stockholders
No matters were submitted to a vote of stockholders during the quarter for
which this report was filed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.04(o) Eleventh Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated May 20,
1999 among the Registrant, Peasant Holding Corp.,
Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent.
10.17 Promissory Note, dated June 30, 1999, among FFCA
Acquisition Corporation and Morton's of
Chicago/Schaumburg LLC, a subsidiary of the registrant.
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report was filed.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORTON'S RESTAURANT GROUP, INC.
(Registrant)
Date August 16, 1999
By: /s/ ALLEN J. BERNSTEIN
----------------------------------
Allen J. Bernstein
Chairman of the Board, President
and Chief Executive Officer
Date August 16, 1999 By: /s/ THOMAS J. BALDWIN
----------------------------------
Thomas J. Baldwin
Executive Vice President,
Chief Financial Officer and
Director
15
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report.
Exhibit
Number Page Document
- ------ ---- --------
4.04(o) Eleventh Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated May 20,
1999 among the Registrant, Peasant Holding Corp.,
Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent.
10.17 Promissory Note, dated June 30, 1999, among FFCA
Acquisition Corporation and Morton's of
Chicago/Schaumburg LLC, a subsidiary of the registrant.
27.0 Financial Data Schedule
16
EXHIBIT 4.04(o)
ELEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This ELEVENTH AMENDMENT (this "Amendment"), executed, delivered, and dated
as of May 20, 1999 (but effective as of the specified Effective Date referred to
below), by and among MORTON'S RESTAURANT GROUP, INC., a Delaware corporation
(formerly known as Quantum Restaurant Group, Inc.) having its principal place of
business at Suite 210, 3333 New Hyde Park Road, New Hyde Park, New York 11042
(referred to below and in the Credit Agreement, as defined below, as "Quantum"),
PEASANT HOLDING CORP., a Delaware corporation having its principal place of
business at Suite 210, 3333 New Hyde Park Road, New Hyde Park, New York 11042
("Peasant Holding"), MORTON'S OF CHICAGO, INC., an Illinois corporation with its
principal place of business at 350 West Hubbard Street, Chicago, Illinois 60610
("Morton's") (Quantum, Peasant Holding and Morton's are referred to herein
collectively as the "Borrowers", and each, individually, as a "Borrower"),
BANKBOSTON, N.A. (formerly known as The First National Bank of Boston), as Agent
and Administrative Agent (the "Agent") for the Lenders (as defined in the Credit
Agreement referred to below), BANKBOSTON, N.A. (formerly known as The First
National Bank of Boston and referred to below and in the Credit Agreement, as
defined below, as "FNBB") in its individual capacity as a Lender, IMPERIAL BANK
and FIRST UNION NATIONAL BANK, as Lenders, and FIRST UNION NATIONAL BANK, as
documentation agent (the "Documentation Agent") for the Lenders, amends the
Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of
June 19, 1995, as amended by the First Amendment dated as of February 14, 1996,
the Second Amendment dated as of March 5, 1996, a letter agreement dated as of
May 2, 1996, the Third Amendment dated as of June 28, 1996, a letter agreement
dated as of November 7, 1996, the Fourth Amendment dated as of December 26,
1996, the Fifth Amendment dated as of December 31, 1996, the Sixth Amendment
dated as of February 6, 1997, the Seventh Amendment dated as of June 27, 1997,
the Eighth Amendment dated as of February 12, 1998, the Ninth Amendment dated as
of September 25, 1998, the Tenth Amendment dated as of November 18, 1998, and as
the same may be further amended, modified, or supplemented from time to time
(the "Credit Agreement"), by and among the Borrowers, the Administrative Agent,
the Documentation Agent and the Lenders. Capitalized terms used but not defined
herein shall have the meanings set forth in the Credit Agreement.
WHEREAS, the Borrowers have requested that the Lenders agree to increase
the amount of their revolving credit commitments, to provide a new term loan and
to amend certain provisions of the Credit Agreement; and
WHEREAS, the Agent and the Lenders, subject to the terms and provisions
hereof, have agreed to so amend the Credit Agreement;
NOW THEREFORE, the parties hereto hereby agree as follows:
<PAGE>
-2-
ss.1. Amendments to the Credit Agreement.
ss.1.1. New Definitions. Section 1 of the Credit Agreement is hereby
amended by adding the following new definitions to Section 1 in the appropriate
place in the alphabetical sequence:
"Administrative Agent. The Agent referred to herein."
"Applicable Term Eurodollar Rate Margin. See ss.2.6."
"Applicable Term Base Rate Margin. See ss.2.6."
"Applicable Term Margin. See Section 2.6."
"Documentation Agent. First Union National Bank, in its capacity as
documentation agent, subject to ss.13.12 hereof."
"Eleventh Amendment Closing Date. May 20, 1999."
"Excess Operating Cash Flow. For any period, without duplication.
Consolidated EBITDA for such period, minus Cash Interest Charges for such
period, minus permitted capital expenditures actually made in such period,
except to the extent actually financed with permitted Indebtedness under Section
10.1(f) of this Credit Agreement incurred during such period, minus federal,
state, and local income taxes paid in cash during such period, minus any
required or mandatory permanent repayments of principal on any Funded
Indebtedness of the Borrowers paid during such period, and minus any voluntary
prepayments on the Term Loan pursuant to ss.2.6(d) of this Credit Agreement paid
during such period."
"Mandatory Recapture Prepayments. See Section 2.6(c)(iii)."
"Recapture Date. See Section 2.6(c)(iii)."
ss.1.2. Changes in Certain Definitions. Section 1 of the Credit Agreement
is hereby further amended as follows:
(a) The table contained in the definition of "Commitment Percentage" in
Section 1 of the Credit Agreement is hereby amended to read as follows:
"Lender Percentage
------- ----------
FNBB 46.6666667%
Imperial Bank 13.3333333%
First Union 40.0000000%"
(b) The definition of "Revolving Credit Commitment" in Section 1 of the
Credit Agreement is hereby amended by replacing the phrase "Thirty Two Million
Five Hundred Thousand Dollars ($32,500,000)" with the phrase "$50,000,000".
<PAGE>
-3-
(c) The definition of "Revolving Credit Commitment Amount" in Section 1 of
the Credit Agreement is hereby amended by replacing the number "Thirty Two
Million Five Hundred Thousand Dollars ($32,500,000)" with the phrase
"$50,000,000".
(d) The definition of "Term Loan" in Section 1 of the Credit Agreement is
hereby amended by replacing the phrase "10th Amendment Closing Date" with the
phrase "Eleventh Amendment Closing Date" and by replacing the figure
"$12,500,000" with the figure "$25,000,000".
(e) The definition of "Term Loan Maturity Date" in Section 1 of the Credit
Agreement is hereby amended by replacing the date "December 31, 2003" with the
date "December 31, 2004".
(f) The table contained in the definition of Term Loan Percentage in
Section 1 of the Credit Agreement is hereby amended to read as follows:
"Lender Percentage
------- ----------
FNBB 46.6666667%
Imperial Bank 13.3333333%
First Union 40.0000000%"
ss.1.3. Rules of Interpretation. Section 1.2(j) of the Credit Agreement is
hereby amended by adding the phrase "and Applicable Term Margin under Section
2.6" immediately after the phrase "Section 2.4".
ss.1.4. Revolving Credit Loan.
(a) The table in Section 2.4(b) of the Credit Agreement is hereby amended
to appear as follows:
Applicable
Cash Flow Applicable Base Eurodollar Rate
Pricing Tier Leverage Ratio Rate Margin (p.a.) Margin (p.a.)
- ------------ -------------- ------------------ -------------
- --------------------------------------------------------------------------------
1 Less than 1.25 to 1 0% 1.25%
- --------------------------------------------------------------------------------
2 Greater than or equal
to 1:25 to 1 but less than
1.50 to 1 0% 1.50%
- --------------------------------------------------------------------------------
3 Greater than or equal to
1.50 to 1 but less than
2.00 to 1 0% 1.75%
- --------------------------------------------------------------------------------
4 Greater man or equal to
2:00 to 1 but less than
2.50 to 1 0% 2.00%
- --------------------------------------------------------------------------------
5 Greater than or equal to
2.50 to 1 but less than
3.00 to 1 0.25% 2.25%
- --------------------------------------------------------------------------------
6 Greater than or equal to
3:00 to 1 but less than
3.50 to 1 0.75% 2.75%
- --------------------------------------------------------------------------------
7 Greater than or equal to
3.50 to 1 1.25% 3.25%
- --------------------------------------------------------------------------------
<PAGE>
-4-
(b) Section 2.4(b) of the Credit Agreement is hereby amended by replacing
the phrase "with respect to the Loans" appearing in the third sentence of such
subsection with the phrase "with respect to the Revolving Credit Loans".
(c) Section 2.4(c)(ii) of the Credit Agreement is hereby amended by
replacing the phrase "with respect to the Loans" with the phrase "with respect
to the Revolving Credit Loans".
(d) Section 2.4(c)( iii) of the Credit Agreement is hereby amended by
replacing the phrase "the Loans" with the phrase "the Revolving Credit Loans" in
each place such phrase appears in Section 2.4(c)(iii).
ss.1.5. Term Loan. Section 2.6 of the Credit Agreement is hereby amended
as follows:
(a) Subsection (a) of Section 2.6 is hereby amended by deleting the phrase
"10th Amendment Closing Date" and replacing it with the phrase "Eleventh
Amendment Closing Date", replacing the phrase "Tenth Amendment hereto" with the
phrase "Eleventh Amendment hereto", and replacing the number "$12,500,000" in
each place where it appears in Section 2.6(a) and replacing it in each such
place with the number "$25,000,000".
(b) Subsection (b) of Section 2.6 is hereby amended by replacing the
phrase "10th Amendment Closing Date" with the phrase "Eleventh Amendment Closing
Date".
(c) The table in Subsection (c)(i) of Section 2.6 is hereby amended to
read as follows:
---------------------------------------
Date Installment Amount
---- ------------------
---------------------------------------
March 31, 2000 $250,000
June 30, 2000 $250,000
September 30, 2000 $250,000
December 31, 2000 $250,000
March 31, 2001 $250,000
June 30, 2001 $250,000
September 30, 2001 $250,000
December 31, 2001 $250,000
March 31, 2002 $250,000
June 30, 2002 $250,000
September 30, 2002 $250,000
December 31, 2002 $250,000
March 31, 2003 $2,500,000
June 30, 2003 $2,500,000
September 30, 2003 $2,500,000
December 31, 2003 $2,500,000
March 31, 2004 $3,000,000
June 30, 2004 $3,000,000
September 30, 2004 $3,000,000
December 31, 2004 $3,000,000
---------------------------------------
<PAGE>
-5-
(d) The following new Subsection (c)(iii) of Section 2.6 is hereby added
after Subsection (c)(ii):
"(iii) Annual Excess Cash Flow Recapture. On the date which is one hundred
and five (105) days after the end of each fiscal year (the "Recapture Date"),
except as set forth below, the Borrowers jointly and severally shall be
obligated to make prepayments in respect of the outstanding principal of the
Term Loan in an amount equal to fifty percent (50%) of the Excess Operating Cash
Flow as computed for such most recently completed fiscal year, in each case
payable to the Agent for application in respect of the Term Loan to the
applicable ratable accounts of the Lenders (the "Mandatory Recapture
Prepayments"). Such Mandatory Recapture Prepayments shall be applied pro rata to
the remaining unpaid scheduled installments of principal with respect to the
Term Loan in accordance with their respective unpaid amounts. No such Mandatory
Recapture Prepayments with respect to the Term Loan may be reborrowed. However,
such obligation to make Mandatory Recapture Prepayments on any such potential
Recapture Date shall not apply if (but only if) the Term Loan shall have been
paid in full or the Cash Flow Leverage Ratio shall have been less than 3.00 to
1.00 as determined as of each of the two most recent, consecutive Fiscal Quarter
end dates occurring prior to such Recapture Date for which there shall have been
delivered by the Companies the financial statements and Compliance Certificates
required under Section 9.4 hereof on or prior to such potential Recapture Date."
(e) Section 2.6(e) of the Credit Agreement is hereby amended to read as
follows:
"(e) Interest on Term Loan. Except as otherwise provided in ss.4.1:
(A) The Borrowers shall pay interest on the unpaid principal amount of the
Term Loan made by the Lenders to the Borrowers from time to time outstanding,
until such principal amount is paid in full, at an annual rate equal to, (i)
with respect to any portion of the Term Loan which is a Base Rate Loan, the Base
Rate in effect from time to time plus the Applicable Term Base Rate Margin, and
(ii) with respect to any portion of the Term Loan which is a Eurodollar Rate
Loan, the Eurodollar Rate in effect for the applicable Interest Period plus the
Applicable Term Eurodollar Rate Margin (the Applicable Term Base Rate Margin or
the Applicable Term Eurodollar Rate Margin, whichever is applicable, is
sometimes referred to herein as the "Applicable Term Margin").
(B) On each Adjustment Date following the end of each Fiscal Quarter, the
Applicable Term Margin shall be determined on the basis of the financial
statements and Compliance Certificates required to be delivered under Section
9.4 hereof with respect to such Fiscal Quarter. The Applicable Term Margin shall
be the applicable rate per annum set forth in the table below opposite the level
of the Cash Flow Leverage Ratio determined for the applicable fiscal period of
four consecutive Fiscal Quarters, treated as a single accounting period (as
referred to in the definition of Cash Flow Leverage Ratio), ending on the
Quarter End Date immediately prior to such Adjustment Date. The Applicable Term
Margin that is so determined on each such Adjustment Date shall be effective
with respect to the Term Loan as follows: (i) with respect to all portions of
the Term Loan constituting Base Rate Loans, such Applicable Term Margin shall be
deemed to have become effective as of the date immediately following such
preceding Quarter End Date (i.e., as of the first day of the Fiscal Quarter
immediately following such Quarter End Date) and shall continue to be effective
through the next Quarter End Date; and (ii) with respect to all portions of the
Term Loan constituting Eurodollar Rate Loans, such Applicable Term Margin shall
be deemed to have become effective with respect to all Interest Periods (or the
<PAGE>
-6-
applicable portions thereof) of such Eurodollar Rate Loans for which the
Interest Payment Date occurs on or after such Adjustment Date (but prior to the
next Adjustment Date).
Applicable Term
Term Loan Cash Flow Applicable Term Base Eurodollar Rate
Pricing Tier Leverage Ratio Rate Margin (p.a.) Margin (p.a.)
- ------------ -------------- ------------------ -------------
- --------------------------------------------------------------------------------
1 Less than 1.25 to 1 0.25% 2.00%
- --------------------------------------------------------------------------------
2 Greater than or equal
to 1:25 to 1 but less than
1.50 to 1 0.25% 2.00%
- --------------------------------------------------------------------------------
3 Greater than or equal to
1.50 to 1 but less than
2.00 to 1 0.25% 2.00%
- --------------------------------------------------------------------------------
4 Greater than or equal to
2:00 to 1 but less than
2.50 to 1 0.25% 2.25%
- --------------------------------------------------------------------------------
5 Greater than or equal to
2.50 to 1 but less than
3.00 to 1 0.50% 2.50%
- --------------------------------------------------------------------------------
6 Greater than or equal to
3:00 to 1 but less than
3.50 to 1 1.00% 3.00%
- --------------------------------------------------------------------------------
7 Greater than or equal to
3.50 to 1 1.50% 3.50%
- --------------------------------------------------------------------------------
(C) Notwithstanding the foregoing provisions.
(i) the initial Adjustment Date for purposes of this ss.2.6(e) shall
be deemed to occur on May 15, 1999 (notwithstanding the definition of
Adjustment Date in Section 1 hereof) with the Applicable Term Margin to be
determined on such date on the basis of the calculation of the Cash Flow
Leverage Ratio for the fiscal period of four consecutive Fiscal Quarters
ended on or about March 31, 1999 (treated as a single accounting period);
thereafter, each Adjustment Date for purposes of this ss.2.6(e) subsequent
to each applicable Quarter End Date shall be such date as is provided in
the definition of Adjustment Date in Section 1 hereof:
(ii) if the Companies fail to deliver any financial statements or
Compliance Certificates (as the case may be) required under Section 9.4
hereof with respect to any Fiscal Quarter on or prior to the scheduled
Adjustment Date immediately following such Fiscal Quarter, then
(notwithstanding such failure) the Applicable Term Margin shall be deemed
provisionally set on such Adjustment Date at that "Tier" which was
determined on the prior Adjustment Date; provided, however, in the event
such failure to deliver such financial statements or Compliance
Certificates (as the case may be) is subsequently cured, the Applicable
Term Margin shall be appropriately re-adjusted and shall be deemed to have
been initially set on such scheduled Adjustment Date at that correct
"Tier" which should have been set on such Adjustment Date had such failure
not occurred; in any event, the Applicable Term Margin so determined under
this paragraph shall be effective with respect to the Term Loan as
provided in paragraph (B) above; and
(iii) if, as a result of any such delay in delivery of financial
statements or Compliance Certificates (as the case may be) as described
above, or as a result of any
<PAGE>
-7-
such delay as described above in correctly determining the
Applicable Term Margin that should have been determined on the relevant
Adjustment Date, or for any other reason, an incorrect interest rate shall
have been applied hereunder to the Term Loan, then such interest rate
determination shall be appropriately corrected retroactively, and within
three (3) Business Days after written notice thereof in reasonable detail
requesting a retroactive correction of interest previously paid given by
either the Borrowers, the Agent or any Lender, the Borrowers shall pay to
the Lenders, or (as the case may be) the Lenders on a several and ratable
basis shall credit the Borrowers with, the amount of the appropriate
retroactive correction in the amount of interest paid with respect to the
Term Loan.
(D) The Borrowers jointly and severally promise to pay interest on the
Term Loan in arrears on each Interest Payment Date with respect thereto and at
maturity of the Term Loan.
(E) The provisions of ss.2.3 shall apply mutatis mutandis with respect to
all or any portion of the Term Loan so that the Borrowers may have the same
interest rate options with respect to all or any portion of the Term Loan as it
would be entitled to with respect to the Revolving Credit Loans.
(F) Any portion of the Term Loan bearing interest determined by reference
to the Eurodollar Rate relating to any Interest Period shall be in an amount of
$250,000 or an integral multiple thereof. No Interest Period relating to the
Term Loan or any portion thereof bearing interest at the Eurodollar Rate shall
extend beyond the date on which a regularly scheduled installment payment of the
principal of the Term Loan is to be made unless a portion of the Term Loan at
least equal to such installment has an Interest Period ending on such date or is
then bearing interest determined by reference to the Base Rate."
ss.1.6. Certain Common Provisions.
(a) Section 4.1 of the Credit Agreement is hereby amended by adding after
the phrase "Base Rate Loans", the phrase, "constituting Revolving Credit Loans
or a portion of the Term Loan, as the case may be".
{b) Section 4.5 of the Credit Agreement is hereby amended by deleting the
number "$22,500,000" and replacing it with the number "$40,000,000".
ss.1.7. Reimbursement Obligations. Section 4A.2 of the Credit Agreement is
hereby amended by inserting the phrase "Revolving Credit Loans which constitute"
immediately before the phrase "Base Rate Loans" at the end of Section 4A.2.
ss.1.3. Affirmative Covenants. Section 9.4(d) of the Credit Agreement is
hereby amended by adding the phrase "and Applicable Term Margin under ss.2.6"
immediately after the phrase "ss.2.4".
ss.1.9. Negative Covenants. Section 10 of the Credit Agreement is hereby
amended as follows:
(a) Section 10.3(e) of the Credit Agreement is hereby amended by adding
the following sentence at the end of such Section 10.3(e):
"Further, for purposes only of this clause (e) of this ss.10.3, capital
expenditures shall include any Investments made pursuant to ss.10.11(m) hereof.
The restrictions of this
<PAGE>
-8-
ss.10.3(e) shall not apply to capital expenditures actually financed by
permitted purchase money Indebtedness incurred pursuant to Section 10.1(f)
hereof."
(b) The second sentence of Section 10.5(b) of the Credit Agreement is
hereby amended by (i) deleting the phrase, "up to 1,330,600", (ii) deleting the
number "$20,000,000" and replacing it with the phrase "$40,000,000, and at a
maximum purchase price not to exceed $30 per share," and (iii) adding at the end
of such second sentence, immediately before the period, the phrase, ", and
further provided that the pro forma Cash Flow Leverage Ratio (computed for this
purpose on a pro forma basis, the numerator of such ratio for this purpose being
the Funded Indebtedness that would be then outstanding on the date of such
proposed Distribution immediately after giving effect to such proposed
Distribution and any related Indebtedness to be incurred in connection with the
financing thereof, and the denominator of such ratio for this purpose being the
Consolidated EBITDA for the Reference Period ending on the most recent Fiscal
Quarter end date for which there shall have been delivered by the Companies the
financial statements and Compliance Certificates required under Section 9.4
hereof prior to the time of any such proposed Distribution) shall be less than
3:00 to 1:00".
(c) Section 10.6 of the Credit Agreement is hereby amended by inserting
immediately after the phrase "principal payments" the new phrase "(other than
Mandatory Recapture Prepayments)" in clause (ii)(B) of Section 10.6.
(d) Section 10.11 of the Credit Agreement is hereby amended by adding the
following new subsection at the end thereof:
"(m) additional Investments, provided that such Investments shall not
exceed $100,000 of Investments made during any fiscal year and shall be subject
to the applicable limitations with respect thereto set forth in Section
10.3(e)."
(e) Section 10.11 of the Credit Agreement is further hereby amended by
deleting the word "and" from the end of Section 10.11(k), and replacing the
period at the end of Section 10.10(1) with the phrase "; and".
ss.1.10. The Agent. Section 13 of the Credit Agreement is hereby amended
by adding the following new subsections 13.12 and 13.13:
"ss.13.12. No Rights or Duties of the Documentation Agent. The
Documentation Agent, as such, shall have no rights and no duties or
responsibilities under this Credit Agreement."
"ss.13.13. The Administrative Agent. References to the Agent in this
Credit Agreement or the other Loan Documents shall be deemed to be references to
the Administrative Agent, and references to the Administrative Agent in this
Credit Agreement or the other Loan Documents shall be deemed to be references to
the Agent, so that such terms may be used interchangeably herein and therein.
ss.2. Transitional Arrangements; Allocations. Effective as of the
Effective Date, each Lender shall make such dispositions and arrangements with
each other Lender with respect to the then outstanding Revolving Credit Loans
(the "Adjustment") as shall result in the amount of Revolving Credit Loans owed
to each Lender being equal to the product of such Lender's Commitment Percentage
multiplied by the aggregate Revolving Credit Loans outstanding on the
<PAGE>
-9-
Effective Date (the "Adjusted Amount"). Each of the Borrowers and the Guarantors
hereby agrees that each Lender's Adjusted Amount shall be Revolving Credit Loans
owed by the Borrowers jointly and severally to such Lender as if such Lender had
initially made Revolving Credit Loans to the Borrowers in the amount of the
Adjusted Amount. The Borrowers also hereby jointly and severally agree to pay
all amounts referred to in ss.4.12 of the Credit Agreement arising in connection
with the Adjustment (as if the Adjustment resulted in prepayments of the
Revolving Credit Loans reallocated pursuant to the Adjustment). Upon the
occurrence of the Adjustment, (a) the Agent shall appropriately adjust its
records to reflect each Lender's Adjusted Amount and (b) each of the Lenders
shall promptly thereafter return to the Agent its existing Revolving Credit Note
or Amended and Restated Revolving Credit Note, as the case may be, as replaced
by an Amended and Restated Revolving Credit Note in connection with this
Amendment and the contemplated reallocation of the Revolving Credit Commitment
Amount. The Lenders shall make any appropriate adjustments in payments received
in respect of the Obligations which are allocable to periods prior to the
Effective Date directly among themselves as shall be necessary to effect the
proper allocation of such payments among the Lenders, reflecting their
respective portions of the applicable Obligations held by them from time to
time.
ss.3. Representations and Warranties.
ss.3.1. Borrowers' Representations and Warranties. The Borrowers hereby
represent and warrant to the Agent and the Lenders as follows:
(a) Representations and Warranties in Credit Agreement. Except as
specified in writing by the Borrowers to the Agent with respect to
the subject matter of this Amendment prior to the execution and
delivery hereof by the Agent and the Lenders, the representations
and warranties of the Borrowers contained in the Credit Agreement
were true and correct in all material respects when made and
continue to be true and correct in all material respects on and as
of the date hereof, and as of the Effective Date, except, in each
case to the extent of changes resulting from transactions
contemplated or permitted by the Loan Documents and this Amendment
and changes occurring in the ordinary course of business which
singly or in the aggregate are not materially adverse, and to the
extent that such representations and warranties relate expressly to
an earlier date.
(b) Authority No Conflicts, Enforceability of Obligations, Etc. Each of
the Borrowers hereby confirms that the representations and
warranties of the Borrowers contained in ss.6.1, 6.3 and 6.4 of the
Credit Agreement are true and correct on and as of the date hereof,
and as of the Effective Date, as if made on each such date, treating
this Amendment, the Credit Agreement as amended hereby, and the
other Loan Documents as amended hereby, as "Loan Documents" for the
purposes of making said representations and warranties.
<PAGE>
-10-
ss.4. Conditions to Effectiveness. This Amendment shall be deemed to be
effective as of May 20, 1999 (the "Effective Date"), subject to:
(a) the delivery to the Agent and the Lenders by (or on behalf of) each of
the Borrowers or the Guarantors, as the case may be, contemporaneously with the
execution hereof, of the following documents, each in form and substance
satisfactory to the Agent and the Lenders:
(i) this Amendment signed by each of the Borrowers, each of the
Guarantors, the Agent, and each of the Lenders;
(ii) an Amended and Restated Revolving Credit Note executed and delivered
jointly and severally by the Borrowers in favor of each Lender in
the amounts of its respective Commitment Percentage of the aggregate
Revolving Credit Commitment Amount, which shall (from and after the
Effective Date) be deemed to constitute the Revolving Credit Notes
held by such Persons as referred to in the Credit Agreement;
(iii) an Amended and Restated Term Note executed and delivered jointly and
severally by the Borrowers in favor of each Lender in the amounts of
its respective Term Loan Percentage of the Term Loan, which shall
(from and after the Effective Date) be deemed to constitute the Term
Notes held by such Persons as referred to in the Credit Agreement;
(iv) certificates of an appropriate officer of each of the Borrowers,
dated as of the date hereof, as to (i) the charter documents and
by-laws, each as amended, of each of the Borrowers, (ii) the
corporate actions taken by each of the Borrowers authorizing the
execution. delivery, and performance hereof, and (iii) the names,
titles, incumbency, and specimen signatures of the officers of each
of the Borrowers authorized to sign this Amendment on behalf of each
of the Borrowers;
(v) a favorable written legal opinion addressed to the Agent and
Lenders, dated as of the date hereof, from outside counsel to the
Borrowers, with respect to such matters as to the Borrowers and the
Loan Documents as the Agent and the Lenders may reasonably request,
including (without limitation) opinions as to the corporate
authority of each of the Borrowers to execute, deliver, and perform
this Amendment, the Notes, and the other documents contemplated
hereby, and the enforceability hereof and thereof;
(vi) such evidence as the Agent may reasonably request such that the
Agent shall be satisfied that the representations and warranties
contained in ss.3 hereof are true and correct on and as of date
hereof and as of the Effective Date;
(vii) legal existence and good standing certificates issued by the
appropriate public officials as to each of the Borrowers, and such
other certificates, documents, or instruments with respect to this
Amendment, the Notes, the other Loan Documents, the Borrowers, and
the Guarantors as the Agent or any of the Lenders may reasonably
request;
<PAGE>
-11-
(viii) separate fee letters from the Borrowers to each of the Lenders, as
separately agreed with each of them; and
(b) the completion of the following acts:
(i) the payment of such fees by the Borrowers, relating hereto, as shall
have been previously, separately agreed by the parties, to be paid
to the Agent, for allocation between the Agent and the Documentation
Agent in such respective amounts as so agreed with each such person;
(ii) the payment by the Borrowers of such fees, relating hereto, as shall
have been previously, separately agreed to by the parties, to be
paid to the Agent, for allocation among the Lenders in such
respective amounts as so agreed `with each Lender; and
(iii) the Borrowers shall have repaid in full the previously-advanced Term
Loan as referred to in the Tenth Amendment to the Credit Agreement
(together with all accrued and unpaid interest owing thereon) prior
to or on the Effective Date, such that the Lenders shall have loaned
to the Borrowers hereunder on the Effective Date in accordance with
their respective Term Loan Percentages, as affected by this
Amendment, and the Borrowers shall have borrowed hereunder on the
Effective Date, a new term loan on the Effective Date in the
aggregate principal amount of $25,000,000 (which new term loan
shall, from and after the Effective Date, be deemed to be the "Term
Loan" referred to in the Credit Agreement);
ss.5. No Other Amendments or Waivers; Execution in Counterparts. Except as
otherwise expressly provided by this Amendment, all of the terms, conditions and
provisions of the Credit Agreement and the other Loan Documents shall remain in
full force and effect. Each of the Borrowers and the Guarantors confirms and
agrees that the Obligations of the Borrowers to the Lenders under the Loan
Documents, as amended, supplemented and increased hereby, are secured by,
guarantied under, and entitled to the benefits, of the Security Documents. The
Borrowers, the Guarantors, the Agent and the Lenders hereby acknowledge and
agree that all references to the Credit Agreement and the Obligations thereunder
contained in any of the Loan Documents shall be references to the Credit
Agreement and the Obligations, as amended hereby and as the same may be amended,
modified, supplemented, or restated from time to time. The Security Documents
and the perfected first priority security interests of the Lenders thereunder as
collateral security for the Obligations shall continue in full force and effect,
and the collateral security and guaranties provided for in the Security
Documents shall not be impaired by this Amendment. This Amendment may be
executed in any number of counterparts, but all such counterparts shall together
constitute but one instrument. In making proof of this Amendment it shall not be
necessary to produce or account for more than one counterpart signed by each
party hereto by and against which enforcement hereof is sought.
ss.6. Return of Notes. Promptly upon the effectiveness of this Amendment,
each Lender holding a Revolving Credit Note or Term Note previously delivered to
such Lender under the Credit Agreement (prior to giving effect to this
Amendment) that has been superseded and replaced by a Revolving Credit Note or
Term Note delivered to such Lender
<PAGE>
-12-
pursuant to this Amendment shall return such superseded note, marked
"cancelled", to the Borrowers.
ss.7. Governing Law. This Amendment shall be construed according to and
governed by the internal laws of the Commonwealth of Massachusetts without
reference to principles of conflicts of law.
<PAGE>
-13-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized.
The Borrowers:
MORTON'S RESTAURANT GROUP, INC.
PEASANT HOLDING CORP.
MORTON'S OF CHICAGO, INC.
By: /s/ Thomas J. Baldwin
-----------------------------------------
Name: Thomas J. Baldwin
Title: Executive Vice President and Chief
Financial Officer
BANKBOSTON, N.A. (formerly known as The First
National Bank of Boston), for itself and as
Administrative Agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
FIRST UNION NATIONAL BANK, for itself and
as Documentation Agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
IMPERIAL BANK
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Consented and agreed to, by each off
THE GUARANTORS (as defined in the Credit
Agreement)
By: /s/ Thomas J. Baldwin
-----------------------------------------
Name: Thomas J. Baldwin
Title: Executive Vice President and Chief
Financial Officer for each of the
Guarantors
<PAGE>
-13-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized.
The Borrowers:
MORTON'S RESTAURANT GROUP, INC.
PEASANT HOLDING CORP.
MORTON'S OF CHICAGO, INC.
By:
-----------------------------------------
Name: Thomas J. Baldwin
Title: Executive Vice President and Chief
Financial Officer
BANKBOSTON, N.A. (formerly known as The First
National Bank of Boston), for itself and as
Administrative Agent
By: /s/ Christopher Holtz
-----------------------------------------
Name: CHRISTOPHER HOLTZ
Title: VICE PRESIDENT
FIRST UNION NATIONAL BANK, for itself and
as Documentation Agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
IMPERIAL BANK
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Consented and agreed to, by each off
THE GUARANTORS (as defined in the Credit
Agreement)
By:
-----------------------------------------
Name: Thomas J. Baldwin
Title: Executive Vice President and Chief
Financial Officer for each of the
Guarantors
<PAGE>
-13-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized.
The Borrowers:
MORTON'S RESTAURANT GROUP, INC.
PEASANT HOLDING CORP.
MORTON'S OF CHICAGO, INC.
By:
-----------------------------------------
Name: Thomas J. Baldwin
Title: Executive Vice President and Chief
Financial Officer
BANKBOSTON, N.A. (formerly known as The First
National Bank of Boston), for itself and as
Administrative Agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
FIRST UNION NATIONAL BANK, for itself and
as Documentation Agent
By: /s/ Joel Thomas
-----------------------------------------
Name: Joel Thomas
Title: Vice President
IMPERIAL BANK
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Consented and agreed to, by each off
THE GUARANTORS (as defined in the Credit
Agreement)
By:
-----------------------------------------
Name: Thomas J. Baldwin
Title: Executive Vice President and Chief
Financial Officer for each of the
Guarantors
<PAGE>
-13-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized.
The Borrowers:
MORTON'S RESTAURANT GROUP, INC.
PEASANT HOLDING CORP.
MORTON'S OF CHICAGO, INC.
By:
-----------------------------------------
Name: Thomas J. Baldwin
Title: Executive Vice President and Chief
Financial Officer
BANKBOSTON, N.A. (formerly known as The First
National Bank of Boston), for itself and as
Administrative Agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
FIRST UNION NATIONAL BANK, for itself and
as Documentation Agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
IMPERIAL BANK
By: /s/ Paula J. Barysauskas
-----------------------------------------
Name: PAULA J. BARYSAUSKAS
Title: VICE PRESIDENT
Consented and agreed to, by each off
THE GUARANTORS (as defined in the Credit
Agreement)
By:
-----------------------------------------
Name: Thomas J. Baldwin
Title: Executive Vice President and Chief
Financial Officer for each of the
Guarantors
EXHIBIT 10.17
PROMISSORY NOTE
Dated as of June 30, 1999
$3,000,000.00 Scottsdale, Arizona
MORTON'S OF CHICAGO/SCHAUMBURG LLC, a Delaware limited liability company
("Debtor"), for value received, hereby promises to pay to FFCA ACQUISITION
CORPORATION, a Delaware corporation ("FFCA"), whose address is 17207 North
Perimeter Drive, Scottsdale, Arizona 85255, or order, on or before July 1, 2019,
as herein provided, the principal sum of up to THREE MILLION AND 00/100 DOLLARS
($3,000,000.00) or so much thereof as may be advanced by FFCA to Debtor from
time to time (the "Principal Amount"), and interest on the unpaid Principal
Amount from time to time outstanding as hereinafter set forth.
Initially capitalized terms which are not otherwise defined in this Note
shall have the meanings set forth in the Loan Agreement dated as of the date of
this Note among Debtor and FFCA, as such agreement may be amended from time to
time (the "Loan Agreement"). In addition, the following terms shall have the
following meanings for all purposes of this Note:
"Adjustable Rate" means an annual interest rate equal to the sum of
the Adjustable Rate Basis plus the Applicable Margin, which Adjustable
Rate shall at no time during the term of this Note be greater than 13.75%
per annum or less than 5.75% per annum.
"Adjustable Rate Basis" means, for any Interest Period, the annual
interest rate (rounded upwards, if necessary, to the nearest 1/100th of
one percent) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in dollars at approximately
11:00 a.m. (London time) on the Adjustable Rate Reset Date for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "Adjustable Rate Basis" shall mean, for any Interest
Period, the annual interest rate (rounded upwards, if necessary, to the
nearest 1/100th of one percent) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in dollars at approximately
11:00 a.m. (London time) on the Adjustable Rate Reset Date for a term
comparable to such Interest Period; provided, however, if more than one
rate is specified on the Reuters Screen LIBO Page, the applicable rate
shall be the arithmetic mean of all such rates.
"Adjustable Rate Reset Date" means the fifteenth day of each
calendar month, or the next succeeding Business Day if such day is not a
Business Day, prior to the next Interest Period.
"Applicable Margin" means an annual percentage equal to 2.75%.
<PAGE>
"Base Interest Rate" means a fixed rate of interest equal to the
Treasury Rate plus 2.75%.
"Business Day" means any day on which FFCA is open for business in
the State of Arizona, other than a Saturday, Sunday or a legal holiday.
"Interest Period" means (i) initially, the period beginning on the
date of this Note and ending on the last day of the calendar month in
which such date occurs, and (ii) thereafter, the period beginning on the
first day of the calendar month and ending on the last day of such
calendar month.
"Loan Agreement" means that certain Loan Agreement dated as of the
date of this Note between Debtor and FFCA, as such agreement may be
amended from time to time.
"Maturity Date" means July 1, 2019; provided, however, the Maturity
Date shall be amended, as applicable, in the Amended and Restated Note (as
defined below) to be the first day of the month immediately following the
month in which the twentieth anniversary of the Disbursement occurs.
"Treasury Rate" means the 10-year U.S. Treasury Rate in effect as
reported in the Western Edition of The Wall Street Journal on the tenth
calendar day preceding the Disbursement Date. In the event The Wall Street
Journal ceases to publish such Treasury information, FFCA shall select an
alternative publication which publishes comparable information most nearly
approximating such information.
The Principal Amount shall be advanced only in accordance with the terms
and conditions of the Loan Agreement. This Note shall be amended and restated in
its entirety on the date of the Disbursement (the "Disbursement Date") pursuant
to the Amended and Restated Note.
During the period of time between the date of this Note and the
Disbursement Date (the "Interim Term"), interest shall accrue at the Adjustable
Rate on the Principal Amount outstanding from time to time and such interest
shall be compounded monthly (such interest as compounded being referred to
herein as the "Interim Term Interest"); provided, however, the Interim Term
Interest shall not be paid by Debtor to FFCA during the Interim Term, but rather
shall be added to the Principal Amount.
Interest on the outstanding Principal Amount as of the Disbursement Date
(including the Interim Term Interest) for the period commencing with the
Disbursement Date through the last day in the month in which the Disbursement
occurs shall be due and payable upon delivery of the Amended and Restated Note.
Thereafter, fixed equal monthly payments of principal and interest, based on the
amortization of the outstanding Principal Amount as of the Disbursement Date
(including the Interim Term Interest) over a twenty-year period at the Base
Interest Rate, shall be due and payable, commencing on the first day of the
second calendar month following the month in which the Disbursement occurs and
continuing on the first day of each month
2
<PAGE>
thereafter until the Maturity Date, at which time the outstanding Principal
Amount and unpaid accrued interest shall be due and payable.
Debtor may not prepay this Note in full or in part.
Upon execution of this Note, Debtor shall establish arrangements whereby
all payments of principal and interest hereunder to be made subsequent to the
Disbursement Date are transferred by wire or other means directly from Debtor's
bank account to such account as FFCA may designate or as FFCA may otherwise
designate.
This Note is secured by the Mortgage and guaranteed by the Guarantor
pursuant to the Guaranty. An "Event of Default" shall be deemed to have occurred
under this Note if (a) any principal, interest or certain other monetary sum due
under this Note is not paid within five days after the date when due and FFCA
shall have given Debtor notice thereof and a period of seven days from the
delivery of such notice shall have elapsed without such past-due sum being paid,
or (b) an Event of Default (as defined under any of the Loan Documents).
During the continuation of an Event of Default under this Note, then, time
being of the essence hereof, FFCA may declare the entire unpaid principal
balance of this Note, accrued interest, if any, and all other sums due under
this Note and any Loan Documents which secure this Note, due and payable at once
without notice to Debtor.
All past-due principal and/or interest shall bear interest from the due
date to the date of actual payment at the lesser of the highest rate for which
the undersigned may legally contact, or the rate of 13% per annum (the "Default
Rate"), and such Default Rate shall continue to apply following a judgment in
favor of FFCA under this Note; provided, however, the Default Rate shall not be
applicable if all past-due principal and/or interest is paid in full within the
notice and cure periods provided for in the Loan Agreement.
All payments of principal and interest due hereunder shall be made (i)
without deduction of any present and future taxes, levies, imposts, deductions,
charges or withholdings of Debtor, which amounts shall be paid by Debtor, and
(ii) without any other right of abatement, reduction, setoff, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
Debtor will pay the amounts necessary (such amounts are hereby deemed not to
include income taxes, gross receipts taxes, transfer taxes, franchise taxes and
corporate taxes) such that the gross amount of the principal and interest
received by FFCA is not less than that required by this Note.
No delay or omission on the part of FFCA in exercising any remedy, right
or option under this Note shall operate as a waiver of such remedy, right or
option. In any event, a waiver on any one occasion shall not be construed as a
waiver or bar to any such remedy, right or option on a future occasion.
Debtor hereby waives presentment, demand for payment, notice of dishonor,
notice of protest, and protest, notice of intent to accelerate, notice of
acceleration and all other notices or
3
<PAGE>
demands in connection with delivery, acceptance, performance, default or
endorsement of this Note.
All notices, consents, approvals or other instruments required or
permitted to be given by either party pursuant to this Note shall be in writing
and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery
service or (iv) certified or registered mail, return receipt requested, and
shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b)
transmission, if delivered by facsimile, (c) the next business day, if delivered
by express overnight delivery service, or (d) the third business day following
the day of deposit of such notice with the United States Postal Service, if sent
by certified or registered mail, return receipt requested. Notices shall be
provided to the parties and addresses (or facsimile numbers, as applicable)
specified below:
If to Debtor: Mr. Thomas Baldwin
Chief Financial Officer
Morton's of Chicago/Schaumburg, LLC
3333 New Hyde Park Road
New Hyde Park, New York 11042
Telephone: (516) 627-1515
Telecopy: (516) 627-2050
with a copy to: Mr. Thomas Baldwin
Chief Financial Officer
Morton's Restaurant Group, Inc.
3333 New Hyde Park Road
New Hyde Park, New York 11042
Telephone: (516) 627-1515
Telecopy: (516) 627-2050
with a copy to: David Gruber, Esq.
Salamon, Gruber, Newman and Blaymore
97 Powerhouse Road
Suite 102
Roslyn Heights, New York 11577
Telephone: (516) 625-1700
Telecopy: (516) 625-1795
If to FFCA: Dennis L. Ruben, Esq.
Executive Vice President and General Counsel
FFCA Acquisition Corporation
17207 North Perimeter Drive
Scottsdale, Arizona 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
4
<PAGE>
or to such other address or such other person as either party may from time to
time hereafter specify to the other party in a notice delivered in the manner
provided above.
Should any indebtedness represented by this Note be collected at law or in
equity, or in bankruptcy or other proceedings, or should this Note be placed in
the hands of attorneys for collection after default, Debtor shall pay, in
addition to the principal and interest due and payable hereon, all costs of
collecting or attempting to collect this Note (the "Costs"), including
reasonable attorneys' fees and expenses of FFCA (including those fees and
expenses incurred in connection with any appeal and those of FFCA's in-house
counsel) whether or not a judicial action is commenced by FFCA.
This Note may not be amended or modified except by a written agreement
duly executed by Debtor and FFCA. In case any one or more of the provisions
contained in this Note shall be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
provision had never been contained herein or therein.
Notwithstanding anything to the contrary contained in any of the Loan
Documents, the obligations of Debtor to FFCA under this Note and any other Loan
Documents are subject to the limitation that payments of interest and late
charges to FFCA shall not be required to the extent that receipt of any such
payment by FFCA would be contrary to provisions of applicable law limiting the
maximum rate of interest that may be charged or collected by FFCA. The portion
of any such payment received by FFCA that is in excess of the maximum interest
permitted by such provisions of law shall be credited to the principal balance
of this Note or if such excess portion exceeds the outstanding principal balance
of this Note, then such excess portion shall be refunded to Debtor. All interest
paid or agreed to be paid to FFCA shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and/or spread throughout the full term of
this Note (including, without limitation, the period of any renewal or extension
thereof) so that interest for such full term shall not exceed the maximum amount
permitted by applicable law.
It is the intent of the parties hereto that the business relationship
created by this Note and the other Loan Documents is solely that of creditor and
debtor and has been entered into by both parties in reliance upon the economic
and legal bargains contained in the Loan Documents. None of the agreements
contained in the Loan Documents is intended, nor shall the same be deemed or
construed, to create a partnership between FFCA and Debtor, to make them joint
venturers, to make Debtor an agent, legal representative, partner, subsidiary or
employee of FFCA, nor to make FFCA in any way responsible for the debts,
obligations or losses of Debtor. Debtor acknowledges that FFCA (or any Affiliate
of FFCA) and Franchisor are not affiliates, agents, partners or joint venturers,
nor do they have any other legal, representative or fiduciary relationship other
than debtor/creditor and/or landlord/tenant relationships unrelated to the
transactions contemplated by the Loan Documents.
FFCA, by accepting this Note, and Debtor acknowledge and warrant to each
other that each has been represented by independent counsel and Debtor has
executed this Note after being fully advised by said counsel as to its effect
and significance. This Note shall be interpreted and
5
<PAGE>
construed in a fair and impartial manner without regard to such factors as the
party which prepared the instrument, the relative bargaining powers of the
parties or the domicile of any party.
Time is of the essence in the performance of each and every obligation
under this Note.
Debtor acknowledges that this Note was substantially negotiated in the
State of Arizona, the executed Note was delivered in the State of Arizona, all
payments under this Note will be delivered in the State of Arizona and there are
substantial contacts between the parties and the transactions contemplated
herein and the State of Arizona. For purposes of any action or proceeding
arising out of this Note, the parties hereto expressly submit to the
jurisdiction of all federal and state courts located in the State of Arizona.
Debtor consents that it may be served with any process or paper by registered
mail or by personal service within or without the State of Arizona in accordance
with applicable law. Furthermore, Debtor waives and agrees not to assert in any
such action, suit or proceeding that it is not personally subject to the
jurisdiction of such courts, that the action, suit or proceeding is brought in
an inconvenient forum or that venue of the action, suit or proceeding is
improper. It is the intent of Debtor and FFCA that all provisions of this Note
shall be governed by and construed under the laws of the State of Arizona.
Nothing contained in this paragraph shall limit or restrict the right of FFCA to
commence any proceeding in the federal or state courts located in the state in
which the Premises is located to the extent FFCA deems such proceeding necessary
or advisable to exercise remedies available under the Loan Documents.
FFCA, BY ACCEPTING THIS NOTE, AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO
ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH
RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE, THE
RELATIONSHIP OF FFCA AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE PREMISES
AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.
THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY
JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
FURTHERMORE, DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT
DAMAGES FROM THE OTHER PARTY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY THEM AGAINST THE OTHER
PARTY HERETO OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS NOTE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO.
THE WAIVER BY DEBTOR AND FFCA OF ANY RIGHT THEY MAY HAVE TO SEEK PUNITIVE,
CONSEQUENTIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND
IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
6
<PAGE>
This obligation shall bind Debtor and its successors and assigns, and the
benefits hereof shall inure to FFCA and its successors and assigns. FFCA may
assign its rights under this Note as set forth in the Loan Agreement.
7
<PAGE>
IN WITNESS WHEREOF, Debtor has executed and delivered this Note effective
as of the date first set forth above.
DEBTOR:
MORTON'S OF CHICAGO/SCHAUMBURG
LLC, a Delaware limited liability company
By: Morton's of Chicago Holding, Inc., its
member
By /s/ Thomas J. Baldwin
---------------------------------------
Thomas J. Baldwin
Executive Vice President
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JUL-04-1999
<CASH> 2,225
<SECURITIES> 0
<RECEIVABLES> 768
<ALLOWANCES> 0
<INVENTORY> 6,142
<CURRENT-ASSETS> 17,745
<PP&E> 57,348
<DEPRECIATION> 8,837
<TOTAL-ASSETS> 93,495
<CURRENT-LIABILITIES> 23,069
<BONDS> 47,616
0
0
<COMMON> 68
<OTHER-SE> 14,395
<TOTAL-LIABILITY-AND-EQUITY> 93,495
<SALES> 101,522
<TOTAL-REVENUES> 101,522
<CGS> 34,640
<TOTAL-COSTS> 81,380
<OTHER-EXPENSES> 11,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,981
<INCOME-PRETAX> 7,111
<INCOME-TAX> 1,778
<INCOME-CONTINUING> 5,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,281
<NET-INCOME> 3,052
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.48
</TABLE>
