<PAGE>
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 April 4, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12692
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MORTON'S RESTAURANT GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3490149
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3333 New Hyde Park Road, Suite 210, New Hyde Park, New York 11042
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(Address of principal executive offices) (zip code)
516-627-1515
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(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 May 6, 1999, the registrant had 6,082,385 Shares of its Common Stock, $.01
par value, outstanding.
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of April 4, 1999 and January 3, 1999 3-4
Consolidated Statements of Income for the three month periods ended April 4, 1999 and
March 29, 1998 5
Consolidated Statements of Cash Flows for the three month periods ended April 4, 1999
and March 29, 1998 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Stockholders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE>
Item 1. Financial Statements
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
April 4, January 3,
1999 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,417 $ 2,117
Accounts receivable 795 894
Inventories 6,325 6,400
Landlord construction receivables, prepaid expenses and other
current assets 2,506 3,920
Deferred income taxes 6,237 6,005
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Total current assets 18,280 19,336
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Property and equipment, at cost:
Furniture, fixtures and equipment 21,437 20,658
Leasehold improvements 28,346 25,422
Land 4,315 4,287
Construction in progress 630 3,248
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54,728 53,615
Less accumulated depreciation and amortization 8,121 7,804
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Net property and equipment 46,607 45,811
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Intangible assets, net of accumulated amortization of $3,964 at
April 4, 1999 and $3,861 at January 3, 1999 12,031 12,134
Other assets and deferred expenses, net of accumulated amortization of $612
at April 4, 1999 and $2,075 at January 3, 1999 6,392 9,237
Deferred income taxes 8,898 8,466
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$92,208 $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>
April 4, January 3,
1999 1999
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,980 $ 6,553
Accrued expenses 15,688 19,466
Current portion of obligations to financial institutions
and capital leases 2,008 1,801
Accrued income taxes 79 372
-------- --------
Total current liabilities 23,755 28,192
Obligations to financial institutions and capital leases,
less current maturities 45,036 40,254
Other liabilities 3,580 3,581
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Total liabilities 72,371 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 6,749,075 shares at
April 4, 1999 and 6,661,370 shares at January 3, 1999 67 67
Nonvoting common stock, $.01 par value per share. Authorized
3,000,000 shares, no shares issued or outstanding -- --
Additional paid-in capital 62,737 62,717
Accumulated other comprehensive income (loss) (86) (34)
Accumulated deficit (34,818) (35,597)
Less treasury stock at cost, 459,700 shares at April 4, 1999 and
234,400 shares at January 3, 1999 (8,063) (4,196)
-------- --------
Total stockholders' equity 19,837 22,957
-------- --------
$ 92,208 $ 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
April 4, March 29,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Revenues $ 52,747 $ 47,710
Food and beverage costs 18,119 16,396
Restaurant operating expenses 22,425 20,042
Pre-opening costs, depreciation, amortization and
non-cash charges 1,557 2,485
General and administrative expenses 4,229 3,409
Marketing and promotional expenses 1,427 1,227
Interest expense, net 910 580
-------- --------
Income before income taxes and cumulative
effect of a change in an accounting principle 4,080 3,571
Income tax expense 1,020 893
-------- --------
Income before cumulative effect of a change
in an accounting principle 3,060 2,678
Cumulative effect of a change in an accounting principle,
net of income tax benefit of $1,357 2,281 --
-------- --------
Net income $ 779 $ 2,678
-------- --------
-------- --------
Net income per share - basic:
Before cumulative effect of a change in an accounting principle $ 0.48 $ 0.41
Cumulative effect of a change in an accounting principle (0.36) --
-------- --------
Net income $ 0.12 $ 0.41
-------- --------
-------- --------
Net income per share - diluted:
Before cumulative effect of a change in an accounting principle $ 0.47 $ 0.39
Cumulative effect of a change in an accounting principle (0.35) --
-------- --------
Net income $ 0.12 $ 0.39
-------- --------
-------- --------
Weighted average shares outstanding:
Basic 6,354 6,606
-------- --------
-------- --------
Diluted 6,541 6,894
-------- --------
-------- --------
</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>
Three Months Ended
April 4, March 29,
1999 1998
---- ----
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 779 $ 2,678
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 1,115 2,485
Deferred income taxes 693 588
Change in assets and liabilities:
Accounts receivable 97 (236)
Inventories 66 75
Prepaid expenses and other assets 539 845
Accounts payable, accrued expenses and other liabilities (4,815) (4,936)
Accrued income taxes (293) (28)
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Net cash provided by operating activities 462 1,471
------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,372) (3,439)
Capitalized payments for pre-opening costs and other deferred expenses -- (350)
------- -------
Net cash used by investing activities (1,372) (3,789)
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Cash flows from financing activities:
Principal reduction on obligations to financial institutions (2,945) (691)
Proceeds from obligations to financial institutions 8,035 1,500
Purchases of treasury stock (3,867) --
Net proceeds from issuance of stock 20 348
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Net cash provided by financing activities 1,243 1,157
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Effect of exchange rate changes on cash (33) --
------- -------
Net increase (decrease) in cash and cash equivalents 300 (1,161)
Cash and cash equivalents at beginning of period 2,117 3,437
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Cash and cash equivalents at end of period $ 2,417 $ 2,276
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 4, 1999 and March 29, 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 $785,000 and $627,000, and income
taxes of approximately $632,000 and $324,000, for the three months ended April
4, 1999 and March 29, 1998, respectively. During the first quarter of fiscal
1999 and 1998, the Company entered into capital lease arrangements for
approximately $352,000 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 April 4, 1999 and January 3, 1999, included in "Accrued expenses" in the
accompanying consolidated balance sheets is approximately $3,950,000 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 April 4, 1999, none of these restaurants have been
closed.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 three months ended April 4, 1999 and March 29, 1998
are as follows:
<TABLE>
<CAPTION>
April 4, 1999 March 29, 1998
------------- --------------
(amounts in thousands)
<S> <C> <C>
Net Income $ 779 $ 2,678
Other comprehensive income (loss):
Foreign currency translation (52) --
------ -------
Total comprehensive income $ 727 $ 2,678
------ -------
------ -------
</TABLE>
6) The Company is involved in various legal actions. See "Part II - Other
Information, Item 1. Legal Proceedings" on page 13 of this Form 10-Q for a
discussion of these legal actions.
8
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Revenues increased $5.0 million, or 10.6%, to $52.7 million for the
three month period ended April 4, 1999, from $47.7 million during the
comparable 1998 period. Of the increase in revenues, $5.3 million was
attributable to incremental restaurant revenues from eight new restaurants
opened after December 29, 1998 and $0.1 million, or 0.3%, was attributable to
additional comparable revenues from restaurants open all of both periods.
Average Morton's and Bertolini's revenues per restaurant open for a full
period decreased 1.2%. Revenues for the three closed Bertolini's restaurants
(see Note 3) decreased by $0.4 million compared to the first quarter of
fiscal 1998. The Company believes that the presence of Easter and Passover in
the 1999 first quarter had an adverse impact on comparable restaurant
revenues for the period.
Percentage changes in comparable restaurant revenues for the three
month period ended April 4, 1999 versus March 29, 1998 for restaurants open all
of both periods are as follows:
<TABLE>
<CAPTION>
Three Months
Ended April 4, 1999
Percentage Change
-----------------
<S> <C>
Morton's 1.7%
Bertolini's -8.0%
Total 0.3%
</TABLE>
Food and beverage costs increased from $16.4 million for the three
month period ended March 29, 1998 to $18.1 million for the three month period
ended April 4, 1999. These costs as a percentage of revenues remained
constant at 34.4% for the 1999 and 1998 three month periods.
Restaurant operating expenses, which include labor, occupancy and
other operating expenses, increased from $20.0 million for the three month
period ended March 29, 1998 to $22.4 million for the three month period ended
April 4, 1999, an increase of $2.4 million. Those costs as a percentage of
revenues increased 0.5% from 42.0% for the three month period ended March 29,
1998 to 42.5% for the three month period ended April 4, 1999.
Pre-opening costs, depreciation, amortization and non-cash charges
decreased from $2.5 million for the three month period ended March 29, 1998
to $1.6 million for the three month period ended April 4, 1999 and decreased
as a percentage of revenues by 2.3%. 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
month period ended April 4, 1999 were $0.4 million. 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 month period ended March 29, 1998 was $1.5 million. The timing of
restaurant openings affects the amount of such costs.
General and administrative expenses for the three month period ended
April 4, 1999 were $4.2 million, which increased from $3.4 million for the three
month period ended March 29, 1998. The increase in such expense is driven by
incremental costs associated with increased restaurant development. Such
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
costs as a percentage of revenues were 8.0% for the three month period ended
April 4, 1999, an increase of 0.9% from the three month period ended March 29,
1998.
Marketing and promotional expenses were $1.4 million for the three month
period ended April 4, 1999 and $1.2 million for the three month period ended
March 29, 1998. Such costs as a percentage of revenues were 2.7% for the three
month period ended April 4, 1999, an increase of 0.1% from the three month
period ended March 29, 1998.
Interest expense, net of interest income, increased to $0.9 million for
the three month period ended April 4, 1999 from $0.6 million for the three month
period ended March 29, 1998 due to increased borrowings.
Income tax expense of $1.0 million for the three month period ended
April 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
$45,000,000, consisting of a $12,500,000 term loan (the "Term Loan") and a
$32,500,000 revolving credit facility (the "Revolving Credit"). The final
maturity date of the Term Loan is December 31, 2003 and the final maturity
date of the 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 April 4, 1999, the Company's applicable margin,
calculated pursuant to the Credit Agreement, was 0.00% on base 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 April 4, 1999 and January 3, 1999, the Company had outstanding
borrowings of $30,975,000 and $29,475,000, respectively, under the Credit
Agreement. At April 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 $13,840,000. The
weighted average interest rate on all borrowings under the Credit Facility on
April 4, 1999 was 6.8%. 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
December 31, 2000. Quarterly principal installments on the Term Loan of $780,000
will be due at the end of each calendar quarter from December 31, 2000 through
September 30, 2002 and $1,252,000 from December 31, 2002 through December 31,
2003. 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 April 4, 1999 amount to
$0 in 1999, $780,000 in 2000, $3,120,000 in 2001, $3,592,000 in 2002 and
$5,008,000 in 2003.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The borrowings under the Credit Agreement have been classified as non-current on
the Company's consolidated balance sheet since principal payments commence
December 31, 2000.
The Credit Agreement contains, among other things, 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 April 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 April 4, 1999, the
outstanding principal balance of the CNL loan was approximately $2,177,000, of
which approximately $155,000 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 April 4, 1999.
During 1998, various subsidiaries of the Company and FFCA
Acquisition Corporation ("FFCA") entered into loan agreements to fund the
purchases of land and the construction of two Morton's of Chicago and one
Bertolini's restaurants. During 1998, $3,000,000 was funded for the purchase
of land and construction of a Morton's of Chicago restaurant. The interest
rate was fixed at 7.68% per annum. In December 1998, $2,315,000 and during
the first quarter of fiscal 1999, $3,685,000 was funded for the purchase of
two additional parcels of land and construction of a Morton's of Chicago and
a Bertolini's restaurant. The interest rate was fixed at 8.06% per annum. An
additional $3,000,000 is available for future mortgage financing. Monthly
principal and interest payments are scheduled over twenty-year periods. At
April 4, 1999, the aggregate outstanding principal balance due to FFCA was
approximately $8,973,000, of which approximately $194,000 of principal 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 for the period ended April 4,
1999.
During the first three months of fiscal 1999, the Company's net
investment in fixed assets and related investment costs, net of capitalized
leases approximated $1.8 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 $7.4 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.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
1999. 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 2000.
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 final testing to be performed within the next few
months. 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 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.
12
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 US 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 has filed an appeal and intends to vigorously contest the
judgment.
During fiscal 1998, the Company identified several underperforming
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants which have all been closed. 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.
10.15 Amended and Restated Promissory Note, Dated March 19, 1999
among FFCA Acquisition Corporation and Morton's of
Chicago/Scottsdale, Inc., a subsidiary of the registrant.
10.16 Amended and Restated Promissory Note, Dated March 17, 1999
among FFCA Acquisition Corporation and Bertolini's at Village
Square, Inc., 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.
13
<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 May 17, 1999
-------------------
By: /s/ ALLEN J. BERNSTEIN
------------------------------------
Allen J. Bernstein
Chairman of the Board, President
and Chief Executive Officer
Date May 17, 1999 By: /s/ THOMAS J. BALDWIN
--------------------------- ------------------------------------
Thomas J. Baldwin
Executive Vice President,
Chief Financial Officer and Director
14
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report.
<TABLE>
<CAPTION>
Exhibit
Number Page Document
------ ---- --------
<S> <C> <C>
10.15 Amended and Restated Promissory Note, Dated March 19, 1999
among FFCA Acquisition Corporation and Morton's of
Chicago/Scottsdale, Inc. a subsidiary of the registrant.
10.16 Amended and Restated Promissory Note, Dated March 17, 1999
among FFCA Acquisition Corporation and Bertolini's at Village
Square, Inc. a subsidiary of the registrant.
27.00 Financial Data Schedule
</TABLE>
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
Dated as of March 19, 1999
$3,000,000.00 Scottsdale, Arizona
THIS AMENDED AND RESTATED PROMISSORY NOTE (this ""Note'') executed by
MORTON'S OF CHICAGO/SCOTTSDALE, INC., a Delaware corporation (""Debtor''),
amends and restates that certain Promissory Note dated as of December 15,
1998 in the principal amount of $3,000,000.00, payable to FFCA ACQUISITION
CORPORATION, a Delaware corporation (""FFCA'').
Debtor, for value received, hereby promises to pay to FFCA, whose
address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, or order,
on or before April 1, 2019 (the ""Maturity Date''), as herein provided, the
principal sum of THREE MILLION AND 00/100 DOLLARS ($3,000,000.00), and to pay
interest on the unpaid principal amount of this Note from the date hereof to
the Maturity Date at the rate of 8.0570% per annum on the basis of a 360-day
year of twelve 30-day months, such principal and interest to be paid to
immediately available funds in lawful money of the United States.
Initially capitalized terms which are not otherwise defined in this Note
shall have the meanings set forth in that certain Loan Agreement dated as of
December 15, 1998 between Debtor and FFCA, as such agreement may be amended
from time to time (the ""Loan Agreement'').
Interest on the principal amount of this Note for the period commencing
with the date set forth above through the last day in the month in which this
Note is dated shall be due and payable upon delivery of this Note.
Thereafter, principal and interest shall be payable in consecutive monthly
installments of TWENTY-FIVE THOUSAND ONE HUNDRED NINETY-NINE AND 73/100
DOLLARS ($25,199.73) commencing on May 1, 1999, and continuing on the first
day of each month thereafter until the Maturity Date, at which time, the
outstanding principal and unpaid accrued interest shall be due and payable.
Prior to the fifth anniversary of this Note, Debtor may not prepay this
Note. From and after the fifth anniversary of this Note, Debtor may prepay
this Note in full, but not in part, including all accrued but unpaid interest
hereunder and all sums advanced by FFCA pursuant to the Loan Documents which
secure this Note, provided that (i) an Event of Default shall not have
occurred under this Note, (ii) any such prepayment shall only be made on a
regularly scheduled payment date upon not less than 30 days prior written
notice from Debtor to FFCA, and (iii) any such prepayment shall be made
together with payment of a prepayment premium equal to:
(a) 5% of the amount prepaid if the prepayment is made on or
following the fifth anniversary of this Note but prior to the sixth
anniversary of this Note;
(b) 4% of the amount prepaid if the prepayment is made on or
following the sixth anniversary of this Note but prior to the seventh
anniversary of this Note;
<PAGE>
(c) 3% of the amount prepaid if the prepayment is made on or
following the seventh anniversary of this Note but prior to the eighth
anniversary of this Note;
(d) 2% of the amount prepaid if the prepayment is made on or
following the eighth anniversary of this Note but prior to the ninth
anniversary of this Note; and
(e) 1% of the amount prepaid if the prepayment is made on or
following the ninth anniversary of this Note but prior to the tenth
anniversary of this Note.
If this Note is prepaid on or following the tenth anniversary of this Note
there shall be no prepayment premium.
The foregoing prepayment premium shall be due and payable if this Note
is prepaid prior to the tenth anniversary of this Note regardless of whether
such prepayment is the result of a voluntary prepayment by Debtor or as a
result of FFCA declaring the unpaid principal balance of this Note, accrued
interest and all other sums due under this Note and any Loan Documents which
secure this Note, due and payable in accordance with the provisions of this
Note (the "Acceleration"); provided, however, the prohibition on prepayment
and such prepayment premium shall not be applicable with respect to a
prepayment of this Note as a result of the application of casualty or
condemnation proceeds as contemplated by the Mortgage. If this Note is
prepaid as a result of an Acceleration prior to the fifth anniversary of this
Note, a prepayment premium of 5% of the principal amount prepaid shall be due
and payable to FFCA by Debtor at the time of such prepayment.
Upon execution of this Note, Debtor shall establish arrangements whereby
all payments of principal and interest hereunder are transferred by wire or
other means directly from Debtor's back account to such account as FFCA may
designate or as FFCA may otherwise designate. Each payment of principal and
interest hereunder shall be applied first toward any past due payments under
this Note (including payment of all Costs (as herein defined)), then to
accrued interest, and the balance, after the payment of such accrued
interest, if any, shall be applied to the unpaid principal balance of this
Note; provided, however, each payment hereunder after an Event of Default has
occurred under this Note shall be applied as FFCA in its sole discretion may
determine.
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 other monetary sum
certain 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.
2
<PAGE>
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 contract, 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, 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 amount are hereby
deemed not to include income taxes, gross receipts taxes, transfer 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 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
Morton's of Chicago/Scottsdale, Inc.
3333 New Hyde Park Road
New Hyde Park, NY 11042
Telephone: (516) 627-1515
Telecopy: (516) 627-2050
3
<PAGE>
with a copy to: David Gruber, Esq.
Salmon, Gruber, Newman and Blaymore
Suite 102
97 Powerhouse Road
Roslyn Heights, NY 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, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
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 after 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.
4
<PAGE>
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 debt/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 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 proceedings 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
5
<PAGE>
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.
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.
6
<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/SCOTTSDALE,
INC., a Delaware corporation
By /s/ Thomas J. Baldwin
--------------------------------
Printed Name Thomas J. Baldwin
----------------------
Its EVP & CFO
-------------------------------
7
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
Dated as of Mar. 17, 1999
$3,000,000.00 Scottsdale, Arizona
THIS AMENDED AND RESTATED PROMISSORY NOTE (this "Note") executed by
BERTOLINI'S AT VILLAGE SQUARE, INC., a Delaware corporation ("Debtor"),
amends and restates that certain PROMISSORY Note dated as of December 30,
1998 in the principal amount of $3,000,000.00, payable to FFCA ACQUISITION
CORPORATION, a Delaware corporation ("FFCA").
Debtor, for value received, hereby promises to pay to FFCA, whose address
is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, or order, on or
before April 1, 2019 (the "Maturity Date"), as herein provided, the principal
sum of THREE MILLION AND 00/100 DOLLARS ($3,000,000.00), and to pay interest
on the unpaid principal amount of this Note from the date hereof to the
Maturity Date at the rate of 8.0570% per annum on the basis of a 360-day year
of twelve 30-day months, such principal and interest to be paid in
immediately available funds and in lawful money of the United States.
Initially capitalized terms which are not otherwise defined in this Note
shall have the meanings set forth in that certain Loan Agreement dated as of
December 30, 1998 between Debtor and FFCA, as such agreement may be amended
from time to time (the "Loan Agreement").
Interest on the principal amount of this Note for the period commencing
with the date set forth above through the last day in the month in which this
Note is dated shall be due and payable upon delivery of this Note.
Thereafter, principal and interest shall be payable in consecutive monthly
installments of TWENTY-FIVE THOUSAND ONE-HUNDRED NINETY-NINE AND 73/100
DOLLARS ($25,199.73) commencing on May 1, 1999, and continuing on the first
day of each month thereafter until the Maturity Date, at which time, the
outstanding principal and unpaid accrued interest shall be due and payable.
Prior to the fifth anniversary of this Note, Debtor may not prepay this
Note. From and after the fifth anniversary of this Note, Debtor may prepay
this Note in full, but not in part, including all accrued but unpaid interest
hereunder and all sums advanced by FFCA pursuant to the Loan Documents which
secure this Note, provided that (i) an Event of Default shall not have
occurred under this Note, (ii) any such prepayment shall only be made on a
regularly scheduled payment date upon not less than 30 days prior written
notice from Debtor to FFCA, and (iii) any such prepayment shall be made
together with payment of a prepayment premium equal to:
(a) 5% of the amount prepaid if the prepayment is made on or
following the fifth anniversary of this Note but prior to the sixth
anniversary of this Note;
(b) 4% of the amount prepaid if the prepayment is made on or
following the sixth anniversary of this Note but prior to the seventh
anniversary of this Note;
<PAGE>
(c) 3% of the amount prepaid if the prepayment is made on or
following the seventh anniversary of this Note but prior to the eighth
anniversary of this Note;
(d) 2% of the amount prepaid if the prepayment is made on or
following the eighth anniversary of this Note but prior to the ninth
anniversary of this Note; and
(e) 1% of the amount prepaid if the prepayment is made on or
following the ninth anniversary of this Note but prior to the tenth
anniversary of this Note.
If this Note is prepaid on or following the tenth anniversary of this Note
there shall be no prepayment premium.
The foregoing prepayment premium shall be due and payable if this Note is
prepaid prior to the tenth anniversary of this Note regardless of whether
such prepayment is the result of a voluntary prepayment by Debtor or as a
result of FFCA declaring the unpaid principal balance of this Note, accrued
interest and all other sums due under this Note and any Loan Documents which
secure this Note, due and payable in accordance with the provisions of this
Note (the "Acceleration"); provided, however, the prohibition on prepayment
and such prepayment premium shall not be applicable with respect to a
prepayment of this Note as a result of the application of casualty or
condemnation proceeds as contemplated by the Mortgage. If this Note is
prepaid as a result of an Acceleration prior to the fifth anniversary of this
Note, a prepayment premium of 5% of the principal amount prepaid shall be due
and payable to FFCA by Debtor at the time of such prepayment.
Upon execution of this Note, Debtor shall establish arrangements whereby
all payments of principal and interest hereunder 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. Each payment of principal and
interest hereunder shall be applied first toward any past due payments under
this Note (including payment of all Costs (as herein defined)), then to
accrued interest, and the balance, after the payment of such accrued
interest, if any, shall be applied to the unpaid principal balance of this
Note; provided, however, each payment hereunder after an Event of Default has
occurred under this Note shall be applied as FFCA in its sole discretion may
determine.
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 other monetary sum
certain 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.
2
<PAGE>
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 contract, 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, 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 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 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
Bertolini's At Village Square, Inc.
3333 New Hyde Park Road
New Hyde Park, NY 11042
Telephone: (516) 627-1515
Telecopy: (516) 627-2050
3
<PAGE>
with a copy to: David Gruber, Esq.
Salamon, Gruber, Newman and Blaymore
Suite 102
97 Powerhouse Road
Roslyn Heights, NY 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, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
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 has 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.
4
<PAGE>
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 relationsihp other than debtor/creditor and/or landlord/tenant
relationsips 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 independet counsel and Debtor has
executed this Note after being fully advised by said counsel as to the effect
and significance. This Note shall be interpreted and 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 jurisidiction 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
5
<PAGE>
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.
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.
6
<PAGE>
IN WITNESS WHEREOF, Debtor has executed and delivered this Note
effective as of the date first set forth above.
DEBTOR:
BERTOLINI'S AT VILLAGE SQUARE, INC.,
a Delaware corporation
By: /s/ THOMAS J. BALDWIN
---------------------------------
Printed Name Thomas J. Baldwin
------------------------
Its EVP & CFO
---------------------------------
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE APRIL 4,
1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> APR-04-1999
<CASH> 2,417
<SECURITIES> 0
<RECEIVABLES> 795
<ALLOWANCES> 0
<INVENTORY> 6,325
<CURRENT-ASSETS> 18,280
<PP&E> 54,728
<DEPRECIATION> 8,121
<TOTAL-ASSETS> 92,208
<CURRENT-LIABILITIES> 23,755
<BONDS> 41,777
0
0
<COMMON> 67
<OTHER-SE> 19,770
<TOTAL-LIABILITY-AND-EQUITY> 92,208
<SALES> 52,747
<TOTAL-REVENUES> 52,747
<CGS> 18,119
<TOTAL-COSTS> 42,101
<OTHER-EXPENSES> 5,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 910
<INCOME-PRETAX> 4,080
<INCOME-TAX> 1,020
<INCOME-CONTINUING> 3,060
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,281
<NET-INCOME> 779
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
