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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended January 3, 1999
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
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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 of (I.R.S. employer identification no.)
incorporation or organization)
3333 New Hyde Park Road, New Hyde Park, NY 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)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of exchange
Common Stock, $.01 par value New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 5, 1999, the aggregate market value of voting stock held by
non-affiliates of the registrant was $103,221,620.
As of March 23, 1999, the registrant had 6,318,275 shares of its common
stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) portions of the registrant's annual report to stockholders for the fiscal
year ended January 3, 1999 (the "Annual Report") are incorporated by
reference into Part II hereof; and
(2) portions of the registrant's definitive proxy statement (to be filed
pursuant to Regulation 14A) for the 1999 Annual Meeting of Stockholders
(the "Proxy Statement") are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Morton's Restaurant Group, Inc. was incorporated as a Delaware corporation
on October 3, 1988. As used in this Report, the terms "MRG" or "Company" refer
to Morton's Restaurant Group, Inc. and its consolidated subsidiaries.
At January 3, 1999, the Company owned and operated 55 restaurants
utilizing two distinct restaurant concepts: Morton's of Chicago ("Morton's")
and Bertolini's Authentic Trattorias ("Bertolini's"). These concepts appeal
to a broad spectrum of consumer tastes and target separate price points and
dining experiences. During the first quarter of fiscal 1999, one new Morton's
restaurant was opened, one Morton's was relocated and two Bertolini's were
closed.
The Company provides strategic support and direction to its subsidiary
companies, and evaluates and analyzes potential locations for new restaurants.
Management consists of Allen J. Bernstein, Chairman of the Board, President and
Chief Executive Officer and vice presidents responsible for site selection and
development, finance, and administration.
The Company plans to expand by adding new Morton's of Chicago steakhouse
restaurants. No Bertolini's are planned for 1999. The Company has no agreements
or letters of intent with respect to any potential acquisition. However, the
Company has investigated, and may possibly continue to investigate, the
acquisition of other restaurant concepts. The Company does not currently intend
to develop a franchise program for any of its restaurant concepts.
There can be no assurance that the Company's expansion plans will be
successfully achieved or that new restaurants will meet with consumer acceptance
or can be operated profitably.
Based on a strategic assessment of recent trends and a downturn in
comparable revenues of Bertolini's Authentic Trattorias, during 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. Two Bertolini's, one in Westbury, NY, and one in Costa Mesa, CA,
were closed during the first quarter of fiscal 1999. See Note 3 to the
Company's consolidated financial statements.
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MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS
At January 3, 1999, Morton's operated 43 premium quality steakhouses
located in 40 cities. During the first quarter of 1999, a new Morton's
restaurant was opened in Scottsdale, AZ and one Morton's of Chicago restaurant
was relocated within Nashville. Morton's offers its clientele a combination of
excellent service and large quantities of the highest quality menu items.
Morton's has received awards in many locations for the quality of its food and
hospitality. Morton's serves USDA prime aged beef, including, among others, a 24
oz. porterhouse, a 20 oz. NY strip sirloin and a 16 oz. ribeye. Morton's also
offers fresh fish, lobster, veal and chicken. All Morton's have identical dinner
menu items. While the emphasis is on beef, the menu selection is broad enough to
appeal to many taste preferences. The Morton's dinner menu consists of a
tableside presentation by the server of many of the dinner items, including a 48
oz. porterhouse steak and a live Maine lobster, and all Morton's restaurants
feature an open display kitchen where steaks are prepared. Each restaurant has a
fully stocked bar with a complete list of name brands and an extensive premium
wine list that offers approximately 175 selections.
Morton's caters primarily to high-end, business-oriented clientele. During
the year ended January 3, 1999, the average per-person check, including dinner
and lunch, was approximately $65.25. Management believes that, on a nationwide
basis, a vast majority of Morton's weekday sales and a substantial portion of
its weekend sales are derived from business people using expense accounts. Sales
of alcoholic beverages accounted for approximately 32% of Morton's revenues
during fiscal 1998. In the nine Morton's serving both lunch and dinner during
fiscal 1998, dinner service accounted for approximately 86% of revenues and
lunch service accounted for approximately 14%. All Morton's are open seven days
a week. Those 34 Morton's serving only dinner are typically open from 5:30 p.m.
to 11:30 p.m., while those Morton's serving both lunch and dinner are also
typically open from 11:30 a.m. to 2:30 p.m. for the lunch period.
All Morton's are very similar in terms of style, concept and decor and are
located in retail, hotel, commercial and office building complexes in major
metropolitan areas and urban centers. In 1998, 42 Morton's (including all
restaurants opened since the 1989 acquisition) had on-premises private dining
and meeting facilities referred to as "Boardrooms". During fiscal 1998,
Boardroom sales were approximately 18% of sales in those locations offering
Boardrooms. Boardrooms offer a valuable amenity to customers and fully
complement Morton's operations. It is anticipated that all future Morton's will
contain Boardrooms.
Morton's operations and cost systems, developed over 20 years, enable
Morton's to maintain tight controls over operating expenses. The cooking staff
is highly trained and experienced. The uniform staffing patterns throughout
Morton's restaurants enhance operating efficiencies. Morton's management
believes that its centralized sourcing from its primary suppliers of its USDA
prime aged beef gives it significant cost and availability advantages over many
independent restaurants. Morton's purchases Midwest-bred, grain-fed, USDA prime
aged beef (approximately the finest two to three percent of a 1,100 pound
steer).
BERTOLINI'S AUTHENTIC TRATTORIA RESTAURANTS
At January 3, 1999, there were twelve Bertolini's, located in ten cities.
Bertolini's is a white tablecloth, authentic Italian trattoria, which provides
table service in a casual dining atmosphere. For the year ended January 3, 1999,
Bertolini's average per-person check, including dinner and lunch, was
approximately $20.00. Bertolini's restaurants are open seven days a week, for
lunch and dinner, with typical hours of 11:00 a.m. to 12:00 midnight. During
fiscal 1998, dinner service accounted for approximately 67% of
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revenues and lunch service accounted for approximately 33%. Sales of alcoholic
beverages accounted for approximately 20% of Bertolini's revenues during fiscal
1998.
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants. See Note 3 to the Company's consolidated financial
statements.
SITE DEVELOPMENT AND EXPANSION
GENERAL. To date, the Company has attempted to maximize its capital resources by
receiving substantial development or rent allowances from its landlords. The
Company's leases typically provide for substantial landlord development or rent
allowances and an annual percentage rent based on gross sales, subject to
market-based minimum annual rents. This leasing strategy enables the Company to
reduce its net investments in newly developed restaurants.
The costs of opening a Morton's or Bertolini's vary by restaurant depending
upon, among other things, the location of the site and the extent of any
renovation required. The Company generally leases its restaurant sites and
operates both free-standing and in-line restaurants. In recent years, the
Company has received substantial landlord development and or rent allowances for
leasehold improvements, furniture, fixtures and equipment. The Company currently
targets its average cash investment, net of such landlord allowances in new
restaurants, in leased premises, to be less than $2.0 million per restaurant,
although the Company may expend greater amounts for particular restaurants.
During 1998, the Company executed contracts to purchase five parcels of
land to develop four Morton's and one Bertolini's. As of March 1999, three
restaurants (two Morton's and one Bertolini's) were built and opened and the
remaining two properties are for Morton's and are under development.
The Company believes that the locations of its restaurants are critical to
its long-term success, and management devotes significant time and resources to
analyzing each prospective site. As it has expanded, the Company has developed
specific criteria by which each prospective site is evaluated. Potential sites
are generally sought in major metropolitan areas. In addition to carefully
analyzing demographic information, such as average household size and income,
for each prospective site, management considers factors such as traffic
patterns, proximity of shopping areas and office buildings, area restaurant
competition, accessibility and visibility. The Company's ability to open new
restaurants depends upon locating satisfactory sites, negotiating favorable
lease terms, securing appropriate government permits and approvals, obtaining
liquor licenses and recruiting or transferring additional qualified management
personnel. For these and other reasons, there can be no assurance that the
Company's expansion plans will be successfully achieved or that new restaurants
will meet with consumer acceptance or can be operated profitably.
The standard decor and interior design of each of the Company's restaurant
concepts can be readily adapted to accommodate different types of locations.
MORTON'S. The first Morton's was opened in 1978 in downtown Chicago, where
Morton's headquarters are still located. From 1978 to 1989, Morton's expanded to
a group of nine restaurants in nine cities. Under the Company, Morton's has
grown from nine to 44 restaurants through March 1999. During 1998, new Morton's
opened in North Miami Beach, FL, Portland, OR, Stamford, CT, Singapore and
Toronto.
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During the first quarter of 1999 a new Morton's opened in Scottsdale, AZ and one
Morton's was relocated within Nashville, TN.
Morton's are located in retail, hotel, commercial and office building
complexes in major metropolitan areas and urban centers. Management believes
that fixed investment costs and occupancy costs have been relatively low, as
appropriate space for new Morton's restaurants has been readily available.
The approximate gross costs to the Company for the five Morton's opened or
relocated, in leased premises, between January 1, 1998 and March 1999, ranged
from $2.1 million to $2.7 million, including the costs of leasehold
improvements, furniture, fixtures, equipment, and pre-opening expenses. These
aggregate per-restaurant costs were substantially offset by landlord
development and, or rent allowances ranging from $0.9 million to $1.2 million
and equipment lease financings ranging from $0.3 million to $0.5 million. The
Company's average net cash investment for the four restaurants opened between
December 29, 1997 and March 1999, in leased premises, was approximately $1.4
million, in each case, net of landlord development and or rent allowances and
restaurant equipment lease financings. The approximate gross costs for the
two restaurants built, on properties owned by the Company, including land
purchases, and the costs for improvements, furniture, fixtures, equipment and
pre-opening expenses was $5.0 million. Such amounts were substantially
reduced by proceeds from mortgage and restaurant equipment lease financings.
The Company plans to continue the development of Morton's and has selected
several possible domestic and international sites for expansion.
BERTOLINI'S AUTHENTIC TRATTORIA RESTAURANTS. The first Bertolini's opened in Las
Vegas in May 1992 (located in the Forum Shops Mall, adjacent to Caesar's Palace
Casino). During 1998, new Bertolini's opened in West Las Vegas, NV and Primm,
NV. No Bertolini's are planned for fiscal 1999.
The approximate gross costs to the Company for the restaurant opened in a
leased premise during 1998, was $3.3 million, including the costs of leasehold
improvements, furniture, fixtures, equipment and pre-opening expenses. This
aggregate cost was partially offset by a landlord development allowance of $0.8
million. The approximate gross cost for the restaurant built on property owned
by the Company, including the land purchase, and the costs for improvements,
furniture, fixtures, equipment and pre-opening expenses was $4.6 million.
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants. See Note 3 to the Company's consolidated financial
statements.
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RESTAURANT LOCATIONS
The Company operated 54 restaurants as of March 1999. The following table
provides information with respect to those restaurants which are open:
<TABLE>
<CAPTION>
MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS DATE OPENED
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<S> <C>
Chicago, IL (1) December 1978
Washington (Georgetown), DC November 1982
Philadelphia, PA May 1985
Westchester/Oakbrook, IL June 1986
Dallas, TX May 1987
Boston, MA December 1987
O'Hare (Rosemont), IL June 1989
Cleveland, OH September 1990
Tysons Corner, VA November 1990
Columbus, OH April 1991
Cincinnati, OH August 1991
San Antonio, TX September 1991
Palm Beach, FL November 1991
Minneapolis, MN December 1991
Beverly Hills, CA (2) October 1992
Detroit (Southfield), MI November 1992
Las Vegas, NV January 1993
Sacramento, CA May 1993
Pittsburgh, PA August 1993
New York (Midtown Manhattan), NY October 1993
St. Louis (Clayton), MO December 1993
Palm Desert, CA January 1994
Atlanta (Buckhead), GA March 1994
Charlotte, NC July 1994
San Francisco, CA November 1994
Dallas (Addison), TX November 1994
Costa Mesa (Orange), CA March 1995
Denver, CO March 1995
Atlanta/Downtown, GA November 1995
Houston, TX January 1996
Phoenix, AZ March 1996
Orlando, FL March 1996
New York (Downtown Manhattan), NY June 1996
Washington (Connecticut Ave.), DC January 1997
San Diego, CA April 1997
Baltimore, MD August 1997
Miami, FL December 1997
Stamford, CT February 1998
Singapore May 1998
North Miami Beach, FL July 1998
Toronto, Canada September 1998
Portland, OR December 1998
Nashville, TN (3) January 1999
Scottsdale, AZ January 1999
</TABLE>
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<TABLE>
<CAPTION>
BERTOLINI'S AUTHENTIC TRATTORIAS DATE OPENED
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<S> <C>
Las Vegas, NV May 1992
Atlanta, GA September 1993
Washington, DC September 1995
Rockville, MD October 1995
King of Prussia, PA November 1995
Irvine, CA November 1995
Indianapolis, IN October 1996
Charlotte, NC July 1997
West Las Vegas, NV December 1998
Primm, NV December 1998
</TABLE>
Additional sites are under active review for potential leases representing
new Morton's restaurants to open. Including the restaurant that opened during
the first quarter of 1999, the Company currently intends to open approximately
seven to eight new Morton's restaurants during 1999. There can be no assurance,
however, that the Company's expansion plans will be successfully achieved or
that new restaurants will meet with consumer acceptance or can be operated
profitably.
(1) Excludes Morton's Boardroom Banquet facilities.
(2) Operates under the name "Arnie Morton's of Chicago."
(3) The Morton's Nashville, TN location was relocated in January 1999 to a new
site. The original location had been opened since September, 1992.
RESTAURANT OPERATIONS AND MANAGEMENT
Morton's and Bertolini's restaurants have a well developed management
infrastructure and are set up as distinct operations within the Company. Each
group has a senior officer responsible for overall restaurant operations.
Operations for the Company's restaurants are supervised by area and regional
directors, each of whom is responsible for the operations of several restaurants
and reports to the appropriate division senior officer. Area directors meet
frequently with senior management to review operations and to resolve any
issues. Working in concert with area and regional directors and restaurant
general managers, senior management defines operations and performance
objectives for each restaurant. An incentive plan has been established in which
area directors and certain restaurant managers participate. Awards under
incentive plans are tied to achievement of specified revenue, profitability and
operating targets and related quality objectives.
The Company strives to maintain quality and consistency in its restaurants
through the careful training and supervision of personnel and the establishment
of standards relating to food and beverage preparation, maintenance of
facilities and conduct of personnel. Restaurant managers, many of whom are
developed from the Company's restaurant personnel, must complete a training
program of typically eight to twelve weeks during which they are instructed in
areas of restaurant management, including food quality and preparation, customer
service, alcoholic beverage service, liquor liability avoidance and employee
relations. Restaurant managers are also provided with operations manuals
relating to food and beverage preparation and operation of restaurants. These
manuals are designed to ensure uniform operations, consistently high quality
products and service and proper accounting for restaurant operations. The
Company holds regular meetings of its restaurant general managers to discuss
menu items, continuing training and other aspects of business management.
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The staff for a typical Morton's consists of one general manager, up to
four assistant managers and approximately 40 to 60 hourly employees. The staff
for a typical Bertolini's consists of one general manager and up to six other
managers, and approximately 100 hourly employees. Each new restaurant employee
of the Company participates in a training program during which the employee
works under the close supervision of restaurant managers. Management strives to
instill enthusiasm and dedication in its employees. Restaurant management
regularly solicits employee suggestions concerning restaurant operations,
strives to be responsive to the employees' concerns and meets regularly with
employees at each of the restaurants.
The Company devotes considerable attention to controlling food costs. The
Company makes extensive use of computers providing management with pertinent
information on daily sales and inventory requirements, thus minimizing the need
to carry excessive quantities of food inventories. This cost management system
is complemented by the Company's ability to obtain volume-based discounts. In
addition, each restaurant, within the Company's divisions, has similar menu
items and common operating methods, allowing for more simplified management
operating controls.
The Company maintains financial and accounting controls for each of its
restaurants through the use of centralized accounting and management information
systems and reporting requirements. Revenue, cost and related information is
collected daily from each restaurant. Restaurant managers are provided with
operating statements for their respective locations. Cash and credit card
receipts are controlled through daily deposits to local operating accounts, the
balances of which are wire transferred or deposited to cash concentration
accounts.
PURCHASING
The Company's ability to maintain consistent quality throughout its
restaurants depends in part upon the ability to acquire food products and
related items from reliable sources in accordance with Company specifications.
The Company has no long-term contracts for any food items used in its
restaurants. The Company currently does not engage in any futures contracts and
all purchases are made at prevailing market prices. While management believes
adequate alternative sources of supply are readily available, these alternative
sources might not provide as favorable terms to the Company as its current
suppliers when viewed on a long-term basis. All of Morton's USDA prime aged beef
is shipped to Morton's restaurants by refrigerated common carrier from its
primary Chicago-based suppliers. All other products used by Morton's are
procured locally based on strict group-wide specifications. Bertolini's
restaurants also adhere to strict product specifications and use both national
and regional suppliers. Food and supplies are shipped directly to the
restaurants and invoices for purchases are sent by vendors to the headquarters
office.
MARKETING
Management believes that the Company's commitment to quality food,
hospitality and value/price is the most effective approach to attracting guests.
Accordingly, the Company has historically focused its resources on providing its
customers with superior service and value, and has relied primarily on word of
mouth to attract new customers. The Company employs public relations consultants
and limited print, billboard and direct mail advertising, and typically conducts
some local restaurant promotions. The Company's expenditure for advertising,
marketing and promotional expenses as a percentage of its revenues was 2.7%
during fiscal 1998.
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COMPETITION
The restaurant business is highly competitive and fragmented, and the
number, size and strength of competitors varies widely by region. The Company
believes that restaurant competition is based on, among other things, quality of
food products, customer service, reputation, restaurant location, name
recognition and price points. The Company's restaurants compete with a number of
restaurants within their markets, both locally owned restaurants and other
restaurants which are members of regional or national chains. Some of the
Company's competitors are significantly larger and have greater financial and
other resources and greater name recognition than the Company and its
restaurants. Many of such competitors have been in existence longer than the
Company and are better established in areas where the Company's restaurants are,
or are planned to be, located. The restaurant business is often affected by
changes in consumer taste and spending habits, national, regional or local
economic conditions, population and traffic patterns and bad weather. In
addition, factors such as inflation, increased costs, food, labor and benefits
and the lack of experienced management and hourly staff employees may adversely
affect the restaurant industry in general and, in particular, the Company's
restaurants.
SERVICE MARKS AND TRADEMARKS
The Company has registered the names Morton's, Morton's of Chicago,
Bertolini's and certain other names used by its restaurants as trademarks or
service marks with the United States Patent and Trademark Office. The Company is
aware of names similar to that of the Company's restaurants used by third
parties in certain limited geographical areas, although the Company does not
anticipate that such use will prevent the Company from using its marks in such
areas. The Company is not aware of any infringing uses that could materially
affect its business. The Company believes that its trademarks and service marks
are valuable to the operation of its restaurants and are important to its
marketing strategy.
GOVERNMENT REGULATION
The Company's business is subject to extensive Federal, state and local
government regulation, including regulations relating to alcoholic beverage
control, public health and safety, zoning and fire codes. The failure to obtain
or retain food, liquor or other licenses would adversely affect the operations
of the Company's restaurants. While the Company has not experienced and does not
anticipate any problems in obtaining required licenses, permits or approvals,
any difficulties, delays or failures in obtaining such licenses, permits or
approvals could delay or prevent the opening of a restaurant in a particular
area. Approximately 32% and 20% of the revenues of Morton's and Bertolini's,
respectively, for fiscal 1998 were attributable to the sale of alcoholic
beverages. Each restaurant has appropriate licenses from regulatory authorities
allowing it to sell liquor and or beer and wine, and each restaurant has food
service licenses from local health authorities. The Company's licenses to sell
alcoholic beverages must be renewed annually and may be suspended or revoked at
any time for cause, including violation by the Company or its employees of any
law or regulation pertaining to alcoholic beverage control, such as those
regulating the minimum age of patrons or employees, advertising, wholesale
purchasing, and inventory control, handling and storage. However, each
restaurant is operated in accordance with standardized procedures designed to
assure compliance with all applicable codes and regulations.
The Company is subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment which wrongfully served alcoholic beverages to
such person. While the Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance, a judgment against the
Company under a dram-shop statute in excess of the Company's liability coverage,
or inability to continue to obtain such insurance coverage at reasonable costs,
could have a material adverse effect on the Company.
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The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Management believes that Federal and state environmental regulations have not
had a material effect on the Company's operations, but more stringent and varied
requirements of local government bodies with respect to zoning, land use and
environmental factors could delay construction of new restaurants and add to
their cost.
The Company is also subject to the Fair Labor Standards Act, the
Immigration Reform and Control Act of 1986 and various federal and state laws
governing such matters as minimum wages, overtime, tips, tip credits and other
working conditions. A significant number of the Company's hourly staff are paid
at rates related to the Federal minimum wage and, accordingly, increases in the
minimum wage or decreases in allowable tip credits will increase the Company's
labor cost.
EMPLOYEES
As of January 3, 1999, the Company had approximately 3,612 employees, of
whom 3,063 were hourly restaurant employees, 450 were salaried restaurant
employees engaged in administrative and supervisory capacities and 99 were
corporate and office personnel. Many of the hourly employees are employed on a
part-time basis to provide services necessary during peak periods of restaurant
operations. None of the Company's employees are covered by a collective
bargaining agreement. The Company believes that its relations with its employees
are good.
FORWARD-LOOKING STATEMENTS
This Form 10K 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 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 and 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.
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ITEM 2. PROPERTIES
The Company's restaurants are generally located in space leased by
subsidiaries of the Company. Restaurant lease expirations, including renewal
options, range from 1 to 28 years. The majority of the Company's leases provide
for an option to renew for terms ranging from five years to ten years.
Restaurant leases provide for a specified annual rent, and most leases call for
additional or contingent rent based on sales volumes over specified levels.
Generally, leases are "net leases" which require the Company's subsidiary to pay
its pro rata share of taxes, insurance and maintenance costs. In some cases, the
Company or another subsidiary guarantees the performance of new leases of the
tenant subsidiary for a portion of the lease term, typically not exceeding the
first five years.
The Company maintains its executive offices of approximately 9,800 square
feet in New Hyde Park, New York. The executive offices for Morton's and
Bertolini's consist of approximately 15,100 square feet in Chicago. All such
executive offices are leased.
The Company believes its current office and operating space is suitable and
adequate for intended purposes.
ITEM 3. 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 attorney's 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. On July 29, 1998, the Court entered judgment in accordance with the
jury's verdict. The Company has filed an appeal and intends to vigorously
contest the judgment.
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants. 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 also 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 SECURITY HOLDERS
None.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the Company's executive
officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Allen J. Bernstein (1) 53 Chairman of the Board, President and Chief Executive Officer
Thomas J. Baldwin 43 Executive Vice President, Chief Financial Officer,
Assistant Secretary, Treasurer and Director
Agnes Longarzo 60 Vice President-Administration and Secretary
Allan C. Schreiber 58 Senior Vice President-Development
Klaus W. Fritsch 55 Vice Chairman and Co-Founder-Morton's of Chicago
John T. Bettin 43 President-Morton's of Chicago
</TABLE>
(1) Member of Executive Committee of the Board of Directors.
Allen J. Bernstein has been Chairman of the Board of the Company since
October 1994 and Chief Executive Officer and a Director of the Company since
December 1988. He has been President of the Company since September 1997 and was
previously President of the Company from December 1988 through October 1994. Mr.
Bernstein has worked in many various aspects of the restaurant industry since
1970. Mr. Bernstein is also a director of Dave and Busters, Inc., Charlie Browns
Acquisition Corp., and Luther's Acquisition Corp.
Thomas J. Baldwin was elected a Director of the Company in October 1998 and
Executive Vice President in January 1997. He previously served as Senior Vice
President, Finance of the Company since June 1992, and Vice President, Finance
since December 1988. In addition, Mr. Baldwin has been Chief Financial Officer,
Assistant Secretary and Treasurer of the Company since December 1988. His
previous experience includes seven years at General Foods Corp., now a
subsidiary of Philip Morris Companies, Inc., where he worked in various
financial management and accounting positions and nearly two years at Citicorp
where he served as Vice President responsible for strategic planning and
financial analysis at a major corporate banking division.
Mr. Baldwin is a licensed certified public accountant in the State of New York.
Agnes Longarzo has been Vice President of Administration and Secretary of
the Company since December 1988. Ms. Longarzo had been Vice President of
Administration and Corporate Secretary for Le Peep Restaurants, Inc. from March
1983 to December 1988. Prior to joining Le Peep Restaurants, Inc., Ms. Longarzo
served as the Director of Administration of Wenco Food Systems, Inc.
Allan C. Schreiber has been Senior Vice President, Development since
January 1, 1999, Vice President of Real Estate since January 1996 and Director
of Real Estate since November 1995. Mr. Schreiber had been a Senior Managing
Director at The Galbreath Company since 1991. Prior to joining Galbreath, he
served as an Executive Vice President of National Westminster Bank USA from 1982
to
12
<PAGE>
1991. Previously, Mr. Schreiber had been a Vice President and Division Executive
of the Chase Manhattan Bank.
Klaus W. Fritsch has been the Vice Chairman of Morton's of Chicago, Inc.
since May 1992. Mr. Fritsch has been with Morton's of Chicago, Inc. since its
inception in 1978, when he co-founded Morton's. After Mr. Arnold Morton ceased
active involvement in 1987, Mr. Fritsch assumed all operating responsibilities
as President in which capacity he served until May 1992.
John T. Bettin has been President of Morton's of Chicago since July 1998.
Prior to joining the Company, Mr. Bettin had been Executive Vice President of
Capital Restaurant Concepts, Ltd. since April 1994. Previously, Mr. Bettin
worked for Gilbert Robinson, Inc. where he served in various positions including
Corporate Executive Chef, Vice President Operations and Senior Vice President
Concept Development since 1975.
Officers are elected by and serve at the discretion of the Board of
Directors.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
"Price Range of Common Stock and Related Matters" contained on page 35 of
the Company's Annual Report is hereby incorporated by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
"Selected Financial Information" contained on page two of the Company's
Annual Report is hereby incorporated by reference.
The graphs labeled "Morton's and Bertolini's Revenues", "Morton's and
Bertolini's Restaurants at Year End", "Consolidated EBITDA" and "Morton's and
Bertolini's % Change in Comparable Revenues" on page three of the Company's
Annual Report shall not be deemed incorporated by reference into this Annual
Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained on pages 14 to 20 of the Company's Annual Report is hereby
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following items are hereby incorporated by reference to the Company's
Annual Report on the pages indicated:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(i) Independent Auditors' Report 20
(ii) Consolidated Balance Sheets as of January 3, 1999 and December 28, 1997 21
(iii) Consolidated Statements of Operations For the years ended January 3, 1999,
December 28, 1997 and December 29, 1996 22
(iv) Consolidated Statements of Stockholders' Equity For the years ended January
3, 1999, December 28, 1997 and December 29, 1996 22
(v) Consolidated Statements of Cash Flows For the years ended January 3, 1999,
December 28, 1997 and December 29, 1996 23
(vi) Notes to Consolidated Financial Statements 24 - 34
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"Election of Directors" and "Reporting under 16(A) of the Securities
Exchange Act of 1934" contained in the Proxy Statement is hereby incorporated by
reference. See also Item 4A, "Executive Officers of the Registrant" in Part I of
this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" contained in the Proxy Statement is hereby
incorporated by reference. The matters labeled "Compensation Committee Report"
and "Performance Graph" contained in the Proxy Statement shall not be deemed
incorporated by reference into this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" contained
in the Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) The response to this portion of Item 14 is set forth in Item 8 of Part
II hereof.
(2) FINANCIAL STATEMENT SCHEDULES
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
(3) EXHIBITS
See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the
accompanying Index to Exhibits upon payment by such stockholder of the
Company's reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K:
None.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14 (a)(2) above.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MORTON'S RESTAURANT GROUP, INC.
(Registrant)
Date MARCH 31, 1999 By: /S/ ALLEN J. BERNSTEIN
--------------------- -------------------------------------------
Allen J. Bernstein
Chairman of the Board of Directors,
President, and Chief Executive Officer
(Principal Executive Officer)
Date MARCH 31, 1999 By: /S/ THOMAS J. BALDWIN
--------------------- -------------------------------------------
Thomas J. Baldwin
Executive Vice President, Chief Financial
Officer, Assistant Secretary, Treasurer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date MARCH 31, 1999 By: /S/ ALLEN J. BERNSTEIN
--------------------- --------------------------------------------
Allen J. Bernstein
Chairman of the Board of Directors,
President, and Chief Executive Officer
(Principal Executive Officer)
Date MARCH 31, 1999 By: /S/ THOMAS J. BALDWIN
--------------------- --------------------------------------------
Thomas J. Baldwin
Executive Vice President, Chief Financial
Officer, Assistant Secretary, Treasurer and
Director (Principal Financial and
Accounting Officer)
17
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
(CONTINUED)
Date MARCH 31, 1999 By: /S/ LEE M. COHN
-------------------- -------------------------------------------
Lee M. Cohn
Director
Date MARCH 31, 1999 By: /S/ DIANNE H. RUSSELL
-------------------- -------------------------------------------
Dianne H. Russell
Director
Date MARCH 31, 1999 By: /S/ ALAN A. TERAN
-------------------- -------------------------------------------
Alan A. Teran
Director
18
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
(CONTINUED)
Date MARCH 31, 1999 By: /S/ JOHN K. CASTLE
------------------- -------------------------------------------
John K. Castle
Director
Date: MARCH 31, 1999 By: /S/ DR. JOHN J. CONNOLLY
------------------- -------------------------------------------
Dr. John J. Connolly
Director
Date MARCH 31, 1999 By: /S/ DAVID B. PITTAWAY
------------------- -------------------------------------------
David B. Pittaway
Director
19
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Documents
- ------ ---------
<S> <C>
3.01 (a) Amended and Restated Certificate of Incorporation of the
Registrant. (6)
(b) Certificate of Designation for the Preferred Stock issuable pursuant
to the Rights Plan. (4)
(c) Amendment to the Amended and Restated Certificate of Incorporation of
the Registrant. (6)
(d) Second Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant. (9)
3.02 Amended and Restated By-Laws of the Registrant, dated January 17,
1995. (4)
4.01 (a) Specimen Certificate representing the Common Stock, par value $.01 per
share including Rights Legend and name change to Morton's Restaurant
Group, Inc. (9)
4.02 (a) Registration Rights Agreement for Common Stock, dated as of July 27,
1989, among the Registrant, BancBoston Capital Inc., Legend Capital
Group, L.P., Legend Capital International, Ltd. and Allen J.
Bernstein. (1)
(b) Amendment to Registration Rights Agreement for Common Stock, dated as
of April 1, 1992, among the Registrant, BancBoston Capital Inc.,
Legend Capital Group, L.P., Legend Capital International, Ltd., Allen
J. Bernstein, Castle Harlan, Inc. and certain executive officers of
the Registrant. (2)
4.03 (a)+ Stock Option Agreement, dated as of March 30, 1992, between Agnes
Longarzo and the Registrant. (2)
(b)+ Stock Option Agreement, dated as of March 30, 1992, between Allen
J. Bernstein and the Registrant. (1)
4.04 (a) Second Amended and Restated Revolving Credit and Term Loan Agreement,
dated June 19, 1995 among the Registrant, The Peasant Restaurants,
Inc., Morton's of Chicago, Inc. and The First National Bank of Boston,
individually and as agent. (6)
(b) First Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated February 14, 1996 among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (7)
(c) Second Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated March 5, 1996 among the Registrant, The
Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (7)
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
(d) Letter Agreement, dated May 2, 1996, among the Registrant, The Peasant
Restaurants, Inc., Morton's of Chicago, Inc. and The First National
Bank of Boston, individually and as agent. (8)
(e) Third Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated June 28, 1996 among the Registrant, The
Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (9)
(f) Fourth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated December 26, 1996 among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (11)
(g) Fifth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated December 31, 1996 among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (11)
(h) Sixth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated February 6, 1997 among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (11)
(i) Seventh Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated June 27, 1997 among the Registrant,
Peasant Holding Corp., Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent. (12)
(j) Eighth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated February 12, 1998 among the Registrant,
Peasant Holding Corp., Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent. (13)
(k) Letter Agreement, dated April 6, 1998, among BankBoston, N.A. and the
Registrant regarding an Extendible Swap Transaction. (14)
(l) Letter Agreement, dated May 29, 1998, among BankBoston, N.A. and the
Registrant regarding an Extendible Swap Transaction. (15)
(m) Ninth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated September 25, 1998 among the
Registrant, Peasant Holding Corp., Morton's of Chicago, Inc. and
BankBoston, N.A., individually and as agent. (16)
(n) Tenth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated November 18, 1998 among the Registrant,
Peasant Holding Corp., Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent.
4.05 Rights Agreement, dated as of December 15, 1994, between the
Registrant and The First National Bank of Boston as Rights Agent,
which includes as Exhibit A thereto the form of Certificate of
Designation of Series A Junior Participating Preferred Stock of the
Registrant, as Exhibit B thereto the form of Rights Certificate and as
Exhibit C thereto the Summary of Rights to Purchase Preferred Stock.
(5)
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
10.01 + Morton's of Chicago, Inc. Profit Sharing and Cash Accumulation Plan as
Amended Effective January 1, 1989. (4)
10.02 Commercial Lease, between American National Investor Services, Inc.
and Morton's of Chicago, Inc., dated October 15, 1992, relating to the
executive offices of Morton's located at 350 West Hubbard Street,
Chicago, Illinois. (2)
10.03 Commercial Lease, between X-Cell Realty Associates and the Registrant,
dated January 18, 1994 relating to the executive offices of the
Registrant located at 3333 New Hyde Park Road, Suite 210, New Hyde
Park, New York 11042. (3)
10.04(a)+ Change of Control Agreement, dated December 15, 1994, between the
Registrant and Allen J. Bernstein. (4)
(b)+ Change of Control Agreement, dated December 15, 1994, between the
Registrant and Thomas J. Baldwin. (4)
10.05 + Second Amended and Restated Employment Agreement, dated as of February
28, 1995, between the Registrant and Allen J. Bernstein. (4)
10.06 + Quantum Restaurant Group, Inc. Stock Option Plan. (7)
10.07 Stock Purchase Agreement, dated as of December 31, 1996, by and among
Peasant Holding Corp., Morton's Restaurant Group, Inc., and MRI
Acquisition Corporation. (10)
10.08 Stock Purchase Agreement, dated as of December 31, 1996, by and among
Peasant Holding Corp., Morton's Restaurant Group, Inc., and PRI
Acquisition Corporation. (10)
10.09 Promissory Note, dated March 4, 1997, between CNL Financial I, Inc.,
as Lender, and Morton's of Chicago, Inc. (11)
10.10 Commercial Mortgage Commitment, dated August 4, 1997, between
Franchise Finance Corporation of America and the Registrant relating
to mortgage financing. (13)
10.11 Amended and Restated Promissory Note, dated September 18, 1998, among
FFCA Acquisition Corporation and Morton's of Chicago/North Miami
Beach, Inc., a subsidiary of the Registrant. (16)
10.12 First Amendment to the Second Amended and Restated Employment
Agreement, dated October 1, 1998, between the Registrant and Allen J.
Bernstein. (16)
10.13 Promissory Note, dated December 15, 1998, among FFCA Acquisition
Corporation and Morton's of Chicago/Scottsdale, Inc., a subsidiary of
the Registrant.
10.14 Promissory Note, dated December 30, 1998, among FFCA Acquisition
Corporation and Bertolini's at Village Square, Inc., a subsidiary of
the Registrant.
13.01 Registrant's Annual Report to Stockholders for the year ended January
3, 1999. Except for the portions thereof which are expressly
incorporated by reference into this report, such
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
Annual Report is furnished solely for the information of the
Commission and is not to be deemed "filed" as part of this report.
21.01 Subsidiaries of the Registrant.
23.01 Independent Auditors' consent to the incorporation by reference in the
Company's Registration Statement on Form S-8 of the independent
auditors' report included in the Company's Annual Report to
Stockholders.
27.00 Financial Data Schedule
(1) Included as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-45738) and incorporated by reference.
(2) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992 and incorporated by
reference.
(3) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 and incorporated by
reference.
(4) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 1, 1995 and incorporated by
reference.
(5) Included as an exhibit to the Registrant's Form 8-K dated on
December 15, 1994 and incorporated by reference.
(6) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated July 2, 1995.
(7) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated by
reference.
(8) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated March 31, 1996.
(9) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated June 30, 1996.
(10) Included as an exhibit to the Registrant's Form 8-K, dated
January 6, 1996.
(11) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 29, 1996 and incorporated by
reference.
(12) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated June 29, 1997.
(13) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 28, 1997 and incorporated by
reference.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
(14) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated March 29, 1998.
(15) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated June 28, 1998.
(16) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated September 27, 1998.
+ Management contracts or compensatory plans or arrangements
required to be filed as an exhibit to the Registrant's Annual
Report on Form 10-K pursuant to Item 14 (a)(3) of this Form 10-K.
</TABLE>
24
<PAGE>
Exhibit 4.04(n)
TENTH AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This TENTH AMENDMENT (this "Amendment"), executed, delivered, and dated as
of November 18, 1998 (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
(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, and IMPERIAL BANK, as a Lender, and
joined in by FIRST UNION NATIONAL BANK, as a new Lender, 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, and as the same may be further amended, modified, or
supplemented from time to time (the "Credit Agreement"), by and among the
Borrowers, the 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 provide a
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 provide a term loan and so amend the Credit Agreement;
NOW THEREFORE, the parties hereto hereby agree as follows:
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:
<PAGE>
-2-
"First Union. First Union National Bank, as a Lender."
"FNBB. BankBoston, N.A., as a Lender."
"Foreign Subsidiary. Any Subsidiary which conducts substantially all of
its business in countries other than the United States of America and that is
organized under the laws of a jurisdiction other than the United States of
America and the states (or the District of Columbia) thereof."
"Quantum Treasury Stock. See Section 10.5(b) hereof."
"Term Loan Maturity Date. December 31, 2003."
"10th Amendment Closing Date. November 20, 1998."
ss.1.2. Changes in Certain Definitions. Section 1 of the Credit Agreement
is hereby further amended as follows:
(a) The definition of "Agent" in Section 1 of the Credit Agreement is
hereby amended by replacing the reference to "ss.13.7" with a reference to
"ss.13.9".
(b) The definition of "Capitalized Lease Indebtedness" in Section 1 of the
Credit Agreement is hereby amended by replacing the word "subsidiaries" with the
word "Subsidiaries".
(c) The table contained in the definition of Commitment Percentages in
Section 1 of the Credit Agreement is hereby amended to read as follows:
<TABLE>
<CAPTION>
"Lender Percentage
------- ----------
<S> <C>
FNBB 44.4444445%
Imperial Bank 22.2222222%
First Union 33.3333333%"
</TABLE>
(d) Subsection (E) of the definition of Interest Period in Section 1 of
the Credit Agreement is hereby changed to read as follows:
"(E) with respect to Revolving Credit Loans, any Interest Period
relating to any Eurodollar Rate Loan that would otherwise extend
beyond the Final Maturity Date shall end on the Final Maturity Date,
and with respect to the Term Loan, any Interest Period relating to
any Eurodollar Rate Loan that would otherwise extend beyond the Term
Loan Maturity Date shall end on the Term Loan Maturity Date; and".
(e) The definition of "Majority Lenders" in Section 1 of the Credit
Agreement is hereby amended by deleting the remainder of the definition
appearing immediately after the phrase, "provided, however," and replacing the
deleted text with the following phrase:
"if at any time there shall be two (and only two) Lenders (and only at
such time), and each such Lender at such time has a Total Percentage equal
to or greater than 20%, Majority Lenders shall mean (and require) both
such Lenders."
<PAGE>
-3-
(f) The definition of "Solvency Certificate" appearing in Section 1 of the
Credit Agreement is hereby deleted.
(g) The definition of Term Loan in Section 1 of the Credit Agreement is
hereby amended by replacing in the text of such definition the words "Closing
Date" with the words "10th Amendment Closing Date", and replacing the number
"$15,000,000" with the number "$12,500,000".
(h) The table contained in the definition of Term Loan Percentage in
Section 1 of the Credit Agreement is hereby amended to read as follows:
<TABLE>
<CAPTION>
"Lender Percentage
------- ----------
<S> <C>
FNBB 44.4444445%
Imperial Bank 22.2222222%
First Union 33.3333333%"
</TABLE>
ss.1.3. Obligations for Revolving Credit Loans. Section 2.1(b)(i) of the
Credit Agreement is hereby amended by adding the phrase "jointly and severally"
immediately alter the word "unconditionally".
ss.1.4. Term Loan. Section 2.6 of the Credit Agreement is hereby amended
as follows:
(a) Subsection (a) of Section 2.6 is hereby amended to read as follows:
"(a) Commitment to Lend. Subject to the terms and conditions set
forth in this Agreement, the Lenders, severally in accordance with their
respective Term Loan Percentages, will on the 10th Amendment Closing Date,
upon the effectiveness of the Tenth Amendment hereto on such date, lend to
the Borrowers as joint and several obligors the Term Loan, which shall be
in the initial principal amount of $12,500,000. Each Lender's portion of
the Term Loan shall be in a principal amount equal to such Lender's Term
Loan Percentage of the aggregate principal amount of $12,500,000."
(b) Subsection (b) of Section 2.6 is hereby amended by replacing the
phrase "Closing Date" with the phrase "10th Amendment Closing Date".
(c) The text of Subsection (c)(i) of Section 2.6 is hereby amended to read
as follows:
"The Borrowers jointly and severally promise to pay to the Agent for the
ratable accounts of the Lenders, in accordance with their respective Term
Loan Percentages, the principal amount of the Term Loan in installments
due and payable on the dates and in the amounts set forth in the following
table (with the final payment due and payable in any event on the Term
Loan Maturity Date to be in the amount equal to the then unpaid principal
balance of the Term Loan):"
<PAGE>
-4-
<TABLE>
<CAPTION>
Date Installment Amount
---- ------------------
<S> <C>
December 31, 2000 $780,000
March 31, 2001 $780,000
June 30, 2001 $780,000
September 30, 2001 $780,000
December 31, 2001 $780,000
March 31, 2002 $780,000
June 30, 2002 $780,000
September 30, 2002 $780,000
December 31, 2002 $1,252,000
March 31, 2003 $1,252,000
June 30, 2003 $1,252,000
September 30, 2003 $1,252,000
December 31, 2003 $1,252,000
</TABLE>
(d) The second sentence of Subsection (c)(ii) of Section 2.6 is hereby
amended to read as follows:
"Mandatory Prepayments shall be applied against the scheduled unpaid
installments of principal due in respect of the Term Loan in the inverse
order of their maturity."
(e) The phrase "Final Maturity Date" in Subsection (d) of Section 2.6 is
hereby replaced with the phrase "Term Loan Maturity Date".
(f) The third sentence of Subsection (d) of Section 2.6 is hereby amended
to read as follows:
"Prepayments of the Term Loan made pursuant to this paragraph shall be
applied against the scheduled unpaid installments of principal due in
respect of the Term Loan in the direct order of their maturity."
(g) Subsection (e)(iii) of Section 2.6 is hereby amended by deleting the
phrase "After the Closing Date" and capitalizing the word "the" appearing
immediately after such phrase.
ss.1.5. Representations and Warranties. Section 6.25 of the Credit
Agreement is hereby amended by inserting the phrase "and have made related
appropriate inquiries of their material suppliers and vendors" at the end of the
first sentence in the subsection immediately after the parenthetical expression
and before the period, and inserting the phrase ", the development of such
program, and such inquiries" immediately after the word "review" appearing in
the second sentence.
ss.1.6. Affirmative Covenants. Section 9 of the Credit Agreement is
hereby amended as follows:
(a) Section 9.3 is hereby amended to read as follows:
<PAGE>
-5-
"ss.9.3. Use of Proceeds. The Borrowers shall use (a) the proceeds
of the Loans for (i) capital expenditures in accordance with ss.10.3, (ii)
new restaurant development, working capital and general corporate
purposes, (iii) stock repurchases in accordance with ss.10.5(b) and (iv)
refinancing existing indebtedness; and (b) the Letters of Credit for
working capital and general corporate purposes, including, without
limitation supporting obligations permitted by this Agreement."
(b) Paragraph (d) of Section 9.4 is hereby amended by deleting the comma
after the phrase "10.6", inserting the word "and" immediately after the phrase
"10.6", and deleting the phrase "and 10.8".
(c) Section 9 of the Credit Agreement is hereby amended by adding the
following new subsection ss.9.17 at the end of Section 9:
"ss.9.17. Year 2000 Compliance. The Borrowers and their Subsidiaries
shall perform all acts reasonably necessary to ensure that the Borrowers
and their Subsidiaries become Year 2000 Compliant in a timely manner. The
Borrowers and their Subsidiaries shall use reasonable efforts, consistent
with good business practices in the restaurant industry, to assess whether
their material suppliers and vendors with whom they from time to time are
doing business become Year 2000 Compliant in a timely manner, and based on
such assessment such Companies shall prudently manage their business
relationships with such material suppliers and vendors. As used in this
paragraph, "Year 2000 Compliant" shall mean, in regard to any entity, that
all computer applications, material to the business operations or
financial condition of such entity, will properly perform date sensitive
functions involving the dates that occur on January 1, 2000 and
thereafter. At the request of the Agent, the Borrowers and their
Subsidiaries shall provide the Agent with written assurances, and other
evidence acceptable to the Agent and the Lenders of the compliance by the
Borrowers and their Subsidiaries with this Section 9.17."
ss.1.7. Negative Covenants. Section 10 of the Credit Agreement is hereby
amended as follows:
(a) The phrase ", Investments," is inserted immediately following the word
"expenditures" on the second line of Section 10.3(g).
(b) The following new text is added to the end of Section 10.5(b):
"In addition, Quantum may make Distributions (consisting of the repurchase
by Quantum of up to 1,330,600 shares of its outstanding common stock from
its shareholders), in an aggregate cumulative amount not exceeding
$20,000,000, provided that no Default or Event of Default is then existing
and none would exist after giving effect to any such Distribution. Such
repurchased Quantum capital stock shall be then either held by Quantum as
treasury stock ("Quantum Treasury Stock"), reissued, or cancelled."
(c) The following sentence is added to the end of Section 10.11(f):
"Notwithstanding the foregoing, none of the Companies shall be required to
pledge to the Agent any shares of the capital stock of any Foreign
Subsidiaries held by such Company unless requested by the Agent in writing
(and in the case of such a
<PAGE>
-6-
request by the Agent for a pledge of such capital stock, such pledge shall
apply to the lesser of (A) 65% of the total outstanding capital stock of
such Foreign Subsidiary and (B) the outstanding capital stock of such
Foreign Subsidiary owned by such Company), and no Foreign Subsidiary shall
be required to guarantee the Obligations or grant a security interest in
its assets to the Agent as Collateral for the benefit of the Lenders
unless requested by the Agent in writing."
(d) Subsection 10.11(g) is hereby amended as follows:
(i) The phrase "newly formed corporations" in lines 1 and 2 is
hereby replaced by the phrase "corporations newly formed by or on behalf
of one or more Companies".
(ii) The following sentence is added to the end of Subsection
10.11(g):
"Notwithstanding the foregoing, (I) the Companies will not become party
to, or agree to or effect, any asset acquisition or stock acquisition
(other than (x) the acquisition of assets in the ordinary course of
business consistent with past practices, to the extent permitted under
Section 10.3 hereof and (y) stock repurchases permitted under Section
10.5(b) hereof), whether by Investment or otherwise, except with the
consent of the Majority Lenders, and (II) none of the Companies shall be
required to pledge to the Agent any shares of the capital stock of any
Foreign Subsidiaries held by such Company unless requested by the Agent in
writing (and in the case of such a request by the Agent for a pledge of
such capital stock, such pledge shall apply to the lesser of (A) 65% of
the total outstanding capital stock of such Foreign Subsidiary and (B) the
outstanding capital stock of such Foreign Subsidiary owned by such
Company), and no Foreign Subsidiary shall be required to guarantee the
Obligations or grant a security interest in its assets to the Agent as
Collateral for the benefit of the Lenders unless requested by the Agent in
writing."
(e) The word "and" is deleted from the end of Section 10.11(j), the period
at the end of Section 10.11(k) is replaced by "; and", and the following new
paragraph (l) is added at the end of Section 10.11 immediately after Section
10.11(k):
"(l) Investments consisting of Distributions (including, without
limitation, the Quantum Treasury Stock held by Quantum) permitted under
Section 10.5 hereof. At no time shall the Quantum Treasury Stock ever
constitute more than 25% (by value) of the consolidated assets of Quantum,
for purposes of Regulations U and X of the Board of Governors of the
Federal Reserve System (as referred to in ss.6.24 hereof)."
ss.1.8. Consents, Amendments, Waivers, Etc. The phrase ", the Term Loan
Maturity Date," is inserted immediately following the phrase "Final Maturity
Date" in clause (c) of Section 21.
ss.1.9. Regarding the Quantum Treasury Stock. Notwithstanding any
provisions of the Security Documents or the other Loan Documents to the
contrary, (a) Quantum Treasury Stock shall in any event be excluded from the
Collateral covered by the Security Documents; (b) Section 10.4 of the Credit
Agreement shall not apply to Quantum Treasury
<PAGE>
-7-
Stock; and (c) Section 10.12 of the Credit Agreement shall not restrict the
disposition of Quantum Treasury Stock by Quantum.
ss.1.10. Regarding FNBB's Share of the Loans. Paragraph (a) of Section 17
of the Credit Agreement is hereby amended by deleting the text of clause (v)
thereof and inserting in its place the phrase "[intentionally omitted]" before
the period at the end of the sentence.
ss.1.11. Schedule 6.11. Schedule 6.11 of the Credit Agreement is hereby
supplemented by the information set forth on Schedule 6.11-A attached hereto.
ss.2. Addition of New Lender.
ss.2.1. Joinder of First Union. From and after the Effective Date (as
defined below). First Union shall be a party to the Credit Agreement as a Lender
thereunder as provided in the Credit Agreement as amended by this Amendment,
with the rights and obligations of a Lender thereunder.
ss.2.2. 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 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 Lender previously
party to the Credit Agreement shall promptly thereafter return to the Agent its
existing Revolving Credit Note 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. First Union and the other 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.2.3. Regarding First Union. First Union (i) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under the Credit Agreement and the other Loan Documents as are delegated to the
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (ii) agrees that it will perform in accordance with the
terms all the obligations which by the terms of the Credit Agreement, as amended
hereby, are required to be performed by it as a Lender; and (iii) agrees to
treat in confidence any information obtained by it pursuant to the Credit
Agreement unless such information otherwise becomes public knowledge and agrees
not to disclose such information to a third party except as required by law or
legal process.
<PAGE>
-8-
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.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.
ss.3.2 Lenders' Several Representations to First Union. BankBoston, N.A.
and Imperial Bank make no representation or warranty, express or implied, and
assume and shall have no responsibility with respect to any statements,
warranties or representations made by the Companies in or in connection with the
Credit Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement, the other Loan Documents or any other instrument or document
furnished pursuant thereto or the attachment, perfection or priority of any
security interest or mortgage, other than each such Lender severally represents
and warrants (as to itself only) to First Union that the portion of the
Obligations acquired by First Union from such Lender hereunder (if any) is free
and clear of any claim or encumbrance created by such Lender.
ss.4. Conditions to Effectiveness. This Amendment shall be deemed to be
effective as of November 20, 1998 (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, including (without
limitation) First Union as a new Lender:
<PAGE>
-9-
(ii) an Amended and Restated Revolving Credit Note executed and delivered
jointly and severally by the Borrowers in favor of BankBoston, N.A.,
an Amended and Restated Revolving Credit Note executed and delivered
jointly and severally by the Borrowers in favor of Imperial Bank and
a Revolving Credit Note executed and delivered jointly and severally
by the Borrowers in favor of First Union in the amounts of their
respective Commitment Percentages of the aggregate Revolving Credit
Commitment Amount, which shall (from and after the Effective Date)
be deemed to constitute the Revolving Credit Notes referred to in
the Credit Agreement;
(iii) a Term Note executed and delivered jointly and severally by the
Borrowers in favor of BankBoston, N.A., a Term Note executed and
delivered jointly and severally by the Borrowers in favor of
Imperial Bank and a Term Note executed and delivered jointly and
severally by the Borrowers in favor of First Union in the amounts of
their respective Term Loan Percentages of the Term Loan, which shall
(from and after the Effective Date) be deemed to constitute the Term
Notes 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) favorable written legal opinions addressed to the Agent and Lenders,
dated as of the date hereof, from outside New York and Illinois
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 the Lenders may reasonably request;
and
(viii) separate fee letters from the Borrowers to each of BankBoston,
N.A., Imperial Bank and First Union, as separately agreed with each
of them; and
(b) the completion of the following acts:
<PAGE>
-10-
(i) the payment of such amendment fees or closing fees by the Borrowers,
relating hereto, as shall have been previously, separately agreed by
the parties, to be paid to the Agent for allocation among the
Lenders in such respective amounts as so agreed with each such
Lender.
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 (except for the exclusion of
the Quantum Treasury Stock from the Collateral, as provided herein). 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 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 delivered to such Lender
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>
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 Agent
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
IMPERIAL BANK
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
FIRST UNION NATIONAL BANK
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Consented and agreed to, by each of 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>
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 Agent
By: /s/ CHRISTOPHER HOLTZ
----------------------------------------------
Name: Christopher Holtz
-------------------------------------------
Title: Vice President
-------------------------------------------
IMPERIAL BANK
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
FIRST UNION NATIONAL BANK
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Consented and agreed to, by each of 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>
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 Agent
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
IMPERIAL BANK
By: /s/ PAULA J. BARYSAUSKAS
----------------------------------------------
Name: Paula J. Barysauskas
-------------------------------------------
Title: Vice President
-------------------------------------------
FIRST UNION NATIONAL BANK
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Consented and agreed to, by each of 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>
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 Agent
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
IMPERIAL BANK
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
FIRST UNION NATIONAL BANK
By: /s/ DAVID K. HALL
----------------------------------------------
Name: David K. Hall
-------------------------------------------
Title: Vice President
-------------------------------------------
Consented and agreed to, by each of 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>
SCHEDULE 6.11-A
ADDENDUM TO
SCHEDULE 6.11
TO
SECOND AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT
Morton's of Chicago, Inc.
Wendy Kirkland v. An employee (Plaintiff) of a subsidiary of the Company,
Morton's of initiated legal action against Morton's of Chicago,
Chicago, et. al.., Quantum Corporation and unnamed "Doe" defendants on
February 8, 1996 in California Superior Court in San
Francisco. Plaintiffs, 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
attorney's 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 24,
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, punitive damages of $850,000, and an
estimate of the Plaintiff's and the Company's legal fees
and expenses. On July 29, 1998, the Court entered
judgment in accordance with the jury's verdict. The
Company will vigorously contest and appeal the judgment.
<PAGE>
Exhibit 10.13
PROMISSORY NOTE
Dated as of December 15, 1998
$3,000,000.00 Scottsdale, Arizona
MORTON'S OF CHICAGO/SCOTTSDALE, INC., a Delaware corporation ("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 November 1, 2018, 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 6.03%
per annum or less than 14.03% 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 November 1, 2018; 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 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 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/Scottsdale, Inc.
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, NY 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/SCOTTSDALE,
INC., a Delaware corporation
By: /s/ THOMAS J. BALDWIN
---------------------------------
Printed Name Thomas J. Baldwin
-----------------------
Its EVP & CFO
---------------------------------
8
<PAGE>
Exhibit 10.14
PROMISSORY NOTE
Dated as of December 30, 1998
$3,000,000.00 Scottsdale, Arizona
BERTOLINI'S AT VILLAGE SQUARE, INC., a Delaware corporation ("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 November 1, 2018, 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 14.30%
per annum or less than 6.30% 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 November 1, 2018; 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 appearing on
Telerate Page 234 (or any successor page) on the tenth calendar day
preceding the date on which FFCA initially anticipates the Final
Disbursement Date will occur. If for any reason such rate is not
available, FFCA shall select an alternative source which publishes the
10-year U.S. Treasury Rate.
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 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 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
Bertolini's At Village Square, Inc.
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, NY 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:
BERTOLINI'S AT VILLAGE SQUARE, INC.,
a Delaware corporation
By /s/ THOMAS J. BALDWIN
-------------------------------------
Printed Name Thomas J. Baldwin
--------------------------
Its EVP & CEO
-----------------------------------
8
<PAGE>
Exhibit 13.01
SELECTED FINANCIAL INFORMATION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS INFORMATION FISCAL YEARS
--------------- -------------- -------------- --------------- --------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Restaurant Revenues (Combined Morton's and
Bertolini's) $ 189.8 $ 164.3 $ 139.0 $ 109.0 $ 90.8
Restaurant Revenues (All) 189.8 172.7 193.4 173.4 156.3
EBITDA (1) 24.5 20.7 17.5 11.2 12.7
Income Before Income Taxes and Nonrecurring
Charges 13.8 11.5 8.8 3.1 3.1
Income (Loss) Before Income Taxes (6.1)(2) 9.2(3) (2.7)(4) (14.7)(5) (3.0)(6)
Net Income (Loss) (1.9)(2) 6.9(3) 1.8 (4) (13.9)(5) (0.3)(6)
Net Income (Loss) Per Share:
Basic (0.28)(2) 1.06(3) 0.28(4) (2.18)(5) (0.05)(6)
Diluted $ (0.28)(2) $ 1.00(3) $ 0.26(4) $ (2.18)(5) $ (0.05)(6)
</TABLE>
BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
FISCAL YEARS
--------------- -------------- -------------- --------------- --------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current Assets $ 19.3 $ 18.6 $ 27.3(7) $ 35.4(7) $ 15.4
Property and Equipment, Net 45.8 34.6 24.7 19.4 25.3
Total Assets 95.0 81.9 77.0 73.2 73.5
Current Liabilities 28.2 21.4 25.3(8) 26.4(8) 15.4
Long-Term Debt 36.8 24.9 24.9 23.7 20.0
Stockholders' Equity $ 23.0 $ 28.6 $ 21.1 $ 19.0 $ 32.9
</TABLE>
(1) Represents earnings before interest, taxes, depreciation, amortization and
other non-cash charges, and nonrecurring charges.
(2) Includes nonrecurring, pre-tax charge of $19.9 million representing the
write-down of impaired Bertolini's restaurant assets and the write-down and
accrual of lease exit costs associated with the closure of specified
Bertolini's restaurants, as well as the remaining interests in Mick's and
Peasant restaurants.
(3) Includes nonrecurring, pre-tax litigation charge of $2.3 million.
(4) Includes nonrecurring, pre-tax charge of $11.5 million to write-down the
Atlanta-based Mick's and Peasant restaurants recorded in conjunction with
the sale of such restaurants.
(5) Includes nonrecurring, pre-tax charges of $15.5 million representing a
write-down and related charges for net assets held for sale and $2.2
million related to the settlement of a lawsuit.
(6) Includes one-time, pre-tax charges aggregating $6.1 million, of which $5.5
million related to the write-off of a preferred stock minority investment
in an affiliate.
(7) Includes assets held for sale of $12.5 million and $22.6 million for fiscal
1996 and 1995, respectively. (8)INCLUDES LIABILITIES RELATED TO ASSETS HELD
FOR SALE OF $12.1 MILLION AND $14.0 MILLION FOR FISCAL 1996 AND 1995,
(8) Includes liabilities related to assets held for sale of $12.1 million and
$14.0 million for fiscal 1996 and 1995, respectively.
<PAGE>
RESPECTIVELY.MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
The following table represents the unaudited combined results of
operations for Morton's Restaurant Group (Company), Morton's of Chicago
Steakhouses (Morton's) and Bertolini's Authentic Trattorias (Bertolini's),
excluding Mick's Restaurants, Inc. (Mick's) and The Peasant Restaurants, Inc.
(Peasant). As discussed in Note 3 to the Company's consolidated financial
statements, the Company completed the sale of its Atlanta-based Mick's and
Peasant restaurants on February 6, 1997 and closed, sold, or otherwise disposed
of all other remaining Mick's and Peasant restaurants during fiscal 1997.
Morton's Restaurant Group, Inc., Morton's and Bertolini's (excluding
Mick's and Peasant):
<TABLE>
<CAPTION>
January 3, 1999 December 28, 1997
--------------- -----------------
(amounts in thousands)
<S> <C> <C>
Revenues $189,779 $164,272
Food and beverage costs 64,946 56,628
Restaurant operating expenses 81,796 70,659
Depreciation, amortization and other non-cash charges 8,360 6,823
General and administrative expenses 13,432 12,329
Marketing and promotional expenses 5,125 4,011
Interest expense, net 2,325 2,396
Nonrecurring charge for the write-down and related charges for
impaired assets 19,925 --
Nonrecurring charge for litigation and related expenses -- 2,300
----------- ---------
Income (loss) before income taxes $ (6,130) $ 9,126
----------- ---------
----------- ---------
</TABLE>
The following represents the unaudited combined results of operations for
Mick's and Peasant. Interest expense was not allocated to Mick's and Peasant.
<TABLE>
<CAPTION>
Mick's and Peasant Restaurants:
January 3, 1999 December 28, 1997
--------------- -----------------
(amounts in thousands)
<S> <C> <C>
Revenues $ -- $8,453
Food and beverage costs -- 2,561
Restaurant operating expenses -- 5,120
Depreciation, amortization and other non-cash charges -- 6
General and administrative expenses -- 556
Marketing and promotional expenses -- 157
------- ------
Income before income taxes $ -- $ 53
------- ------
------- ------
</TABLE>
<PAGE>
Revenues increased $17.1 million, or 9.9%, to $189.8 million for fiscal
1998, from $172.7 million for fiscal 1997. Revenues from Morton's and
Bertolini's increased $25.5 million, or 15.5%, to $189.8 million for fiscal
1998, from $164.3 million during the comparable 1997 period. Of the increase in
Morton's and Bertolini's revenues, $21.1 million was attributable to incremental
restaurant revenues from fourteen new restaurants opened after January 1, 1997
and $5.0 million, or 3.3%, was attributable to additional comparable revenues
from restaurants open all of both periods. Included in 1998 revenues is
approximately $0.1 million in consulting fee income and included in 1997
revenues is approximately $0.7 million of investment and consulting fee income.
Average Morton's and Bertolini's revenues per restaurant open for a full period
increased 2.0%. As discussed in Note 3 to the Company's consolidated financial
statements, the Company completed the sale of its Atlanta-based Mick's and
Peasant restaurants on February 6, 1997. Nine other non-Atlanta Mick's and
Peasant restaurants were closed, sold or otherwise disposed of during fiscal
1996 and the remaining seven Mick's were closed, sold or otherwise disposed of
during fiscal 1997. As a result, revenues for the Mick's and Peasant restaurants
decreased approximately $8.5 million in the fiscal 1998 period versus the
comparable period of fiscal 1997. Additionally, as reflected in the table below,
certain Bertolini's restaurants have generated lower than anticipated revenues,
which have adversely impacted average restaurant revenues, earnings and earnings
trends. As discussed in Note 3 to the Company's consolidated financial
statements, the Company recorded a nonrecurring, pre-tax charge of $19.9 million
representing the write-down of impaired Bertolini's restaurant assets and the
write-down and accrual of lease exit costs associated with the closure of
specified Bertolini's restaurants, as well as the remaining interests in Mick's
and Peasant restaurants. As of January 3, 1999, the Company operated 55
restaurants (including 43 Morton's and 12 Bertolini's) and as of December 28,
1997, 48 restaurants (including 38 Morton's and 10 Bertolini's).
Percentage changes in comparable restaurant revenues for fiscal 1998
versus fiscal 1997 for restaurants open all of both periods are as follows:
<TABLE>
<CAPTION>
Percentage Change
-----------------
<S> <C>
Morton's 4.4 %
Bertolini's -2.7 %
Total 3.3 %
</TABLE>
Food and beverage costs increased from $59.2 million for fiscal 1997 to
$64.9 million for fiscal 1998. Food and beverage costs, excluding all Mick's and
Peasant restaurants, increased $8.3 million to $64.9 million for fiscal 1998
from $56.6 million recorded for fiscal 1997. These costs as a percentage of
related
<PAGE>
revenues decreased 0.3% for the period. As a result of the sale and closings of
the Mick's and Peasant restaurants, as discussed in Note 3 to the Company's
consolidated financial statements, there was a reduction in food and beverage
costs of approximately $2.6 million for fiscal 1998.
Restaurant operating expenses which include labor, occupancy and other
operating expenses increased from $75.8 million for fiscal 1997 to $81.8 million
for fiscal 1998, an increase of $6.0 million. Restaurant operating expenses,
excluding all Mick's and Peasant restaurants, increased from $70.7 million for
fiscal 1997 to $81.8 million for fiscal 1998. Those costs, excluding Mick's and
Peasant, as a percentage of revenues increased 0.1% from 43.0% for fiscal 1997
to 43.1% for fiscal 1998. Offsetting the increase in total restaurant operating
expenses was a reduction of approximately $5.1 million during fiscal 1998 versus
the comparable 1997 period, due to the sale and closings of Mick's and Peasant
restaurants as discussed in Note 3 to the Company's consolidated financial
statements.
Depreciation, amortization and other non-cash charges increased from
$6.8 million for fiscal 1997 to $8.4 million for fiscal 1998 and increased
from 4.0% of revenues to 4.4%, respectively. Through fiscal 1998, pre-opening
costs associated with the opening of new restaurants were amortized over the
12 months following opening. The timing of restaurant openings, as well as
costs per restaurant, affected the amount of such costs amortized.
General and administrative expenses for fiscal 1998 were $13.4 million,
an increase of $0.5 million, from $12.9 million for fiscal 1997. General and
administrative expenses, excluding all Mick's and Peasant restaurants, increased
$1.1 million from $12.3 million for fiscal 1997 to $13.4 million for fiscal
1998. Such costs, excluding Mick's and Peasant, as a percentage of revenues were
7.1% for fiscal 1998, a decrease of 0.4% from fiscal 1997. The increase in such
absolute costs is driven by incremental costs associated with restaurant
development. General and administrative expenses relating to the Mick's and
Peasant restaurant groups decreased $0.6 million during fiscal 1998 versus the
comparable 1997 period as a result of the sale and closings of Mick's and
Peasant restaurants as discussed in Note 3.
Marketing and promotional expenses were $5.1 million, or 2.7% of
revenues, for fiscal 1998 versus $4.2 million, or 2.4% of revenues, for fiscal
1997. Marketing and promotional expenses, excluding Mick's and Peasant, were
$5.1 million, or 2.7% of revenues, for fiscal 1998, as compared to $4.0 million,
or 2.4% of revenues, for fiscal 1997. The increase is driven by incremental
costs associated with restaurant
<PAGE>
development and program specific costs related to Morton's twentieth
anniversary. Mick's and Peasant marketing and promotional expenses decreased
$0.2 million during fiscal 1998 versus fiscal 1997.
Interest expense, net of interest income, decreased $0.1 million, from
$2.4 million for fiscal 1997 to $2.3 million for fiscal 1998. This decrease was
due to a reduction in the Company's weighted average interest rate on bank
borrowings offset by additional borrowings.
During fiscal 1998, the Company recorded a nonrecurring, pre-tax charge
of $19.9 million representing the write-down of impaired Bertolini's restaurant
assets and the write-down and accrual of lease exit costs associated with the
closure of specified Bertolini's restaurants, as well as the write-down of the
Company's remaining interest in Mick's and Peasant (see Note 3 to the Company's
consolidated financial statements).
During fiscal 1997, the Company recorded a charge of approximately $2.3
million related to a judgment against the Company in the United States District
Court for the Northern District of California (see Note 3(b) to the Company's
consolidated financial statements).
An income tax benefit of $4.3 million for fiscal 1998 represents the
recovery of FICA and other tax credits that were generated during fiscal 1998
and the recognition of additional deferred tax benefits associated with the
Company's fiscal 1998 loss, as well as the partial reversal of the deferred tax
valuation allowance associated with the implementation of certain state tax
planning strategies.
1997 COMPARED TO 1996
The following table represents the unaudited combined results of
operations for Morton's Restaurant Group, Morton's and Bertolini's, excluding
Mick's and Peasant restaurants. As discussed in Note 3 to the Company's
consolidated financial statements, the Company completed the sale of its
Atlanta-based Mick's and Peasant restaurants on February 6, 1997 and closed,
sold, or otherwise disposed of all other remaining Mick's and Peasant
restaurants during fiscal 1997.
<PAGE>
Morton's Restaurant Group, Inc., Morton's and Bertolini's (excluding Mick's
and Peasant):
<TABLE>
<CAPTION>
December 28, 1997 December 29, 1996
----------------- -----------------
(amounts in thousands)
<S> <C> <C>
Revenues $164,272 $138,968
Food and beverage costs 56,628 48,767
Restaurant operating expenses 70,659 59,340
Depreciation, amortization and other non-cash charges 6,823 6,282
General and administrative expenses 12,329 10,592
Marketing and promotional expenses 4,011 3,456
Interest expense, net 2,396 2,297
Nonrecurring charge for litigation and related expenses 2,300 --
-------- --------
Income before income taxes $ 9,126 $ 8,234
-------- --------
-------- --------
</TABLE>
The following represents the unaudited combined results of operations for
Mick's and Peasant. Interest expense was not allocated to Mick's and Peasant.
Mick's and Peasant Restaurants:
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
------------ ------------
(amounts in thousands)
<S> <C> <C>
Revenues $ 8,453 $ 54,410
Food and beverage costs 2,561 15,956
Restaurant operating expenses 5,120 33,042
Depreciation, amortization and other non-cash charges 6 172
General and administrative expenses 556 3,741
Marketing and promotional expenses 157 975
Nonrecurring charge for the write-down and related charges for net
assets held for sale -- 11,500
-------- --------
Income (loss) before income taxes $ 53 $(10,976)
-------- --------
-------- --------
</TABLE>
Revenues decreased $20.7 million, or 10.7%, to $172.7 million for
fiscal 1997, from $193.4 million for fiscal 1996. Revenues from Morton's and
Bertolini's increased $25.3 million, or 18.2%, to $164.3 million for fiscal
1997, from $139.0 million during the comparable 1996 period. Of the increase in
Morton's and Bertolini's revenues, $17.6 million was attributable to incremental
restaurant revenues from twelve new restaurants opened after January 1, 1996 and
$7.0 million, or 5.6%, was attributable to additional comparable revenues from
restaurants open all of both periods. Included in 1997 revenues is approximately
$0.7 million of investment and consulting fee income. Average Morton's and
Bertolini's revenues per restaurant open for a full period increased 6.3%. As
discussed in Note 3 to the Company's
<PAGE>
consolidated financial statements, the Company completed the sale of its
Atlanta-based Mick's and Peasant restaurants on February 6, 1997. Nine other
non-Atlanta Mick's and Peasant restaurants were closed, sold or otherwise
disposed of during fiscal 1996 and the remaining seven Mick's were closed, sold
or otherwise disposed of during fiscal 1997. As a result, revenues for the
Mick's and Peasant restaurants decreased approximately $46.0 million in the
fiscal 1997 period versus the comparable period of fiscal 1996. As of December
28, 1997, the Company operated 48 restaurants (including 38 Morton's and 10
Bertolini's) and as of December 29, 1996, 67 restaurants (including 34 Morton's,
7 Bertolini's, 18 Mick's and 8 Peasants).
Percentage changes in comparable restaurant revenues for fiscal 1997
versus fiscal 1996 for restaurants open all of both periods are as follows:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-----------------
<S> <C>
Morton's 6.2%
Bertolini's 2.6%
Total 5.6%
</TABLE>
The Company believes that revenues for the first quarter of 1996 were
adversely affected by severe winter storms in January 1996. The Company believes
that the Olympic Games, which were held in Atlanta in July 1996, had a favorable
impact on Atlanta-based restaurant revenues for that period.
Food and beverage costs decreased from $64.7 million for fiscal 1996 to
$59.2 million for fiscal 1997. Food and beverage costs, excluding all Mick's and
Peasant restaurants, increased $7.9 million to $56.6 million for fiscal 1997
from $48.8 million recorded for fiscal 1996. These costs as a percentage of
related revenues decreased 0.6% for the period. As a result of the sale and
closings of the Mick's and Peasant restaurants, as discussed in Note 3 to the
Company's consolidated financial statements, there was a reduction in food and
beverage costs of approximately $13.4 million for fiscal 1997.
Restaurant operating expenses which include labor, occupancy and other
operating expenses decreased from $92.4 million for fiscal 1996 to $75.8 million
for fiscal 1997, a decrease of $16.6 million. Restaurant operating expenses,
excluding all Mick's and Peasant restaurants, increased from $59.3 million for
fiscal 1996 to $70.7 million for fiscal 1997. Those costs, excluding Mick's and
Peasant, as a percentage of revenues increased 0.3% from 42.7% for fiscal 1996
to 43.0% for fiscal 1997. Offsetting the increase in total restaurant operating
expenses was a reduction of approximately $28.0 million during fiscal 1997
versus
<PAGE>
the comparable 1996 period, due to the sale and closings of Mick's and Peasant
restaurants as discussed in Note 3 to the Company's consolidated financial
statements.
Depreciation, amortization and other non-cash charges increased from
$6.5 million for fiscal 1996 to $6.8 million for fiscal 1997 and increased from
3.3% of revenues to 4.0%, respectively. Pre-opening costs associated with the
opening of new restaurants are amortized over the 12 months following opening.
The timing of restaurant openings affects the amount of such costs amortized.
General and administrative expenses for fiscal 1997 were $12.9 million,
a decrease of $1.4 million, from $14.3 million for fiscal 1996. General and
administrative expenses, excluding all Mick's and Peasant restaurants, increased
$1.7 million from $10.6 million for fiscal 1996 to $12.3 million for fiscal
1997. Such costs, excluding Mick's and Peasant, as a percentage of revenues were
7.5% for fiscal 1997, a decrease of 0.1% from fiscal 1996. The increase in such
expense is driven by incremental costs associated with increased restaurant
development. General and administrative expenses relating to the Mick's and
Peasant restaurant groups decreased $3.1 million during fiscal 1997 versus the
comparable 1996 period as a result of the sale and closings of Mick's and
Peasant restaurants as discussed in Note 3.
Marketing and promotional expenses were $4.2 million, or 2.4% of
revenues, for fiscal 1997 versus $4.4 million, or 2.3% of revenues, for fiscal
1996. Marketing and promotional expenses, excluding Mick's and Peasant, were
$4.0 million, or 2.4% of revenues, for fiscal 1997, as compared to $3.4 million,
or 2.5% of revenues, for fiscal 1996. The increase is driven by incremental
costs associated with increased restaurant development. Mick's and Peasant
marketing and promotional expenses decreased $0.8 million during fiscal 1997
versus fiscal 1996.
Interest expense, net of interest income, increased $0.1 million, from
$2.3 million for fiscal 1996 to $2.4 million for fiscal 1997.
During fiscal 1997, the Company recorded a charge of approximately $2.3
million related to a judgment against the Company in the United States District
Court for the Northern District of California (see Note 3(b) to the Company's
consolidated financial statements).
<PAGE>
Income tax expense of $2.3 million for fiscal 1997 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 1997, 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. (formerly The First National Bank of
Boston) ("BBNA") entered into the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated June 19, 1995, as amended, from time to time
(collectively the "Credit Agreement"), pursuant to which the Company's credit
facility (the "Credit Facility") is $45,000,000, which reflects an increase of
$12,500,000 in fiscal 1998. The Credit Facility consists 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 January 3, 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.
At the end of fiscal 1998 and fiscal 1997, the Company had outstanding
borrowings of $29,475,000 and $22,700,000, respectively, under the Credit
Agreement. At January 3, 1999, $230,000 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 $15,295,000 as of
January 3, 1999. The weighted average interest rate on all borrowings under the
Credit Facility on January 3, 1999 was 7.01%. 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.
<PAGE>
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 January 3, 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. The borrowings under the Credit Agreement have been
classified as noncurrent on the Company's consolidated balance sheet since
principal payments commence December 31, 2000.
The Credit Agreement contains certain restrictive covenants with
respect to the Company that, among other things, 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 January 3, 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 term
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 January 3, 1999,
the outstanding principal balance of the CNL loan was approximately $2,221,000,
of which approximately $167,000 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 January 3, 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
<PAGE>
and one Bertolini's restaurants for amounts not exceeding $3,000,000 per
location. 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. Principal and interest payments on the loan, which matures on
October 1, 2018, are made monthly. In December 1998, $2,315,000 was funded for
the purchase of two additional parcels of land and an additional $3,685,000 is
expected to be funded subsequent to the completion of construction during fiscal
1999. Interest is accrued on the initial fundings at an adjustable rate equal to
the London interbank offered rate, adjusted monthly, plus an applicable margin
of 2.75%. Upon the final disbursement, the interest rate will be fixed at a rate
of interest equal to the ten year U.S. Treasury Rate then in effect plus 2.75%.
Principal and interest payments will be made on a monthly basis over a
twenty-year period. At January 3, 1999, the aggregate outstanding principal
balance due to FFCA was approximately $5,305,000, of which approximately $67,000
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 January 3, 1999.
During fiscal 1998, the Company's net investment in fixed assets and
related investment costs, net of capitalized leases and mortgage financings,
approximated $22.1 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, or 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
$11.5 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.
At January 3, 1999, the Company had various state income tax net
operating loss carryforwards which expire in various periods through 2016.
Approximately $3.7 million of the Company's deferred tax asset represents
capital losses. Additionally, as of January 3, 1999, the Company had
approximately $4.9 million in FICA and other tax credits expiring in various
periods through 2013 available to reduce income taxes payable in future years.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent upon generating future taxable income during the periods in
which temporary
<PAGE>
differences become deductible and net operating losses can be carried forward.
Management considers the scheduled reversal of deferred tax assets, projected
future taxable income and tax planning strategies in making this assessment. See
Note 7 to the Company's consolidated financial statements.
ACCOUNTING STANDARDS TO BE ADOPTED
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 will adopt SOP 98-5 in the first quarter of 1999 and
record a charge for the cumulative effect of an accounting change of
approximately $2.3 million, net of income tax benefits of approximately $1.4
million.
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.
INFLATION
The impact of inflation on labor, food and occupancy costs can
significantly affect the Company's operations. Many of the Company's employees
are paid hourly rates related to the Federal minimum wage. Food costs as a
percentage of net sales have been somewhat stable due to procurement
efficiencies and menu price adjustments. The Company currently does not engage
in any futures contracts and all purchases are made at prevailing market prices.
Building costs, taxes, maintenance and insurance costs all have an impact on the
Company's occupancy costs, which continued to increase during the period.
Management believes the current practice of maintaining operating margins
through a combination of menu price increases and cost controls, careful
evaluation of property and equipment needs, and efficient purchasing practices
is its most effective tool for coping with inflation.
<PAGE>
SEASONALITY
The Company's business is somewhat seasonal in nature, with revenues
being less in the third quarter than in other quarters primarily due to Morton's
reduced summer volume. The following table sets forth historical, unaudited
quarterly revenues for the Company's Morton's and Bertolini's restaurants which
were open for the entire period from December 29, 1997 to January 3, 1999 (41
restaurants), and for the entire period from December 30, 1996 to December 28,
1997 (36 restaurants):
Comparable Restaurant Revenues
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1997 1996
---- ---- ---- ----
41 Restaurants 36 Restaurants
-------------- --------------
$ % $ % $ % $ %
- - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter 41,018 26.3 39,156 26.0 33,702 25.7 31,918 25.7
Second Quarter 38,309 24.6 37,166 24.6 32,281 24.6 30,274 24.4
Third Quarter 33,679 21.6 32,917 21.8 28,868 22.0 27,793 22.4
Fourth Quarter 42,863 27.5 41,663 27.6 36,300 27.7 34,195 27.5
------ ---- ------ ---- ------ ---- ------ ----
155,869 100.0 150,902 100.0 131,151 100.0 124,180 100.0
</TABLE>
The Company believes that revenues for the first quarter of fiscal 1996
were adversely affected by severe winter storms in January 1996. The Company
believes that the Olympic Games, which were held in Atlanta in July 1996, had a
favorable impact on Atlanta-based restaurant revenues for that period.
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 anticipates completing its Year 2000 project in
early 1999 and believes that the Year 2000 issue will not pose significant
operational problems for its computer systems. The Company has also initiated
procedures to communicate with suppliers regarding compliance with Year 2000
requirements. The Company has not determined the impact, if any, on its
operations if outside third parties with which it has a business relationship
fail to comply with Year 2000 requirements. 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
<PAGE>
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.
MARKET RISK
The Company maintains interest rate swap agreements. It has established
policies, procedures, and internal processes governing the management of its
interest rate swaps to reduce market risks inherent in such transactions. As of
January 3, 1999, the exposure to these market risks is not considered material.
FORWARD-LOOKING STATEMENTS
This annual report 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Morton's Restaurant Group, Inc.:
We have audited the accompanying consolidated balance sheets of Morton's
Restaurant Group, Inc. and subsidiaries as of January 3, 1999 and December 28,
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended January 3,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Morton's Restaurant
Group, Inc. and subsidiaries as of January 3, 1999 and December 28, 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 3, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Melville, New York
February 1, 1999
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 3, 1999 and December 28, 1997
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
January 3, December 28,
Assets 1999 1997
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,117 $ 3,437
Accounts receivable 894 1,669
Inventories 6,400 5,420
Landlord construction receivables,
prepaid expenses and other current assets 3,920 3,226
Deferred income taxes 6,005 4,890
------- -------
Total current assets 19,336 18,642
------- -------
------- -------
Property and equipment, net 45,811 34,642
Intangible assets, net of accumulated amortization of $3,861 at
January 3, 1999 and $3,458 at December 28, 1997 12,134 12,537
Other assets and deferred expenses, net of accumulated
amortization of $2,075 at January 3, 1999 and $3,901 at 9,237 11,902
December 28, 1997
Deferred income taxes 8,466 4,220
------- -------
$94,984 $81,943
------- -------
------- -------
</TABLE>
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
January 3, 1999 and December 28, 1997
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
January 3, December 28,
Liabilities and Stockholders' Equity 1999 1997
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 6,553 $ 6,159
Accrued expenses 19,466 12,998
Current portion of obligations to financial institutions and capital
leases 1,801 1,631
Accrued incomes taxes 372 656
-------- --------
Total current liabilities 28,192 21,444
-------- --------
-------- --------
Obligations to financial institutions and capital leases, less current
maturities 40,254 28,670
Other liabilities 3,581 3,274
-------- --------
Total liabilities 72,027 53,388
-------- --------
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value per share. Authorized 3,000,000
shares, no shares issued or outstanding -- --
Common stock, $0.01 par value per share. Authorized 25,000,000 shares, issued and
outstanding 6,661,370 at January 3, 1999
and 6,604,565 at December 28, 1997 67 66
Nonvoting common stock, $0.01 par value per share. Authorized 3,000,000 shares, no
shares issued or outstanding -- --
Additional paid-in capital 62,717 62,214
Accumulated other comprehensive income (loss) (34) --
Accumulated deficit (35,597) (33,725)
Less treasury stock, 234,400 shares at cost (4,196) --
-------- --------
Total stockholders' equity 22,957 28,555
-------- --------
-------- --------
$ 94,984 $ 81,943
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended January 3, 1999, December 28, 1997, and December 29, 1996
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
January 3, December 28, December 29,
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $ 189,779 $ 172,725 $ 193,378
Food and beverage costs 64,946 59,189 64,723
Restaurant operating expenses 81,796 75,779 92,382
Depreciation, amortization and other non-cash charges 8,360 6,829 6,454
General and administrative expenses 13,432 12,885 14,333
Marketing and promotional expenses 5,125 4,168 4,431
Interest expense, net 2,325 2,396 2,297
Nonrecurring charges 19,925 2,300 11,500
---------- --------- ---------
Income (loss) before income taxes (6,130) 9,179 (2,742)
Income tax expense (benefit) (4,258) 2,295 (4,507)
---------- --------- ---------
Net income (loss) $ (1,872) $ 6,884 $ 1,765
---------- --------- ---------
---------- --------- ---------
Net income (loss) per share:
Basic $ (0.28) $ 1.06 $ 0.28
---------- --------- ---------
---------- --------- ---------
Diluted $ (0.28) $ 1.00 $ 0.26
---------- --------- ---------
---------- --------- ---------
Weighted average common and potential common shares outstanding:
Basic 6,617 6,498 6,404
---------- --------- ---------
---------- --------- ---------
Diluted 6,617 6,886 6,795
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended January 3. 1999, December 28, 1997, and December 29, 1996
(amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Accumulated
Additional Other Treasury Total
Common Paid-In Accumulated Comprehensive Stock at Stock-holders'
Stock Capital Deficit Income (Loss) Cost Equity
----- ------- ------- ------------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 64 $ 61,350 $(42,374) $ -- $ -- $ 19,040
Exercise of stock options -- 282 -- -- -- 282
Net income -- -- 1,765 -- -- 1,765
-------- -------- -------- -------- -------- --------
Balance at December 29, 1996 64 61,632 (40,609) -- -- 21,087
Exercise of stock options 2 582 -- -- -- 584
Net income -- -- 6,884 -- -- 6,884
-------- -------- -------- -------- -------- --------
Balance at December 28, 1997 66 62,214 (33,725) -- -- 28,555
Comprehensive income (loss):
Net loss -- -- (1,872) -- --
Foreign currency translation
adjustments -- -- -- (34) --
--------
Total comprehensive income (loss) (1,906)
--------
Exercise of stock options 1 503 -- -- -- 504
Purchase of 234,400 shares of common
stock (average cost of $17.90 per
share) -- -- -- -- (4,196) (4,196)
-------- -------- -------- -------- -------- --------
Balance at January 3, 1999 $ 67 $ 62,717 $(35,597) $ (34) $ (4,196) $ 22,957
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows Years ended
January 3, 1999, December 28, 1997, and December 29, 1996
(amounts in thousands)
<TABLE>
<CAPTION>
Jan. 3, Dec. 28, Dec. 29,
1999 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ (1,872) $ 6,884 $ 1,765
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation of property and equipment 3,117 2,127 1,534
Amortization of intangible assets and other deferred expenses 4,846 4,086 4,122
Deferred occupancy costs 397 616 798
Deferred income taxes (5,361) 827 (5,477)
Nonrecurring charges 19,925 2,300 11,500
Change in assets and liabilities:
Accounts receivable 777 447 351
Inventories (976) (1,166) (456)
Landlord construction receivables, prepaid expenses and
other current assets (1,609) (4,219) 122
Accounts payable, accrued expenses and other liabilities (1,074) 404 (6,050)
Accrued income taxes (284) (44) 450
-------- -------- --------
Net cash provided by operating activities 17,886 12,262 8,659
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (23,259) (9,914) (5,297)
Payments for pre-opening costs, licenses and other deferred expenses (4,205) (6,274) (4,486)
Proceeds from sale of Mick's and Peasant restaurants -- 4,308 --
Cash paid to minority holder for common stock of subsidiary -- -- (483)
-------- -------- --------
Net cash used by investing activities (27,464) (11,880) (10,266)
-------- -------- --------
</TABLE>
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(amounts in thousands)
<TABLE>
<CAPTION>
Jan. 3, Dec. 28, Dec. 29,
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Principal reduction on obligations to financial institutions $ (8,425) $(10,005) $ (4,750)
Proceeds from obligations to financial institutions 20,365 10,200 6,000
Purchases of treasury stock (4,196) -- --
Net proceeds from issuance of stock 504 584 282
-------- -------- --------
Net cash provided by financing activities 8,248 779 1,532
-------- -------- --------
Effect of exchange rate changes on cash 10 -- --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,320) 1,161 (75)
Cash and cash equivalents at beginning of year 3,437 2,276 2,351
-------- -------- --------
Cash and cash equivalents at end of year $ 2,117 $ 3,437 $ 2,276
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 3, 1999, December 28, 1997, and December 29, 1996
(1) ORGANIZATION AND OTHER MATTERS
Morton's Restaurant Group, Inc. (the "Company") was incorporated in the
State of Delaware in October 1988 and is engaged in the business of owning and
operating restaurants under the names Morton's of Chicago, Inc. ("Morton's") and
Bertolini's Authentic Trattorias ("Bertolini's"). As of January 3, 1999, the
Company owned and operated 55 restaurants (including 43 Morton's and 12
Bertolini's).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and results
of operations of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) REPORTING PERIOD
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 consists of 53
weeks.
(c) INVENTORIES
Inventories consist of food, beverages, and supplies and are recorded at
the lower of cost or market. Cost is determined using the first-in, first-out
(FIFO) method.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets.
Improvements to leased premises and property under capital leases are amortized
on the straight-line method over the shorter of the lease term, including
planned extensions, or estimated useful lives of the improvements. In fiscal
1998, 1997 and 1996, interest costs capitalized during the construction period
for leasehold improvements were approximately $428,000, $270,000, and $202,500,
respectively.
(e) OTHER ASSETS AND DEFERRED EXPENSES
Through 1998, the Company deferred certain organizational and
pre-opening costs associated with the opening of each new restaurant. Such costs
were amortized over the 12 months following the restaurant's opening.
Unamortized pre-opening costs of $3,053,000 and $4,116,000 at the end of fiscal
1998 and 1997, respectively, are included in "Other assets and deferred
expenses" in the accompanying consolidated balance sheets. Also included in
"Other assets and deferred expenses" are smallwares of $2,085,000 at the end of
fiscal 1998 and $2,135,000 at the end of fiscal 1997.
<PAGE>
(f) INCOME TAXES
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes" ("Statement 109"). Statement 109 requires
a change from the deferred method of accounting for income taxes of APB Opinion
11 to the asset and liability method of accounting for income taxes. Under the
asset and liability method of Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
(g) INTANGIBLE ASSETS
Intangible assets principally represent goodwill which arose from the
acquisition of Morton's. Amortization is being recognized on a straight-line
basis over forty years for goodwill. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscontinued future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
(h) DERIVATIVE FINANCIAL INSTRUMENTS
Amounts receivable or payable under interest rate swap agreements are
accounted for as adjustments to interest expense.
(i) MARKETING AND PROMOTIONAL EXPENSES
Marketing and promotional expenses in the accompanying consolidated
statements of operations include advertising expenses of $3,526,000, $3,022,000
and $2,875,000 for fiscal 1998, 1997 and 1996, respectively. Advertising costs
are expensed as incurred.
(j) STATEMENTS OF CASH FLOWS
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 $2,204,000, $2,062,000 and
$2,141,000, and income taxes of approximately $1,386,000, $1,133,000 and
$977,000 for fiscal 1998, 1997 and 1996, respectively. During fiscal 1998, 1997
and 1996, the Company entered into capital lease finance agreements of
approximately $1,836,000, $2,184,000 and $2,346,000, respectively, for
restaurant equipment.
(k) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" ("Statement 128"). Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes
<PAGE>
any dilutive effects of stock options. Dilutive earnings per share is calculated
in a manner similar to the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods have been presented and, where
appropriate, restated to conform to the Statement 128 requirements (see Note 9).
(l)USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(m) LONG-LIVED ASSETS
The Company's accounting policies relating to the recording of
long-lived assets, including property and equipment and intangibles, are
discussed above. As discussed in Note 3, the Company adopted the provisions of
Statement 121 effective January 2, 1995. Statement 121 requires, among other
things, that long-lived assets held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair values of the
assets. Assets to be disposed of or sold are reported at the lower of the
carrying amount or fair value less costs to sell.
(n) STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted the provisions of SFAS
Statement 123 ("Statement 123") which encourages, but does not require companies
to record compensation expense for stock-based employee compensation plans at
fair value. The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and related interpretations, in accounting for its
fixed plan stock options. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. The Company elected to disclose the pro forma net earnings
and pro forma earnings per share for stock option grants made beginning in
fiscal 1995 as if such method had been used to account for stock-based
compensation costs as described in Statement 123.
(o) TRANSLATION OF FOREIGN CURRENCIES
During 1998, the Company opened two international locations, one in
Singapore (May 1998) and one in Toronto (September 1998). The financial position
and results of operations of the Company's foreign businesses are measured using
local currency as the functional currency. Assets and liabilities are translated
into U.S. dollars at year-end rates of exchange, and revenues and expenses are
translated at the average rates of exchange for the year. Gains or losses
resulting from the translation of foreign currency financial statements are
accumulated as a separate component of stockholders' equity.
(p) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME ("Statement 130"). Statement 130 establishes standards for
the reporting and presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income consists of net income
and equity adjustments from foreign currency translation and is presented in the
consolidated statements of stockholders'
<PAGE>
equity. The Statement requires only additional disclosures in the consolidated
financial statements; it does not affect the Company's financial position or
results of operations. Prior year financial statements did not require any
reclassifications to conform with the requirements of Statement 130.
(q) RECLASSIFICATION
Certain items previously reported in specific financial statement
captions have been reclassed to conform to the fiscal 1998 presentation.
(3) NONRECURRING CHARGES
(A) BERTOLINI'S
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 and authorized a plan for the closure or
abandonment of specified restaurant locations to be completed principally in the
first quarter of 1999. The Company has ascribed no value to the leasehold
improvements for closed locations as these assets inure to the benefit of the
landlord and has estimated the net realizable value of furniture and equipment
based upon the Company's past history of restaurant closures, as well as
industry standards. The net realizable value incorporates a factor for
depreciation in the fiscal 1999 period in which the restaurants will continue to
operate until closure. The accrual for lease exit costs was recorded based upon
the remaining guarantee values specified in the underlying lease agreements.
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 has recorded an impairment charge to
write-down these impaired assets and will contemplate their potential closure
upon future operating results.
The components of the charge are as follows (amounts in thousands):
<TABLE>
<S> <C>
Write-down of property and equipment $10,833
Write-down of other assets 1,039
Accrual of lease exit and related costs 4,165
--------
Bertolini's subtotal 16,037
Write-down for Mick's and Peasant (detailed below) 3,888
--------
1998 nonrecurring charge $19,925
--------
--------
</TABLE>
<PAGE>
Remaining in furniture, fixtures and equipment is approximately
$263,000, representing management's estimate of the net realizable value of the
related Bertolini's property and equipment, as well as the depreciable value of
the assets during the period to be operated before closure in fiscal 1999.
(b) LITIGATION AND RELATED EXPENSES
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 attorney's 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. On July 29, 1998, the Court entered judgment in accordance with the
jury's verdict. The Company has filed an appeal and intends to vigorously
contest the judgment.
(c) MICK'S AND PEASANT RESTAURANTS
As described below, on February 6, 1997, the Company completed the sale
of its Atlanta-based Mick's and Peasant Restaurants. Effective January 2, 1995,
the Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("Statement 121"). During the second quarter of fiscal 1995, the
Company approved a plan for the sale of Mick's and Peasant. Pursuant to
Statement 121, the Company discontinued depreciating fixed assets and amortizing
goodwill related to Mick's and Peasant for fiscal 1996 and fiscal 1997.
The following represents the combined results of operations for Mick's
and Peasant for the years ended January 3, 1999, December 28, 1997 and December
29, 1996. Interest expense was not allocated to Mick's and Peasant.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(amounts in thousands)
<S> <C> <C> <C>
Revenues $ - $ 8,453 $ 54,410
Food and beverage costs - 2,561 15,956
Restaurant operating expenses - 5,120 33,042
Depreciation, amortization and other non-cash charges - 6 172
General and administrative expenses - 556 3,741
Marketing and promotional expenses - 157 975
Nonrecurring charge for write-down and related charges for net
assets held for sale - - 11,500
--------- ---------- -----------
Income (loss) before income taxes $ - $ 53 $ (10,976)
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
<PAGE>
Management had been actively seeking potential buyers for the sale of
all Mick's and Peasant restaurants, however, most of the interest received
related to the majority of the restaurants located mainly in the Atlanta area.
No meaningful offers were received for the remaining restaurants (the "Remaining
Restaurants"). Cash flow analyses prepared by management for the Remaining
Restaurants indicated that it would be less costly to close such restaurants in
an orderly fashion, rather than continue to operate them through the end of
their respective lease terms. Accordingly, assets of $8,300,000 related to the
Remaining Restaurants were written off and expenses of $7,200,000, representing
management's estimate of the expected costs to terminate related leases, were
accrued at December 31, 1995. During fiscal 1998 and fiscal 1997, restaurant
occupancy expenses of approximately $720,400 and $1,271,000, respectively, for
the Remaining Restaurants were charged to the accrual for lease exit costs.
During fiscal 1997, seven Mick's, and during fiscal 1996, seven Mick's
restaurants and two Peasant restaurants were sold, closed or otherwise disposed
of. At January 3, 1999 and December 28, 1997, included in "Accrued expenses" in
the accompanying consolidated balance sheet, is approximately $1,128,000 and
$788,000, respectively, representing the remaining lease disposition
liabilities, as adjusted, related to the closing of these restaurants.
On February 6, 1997, the Company completed the sale of its
Atlanta-based Mick's and Peasant restaurants. In connection with the sale, the
Remaining Restaurants were transferred to another subsidiary of the Company.
Pursuant to these agreements, MRI Acquisition Corporation acquired an 80.1%
interest in Mick's and PRI Acquisition Corporation acquired an 80.1% interest in
Peasant for an aggregate of $6,800,000, consisting of $4,300,000 in cash and
$2,500,000 in the form of two unsecured promissory notes. The Company retained a
19.9% interest in Mick's and Peasant which, on April 6, 1998 was exchanged for a
19.9% interest in Atlanta Dining Group, Inc., parent of Mick's and Peasant. The
unsecured promissory notes and the 19.9% interest in Mick's and Peasant were
recorded at their estimated fair values on the date of the sale of approximately
$2,200,000. In conjunction with the sale, the Company had recorded a fiscal 1996
fourth quarter charge of $11,500,000 to write-down the Atlanta-based restaurants
to their net realizable values based on the fair value of the consideration
received, to accrue for the various expenses related to the closing of such sale
and to write-off two restaurants which were not part of the sale, both of which
were disposed of in 1997.
In the fourth quarter of fiscal 1998, the Company evaluated the
recoverability of its 19.9% ownership interest in Mick's and Peasant and the
related promissory notes received in connection with the 1997 sale. The analysis
was based upon a review of Atlanta Dining Group's 1998 operating performance,
including anticipated future cash flows, and concluded that pursuant to the
provisions of Statement's 114 and 115, the notes receivable and investment
carrying values were impaired and therefore recorded an impairment charge of
$2,200,000. Additionally, during fiscal 1998, the Company also recorded
additional lease termination liabilities of $1,688,000, based upon additional
defaults of sublease agreements previously guaranteed by the Company, as well as
additional litigation charges.
(4) PROPERTY AND EQUIPMENT
The costs and related accumulated depreciation and amortization of
major classes of assets as of January 3, 1999 and December 28, 1997 are set
forth below:
<TABLE>
<CAPTION>
January 3, 1999 December 28, 1997
--------------- -----------------
(amounts in thousands)
<S> <C> <C>
Furniture, fixtures and equipment $ 20,658 $ 19,169
Leasehold improvements 25,422 21,876
Land 4,287 --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Construction in progress 3,248 46
----------- -----------
53,615 41,091
Less accumulated depreciation and amortization 7,804 6,449
----------- -----------
Net property and equipment $ 45,811 $ 34,642
----------- -----------
----------- -----------
</TABLE>
(5) ACCRUED EXPENSES
<TABLE>
<CAPTION>
January 3, 1999 December 28, 1997
--------------- -----------------
Accrued expenses consist of the following: (amounts in thousands)
<S> <C> <C>
Bertolini's accrued lease exit costs $ 4,165 $ -
Accrued construction costs 2,749 2,081
Litigation and related expenses 1,841 2,216
Restaurant operating expenses 1,797 1,437
Sales and use tax 1,695 1,403
Payroll and related taxes 1,623 1,375
Accrued gift certificates 1,410 1,002
Rent and property taxes 1,360 957
Mick's and Peasant lease exit costs 1,128 788
Other 1,698 1,739
-------- -------------
Total accrued expenses $ 19,466 $ 12,998
---------- -------------
---------- -------------
</TABLE>
(6) OBLIGATIONS TO FINANCIAL INSTITUTIONS
The Company and BankBoston, N.A. (formerly The First National Bank of
Boston) ("BBNA") entered into the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated June 19, 1995 as amended, from time to time
(collectively the "Credit Agreement"), pursuant to which the Company's credit
facility (the "Credit Facility") is $45,000,000, which reflects an increase of
$12,500,000 in fiscal 1998. The Credit Facility consists 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 January 3, 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.
At the end of fiscal 1998 and fiscal 1997, the Company had outstanding
borrowings of $29,475,000 and $22,700,000, respectively, under the Credit
Agreement. At January 3, 1999, $230,000 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 $15,295,000 as of
January 3, 1999. The weighted average interest rate on all borrowings under the
Credit Facility on January 3, 1999 was 7.01%. 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.
<PAGE>
Management believes that the carrying amount of long-term debt
approximates fair value since the interest rate is variable and the margins are
consistent with those available to the Company under similar terms.
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 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 January 3, 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. 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 certain restrictive covenants with respect
to the Company that, among other things, 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 January 3, 1999, the Company believes it was
in compliance with such covenants.
The Credit Agreement permits the Company to pay dividends or repurchase
stock in an amount not to exceed 5% of consolidated net income calculated for
the fiscal year immediately preceding the fiscal years in which any such
dividends or repurchases take place, provided that no event of default is then
existing or would result from such payment. In addition, the Company is
permitted to pay dividends and repurchase stock in an additional amount not to
exceed 25% of net proceeds from equity offerings, including the Company's 1992
equity offering. The Company is also permitted under the provisions of the
Credit Agreement to repurchase up to an additional $20 million of its stock. See
Note 8(d).
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. Interest rate swap agreements are
used to reduce the potential impact of interest rate fluctuations relating to
$20,000,000 of variable rate debt. The swap agreements entitle the Company to
receive from BBNA, on a quarterly basis, any amounts by which the prevailing
variable rate exceeds a predetermined fixed rate. Conversely, the Company is
required to pay BBNA amounts by which the predetermined fixed rate exceeds the
prevailing variable rate. At January 3, 1999, the Company estimates that it
would be required to pay to BBNA approximately $274,000 to terminate the
agreements.
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 January 3, 1999,
the outstanding principal balance of the CNL loan was approximately $2,221,000,
of which approximately $167,000 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 January 3, 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
<PAGE>
restaurants for amounts not exceeding $3,000,000 per location. 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. Principal
and interest payments on the loan, which matures on October 1, 2018, are made
monthly. In December 1998, $2,315,000 was funded for the purchase of two
additional parcels of land and an additional $3,685,000 is expected to be funded
subsequent to the completion of construction in fiscal 1999 and $3,000,000 is
available for future mortgage financing. Interest is accrued on the initial
fundings at an adjustable rate equal to the London interbank offered rate,
adjusted monthly, plus an applicable margin of 2.75%. Upon the final
disbursement, the interest rate will be fixed at a rate of interest equal to the
ten year U.S. Treasury Rate then in effect plus 2.75%. Principal and interest
payments will be made on a monthly basis over a twenty-year period. At January
3, 1999, the aggregate outstanding principal balance due to FFCA was
approximately $5,305,000, of which approximately $67,000 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 January 3, 1999.
(7) INCOME TAXES
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(amounts in thousands)
<S> <C> <C> <C> <C>
Federal: Current $ 903 $ 725 $ -
Deferred (4,851) 578 (5,477)
--------- -------- ---------
(3,948) 1,303 (5,477)
State and Local: Current 200 743 898
Deferred (510) 249 72
--------- -------- ---------
(310) 992 970
--------- -------- ---------
Income tax expense (benefit) $ (4,258) $2,295 $ (4,507)
--------- -------- ---------
--------- -------- ---------
</TABLE>
Income tax expense (benefit) differed from the amounts computed by
applying the U.S. Federal income tax rates to income (loss) before income taxes
as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(amounts in thousands)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(2,084) $ 3,121 $(932)
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal income tax benefit (202) 655 644
FICA tax credits (956) (1,313) (1,208)
Change in valuation allowance (1,157) -- (3,315)
Other, net 141 (168) 304
--------- -------- ---------
$ (4,258) $ 2,295 $ (4,507)
--------- -------- ---------
--------- -------- ---------
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at the end of fiscal 1998
and 1997 are presented below:
<TABLE>
<CAPTION>
January 3, 1999 December 28, 1997
--------------- -----------------
(amounts in thousands)
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforwards $3,330 $ 5,632
Capital loss carryforwards 3,706 2,665
Nonrecurring charge for write-down and related
charges for assets held for sale 421 704
Nonrecurring charge for write-down and related
charges for impaired assets 5,982 --
Nonrecurring charge for litigation accrual 698 782
Compensatory stock options 604 642
Deferred rent and start-up amortization 3,588 3,080
FICA and other tax credits 4,930 4,154
-------- -----------
Total gross deferred tax assets 23,259 17,659
Less valuation allowance (5,775) (6,932)
------- ------------
Net deferred tax assets 17,484 10,727
Deferred tax liabilities:
Property and equipment depreciation 3,013 1,617
-------- -----------
Net deferred tax assets and liabilities $14,471 $ 9,110
-------- -----------
-------- -----------
</TABLE>
At January 3, 1999, the Company had various state income tax net
operating loss carryforwards, capital loss carryforwards, and FICA and other
tax credits expiring in various periods through 2016, 2002 and 2013,
respectively. The valuation allowance for deferred tax assets as of January
3, 1999 and December 28, 1997 was $5,775,000 and $6,932,000, respectively.
The net change in the total valuation allowance for the years ended January
3, 1999 and December 28, 1997 was a decrease of $1,157,000 and $182,000,
respectively.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which temporary differences become deductible and net operating
losses can be carried forward. Management considers the scheduled reversal of
deferred tax assets, projected future taxable income and tax planning strategies
in making this assessment. In order to fully realize the deferred tax asset, the
Company will need to generate future taxable income of approximately
$38,800,000. Taxable income (loss), before the application of net operating loss
carryforwards and FICA and other tax credits, for the years ended December 28,
1997 and December 29, 1996 was approximately $1,657,000 and $(1,898,000),
respectively, and is estimated for the year ended January 3, 1999 to be
approximately $10,000,000. The Company assesses the recoverability of its net
deferred tax asset based upon the level of historical income of the Morton's and
Bertolini's restaurants and projections of future taxable income over the next
two to three years. Deferred tax assets arising from capital losses have been
fully reserved since the Company has no capital gains to offset such losses and
has, to date, not identified any tax planning strategies to utilize such capital
losses. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward periods are reduced.
<PAGE>
(8) CAPITAL STOCK
(a) On December 15, 1994, the Company adopted a Stockholder Protection
Rights Plan ("Rights Plan"). Pursuant to the Rights Plan, a dividend of one
Right for each outstanding share of the Company's Common Stock was issued to
shareholders of record on January 3, 1995. Under certain conditions, each Right
may be exercised to purchase 1/100 of a share of Series A Junior Participating
Preferred Stock (the "Preferred Stock") of the Company at a price of $42. The
Rights will become exercisable following the tenth day after a person or group
acquires 15% or more of the Company's Common Stock or announces a tender or
exchange offer, the consummation of which would result in ownership by such
person or group of 15% or more of the Company's Common Stock. If a person or
group acquires 15% or more of the Company's outstanding Common Stock, each Right
will entitle its holder (other than such person or members of such group) to
purchase, at the Right's then-current purchase price, in lieu of 1/100 of a
share of Preferred Stock, a number of shares of the Company's Common Stock
having a market value of twice the Right's purchase price. In addition, if the
Company is acquired in a merger or other business combination, 50% or more of
its assets or earning power is sold or transferred, or a reclassification or
recapitalization of the Company occurs that has the effect of increasing by more
than 1% the proportionate ownership of the Company's Common Stock by the
acquiring person, then, each Right will entitle its holder to purchase, at the
Right's then-current purchase price, a number of the acquiring company's shares
of common stock having a market value at that time of twice the Right's purchase
price.
The Rights may be redeemed prior to becoming exercisable by the Company,
subject to approval of the Board of Directors for $.01 per Right, in accordance
with the provision of the Rights Plan. The Rights expire on January 3, 2005. The
Company has reserved 200,000 shares of Preferred Stock for issuance upon
exercise of the Rights.
(b) In May 1995, the Company amended its 1991 Stock Option Plan (the
"Stock Option Plan") which provides for the issuance of incentive stock options
("ISO's") and non-qualified stock options ("NQSO's") to employees. The Stock
Option Plan, as amended, provides that options, having a maximum term of ten
years, may be granted to purchase up to 900,000 shares of Common Stock.
The exercise price of ISO's will be equal to the fair market value of
the shares subject to option on the date of grant, while the exercise price of
NQSO's will be determined by a committee of the Board of Directors. Options vest
and become exercisable commencing at the second anniversary date of the grant at
the rate of 25% per year. During fiscal 1998, the Company issued 108,500 NQSO's.
Activity in stock options is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ------------------ -----------
Weighted Shares Weighted Shares Weighted Shares
Average Subject to Average Subject to Average Subject to
Exercise Price Option Exercise Price Option Exercise Price Option
-------------- ------ -------------- ------ -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year $11.17 627,385 $8.48 790,765 $6.63 693,295
Options granted 18.28 379,900 17.12 205,100 12.97 233,650
Options exercised 8.88 56,805 3.62 160,892 3.67 76,580
Options canceled 17.24 114,525 12.65 207,588 10.72 59,600
--------- ------- ----------- ---------- ----------- --------
End of year $13.73 835,955 $11.17 627,385 $8.48 790,765
--------- ------- ----------- ---------- ----------- --------
--------- ------- ----------- ---------- ----------- --------
</TABLE>
As of January 3, 1999, there were 238,643 options exercisable with a weighted
average exercise price of $6.85.
<PAGE>
(c) In October of 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
which was adopted by the Company in 1996. The Company has elected to disclose
the pro forma net income and earnings per share as if such method had been used
to account for stock-based compensation cost as described in Statement 123.
The per share weighted average fair value of stock options granted
during fiscal 1998, 1997 and 1996 was $8.43, $7.81, and $7.01 on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions: 1998 - expected dividend yield 0.0%, risk-free interest
rate of 5.0%, volatility of 37% and an expected life of 6.6 years; 1997 -
expected dividend yield 0.0%, risk-free interest rate of 6.0%, volatility of 33%
and an expected life of 6.4 years; 1996 - expected dividend yield 0.0%,
risk-free interest rate of 6.0%, volatility of 36% and an expected life of 7
years.
The Company applies APB Opinion No. 25 in accounting for its Stock
Option Plan and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under Statement 123, the Company's net income (loss) and net
income (loss) per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) as reported $(1,872) $6,884 $1,765
Pro forma $(2,402) $6,553 $1,516
Net income (loss) per diluted share as reported $(0.28) $1.00 $0.26
Pro forma $(0.36) $0.96 $0.23
</TABLE>
Pro forma net income (loss) only reflects options granted from 1995 on.
Therefore, the full impact of calculating compensation cost for stock options
under Statement 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of five years and compensation cost for options granted prior to January
1, 1995 is not considered.
(d) In October 1998, the Company announced that its board of directors
has authorized a repurchase of up to 20%, or approximately 1.3 million shares,
of the Company's outstanding common stock. The timing and amount of the
purchases will be at the full discretion of the Company's senior management and
subject to market conditions and applicable securities and tax regulations. The
repurchase will be accomplished through periodic purchases at prevailing prices
on the open market, by block purchases or in privately negotiated transactions.
The repurchased shares have been retained as treasury stock to use for corporate
purposes. The Company expects to finance the purchases from existing cash flow,
through its current credit facility, from additional borrowings, or a
combination thereof. At January 3, 1999, the Company had repurchased 234,400
shares of its common stock at an average purchase price of $17.90.
(9) EARNINGS PER SHARE
As discussed in Note 2(k), the Company adopted Statement 128 which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. The following table sets forth the
computation of basic and diluted earnings per share. Prior periods have been
restated to conform to the Statement 128 requirements:
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) $(1,872) $6,884 $ 1,765
----------- --------- --------
----------- --------- --------
Weighted average common shares (denominator for basic earnings per
share) 6,617 6,498 6,404
Effect of dilutive securities:
Employee stock options - * 388 391
----------- --------- --------
Weighted average common and potential common shares outstanding
(denominator for diluted earnings per share) 6,617 6,886 6,795
----------- --------- --------
----------- --------- --------
Basic earnings (loss) per share $ (0.28) $ 1.06 $ 0.28
----------- --------- --------
----------- --------- --------
Diluted earnings (loss) per share $ (0.28) $ 1.00 $ 0.26
----------- --------- --------
----------- --------- --------
</TABLE>
* Assumed exercise of stock options was antidilutive due to net loss and
therefore excluded in fiscal 1998.
For additional disclosures regarding employee stock options see Note 8.
(10) OPERATING LEASES
The Company's operations are generally conducted in leased premises.
Including renewal options, remaining lease terms range from 1 to 28 years.
In connection with entering into leases, the Company is frequently
provided with development allowances from the lessors. These allowances for
leasehold improvements, furniture, fixtures and equipment are offset against the
related fixed asset accounts and the net amount is amortized on a straight-line
basis over the shorter of the lease term, including planned extensions, or
estimated useful lives of the assets. At the end of fiscal 1998 and fiscal 1997,
$134,000 and $1,281,000, respectively, of development allowances were due from
lessors and are included in "Landlord construction receivables, prepaid expenses
and other current assets" in the accompanying consolidated balance sheets.
The Company leases certain office and restaurant facilities and related
equipment under noncancelable operating lease agreements with third parties.
Certain leases contain contingent rental provisions based upon a percent of
gross revenues and or provide for rent deferral during the initial term of such
leases. Included in "Other liabilities" in the accompanying consolidated balance
sheets at the end of fiscal 1998 and fiscal 1997 are accruals related to such
rent deferrals of approximately $3,701,000 and $3,393,000, respectively. For
financial reporting purposes, such leases are accounted for on a straight-line
rental basis. Future minimum annual rental commitments under these leases are
approximately as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
<S> <C>
Fiscal 1999 $ 11,316
Fiscal 2000 11,394
Fiscal 2001 11,412
Fiscal 2002 11,579
Fiscal 2003 10,631
Fiscal 2004 and thereafter 57,712
----------
Total minimum lease payments $ 114,044
----------
----------
</TABLE>
<PAGE>
Contingent rental payments on building leases are typically made
based upon the percentage of gross revenues on the individual restaurants
that exceed predetermined levels. The percentages of gross revenues to be
paid, and the related gross revenues, vary by restaurant. Contingent rental
expense was approximately $2,794,000, $2,376,000 and $2,391,000 for fiscal
1998, 1997 and 1996, respectively.
Rental expense for all leases was approximately $13,463,000,
$11,936,000, and $14,175,000, for fiscal 1998, 1997 and 1996, respectively, of
which approximately $564,000 was paid to an affiliate in fiscal 1996.
(11) CAPITAL LEASES
The Company typically finances the purchase of certain restaurant
equipment through capital leases and at January 3, 1999 had approximately
$4,809,000 commitments available for future fundings. At January 3, 1999 and
December 28, 1997, furniture, fixtures and equipment include approximately
$7,290,000 and $6,300,000, respectively, of net assets recorded under capital
leases. These assets are amortized over the life of the respective leases. At
January 3, 1999 and December 28, 1997, capital lease obligations of
approximately $3,452,000 and $3,503,000, respectively, are included in
"Obligations to financial institutions and capital leases, less current
maturities" in the accompanying consolidated balance sheets.
The Company's minimum future obligations under capital leases as of
January 3, 1999 are as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
<S> <C>
Fiscal 1999 $ 1,915
Fiscal 2000 1,654
Fiscal 2001 1,198
Fiscal 2002 743
Fiscal 2003 254
---------
Total minimum lease payments 5,764
Less amount representing interest 745
---------
Present value of net minimum lease payments
(including current portion of $1,567) $ 5,019
---------
---------
</TABLE>
(12) EMPLOYMENT AGREEMENTS
The Company and its Chief Executive Officer entered into an employment
agreement on January 1, 1992. The agreement, as amended, is terminable by the
Company upon 60 months prior notice. The Company is a party to change of control
agreements with its Chief Executive Officer and another officer which grant
these employees the right to receive up to approximately three times their base
compensation (as computed under the Internal Revenue Code) if there is a change
in control of the Company and termination of their employment during a specified
period by the Company without cause or by such officer with good reason.
(13) EMPLOYEE BENEFIT PLANS
Employees of Morton's Restaurant Group, Morton's of Chicago, and
Bertolini's who are over the age of 21 and who have completed a year of service
are eligible for voluntary participation in a profit sharing plan. Employer
contributions to the plan are made at the discretion of the Board of Directors.
Employer contributions for fiscal 1998, 1997 and 1996 were approximately
$603,000, $516,000 and $365,000, respectively.
(14) LEGAL MATTERS AND CONTINGENCIES
The Company is also 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.
<PAGE>
PRICE RANGE OF COMMON STOCK AND RELATED MATTERS
- --------------------------------------------------------------------------------
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "MRG". From January 21, 1994 until May 9, 1996, it was traded
under the symbol "KRG".
The following table sets forth, for the periods indicated, the highest and
lowest sale prices for the Common Stock, as reported by the NYSE.
<TABLE>
<CAPTION>
Fiscal Year Ended January 3, 1999 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter..............................................$22 1/8 $18 3/4
Second Quarter............................................. 25 1/8 22 1/8
Third Quarter.............................................. 24 5/16 19 15/16
Fourth Quarter............................................. 21 5/8 12 5/8
Fiscal Year Ended December 28, 1997 High Low
- --------------------------------------------------------------------------------
First Quarter.............................................. $17 1/2 $14 1/2
Second Quarter............................................. 20 1/4 15
Third Quarter.............................................. 24 19 1/8
Fourth Quarter............................................. 25 1/16 19 3/4
</TABLE>
On January 3, 1999, the last reported sale price of the Common Stock on the NYSE
was $18.875. On March 2, 1999, the last reported sale price of the Common Stock
on the NYSE was $17.25.
As of March 2, 1999, there were approximately 60 holders of record of the
Company's Common Stock. The Company believes that as of such date there were
approximately 1,500 beneficial owners of its Common Stock.
The Company has not paid any dividends on its common stock since its inception.
The Company currently intends to retain all of its earnings to support the
continued development of its business and has no present intention of paying any
dividends on its Common Stock. Any future determination as to the payment of
dividends will be at the discretion of the Board of Directors and will depend on
the Company's financial condition, results of operations, capital requirements,
compliance with charter and contractual restrictions and such other factors as
the Board of Directors deems relevant. In addition, the Company's Credit
Agreement restricts the payment of dividends. See Note 6 of Notes to
Consolidated Financial Statements.
<PAGE>
Exhibit 21.01
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C>
1. Porterhouse, Inc. Delaware
2. Morton's of Chicago, Inc. Illinois
3. Morton's of Chicago/Addison, Inc. Delaware
4. Morton's of Chicago/Atlanta, Inc. Illinois
5. Morton's of Chicago/Baltimore, Inc. Delaware
6. Morton's of Chicago/Boca Raton, Inc. Delaware
7. Morton's of Chicago/Boston, Inc. Illinois
8. Morton's of Chicago/Buckhead, Inc. Delaware
9. Morton's of Chicago/Charlotte, Inc. Delaware
10. Morton's of Chicago/Chicago, Inc. Delaware
11. Morton's of Chicago/Cincinnati, Inc. Delaware
12. Morton's of Chicago/Clayton, Inc. Delaware
13. Morton's of Chicago/Cleveland, Inc. Illinois
14. Morton's of Chicago/Columbus, Inc. Delaware
15. Morton's of Chicago/Dallas, Inc. Illinois
16. Morton's of Chicago/Denver, Inc. Illinois
17. Morton's of Chicago/Detroit, Inc. Delaware
18. Morton's of Chicago/Fifth Avenue, Inc. Delaware
19. Morton's of Chicago/Houston, Inc. Delaware
20. Morton's of Chicago/Las Vegas, Inc. Delaware
21. Morton's of Chicago/Miami, Inc. Delaware
22. Morton's of Chicago/Minneapolis, Inc. Delaware
23. Morton's of Chicago/Nashville, Inc. Delaware
24. Morton's of Chicago/New Orleans, Inc. Illinois
25. Morton's of Chicago/North Miami Beach, Inc. Delaware
26. Morton's of Chicago/Orlando, Inc. Delaware
27. Morton's of Chicago/Palm Beach, Inc. Delaware
28. Morton's of Chicago/Palm Desert, Inc. Delaware
</TABLE>
<PAGE>
<TABLE>
<S> <C>
29. Morton's of Chicago/Philadelphia, Inc. Illinois
30. Morton's of Chicago/Phoenix, Inc. Delaware
31. Morton's of Chicago/Pittsburgh, Inc. Delaware
32. Morton's of Chicago/Portland, Inc. Delaware
33. Morton's of Chicago/Rosemont, Inc. Illinois
34. Morton's of Chicago/Sacramento, Inc. Delaware
35. Morton's of Chicago/San Antonio, Inc. Delaware
36. Morton's of Chicago/San Diego, Inc. Delaware
37. Morton's of Chicago/San Francisco, Inc. Delaware
38. Morton's of Chicago/Santa Ana, Inc. Delaware
39. Morton's of Chicago/Schaumburg, Inc. Delaware
40. Morton's of Chicago/Scottsdale, Inc. Delaware
41. Morton's of Chicago/Seattle, Inc. Delaware
42. Morton's of Chicago/Stamford, Inc. Delaware
43. Morton's of Chicago/Virginia, Inc. Illinois
44. Morton's of Chicago/Washington, DC, Inc. Delaware
45. Morton's of Chicago/Washington Square, Inc. Delaware
46. Morton's of Chicago/West Street, Inc. Delaware
47. Morton's of Chicago/Westbrook, Inc. Illinois
48. Morton's, Inc. Illinois
49. Porterhouse of Los Angeles, Inc. Delaware
50. Addison Steakhouse, Inc. Texas
51. Chicago Steakhouse, Inc. Texas
52. Houston Steakhouse, Inc. Texas
53. San Antonio Steakhouse, Inc. Texas
54. Morton's of Chicago Holding, Inc. Delaware
55. Morton's of Chicago/Boston LLC Delaware
56. Morton's of Chicago/Charlotte LLC Delaware
57. Morton's of Chicago/Great Neck LLC Delaware
58. Morton's of Chicago/Kansas City LLC Delaware
59. Morton's of Chicago/Pittsburgh LLC Delaware
60. Morton's of Chicago/Raleigh LLC Delaware
</TABLE>
<PAGE>
<TABLE>
<S> <C>
61. Morton's of Chicago/Stamford LLC Delaware
62. Bertolini's of Costa Mesa LLC Delaware
63. Bertolini's of Irvine Center LLC Delaware
64. Bertolini's of Phillips Place LLC Delaware
65. Morton's of Chicago Asia (Singapore) Pte Ltd. Singapore
66. Morton's of Chicago (Singapore) Pte Ltd. Singapore
67. Morton's of Chicago/Canada, Co. Canada
68. Morton's of Chicago/Toronto, Co. Canada
69. Peasant Holding Corp. Delaware
70. Peasant at Locust Street, Inc. Delaware
71. Mick's at Fair Oaks, Inc. Delaware
72. Mick's at Annapolis Mall, Inc. Delaware
73. Mick's at Oak Court, Inc. Delaware
74. Mick's at Pennsylvania Ave., Inc. Delaware
75. Italian Restaurants Holding Corp. Delaware
76. Bertolini's Restaurants, Inc. Delaware
77. Bertolini's of Circle Centre, Inc. Delaware
78. Bertolini's of Fashion Outlet, Inc. Delaware
79. Bertolini's of Irvine Center, Inc. Delaware
80. Bertolini's of King of Prussia, Inc. Delaware
81. Bertolini's of Las Vegas, Inc. Delaware
82. Bertolini's at Market Square, Inc. Delaware
83. Bertolini's of Phipps Plaza, Inc. Delaware
84. Bertolini's of Phillips Place, Inc. Delaware
85. Bertolini's of Westbury, Inc. Delaware
86. Bertolini's of WhiteFlint Mall, Inc. Delaware
87. Bertolini's of Village Square, Inc. Delaware
88. Bertolini's of Costa Mesa, Inc. Delaware
89. Quantum Restaurant Development Corporation Georgia
90. Santa Fe Steakhouse & Cantina Corp. Delaware
</TABLE>
<PAGE>
Exhibit 23.01
KPMG LLP
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Morton's Restaurant Group, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-8 of Morton's Restaurant Group, Inc. of our report dated February 1,
1999, relating to the consolidated balance sheets of Morton's Restaurant
Group, Inc. and subsidiaries as of January 3, 1999 and December 28, 1997 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended January 3,
1999, which report is incorporated by reference in the January 3, 1999 annual
report on Form 10-K of Morton's Restaurant Group, Inc.
/s/ KPMG LLP
---------------------------------
KPMG LLP
Melville, New York
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JANUARY
3, 1999 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1998
<PERIOD-END> JAN-03-1999
<CASH> 2,117
<SECURITIES> 0
<RECEIVABLES> 894
<ALLOWANCES> 0
<INVENTORY> 6,400
<CURRENT-ASSETS> 19,336
<PP&E> 53,615
<DEPRECIATION> 7,804
<TOTAL-ASSETS> 94,984
<CURRENT-LIABILITIES> 28,192
<BONDS> 36,802
0
0
<COMMON> 67
<OTHER-SE> 22,890
<TOTAL-LIABILITY-AND-EQUITY> 94,984
<SALES> 189,779
<TOTAL-REVENUES> 189,779
<CGS> 64,946
<TOTAL-COSTS> 155,102
<OTHER-EXPENSES> 38,482<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,325
<INCOME-PRETAX> (6,130)
<INCOME-TAX> (4,258)
<INCOME-CONTINUING> (1,872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,872)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
<FN>
<F1>Includes $19,925 of nonrecurring charge.
</FN>
</TABLE>
