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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 2, 2000
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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
incorporation or organization) identification no.)
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. [X]
As of March 23, 2000, the aggregate market value of voting stock held by
non-affiliates of the registrant was $86,536,623.
As of March 23, 2000, the registrant had 4,828,374 shares of its common stock,
$.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) portions of the registrant's annual report to stockholders for the fiscal
year ended January 2, 2000 (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 2000 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 2, 2000, the Company owned and operated 50 Morton's of Chicago
Steakhouse restaurants ("Morton's") and 8 Bertolini's Authentic Trattoria
restaurants ("Bertolini's"). These concepts appeal to a broad spectrum of
consumer tastes and target separate price points and dining experiences.
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 new Bertolini's are planned for 2000. 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 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.
MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS
At January 2, 2000, the Company owned and operated 50 Morton's of Chicago
steakhouses (47 in the United States and one each in Toronto, Canada; Hong Kong;
and Singapore) located in 46 cities. 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 2, 2000, the average per-person check, including dinner
and lunch, was approximately $67.75. Management believes that a vast majority of
Morton's weekday revenues and a substantial portion of its
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weekend revenues are derived from business people using expense accounts. Sales
of alcoholic beverages accounted for approximately 32% of Morton's revenues
during fiscal 1999. In the nine Morton's serving both dinner and lunch during
fiscal 1999, 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 41 Morton's serving only dinner are typically open from 5:30 p.m.
to 11:30 p.m., while those Morton's serving both dinner and lunch are also
typically open from 11:30 a.m. to 2:30 p.m. for the lunch period. 49 Morton's
(including all restaurants opened since the 1989 acquisition) have on-premises,
private dining and meeting facilities referred to as "Boardrooms". During fiscal
1999, Boardroom revenues were approximately 19% of sales in those locations
offering Boardrooms.
Morton's believes that its operations and cost systems, developed over 21
years, enable Morton's to maintain tight controls over operating expenses. The
cooking staff is highly trained and experienced. Uniform staffing patterns
throughout Morton's restaurants enhance operating efficiencies. Morton's
management believes that its centralized sourcing from primary suppliers of 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 1,200 pound
steer).
BERTOLINI'S AUTHENTIC TRATTORIA RESTAURANTS
At January 2, 2000, the Company owned and operated 8 Bertolini's, located
in seven cities. Bertolini's is a white tablecloth, authentic Italian trattoria,
which provides table service in a casual dining atmosphere. For the year ended
January 2, 2000, Bertolini's average per-person check, including dinner and
lunch, was approximately $20.25. Bertolini's restaurants are open seven days a
week, for dinner and lunch, with typical hours of 11:00 a.m. to 12:00 midnight.
During fiscal 1999, dinner service accounted for approximately 68% of revenues
and lunch service accounted for approximately 32%. Sales of alcoholic beverages
accounted for approximately 21% of Bertolini's revenues during fiscal 1999.
Based on a strategic assessment of 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 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 other items. During
fiscal 1999 four such restaurants were closed. 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
obtaining substantial development or rent allowances from its landlords. The
Company's leases typically provide for substantial landlord development and or
rent allowances and an annual percentage rent based on gross revenues, 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 vary by restaurant depending upon, among
other things, the location of the site and construction 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
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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 1999, the Company purchased one parcel of land to develop as a
Morton's. During 1998, the Company executed contracts to purchase five parcels
of land to develop four Morton's and one Bertolini's. As of March 2000, of
these, three Morton's and one Bertolini's were built and opened, and two
properties are under development as Morton's.
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. Management considers such
factors as demographic information, average household size, income, traffic
patterns, proximity to 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. Since the 1989 acquisition by the
Company, Morton's has grown from nine to 50 restaurants through March 1, 2000.
During 1999, new Morton's opened in Boca Raton, FL; Hong Kong; Indianapolis, IN;
Kansas City, MO; Schaumburg, IL; Scottsdale, AZ; and Seattle, WA. Two Morton's
were relocated within Nashville, TN and within Philadelphia, PA.
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. 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 seven Morton's opened or relocated, in leased premises,
between January 4, 1999 and March 1, 2000, ranged from $1.9 million to $3.1
million, including costs for leasehold construction, 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 $1.1 million and equipment lease financings of
approximately $0.4 million. The Company's average net cash investment for those
seven restaurants was approximately $1.2 million, in each case, net of landlord
development and or rent allowances and restaurant equipment lease financings.
The approximate gross costs to the Company, for the two restaurants built, on
properties owned by the Company, including costs for land acquisition,
construction improvements, furniture, fixtures, equipment and pre-opening
expenses averaged $4.8 million. Such amounts were substantially reduced by
proceeds from mortgage and restaurant equipment lease financings.
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The Company plans to continue the development of Morton's and has selected
several possible domestic and international sites for further expansion.
BERTOLINI'S AUTHENTIC TRATTORIA RESTAURANTS. The first Bertolini's opened in Las
Vegas in May 1992, and is located in the Forum Shops Mall, adjacent to Caesar's
Palace Casino. At January 2, 2000 the Company owned and operated eight
Bertolini's. No Bertolini's were opened during fiscal 1999 and none are planned
for fiscal 2000.
RESTAURANT LOCATIONS
The Company owned and operated 50 Morton's and 8 Bertolini's as of March 1,
2000. 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
Westchester/Oakbrook, IL June 1986
Dallas, TX May 1987
Boston, MA December 1987
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
</TABLE>
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<TABLE>
<CAPTION>
MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS (CONTINUED) DATE OPENED
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<S> <C>
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
Philadelphia, PA (4) July 1999
Boca Raton, FL August 1999
Kansas City, MO October 1999
Indianapolis, IN November 1999
Schaumburg, IL December 1999
Hong Kong December 1999
Seattle, WA December 1999
</TABLE>
<TABLE>
<CAPTION>
BERTOLINI'S AUTHENTIC TRATTORIAS DATE OPENED
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<S> <C>
Las Vegas, NV May 1992
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
</TABLE>
Additional sites are under active review for potential new Morton's
restaurants to open. The Company has executed agreements to open Morton's of
Chicago Steakhouses in Denver, CO; Great Neck (Long Island), NY; Hartford, CT;
Jacksonville, FL; San Juan, Puerto Rico; and Vancouver, Canada. The Company
currently intends to open approximately seven to eight new Morton's restaurants
during 2000. 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.
(4) The Morton's Philadelphia, PA location was relocated in July 1999 to a new
site. The original location had been opened since May, 1985.
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RESTAURANT OPERATIONS AND MANAGEMENT
Morton's and Bertolini's restaurants have a well-developed management
infrastructure and are operated and managed as distinct concepts. Operations for
the Company's restaurants are supervised by regional managers, each of whom is
responsible for several restaurants and report to a division vice president.
Division vice president and regional managers meet frequently with senior
management to review operations and to resolve any issues. Working in concert
with division vice presidents, regional managers and restaurant general
managers, senior management defines operations and performance objectives for
each restaurant. Incentive plans tied to achievement of specified revenue,
profitability and operating targets and related quality objectives have been
established for division vice presidents, regional managers and certain
restaurant managers.
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 managers to discuss menu items,
continuing training and other aspects of business management.
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
assistant 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 information technology providing management with
pertinent information on daily revenues 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 certain
volume-based discounts. In addition, each Morton's and Bertolini's have 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 for each restaurant. Restaurant managers are provided with
operating statements for their respective restaurants. 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.
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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 or contracted 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 Company specifications.
Bertolini's restaurants also adhere to strict product specifications and use,
national, regional, and local suppliers. Food and supplies are shipped directly
to the restaurants and invoices for purchases are sent for payment 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 utilizes public relations
consultants, local restaurant promotions and limited print, billboard and direct
mail advertising. The Company's expenditure for advertising, marketing and
promotional expenses, as a percentage of its revenues, was 2.7% during fiscal
1999.
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 menu 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 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 and in certain
foreign countries. 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
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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 those relating to, among others, alcoholic
beverage control, public health and safety, zoning and fire codes. 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 21% of the revenues of Morton's and
Bertolini's, respectively, for fiscal 1999 were attributable to the sale of
alcoholic beverages. Each restaurant has appropriate licenses to sell liquor,
beer, wine and food. 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 certain standards and procedures designed to comply with
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.
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 and increase development costs
for new restaurants.
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 2, 2000, the Company had 3,518 employees, of whom 2,993 were
hourly restaurant employees, 422 were salaried restaurant employees engaged in
administrative and supervisory capacities and 103 were corporate and office
personnel. Many of the hourly employees are employed on a part-
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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 10-K 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.
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 40 years. The Company's leases typically provide for
renewal options for terms ranging from five years to twenty years. Restaurant
leases provide for a specified annual rent, and most leases call for additional
or contingent rent based on revenues above 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 currently operates four restaurants on properties which
it owns.
The Company maintains its executive offices, in leased space, of
approximately 9,800 square feet in New Hyde Park, New York and approximately
15,100 square feet in Chicago. The Company believes its current office and
operating space is suitable and adequate for its intended purposes.
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ITEM 3. LEGAL PROCEEDINGS
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants which have all been closed. The Company is involved in
legal action relating to such closures, however, the Company does not believe
that the ultimate resolution of these actions will have a material effect beyond
that recorded during fiscal 1998.
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. See Note 3 to the Company's consolidated
financial statements.
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) 54 Chairman of the Board, President and Chief Executive Officer
Thomas J. Baldwin 44 Executive Vice President, Chief Financial Officer,
Assistant Secretary, Treasurer and Director
Agnes Longarzo 61 Vice President-Administration and Secretary
Allan C. Schreiber 59 Senior Vice President-Development
Klaus W. Fritsch 56 Vice Chairman and Co-Founder-Morton's of Chicago
John T. Bettin 44 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., Luther's Acquisition Corp. and Wilshire Restaurant Group,
Inc.
Thomas J. Baldwin was elected a Director of the Company in November 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 Kraft General Foods/Philip Morris Companies, Inc., where he worked
in various financial management and accounting positions and 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
also a director of Charlie Browns Acquisition Corp. 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 1999, Vice President of Real Estate since January 1996 and Director of
Real Estate since November 1995. Mr. Schreiber had
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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 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 40 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 3 of the Company's
Annual Report is hereby incorporated by reference.
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 19 to 24 of the Company's Annual Report is hereby
incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
"Quantitative and Qualitative Disclosures about Market Risks" contained on
page 24 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>
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----
<S> <C>
(i) Independent Auditors' Report 25
(ii) Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999 26
(iii) Consolidated Statements of Operations
For the years ended January 2, 2000, January 3, 1999 and December 28, 1997 27
(iv) Consolidated Statements of Stockholders' Equity
For the years ended January 2, 2000, January 3, 1999 and December 28, 1997 28
(v) Consolidated Statements of Cash Flows
For the years ended January 2, 2000, January 3, 1999 and December 28, 1997 29
(vi) Notes to Consolidated Financial Statements 30-39
</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
"Compensation Committee Interlocks and Insider Participation" contained in
the Proxy Statement is hereby incorporated by reference.
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) ALL FINANCIAL STATEMENTS
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)
<TABLE>
<S> <C>
Date March 31, 2000 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, 2000 By: /s/ Thomas J. Baldwin
---------------------- -----------------------------------
Thomas J. Baldwin
Executive Vice President, Chief Financial Officer,
Assistant Secretary, Treasurer and Director
</TABLE>
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.
<TABLE>
<S> <C>
Date March 31, 2000 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, 2000 By: /s/ Thomas J. Baldwin
---------------------- -----------------------------------
Thomas J. Baldwin
Executive Vice President, Chief Financial Officer,
Assistant Secretary, Treasurer and Director
(Principal Financial and Accounting Officer)
</TABLE>
<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, 2000 By: /s/ Lee M. Cohn
---------------------- -----------------------------------
Lee M. Cohn
Director
Date March 31, 2000 By: /s/ Dianne H. Russell
---------------------- -----------------------------------
Dianne H. Russell
Director
Date March 31, 2000 By: /s/ Alan A. Teran
---------------------- -----------------------------------
Alan A. Teran
Director
<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, 2000 By: /s/ John K. Castle
---------------------- -----------------------------------
John K. Castle
Director
Date: March 31, 2000 By: /s/ Dr. John J. Connolly
---------------------- -----------------------------------
Dr. John J. Connolly
Director
Date March 31, 2000 By: /s/ David B. Pittaway
---------------------- -----------------------------------
David B. Pittaway
Director
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report:
Exhibit
Number Page Document
- ------ ---- --------
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)
4.04 (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)
(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)
<PAGE>
(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. (17)
(o) Eleventh Amendment to the Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated May 20, 1999 among the
Registrant, Peasant Holding Corp., Morton's of Chicago, Inc. and
BankBoston, N.A., individually and as agent. (19)
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)
10.01+ Morton's of Chicago, Inc. Profit Sharing and Cash Accumulation
Plan as Amended Effective January 1, 1989. (4)
<PAGE>
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 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)
10.11+ First Amendment to the Second Amended and Restated Employment
Agreement, dated October 1, 1998, between the Registrant and
Allen J. Bernstein. (16)
10.12 Amended and Restated Promissory Note, dated March 19, 1999, among
FFCA Acquisition Corporation and Morton's of Chicago/Scottsdale,
Inc., a subsidiary of the Registrant. (18)
10.13 Amended and Restated Promissory Note, dated March 17, 1999, among
FFCA Acquisition Corporation and Bertolini's at Village Square,
Inc., a subsidiary of the Registrant. (18)
10.14 + Form of Indemnification Agreement for Directors and Executive
Officers.
10.15 + Morton's Restaurant Group, Inc. Employee Stock Purchase Plan.
(20)
<PAGE>
10.16 Amended and Restated Promissory Note, dated January 31, 2000,
among FFCA Acquisition Corporation and Morton's of
Chicago/Schaumburg, Inc., a subsidiary of the Registrant.
13.01 Registrant's Annual Report to Stockholders for the year ended
January 2, 2000. Except for the portions thereof which are
expressly incorporated by reference into this report, such 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.
<PAGE>
(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.
(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
(17) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 3, 1999 and incorporated by
reference.
(18) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated April 4, 1999.
(19) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated July 4, 1999.
(20) Included as an exhibit to the Registrant's Form S-8 dated August
27, 1999.
+ 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.
<PAGE>
Exhibit 10.14
INDEMNIFICATION AGREEMENT
by and among
MORTON'S RESTAURANT GROUP, INC.
and certain of its subsidiaries
and
[Indemnitee]
Dated as of [ ]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Services by the Indemnitee......................................................................2
Section 2. Indemnification.................................................................................2
Section 3. Action or Proceeding Other Than an Action by or in the Right of the Company.....................2
Section 4. Actions by or in the Right of the Company.......................................................3
Section 5. Indemnification for Expenses of Successful Party................................................4
Section 6. Indemnification for Expenses of a Witness.......................................................4
Section 7. Partial Indemnification.........................................................................4
Section 8. Determination of Entitlement to Indemnification.................................................5
Section 9. Presumptions and Effect of Certain Proceedings..................................................6
Section 10. Advancement of Expenses........................................................................7
Section 11. Remedies of the Indemnitee in Cases of Determination not to Indemnify or to Advance Expenses...7
Section 12. Other Rights to Indemnification................................................................8
Section 13. Attorneys'Fees and Other Expenses To Enforce Agreement.........................................9
Section 14. Duration of Agreement..........................................................................9
Section 15. Severability..................................................................................10
Section 16. Identical Counterparts........................................................................10
Section 17. Headings......................................................................................10
Section 18. Definitions...................................................................................10
Section 19. Modification and Waiver.......................................................................11
Section 20. Notice by the Indemnitee......................................................................11
Section 21. Settlement....................................................................................12
Section 22. Notices.......................................................................................13
Section 23. Additional Subsidiaries.......................................................................13
Section 24. Governing Law.................................................................................14
</TABLE>
<PAGE>
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement") is made and
entered into as of [ ], 1999, by and among MORTON'S RESTAURANT GROUP, INC., a
Delaware corporation (the "MRG"), each subsidiary of the Company, whether now
existing or hereafter acquired or established, for which the Indemnitee serves,
will serve or has served as a director, officer, employee, agent or fiduciary
(each a "Subsidiary" and, collectively, the "Subsidiaries"; references herein to
the "Company" shall mean each of MRG or a Subsidiary, as the case may be,
severally and not jointly) and [ ] (the "Indemnitee").
WHEREAS, highly competent persons are becoming more reluctant
to serve publicly-held corporations as directors and officers or in other
capacities unless they are provided with adequate protection against risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation;
WHEREAS, the Board of Directors of the Company has determined
that the potential inability to attract and retain such persons would be
detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the
Company contractually to obligate itself to indemnify such persons to the
fullest extent permitted by applicable law so that they will serve or continue
to serve the Company free from undue concern that they will not be so
indemnified; and
<PAGE>
WHEREAS, the Indemnitee is willing to serve, continue to serve
and to take on additional service for or on behalf of the Company on the
condition that the Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Company and the Indemnitee do hereby covenant
and agree as follows: Section 1. SERVICES BY THE INDEMNITEE. The Indemnitee
agrees to serve or continue to serve, as applicable, as a director or officer of
the Company or any of its subsidiaries. This Agreement does not create or
otherwise establish any right on the part of the Indemnitee to be and continue
to be nominated as a director or be and continue to be appointed as an officer
of the Company.
Section 2. INDEMNIFICATION. The Company shall indemnify the
Indemnitee to the fullest extent permitted by applicable law in effect on the
date hereof or as such laws may from time to time be amended. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of the Indemnitee provided hereunder shall include,
but shall not be limited to, those rights set forth hereinafter, except to the
extent expressly prohibited or limited by applicable law.
Section 3. ACTION OR PROCEEDING OTHER THAN AN ACTION BY OR IN
THE RIGHT OF THE COMPANY. The Indemnitee shall be entitled to the
indemnification rights provided in this Section 3 if the Indemnitee is made a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, other than an action by or in the right of the Company,
by reason of the fact that the Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company or is or was serving at the request
of the Company as a director, officer, employee,
-2-
<PAGE>
agent or fiduciary of any other entity or by reason of anything done or not done
by the Indemnitee in any such capacity. Pursuant to this Section 3, the
Indemnitee shall be indemnified against expenses (including attorneys' fees),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by the Indemnitee in connection with such action, suit or
proceeding (including, but not limited to, the investigation, defense,
settlement or appeal thereof), if the Indemnitee acted in good faith and in a
manner the Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Indemnitee's conduct was
unlawful.
Section 4. ACTIONS BY OR IN THE RIGHT OF THE COMPANY. The
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if the Indemnitee is made a party or is threatened to be made a party
to any threatened, pending or completed action or suit brought by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that the Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company or is or was serving at the request of the Company as a director,
officer, employee, agent or fiduciary of any other entity or by reason of
anything done or not done by the Indemnitee in any such capacity. Pursuant to
this Section 4, the Indemnitee shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by the Indemnitee in
connection with such action or suit (including, but not limited to, the
investigation, defense, settlement or appeal thereof) if the Indemnitee acted in
good faith and in a manner the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company; provided, however, that, no such
indemnification shall be made in respect of any claim, issue or matter as to
which applicable law expressly prohibits such indemnification by reason of an
adjudication of liability of the
-3-
<PAGE>
Indemnitee to the Company, unless, and only to the extent that, the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite such adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnification for such expenses as such
court shall deem proper.
Section 5. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise (including, without
limitation, the dismissal of an action without prejudice) in defense of any
action, suit or proceeding referred to in Section 3 or 4 hereof, or in defense
of any claim, issue or matter therein, the Indemnitee shall be indemnified
against all expenses (including attorneys' fees) actually and reasonably
incurred by the Indemnitee or on the Indemnitee's behalf in connection
therewith.
Section 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. To the
extent that the Indemnitee is, by reason of the Indemnitee's Corporate Status
(as defined in Section 18 hereof), a witness in any action, suit or proceeding,
the Indemnitee shall be indemnified by the Company against all expenses actually
and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in
connection therewith.
Section 7. PARTIAL INDEMNIFICATION. If the Indemnitee is only
partially successful in the investigation, defense, settlement or appeal of any
action, suit or proceeding described in Section 3 or 4 hereof, and as a result
is not entitled under Section 5 hereof to indemnification by the Company for the
total amount of the expenses (including attorneys' fees) actually and reasonably
incurred by the Indemnitee's or on the Indemnitee's behalf in connection
therewith, the Company shall nevertheless indemnify the Indemnitee, as a matter
of right
-4-
<PAGE>
pursuant to Section 5 hereof, to the extent the Indemnitee has been partially
successful. Nothing contained in the preceding sentence shall be interpreted so
as to limit any rights that the Indemnitee may otherwise have under Section 3 or
4 hereof.
Section 8. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
Upon written request by the Indemnitee for indemnification pursuant to Section 3
or 4 hereof, the entitlement of the Indemnitee to indemnification pursuant to
the terms of this Agreement shall be determined by the following person or
persons who shall be empowered to make such determination: (a) by a majority
vote of the Disinterested Directors (as defined in Section 18 hereof), even
though less than a quorum; or (b) by a committee of Disinterested Directors
designated by majority vote of the Disinterested Directors, even though less
than a quorum; or (c) if the vote contemplated by clause (a) or (b) is not
obtainable or, even if obtainable, if a majority of the Disinterested Directors
so direct, by Independent Counsel (as defined in Section 18 hereof) in a written
opinion to the Board of Directors, a copy of which shall be delivered to the
Indemnitee; or (d) by the stockholders. Any Independent Counsel selected
pursuant to clause (c) of the preceding sentence shall be approved by the
Indemnitee. Upon failure to so select such Independent Counsel or upon failure
of the Indemnitee to so approve, such Independent Counsel shall be selected by
the Chancellor of the State of Delaware or such other person as the Chancellor
shall designate to make such selection.
A determination of entitlement to indemnification shall be
made not later than 60 days after receipt by the Company of a written request
for indemnification addressed to the Secretary of the Company. Such request
shall include documentation or information which is necessary for such
determination and which is reasonably available to the Indemnitee. Any expenses
(including attorneys' fees) incurred by the Indemnitee in connection with the
-5-
<PAGE>
Indemnitee's request for indemnification hereunder shall be borne by the Company
and the Company hereby indemnifies and agrees to hold the Indemnitee harmless
therefrom irrespective of the outcome of the determination of the Indemnitee's
entitlement to indemnification. If the person making such determination shall
determine that the Indemnitee is entitled to indemnification as to part (but not
all) of the application for indemnification, such person shall reasonably
prorate such partial indemnification among the applicable claims, issues or
matters.
Section 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. The
Secretary of the Company shall, promptly upon receipt of the Indemnitee's
request for indemnification, advise in writing the Board of Directors or such
other person or persons empowered to make the determination as provided in or
pursuant to Section 8 that the Indemnitee has made such request for
indemnification. Upon making such request for indemnification, the Indemnitee
shall be presumed to be entitled to indemnification hereunder and the Company
shall have the burden of proof in the making of any determination contrary to
such presumption. If the person or persons so empowered to make such
determination shall have failed to deny the request for indemnification within
60 days after receipt by the Company of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and the Indemnitee shall be absolutely entitled to such indemnification,
absent actual and material fraud in the request for indemnification. The
termination of any action, suit or proceeding described in Section 3 or 4 hereof
by judgment, order, settlement or conviction, or upon a plea of NOLO CONTENDERE
or its equivalent, shall not, of itself: (a) create a presumption that the
Indemnitee did not act in good faith and in a manner which the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, that the
Indemnitee had reasonable cause to believe that the Indemnitee's conduct
-6-
<PAGE>
was unlawful; or (b) otherwise adversely affect the rights of the Indemnitee to
indemnification, except as may be specifically provided herein.
Section 10. ADVANCEMENT OF EXPENSES. Notwithstanding any other
Section hereof (including, without limitation, Section 8 or 9), all reasonable
expenses incurred by the Indemnitee (including attorneys' fees (which shall
include, without limitation, retainers and advances of disbursements required of
the Indemnitee)) shall be paid by the Company in advance of the final
disposition of an action, suit or proceeding, whether civil, criminal,
administrative or investigative in nature, at the request of the Indemnitee
within twenty days after the receipt by the Company of a statement or statements
from the Indemnitee requesting such advance or advances from time to time.
Expenses for which the Indemnitee shall be entitled to be paid in advance shall
include, without limitation, those incurred in connection with any proceeding by
the Indemnitee seeking an adjudication or award in arbitration pursuant to this
Agreement. Any statement or statements contemplated by the first sentence of
this paragraph shall reasonably evidence the expenses incurred by the Indemnitee
and shall include or be accompanied by an undertaking by or on behalf of the
Indemnitee to repay the amounts set forth therein if it is ultimately determined
that the Indemnitee is not entitled to be indemnified against such expenses by
the Company as provided by this Agreement or otherwise. The Company shall have
the burden of proof in any determination under this Section 10.
Section 11. REMEDIES OF THE INDEMNITEE IN CASES OF
DETERMINATION NOT TO INDEMNIFY OR TO ADVANCE EXPENSES. In the event that a
determination is made that the Indemnitee is not entitled to indemnification
hereunder or if payment has not been timely made following a determination of
entitlement to indemnification pursuant to Sections 8 and 9, or if expenses are
not timely advanced pursuant to Section 10, the Indemnitee shall be entitled to
seek
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<PAGE>
a final adjudication in the Delaware Court of Chancery, first, and then (if the
Delaware Court of Chancery does not have jurisdiction to make such adjudication)
in any other court of competent jurisdiction, of the Indemnitee's entitlement to
such indemnification or advance. Alternatively, the Indemnitee, at the
Indemnitee's option, may, to the extent permitted by applicable law, seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association, such award to be made within 60
days following the filing of the demand for arbitration. The Company shall not
oppose the Indemnitee's right to seek any such adjudication or award in
arbitration or any other claim, in each case to the extent permitted by
applicable law. Such judicial proceeding or arbitration shall be made DE NOVO
and the Indemnitee shall not be prejudiced by reason of a determination by the
Company (if so made) that the Indemnitee is not entitled to indemnification. If
a determination is made or deemed to have been made pursuant to the terms of
Section 8 or 9 hereof that the Indemnitee is entitled to indemnification, the
Company shall be bound by such determination and is precluded from asserting
that such determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court or before any such arbitrator that
the Company is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary. If the court or arbitrator shall
determine that the Indemnitee is entitled to any indemnification or advance
hereunder, the Company shall pay all reasonable expenses (including attorneys'
fees) actually incurred by the Indemnitee in connection with such adjudication
or award in arbitration (including, but not limited to, any appellate
proceedings).
Section 12. OTHER RIGHTS TO INDEMNIFICATION. The
indemnification and advancement of expenses provided by this Agreement shall not
be deemed exclusive of any other
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<PAGE>
rights to which the Indemnitee may now or in the future be entitled under any
provision of the Certificate of Incorporation or By-laws or under any agreement
or law or vote of stockholders or disinterested directors or to which the
Indemnitee may otherwise be entitled.
Section 13. ATTORNEYS' FEES AND OTHER EXPENSES TO ENFORCE
AGREEMENT. In the event that the Indemnitee is subject to or intervenes in any
action, suit or proceeding in which the validity or enforceability of this
Agreement is at issue or seeks an adjudication or award in arbitration to
enforce the Indemnitee's rights under, or to recover damages for breach of, this
Agreement, the Indemnitee, if the Indemnitee prevails in whole or in part in
such action, suit or proceeding, shall be entitled to recover from the Company,
and shall be indemnified by the Company against, all reasonable expenses
(including attorneys' fees) actually incurred by the Indemnitee, provided that,
in bringing the advancement action, the Indemnitee acted in good faith. Nothing
contained in this Section 13 shall limit the rights of the Indemnitee under any
other Section hereof, including, without limitation, Section 11.
Section 14. DURATION OF AGREEMENT. This Agreement shall apply
with respect to the Indemnitee's occupation of any of the position(s) described
in Sections 3 and 4 of this Agreement prior to the date of this Agreement and
with respect to all periods of such service after the date of this Agreement.
This Agreement shall be binding upon the Company and its successors and assigns
(including any transferee of all or substantially all of its assets and any
successor by merger or operation of law) and shall inure to the benefit of the
Indemnitee and the Indemnitee's spouse, assigns, heirs, devises, executors,
administrators or other legal representatives, even though the Indemnitee may
have ceased to occupy any or all of the positions described in Sections 3 and 4
of this Agreement.
-9-
<PAGE>
Section 15. SEVERABILITY. If any provision of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including without limitation, all portions of any paragraphs of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
Section 16. IDENTICAL COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall for all purposes be deemed to be
an original but both of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 17. HEADINGS. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 18. DEFINITIONS. For purposes of this Agreement:
(a) "Corporate Status" shall mean the status of a
person who is or was a director, officer, employee, agent or fiduciary of the
Company or any majority owned subsidiary or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
that such person is or was serving at the request of the Company.
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<PAGE>
(b) "Disinterested Director" shall mean a director of
the Company who is not a party to the action, suit or proceeding in respect of
which indemnification is being sought by the Indemnitee.
(c) "Independent Counsel" shall mean a law firm or a
member of a law firm that neither is presently nor in the past five years has
been retained to represent: (i) the Company or the Indemnitee in any matter
material to either such party; or (ii) any other party to the action, suit or
proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or the Indemnitee
in an action to determine the Indemnitee's right to indemnification under this
Agreement.
Section 19. MODIFICATION AND WAIVER. No supplement,
modification or amendment to or of this Agreement shall be binding unless
executed in writing by the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 20. NOTICE BY THE INDEMNITEE. The Indemnitee agrees
promptly to notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may be subject to indemnification hereunder,
whether civil, criminal, administrative or investigative in nature or otherwise;
provided, however, that, the failure to so notify the Company will not relieve
the Company from any liability it may have to the Indemnitee, except to the
extent that such failure materially prejudices the Company's ability to defend
such claim. With respect to any
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<PAGE>
action, suit or proceeding to which the Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein
at its own expense; and
(b) Except as otherwise provided below, to the extent
that it may wish, the Company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the Indemnitee. After notice from the Company to the
Indemnitee of its election so to assume the defense of any action, suit or
proceeding, the Company will not be liable to the Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. The Indemnitee shall have the
right to employ the Indemnitee's own counsel in such action, suit or proceeding,
but the fees and expenses of such counsel incurred after notice from the Company
of its assumption of the defense thereof shall be at the expense of the
Indemnitee and not subject to indemnification hereunder unless (i) the
employment of counsel by the Indemnitee has been authorized by the Company, (ii)
in the reasonable opinion of counsel to the Indemnitee there is or may be a
conflict of interest between the Company and the Indemnitee in the conduct of
the defense of such action or (iii) the Company shall not in fact have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the expense of the Company.
Section 21. SETTLEMENT. Neither the Company nor the Indemnitee
shall settle any claim without the prior written consent of the other, which
consent shall not be unreasonably withheld.
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<PAGE>
Section 22. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) if delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, on the day of delivery,
or (b) if mailed by certified or registered mail with postage prepaid, on the
third business day after the date on which it is so mailed:
(i) if to the Indemnitee, to the address set forth
below the Indemnitee's signature; and
(ii) if to the Company, to:
Morton's Restaurant Group, Inc.
3333 New Hyde Park Road
Suite 210
New Hyde Park, New York 11042
Attn: Secretary
or to such other address as may have been furnished to the Indemnitee by the
Company or to the Company by the Indemnitee, as the case may be.
Section 23. ADDITIONAL SUBSIDIARIES. The initial Subsidiaries
hereunder shall be such of the Subsidiaries of MRG as are signatories hereto as
of the date hereof. From time to time subsequent to the date hereof, additional
Subsidiaries of MRG shall become parties hereto by executing and delivering a
counterpart of this Agreement. Upon delivery of any such counterpart to the
Indemnitee, notice of which is hereby waived by any other Subsidiary, each such
additional Subsidiary shall indemnify and shall be as fully a party hereto as if
such additional Subsidiary were an original signatory hereof. Each Subsidiary
expressly agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Subsidiary hereunder, nor by
any election of the Indemnitee not to cause any
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<PAGE>
Subsidiary to become an additional Subsidiary hereunder. This Agreement shall be
fully effective as to any Subsidiary that is or becomes a party hereto
regardless of whether any other person becomes or fails to become or ceases to
be a Subsidiary hereunder.
Section 24. GOVERNING LAW. The parties agree that this
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
MORTON'S RESTAURANT GROUP, INC.
By:
--------------------------------------
Name:
Title:
on behalf of each Subsidiary listed on the
attached Schedule A
By:
--------------------------------------
Name:
Title:
------------------------------------------
[Name of Indemnitee]
Address:
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<PAGE>
SCHEDULE A
SUBSIDIARIES
[Insert names of all pllicable Subsidiaries]
-15-
<PAGE>
Exhibit 10.16
AMENDED AND RESTATED PROMISSORY NOTE
Dated as of Jan 31, 2000
$3,000,000.00 Scottsdale, Arizona
THIS AMENDED AND RESTATED PROMISSORY NOTE (this "Note") executed by
MORTON'S OF CHICAGO/SCHAUMBURG LLC, a Delaware limited liability company
("Debtor"), amends and restates that certain Promissory Note dated as of
June 30, 1999 in the principal amount of $3,00O,000.00, payable to FFCA
ACQUISITION CORPORATION, a Delaware corporation ("FFCA").
Debtor, for value received, hereby promises to pay to FFCA, whose address
is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, or order, on or
before February 1, 2020 (the "Maturity Date"), as herein provided, the principal
sum of THREE MILLION AND 00/100 DOLLARS ($3,000,000.00), and to pay interest on
the unpaid principal amount of this Note from the date hereof to the Maturity
Date at the rate of 9.26% per annum on the basis of a 360-day year of twelve
30-day months, such principal and interest to be paid in immediately available
funds and in lawful money of the United States.
Initially capitalized terms which are not otherwise defined in this Note
shall have the meanings set forth in that certain Loan Agreement dated as of
June 30, 1999 between Debtor and FFCA, as such agreement may be amended from
time to time (the "Loan Agreement").
Interest on the principal amount of this Note for the period commencing
with the date set forth above through the last day in the month in which this
Note is dated shall be due and payable upon delivery of this Note. Thereafter,
principal and interest shall be payable in consecutive monthly installments of
TWENTY SEVEN THOUSAND FOUR HUNDRED NINETY-FIVE AND 45/l00 DOLLARS ($27,495.45)
commencing on March 1, 2000, and continuing on the first day of each month
thereafter until the Maturity Date, at which time, the outstanding principal and
unpaid accrued interest shall be due and payable.
Prior to the fifth anniversary of this Note, Debtor may not prepay this
Note. From and after the fifth anniversary of this Note, Debtor may prepay this
Note in full, but not in part, including all accrued but unpaid interest
hereunder and all sums advanced by FFCA pursuant to the Loan Documents which
secure this Note, provided that (i) an Event of Default shall not have occurred
under this Note, (ii) any such prepayment shall only be made on a regularly
scheduled payment date upon not less than 30 days prior written notice from
Debtor to FFCA, and (iii) any such prepayment shall be made together with
payment of a prepayment premium equal to:
(a) 5% of the amount prepaid if the prepayment is made on or
following the fifth anniversary of this Note but prior to the sixth
anniversary of this Note;
(b) 4% of the amount prepaid if the prepayment is made on or
following the sixth anniversary of this Note but prior to the seventh
anniversary of this Note;
<PAGE>
(c) 3% of the amount prepaid if the prepayment is made on or
following the seventh anniversary of this Note but prior to the eighth
anniversary of this Note;
(d) 2% of the amount prepaid if the prepayment is made on or
following the eighth anniversary of this Note but prior to the ninth
anniversary of this Note; and
(e) 1 % of the amount prepaid if the prepayment is made on or
following the ninth anniversary of this Note but prior to the tenth
anniversary of this Note.
If this Note is prepaid on or following the tenth anniversary of this Note there
shall be no prepayment premium.
The foregoing prepayment premium shall be due and payable if this Note is
prepaid prior to the tenth anniversary of this Note regardless of whether such
prepayment is the result of a voluntary prepayment by Debtor or as a result of
FFCA declaring the unpaid principal balance of this Note, accrued interest and
all other sums due under this Note and any Loan Documents which secure this
Note, due and payable in accordance with the provisions of this Note (the
"Acceleration"); provided, however, the prohibition on prepayment and such
prepayment premium shall not be applicable with respect to a prepayment of this
Note as a result of the application of casualty or condemnation proceeds as
contemplated by the Mortgage. If this Note is prepaid as a result of an
Acceleration prior to the fifth anniversary of this Note, a prepayment premium
of 5% of the principal amount prepaid shall be due and payable to FFCA by Debtor
at the time of such prepayment.
Upon execution of this Note, Debtor shall establish arrangements whereby
all payments of principal and interest hereunder are transferred by wire or
other means directly from Debtor's bank account to such account as FFCA may
designate or as FFCA may otherwise designate. Each payment of principal and
interest hereunder shall be applied first toward any past due payments under
this Note (including payment of all Costs (as herein defined)), then to accrued
interest, and the balance, after the payment of such accrued interest, if any,
shall be applied to the unpaid principal balance of this Note; provided,
however, each payment hereunder after an Event of Default has occurred under
this Note shall be applied as FFCA in its sole discretion may determine.
This Note is secured by the Mortgage and guaranteed by the Guarantor
pursuant to the Guaranty. An "Event of Default" shall be deemed to have occurred
under this Note if (a) any principal, interest or other monetary sum certain
due under this Note is not paid within five days after the date when due and
FFCA shall have given Debtor notice thereof and a period of seven days from the
delivery of such notice shall have elapsed without such past-due sum being paid,
or (b) an Event of Default (as defined under any of the Loan Documents).
During the continuation of an Event of Default under this Note, then, time
being of the essence hereof, FFCA may declare the entire unpaid principal
balance of this Note, accrued interest, if any, and all other sums due under
this Note and any Loan Documents which secure this Note, due and payable at once
without notice to Debtor.
2
<PAGE>
All past-due principal and/or interest shall bear interest from the due
date to the date of actual payment at the lesser of the highest rate for which
the undersigned may legally contract, or the rate of 13% per annum (the "Default
Rate"), and such Default Rate shall continue to apply following a judgment in
favor of FFCA under this Note; provided, however, the Default Rate shall not be
applicable if all past due principal and/or interest is paid in full within the
notice and cure periods provided for in the Loan Agreement.
All payments of principal and interest due hereunder shall be made (i)
without deduction of any present and future taxes, levies, imposts, deductions,
charges or withholdings, which amounts shall be paid by Debtor, and (ii) without
any other right of abatement, reduction, setoff, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever. Debtor will pay
the amounts necessary (such amounts are hereby deemed not to include income
taxes, gross receipts taxes, transfer taxes, 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 demands in connection with delivery,
acceptance, performance, default or endorsement of this Note.
All notices, consents, approvals or other instruments required or
permitted to be given by either party pursuant to this Note shall be in writing
and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery
service or (iv) certified or registered mail, return receipt requested, and
shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b)
transmission, if delivered by facsimile, (c) the next business day, if delivered
by express overnight delivery service, or (d) the third business day following
the day of deposit of such notice with the United States Postal Service, if sent
by certified or registered mail, return receipt requested. Notices shall be
provided to the parties and addresses (or facsimile numbers, as applicable)
specified below:
If to Debtor: Mr. Thomas Baldwin
Morton's of Chicago/Schaumburg, LLC
3333 New Hyde Park Road
New Hyde Park, NY 11042
Telephone: (516) 627-1515
Telecopy: (516) 627-2050
3
<PAGE>
with a copy to: David Gruber, Esq.
Salamon, Gruber, Newman and Blaymore
Suite 102
97 Powerhouse Road
Roslyn Heights, NY 11577
Telephone: (516) 625-1700
Telecopy: (516) 625-1795
If to FFCA: Dennis L. Ruben, Esq.
Executive Vice President and General Counsel
FFCA Acquisition Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (480) 585-4500
Telecopy: (480) 585-2226
or to such other address or such other person as either party may from time to
time hereafter specify to the other party in a notice delivered in the manner
provided above.
Should any indebtedness represented by this Note be collected at law or in
equity, or in bankruptcy or other proceedings, or should this Note be placed in
the hands of attorneys for collection after default, Debtor shall pay, in
addition to the principal and interest due and payable hereon, all costs of
collecting or attempting to collect this Note (the "Costs"), including
reasonable attorneys' fees and expenses of FFCA (including those fees and
expenses incurred in connection with any appeal and those of FFCA's in-house
counsel) whether or not a judicial action is commenced by FFCA.
This Note may not be amended or modified except by a written agreement
duly executed by Debtor and FFCA. In case any one or more of the provisions
contained in this Note shall be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
provision had never been contained herein or therein.
Notwithstanding anything to the contrary contained in any of the Loan
Documents, the obligations of Debtor to FFCA under this Note and any other Loan
Documents are subject to the limitation that payments of interest and late
charges to FFCA shall not be required to the extent that receipt of any such
payment by FFCA would be contrary to provisions of applicable law limiting the
maximum rate of interest that may be charged or collected by FFCA. The portion
of any such payment received by FFCA that is in excess of the maximum interest
permitted by such provisions of law shall be credited to the principal balance
of this Note or if such excess portion exceeds the outstanding principal balance
of this Note, then such excess portion shall be refunded to Debtor. All interest
paid or agreed to be paid to FFCA shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and/or spread throughout the full term of
this Note (including, without limitation, the period of any renewal or extension
thereof) so that interest for such full term shall not exceed the maximum amount
permitted by applicable law.
4
<PAGE>
It is the intent of the parties hereto that the business relationship
created by this Note and the other Loan Documents is solely that of creditor and
debtor and has been entered into by both parties in reliance upon the economic
and legal bargains contained in the Loan Documents. None of the agreements
contained in the Loan Documents is intended, nor shall the same be deemed or
construed, to create a partnership between FFCA and Debtor, to make them joint
venturers, to make Debtor an agent, legal representative, partner, subsidiary or
employee of FFCA, nor to make FFCA in any way responsible for the debts,
obligations or losses of Debtor.
FFCA, by accepting this Note, and Debtor acknowledge and warrant to each
other that each has been represented by independent counsel and Debtor has
executed this Note after being fully advised by said counsel as to its effect
and significance. This Note shall be interpreted and construed in a fair and
impartial manner without regard to such factors as the party which prepared the
instrument, the relative bargaining powers of the parties or the domicile of any
party.
Time is of the essence in the performance of each and every obligation
under this Note.
Debtor acknowledges that this Note was substantially negotiated in the
State of Arizona, the executed Note was delivered in the State of Arizona, all
payments under this Note will be delivered in the State of Arizona and there are
substantial contacts between the parties and the transactions contemplated
herein and the State of Arizona. For purposes of any action or proceeding
arising out of this Note, the parties hereto expressly submit to the
jurisdiction of all federal and state courts located in the State of Arizona.
Debtor consents that it may be served with any process or paper by registered
mail or by personal service within or without the State of Arizona in accordance
with applicable law. Furthermore, Debtor waives and agrees not to assert in any
such action, suit or proceeding that it is not personally subject to the
jurisdiction of such courts, that the action, suit or proceeding is brought in
an inconvenient forum or that venue of the action, suit or proceeding is
improper. It is the intent of Debtor and FFCA that all provisions of this Note
shall be governed by and construed under the laws of the State of Arizona.
Nothing contained in this paragraph shall limit or restrict the right of FFCA to
commence any proceeding in the federal or state courts located in the state in
which the Premises is located to the extent FFCA deems such 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
5
<PAGE>
ESSENTIAL ASPECT OF THEIR BARGAIN, FURTHERMORE, DEBTOR AND FFCA HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO SEEK
PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES FROM THE OTHER PARTY WITH RESPECT
TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM
BROUGHT BY THEM AGAINST THE OTHER PARTY HERETO OR ITS SUCCESSORS WITH RESPECT TO
ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY DOCUMENT
CONTEMPLATED HEREIN OR RELATED HERETO, THE WAIVER BY DEBTOR AND FFCA OF ANY
RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES HAS
BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR
BARGAIN.
This obligation shall bind Debtor and its successors and assigns, and the
benefits hereof shall inure to FFCA and its successors and assigns. FFCA may
assign its rights under this Note as set forth in the Loan Agreement.
6
<PAGE>
IN WITNESS WHEREOF, Debtor has executed and delivered this Note effective
as of the date first set forth above.
DEBTOR:
MORTON'S OF CHICAGO/SCHAUMBURG
LLC, a Delaware limited liability company
By: Morton's of Chicago Holding, Inc., its
member
By /s/ Thomas J. Baldwin
-----------------------------------------
Thomas J. Baldwin
Executive Vice President
<PAGE>
Exhibit 13.1
SELECTED FINANCIAL INFORMATION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS INFORMATION FISCAL YEARS
- ----------------------------------- -------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Restaurant Revenues (Combined Morton's and
Bertolini's) $ 206.9 $ 189.8 $ 164.3 $ 139.0 $ 109.0
Restaurant Revenues (All) 206.9 189.8 172.7 193.4 173.4
EBITDA (1) 25.8 24.5 20.7 17.5 11.2
Income Before Income Taxes and Nonrecurring
Charges and Cumulative Effect of a Change in
an Accounting Principle 14.2 13.8 11.5 8.8 3.1
Income (Loss) Before Income Taxes and Cumulative
Effect of a Change in an Accounting Principle 14.3(2) (6.1)(4) 9.2(5) (2.7)(6) (14.7)(7)
Income (Loss) Before Cumulative Effect of a
Change in an Accounting Principle 10.7(2) (1.9)(4) 6.9(5) 1.8 (6) (13.9)(7)
Net Income (Loss) 8.5(2)(3) (1.9)(4) 6.9(5) 1.8 (6) (13.9)(7)
Net Income (Loss) Per Share Before Cumulative
Effect of a Change in an Accounting Principle:
Basic 1.81(2) (0.28)(4) 1.06(5) 0.28(6) (2.18)(7)
Diluted $ 1.77(2) $ (0.28)(4) $ 1.00(5) $ 0.26(6) $ (2.18)(7)
Net Income (Loss) Per Share:
Basic 1.42(2)(3) (0.28)(4) 1.06(5) 0.28(6) (2.18)(7)
Diluted $ 1.39(2)(3) $ (0.28)(4) $ 1.00(5) $ 0.26(6) $ (2.18)(7)
BALANCE SHEET INFORMATION
- -------------------------
FISCAL YEARS
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Current Assets $ 22.5 $ 19.3 $ 18.6 $ 27.3(8) $ 35.4(8)
Property and Equipment, Net 66.7 45.8 34.6 24.7 19.4
Total Assets 114.4 95.0 81.9 77.0 73.2
Current Liabilities 34.5 28.2 21.4 25.3(9) 26.4(9)
Long-Term Debt 53.2 36.8 24.9 24.9 23.7
Stockholders' Equity $ 12.1 $ 23.0 $ 28.6 $ 21.1 $ 19.0
</TABLE>
(1) Represents earnings before interest, taxes, depreciation, amortization,
pre-opening costs, non-cash charges and nonrecurring (benefit) charges.
(2) Includes nonrecurring, pre-tax litigation benefit of $0.2 million.
(3) Includes a $2.3 million charge, net of income taxes, representing the
cumulative effect of the requisite change in accounting for pre-opening
costs.
(4) 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.
(5) Includes nonrecurring, pre-tax litigation charge of $2.3 million.
<PAGE>
(6) 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.
(7) 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.
(8) Includes assets held for sale of $12.5 million and $22.6 million for fiscal
1996 and 1995, respectively.
(9) Includes liabilities related to assets held for sale of $12.1 million and
$14.0 million for fiscal 1996 and 1995, respectively.
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Revenues increased $17.1 million, or 9.0%, to $206.9 million for fiscal
1999, from $189.8 million for fiscal 1998. Of the increase in revenues, $15.3
million was attributable to incremental restaurant revenues from thirteen new
restaurants opened after December 28, 1997 and $4.6 million, or 2.7%, was
attributable to additional comparable revenues from restaurants open all of both
periods. Included in 1999 revenues is approximately $0.4 million of consulting
fee income and included in 1998 revenues is approximately $0.1 million of
consulting fee income. Average revenue per restaurant open for a full period
increased 2.4%. Higher revenues for fiscal 1999 reflect the impact of menu price
increases of approximately 1% in September 1999. 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, 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 remaining interests in Mick's and Peasant restaurants. Revenues for
the four closed Bertolini's restaurants decreased by $2.8 million compared to
fiscal 1998. As of January 2, 2000, the Company operated 58 restaurants (50
Morton's and 8 Bertolini's) and as of January 3, 1999, 55 restaurants (43
Morton's and 12 Bertolini's).
Percentage changes in comparable restaurant revenues for fiscal 1999
versus fiscal 1998 for restaurants open all of both periods are as follows:
<TABLE>
<CAPTION>
Percentage Change
-----------------
<S> <C>
Morton's 3.9%
Bertolini's -4.6%
Total 2.7%
</TABLE>
1
<PAGE>
Food and beverage costs increased from $64.9 million for fiscal 1998 to
$69.9 million for fiscal 1999. These costs as a percentage of related revenues
decreased 0.4% for the period as a result of lower meat costs.
Restaurant operating expenses which include labor, occupancy and other
operating expenses increased from $81.8 million for fiscal 1998 to $90.0 million
for fiscal 1999. Those costs as a percentage of revenues increased 0.4% from
43.1% for fiscal 1998 to 43.5% for fiscal 1999 primarily due to a more
competitive labor market.
Pre-opening costs, depreciation, amortization and non-cash charges
decreased from $8.4 million for fiscal 1998 to $7.6 million for fiscal 1999 and
decreased from 4.4% of revenues to 3.7%, respectively. Beginning in fiscal 1999,
in accordance with its adoption of SOP 98-5 (see Note 2 to the Company's
consolidated financial statements), the Company expenses all costs incurred
during start-up activities, including pre-opening costs, as incurred.
Pre-opening costs incurred and recorded as expense for fiscal 1999 were $3.1
million. The amount of pre-opening costs recorded for fiscal 1998 and fiscal
1997 represents the amortization of pre-opening costs over the 12 months
following restaurant openings. Such amortization expense for fiscal 1998 and
fiscal 1997 was $4.3 million and $3.2 million, respectively. The timing of
restaurant openings, as well as costs per restaurant, affected the amount of
such costs.
General and administrative expenses for fiscal 1999 were $15.5 million,
an increase of $2.1 million, from $13.4 million for fiscal 1998. Such costs as a
percentage of revenues were 7.5% for fiscal 1999, an increase of 0.4% from
fiscal 1998. The increase in such costs is driven by incremental costs
associated with restaurant development, training and salary costs.
Marketing and promotional expenses were $5.7 million, or 2.7% of
revenues, for fiscal 1999 versus $5.1 million, or 2.7% of revenues, for fiscal
1998.
Interest expense, net of interest income, increased $1.8 million, from $2.3
million for fiscal 1998 to $4.1 million for fiscal 1999. This increase in
interest expense was due to both increased borrowings and higher interest rates.
During fiscal 1999, the Company settled all claims relating to a
lawsuit, which was previously provided for in fiscal 1997, for approximately
$2.3 million. The final amount of the settlement, including
2
<PAGE>
all related legal and other costs, resulted in the Company recording a
nonrecurring, pre-tax benefit of approximately $159,000. See Note 3 to the
Company's consolidated financial statements.
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. In fiscal 1999, four
Bertolini's restaurants were closed. See Note 3 to the Company's consolidated
financial statements.
Income tax expense of $3.6 million for fiscal 1999 represents Federal
income taxes, which were partially offset by the establishment of FICA and other
tax credits that were generated during fiscal 1999, as well as state income
taxes. See Note 7 to the Company's consolidated financial statements.
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, December 28,
1999 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
--------- ---------
3
<PAGE>
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.
Mick's and Peasant Restaurants:
<TABLE>
<CAPTION>
January 3, December 28,
1999 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>
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.
4
<PAGE>
As of January 3, 1999, the Company operated 55 restaurants (43 Morton's and 12
Bertolini's) and as of December 28, 1997, 48 restaurants (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 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.
5
<PAGE>
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 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 to the Company's
consolidated financial statements.
6
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
At present and in the past, the Company has had, and may have in the
future, negative working capital balances. The working capital deficit is
produced principally as a result of the Company's investment in long-term
restaurant operating assets and real estate. 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 immediately needed 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 Fleet National Bank ("Fleet") (formerly BankBoston,
N.A.) entered into the Second Amended and Restated Revolving Credit and Term
Loan Agreement, dated June 19, 1995, as amended, from time to time (the "Credit
Agreement"), pursuant to which the Company's credit facility (the "Credit
Facility") is $75,000,000, which reflects an increase of $30,000,000 in fiscal
1999. The Credit Facility consists of a $25,000,000 term loan (the "Term Loan")
and a $50,000,000 revolving credit facility (the "Revolving Credit"). 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 2, 2000, calculated pursuant to the
Credit Agreement, the Company's applicable margin on the Revolving Credit was
0.00% on base rate loans and 2.00% on Eurodollar Rate loans and the Company's
applicable margin on the Term Loan was 0.25% on base rate loans and 2.25% on
Eurodollar Rate loans. 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. Fleet has syndicated portions of the Credit Facility to First Union
Corporation, Imperial Bank and Chase Manhattan Bank.
At the end of fiscal 1999 and fiscal 1998, the Company had outstanding
borrowings of $41,625,000 and $29,475,000, respectively, under the Credit
Agreement. At January 2, 2000, $185,000
7
<PAGE>
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 $33,190,000 and the weighted average interest rate on all
borrowings under the Credit Facility was 8.2% on January 2, 2000.
Quarterly principal installments on the Term Loan of $250,000 will be
due at the end of each calendar quarter from March 31, 2000 through December 31,
2002; $2,500,000 from March 31, 2003 through December 31, 2003; and $3,000,000
from March 31, 2004 through December 31, 2004. The Revolving Credit will be
payable in full on December 31, 2004. Total amounts of principal payable by the
Company under the Credit Agreement during the five years subsequent to January
2, 2000 amount to $1,000,000 in 2000, $1,000,000 in 2001, $1,000,000 in 2002,
$10,000,000 in 2003 and $28,625,000 in 2004. Borrowings under the Credit
Agreement have been classified as noncurrent on the Company's consolidated
balance sheet since the Company may borrow amounts due under the Term Loan from
the Revolving Credit, including the Term Loan principal payments commencing in
March 2000.
Borrowings under the Credit Agreement are secured by all tangible and
intangible assets of the Company. 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; (vi) the
repurchase of the Company's outstanding common stock; and (vii) 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 2, 2000,
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 Fleet on notional amounts of $10,000,000 each.
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
term of the agreements are for three years and may be extended for an additional
two years at the option of Fleet. At January 2, 2000, the Company estimates the
fair value of the agreements to be approximately $212,000.
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 10.002% per
8
<PAGE>
annum interest rate. Principal and interest payments will be made over the term
of the loan. At January 2, 2000 and January 3, 1999 the outstanding principal
balance of the CNL Loan was approximately $2,039,000 and $2,221,000,
respectively, of which approximately $202,000 and $167,000, respectively, has
been included in "Current portion of obligations to financial institutions and
capital leases" in the accompanying consolidated balance sheets.
During 1999 and 1998, various subsidiaries of the Company and FFCA
Acquisition Corporation ("FFCA") entered into loan commitments, aggregating
$27,000,000, to fund the purchases of land and construction of restaurants.
During 1999 and 1998, $4,757,000 and $5,315,000, respectively, was funded, with
the interest rates ranging from 7.68% to 8.06% per annum. Monthly principal and
interest payments have been scheduled over twenty-year periods. At January 2,
2000 and January 3, 1999 the aggregate outstanding principal balance due to FFCA
was approximately $9,943,000 and $5,305,000, respectively, of which
approximately $206,000 and $67,000, respectively, of principal is included in
"Current portion of obligations to financial institutions and capital leases" in
the accompanying consolidated balance sheets.
During the third quarter of fiscal 1999, the Company entered into
sale-leaseback transactions whereby the Company sold, and leased back, existing
restaurant equipment at 15 of its restaurant locations. Aggregate proceeds of
$6,000,000 were used to reduce the Company's revolving credit facility. These
transactions are being accounted for as financing arrangements. Recorded in the
accompanying consolidated balance sheet as of January 2, 2000 are such capital
lease obligations, related equipment of $5,547,000, and a deferred gain of
approximately $5,020,000, each of which are being recognized over the three year
lives of such transactions.
During fiscal 1999, the Company's net investment in fixed assets and
related investment costs, net of equipment lease and mortgage financings,
approximated $18.5 million. The Company estimates that it will expend up to an
aggregate of $16.0 million in 2000 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,
sale-leaseback and mortgage financing agreements with several financial
institutions of which approximately $20.1 million, in the aggregate, is
available for future fundings. The Company anticipates that funds generated
through operations and funds available through equipment lease and
9
<PAGE>
mortgage financing commitments, as well as funds available under the Credit
Agreement will be sufficient to fund planned expansion.
In fiscal 1998, the Company's board of directors authorized a repurchase
of up to 20%, or approximately 1,330,600 shares, of the Company's outstanding
common stock. In November 1999, the board of directors increased the Company's
authorization by an additional 600,000 shares. As of January 2, 2000, the
Company had repurchased 1,381,190 shares at an average stock price of $17.10.
At January 2, 2000, the Company had various state income tax net
operating loss carryforwards which expire in various periods through 2017. As of
January 2, 2000, the Company had approximately $7.3 million in FICA and other
tax credits expiring in various periods through 2014 available to reduce income
taxes payable in future years. Approximately $3.4 million of the Company's
deferred tax asset represents capital losses. 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 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.
YEAR 2000
The Company is not aware of any year 2000 issues that have affected
operations. In preparation for the year 2000, the Company incurred internal
staff costs as well as consulting and other expenses. Year 2000 expenses did not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows. It is possible that the computer systems of
the Company, or third parties with which the Company does business, could be
affected in the future by the year 2000 issue. System failures resulting from
these issues could cause significant disruption to the Company's operations.
10
<PAGE>
ACCOUNTING STANDARDS TO BE ADOPTED
Statement of Financial Accounting Standards ("SFAS") No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133" ("Statement 137") amends Statement 133
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"), which was issued in June 1998 and was to be effective for fiscal quarters
beginning after June 15, 1999. Statement 137 defers the effective date of
Statement 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. Statement 133 standardizes the accounting for derivative instruments and
requires that all derivative instruments be carried at fair value. The Company
has not determined the impact that Statement 133 will have on its consolidated
financial statements and believes that such determination will not be meaningful
until closer to the date of initial adoption in January 2001.
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 or
contracted prices. Costs for construction, taxes, repairs, maintenance and
insurance all impact the Company's occupancy costs, which increased during the
period. Management believes the current practice of maintaining operating
margins through a combination of menu price increases, cost controls, careful
evaluation of property and equipment needs, and efficient purchasing practices
is its most effective tool for dealing with inflation.
SEASONALITY
The Company's business is somewhat seasonal in nature, with revenues
being less in the third quarter 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 January 4, 1999 to January 2, 2000 (45 restaurants), and for the
entire period from December 29, 1997 to January 3, 1999 (41 restaurants):
11
<PAGE>
<TABLE>
<CAPTION>
Comparable Restaurant Revenues
(in thousands)
1999 1998 1998 1997
---- ---- ---- ----
45 restaurants 41 restaurants
-------------- --------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter 46,159 25.9 46,033 26.5 41,018 26.3 39,156 26.0
Second Quarter 42,970 24.1 42,941 24.7 38,309 24.6 37,166 24.6
Third Quarter 39,425 22.1 37,377 21.6 33,679 21.6 32,917 21.8
Fourth Quarter 49,655 27.9 47,216 27.2 42,863 27.5 41,663 27.6
------- ----- ------- ----- ------- ----- ------- -----
178,209 100.0 173,567 100.0 155,869 100.0 150,902 100.0
</TABLE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The inherent risk in market risk sensitive instruments and positions
primarily relates to potential losses arising from adverse changes in foreign
currency exchange rates and interest rates.
As of January 2, 2000, the Company operated three international
locations, one in Singapore (opened May 1998), one in Toronto (opened September
1998), and one in Hong Kong (opened December 1999). As a result, the Company is
subject to risk from changes in foreign exchange rates. These changes result in
cumulative translation adjustments which are included in other comprehensive
income. The potential loss resulting from a hypothetical 10% adverse change in
quoted foreign currency exchange rates, as of January 2, 2000, is not considered
material.
The Company is subject to market risk from exposure to changes in
interest rates based on its financing activities. This exposure relates to
borrowings under the Company's Credit Facility which are payable at floating
rates of interest. The Company has entered into interest rate swap agreements to
manage some of its exposure to interest rate fluctuations. The change in fair
value of our long-term debt resulting from a hypothetical 10% fluctuation as of
January 2, 2000 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
12
<PAGE>
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.
13
<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 2, 2000 and January 3,
1999 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended January 2,
2000. 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 2, 2000 and January 3, 1999 and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 2, 2000, in conformity with generally accepted
accounting principles.
KPMG LLP
Melville, New York
January 27, 2000
14
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 2000 and January 3, 1999
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
January 2, January 3,
ASSETS 2000 1999
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,806 $ 2,117
Accounts receivable 1,093 894
Inventories 7,134 6,400
Landlord construction receivables,
prepaid expenses and other current assets 2,724 3,920
Deferred income taxes 5,699 6,005
-------- --------
Total current assets 22,456 19,336
-------- --------
Property and equipment, net 66,715 45,811
Intangible assets, net of accumulated amortization of $4,286 at
January 2, 2000 and $3,861 at January 3, 1999 11,709 12,134
Other assets and deferred expenses, net of accumulated amortization
of $698 at January 2, 2000 and $2,075 at January 3, 1999 5,970 9,237
Deferred income taxes 7,511 8,466
-------- --------
$114,361 $ 94,984
======== ========
</TABLE>
15
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
January 2, 2000 and January 3, 1999
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
January 2, January 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 7,870 $ 6,553
Accrued expenses 22,036 19,466
Current portion of obligations to financial institutions and capital
leases 4,422 1,801
Accrued incomes taxes 140 372
--------- ---------
Total current liabilities 34,468 28,192
--------- ---------
Obligations to financial institutions and capital leases, less current
maturities 60,970 40,254
Other liabilities 6,855 3,581
--------- ---------
Total liabilities 102,293 72,027
--------- ---------
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 6,758,200 at January 2, 2000
and 6,661,370 at January 3, 1999 68 67
Nonvoting common stock, $0.01 par value per share. Authorized
3,000,000 shares, no shares issued or outstanding -- --
Additional paid-in capital 62,849 62,717
Accumulated other comprehensive income (loss) (79) (34)
Accumulated deficit (27,146) (35,597)
Less treasury stock, at cost, 1,381,190 shares at January 2, 2000 and
234,400 shares at January 3, 1999 (23,624) (4,196)
--------- ---------
Total stockholders' equity 12,068 22,957
--------- ---------
$ 114,361 $ 94,984
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended January 2, 2000, January 3, 1999 and December 28, 1997
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
January 2, January 3, December 28,
2000 1999 1997
---- ---- ----
<S> <C> <C> <C>
Revenues $ 206,869 $ 189,779 $ 172,725
Food and beverage costs 69,873 64,946 59,189
Restaurant operating expenses 89,988 81,796 75,779
Pre-opening costs, depreciation, amortization and non-cash charges 7,592 8,360 6,829
General and administrative expenses 15,497 13,432 12,885
Marketing and promotional expenses 5,669 5,125 4,168
Interest expense, net 4,100 2,325 2,396
Nonrecurring (benefit) charges (159) 19,925 2,300
--------- --------- ---------
Income (loss) before income taxes and cumulative
effect of a change in an accounting principle 14,309 (6,130) 9,179
Income tax expense (benefit) 3,577 (4,258) 2,295
--------- --------- ---------
Income (loss) before cumulative effect of a change
in an accounting principle 10,732 (1,872) 6,884
Cumulative effect of a change in an accounting principle,
net of income tax benefit of $1,357 2,281 -- --
--------- --------- ---------
Net income (loss) $ 8,451 $ (1,872) $ 6,884
========= ========= =========
Net income (loss) per share - basic:
Before cumulative effect of a change in an accounting principle $ 1.81 $ (0.28) $ 1.06
Cumulative effect of a change in an accounting principle (0.39) -- --
--------- --------- ---------
Net income (loss) $ 1.42 $ (0.28) $ 1.06
========= ========= =========
Net income (loss) per share - diluted:
Before cumulative effect of a change in an accounting principle $ 1.77 $ (0.28) $ 1.00
Cumulative effect of a change in an accounting principle (0.38) -- --
--------- --------- ---------
Net income (loss) $ 1.39 $ (0.28) $ 1.00
========= ========= =========
Weighted average common and potential common shares outstanding:
Basic 5,938 6,617 6,498
========= ========= =========
Diluted 6,078 6,617 6,886
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended January 2, 2000, January 3, 1999 and December 28, 1997
(amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Accumulated Total
Additional Other Treasury Stock-
Common Paid-In Accumulated Comprehensive Stock at holders'
Stock Capital Deficit Income (Loss) Cost Equity
----- ------- ------- ------------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
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
Comprehensive income (loss):
Net income -- -- 8,451 -- --
Foreign currency translation
adjustments -- -- -- (45) --
--------
Total comprehensive income (loss) 8,406
--------
Exercise of stock options 1 132 -- -- -- 133
Purchase of 1,146,790 shares of
common stock (average cost
of $16.94 per share) -- -- -- -- (19,428) (19,428)
-------- -------- -------- -------- -------- --------
Balance at January 2, 2000 $ 68 $ 62,849 $(27,146) $ (79) $(23,624) $ 12,068
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended January 2, 2000, January 3, 1999 and December 28, 1997
(amounts in thousands)
<TABLE>
<CAPTION>
Years Ended
------------------------------------------
January 2, January 3, December 28,
2000 1999 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,451 $ (1,872) $ 6,884
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Cumulative effect of a change in an accounting principle, net of
income tax benefit 2,281 -- --
Depreciation of property and equipment 3,844 3,117 2,127
Amortization of intangible assets, deferred occupancy costs and
other deferred expenses 667 5,243 4,702
Deferred income taxes 2,618 (5,361) 827
Nonrecurring (benefit) charges (159) 19,925 2,300
Change in assets and liabilities:
Accounts receivable (197) 777 447
Inventories (730) (976) (1,166)
Landlord construction receivables, prepaid expenses and
other current assets 258 (1,609) (4,219)
Accounts payable, accrued expenses and other liabilities 7,666 (1,074) 404
Accrued income taxes (232) (284) (44)
-------- -------- --------
Net cash provided by operating activities 24,467 17,886 12,262
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (15,432) (23,259) (9,914)
Capitalized payments for pre-opening costs, licenses and other
deferred expenses -- (4,205) (6,274)
Proceeds from sale of Mick's and Peasant restaurants -- -- 4,308
-------- -------- --------
Net cash used by investing activities (15,432) (27,464) (11,880)
-------- -------- --------
</TABLE>
19
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(amounts in thousands)
<TABLE>
<CAPTION>
January 2, January 3, December 28,
2000 1999 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Principal reduction on obligations to financial institutions
and capital leases $(13,952) $ (8,425) $(10,005)
Proceeds from obligations to financial institutions and
capital leases 27,958 20,365 10,200
Purchases of treasury stock (19,428) (4,196) --
Net proceeds from issuance of stock 133 504 584
-------- -------- --------
Net cash (used) provided by financing activities (5,289) 8,248 779
-------- -------- --------
Effect of exchange rate changes on cash (57) 10 --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,689 (1,320) 1,161
Cash and cash equivalents at beginning of year 2,117 3,437 2,276
-------- -------- --------
Cash and cash equivalents at end of year $ 5,806 $ 2,117 $ 3,437
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 2000, January 3, 1999 and December 28, 1997
(1) ORGANIZATION AND OTHER MATTERS
Morton's Restaurant Group, Inc. (the "Company") was incorporated as a
Delaware corporation in October 1988 and is engaged in the business of owning
and operating restaurants under the names Morton's of Chicago ("Morton's") and
Bertolini's Authentic Trattorias ("Bertolini's"). As of January 2, 2000, the
Company owned and operated 58 restaurants (50 Morton's and 8 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 consisted 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
1999, 1998 and 1997, interest costs capitalized during the construction period
for leasehold improvements were approximately $350,000, $428,000 and $270,000,
respectively.
(e) OTHER ASSETS AND DEFERRED EXPENSES
Beginning in fiscal 1999, in accordance with its adoption of SOP 98-5,
the Company expenses all costs incurred during start-up activities, including
pre-opening costs, as incurred. In connection with the adoption, the Company
recorded a charge for the cumulative effect of an accounting change of
approximately $2,281,000, net of income tax benefits of approximately
$1,357,000. Pre-opening costs incurred and recorded as expense for fiscal
1999 were $3,081,000. Through 1998, the Company deferred certain
organizational and pre-opening costs associated with the opening of each new
21
<PAGE>
restaurant. Such costs were amortized over the 12 months following the
restaurant's opening. Unamortized pre-opening costs of $3,053,000 at the end of
fiscal 1998 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 $2,367,000 at the end of fiscal 1999 and
$2,085,000 at the end of fiscal 1998.
(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 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 undiscounted 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 $3,296,000, $3,526,000
and $3,022,000 for fiscal 1999, 1998 and 1997, 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 $3,774,000, $2,204,000 and
$2,062,000, and income taxes of approximately $1,179,000, $1,386,000 and
$1,133,000
22
<PAGE>
for fiscal 1999, 1998 and 1997, respectively. During fiscal 1999, 1998 and 1997,
the Company entered into capital lease finance agreements of approximately
$3,290,000, $1,836,000 and $2,184,000, respectively, for restaurant equipment.
In addition, during fiscal 1999 the Company entered into sale-leaseback
transactions aggregating $6,000,000 for existing restaurant equipment (see Note
11).
(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 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.
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") 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
23
<PAGE>
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
As of January 2, 2000, the Company operated three international locations,
one in Singapore (opened May 1998), one in Toronto (opened September 1998), and
one in Hong Kong (opened December 1999). 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' 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.
(q) RECLASSIFICATION
Certain items previously reported in specific financial statement captions
have been reclassed to conform to the fiscal 1999 presentation.
(3) NONRECURRING (BENEFIT) CHARGES
(a) BERTOLINI'S
Based on a strategic assessment of trends and a downturn in comparable
revenues of Bertolini's Authentic Trattorias, during the fourth quarter of
fiscal 1998, pursuant to the approval of the Board of Directors, the Company
recorded a nonrecurring, pre-tax charge of $19,925,000 representing the
write-down of impaired Bertolini's restaurant assets, the write-down and accrual
of lease exit costs associated with the closure of specified Bertolini's
restaurants as well as the write-off of the residual interests in Mick's and
Peasant restaurants.
The Company performed an in-depth analysis of historical and projected
operating results and, as a result of significant operating losses, identified
several nonperforming restaurants which have all been closed in fiscal 1999. The
Company ascribed no value to the leasehold improvements for closed locations as
such assets inure to the benefit of the landlord and 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 incorporated a factor for depreciation in the fiscal 1999
period in which the restaurants operated until closure. The accrual for lease
exit costs was recorded based upon the remaining guarantee values specified in
the underlying lease agreements. Additionally,
24
<PAGE>
the analysis identified several underperforming restaurants, which reflected a
pattern of historical operating losses and negative cash flow, as well as
continued projected negative cash flow and operating results for 1999 and 2000.
Accordingly, the Company recorded an impairment charge in the fourth quarter of
fiscal 1998 to write-down these impaired assets and will contemplate their
potential closure upon future operating results. During September 1999, one such
underperforming restaurant was closed.
The components of the charge were as follows (amounts in thousands):
<TABLE>
<CAPTION>
<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>
At January 2, 2000 and January 3, 1999, included in "Accrued expenses" in
the accompanying consolidated balance sheets is approximately $2,582,000 and
$4,165,000, respectively, representing the lease disposition liabilities related
to the closing of these restaurants. At January 2, 2000 and January 3, 1999,
remaining in furniture, fixtures and equipment is approximately $97,000 and
$263,000, respectively, representing management's estimate of the net realizable
value of the related Bertolini's property and equipment.
(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 in 1998 by the Court to $150,000), punitive damages of
$850,000, and an estimate of the Plaintiff's and the Company's legal fees and
expenses. The Company filed an appeal and on July 12, 1999, settled all claims
relating to the lawsuit. The final amount of the settlement, including all
related legal and other costs, resulted in the Company recording a nonrecurring,
pre-tax benefit of approximately $159,000 in the third quarter of fiscal 1999.
(c) MICK'S AND PEASANT RESTAURANTS
The following represents the combined results of operations for Mick's and
Peasant for the year ended December 28, 1997. There were no operations in fiscal
1999 and fiscal 1998. Interest expense was not allocated to Mick's and Peasant.
25
<PAGE>
<TABLE>
<CAPTION>
1997
----
(amounts in thousands)
<S> <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>
During fiscal 1995, the Company approved a plan for the sale of Mick's
and Peasant and therefore, pursuant to Statement 121, the Company discontinued
depreciating fixed assets and amortizing goodwill related to Mick's and Peasant.
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 1999 and fiscal 1998, restaurant
occupancy expenses of approximately $340,000 and $720,400, 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
2, 2000 and January 3, 1999, included in "Accrued expenses" in the accompanying
consolidated balance sheet, is approximately $289,000 and $1,128,000,
respectively, representing the remaining lease disposition liabilities related
to 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 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
26
<PAGE>
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 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 2, 2000 and January 3, 1999 are set forth below:
<TABLE>
<CAPTION>
January 2, 2000 January 3, 1999
--------------- ---------------
(amounts in thousands)
<S> <C> <C>
Furniture, fixtures and equipment $ 30,696 $ 20,658
Leasehold improvements 38,002 25,422
Land 6,236 4,287
Construction in progress 2,281 3,248
--------- ----------
77,215 53,615
Less accumulated depreciation and amortization 10,500 7,804
--------- ----------
Net property and equipment $ 66,715 $ 45,811
========= ===========
</TABLE>
(5) ACCRUED EXPENSES
<TABLE>
<CAPTION>
January 2, 2000 January 3, 1999
--------------- ---------------
Accrued expenses consist of the following: (amounts in thousands)
<S> <C> <C>
Accrued construction costs $ 3,886 $ 2,749
Restaurant operating expenses 2,781 1,797
Bertolini's accrued lease exit costs 2,582 4,165
Accrued gift certificates 2,175 1,410
Payroll and related taxes 1,857 1,623
Deferred gain on sale of assets 1,813 --
Sales and use tax 1,722 1,695
Rent and property taxes 1,243 1,360
Litigation and related expenses 1,000 1,841
Mick's and Peasant lease exit costs 289 1,128
Other 2,688 1,698
--------- ----------
Total accrued expenses $ 22,036 $ 19,466
========== ==========
</TABLE>
(6) OBLIGATIONS TO FINANCIAL INSTITUTIONS
The Company and Fleet National Bank ("Fleet") (formerly BankBoston, NA)
entered into the Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated June 19, 1995, as amended, from time to time (the "Credit
Agreement"), pursuant to which the Company's credit facility (the "Credit
Facility") is $75,000,000, which reflects an increase of $30,000,000 in fiscal
1999. The
27
<PAGE>
Credit Facility consists of a $25,000,000 term loan (the "Term Loan") and a
$50,000,000 revolving credit facility (the "Revolving Credit"). 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 2, 2000, calculated pursuant to the
Credit Agreement, the Company's applicable margin on the Revolving Credit was
0.00% on base rate loans and 2.00% on Eurodollar Rate loans and the Company's
applicable margin on the Term Loan was 0.25% on base rate loans and 2.25% on
Eurodollar Rate loans. 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. Fleet has syndicated portions of the Credit Facility to First Union
Corporation, Imperial Bank and Chase Manhattan Bank.
At the end of fiscal 1999 and fiscal 1998, the Company had outstanding
borrowings of $41,625,000 and $29,475,000, respectively, under the Credit
Agreement. At January 2, 2000, $185,000 was restricted for letters of credit
issued by the lender on behalf of the Company. Unrestricted and undrawn funds
available to the Company under the Credit Agreement were $33,190,000 and the
weighted average interest rate on all borrowings under the Credit Facility was
8.2% on January 2, 2000.
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.
Quarterly principal installments on the Term Loan of $250,000 will be
due at the end of each calendar quarter from March 31, 2000 through December 31,
2002; $2,500,000 from March 31, 2003 through December 31, 2003 and $3,000,000
from March 31, 2004 through December 31, 2004. The Revolving Credit will be
payable in full on December 31, 2004. Total amounts of principal payable by the
Company under the Credit Agreement during the five years subsequent to January
2, 2000 amount to $1,000,000 in 2000, $1,000,000 in 2001, $1,000,000 in 2002,
$10,000,000 in 2003 and $28,625,000 in 2004. The borrowings under the Credit
Agreement have been classified as noncurrent on the Company's consolidated
balance sheet since the Company may borrow amounts due under the Term Loan from
the Revolving Credit, including the Term Loan principal payments commencing in
March 2000.
Borrowings under the Credit Agreement are secured by all tangible and
intangible assets of the Company. 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; (vi) the
repurchase of the Company's outstanding common stock; and (vii) 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 2, 2000,
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
28
<PAGE>
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 $40 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 Fleet 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 Fleet. 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
Fleet, on a quarterly basis, any amounts by which the prevailing variable rate
exceeds a predetermined fixed rate. Conversely, the Company is required to pay
Fleet amounts by which the predetermined fixed rate exceeds the prevailing
variable rate. At January 2, 2000, the Company estimates the fair value of the
agreements to be approximately $212,000.
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 10.002% per annum interest rate. Principal and
interest payments will be made over the term of the loan. At January 2, 2000 and
January 3, 1999, the outstanding principal balance of the CNL Loan was
approximately $2,039,000 and $2,221,000, respectively, of which approximately
$202,000 and $167,000, respectively, has been included in "Current portion of
obligations to financial institutions and capital leases" in the accompanying
consolidated balance sheets.
During 1999 and 1998, various subsidiaries of the Company and FFCA
Acquisition Corporation ("FFCA") entered into loan commitments, aggregating
$27,000,000, to fund the purchases of land and construction of restaurants.
During 1999 and 1998, $4,757,000 and $5,315,000, respectively, was funded, with
the interest rates ranging from 7.68% to 8.06% per annum. Monthly principal and
interest payments have been scheduled over twenty-year periods. At January 2,
2000 and January 3, 1999, the aggregate outstanding principal balance due to
FFCA was approximately $9,943,000 and $5,305,000, respectively, of which
approximately $206,000 and $67,000, respectively, of principal has been included
in "Current portion of obligations to financial institutions and capital leases"
in the accompanying consolidated balance sheets.
(7) INCOME TAXES
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(amounts in thousands)
<S> <C> <C> <C> <C>
Federal: Current $ -- $ 903 $ 725
Deferred 2,798 (4,851) 578
----- ------ ---
2,798 (3,948) 1,303
State and Local: Current 509 200 743
Deferred 270 (510) 249
----- ------ ---
779 (310) 992
----- ------ ---
Income tax expense (benefit) $ 3,577 $(4,258) $ 2,295
======= ======= =======
</TABLE>
29
<PAGE>
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>
1999 1998 1997
---- ---- ----
(amounts in thousands)
<S> <C> <C>
Computed "expected" tax expense (benefit) $4,505 $ (2,084) $ 3,121
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal income tax benefit 514 (202) 655
FICA tax credits (1,555) (956) (1,313)
Change in valuation allowance -- (1,157) --
Other, net 113 141 (168)
------ -------- -------
$ 3,577 $ (4,258) $ 2,295
======= ======== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at the end of fiscal 1999
and 1998 are presented below:
<TABLE>
<CAPTION>
January 2, January 3,
2000 1999
---- ----
(amounts in thousands)
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforwards $ 4,774 $ 3,330
Capital loss carryforwards 3,428 3,706
Nonrecurring charge for write-down and related
charges for assets held for sale 106 421
Nonrecurring charge for write-down and related
charges for impaired assets 2,244 5,982
Nonrecurring charge for litigation accrual 365 698
Compensatory stock options -- 604
Deferred rent and start-up amortization 3,500 3,588
FICA and other tax credits 7,286 4,930
-------- --------
Total gross deferred tax assets 21,703 23,259
Less valuation allowance (5,775) (5,775)
-------- --------
Net deferred tax assets 15,928 17,484
Deferred tax liabilities:
Property and equipment depreciation 2,718 3,013
-------- --------
Net deferred tax assets and liabilities $ 13,210 $ 14,471
======== ========
</TABLE>
At January 2, 2000, 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 2017, 2002 and 2014, respectively. The
valuation allowance for deferred tax assets as of January 2, 2000 and January 3,
1999 was $5,775,000 which remained constant for the year ended January 2, 2000
and decreased $1,157,000 for the year ended January 3, 1999.
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
30
<PAGE>
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
$36,200,000. Taxable income (loss), before the application of net operating loss
carryforwards and FICA and other tax credits, for the years ended January 3,
1999 and December 28, 1997 was approximately $8,480,000 and $1,657,000,
respectively, and for the year ended January 2, 2000 is estimated to be
$(3,700,000). The Company assesses the recoverability of its net deferred tax
asset based upon the level of historical income and projections of future
taxable income over the next two to three years. Deferred tax assets arising
from capital losses have been fully reserved. The sale-leaseback transactions,
described in Note 11, do not meet the definition of a tax strategy pursuant to
the provisions of SFAS 109 and, accordingly, a tax benefit has not been recorded
in fiscal 1999. 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.
(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) The Company's Stock Option Plan (the "Stock Option Plan"), as amended,
provides for the issuance, to employees, of incentive stock options ("ISOs") and
non-qualified stock options ("NQSOs") having a maximum term of ten years and may
be granted to purchase up to 900,000 shares of Common Stock.
31
<PAGE>
The exercise price of ISOs will be equal to the fair market value of the
shares subject to option on the date of grant, while the exercise price of NQSOs
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 1999 and 1998, the Company issued 189,600
and 108,500 NQSOs, respectively.
Activity in stock options is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- -------------------------- ---------------------------
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 $13.73 835,955 $11.17 627,385 $8.48 790,765
Options granted 15.31 208,700 18.28 379,900 17.12 205,100
Options exercised 1.26 96,830 8.88 56,805 3.62 160,892
Options canceled 20.01 36,425 17.24 114,525 12.65 207,588
----- ------ ----- ------- ----- -------
End of year $15.16 911,400 $13.73 835,955 $11.17 627,385
====== ======= ====== ======= ====== =======
</TABLE>
As of January 2, 2000, there were 229,939 options exercisable with a weighted
average exercise price of $11.55.
(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 1999, 1998 and 1997 was $6.93, $8.43 and $7.81 on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions: 1999 - expected dividend yield 0.0%, risk-free interest
rate of 5.8%, volatility of 35% and an expected life of 6.3 years; 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.
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>
1999 1998 1997
---- ---- ----
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) as reported $ 8,451 $ (1,872) $ 6,884
Pro forma $ 7,647 $ (2,402) $ 6,553
Net income (loss) per diluted share as reported $ 1.39 $ (0.28) $ 1.00
Pro forma $ 1.27 $ (0.36) $ 0.96
</TABLE>
32
<PAGE>
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
authorized a repurchase of up to 20%, or approximately 1,330,600 shares, of the
Company's outstanding common stock. In November 1999, the board of directors
increased the Company's authorization by an additional 600,000 shares. The
timing and amount of the purchases are at the full discretion of the Company's
senior management and subject to market conditions and applicable securities and
tax regulations. Repurchases are 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 purchases
from existing cash flow, through its current credit facility, from additional
borrowings, or a combination thereof. At January 2, 2000 and January 3, 1999,
the Company had repurchased 1,381,190 and 234,400 shares of its common stock at
an average purchase price of $17.10 and $17.90, respectively.
(e) In October 1999, the Company commenced an Employee Stock Purchase
Plan under which 600,000 shares of the Company's common stock have been reserved
for future employee purchases. Pursuant to this plan, and as approved by
stockholders, all employees with a minimum of one year of service may purchase,
at a 15% discount, shares of common stock of the Company on a quarterly basis.
In January 2000, there were 1,164 shares issued from treasury shares at a price
of $13.175 per share.
(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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) $ 8,451 $(1,872) $ 6,884
======= ======= ========
Weighted average common shares (denominator for basic
earnings per share) 5,938 6,617 6,498
Effect of dilutive securities:
Employee stock options 140 -- * 388
------- ------- --------
Weighted average common and potential common shares
outstanding (denominator for diluted earnings per share) 6,078 6,617 6,886
======= ======= ========
Basic earnings (loss) per share $ 1.42 $ (0.28) $ 1.06
======= ======= ========
Diluted earnings (loss) per share $ 1.39 $ (0.28) $ 1.00
======= ======= ========
</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.
33
<PAGE>
(10) OPERATING LEASES
The Company's operations are generally conducted in leased premises.
Including renewal options, remaining lease terms range from 1 to 40 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 1999 and fiscal 1998, $943,000
and $134,000, 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 1999 and fiscal 1998 are accruals related to such
rent deferrals of approximately $3,768,000 and $3,701,000, 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 2000 $ 12,849
Fiscal 2001 13,118
Fiscal 2002 13,379
Fiscal 2003 12,744
Fiscal 2004 10,963
Fiscal 2005 and thereafter 62,856
---------
Total minimum lease payments $ 125,909
=========
</TABLE>
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 $2,727,000, $2,794,000 and $2,376,000 for fiscal 1999, 1998 and
1997, respectively.
Rental expense for all such leases was approximately $13,419,000,
$13,463,000 and $11,936,000, for fiscal 1999, 1998 and 1997, respectively.
(11) CAPITAL LEASES
The Company typically finances the purchase of certain restaurant equipment
through capital leases. At January 2, 2000, the Company had approximately
$5,100,000 commitments available for future fundings. During the third quarter
of fiscal 1999, the Company entered into sale-leaseback transactions whereby the
Company sold, and leased back, existing restaurant equipment at 15 of its
34
<PAGE>
restaurant locations. Aggregate proceeds of $6,000,000 were used to reduce the
Company's revolving credit facility. These transactions are being accounted for
as financing arrangements. Recorded in the accompanying consolidated balance
sheet as of January 2, 2000 are such capital lease obligations, related
equipment of $5,547,000, and a deferred gain of approximately $5,020,000, each
of which are being recognized over the three year lives of such transactions. At
January 2, 2000 and January 3, 1999, furniture, fixtures and equipment include
approximately $14,993,000 and $7,290,000, respectively, of net assets recorded
under capital leases. These assets are amortized over the life of the respective
leases. At January 2, 2000 and January 3, 1999, capital lease obligations of
approximately $7,771,000 and $3,452,000, 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 2, 2000 are as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
<S> <C>
Fiscal 2000 $ 4,543
Fiscal 2001 4,044
Fiscal 2002 2,954
Fiscal 2003 956
Fiscal 2004 403
-------
Total minimum lease payments 12,900
Less amount representing interest 1,114
-----
Present value of net minimum lease payments
(including current portion of $4,015) $11,786
=======
</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 total
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 the Company and its subsidiaries 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 1999, 1998 and 1997 were approximately $523,000, $603,000 and $516,000,
respectively.
(14) LEGAL MATTERS AND CONTINGENCIES
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants which have all been closed. The Company is involved in
legal action relating to such closures, however, the Company does not
35
<PAGE>
believe that the ultimate resolution of these actions will have a material
effect beyond that recorded during fiscal 1998.
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.
36
<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".
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 2, 2000 High Low
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter............................................................. $19 $15 1/2
Second Quarter............................................................ 19 1/8 13 7/8
Third Quarter............................................................. 20 5/8 17 3/8
Fourth Quarter............................................................ 18 1/16 13
Fiscal Year Ended January 3, 1999 High Low
- ------------------------------------------------------------------------------------------------------
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
</TABLE>
On January 2, 2000, the last reported sale price of the Common Stock on the NYSE
was $15.50. On March 1, 2000, the last reported sale price of the Common Stock
on the NYSE was $17.00.
As of March 1, 2000, there were approximately 60 holders of record of the
Company's Common Stock. The Company believes that as of such date there were
approximately 1,000 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.
37
<PAGE>
Exhibit 21.1
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C> <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/Buckhead, Inc. Delaware
8. Morton's of Chicago/Chicago, Inc. Delaware
9. Morton's of Chicago/Cincinnati, Inc. Delaware
10. Morton's of Chicago/Clayton, Inc. Delaware
11. Morton's of Chicago/Cleveland, Inc. Illinois
12. Morton's of Chicago/Columbus, Inc. Delaware
13. Morton's of Chicago/Dallas, Inc. Illinois
14. Morton's of Chicago/Denver, Inc. Illinois
15. Morton's of Chicago/Detroit, Inc. Delaware
16. Morton's of Chicago/Fifth Avenue, Inc. Delaware
17. Morton's of Chicago/Flamingo Road Corp. Delaware
18. Morton's of Chicago/Houston, Inc. Delaware
19. Morton's of Chicago/Las Vegas, Inc. Delaware
20. Morton's of Chicago/Miami, Inc. Delaware
21. Morton's of Chicago/Minneapolis, Inc. Delaware
22. Morton's of Chicago/Nashville, Inc. Delaware
23. Morton's of Chicago/North Miami Beach, Inc. Delaware
24. Morton's of Chicago/Orlando, Inc. Delaware
25. Morton's of Chicago/Palm Beach, Inc. Delaware
26. Morton's of Chicago/Palm Desert, Inc. Delaware
27. Morton's of Chicago/Philadelphia, Inc. Illinois
28. Morton's of Chicago/Phoenix, Inc. Delaware
<PAGE>
29. Morton's of Chicago/Pittsburgh, Inc. Delaware
30. Morton's of Chicago/Portland, Inc. Delaware
31. Morton's of Chicago/Puerto Rico, Inc. Delaware
32. Morton's of Chicago/Rosemont, Inc. Illinois
33. Morton's of Chicago/Sacramento, Inc. Delaware
34. Morton's of Chicago/San Antonio, Inc. Delaware
35. Morton's of Chicago/San Diego, Inc. Delaware
36. Morton's of Chicago/San Francisco, Inc. Delaware
37. Morton's of Chicago/Santa Ana, Inc. Delaware
38. Morton's of Chicago/Schaumburg, Inc. Delaware
39. Morton's of Chicago/Scottsdale, Inc. Delaware
40. Morton's of Chicago/Seattle, Inc. Delaware
41. Morton's of Chicago/Virginia, Inc. Illinois
42. Morton's of Chicago/Washington, DC, Inc. Delaware
43. Morton's of Chicago/Washington Square, Inc. Delaware
44. Morton's of Chicago/West Street, Inc. Delaware
45. Morton's of Chicago/Westbrook, Inc. Illinois
46. Morton's, Inc. Illinois
47. Porterhouse of Los Angeles, Inc. Delaware
48. Addison Steakhouse, Inc. Texas
49. Chicago Steakhouse, Inc. Texas
50. Houston Steakhouse, Inc. Texas
51. San Antonio Steakhouse, Inc. Texas
52. Morton's of Chicago Holding, Inc. Delaware
53. Morton's of Chicago/Boston LLC Delaware
54. Morton's of Chicago/Charlotte LLC Delaware
55. Morton's of Chicago/Denver Crescent Town
Center LLC Delaware
56. Morton's of Chicago/Great Neck LLC Delaware
57. Morton's of Chicago/Hartford LLC Delaware
58. Morton's of Chicago/Indianapolis LLC Delaware
59. Morton's of Chicago/Jacksonville LLC Delaware
<PAGE>
60. Morton's of Chicago/Kansas City LLC Delaware
61. Morton's of Chicago/Pittsburgh LLC Delaware
62. Morton's of Chicago/Raleigh LLC Delaware
63. Morton's of Chicago/Salt Lake City LLC Delaware
64. Morton's of Chicago/Schaumburg LLC Delaware
65. Morton's of Chicago/Stamford LLC Delaware
66. Bertolini's of Costa Mesa LLC Delaware
67. Bertolini's of Irvine Center LLC Delaware
68. Bertolini's of Phillips Place LLC Delaware
69. Morton's of Chicago Asia (Singapore) Pte Ltd. Singapore
70. Morton's of Chicago (Singapore) Pte Ltd. Singapore
71. Morton's of Chicago/Toronto, Co. Canada
72. Morton's of Chicago/Vancouver, Inc. Canada
73. Morton's of Chicago Mauritius Holding Corp. Mauritius
74. Morton's of Chicago Kowloon Limited Hong Kong
75. Peasant Holding Corp. Delaware
76. Mick's at Fair Oaks, Inc. Delaware
77. Mick's at Annapolis Mall, Inc. Delaware
78. Mick's at Pennsylvania Ave., Inc. Delaware
79. Italian Restaurant Holding Corp. Delaware
80. Bertolini's Restaurants, Inc. Delaware
81. Bertolini's of Circle Centre, Inc. Delaware
82. Bertolini's of Fashion Outlet, Inc. Delaware
83. Bertolini's of King of Prussia, Inc. Delaware
84. Bertolini's of Las Vegas, Inc. Delaware
85. Bertolini's at Market Square, Inc. Delaware
86. Bertolini's of Phipps Plaza, Inc. Delaware
87. Bertolini's of Village Square, Inc. Delaware
88. Bertolini's of Westbury, Inc. Delaware
89. Bertolini's of WhiteFlint Mall, Inc. Delaware
90. Quantum Restaurant Development Corporation Georgia
91. Santa Fe Steakhouse & Cantina Corp. Delaware
</TABLE>
<PAGE>
Exhibit 23.1
[LOGO]
The Board of Directors
Morton's Restaurant Group, Inc.:
We consent to incorporation by reference in the registration statement on Form
S-8 of Morton's Restaurant Group, Inc. of our report dated January 27, 2000
relating to the consolidated balance sheets of Morton's Restaurant Group, Inc.
and subsidiaries as of January 2, 2000 and January 3, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended January 2, 2000, which report
is incorporated by reference in the January 2, 2000 annual report on Form 10-K
of Morton's Restaurant Group, Inc.
/s/ KPMG LLP
-------------
KPMG LLP
Melville, New York
March 31, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JANUARY
2, 2000 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-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JAN-02-2000
<CASH> 5,806
<SECURITIES> 0
<RECEIVABLES> 1,093
<ALLOWANCES> 0
<INVENTORY> 7,134
<CURRENT-ASSETS> 22,456
<PP&E> 77,215
<DEPRECIATION> 10,500
<TOTAL-ASSETS> 114,361
<CURRENT-LIABILITIES> 34,468
<BONDS> 53,199
0
0
<COMMON> 68
<OTHER-SE> 12,000
<TOTAL-LIABILITY-AND-EQUITY> 114,361
<SALES> 206,869
<TOTAL-REVENUES> 206,869
<CGS> 69,873
<TOTAL-COSTS> 167,453
<OTHER-EXPENSES> 21,007
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,100
<INCOME-PRETAX> 14,309
<INCOME-TAX> 3,577
<INCOME-CONTINUING> 10,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,281
<NET-INCOME> 8,451
<EPS-BASIC> $1.42
<EPS-DILUTED> $1.39
</TABLE>
