-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OtxnvybD46adn10cue+4z3/uuLIO70qjr4YwKXF92R7KOvkr6q/Kwua7R85RjkdE g6BeeYDVIa06v86lmgiX1Q== 0000912057-01-515768.txt : 20010516 0000912057-01-515768.hdr.sgml : 20010516 ACCESSION NUMBER: 0000912057-01-515768 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010401 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORTONS RESTAURANT GROUP INC CENTRAL INDEX KEY: 0000883981 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 133490149 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12692 FILM NUMBER: 1636025 BUSINESS ADDRESS: STREET 1: 3333 NEW HYDE PK RD STE 210 CITY: NEW HYDE PARK STATE: NY ZIP: 11042 BUSINESS PHONE: 5166271515 MAIL ADDRESS: STREET 1: 3333 NEW HYDE PARK ROAD STREET 2: SUITE 210 CITY: NEW HYDE PARK STATE: NY ZIP: 11042 FORMER COMPANY: FORMER CONFORMED NAME: QUANTUM RESTAURANTS GROUP INC DATE OF NAME CHANGE: 19950315 10-Q 1 a2049250z10-q.txt 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended April 1, 2001 ------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to __________ Commission File No. 1-12692 MORTON'S RESTAURANT GROUP, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3490149 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3333 New Hyde Park Road, Suite 210, New Hyde Park, New York 11042 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) 516-627-1515 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____ --- As of May 9, 2001, the registrant had 4,173,792 Shares of its Common Stock, $.01 par value, outstanding. MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets as of April 1, 2001 and December 31, 2000 3-4 Consolidated Statements of Income for the three month periods ended April 1, 2001 and April 2, 2000 5 Consolidated Statements of Cash Flows for the three month periods ended April 1, 2001 and April 2, 2000 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Item 3. Quantitative and Qualitative Disclosure about Market Risk 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Stockholders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 Item 1. Financial Statements MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands)
April 1, December 31, 2001 2000 ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,721 $ 2,296 Accounts receivable 1,094 4,639 Inventories 8,142 8,303 Landlord construction receivables, prepaid expenses and other current assets 2,948 2,867 Deferred income taxes 5,497 5,653 ----------- ----------- Total current assets 19,402 23,758 ----------- ----------- Property and equipment, at cost: Furniture, fixtures and equipment 37,150 35,842 Leasehold improvements 52,764 51,052 Land 6,342 6,337 Construction in progress 2,236 2,160 ----------- ----------- 98,492 95,391 Less accumulated depreciation and amortization 19,674 17,344 ----------- ----------- Net property and equipment 78,818 78,047 ----------- ----------- Intangible assets, net of accumulated amortization of $4,769 at April 1, 2001 and $4,668 at December 31, 2000 11,226 11,327 Other assets and deferred expenses, net of accumulated amortization of $556 at April 1, 2001 and $518 at December 31, 2000 6,782 6,412 Deferred income taxes 4,025 4,866 ----------- ----------- $ 120,253 $ 124,410 =========== ===========
(Continued) 3 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued (amounts in thousands, except share data)
April 1, December 31, 2001 2000 --------- ------------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,622 $ 8,677 Accrued expenses 16,569 21,375 Current portion of obligations to financial institutions and capital leases 4,855 4,759 Accrued income taxes 126 1,004 -------- -------- Total current liabilities 28,172 35,815 Obligations to financial institutions and capital leases, less current maturities 85,988 85,012 Other liabilities 4,181 4,506 -------- -------- Total liabilities 118,341 125,333 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value per share. Authorized 3,000,000 shares, no shares issued or outstanding -- -- Common stock, $.01 par value per share. Authorized 25,000,000 shares, issued 6,796,851 shares at April 1, 2001 and 6,778,363 shares at December 31, 2000 68 68 Nonvoting common stock, $.01 par value per share. Authorized 3,000,000 shares, no shares issued or outstanding -- -- Additional paid-in capital 63,307 63,077 Accumulated other comprehensive income (loss) (313) (150) Accumulated deficit (14,340) (17,084) Less treasury stock, at cost, 2,628,953 shares at April 1, 2001 and 2,630,361 shares at December 31, 2000 (46,810) (46,834) -------- -------- Total stockholders' equity (deficit) 1,912 (923) -------- -------- $120,253 $124,410 ======== ========
See accompanying notes to consolidated financial statements. 4 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Income (amounts in thousands, except per share data)
Three Months Ended ------------------------- April 1, April 2, 2001 2000 --------- ------------- (unaudited) Revenues $66,342 $63,595 Food and beverage costs 22,670 21,422 Restaurant operating expenses 27,833 26,352 Pre-opening costs, depreciation, amortization and non-cash charges 2,756 3,080 General and administrative expenses 4,932 5,058 Marketing and promotional expenses 2,199 1,876 Interest expense, net 2,032 1,448 ------- ------- Income before income taxes 3,920 4,359 Income tax expense 1,176 1,308 ------- ------- Net income $ 2,744 $ 3,051 ======= ======= Net income per share: Basic $ 0.66 $ 0.60 ======= ======= Diluted $ 0.62 $ 0.58 ======= ======= Weighted average shares outstanding: Basic 4,158 5,093 ======= ======= Diluted 4,425 5,232 ======= =======
See accompanying notes to consolidated financial statements. 5 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (amounts in thousands)
Three Months Ended ----------------------- April 1, April 2, 2001 2000 --------- ---------- (unaudited) Cash flows from operating activities: Net income $ 2,744 $ 3,051 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other non-cash charges 2,142 2,319 Deferred income taxes 997 828 Change in assets and liabilities: Accounts receivable 3,537 (562) Inventories 141 492 Prepaid expenses and other assets (380) (151) Accounts payable, accrued expenses and other liabilities (7,079) (4,724) Accrued income taxes (878) 229 ------- -------- Net cash provided by operating activities 1,224 1,482 ------- -------- Cash flows from investing activities: Purchases of property and equipment (3,137) (3,456) ------- -------- Net cash used by investing activities (3,137) (3,456) ------- -------- Cash flows from financing activities: Principal reduction on obligations to financial institutions and capital leases (6,901) (4,084) Proceeds from obligations to financial institutions and capital leases 8,000 12,927 Purchases of treasury stock -- (10,386) Net proceeds from issuance of stock 254 4 ------- -------- Net cash provided (used) by financing activities 1,353 (1,539) ------- -------- Effect of exchange rate changes on cash (15) (4) ------- -------- Net decrease in cash and cash equivalents (575) (3,517) Cash and cash equivalents at beginning of period 2,296 5,806 ------- -------- Cash and cash equivalents at end of period $ 1,721 $ 2,289 ======= ========
See accompanying notes to consolidated financial statements. 6 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements April 1, 2001 and April 2, 2000 1) The accompanying unaudited, consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with generally accepted accounting principles. They should be read in conjunction with the consolidated financial statements of Morton's Restaurant Group, Inc. (the "Company") for the fiscal year ended December 31, 2000 filed by the Company on Form 10-K with the Securities and Exchange Commission on March 30, 2001. The accompanying financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair presentation of its financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year. The Company uses a fiscal year which consists of 52 weeks. Approximately every six or seven years, a 53rd week will be added. 2) For the purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company paid cash interest and fees, net of amounts capitalized, of approximately $2,007,000 and $1,207,000, and income taxes of approximately $1,020,000 and $309,000, for the three months ended April 1, 2001 and April 2, 2000, respectively. During the first quarter of fiscal 2000, the Company entered into capital lease arrangements for restaurant equipment of approximately $843,000. 3) 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 were all closed in the fiscal 1999. At April 1, 2001 and December 31, 2000, included in "Accrued expenses" in the accompanying consolidated balance sheets is approximately $1,934,000 and $2,153,000, respectively, representing the lease disposition liabilities related to the closing of these nonperforming restaurants. Additionally, the analysis identified several underperforming restaurants, which reflected a pattern of historical operating losses and negative cash flow, as well as continued projected negative cash flow and operating results for 1999 and 2000. Accordingly, the Company recorded an impairment charge in the fourth quarter of fiscal 1998 to write-down these impaired assets and will contemplate their potential closure based upon future operating results. During 1999 and 2000 three such underperforming restaurants were closed. (See "Part II - Other Information, Item 1. Legal Proceedings".) 7 4) The components of comprehensive income for the three months ended April 1, 2001 and April 2, 2000 are as follows:
April 1, April 2, 2001 2000 ---------- ---------- (amounts in thousands) Net income $2,744 $3,051 Other comprehensive income (loss): Foreign currency translation (163) 7 ------ ------ Total comprehensive income $2,581 $3,058 ====== ======
5) The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138, as of January 1, 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. The Company's derivative financial instruments consist of two interest rate swap agreements with notional amounts of $10,000,000 each. The interest rate swap agreements are designated as cash flow hedges for purposes of SFAS 133. Based on regression analysis, the Company has determined that its interest rate swap agreements are highly effective. The fair values of the Company's interest rate swap agreements were not material as of January 1, 2001 or for the quarter ended April 1, 2001. 6) The Company is involved in various legal actions. See "Part II - Other Information, Item 1. Legal Proceedings" on page 14 of this Form 10-Q for a discussion of these legal actions. 8 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Revenues increased $2.7 million, or 4.3%, to $66.3 million for the three month period ended April 1, 2001, from $63.6 million during the comparable 2000 period. Of the increase in revenues, $6.1 million was attributable to incremental restaurant revenues from seven new restaurants opened after January 2, 2000, which was offset by $2.1 million, or -3.3%, attributable to a reduction in comparable revenues from restaurants open all of both periods. Revenues for the three Bertolini's restaurants closed during 2000 (see Note 3) declined by $1.3 million compared to the first quarter of fiscal 2000. Average revenue per restaurant open for a full period decreased 3.3%. Higher revenues for the first quarter of fiscal 2001 also reflect the impact of price increases of approximately 1% in February 2000 and May 2000. Percentage changes in comparable restaurant revenues for the three month period ended April 1, 2001 versus April 2, 2000 for restaurants open all of both periods are as follows:
Three Months Ended April 1, 2001 Percentage Changes ------------------- Morton's -3.3% Bertolini's -4.3% Total -3.3%
The Company believes that first quarter revenues and operating results were adversely affected by a weakened economic environment, unfavorable business conditions and reduced business travel. The Company also expects revenues and operating results to be adversely affected by these factors in the second quarter of fiscal 2001. In addition, future results, including the second quarter of fiscal 2001, will be adversely affected by the investment banking, legal and other costs associated with the Company's decision to evaluate the full range of strategic alternatives, including evaluating a potential sale of the Company, and with the proxy contest initiated by an insurgent stockholder. See "Part II - Other Information, Item 5. Other Information" on page 14 of this Form 10-Q for further discussion. Food and beverage costs increased from $21.4 million for the three month period ended April 2, 2000 to $22.7 million for the three month period ended April 1, 2001. Due to higher meat purchase costs, these costs as a percentage of revenues increased from 33.7% for the 2000 period to 34.2% for the 2001 period. Restaurant operating expenses, which include labor, occupancy and other operating expenses, increased from $26.4 million for the three month period ended April 2, 2000 to $27.8 million for the three month period ended April 1, 2001, an increase of $1.5 million associated with additional restaurants. Those costs as a percentage of revenues increased 0.6% from 41.4% for the three month period ended April 2, 2000 to 42.0% for the three month period ended April 1, 2001. Pre-opening costs, depreciation, amortization and non-cash charges decreased from $3.1 million for the three month period ended April 2, 2000 to $2.8 million for the three month period ended April 1, 2001 and decreased as a percentage of revenues by 0.6%. In accordance with the adoption of SOP 98-5, the Company expenses all costs incurred during start-up activities, including pre-opening costs, as incurred. 9 Pre-opening costs incurred and recorded as expense for the three month period ended April 1, 2001 and April 2, 2000 were $0.6 million and $0.8 million, respectively. The timing of restaurant openings, as well as costs per restaurant, affected the amount of such costs. Included in the first quarter of fiscal 2000 are charges of approximately $0.5 million related to the March 2000 disposition of one Bertolini's restaurant not previously provided for in the fiscal 1998 charge. (See Note 3.) Effective April 3, 2000, the Company changed the estimated useful lives for computer equipment and software. As a result of such change, the first quarter of 2001 includes approximately $48,000 of additional depreciation expense. General and administrative expenses for the three month period ended April 1, 2001 were $4.9 million, which decreased from $5.1 million for the three month period ended April 2, 2000. Such costs as a percentage of revenues decreased from 8.0% for the 2000 period to 7.4% for the 2001 period. Marketing and promotional expenses were $2.2 million for the three month period ended April 1, 2001 and $1.9 million for the three month period ended April 2, 2000. Such costs as a percentage of revenues were 3.3% for the three month period ended April 1, 2001, an increase of 0.4% from the three month period ended April 2, 2000. Interest expense, net of interest income, increased to $2.0 million for the three month period ended April 1, 2001 from $1.4 million for the three month period ended April 2, 2000 due to increased borrowings. Income tax expense of $1.2 million for the three month period ended April 1, 2001 represents Federal income taxes, which were partially offset by the establishment of additional deferred tax assets relating to FICA and other tax credits that were generated during fiscal 2001, as well as state income taxes. 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") 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 $90,000,000. The Credit Facility consists of a $24,500,000 term loan (the "Term Loan") and a $65,500,000 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 April 1, 2001, calculated pursuant to the Credit Agreement, the Company's applicable margin on the Revolving Credit was 0.25% on base rate loans and 2.25% on Eurodollar Rate loans and the Company's applicable margin on the Term Loan was 0.50% on base rate loans and 2.50% 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, J.P. Morgan Chase & Co. and LaSalle Bank National Association. As of April 1, 2001 and December 31, 2000, the Company had outstanding borrowings of $60,375,000 and $64,925,000, respectively, under the Credit Agreement. At April 1, 2001, $258,000 was 10 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 Facility were $29,367,000 and the weighted average interest rate on all borrowings under the Credit Facility was 7.57% on April 1, 2001. Quarterly principal installments on the Term Loan of $250,000 will be due at the end of each calendar quarter from September 30, 2001 through December 31, 2003; $2,500,000 from March 31, 2004 through December 31, 2004; and $3,000,000 from March 31, 2005 through December 31, 2005. The Revolving Credit will be payable in full on December 31, 2005. Total amounts of principal payable by the Company under the Credit Facility during the five years subsequent to April 1, 2001 amount to $500,000 in 2001, $1,000,000 in 2002, $1,000,000 in 2003, $10,000,000 in 2004 and $47,875,000 in 2005. 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 September 2001. Borrowings under the Credit Facility are secured by all tangible and intangible assets of the Company. The Credit Agreement contains, among other things, certain restrictive covenants with respect to the Company that create limitations (subject to certain exceptions) on: (i) the incurrence or existence of additional indebtedness or the granting of liens on assets or contingent obligations; (ii) the making of certain investments; (iii) mergers, dispositions of assets or consolidations; (iv) prepayment of certain other indebtedness; (v) making capital expenditures above specified amounts; (vi) the repurchase of the Company's outstanding common stock above specified amounts; 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 April 1, 2001, 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 on $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 terms of the agreements are for three years and may be extended for an additional two years at the option of Fleet. Fleet extended its first option on April 9, 2001. At April 1, 2001, the Company estimates the fair value of the agreements to be immaterial to the consolidated financial statements. 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 April 1, 2001 and December 31, 2000 the outstanding principal balance of the CNL Loan was approximately $1,783,000 and $1,837,000, respectively, of which approximately $228,000 and $223,000, 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 2001, 2000 and 1999, $6,900,000, $1,927,000 and $4,575,000, respectively, was funded, with the interest rates ranging from 7.68% to 9.26% per annum. Monthly principal and interest payments have been scheduled over twenty-year periods. At April 1, 2001 and December 31, 2000 the aggregate outstanding principal balance due to FFCA was approximately $18,405,000 and $11,574,000, respectively, of which approximately $421,000 and $282,000, respectively, of principal is included in "Current portion of obligations to financial institutions and capital leases" in the accompanying consolidated balance sheets. 11 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 April 1, 2001 and December 31, 2000 are such capital lease obligations, related equipment of $2,810,000 and $3,300,000 respectively, and a deferred gain of approximately $2,720,000 and $3,173,000, respectively, each of which are being recognized over the three year lives of such transactions. During the first three months of fiscal 2001, the Company's net investment in fixed assets and related investment costs, including pre-opening costs, offset by mortgage financing of approximately $6.9 million, approximated $3.8 million. The Company estimates that it will expend up to an aggregate of $20.0 million in 2001 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 $14.5 million, in the aggregate, is available for future fundings. The Company anticipates that funds generated through operations and funds available through equipment lease and mortgage financing commitments, as well as funds available under the Credit Agreement will be sufficient to fund planned expansion. From fiscal October 1998 through fiscal September 2000, the Company's board of directors authorized repurchases of the Company's outstanding common stock of up to approximately 2,930,600 shares. As of April 1, 2001, the Company had repurchased 2,635,090 shares at an average stock price of $17.80. The Company suspended the stock repurchase program on May 8, 2001. FORWARD-LOOKING STATEMENTS This Form 10-Q contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, written, oral or otherwise made, represent the Company's expectation or belief concerning future events. Without limiting the foregoing, the words "believes," "thinks," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. The Company cautions that these statements are further qualified by important economic and competitive factors that could cause actual results to differ materially, or otherwise, from those in the forward-looking statements, including, without limitation, risks of the restaurant industry, including a highly competitive environment and industry with many well-established competitors with greater financial and other resources than the Company, and the impact of changes in consumer tastes, local, regional and national economic and market conditions, restaurant profitability levels, expansion plans, demographic trends, traffic patterns, employee availability and benefits, cost increases, and other risks detailed from time to time in the Company's periodic earnings releases and reports filed with the Securities and Exchange Commission. In addition, the Company's ability to expand is dependent upon various factors, such as the availability of attractive sites for new restaurants, the ability to negotiate suitable lease terms, the ability to generate or borrow funds to develop new restaurants and obtain various government permits and licenses and the recruitment and training of skilled management and restaurant employees. Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and therefore there can be no assurance that any forward-looking statement contained herein will prove to be accurate. 12 Item 3. 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 April 1, 2001, the Company operated four international locations, one in Singapore (opened May 1998), one in Toronto (opened September 1998), one in Hong Kong (opened December 1999) and one in Vancouver, Canada (opened October 2000). 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 April 1, 2001, 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 in interest rates as of April 1, 2001 is not considered material. 13 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. 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 involved in other various legal actions incidental to the normal conduct of its business. Management does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company's consolidated financial position, equity, results of operations, liquidity and capital resources. Item 4. Submission of Matters to a Vote of Stockholders No matters were submitted to a vote of stockholders during the quarter for which this report was filed. Item 5. Other Information Pursuant to a notice delivered to the Company during the first quarter of fiscal 2001, an insurgent stockholder launched a proxy contest to nominate three individuals for election as directors at the Company's 2001 Annual Meeting of Stockholders. At the Annual Meeting, held May 10, 2001, the Company's stockholders elected the individuals nominated by the Board of Directors. During the second quarter of fiscal 2001, the Company announced that its Board of Directors had determined to evaluate the full range of strategic alternatives, including evaluating a potential sale of the Company. The Company expects future results, including the second quarter of fiscal 2001, to be adversely affected by the investment banking, legal and other costs associated with the proxy contest and with evaluating strategic alternatives. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 10.1 Promissory Note, dated March 27, 2001, among FFCA Acquisition Corporation and Morton's of Chicago/Great Neck LLC, a subsidiary of the Registrant. (b) Reports on Form 8-K. A report on Form 8-K was filed March 23, 2001 relating to the Company's Amended and Restated Rights Agreement. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MORTON'S RESTAURANT GROUP, INC. (Registrant) Date May 15, 2001 By: /s/ ALLEN J. BERNSTEIN ------------ ------------------------------- Allen J. Bernstein Chairman of the Board, President and Chief Executive Officer Date May 15, 2001 By: /s/ THOMAS J. BALDWIN ------------ -------------------------------- Thomas J. Baldwin Executive Vice President, Chief Financial Officer and Director 15 INDEX TO EXHIBITS The following is a list of all exhibits filed as part of this report.
Exhibit Number Page Document - ------ ---- -------- 10.1 Promissory Note, dated March 27, 2001, among FFCA Acquisition Corporation and Morton's of Chicago/Great Neck LLC, a subsidiary of the Registrant.
16 EX-10.1 2 a2049250zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 PROMISSORY NOTE $4,000,000.00 Dated as of March 27, 2001 Scottsdale, Arizona MORTON'S OF CHICAGO/GREAT NECK LLC, a Delaware limited liability company ("Debtor"), for value received, hereby promises to pay to FFCA ACQUISITION CORPORATION, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, or order, on or before April 1, 2021 (the "Maturity Date"), as herein provided, the principal sum of FOUR MILLION AND 00/100 DOLLARS ($4,000,000.00), and to pay interest on the unpaid principal amount of this Note from the date hereof to the Maturity Date at the rate of 8.98% per annum on the basis of a 360-day year for the actual number of days elapsed, 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 the date hereof 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 THIRTY-SIX THOUSAND TWO HUNDRED SEVENTY-SIX AND 96/100 DOLLARS ($36,276.96) commencing on May 1, 2001, 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. 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 and be not continuing, (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 the Yield Maintenance Amount. The term "Yield Maintenance Amount" means an amount equal to the difference between (i) the present value computed at the Reinvestment Rate of the stream of monthly principal and interest payments due under this Note from the date of such prepayment through the scheduled Maturity Date, and (ii) the unpaid principal amount of this Note; provided, however, if such difference is a negative number, the Yield Maintenance Amount shall be zero. The term "Reinvestment Rate" means an interest rate equal to the then current yield of U.S. Treasury securities having a weighted average life to maturity closest to the scheduled Maturity Date of this Note. The foregoing Yield Maintenance Amount shall be due and payable if this Note is prepaid 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, the Mortgage encumbering the Premises corresponding to this Note and the other Loan Documents, due and payable as contemplated below (the "Acceleration"); provided, however, the prohibition on prepayment and the Yield Maintenance Amount or prepayment premium, as applicable, shall not be applicable with respect to a prepayment of this Note in connection with (a) an application of condemnation or insurance proceeds as contemplated by the Mortgage, (b) a prepayment as a result of a breach and subsequent cure by Debtor of the Fixed Charge Coverage Ratio required by the Loan Agreement or (c) a prepayment under the last sentence of Section 3.10(a) of the Mortgage. Upon execution of this Note, Debtor shall establish arrangements whereby all payments of principal and interest hereunder are transferred by Automated Clearing House Debit 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 past-due sum being paid, or (b) an Event of Default (as defined under any of the Loan Documents). During the continuation of an Event of Default under this Note, then, time being of the essence hereof, FFCA may declare the entire unpaid principal balance of this Note, accrued interest, if any, and all other sums due under this Note and any Loan Documents which secure this Note, due and payable at once without notice to Debtor. All past-due principal and/or interest shall bear interest from the due date to the date of actual payment at the lesser of the highest rate for which the undersigned may legally contract, or the rate of 15% per annum (the "Default Rate"), and such Default Rate shall continue to apply following a judgement 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, 2 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 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/Great Neck LLC 3333 New Hyde Park Road New Hyde Park, NY 11042 Telephone: (516)627-1515 Telecopy: (516)627-2050 with a copy to: David Gruber, Esq. Salamon, Gruber, Newman and Blaymore Suite 102 97 Powerhouse Road Roslyn Heights, NY 11577 Telephone: (516)625-1700 Telecopy: (516)625-1795 3 If to FFCA: Dennis L. Ruben, Esq. Executive Vice President, General Counsel and Secretary 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 attorney's 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 express portion exceeds the outstanding principal balance of this Note, then such excess portion shall be refunded to Debtor. All interest paid or agreed to be paid to FFCA shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of this Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law. It is the intent of the parties hereto that the business relationship created by this Note and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership between FFCA and Debtor, to make them joint 4 ventures, 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, without regard to its conflict of laws principles. Nothing contained in this paragraph shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in the state in which the Premises is located to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under the Loan Documents. FFCA, BY ACCEPTING THIS NOTE, AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE, THE RELATIONSHIP OF FFCA AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES FROM THE OTHER PARTY, ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL 5 ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY THEM AGAINST THE OTHER PARTY HERETO, THEIR AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR THEIR 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 IN WITNESS WHEREOF, Debtor has executed and delivered this Note effective as of the date first set forth above. DEBTOR: MORTON'S OF CHICAGO/GREAT NECK LLC, a Delaware limited liability company By: Morton's of Chicago Holding, Inc., its member By /s/ Thomas J. Baldwin -------------------------------------- Its EVP & CFO -------------------------------------- Printed Name Thomas J. Baldwin ---------------------------- -----END PRIVACY-ENHANCED MESSAGE-----