-----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, As+84G+dCse9PdWYHaVrr5sBVYJm1VJpPt5avrA1U7GbiMebO8pP0+SlwyN60dvO 93QXK/dQ6lVk2/AV5dZ15Q== 0001047469-97-002596.txt : 19971105 0001047469-97-002596.hdr.sgml : 19971105 ACCESSION NUMBER: 0001047469-97-002596 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971104 SROS: NYSE 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12692 FILM NUMBER: 97707345 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 FORM 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 September 28, 1997 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________________________TO___________________ Commission file number 1-12692 ------- MORTON'S RESTAURANT GROUP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3490149 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 3333 New Hyde Park Road, Suite 210, New Hyde Park, New York 11042 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) 516-627-1515 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of November 3, 1997, the registrant had 6,538,940 Shares of its Common Stock, $.01 par value, issued and outstanding. 1 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES INDEX PART I--FINANCIAL INFORMATION PAGE - ----------------------------- ----- Item 1. Financial Statements Consolidated Balance Sheets as of September 28, 1997 and December 29, 1996................................................ 3-4 Consolidated Statements of Income for the three and nine month periods ended September 28, 1997 and September 29, 1996................................................... 5 Consolidated Statements of Cash Flows for the nine month periods ended September 28, 1997 and September 29, 1996................................................... 6 Notes to Consolidated Financial Statements............................. 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 10-13 PART II--OTHER INFORMATION Item 1. Legal Proceedings.............................................. 14 Item 4. Submission of Matters to a Vote of Stockholders................ 14 Item 6. Exhibits and Reports on Form 8-K.............................. 14-15 Signatures............................................................. 16 2 ITEM 1. FINANCIAL STATEMENTS MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands) SEPTEMBER 28, DECEMBER 29, 1997 1996 --------------- ------------ (UNAUDITED) Assets Current assets: Cash and cash equivalents................. $2,252 $2,276 Accounts receivable....................... 2,766 2,116 Inventories............................... 4,624 4,254 Landlord construction receivables, prepaid expenses and other current assets.................................. 2,278 2,408 Deferred income taxes..................... 4,634 3,808 Assets held for sale...................... 199 12,474 ------------ ------------ Total current assets.................... 16,753 27,336 Property and equipment, at cost: Furniture, fixtures and equipment......... 17,010 13,552 Leasehold improvements.................... 17,662 14,188 Construction in progress.................. 2,065 1,284 ------------ ------------ 36,737 29,024 Less accumulated depreciation and amortization........................... 5,871 4,353 ------------ ------------ Net property and equipment.............. 30,866 24,671 ------------ ------------ Intangible assets, net of accumulated amortization of $3,357 at September 28, 1997 and $3,054 at December 29, 1996...... 12,638 12,941 Other assets and deferred expenses, net of accumulated amortization of $3,631 at September 28, 1997 and $3,963 at December 29, 1996......................... 11,701 5,909 Deferred income taxes....................... 4,020 6,129 ------------ ------------ $75,978 $76,986 ------------ ------------ ------------ ------------ (Continued) 3 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, Continued (amounts in thousands, except share data) SEPTEMBER 28, DECEMBER 29, 1997 1996 --------------- ------------ (UNAUDITED) Liabilities and Stockholders' Equity Current liabilities: Accounts payable.......................... $5,823 $4,694 Accrued expenses.......................... 7,888 7,795 Accrued income taxes...................... 315 700 Liabilities related to assets held for sale................................... 1,684 12,134 ------------ ------------ Total current liabilities............... 15,710 25,323 Bank debt................................... 27,276 24,900 Other liabilities........................... 6,687 5,676 ------------ ------------ Total liabilities....................... 49,673 55,899 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value per share. Authorized 3,000,000 shares, no shares issued or outstanding................... -- -- Common stock, $.01 par value per share. Authorized 25,000,000 shares, issued and outstanding 6,528,815 shares at September 28, 1997 and 6,443,673 shares at December 29, 1996................................ 65 64 Nonvoting common stock, $.01 par value per share. Authorized 3,000,000 shares, no shares issued or outstanding............ -- -- Additional paid-in capital................ 62,102 61,632 Accumulated deficit....................... (35,862) (40,609) ------------ ------------ Total stockholders' equity........... 26,305 21,087 ------------ ------------ $75,978 $76,986 ------------ ------------ ------------ ------------ 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 NINE MONTHS ENDED -------------------- ---------------------- SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29, 1997 1996 1997 1996 --------- --------- ---------- ---------- (UNAUDITED) (UNAUDITED) Revenues........................................................... $ 37,461 $ 45,459 $ 125,056 $ 140,804 Food and beverage costs............................................ 12,787 15,201 42,958 47,112 Restaurant operating expenses...................................... 17,680 22,834 55,860 69,070 Depreciation, amortization and other non-cash charges.............. 1,410 1,657 5,324 4,557 General and administrative expenses................................ 2,993 3,352 9,885 10,598 Marketing and promotional expenses................................. 846 1,057 2,928 3,209 Interest expense, net.............................................. 564 557 1,772 1,701 --------- --------- ---------- ---------- Income before income taxes.................................... 1,181 801 6,329 4,557 Income tax expense................................................. 295 200 1,582 1,140 --------- --------- ---------- ---------- Net income.................................................... $ 886 $ 601 $ 4,747 $ 3,417 --------- --------- ---------- ---------- --------- --------- ---------- ---------- Net income per share............................................... $ 0.13 $ 0.09 $ 0.69 $ 0.50 --------- --------- ---------- ---------- --------- --------- ---------- ---------- Weighted average shares outstanding................................ 6,949 6,827 6,878 6,793 --------- --------- ---------- ---------- --------- --------- ---------- ----------
See accompanying notes to consolidated financial statements. 5 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)
NINE MONTHS ENDED ------------------------ SEPT. 28, SEPT. 29, 1997 1996 ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net income.............................................................................. $ 4,747 $ 3,417 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other non-cash charges................................... 5,324 4,557 Deferred income taxes................................................................... 1,283 -- Change in assets and liabilities: Accounts receivable................................................................ (650) 379 Inventories........................................................................ (370) (202) Prepaid expenses and other assets.................................................. (3,090) (67) Accounts payable, accrued expenses and other liabilities........................... (3,157) (5,855) Accrued income taxes............................................................... (385) (52) ----------- ----------- Net cash provided by operating activities..................................... 3,702 2,177 ----------- ----------- Cash flows from investing activities: Purchases of property and equipment, net................................................ (6,144) (2,930) Payments for start-up costs, licenses and other deferred expenses....................... (4,896) (3,733) Proceeds from sale of Mick's and Peasant restaurants.................................... 4,308 -- ----------- ----------- Net cash used by investing activities......................................... (6,732) (6,663) ----------- ----------- Cash flows from financing activities: Principal reduction on bank debt........................................................ (7,665) (2,250) Proceeds from bank debt................................................................. 10,200 6,000 Payments on note payable to related party............................................... -- (483) Net proceeds from issuance of stock..................................................... 471 122 ----------- ----------- Net cash provided by financing activities..................................... 3,006 3,389 ----------- ----------- Net decrease in cash and cash equivalents.................................................... (24) (1,097) Cash and cash equivalents at beginning of period............................................. 2,276 2,351 ----------- ----------- Cash and cash equivalents at end of period................................................... $ 2,252 $ 1,254 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. 6 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 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., formerly known as Quantum Restaurant Group, Inc., (the "Company") for the fiscal year ended December 29, 1996, filed by the Company on Form 10-K with the Securities and Exchange Commission on March 27, 1997. 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. On May 9, 1996, at the Company's Annual Meeting of Stockholders, the stockholders voted to change the name of the Company from Quantum Restaurant Group, Inc. to Morton's Restaurant Group, Inc. The Company uses a fiscal reporting period ending on the closest Sunday to December 31. The fiscal year consists of 52 weeks and 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 $1,398,000 and $1,563,000, and income taxes of approximately $954,000 and $800,000, for the nine months ended September 28, 1997 and September 29, 1996, respectively. During the first nine months of fiscal 1997 and 1996, the Company entered into capital lease arrangements of approximately $1,569,000 and $2,445,000, respectively, for restaurant equipment. 3) As described below, on February 6, 1997, the Company completed the sale of its Atlanta-based Mick's and Peasant restaurants. Effective January 2, 1995, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of " ("Statement 121"). During the second quarter of fiscal 1995, the Company approved a plan for the sale of Mick's Restaurants, Inc. ("Mick's") and The Peasant Restaurants, Inc. ("Peasant"). Pursuant to Statement 121, the Company discontinued depreciating fixed assets and amortizing goodwill relating to Mick's and Peasant in April 1995. Coincident with the Company's approval of the plan of sale, the assets held for sale and related liabilities for Mick's and Peasant have been reclassified as "Assets held for sale" and "Liabilities related to assets held for sale" when the Company reports its financial position. The accompanying consolidated balance sheets include the following components: 7
SEPTEMBER 28, DECEMBER 29, 1997 (1) 1996 ------------- ------------ (AMOUNTS IN THOUSANDS, UNAUDITED) Current assets................................................................. $ 199 $ 2,166 Net property and equipment..................................................... 1,317 10,704 Unamortized goodwill........................................................... -- 8,077 Other assets................................................................... 466 2,143 Write-down of carrying values.................................................. (1,783) (10,616) ------------- ------------ Assets held for sale...................................................... 199 12,474 ------------- ------------ Current liabilities............................................................ 304 3,495 Other liabilities.............................................................. -- 1,612 Lease exit and other transaction costs......................................... 1,380 7,027 ------------- ------------ Liabilities related to assets held for sale............................... 1,684 12,134 ------------- ------------ Net assets(liabilities related to assets) held for sale................. $ (1,485) $ 340 ------------- ------------ ------------- ------------
- ------------------------ (1) Includes the three remaining non-Atlanta Mick's restaurants. The following represents the combined results of Mick's and Peasant for the periods ended September 28, 1997 and September 29, 1996. Interest expense was not allocated.
NINE MONTHS ENDED ---------------------------- SEPT. 28, SEPT. 29, 1997 (2) 1996 ------------- ------------- (AMOUNTS IN THOUSANDS, UNAUDITED) Revenues............................................................................ $ 7,981 $ 41,839 Food and beverage costs............................................................. 2,407 12,293 Restaurant operating expense........................................................ 4,841 26,089 Depreciation, amortization and other non-cash charges............................... 6 138 General and administrative expenses................................................. 529 2,935 Marketing and promotional expenses.................................................. 138 778 ------ ------------- Income (loss) before income taxes................................................... $ 60 $ (394) ------ ------------- ------ -------------
- ------------------------ (2) Includes the Atlanta-based Mick's and Peasant restaurants through February 6, 1997, the date of sale, as discussed below, two non-Atlanta Mick's restaurants one of which was closed in June 1997 and the other in July 1997, and the three remaining non-Atlanta Mick's restaurants which the Company intends to sell or otherwise dispose of. Management had been actively seeking potential buyers for the sale of all Mick's and Peasant restaurants and in the fourth quarter of fiscal 1995 engaged an investment banking firm to assist with the sale. Although marketing efforts concentrated on selling all of the Mick's and Peasant restaurants, sales materials indicated that a partial sale would be considered. 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, 8 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 1996 and the first nine months of 1997, restaurant occupancy expense of approximately $1,498,000 and $1,201,000 for the Remaining Restaurants has been charged against the accrual for lease exit costs, respectively. During fiscal 1996, seven Mick's restaurants and two Peasant restaurants were closed. During 1997, two Mick's restaurants were closed in January, one Mick's was closed in June 1997, one Mick's was closed in July 1997, and another was closed in October 1997. 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. In conjunction with the sale, the Company had recorded a fiscal 1996 fourth quarter charge of $11,500,000 to write-down the Atlanta-based restaurants to their net realizable values based on the fair value of the consideration received, accrue for the various expenses related to the closing of such sale and to write-off two restaurants which are not part of the sale, both of which were closed in 1997. As of October 1997, the Company continues to operate three Mick's restaurants which the Company intends to sell or otherwise dispose of. The write-down and related charges for net assets held for sale reflect management's best estimate of the costs expected to be incurred in connection with the disposition of Mick's and Peasant. As a result of the numerous uncertainties which may impact the actual costs to be incurred by the Company, such costs may differ from the current estimates used by management. 4.) On September 18, 1997, the Company and William L. Hyde, Jr., the former President and Chief Operating Officer, executed a Termination and Release Agreement whereby Mr. Hyde's employment with the Company terminated. 5.) 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. 9 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 decreased $8.0 million, or 17.6%, to $37.5 million for the three month period ended September 28, 1997, from $45.5 million for the comparable 1996 period. Revenues from Morton's and Bertolini's increased $4.6 million, or 14.3%, to $36.7 million for the three month period ended September 28, 1997, from $32.1 million during the comparable 1996 period. Of the increase in Morton's and Bertolini's revenues, $3.3 million was attributable to incremental restaurant revenues from ten new restaurants opened after January 1, 1996 and $1.1 million, or 3.9%, was attributable to additional comparable revenues from restaurants open all of both periods. Included in 1997 three month revenues is approximately $0.2 million of consulting fee income. Average Morton's and Bertolini's revenues per restaurant open for a full period increased 1.6%. Revenues decreased $15.7 million, or 11.2%, to $125.1 million for the nine month period ended September 28, 1997, from $140.8 million for the comparable 1996 period. Revenues from Morton's and Bertolini's increased $18.1 million, or 18.3%, to $117.1 million for the nine month period ended September 28, 1997, from $99.0 million for the comparable 1996 period. Of the increase in Morton's and Bertolini's revenues, $12.6 million was attributable to incremental restaurant revenues from ten new restaurants opened after January 1, 1996 and $4.9 million, or 5.4%, was attributable to additional comparable revenues from restaurants open all of both periods. Average Morton's and Bertolini's revenues per restaurant open for a full period increased 6.1%. Included in 1997 nine month revenues is approximately $0.5 million of investment income and $0.2 million of consulting fee income. As stated in Note 3, 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 during fiscal 1996 and four additional Mick's have been closed during fiscal 1997. As a result, revenues for the Mick's and Peasant restaurants decreased approximately $12.6 million and $33.9 million in the three and nine month periods ended September 28, 1997, respectively, versus the comparable periods of 1996. As of October 1997, the Company continues to operate three Mick's restaurants which the Company intends to sell or otherwise dispose of. Percentage changes in comparable restaurant revenues for the three and nine month periods ended September 28, 1997 versus September 29, 1996 for restaurants open all of both periods are as follows: THREE MONTHS NINE MONTHS ENDED SEPT. 28, 1997 ENDED SEPT. 28, 1997 PERCENTAGE CHANGE PERCENTAGE CHANGE ----------------------- ----------------------- Morton's.............. 3.2% 6.4% Bertolini's........... 6.8% 0.7% Total................. 3.9% 5.4% The Company believes that revenues for the first quarter of 1996 were adversely affected by severe winter storms in January 1996. 10 Food and beverage costs decreased from $15.2 million for the three month period ended September 29, 1996 to $12.8 million for the three month period ended September 28, 1997 and decreased from $47.1 million for the nine month period ended September 29, 1996 to $43.0 million for the nine month period ended September 28, 1997. Food and beverage costs, excluding all Mick's and Peasant restaurants, increased by $1.2 million to $12.5 million for the three month period ended September 28, 1997 from $11.3 million recorded for the three month period ended September 29, 1996 and increased by $5.7 million to $40.5 million for the nine month period ended September 28, 1997, from $34.8 million for the comparable 1996 period. These costs as a percentage of related revenues decreased 1.0% and 0.6% for the three and nine month periods, respectively. As a result of the sale and closings of the Mick's and Peasant restaurants as discussed in Note 3, there was a reduction in food and beverage costs of approximately $3.6 million and $9.9 million in the three and nine month periods ended September 28, 1997, respectively. Restaurant operating expenses which include labor, occupancy and other operating expenses decreased from $22.8 million for the three month period ended September 29, 1996 to $17.7 million for the three month period ended September 28, 1997, a decrease of $5.1 million. For the nine months ended September 28, 1997, these costs decreased from $69.1 million during the 1996 period, to $55.9 million for the comparable 1997 period. Restaurant operating expenses, excluding all Mick's and Peasant restaurants, increased from $14.7 million for the three month period ended September 29, 1996 to $17.2 million for the comparable 1997 period and increased from $43.0 million for the nine month period ended September 29, 1996 to $51.0 million for the comparable 1997 period. Those costs, excluding Mick's and Peasant, as a percentage of revenues increased 1.0% from 45.8% for the three month period ended September 29, 1996 to 46.8% for the three month period ended September 28, 1997 and increased 0.2% from 43.4% for the nine month period ended September 29, 1996 to 43.6% for the comparable 1997 period. Offsetting the increase in total restaurant operating expenses was a reduction of approximately $7.6 million and $21.2 million during the three and nine month periods ended September 28, 1997 versus the comparable 1996 periods, respectively, due to the sale and closings of Mick's and Peasant restaurants as discussed in Note 3. Depreciation, amortization and other non-cash charges decreased from $1.7 million for the three month period ended September 29, 1996 to $1.4 million for the three month period ended September 28, 1997 and increased from 3.6% of revenues to 3.8%, respectively. For the nine months ended September 28, 1997, such costs were $5.3 million versus $4.6 million for the comparable 1996 period. The 1997 period increase is due to increased start-up amortization. Start-up costs associated with the opening of new restaurants are amortized over the 12 months following opening. The timing of restaurant openings affects the amount of such costs amortized. General and administrative expenses for the three month period ended September 28, 1997 were $3.0 million, a decrease of $0.4 million, from $3.4 million for the three month period ended September 29, 1996. For the nine months ended September 28, 1997, such costs were $9.9 million versus $10.6 million for the comparable 1996 period. General and administrative expenses, excluding all Mick's and Peasant restaurants, increased $0.4 million from $2.5 million for the three month period ended September 29, 1996 to $2.9 million for the comparable 1997 period and increased $1.7 million from $7.7 million for the nine month period ended September 29, 1996, to $9.4 million for the comparable 1997 period. Such costs, excluding Mick's and Peasant, as a percentage of revenues were 8.0% for the three month period ended September 28, 1997, an increase of 0.3% from the three month period ended September 29, 1996 and 8.0% for the nine months ended September 28, 1997, an increase of 0.3% from the nine months ended September 29, 1996. The increase in such expense is driven by incremental costs associated with increased restaurant development. General and administrative expenses relating to the Mick's and Peasant restaurant groups decreased $0.8 million and $2.4 million during the three and nine month periods ended September 28, 1997, respectively, versus the comparable 1996 period as a result of the sale and closings of Mick's and Peasant restaurants as discussed in Note 3. 11 Marketing and promotional expenses were $0.8 million for the three month period ended September 28, 1997 versus $1.0 million for the comparable 1996 period and $3.0 million for the nine month period ended September 28, 1997 versus $3.2 million for the comparable nine month period ended September 29, 1996. Marketing and promotional expenses, excluding Mick's and Peasant, were $0.8 million, or 2.3% of revenues for the three months ended September 28, 1997, as compared to $0.8 million, or 2.6% of revenues, for the comparable 1996 period and were $2.8 million, or 2.4% of revenues for the nine months ended September 28, 1997, as compared to $2.4 million, or 2.5% of revenues, for the comparable 1996 period. The increase is driven by incremental costs associated with increased restaurant development. Mick's and Peasant marketing and promotional expenses decreased $0.2 million and $0.6 million during the three and nine month periods ended September 28, 1997, respectively, versus the comparable 1996 periods. Interest expense, net of interest income, remained constant at $0.6 million for the three month periods ended September 28, 1997 and September 29, 1996. For the nine month period ended September 28, 1997, interest expense was $1.8 million, versus $1.7 million for the comparable 1996 period. Income tax expense of $1.6 million for the nine month period ended September 28, 1997 represents Federal income taxes, which were partially offset by the establishment of additional deferred tax assets relating to FICA and other tax credits that were generated during fiscal 1997, as well as state income taxes. LIQUIDITY AND CAPITAL RESOURCES In the past, the Company has had, and may have in the future, negative working capital balances. The Company does not have significant receivables or inventories and receives trade credit based upon negotiated terms in purchasing food and supplies. Funds available from cash sales not needed immediately to pay for food and supplies or to finance receivables or inventories were used for noncurrent capital expenditures and/or payments of long-term debt balances under revolving credit agreements. The Company and BankBoston, N.A. (formerly The First National Bank of Boston) entered into the Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 19, 1995, as amended from time to time (collectively the "Credit Agreement"), pursuant to which the Company's credit facility is $32,500,000, consisting of a $15,000,000 term loan (the "Term Loan") and a $17,500,000 revolving credit facility (the "Revolving Credit Facility"). The final maturity date is December 31, 2002. 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 September 28, 1997, the Company's applicable margin, calculated pursuant to the Credit Agreement, was 0.00% on base rate loans and 2.0% on Eurodollar Rate loans. The Company has no outstanding futures contracts or interest rate hedge agreements. During fiscal 1996, BankBoston syndicated portions of the Term Loan and Revolving Credit Facility of the Credit Agreement to two additional lenders, Imperial Bank and Heller Financial. BankBoston, as agent for the Lenders, receives an annual fee of $10,000 paid by the Company. As of September 28, 1997 and December 29, 1996, the Company had outstanding borrowings of $25,000,000 and $24,900,000, respectively, under the Credit Agreement. At September 28, 1997, $221,000 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 $7,279,000. The weighted average interest rate on all bank borrowings on September 28, 1997 was 7.79%. 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. 12 The availability under the Credit Agreement is scheduled to reduce by $1,000,000 on June 30, 1999 and thereafter principal installments on the Term Loan of $1,000,000 each will be due at the end of each calendar quarter through December 31, 2002. The Revolving Credit Facility will be payable in full on December 31, 2002. Borrowings under the Credit Agreement are secured by all tangible and intangible assets of the Company. Total amounts of principal payable by the Company under the Credit Agreement during the five years subsequent to September 28, 1997 amount to $0 in 1997, $0 in 1998, $3,000,000 in 1999, $4,000,000 in 2000, $4,000,000 in 2001 and $14,000,000 in 2002. As stated in Note 3 to the accompanying consolidated financial statements, the Company has completed the sale of its Atlanta-based Mick's and Peasant restaurants. Net cash proceeds from the sale were used to reduce the Company's Revolving Credit Facility. 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 investments in any person; (iii) mergers, dispositions of assets or consolidations; (iv) prepayment of certain other indebtedness; (v) making capital expenditures above specified amounts; and (vi) the ability to make certain fundamental changes or to change materially the present method of conducting the Company's business. The Credit Agreement also requires the Company to satisfy certain financial ratios and tests. As of September 28, 1997, the Company believes it was in compliance with such covenants. In March 1997, a subsidiary of the Company and CNL Financial I, Inc. ("CNL") entered into a $2,500,000 loan agreement (the "CNL Loan"), which matures on April 1, 2007 and has a 10.02% per annum interest rate. Principal and interest payments will be made over the term of the loan. Proceeds from the CNL loan were used to reduce the Company's Revolving Credit Facility. At September 28, 1997, the outstanding principal balance of the CNL Loan was approximately $2,435,000, of which approximately $159,000 is payable within the next fiscal year and therefore has been included in "Accrued expenses" in the accompanying consolidated balance sheet for the period ended September 28, 1997. During the first nine months of fiscal 1997, the Company's net investment in fixed assets and related investment costs, net of capitalized leases, approximated $11.0 million. The Company estimates that it will expend up to an aggregate of $13.8 million in 1997 to finance ordinary refurbishment of existing restaurants and pre-opening costs and capital expenditures, net of landlord development and rent allowances and net of equipment lease financing, for new restaurants. The Company has entered into various equipment lease financing agreements with several financial institutions of which approximately $9.9 million in the aggregate has been funded from February 1994 through October 1997 and $8.0 million in the aggregate is available for future fundings. The Company anticipates that funds generated through operations and funds available through equipment lease commitments as well as those available under the Credit Agreement will be sufficient to fund planned expansion. In addition, the Company is entering the international market. A lease has been signed to open a Morton's of Chicago restaurant in Singapore and other international opportunities are being investigated. FORWARD-LOOKING STATEMENTS Except for the historical information contained in this Form 10-Q, certain statements made herein are forward-looking statements that involve certain risks and uncertainties, including but not limited to, general economic conditions, competitive activities, the Company's expansion plans and restaurant profitability levels and other matters identified from time to time in the Company's public reports and SEC filings. Actual results may vary. 13 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS An employee (Plaintiff) of a subsidiary of the Company, initiated legal action against Morton's of Chicago, Quantum Corporation and unnamed "Doe" defendants on February 8, 1996 in California Superior Court in and for the County of San Francisco. Plaintiff's, Ms. Wendy Kirkland, complaint alleged wrongful constructive termination in breach of an implied employment agreement, breach of an implied covenant of good faith and fair dealing, wrongful constructive termination in violation of public policy prohibiting sex discrimination in employment, sex discrimination and sexual harassment in violation of the California Fair Employment and Housing Act ("FEHA"), intentional and negligent infliction of emotional distress, and failure to pay wages timely on termination as required by the California Labor Code. Plaintiff seeks general, special, and punitive damages in unspecified amounts, as well as attorneys' fees and costs. The Company answered the complaint in the California Superior Court on April 15, 1996, and subsequently removed the case to the United States District Court for the Northern District of California on June 24, 1996. On February 7, 1997, the court dismissed the complaint as to Quantum Corporation and any of its successors. On August 8, 1997, Plaintiff filed a motion for partial summary judgment, seeking an order finding Morton's liable for sexual harassment under California's FEHA as a matter of law. By order dated October 14, 1997, the Court granted Plaintiff's motion, finding that an employer is strictly liable under California law for the sexually harassing conduct of the employer's supervisory employees. At a pretrial conference on October 14, 1997, Plaintiff stipulated to the dismissal of her claims for breach of an employment agreement, breach of the covenant of good faith and fair dealing, and intentional and negligent infliction of emotional distress. Trial is scheduled to commence on November 6, 1997 as to the remaining issues in the case, which are: damages on Plaintiff's sexual harassment claim, and liability as well as damages on Plaintiff's claims for retaliation, constructive termination, and failure to pay wages timely on termination in violation of the California Labor Code. Because of the summary disposition with regard to the sexual harassment claim, Plaintiff would be entitled to recover attorney's fees and costs. Management does not expect the ultimate outcome of this action to have a material adverse effect on the Company's consolidated financial position, equity, liquidity and capital resources, although a settlement, judgment or material damages award against the Company could materially adversely affect the Company's results of operations in the year in which it occurred. The Company is also involved in various legal actions incidental to the normal conduct of its business. Management does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company's consolidated financial position, equity, results of operations, liquidity and capital resources. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS No matters were submitted to a vote of stockholders during the quarter for which this report was filed. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 10.15 Termination and Release Agreement, dated September 18, 1997 between the Registrant and William L. Hyde, Jr. 14 27.00 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report was filed. 15 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 November 4, 1997 ------------------ By: /s/ Allen J. Bernstein --------------------------------- Allen J. Bernstein Chairman of the Board, Chief Executive Officer and President Date November 4, 1997 ------------------ BY: /s/ Thomas J. Baldwin ------------------------------- Thomas J. Baldwin Executive Vice President and Chief Financial Officer 16 INDEX TO EXHIBITS The following is a list of all exhibits filed as part of this report. EXHIBIT NUMBER PAGE DOCUMENT - ------- ---- ------------------------------------------ 10.15 Termination and Release Agreement, dated September 18, 1997 between the Registrant and William L. Hyde, Jr. 27.00 Financial Data Schedule EX-10.15 2 EXH 10.15 TERMINATION AND RELEASE AGREEMENT TERMINATION AND RELEASE AGREEMENT Termination and Release Agreement (the "Agreement"), dated as of September 18 1997, by and between Morton's Restaurant Group, Inc., a Delaware corporation (the "Company") and William L. Hyde, Jr. ("Hyde"). WHEREAS, Hyde and the Company are parties to an Amended and Restated Employment Agreement, dated as of February 1, 1997 (the "Employment Agreement"); and WHEREAS, Hyde has resigned from the Company and the Company has accepted his resignation and now Hyde and the Company wish to settle all obligations under the Employment Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties agree as follows: 1. Termination Date. Effective as of the date hereof, the Employment Agreement is terminated. Hyde's resignation as Chief Operating Officer, President and Director of the Company is effective, and he relinquishes all titles, offices and authority he may have with the Company or any of its affiliates or subsidiaries. 2. Release by the Company. The Company forever releases and discharges Hyde, his heirs, executors, administrators and assigns ("Releasees") from all claims, charges, actions, causes of action, suits, debts, covenants, contracts, damages, judgments and demands of any nature whatsoever, whether known or unknown, in law or equity, which the Company ever had, now has, or hereafter can, shall or may have by reason of the early termination of the Employment Agreement and his accepting employment with Ruth's Chris (the "Release"); provided, that, (i) the Company is not releasing any rights under this Agreement and (ii) in the event Hyde's employment with Ruth's Chris terminates (whether voluntarily or involuntarily) prior to January 31, 2000, Hyde will be prohibited until such date from working for, engaging in or being interested in any business (whether or not for compensation or profit) which is then the owner, operator, franchiser or franchisee of multiple steakhouse (or similar type) restaurants. The Company forever releases and discharges Ruth's Chris Steak House, Inc. ("Ruth's Chris"), its affiliates, subsidiaries, divisions, franchisees, shareholders, current and former directors, officers, employees, agents, contractors, successors, heirs and assigns from any and all claims, charges, actions, causes of action, suits, debts, covenants, contracts, damages, judgments and demands of any nature whatsoever, whether known or unknown, in law or equity, which the Company ever had, now has, or hereafter can, as a result of or in connection with the employment of Hyde, have; provided, that, the Company is not releasing any rights with respect to conduct of Hyde as an employee of Ruth's Chris or any action by Ruth's Chris in violation of the terms of this Agreement. 3. Release by Hyde. (a) Hyde forever releases and discharges the Company and its affiliates, subsidiaries, divisions, shareholders, current and former directors, officers, employees, agents, contractors, successors, heirs and assigns, and any and all employee pension or welfare benefit plans of the Company (including current and former trustees and administrators of these plans) (collectively, "Company Releasees") from all claims, charges, actions, causes of action, suits, debts, covenants, contracts, damages, judgments and demands of any nature whatsoever, whether known or unknown in law or equity, which Hyde or his heirs, executors, administrators, successors and assigns ever had, now have or hereafter can, shall or may have by reason of any act, omission, conduct or event from the beginning of Hyde's employment with the Company to the date of this Agreement against the Company Releasees including, without limitation, any claims Hyde may have arising from or relating to Hyde's employment with the Company, under any and all federal, state or local constitutions, statutes, rules, regulations or common law and any claims for compensation or benefits. (b) Hyde also acknowledges that his participation in all employee benefit programs of the Company and any employee benefits pursuant to his Employment Agreement, including, without limitation, any insurance coverage and any automobile leases, terminate on the date hereof. 4. Options; Note. (a) Hyde hereby (i) surrenders and cancels the options to purchase 20,000 shares of the Company's common stock which are held by him pursuant to his incentive stock option agreement and which are currently vested and exercisable, and (ii) confirms that the remaining options to purchase 120,000 shares of the Company's common stock which are held by him and are not currently vested or exercisable lapse and terminate concurrently herewith. (b) Concurrently herewith, Hyde is executing and delivering to the Company a note in the form of Exhibit A attached hereto to evidence his obligation to pay to the Company the sum $100,000. 2 5. Hiring; Arbitration. (a) For a period of three years from the date hereof (the "Restriction Period"), Hyde will not, and will cause Ruth's Chris not to, directly or indirectly solicit the employment of, employ, hire, participate in the hiring of or refer for employment any person who currently is or shall within the Restriction Period become a salaried or management employee of the Company, or any person holding a position as chef with the Company, regardless of whether such employee's employment with the Company has terminated and whether such termination was voluntary or involuntary. (b) Any dispute, controversy or claim arising out of or relating to this Section 5, or the breach, termination or validity hereof, shall be finally and exclusively settled by arbitration before a single arbitrator who shall be an attorney. The arbitration shall be administered by the American Arbitration Association in New York County, New York, pursuant to the National Rules for the Resolution of Employment Disputes then in force. The arbitrator shall determine the rights and obligations of the parties according to the substantive laws of the State of New York without regard to choice of law principles. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. For purposes of such arbitration and/or the entering of an award or any order in aid of arbitration, the parties consent to personal jurisdiction and venue in New York County, New York. All costs associated with such arbitration shall be borne by the non-prevailing party, and if the Company is the prevailing party, liquidated damages shall be awarded to the Company in the amount of three times the full W-2 compensation of any such employee during the employee's last year of employment with the Company on an annualized basis. The parties agree that the actual damages suffered by the Company may be difficult to ascertain with precision and that the parties have agreed to this liquidated damage provision in view of such uncertainty and not as a penalty. 6. Elias Savion Agency. During the Restriction Period, Hyde will not, and will cause Ruth's Chris not to, use or employ the Elias Savion Agency. 7. Non-Disclosure. Hyde agrees that he will not, at any time, disclose to any person or otherwise utilize in any way for his own benefit or for the benefit of any other person (including, without limitation, Ruth's Chris) any Confidential Information of the Company. For the purpose of this Agreement, Confidential Information means information treated by the Company as confidential or proprietary with respect to its business or operations plans, strategies, know-how, prospects, objectives, structure, technology, distribution, sales, services, support and marketing plans, practices, and operations, prices, costs and details of services, the financial condition and results of its operations, its customers and customer lists, information received from third parties under confidential conditions, its management organization and related information (including, without limitation, data and other information concerning the compensation and benefits paid to 3 officers, directors, employees and the management of the Company), its personnel and compensation policies, operation policies and manuals, its financial records and related information, means of gaining access to the Company's' computer data systems and related information, members of or information concerning the Company's VIP Program, information contained in the Company's training manuals, recipe books or operating manuals, its Gold Plan, and other proprietary information concerning the Company and its respective affiliates, except for specific items which have become publicly available other than as a result of a breach of this Agreement. 8. Confidentiality of Agreement. Each party to this Agreement agrees that it will, and Hyde will cause any company (including without limitation, Ruth's Chris) by which he is employed to, treat the terms of this Agreement as confidential, and shall not directly or indirectly disclose them in any manner except: (a) as mutually agreed upon in writing by the parties to this Agreement; (b) in legal documents filed with the court (or arbitrator, as the case may be) in any action to enforce the terms of this Agreement; (c) pursuant to a valid order of a court (or arbitrator, as the case may be) or a lawfully issued and enforceable subpoena; (d) as otherwise required by law or regulation; or (e) to its attorney, financial advisors, accountant, and/or spouse, as applicable, provided that prior to any such disclosure, that individual must agree to treat as confidential all information disclosed. Hyde will not and will cause Ruth's Chris not to make any public statement or announcement which is disparaging with respect to the Company, its business or any of its directors, officers or employees. 9. Company Property; Transition. Within one business day of the date hereof, Hyde shall return to the Company all originals and copies of all documents and materials received or generated by him in the course of his employment with the Company ("Company Property"), and shall not make any notes reflecting information contained in such materials. Concurrently herewith, Hyde shall also deliver, to the extent they are in his possession: (a) all company electronic equipment, computer hardware, and computer software; (b) all Company credit cards or restaurant accounts; (c) all copies of office keys and security access cards; and (d) the car leased by the Company for his benefit. Hyde will reasonably cooperate with the Company in the making of any required filings with the Securities and Exchange Commission or other regulatory body by reason of his departure, and will otherwise reasonably cooperate in connection with his departure. 10. Indemnification. Hyde shall indemnify, defend and hold harmless the Company and the Company Releasees from and against any and all liabilities, losses, claims, damages, obligations, deficiencies, judgments, amounts paid in settlement of any suits, actions, claims, proceedings or investigations, costs and expenses (including, but not limited to, interest, penalties, costs of investigation and attorney's and accountant's fees and disbursements) (collectively, "Losses") suffered, sustained, incurred or required to be paid by the Company or the Company Releasees, based upon, arising out of or otherwise with respect to actions of Hyde during his employment 4 with the Company that constituted (a) criminal conduct; (b) fraud; (c) self-dealing; (d) breach of fiduciary duty; or (e) wrongful acts committed outside the scope of his employment. Hyde will cooperate with the Company in the defense of third party claims. The Company shall indemnify, defend and hold harmless Hyde and Hyde's releasees from and against any and all liabilities, losses, claims, damages, obligations, deficiencies, judgments, amounts paid in settlement of any suits, actions, claims, proceedings or investigations, costs and expenses (including, but not limited to, interest, penalties, costs of investigation and attorney's and accountant's fees and disbursements) (collectively, "Losses") suffered, sustained, incurred or required to be paid by Hyde or Hyde's releasees, based upon, arising out of or otherwise with respect to actions of Hyde during his employment with the Company other than those set forth in the above paragraph. The foregoing indemnities shall not be exclusive, but shall be in addition to any other rights or remedies to which the Company and the Company Releasees, Hyde and Hyde's releasees, may be entitled at law or in equity. 11. Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York governing contracts made and to be performed entirely in New York. Each party to this Agreement consents to the exclusive jurisdiction of the state courts of and federal courts located in the State of New York for the enforcement of the obligations evidenced by this Agreement and any dispute arising out of this Agreement (except as otherwise provided in Section 5), and expressly waives any defense based upon venue or forum non conveniens. Each party hereto shall have available to it remedies both at law and in equity (including injunctive relief). 12. Attorney's Fees and Expenses. In the event that any action, suit or other proceeding at law or in equity is brought to enforce the provisions of this Agreement the prevailing party shall be entitled to recover its reasonable attorneys fees and expenses from the non-prevailing party. 13. Non-waiver. In the event any party hereto violates or attempts to violate any of the provisions of this Agreement, the failure of the other party to enforce any of its rights or remedies with respect thereto shall not constitute a waiver by that party of any right or remedy with respect to the same violation or any future violations of any of the provisions of this Agreement. 14. Notices. 5 All notices and other communications under this Agreement shall be in writing and shall be given to the other party by hand delivery, by registered or certified mail, return receipt requested, postage prepaid, or by telecopy (with receipt confirmed) addressed as follows: If to Hyde: William L. Hyde, Jr. 5 Great Meadow Road Laddington, New York 11560 Telecopy No.: With copies to: Crawford & Lewis 1600 Bank One Center- North Tower 450 Laurel Street Baton Rouge, Louisiana 70801 Attention: James R. Lewis, Esq. Telecopy No.: 504-383-5508 If to the Company: Morton's Restaurant Group, Inc. 3333 New Hyde Park Road, Suite 210 New Hyde Park, New York 11042 Attention: Allen J. Bernstein Telecopy No.: 516-627-1920 With copies to: Schulte Roth & Zabel LLP 900 Third Avenue New York, New York 10022 Attention: Marc Weingarten Telecopy No.: 212-593-5955 15. Enforceability. If any provision of this Agreement is determined by a court of competent jurisdiction not to be enforceable in the manner set forth in this Agreement, each party agrees that it is the intention of the parties that such provision should be enforceable to the maximum extent permitted under applicable law and shall be reformed to make it enforceable in accordance with the intent of the parties. 16 Entire Agreement. 6 This is the entire agreement between the parties hereto with respect to the matters covered herein. This Agreement supersedes all existing agreements, whether written or oral between the parties hereto, concerning Hyde's employment with the Company including without limitation the Employment Agreement. 17. Binding Effect. This Agreement shall be binding on the parties hereto and their respective successors and assigns. 18. Adequate Consideration. The parties each represent and agree that this Agreement has been entered into for good and valuable and adequate consideration, receipt of which is hereby acknowledged. 19. No Oral Amendment. No provision of this Agreement may be amended, modified or waived except as agreed to in writing by the parties hereto. 20. No Assignment. Neither this Agreement nor any party's rights hereunder may be hypothecated or assigned by such party, except by the Company to its successors in interest, without the prior consent of the other party. /s/ William L. Hyde, Jr. ------------------------------- William L. Hyde, Jr. Morton's Restaurant Group, Inc. By: /s/ Allen J. Bernstein ------------------------------ Name: Allen J. Bernstein Title: Chairman of the Board 7 8% Secured Note New York, New York September 18, 1997 $100,000 FOR VALUE RECEIVED, William L. Hyde, Jr. ("Hyde") hereby promises to pay to the order of Morton's Restaurant Group, Inc. or assigns ("Payee") the principal sum of ONE HUNDRED THOUSAND DOLLARS ($100,000) in eleven quarterly installments of $8,333 each, commencing on December 18, 1997, and a final installment of $8,337 on September 18, 2000, with interest on the unpaid balance of such principal amount from the date hereof at the rate of 8% per annum until the principal hereof shall become due and payable (whether at maturity, upon prepayment, acceleration or otherwise, said interest to be payable together with any payment of principal on the principal amount so paid), and with interest on any overdue principal at the rate of 15% per annum until paid. Payments of principal hereof and interest hereon shall be made in lawful money of the United States of America by wire transfer to the Company at such location as the Company may specify in advance in writing to Hyde, and if no such location has been so specified, by check to the Company at its office at 3333 New Hyde Park Road, Suite 210, New Hyde Park, New York 11042, attention Allen Bernstein. This Note is subject to voluntary prepayment in whole or in part at any time and is subject to mandatory prepayment to the extent of 25% of the gross proceeds of any sale by Hyde or his transferees of any stock, in the Payee. Hyde holds options to purchase 10,000 shares under a non-qualified stock option agreement and upon exercise of such options, the Company shall hold the shares purchased as collateral security for payment on this Note. Hyde hereby waives presentment for payment, demand, protest and notice of dishonor of this Note. In the event Hyde fails to make any principal or other payments as required by the terms of this Note (including any prepayments or payments of proceeds on the sale of stock required hereunder), or Hyde files or has filed against him a petition under any provision of the Bankruptcy Code, as amended or recodified from time to time, all amounts of principal, interest and other sums and charges hereunder may, at the option of Payee, be declared (by written notice to Hyde) to be, whereupon the same shall henceforth become, immediately due and payable. This Note shall be governed by, and construed and interpreted in accordance with the internal laws of the State of New York applicable to contracts made and to be performed therein without consideration as to choice of law. /s/ William L. Hyde, Jr. ------------------------------- William L. Hyde, Jr. COPY EX-27 3 EXHIBIT 27 FDS
5 This schedule contains summary financial information extracted from the September 28, 1997 Form 10-Q and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-28-1997 DEC-30-1996 SEP-28-1997 2,252 0 2,766 0 4,624 16,753 36,737 5,871 75,978 15,710 27,276 0 0 65 26,240 75,978 125,056 125,056 42,958 104,142 12,813 0 1,772 6,329 1,582 4,747 0 0 0 4,747 0.69 0.69 Current assets include $199 of Assets Held for Sale. Currently liabilities include $1,684 of Liabilities realted to Assets held for Sale.
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