-----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, PtYutSgi8TTrJqsPNR6c6sgcRXUIcrWhcRiTfuRvkdPbDAT1ZkbJkUTE9ANzCN2+ mmID7zjX4q10x468sEcX7A== 0001047469-98-030599.txt : 19980813 0001047469-98-030599.hdr.sgml : 19980813 ACCESSION NUMBER: 0001047469-98-030599 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980812 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: 98683058 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 June 28, 1998 ------------------------------------------------ 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 August 5, 1998, the registrant had 6,652,090 shares of its Common Stock, $.01 par value, issued and outstanding. MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES INDEX
Part I - Financial Information Page - ------------------------------ ---- Item 1. Financial Statements Consolidated Balance Sheets as of June 28, 1998 and December 28, 1997 3-4 Consolidated Statements of Income for the three and six month periods ended June 28, 1998 and June 29, 1997 5 Consolidated Statements of Cash Flows for the six month periods ended June 28, 1998 and June 29, 1997 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-15 Part II - Other Information Item 1. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Stockholders 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
2 Item 1. Financial Statements MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands)
June 28, December 28, 1998 1997 ---- ---- (unaudited) Assets Current assets: Cash and cash equivalents $ 1,419 $ 3,437 Accounts receivable 1,375 1,669 Inventories 5,544 5,420 Landlord construction receivables, prepaid expenses and other current assets 2,740 3,226 Deferred income taxes 5,232 4,890 ------- ----- Total current assets 16,310 18,642 Property and equipment, at cost: Furniture, fixtures and equipment 20,694 19,169 Leasehold improvements 23,068 21,876 Land 1,540 - Construction in progress 2,724 46 ------- --------- 48,026 41,091 Less accumulated depreciation and amortization 7,837 6,449 ------- ------- Net property and equipment 40,189 34,642 ------ ------ Intangible assets, net of accumulated amortization of $3,659 at June 28, 1998 and $3,458 at December 28, 1997 12,336 12,537 Other assets and deferred expenses, net of accumulated amortization of $3,520 at June 28, 1998 and $3,901 at December 28, 1997 10,667 11,902 Deferred income taxes 2,482 4,220 ------ ------- $81,984 $ 81,943 ------ ------- ------ -------
(Continued) 3 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued (amounts in thousands, except share data)
June 28, December 28, 1998 1997 ----- ---- (unaudited) Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 5,160 $ 6,159 Accrued expenses 9,034 13,210 Current portion of bank debt and capital lease obligations 1,640 1,419 Accrued income taxes 511 656 --------- -------- Total current liabilities 16,345 21,444 Bank debt 25,320 24,931 Capital lease obligations 3,050 3,739 Other liabilities 3,472 3,274 -------- ------- Total liabilities 48,187 53,388 ------- ------- 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 6,651,840 shares at June 28, 1998 and 6,604,565 shares at December 28, 1997 67 66 Nonvoting common stock, $.01 par value per share. Authorized 3,000,000 shares, no shares issued or outstanding - - Additional paid-in capital 62,697 62,214 Cumulative foreign currency translation adjustment (73) - Accumulated deficit (28,894) (33,725) -------- -------- Total stockholders' equity 33,797 28,555 --------- -------- $ 81,984 $ 81,943 --------- -------- --------- --------
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 Six Months Ended June 28, June 29, June 28, June 29, 1998 1997 1998 1997 ---- ---- ---- ---- (unaudited) (unaudited) Revenues $ 45,604 $ 41,061 $ 93,315 $ 87,595 Food and beverage costs 15,530 14,226 31,927 30,171 Restaurant operating expenses 19,840 17,896 39,882 38,180 Depreciation, amortization and other non-cash charges 2,128 1,826 4,614 3,913 General and administrative expenses 3,407 3,202 6,816 6,892 Marketing and promotional expenses 1,226 975 2,453 2,082 Interest expense, net 602 589 1,182 1,209 ------- -------- ------- -------- Income before income taxes 2,871 2,347 6,441 5,148 Income tax expense 718 587 1,610 1,287 ------- -------- ------- -------- Net income $ 2,153 $ 1,760 $ 4,831 $ 3,861 ------- -------- ------- -------- ------- -------- ------- -------- Net income per share: Basic $ 0.32 $ 0.27 $ 0.73 $ 0.60 ------- -------- ------- -------- ------- -------- ------- -------- Diluted $ 0.31 $ 0.26 $ 0.70 $ 0.56 ------- -------- ------- -------- ------- -------- ------- -------- Weighted average shares outstanding: Basic 6,644 6,476 6,625 6,464 ------- -------- ------- -------- ------- -------- ------- -------- Diluted 6,956 6,844 6,925 6,838 ------- -------- ------- -------- ------- -------- ------- --------
See accompanying notes to consolidated financial statements. 5 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (amounts in thousands)
Six Months Ended June 28, June 29, 1998 1997 ------ ----- (unaudited) Cash flows from operating activities: Net income $ 4,831 $ 3,861 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other non-cash charges 4,614 3,913 Deferred income taxes 1,396 1,024 Change in assets and liabilities: Accounts receivable 296 2 Inventories (123) (388) Prepaid expenses and other assets 42 (2,255) Accounts payable, accrued expenses and other liabilities (6,222) (2,008) Accrued income taxes (145) (274) ------- ------- Net cash provided by operating activities 4,689 3,875 ------- -------- Cash flows from investing activities: Purchases of property and equipment, net (4,939) (3,438) Payments for start-up costs, licenses and other deferred expenses (1,050) (1,966) Proceeds from sale of Mick's and Peasant restaurants - 4,308 ------- ------- Net cash used by investing activities (5,989) (1,096) ------- -------- Cash flows from financing activities: Principal reduction on bank debt (2,635) (7,624) Proceeds from bank debt 1,500 4,850 Net proceeds from issuance of stock 484 253 -------- -------- Net cash used by financing activities (651) (2,521) -------- -------- Effect of exchange rate changes on cash (67) - --------- ------ Net increase (decrease) in cash and cash equivalents (2,018) 258 Cash and cash equivalents at beginning of period 3,437 2,276 ------- ------- Cash and cash equivalents at end of period $ 1,419 $ 2,534 ------- ------- ------- -------
See accompanying notes to consolidated financial statements. 6 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 28, 1998 and June 29, 1997 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 28, 1997, filed by the Company on Form 10-K with the Securities and Exchange Commission on March 26, 1998. 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 $1,155,000 and $965,000, and income taxes of approximately $351,000 and $835,000, for the six months ended June 28, 1998 and June 29, 1997, respectively. During the first six months of fiscal 1998 and 1997, the Company entered into capital lease arrangements of approximately $571,000 and $777,000, respectively, for restaurant equipment. Also during the second quarter of fiscal 1998, the Company entered into mortgage financing of $1,500,000 for the purchase of land. 3) As described below, on February 6, 1997, the Company completed the sale of its Atlanta-based Mick's Restaurants, Inc. ("Mick's") and The Peasant Restaurants, Inc. ("Peasant"). 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 had approved a plan for the sale of Mick's and The Peasant. 7 The following represents the combined results of operations for Mick's and Peasant for the periods ended June 28, 1998 and June 29, 1997. Interest expense was not allocated.
Six Months Ended June 28, 1998 June 29, 1997 * ------------- ------------- (amounts in thousands, unaudited) Revenues $ - $ 7,181 Food and beverage costs - 2,151 Restaurant operating expense - 4,320 Depreciation, amortization and other non-cash charges - 6 General and administrative expenses - 477 Marketing and promotional expenses - 123 ------------ ---------- Income before income taxes $ - $ 104 ------------ ---------- ------------ ----------
- ----------------- *Includes the Atlanta-based Mick's and Peasant restaurants through February 6, 1997, the date of sale, as discussed below, and the five remaining non-Atlanta Mick's restaurants which the Company sold, closed or otherwise disposed of during fiscal 1997. Management had been actively seeking potential buyers for the sale of all Mick's and Peasant restaurants, however, most of the interest received related to the majority of the restaurants located mainly in the Atlanta area. No meaningful offers were received for the remaining restaurants (the "Remaining Restaurants"). Cash flow analyses prepared by management for the Remaining Restaurants indicated that it would be less costly to close such restaurants in an orderly fashion, rather than continue to operate them through the end of their respective lease terms. Accordingly, assets of $8,300,000 related to the Remaining Restaurants were written off and expenses of $7,200,000, representing management's estimate of the expected costs to terminate related leases, were accrued at December 31, 1995. During the first six months of fiscal 1998 and 1997, restaurant occupancy expense of approximately $390,000 and $647,000 for the Remaining Restaurants has been charged against the accrual for lease exit costs, respectively. During fiscal 1997, the remaining seven Mick's restaurants were sold, closed or otherwise disposed of. At June 28, 1998 and December 28, 1997, included in "Accrued expenses" in the accompanying consolidated balance sheet is approximately $503,000 and $788,000 representing the remaining lease disposition liabilities related to the closing of these restaurants. On February 6, 1997, the Company completed the sale of its Atlanta-based Mick's and Peasant restaurants. In connection with the sale, the Remaining Restaurants were transferred to another subsidiary of the Company. Pursuant to these agreements, MRI Acquisition Corporation acquired an 80.1% interest in Mick's and PRI Acquisition Corporation acquired an 80.1% interest in Peasant for an aggregate of $6,800,000, consisting of $4,300,000 in cash and $2,500,000 in the form of two unsecured promissory notes. The Company retained a 19.9% interest in Mick's and Peasant which, on April 6, 1998 was exchanged for a 19.9% interest in Atlanta Dining Group, Inc., parent of Mick's and Peasant. The unsecured promissory notes and the 19.9% interest in Mick's and Peasant were recorded at their estimated fair values on the date of the sale of approximately $2,200,000 and are included in "Other assets and deferred expenses" in the accompanying consolidated balance sheets at June 28, 1998 and December 28, 1997. 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 disposed of in fiscal 1997. 8 4) In May 1998, the Company opened its first international location in Singapore. Foreign revenues and expenses are translated at average exchange rates and foreign assets and liabilities are translated at period-end exchange rates. Net foreign exchange gains and losses on translation are reported in stockholders' equity. 5) During fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". For the three and six months ended June 28, 1998, the change in the cumulative foreign currency translation adjustment was $73,000, which is a component of comprehensive income. 6) The Company is involved in various legal actions. See "Part II - Other Information, Item 1. Legal Proceedings" on page 16 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 The following table represents the unaudited combined results of operations for Morton's Restaurant Group, Morton's of Chicago Steakhouses (Morton's) and Bertolini's Authentic Trattorias (Bertolini's), excluding Mick's Restaurants, Inc. (Mick's) and The Peasant Restaurants, Inc. (Peasant). As discussed in Note 3 to the accompanying consolidated financial statements, the Company completed the sale of its Atlanta-based Mick's and Peasant restaurants on February 6, 1997 and closed, sold, or otherwise disposed of all other remaining Mick's and Peasant restaurants during fiscal 1997. Morton's Restaurant Group, Inc., Morton's and Bertolini's (excluding Mick's and Peasant):
Three Months Ended Six Months Ended June 28, 1998 June 29, 1997 June 28, 1998 June 29, 1997 ------------- -------------- ------------- ------------- (amounts in thousands) Revenues $45,604 $39,604 $93,315 $80,414 Food and beverage costs 15,530 13,778 31,927 28,020 Restaurant operating expenses 19,840 17,025 39,882 33,860 Depreciation, amortization and other non-cash charges 2,128 1,826 4,614 3,907 General and administrative expenses 3,407 3,157 6,816 6,415 Marketing and promotional expenses 1,226 953 2,453 1,959 Interest expense, net 602 589 1,182 1,209 ----------- ------------ ----------- ------------- Income before income taxes $ 2,871 $ 2,276 $ 6,441 $ 5,044 ----------- ------------ ----------- ------------- ----------- ------------ ----------- -------------
The following represents the unaudited combined results of operations for Mick's and Peasant. Interest expense was not allocated to Mick's and Peasant. Mick's and Peasant Restaurants:
Three Months Ended Six Months Ended June 28, 1998 June 29, 1997 June 28, 1998 June 29, 1997 ------------- ------------- ------------- ------------- (amounts in thousands) Revenues $ - $ 1,457 $ - $ 7,181 Food and beverage costs - 448 - 2,151 Restaurant operating expenses - 871 - 4,320 Depreciation, amortization and other non-cash charges - - - 6 General and administrative expenses - 45 - 477 Marketing and promotional expenses - 22 - 123 ------------- --------- ------------- ---------- Income before income taxes $ - $ 71 $ - $ 104 ------------- --------- ------------- ---------- ------------- --------- ------------- ----------
Revenues increased $4.5 million, or 11.1%, to $45.6 million for the three month period ended June 28, 1998, from $41.1 million for the comparable 1997 period. Revenues from Morton's and Bertolini's 10 increased $6.0 million, or 15.1%, to $45.6 million for the three month period ended June 28, 1998, from $39.6 million during the comparable 1997 period. Of the increase in Morton's and Bertolini's revenues, $4.9 million was attributable to incremental restaurant revenues from nine new restaurants opened after December 30, 1996 and $1.1 million, or 3.1%, 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 0.6%. Revenues for the Mick's and Peasant restaurants were approximately $1.5 million in the second quarter of fiscal 1997. Revenues increased $5.7 million, or 6.5%, to $93.3 million for the six month period ended June 28, 1998, from $87.6 million for the comparable 1997 period. Revenues from Morton's and Bertolini's increased $12.9 million, or 16.0%, to $93.3 million for the six month period ended June 28, 1998, from $80.4 million for the comparable 1997 period. Of the increase in Morton's and Bertolini's revenues, $10.4 million was attributable to incremental restaurant revenues from nine new restaurants opened after December 30, 1996 and $3.0 million, or 3.9%, 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 1.5%. Included in 1997 six month revenues is approximately $0.5 million of investment income. As stated in Note 3, the Company completed the sale of its Atlanta-based Mick's and Peasant restaurants on February 6, 1997 and all remaining Mick's and Peasants were disposed of during fiscal 1996 and 1997. Revenues for the Mick's and Peasant restaurants were approximately $7.2 million for the six month period ended June 29, 1997. Percentage changes in comparable restaurant revenues for the three and six month periods ended June 28, 1998 versus June 29, 1997 for restaurants open all of both periods are as follows:
Three Months Six Months Ended June 28, 1998 Ended June 28, 1998 Percentage Change Percentage Change -------------------- ------------------- Morton's 3.9% 4.4% Bertolini's -1.2% 1.7% Total 3.1% 3.9%
Food and beverage costs increased from $14.2 million for the three month period ended June 29, 1997 to $15.5 million for the three month period ended June 28, 1998 and increased from $30.2 million for the six month period ended June 29, 1997 to $31.9 million for the six month period ended June 28, 1998. Food and beverage costs, excluding all Mick's and Peasant restaurants, increased by $1.7 million to $15.5 million for the three month period ended June 28, 1998 from $13.8 million recorded for the three month period ended June 29, 1997 and increased by $3.9 million to $31.9 million for the six month period ended June 28, 1998, from $28.0 million for the comparable 1997 period. These costs as a percentage of related revenues decreased 0.7% and 0.6% for the three and six month periods, respectively. As a result of the disposition of Mick's and Peasant as discussed in Note 3, there was a reduction in food and beverage costs of approximately $0.4 million and $2.2 million in the three and six month periods ended June 28, 1998 from the corresponding 1997 periods, respectively. Restaurant operating expenses which include labor, occupancy and other operating expenses increased from $17.9 million for the three month period ended June 29, 1997 to $19.8 million for the three month period ended June 28, 1998, an increase of $1.9 million. For the six months ended June 28, 1998, these costs increased from $38.2 million during the 1997 period, to $39.9 million for the comparable 1998 period. Restaurant operating expenses, excluding all Mick's and Peasant restaurants, increased from $17.0 million for the three month period ended June 29, 1997 to $19.8 million for the comparable 1998 period and increased from $33.9 million for the six month period ended June 29, 1997 to $39.9 million for the 11 comparable 1998 period. Those costs, excluding Mick's and Peasant, as a percentage of revenues increased 0.5% from 43.0% for the three month period ended June 29, 1997 to 43.5% for the three month period ended June 28, 1998 and increased 0.6% from 42.1% for the six month period ended June 29, 1997 to 42.7% for the comparable 1998 period. Offsetting the increase in total restaurant operating expenses was a reduction of approximately $0.9 million and $4.3 million during the three and six month periods ended June 28, 1998 versus the comparable 1997 periods, respectively, due to the disposition of Mick's and Peasant restaurants as discussed in Note 3. Depreciation, amortization and other non-cash charges increased from $1.8 million for the three month period ended June 29, 1997 to $2.1 million for the three month period ended June 28, 1998 and increased from 4.4% of revenues to 4.7%, respectively. For the six months ended June 28, 1998, such costs were $4.6 million versus $3.9 million for the comparable 1997 period. Pre-opening costs associated with the opening of new restaurants are amortized over the 12 months following opening. The timing of restaurant openings affects the amount of such costs amortized. General and administrative expenses for the three month period ended June 28, 1998 were $3.4 million, an increase of $0.2 million, from $3.2 million for the three month period ended June 29, 1997. For the six months ended June 28, 1998, such costs were $6.8 million versus $6.9 million for the comparable 1997 period. General and administrative expenses, excluding all Mick's and Peasant restaurants, increased $0.3 million from $3.1 million for the three month period ended June 29, 1997 to $3.4 million for the comparable 1998 period and increased $0.4 million from $6.4 million for the six month period ended June 29, 1997, to $6.8 million for the comparable 1998 period. Such costs, excluding Mick's and Peasant, as a percentage of revenues were 7.5% for the three month period ended June 28, 1998, a decrease of 0.5% from the three month period ended June 29, 1997 and 7.3% for the six months ended June 28, 1998, a decrease of 0.7% from the six months ended June 29, 1997. The increase in such expense is driven by incremental costs associated with restaurant development. General and administrative expenses relating to Mick's and Peasant restaurants decreased $0.1 million and $0.5 million during the three and six month periods ended June 28, 1998, respectively, versus the comparable 1997 period as a result of the disposition of Mick's and Peasant restaurants as discussed in Note 3. Marketing and promotional expenses were $1.2 million, an increase of $0.2 million, and $2.5 million, an increase of $0.5 million, for the three and six month periods ended June 28, 1998, respectively. Marketing and promotional expenses, excluding Mick's and Peasant restaurants, were $1.2 million, or 2.7% of revenues for the three months ended June 28, 1998, as compared to $1.0 million, or 2.4% of revenues, for the comparable 1997 period and were $2.5 million, or 2.6% of revenues for the six months ended June 28, 1998, as compared to $2.0 million, or 2.4% of revenues, for the comparable 1997 period. The increase is driven by incremental costs associated with increased restaurant development. Mick's and Peasant marketing and promotional expenses were $0.02 million and $0.1 million during the three and six month periods ended June 29, 1997. Interest expense, net of interest income, remained constant at $0.6 million for the three month periods ended June 28, 1998 and June 29, 1997. For the six month periods ended June 28, 1998 and June 29, 1997, interest expense remained constant at $1.2 million. Income tax expense of $1.6 million for the six month period ended June 28, 1998 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 1998, as well as state income taxes. 12 Liquidity and Capital Resources In the past, the Company has had, and may have in the future, negative working capital balances. The Company does not have significant receivables or inventories and receives trade credit based upon negotiated terms in purchasing food and supplies. Funds available from cash sales not needed immediately to pay for food and supplies or to finance receivables or inventories are used for noncurrent capital expenditures and/or payments of long-term debt balances under revolving credit agreements. The Company and BankBoston, N.A. (formerly The First National Bank of Boston) ("BBNA") entered into the Second Amended and Restated Revolving Credit and Term Loan Agreement dated 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"). 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 June 28, 1998, the Company's applicable margin, calculated pursuant to the Credit Agreement, was 0.00% on base rate loans and 1.75% on Eurodollar Rate loans. BBNA has syndicated portions of the Term Loan and Revolving Credit of the Credit Agreement. As of June 28, 1998 and December 28, 1997, the Company had outstanding borrowings of $21,650,000 and $22,700,000, respectively, under the Credit Agreement. At June 28, 1998, $230,000 was restricted for letters of credit issued by the lender on behalf of the Company. Unrestricted and undrawn funds available to the Company under the Credit Agreement were $8,720,000. The weighted average interest rate on all bank borrowings on June 28, 1998 was 7.45%. 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. 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 will be due at the end of each calendar quarter through December 31, 2002. The Revolving Credit 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 June 28, 1998 amount to $0 in 1998, $3,000,000 in 1999, $4,000,000 in 2000, $4,000,000 in 2001 and $10,650,000 in 2002. The borrowings under the Company's Credit Agreement have been classified as long-term bank debt 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 due in June 1999. As stated in Note 3 to the accompanying consolidated financial statements, the Company completed the sale of its Atlanta-based Mick's and Peasant restaurants in fiscal 1997. Net cash proceeds from the sale were used to reduce the Company's Revolving Credit. 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 June 28, 1998, the Company believes it was in compliance with such covenants. 13 On April 7, 1998 and May 29, 1998, the Company entered into interest rate swap agreements with BBNA on notional amounts of $10,000,000 each. The term of the agreements are for three years and may be extended for an additional two years at the option of BBNA. In March 1997, a subsidiary of the Company and CNL Financial I, Inc. ("CNL") entered into a $2,500,000 loan agreement (the "CNL Loan") which matures on April 1, 2007 and has a 10.02% per annum interest rate. Principal and interest payments will be made over the term of the loan. Proceeds from the CNL loan were used to reduce the Company's Revolving Credit. At June 28, 1998 the outstanding principal balance of the CNL Loan was approximately $2,305,000 of which approximately $174,000 is payable within the next fiscal year and therefore has been included in "Current portion of bank debt and capital lease obligations" in the accompanying consolidated balance sheet for the period ended June 28, 1998. In May 1998, a subsidiary of the Company and FFCA Acquisition Corporation ("FFCA") entered into a loan agreement to fund the purchase of land and the construction of a Morton's of Chicago restaurant for an amount not exceeding $3,000,000. In May 1998, $1,500,000 was funded for the land purchase and the remainder will be funded upon completion of construction. Interest is accrued on the initial funding at an adjustable rate equal to the London interbank offered rate, adjusted monthly, plus an applicable margin of 2.75%. At June 28, 1998, approximately $16,000 of interest had accrued. Upon the final disbursement, the interest rate will be fixed at a rate of interest equal to the ten year U.S. Treasury Rate then in effect plus 2.75%. Principal and interest payments will be made on a monthly basis over a twenty-year period. During the first six months of fiscal 1998, the Company's net investment in fixed assets and related investment costs, net of capitalized leases approximated $6.0 million. The Company estimates that it will expend up to an aggregate of $15.0 million in 1998 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 and mortgage financing, for new restaurants. The Company has entered into various equipment lease and mortgage financing agreements with several financial institutions of which approximately $18.6 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. The Company has entered the international market. A Morton's of Chicago restaurant opened in Singapore in May 1998 and a lease has been signed to open a Morton's of Chicago restaurant in Toronto. Other international opportunities are being investigated. New Accounting Pronouncements In April 1998, Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up Activities", was issued. The SOP requires that costs incurred during start-up activities (including pre-opening costs) be expensed as incurred. The Company will adopt the SOP in the first quarter of 1999. Since the Company currently amortizes pre-opening costs over the twelve months following the underlying restaurant's opening, the impact of adopting this pronouncement will be dependent upon the amount of unamortized start-up costs at the date of adoption. In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), was issued. Statement 133 standardizes the accounting for derivative instruments and requires that all derivative instruments be carried at fair value in the statement of financial position. The Company has not determined the impact that Statement 133 will have on its financial statements and believes that such determination will not be meaningful until closer to the date of initial adoption in January 2000. 14 Forward-Looking Statements Except for the historical information contained in this Form 10-Q, certain statements made herein are forward-looking statements that involve risks and uncertainties and are subject to important factors that could cause actual results to differ materially from these forward-looking statements, including without limitation, the effect of economic and market conditions, the impact of competitive activities, the Company's expansion plans, restaurant profitability levels and other risks detailed in the Company's public reports and SEC filings. 15 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 San Francisco. Plaintiff's, Ms. Wendy Kirkland, complaint alleged under California law, among other things, wrongful constructive termination, sex discrimination and sexual harassment. Plaintiff sought general, special, and punitive damages in unspecified amounts, as well as attorney's fees and costs. The case was subsequently removed to the US District Court for the Northern District of California. By order dated October 14, 1997, the Court granted Plaintiff's motion for partial summary judgment, finding that an employer is strictly liable under California law for the sexually harassing conduct of the employer's supervisory employees. On November 25, 1997, a jury in the US District Court for the Northern District of California awarded a judgment to the Plaintiff. In conjunction with the judgment, the Company recorded a 1997 fourth quarter nonrecurring, pre-tax charge of $2,300,000, representing compensatory damages of $250,000, punitive damages of $850,000, and an estimate of the Plaintiff's and the Company's legal fees and expenses. On July 29, 1998, the Court entered judgment in accordance with the jury's verdict. The Company will vigorously contest and appeal the judgment. The Company is also involved in other various legal actions incidental to the normal conduct of its business. Management does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company's consolidated financial position, equity, results of operations, liquidity and capital resources. Item 4. Submission of Matters to a Vote of 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. 4.04 (l) Letter Agreement, dated May 29, 1998, among BankBoston, N.A. and the Registrant regarding an Extendible Swap Transaction. 4.04 (m) Promissory Note, dated May 14, 1998, among FFCA Acquisition Corporation and Morton's of Chicago/North Miami Beach, Inc., a subsidiary of the Registrant. 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. 16 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 August 11, 1998 ---------------------- By: /s/ ALLEN J. BERNSTEIN --------------------------- Allen J. Bernstein Chairman of the Board, President and Chief Executive Officer Date August 11, 1998 By: /s/ THOMAS J. BALDWIN ----------------------- --------------------------- Thomas J. Baldwin Executive Vice President and Chief Financial Officer 17 INDEX TO EXHIBITS The following is a list of all exhibits filed as part of this report.
Exhibit Number Page Document ------- ---- -------- 4.04 (l) Letter Agreement, dated May 29, 1998, among BankBoston, N.A. and the Registrant regarding an Extendible Swap Transaction. 4.04 (m) Promissory Note, dated May 14, 1998, among FFCA Acquisition Corporation and Morton's of Chicago/North Miami Beach, Inc., a subsidiary of the Registrant. 27.00 Financial Data Schedule
18 EX-4.04(L) 2 EX-4.04(L) Exhibit 4.04(l) [Letterhead] DATE: May 27,1998 TO: Morton's Restaurant Group ATTN: Thomas J. Baldwin FAX: 516-627-1898 PHONE: 516-627-1515 FROM: BankBoston, N.A.("BBNA") ATTN: Mary M. Scherr, Derivative Confirmations FAX: 617-434-4284 PHONE: 617-434-4405 RE: EXTENDIBLE SWAP TRANSACTION [Our Ref: SW57176US/SWN57177US] The purpose of this letter agreement is to set forth the terms and conditions of the Extendible Swap Transaction entered into between BankBoston, N.A. ("BBNA") and Morton's Restaurant Group ("Morton's) on the Trade Date specified below (the "Transaction"). This letter constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA (the "Definitions"), each as published by the International Swaps and Derivatives Association, Inc. ("ISDA"), are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and provisions in this Confirmation, this Confirmation will govern. 1. This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. In addition, you and we agree to use our best efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the "ISDA Form") published by ISDA with such modifications as you and we shall in good faith agree (such agreement, the "Agreement"). Upon the execution by you and us of the Agreement, this Confirmation will supplement, form a part of, and be subject to the Agreement. All provisions contained or incorporated by reference in the Agreement, upon its execution, shall govern this Confirmation except as expressly modified below. Until we execute and deliver the Agreement, this Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the ISDA Form as if we had executed an agreement in such form (with a Schedule thereto which provides that Market Quotation and the Second Method apply for purposes of Section 6(e) of such agreement) on the Trade Date hereof. In the event of any inconsistency between this Confirmation and either the ISDA Form or the Agreement, this Confirmation will govern. 2. The terms of the particular Transaction to which this Confirmation relates are as follows: National Amount: USD 10,000,000. Trade Date: May 27, 1998 Effective Date: May 29, 1998 1
Bank Boston Termination Date: May 29, 2001, subject to adjustment according to the Modified Following Business Day convention and to Section 3 herein. FIXED AMOUNTS: Fixed Rate Payer: Morton's Fixed Rate: 5.70% Fixed Rate Payment Dates The 29th of February, May, August and November in each year beginning August 28, 1998, and ending on the Termination Date, subject to adjustment in accordance with the Modified Following Business Day convention. Fixed Rate Day Count Fraction: Actual/360 FLOATING AMOUNTS: Floating Payer: BBNA Floating Rate Payment Dates: The 29th of February, May, August and November in each year beginning August 28, 1998, and ending on the Termination Date, subject to adjustment in accordance with the Modified Following Business Day convention. Floating Rate for Initial Calculation Period: 5.6875% Floating Rate Day Count Fraction: Actual/360 Floating Rate Option: USD-LIBOR-BBA Designated Maturity: Three months Spread: None Reset Dates: The first day of each Calculation Period. Compounding: Inapplicable Business Days: New York and London Business Day Convention: Modified Following. Calculation Agent: BBNA
2 [LOGO] 3. EXTENDIBLE PROVISION As long as no Event of Default or Termination Event shall have occurred and then be continuing, the parties agree that the Floating Rate Payer may extend the Termination Date of this Transaction by two years and must notify the Fixed Rate Payer by telephonic notice on May 24, 2001, of its intention to do so, effective May 29, 2001, whereupon the obligations of the parties hereunder shall reflect a revised Termination Date of May 29, 2003, and all other terms of the Transaction shall remain in effect as detailed above. 4. RELATIONSHIP BETWEEN PARTIES Each party represents to the other party that: (a) Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into this Transaction and as to whether this Transaction is appropriate or proper for it based upon its own judgement and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Transaction; it being understood that information and explanations related to the terms and conditions of this Transaction shall not be considered investment advice or a recommendation to enter into this Transaction. It has not received from the other party any assurance or guarantee as to the expected results of this Transaction. (b) Evaluation and Understanding. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Transaction. It is also capable of assuming, and assumes, the financial and other risks of this Transaction. (c) Status of Parties. The other party is not acting as a fiduciary or an advisor for it in respect of this Transaction. (d) Risk Management. It has entered into this Transaction for the purpose of (i) managing its borrowings or investments, (ii) hedging its underlying assets or liabilities or (iii) in connection with its line of business. (e) It is an "eligible swap participant" within the meaning of Commodity Futures Trading Commission Regulations section 35.1(b)(2). 5. ACCOUNT DETAILS: Payments to BBNA: Through the Federal Reserve Bank, Boston, Routing No. ABA 011000390, for A/C BBNA, Boston, for credit to Arbitrage Settlement Account #295032, Attn: Swap Desk, 01-13-08 Payments to MORTON'S PLEASE ADVISE 3 [LOGO] 6. CONTACT INSTRUCTIONS: BBNA: Swap Desk (Resets/Payments): Tel: (617) 434-1321 FAX: (617) 434-0505 Confirmations: Tel: (617) 434-4405 FAX: (617) 434-4284 MORTON'S: PLEASE ADVISE Very truly yours, BANKBOSTON, N.A. By: /s/ William K. LePard By: /s/ James Mather ---------------------------- ---------------------------- Name: William K. LePard Name: James Mather Title: Managing Director Title: Managing Director Agreed and accepted as of the date first above written: MORTON'S RESTAURANT GROUP By: /s/ Thomas J. Baldwin ---------------------------- Name: Thomas J. Baldwin Title: EVP & CFO PLEASE SIGN AND FAX TO: 617-434-4284 ATTN: MARY SCHERR REQUEST CORRECTIONS: 617-434-4405. 4 EX-4.04(M) 3 EX-4.04(M) Exhibit 4.04(m) PROMISSORY NOTE $3,000,000.00 Dated as of May 14, 1998 Scottsdale, Arizona MORTON'S OF CHICAGO--NORTH MIAMI BEACH, INC., a Delaware corporation ("Debtor"), for value received, hereby promises to pay to FFCA ACQUISITION CORPORATION, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, or order, on or before May 1, 2018, as herein provided, the principal sum of up to THREE MILLION AND 00/100 DOLLARS ($3,000,000.00) or so much thereof as may be advanced by FFCA to Debtor from time to time (the "Principal Amount"), and interest on the unpaid Principal Amount from time to time outstanding as hereinafter set forth. Initially capitalized terms which are not otherwise defined in this Note shall have the meanings set forth in the Loan Agreement dated as of the date of this Note among Debtor and FFCA, as such agreement may be amended from time to time (the "Loan Agreement"). In addition, the following terms shall have the following meanings for all purposes of this Note: "Adjustable Rate" means an annual interest rate equal to the sum of the Adjustable Rate Basis plus the Applicable Margin, which Adjustable Rate shall at no time during the term of this Note be greater than [insert rate which is 6% above Adjustable Rate at time of funding of the Initial Loan Amount]% per annum or less than [insert rate which is 2% below Adjustable Rate at time of funding of the Initial Loan Amount]% per annum. "Adjustable Rate Basis" means, for any Interest Period, the annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of one percent) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in dollars at approximately 11:00 a.m. (London time) on the Adjustable Rate Reset Date for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Adjustable Rate Basis" shall mean, for any Interest Period, the annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of one percent) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in dollars at approximately 11:00 a.m. (London time) on the Adjustable Rate Reset Date for a term comparable to such Interest Period; provided, however, if more than one rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "Adjustable Rate Reset Date" means the fifteenth day of each calendar month, or the next succeeding Business Day if such day is not a Business Day, prior to the next Interest Period. "Applicable Margin" means an annual percentage equal to 2.75%. "Base Interest Rate" means a fixed rate of interest equal to the Treasury Rate plus 2.75%. "Business Day" means any day on which FFCA is open for business in the State of Arizona, other than a Saturday, Sunday or a legal holiday. "Interest Period" means (i) initially, the period beginning on the date of this Note and ending on the last day of the calendar month in which such date occurs, and (ii) thereafter, the period beginning on the first day of the calendar month and ending on the last day of such calendar month. "Loan Agreement" means that certain Loan Agreement dated as of the date of this Note between Debtor and FFCA, as such agreement may be amended from time to time. "Maturity Date" means June 1, 2018; provided, however, the Maturity Date shall be amended, as applicable, in the Amended and Restated Note (as defined below) to be the first day of the month immediately following the month in which the twentieth anniversary of the Disbursement occurs. "Treasury Rate" means the 10-year U.S. Treasury Rate in effect as reported in the Western Edition of The Wall Street Journal on the tenth calendar day preceding the Disbursement Date. In the event The Wall Street Journal ceases to publish such Treasury information, FFCA shall select an alternative publication which publishes comparable information most nearly approximating such information. The Principal Amount shall be advanced only in accordance with the terms and conditions of the Loan Agreement. This Note shall be amended and restated in its entirety on the date of the Disbursement (the "Disbursement Date") pursuant to the Amended and Restated Note. During the period of time between the date of this Note and the Disbursement Date (the "Interim Term"), interest shall accrue at the Adjustable Rate on the Principal Amount outstanding from time to time and such interest shall be compounded monthly (such interest as compounded being referred to herein as the "Interim Term Interest"); provided, however, the Interim Term Interest shall not be paid by Debtor to FFCA during the Interim Term, but rather shall be added to the Principal Amount. Interest on the outstanding Principal Amount as of the Disbursement Date (including the Interim Term Interest) for the period commencing with the Disbursement Date through the last day in the month in which the Disbursement occurs shall be due and payable upon delivery of the Amended and Restated Note. Thereafter, fixed equal monthly payments of principal and interest, based on the amortization of the outstanding Principal Amount as of the Disbursement Date (including the Interim Term Interest) over a twenty-year period at the Base Interest Rate, shall be due and payable, commencing on the first day of the second calendar month following the month in which the Disbursement occurs and continuing on the first day of each month 2 thereafter until the Maturity Date, at which time the outstanding Principal Amount and unpaid accrued interest shall be due and payable. Debtor may not prepay this Note in full or in part. Upon execution of this Note, Debtor shall establish arrangements whereby all payments of principal and interest hereunder to be made subsequent to the Disbursement Date are transferred by wire or other means directly from Debtor's bank account to such account as FFCA may designate or as FFCA may otherwise designate. This Note is secured by the Mortgage and guaranteed by the Guarantor pursuant to the Guaranty. An "Event of Default" shall be deemed to have occurred under this Note if (a) any principal, interest or certain other monetary sum due under this Note is not paid within five days after the date when due and FFCA shall have given Debtor notice thereof and a period of seven days from the delivery of such notice shall have elapsed without such past-due sum being paid, or (b) an Event of Default (as defined under any of the Loan Documents). During the continuation of an Event of Default under this Note, then, time being of the essence hereof, FFCA may declare the entire unpaid principal balance of this Note, accrued interest, if any, and all other sums due under this Note and any Loan Documents which secure this Note, due and payable at once without notice to Debtor. All past-due principal and/or interest shall bear interest from the due date to the date of actual payment at the lesser of the highest rate for which the undersigned may legally contract, or the rate of 13% per annum (the "Default Rate"), and such Default Rate shall continue to apply following a judgment in favor of FFCA under this Note; provided, however, the Default Rate shall not be applicable if all past-due principal and/or interest is paid in full within the notice and cure periods provided for in the Loan Agreement. All payments of principal and interest due hereunder shall be made (i) without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings of Debtor, which amounts shall be paid by Debtor, and (ii) without any other right of abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. Debtor will pay the amounts necessary (such amounts are hereby deemed not to include income taxes, gross receipts taxes, transfer taxes and corporate taxes) such that the gross amount of the principal and interest received by FFCA is not less than that required by this Note. No delay or omission on the part of FFCA in exercising any remedy, right or option under this Note shall operate as a waiver of such remedy, right or option. In any event, a waiver on any one occasion shall not be construed as a waiver or bar to any such remedy, right or option on a future occasion. Debtor hereby waives presentment, demand for payment, notice of dishonor, notice of protest, and protest, notice of intent to accelerate, notice of acceleration and all other notices or 3 demands in connection with delivery, acceptance, performance, default or endorsement of this Note. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Note shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below:
If to Debtor: Mr. Thomas Baldwin Chief Financial Officer Morton's of Chicago--North Miami Beach, Inc. 3333 New Hyde Park Road New Hyde Park, New York 11042 Telephone: (516) 627-1515 Telecopy: (516) 627-2050 with a copy to: Mr. Thomas Baldwin Chief Financial Officer Morton's Restaurant Group, Inc. 3333 New Hyde Park Road New Hyde Park, NY 11042 Telephone: (516) 627-1515 Telecopy: (516) 627-2050 with a copy to: David Gruber, Esq. Salamon, Gruber, Newman and Blaymore 97 Powerhouse Road Suite 102 Roslyn Heights, New York 11577 Telephone: (516) 625-1700 Telecopy: (516) 625-1795 If to FFCA: Dennis L. Ruben, Esq. Executive Vice President and General Counsel FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226
4 or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. Should any indebtedness represented by this Note be collected at law or in equity, or in bankruptcy or other proceedings, or should this Note be placed in the hands of attorneys for collection after default, Debtor shall pay, in addition to the principal and interest due and payable hereon, all costs of collecting or attempting to collect this Note (the "Costs"), including reasonable attorneys' fees and expenses of FFCA (including those fees and expenses incurred in connection with any appeal and those of FFCA's in-house counsel) whether or not a judicial action is commenced by FFCA. This Note may not be amended or modified except by a written agreement duly executed by Debtor and FFCA. In case any one or more of the provisions contained in this Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, and this Note shall be construed as if such provision had never been contained herein or therein. Notwithstanding anything to the contrary contained in any of the Loan Documents, the obligations of Debtor to FFCA under this Note and any other Loan Documents are subject to the limitation that payments of interest and late charges to FFCA shall not be required to the extent that receipt of any such payment by FFCA would be contrary to provisions of applicable law limiting the maximum rate of interest that may be charged or collected by FFCA. The portion of any such payment received by FFCA that is in excess of the maximum interest permitted by such provisions of law shall be credited to the principal balance of this Note or if such excess portion exceeds the outstanding principal balance of this Note, then such excess portion shall be refunded to Debtor. All interest paid or agreed to be paid to FFCA shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of this Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law. It is the intent of the parties hereto that the business relationship created by this Note and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership between FFCA and Debtor, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the debts, obligations or losses of Debtor. Debtor acknowledges that FFCA (or any Affiliate of FFCA) and Franchisor are not affiliates, agents, partners or joint venturers, nor do they have any other legal, representative or fiduciary relationship other than debtor/creditor and/or landlord/tenant relationships unrelated to the transactions contemplated by the Loan Documents. FFCA, by accepting this Note, and Debtor acknowledge and warrant to each other that each has been represented by independent counsel and Debtor has executed this Note after being fully advised by said counsel as to its effect and significance. This Note shall be interpreted and 5 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 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 maybe served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of Debtor and FFCA that all provisions of this Note shall be governed by and construed under the laws of the State of Arizona. Nothing contained in this paragraph shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in the state in which the Premises is located to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under the Loan Documents. FFCA, BY ACCEPTING THIS NOTE, AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE, THE RELATIONSHIP OF FFCA AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE PREMISES AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES FROM THE OTHER PARTY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY THEM AGAINST THE OTHER PARTY HERETO OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR AND FFCA OF ANY RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. 6 This obligation shall bind Debtor and its successors and assigns, and the benefits hereof shall inure to FFCA and its successors and assigns. FFCA may assign its rights under this Note as set forth in the Loan Agreement. 7 IN WITNESS WHEREOF, Debtor has executed and delivered this Note effective as of the date first set forth above. DEBTOR: MORTON'S OF CHICAGO-- NORTH MIAMI BEACH, INC., a Delaware corporation By /s/ Thomas J. Baldwin ------------------------------- Printed Name Thomas J. Baldwin -------------------- Its EVP & CFO ------------------------------ 8 EX-27 4 EX-27
5 This schedule contains summary finacial information extracted from the June 28,1998 Form 10-Q and is qualified in its entirety by reference to such statements. 1,000 6-MOS DEC-27-1998 DEC-29-1997 JUN-28-1998 1,419 0 1,375 0 5,544 16,310 48,026 7,837 81,984 16,345 25,320 0 0 67 33,730 81,984 93,315 93,315 31,927 76,423 9,269 0 1,182 6,441 1,610 4,831 0 0 0 4,831 0.73 0.70
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