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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 28, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
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Commission file number 1-12692
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MORTON'S RESTAURANT GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3490149
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(State or other jurisdiction of (I.R.S.
incorporation or organization) employer identification no.)
3333 New Hyde Park Road, New Hyde Park, NY 11042
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(Address of principal executive offices) (zip code)
516-627-1515
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of exchange
Common Stock, $.01 par value New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 5, 1998, the aggregate market value of voting stock held by
non-affiliates of the registrant was $140,869,410.
As of March 23, 1998, the registrant had 6,607,665 shares of its common stock,
$.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) portions of the registrant's annual report to stockholders for the fiscal
year ended December 28, 1997 (the "Annual Report") are incorporated by
reference into Part II hereof; and
(2) portions of the registrant's definitive proxy statement (to be filed
pursuant to Regulation 14A) for the 1998 Annual Meeting of Stockholders (the
"Proxy Statement") are incorporated by reference into Part III hereof.
Part I
Item 1. Business
General
Morton's Restaurant Group, Inc., formerly known as Quantum Restaurant
Group, Inc., was incorporated as a Delaware corporation on October 3, 1988. As
used in this Report, the terms "MRG" or "Company" refer to Morton's Restaurant
Group, Inc. and its consolidated subsidiaries.
In December 1988, the Company acquired 89% of the outstanding common stock
of a predecessor company of Peasant Holding Corp. ("Peasant Holding"), the
holding company for The Peasant Restaurants, Inc. ("Peasant") and Mick's
Restaurants, Inc. ("Mick's"). On February 6, 1997, the Company completed the
sale of an 80.1% interest in its Atlanta-based Mick's and Peasant restaurants
(see Note 3 to the Company's consolidated financial statements).
In 1989, the Company acquired 100% of the outstanding common stock,
preferred stock, stock options and common stock warrants of Porterhouse, Inc.
and subsidiaries, which do business as Morton's of Chicago ("Morton's").
At December 28, 1997, the Company owned and operated 48 restaurants
utilizing two distinct restaurant concepts: Morton's and Bertolini's Authentic
Trattorias ("Bertolini's"). These concepts appeal to a broad spectrum of
consumer tastes and target separate price points and dining experiences. During
the first quarter of fiscal 1998, one new Morton's restaurant was opened.
The Company provides strategic support and direction to its subsidiary
companies, and evaluates and analyzes potential locations for new restaurants.
Management consists of Allen J. Bernstein, Chairman of the Board, President and
Chief Executive Officer and vice presidents responsible for site selection and
development, finance, and administration.
The Company plans to expand by adding new Morton's and Bertolini's
restaurants. The Company has no agreements or letters of intent with respect to
any potential acquisition. However, the Company has investigated, and may
possibly continue to investigate, the acquisition of other restaurant concepts.
The Company does not currently intend to develop a franchise program for any of
its restaurant concepts.
During 1998, the Company plans to enter international markets. Leases have
been signed to open Morton's of Chicago Steakhouse restaurants in Singapore and
Toronto. The Company will continue to monitor events in major Asian markets.
There can be no assurance that the Company's expansion plans will be
successfully achieved or that new restaurants will meet with consumer acceptance
or can be operated profitably.
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Morton's of Chicago Steak House Restaurants
At December 28, 1997, Morton's operated 38 premium quality steak houses
located in 35 cities. During the first quarter of 1998, a new Morton's
restaurant was opened in Stamford, CT. Morton's offers its clientele a
combination of excellent service and large quantities of the highest quality
menu items. Morton's has received awards in many locations for the quality of
its food and hospitality. Morton's serves USDA prime aged beef, including a
24 oz. porterhouse, a 20 oz. NY strip sirloin and a 14 oz. filet mignon.
Morton's also offers fresh fish, lobster, veal and chicken. All Morton's have
identical dinner menu items. While the emphasis is on beef, the menu
selection is broad enough to appeal to many taste preferences. The Morton's
dinner menu consists of a tableside presentation by the server of many of the
dinner items, including a 48 oz. porterhouse steak and a live Maine lobster,
and all Morton's restaurants feature an open display kitchen where steaks are
prepared. Each restaurant has a fully stocked bar with a complete list of
name brands and an extensive premium wine list that offers approximately 175
selections.
Morton's caters primarily to high-end, business-oriented clientele. During
the year ended December 28, 1997, the average per-person check, including dinner
and lunch, was approximately $65.00. Management believes that, on a nationwide
basis, a vast majority of Morton's weekday sales and a substantial portion of
its weekend sales are derived from business people using expense accounts. Sales
of alcoholic beverages accounted for approximately 32% of Morton's revenues
during fiscal 1997. In the nine Morton's serving both lunch and dinner during
fiscal 1997, dinner service accounted for approximately 89% of revenues and
lunch service accounted for approximately 11%. All Morton's are open seven days
a week. Those 29 Morton's serving only dinner are typically open from 5:30 p.m.
to 11:30 p.m., while those Morton's serving both lunch and dinner are also
typically open from 11:30 a.m. to 2:30 p.m. for the lunch period.
All Morton's are very similar in terms of style, concept and decor and are
located in retail, hotel, commercial and office building complexes in major
metropolitan areas and urban centers. In 1997, 37 Morton's (including all
restaurants opened since the 1989 acquisition) had on-premises private dining
and meeting facilities referred to as "Boardrooms". During fiscal 1997,
Boardroom sales were approximately 17% of sales in those locations offering
Boardrooms. Boardrooms offer a valuable amenity to customers and fully
complement Morton's operations. It is anticipated that all future Morton's will
contain Boardrooms.
Morton's operations and cost systems, developed over 20 years, enable
Morton's to maintain tight controls over operating expenses. The cooking staff
is highly trained and experienced. The uniform staffing patterns throughout
Morton's restaurants enhance operating efficiencies. Morton's management
believes that its centralized sourcing from its primary suppliers of its USDA
prime aged beef gives it significant cost and availability advantages over many
independent restaurants. Morton's purchases Midwest-bred, grain-fed, USDA prime
aged beef (approximately the finest two to three percent of a 1,100 pound
steer).
Bertolini's Authentic Trattoria Restaurants
At December 28, 1997, there were ten Bertolini's, located in ten cities.
Bertolini's is a white tablecloth, authentic Italian trattoria, which
provides table service in a casual dining atmosphere. For the year ended
December 28, 1997, Bertolini's average per-person check, including dinner and
lunch, was approximately $19.25. Bertolini's restaurants are open seven days
a week, for lunch and dinner, with typical hours of 11:00 a.m. to 12:00
midnight. During fiscal 1997, dinner service accounted for approximately 67%
of revenues and
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lunch service accounted for approximately 33%. Sales of alcoholic beverages
accounted for approximately 20% of Bertolini's revenues during fiscal 1997.
Sale of Mick's and Peasant Restaurants
On February 6, 1997, the Company completed the sale of its Atlanta-based
Mick's and Peasant restaurants. 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. As of December 28, 1997, all
remaining non-Atlanta Mick's and Peasant restaurants were closed, sold or
otherwise disposed of.
Site Development and Expansion
General. To date, the Company has attempted to maximize its capital resources
by receiving substantial development or rent allowances from its landlords.
The Company's leases typically provide for substantial landlord development
or rent allowances and an annual percentage rent based on gross sales,
subject to market-based minimum annual rents. This leasing strategy enables
the Company to reduce its net investments in newly developed restaurants.
The costs of opening a Morton's or Bertolini's varies by restaurant
depending upon, among other things, the location of the site and the extent of
any renovation required. The Company leases all of its restaurant sites and
operates both free-standing and in-line restaurants. In recent years, the
Company has received substantial landlord development or rent allowances for
leasehold improvements and furniture, fixtures and equipment and, in certain
instances, pre-opening expenses. The Company's average net cash investments for
the eight restaurants opened between January 1, 1997 and March 1998, was
approximately $1.7 million, in each case, net of landlord development and or
rent allowances and restaurant equipment lease financings. The Company currently
targets its average net cash investment in new restaurants to be less than $2.0
million per restaurant, although the Company may expend greater amounts for
particular restaurants.
The Company believes that the locations of its restaurants are critical to
its long-term success, and management devotes significant time and resources to
analyzing each prospective site. As it has expanded, the Company has developed
specific criteria by which each prospective site is evaluated. Potential sites
are generally sought in major metropolitan areas. In addition to carefully
analyzing demographic information, such as average household size and income,
for each prospective site, management considers factors such as traffic
patterns, proximity of shopping areas and office buildings, area restaurant
competition, accessibility and visibility. The Company's ability to open new
restaurants depends upon locating satisfactory sites, negotiating favorable
lease terms, securing appropriate government permits and approvals, obtaining
liquor licenses and recruiting or transferring additional qualified management
personnel. For these and other reasons, there can be no assurance that the
Company's expansion plans will be successfully achieved or that new restaurants
will meet with consumer acceptance or can be operated profitably.
The standard decor and interior design of each of the Company's restaurant
concepts can be readily adapted to accommodate different types of locations.
Morton's. The first Morton's was opened in 1978 in downtown Chicago, where
Morton's headquarters are still located. From 1978 to 1989, Morton's expanded to
a group of nine restaurants in nine cities. Under
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the Company, Morton's has grown from nine to 39 restaurants through March 1998.
During 1997, new Morton's opened in Washington, DC, San Diego, CA, Baltimore,
MD, and Miami, FL. During the first quarter of 1998 a new Morton's opened in
Stamford, CT. During 1998, the Company plans to enter international markets.
Leases have been signed to open Morton's of Chicago Steakhouse restaurants in
Singapore and Toronto.
Morton's are located in retail, hotel, commercial and office building
complexes in major metropolitan areas and urban centers. Management believes
that fixed investment costs and occupancy costs have been relatively low, as
appropriate space for new Morton's restaurants has been readily available. The
approximate gross costs to the Company for the five Morton's opened between
January 1, 1997 and March 1998, ranged from $2.4 million to $2.9 million,
including the costs of leasehold improvements, capital expenditures for
furniture, fixtures and equipment, and other pre-opening expenses. These
aggregate per-restaurant costs were substantially offset by landlord development
and or rent allowances ranging from $0.9 million to $1.3 million.
The Company plans to continue the development of Morton's and has selected
several possible domestic and international sites for expansion.
Bertolini's Authentic Trattoria Restaurants. The first Bertolini's opened in
Las Vegas in May 1992 (located in the Forum Shops Mall, adjacent to Caesar's
Palace Casino). During 1997, new Bertolini's opened in Charlotte, NC, Costa
Mesa, CA, and Westbury, NY.
The approximate gross costs to the Company for the three restaurants opened
during 1997, ranged from $2.5 million to $3.7 million, including the costs of
leasehold improvements, capital expenditures for furniture, fixtures and
equipment, and other pre-opening expenses. These aggregate costs were partially
offset by landlord development and or rent allowances ranging from $0.5 million
to $0.8 million.
The Company plans to continue the development of Bertolini's and has
selected several possible sites for expansion.
5
Restaurant Locations
The Company operated 49 restaurants as of March 1998. The following table
provides information with respect to those restaurants which are open:
Month and
Year Opened
------------------
Morton's of Chicago Steakhouse Restaurants
Chicago, IL (1) December 1978
Washington (Georgetown), DC November 1982
Philadelphia, PA May 1985
Westchester/Oakbrook, IL June 1986
Dallas, TX May 1987
Boston, MA December 1987
O'Hare/Rosemont, IL June 1989
Cleveland, OH September 1990
Tyson's Corner, VA November 1990
Columbus, OH April 1991
Cincinnati, OH August 1991
San Antonio, TX September 1991
Palm Beach, FL November 1991
Minneapolis, MN December 1991
Nashville, TN September 1992
Beverly Hills, CA (2) October 1992
Detroit/Southfield, MI November 1992
Las Vegas, NV January 1993
Sacramento, CA May 1993
Pittsburgh, PA August 1993
New York (Midtown Manhattan), NY October 1993
St. Louis/Clayton, MO December 1993
Palm Desert, CA January 1994
Atlanta/Buckhead, GA March 1994
Charlotte, NC July 1994
San Francisco, CA November 1994
Dallas/Addison, TX November 1994
Costa Mesa/Orange, CA March 1995
Denver, CO (3) March 1995
Atlanta/Downtown, GA (4) November 1995
Houston, TX January 1996
Phoenix, AZ March 1996
Orlando, FL March 1996
New York (Downtown Manhattan), NY June 1996
Washington (Connecticut Ave.), DC January 1997
San Diego, CA April 1997
Baltimore, MD August 1997
Miami, FL December 1997
Stamford, CT February 1998
6
Month and
Year Opened
------------------
Bertolini's Authentic Trattorias
Las Vegas, NV May 1992
Atlanta, GA September 1993
Washington, DC (5) September 1995
Rockville, MD October 1995
King of Prussia, PA November 1995
Irvine, CA November 1995
Indianapolis, IN October 1996
Charlotte, NC July 1997
Westbury, NY September 1997
Costa Mesa, CA October 1997
Additional sites are under active review for potential leases representing
new Morton's and Bertolini's restaurants to open. Including the restaurant that
opened during the first quarter of 1998, the Company currently intends to open
approximately seven to eight new restaurants during 1998, comprised of both
Morton's and Bertolini's restaurants. There can be no assurance, however, that
the Company's expansion plans will be successfully achieved or that new
restaurants will meet with consumer acceptance or can be operated profitably.
(1) Excludes Morton's Boardroom Banquet facilities.
(2) Operates under the name "Arnie Morton's of Chicago."
(3) The Morton's Denver, CO location was relocated in March 1995 to a new site.
The original location had been open since September 1985.
(4) The Morton's Atlanta/Downtown, GA location was relocated in November 1995 to
a new site. The original location had been opened since March 1986.
(5) The Bertolini's in Washington, DC opened in September 1995. It was converted
from a Peasant Restaurant which had been open since September 1990.
Restaurant Operations and Management
Morton's and Bertolini's restaurants have a well developed management
infrastructure and are set up as distinct operations within the Company. Each
group has a senior officer responsible for overall restaurant operations.
Operations for the Company's restaurants are supervised by area, or regional
directors, each of whom is responsible for the operations of several
restaurants and reports to the appropriate division senior officer. Area
directors meet frequently with senior management to review operations and to
resolve any issues. Working in concert with area or regional directors and
restaurant general managers, senior management defines operations and
performance objectives for each restaurant. An incentive plan has been
established in which area directors and certain restaurant managers
participate. Awards under incentive plans are tied to achievement of
specified revenue, profitability and operating targets and related quality
objectives.
The Company strives to maintain quality and consistency in its restaurants
through the careful training and supervision of personnel and the establishment
of standards relating to food and beverage preparation, maintenance of
facilities and conduct of personnel. Restaurant managers, many of whom are drawn
from the Company's restaurant personnel, must complete a training program of at
least twelve weeks during which they are instructed in areas of restaurant
management, including food quality and preparation, customer service, alcoholic
beverage service, liquor liability avoidance and employee relations. Restaurant
managers are also provided with operations manuals relating to food and beverage
preparation and
7
operation of restaurants. These manuals are designed to ensure uniform
operations, consistently high quality products and service and proper
accounting for restaurant operations. The Company holds regular meetings of
its restaurant general managers to discuss menu items, continuing training
and other aspects of business management.
The staff for a typical Morton's consists of one general manager, up to four
assistant managers and approximately 40 to 60 hourly employees. The staff for a
typical Bertolini's consists of one general manager and up to five other
managers, and approximately 100 hourly employees. Each new restaurant
employee of the Company participates in a training program during which the
employee works under the close supervision of restaurant managers. Management
strives to instill enthusiasm and dedication in its employees. Restaurant
management regularly solicits employee suggestions concerning restaurant
operations, strives to be responsive to the employees' concerns and meets
regularly with employees at each of the restaurants.
The Company devotes considerable attention to controlling food costs. The
Company makes extensive use of computers providing management with pertinent
information on daily sales and inventory requirements, thus minimizing the need
to carry excessive quantities of food inventories. This cost management system
is complemented by the Company's ability to obtain volume-based discounts. In
addition, each restaurant, within the Company's divisions, has similar menu
items and common operating methods, allowing for more simplified management
operating controls.
The Company maintains financial and accounting controls for each of its
restaurants through the use of centralized accounting and management information
systems and reporting requirements. Revenue, cost and related information is
collected daily from each restaurant. Restaurant managers are provided with
operating statements for their respective locations. Cash and credit card
receipts are controlled through daily deposits to local operating accounts, the
balances of which are wire transferred or deposited to cash concentration
accounts.
Purchasing
The Company's ability to maintain consistent quality throughout its
restaurants depends in part upon the ability to acquire food products and
related items from reliable sources in accordance with Company specifications.
The Company has no long-term contracts for any food items used in its
restaurants. The Company currently does not engage in any futures contracts and
all purchases are made at prevailing market prices. While management believes
adequate alternative sources of supply are readily available, these alternative
sources might not provide as favorable terms to the Company as its current
suppliers when viewed on a long-term basis. All of Morton's USDA prime aged beef
is shipped to Morton's restaurants by refrigerated common carrier from its
primary Chicago-based suppliers. All other products used by Morton's are
procured locally based on strict group-wide specifications. Bertolini's
restaurants also adhere to strict product specifications and use both national
and regional suppliers. Food and supplies are shipped directly to the
restaurants and invoices for purchases are sent by vendors to the headquarters
office.
Marketing
Management believes that the Company's commitment to quality food,
hospitality and value/price is the most effective approach to attracting guests.
Accordingly, the Company has historically focused its resources on providing its
customers with superior service and value, and has relied primarily on word of
mouth to attract new customers. The Company employs public relations consultants
and limited print, billboard and direct mail advertising, and typically conducts
some local restaurant promotions. The
8
Company's expenditure for advertising, marketing and promotional expenses as
a percentage of its revenues was 2.4% during fiscal 1997.
Competition
The restaurant business is highly competitive and fragmented, and the
number, size and strength of competitors varies widely by region. The Company
believes that restaurant competition is based on, among other things, quality of
food products, customer service, reputation, restaurant location, name
recognition and price points. The Company's restaurants compete with a number of
restaurants within their markets, both locally owned restaurants and other
restaurants which are members of regional or national chains. Some of the
Company's competitors are significantly larger and have greater financial and
other resources and greater name recognition than the Company and its
restaurants. Many of such competitors have been in existence longer than the
Company and are better established in areas where the Company's restaurants
are, or are planned to be, located. The restaurant business is often affected by
changes in consumer taste and spending habits, national, regional or local
economic conditions, population and traffic patterns and bad weather. In
addition, factors such as inflation, increased costs, food, labor and benefits
and the lack of experienced management and hourly staff employees may adversely
affect the restaurant industry in general and, in particular, the Company's
restaurants.
Service Marks and Trademarks
The Company has registered the names Morton's, Morton's of Chicago,
Bertolini's and certain other names used by its restaurants as trademarks or
service marks with the United States Patent and Trademark Office. The Company is
aware of names similar to that of the Company's restaurants used by third
parties in certain limited geographical areas, although the Company does not
anticipate that such use will prevent the Company from using its marks in such
areas. The Company is not aware of any infringing uses that could materially
affect its business. The Company believes that its trademarks and service marks
are valuable to the operation of its restaurants and are important to its
marketing strategy.
Government Regulation
The Company's business is subject to extensive Federal, state and local
government regulation, including regulations relating to alcoholic beverage
control, public health and safety, zoning and fire codes. The failure to obtain
or retain food, liquor or other licenses would adversely affect the operations
of the Company's restaurants. While the Company has not experienced and does not
anticipate any problems in obtaining required licenses, permits or approvals,
any difficulties, delays or failures in obtaining such licenses, permits or
approvals could delay or prevent the opening of a restaurant in a particular
area. Approximately 32% and 20% of the revenues of Morton's and Bertolini's,
respectively, for fiscal 1997 were attributable to the sale of alcoholic
beverages. Each restaurant has appropriate licenses from regulatory authorities
allowing it to sell liquor and or beer and wine, and each restaurant has food
service licenses from local health authorities. The Company's licenses to sell
alcoholic beverages must be renewed annually and may be suspended or revoked at
any time for cause, including violation by the Company or its employees of any
law or regulation pertaining to alcoholic beverage control, such as those
regulating the minimum age of patrons or employees, advertising, wholesale
purchasing, and inventory control, handling and storage. However, each
restaurant is operated in accordance with standardized procedures designed to
assure compliance with all applicable codes and regulations.
The Company is subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment which wrongfully
9
served alcoholic beverages to such person. While the Company carries liquor
liability coverage as part of its existing comprehensive general liability
insurance, a judgment against the Company under a dram-shop statute in excess
of the Company's liability coverage, or inability to continue to obtain such
insurance coverage at reasonable costs, could have a material adverse effect
on the Company.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Management believes that Federal and state environmental regulations have not
had a material effect on the Company's operations, but more stringent and varied
requirements of local government bodies with respect to zoning, land use and
environmental factors could delay construction of new restaurants and add to
their cost.
The Company is also subject to the Fair Labor Standards Act, the Immigration
Reform and Control Act of 1986 and various federal and state laws governing such
matters as minimum wages, overtime, tips, tip credits and other working
conditions. A significant number of the Company's hourly staff are paid at rates
related to the Federal minimum wage and, accordingly, increases in the minimum
wage or decreases in allowable tip credits will increase the Company's labor
cost.
Employees
As of December 28, 1997, the Company had approximately 3,312 employees, of
whom 2,901 were hourly restaurant employees, 334 were salaried restaurant
employees engaged in administrative and supervisory capacities and 77 were
corporate and office personnel. Many of the hourly employees are employed on a
part-time basis to provide services necessary during peak periods of restaurant
operations. None of the Company's employees are covered by a collective
bargaining agreement. The Company believes that its relations with its employees
are good.
Forward-Looking Statements
Except for the historical information contained in this document, 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.
Item 2. Properties
All of the Company's restaurants are located in space leased by subsidiaries
of the Company. Restaurant lease expirations, including renewal options, range
from two to 29 years. The majority of the Company's leases provide for an option
to renew for terms ranging from five years to ten years. All of the restaurant
leases provide for a specified annual rent, and most leases call for additional
or contingent rent based on sales volumes over specified levels. Generally, the
leases are "net leases" which require the Company's subsidiary to pay its pro
rata share of all taxes, insurance and maintenance costs. In some cases, the
Company or another subsidiary guarantees the performance of new leases of the
tenant subsidiary for a portion of the lease term, typically not exceeding the
first five years.
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The Company maintains its executive offices of approximately 9,800 square
feet in New Hyde Park, New York. The executive offices for Morton's and
Bertolini's consist of approximately 11,300 square feet in Chicago. All such
executive offices are leased.
The Company believes its current office and operating space is suitable and
adequate for intended purposes.
Item 3. Legal Proceedings
An employee (Plaintiff) of a subsidiary of the Company, initiated legal
action against Morton's of Chicago, Quantum Corporation and unnamed "Doe"
defendants on February 8, 1996 in California Superior Court in San Francisco.
Plaintiff's, Ms. Wendy Kirkland, complaint alleged under California law,
among other things, wrongful constructive termination, sex discrimination and
sexual harassment. Plaintiff sought general, special, and punitive damages in
unspecified amounts, as well as attorneys' fees and costs. The case was
subsequently removed to the U.S. 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 U.S.
District Court for the Northern District of California awarded a judgment to
the Plaintiff. In conjunction with the judgment, the Company recorded a
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. The
Company intends to vigorously contest and appeal the judgment when entered.
In October 1995, the Company announced that the lawsuit among the
Company, a subsidiary of the Company and Mr. Alberto Lombardi and a company
controlled by Mr. Lombardi had been settled on mutually satisfactory terms
and agreed to the dismissal of all claims pending against each other. In
connection with the settlement, the Company recorded a pre-tax charge of
approximately $2,240,000 in 1995, which amount includes legal and related
costs associated with the lawsuit. The settlement provides that it is not to
be construed or considered to be an admission of guilt or noncompliance with
any federal, state or local statute, public policy, tort law, common law or
of any other wrongdoing whatsoever.
The Company is 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 Security Holders
None.
11
Item 4A. Executive Officers of the Registrant
The following sets forth certain information regarding the Company's
executive officers:
NAME AGE POSITION
- ----------------------------- --- -----------------------------------------------------
Allen J. Bernstein (1) 52 Chairman of the Board, President and Chief Executive
Officer
Thomas J. Baldwin 42 Executive Vice President, Chief Financial Officer,
Assistant Secretary and Treasurer
Agnes Longarzo 59 Vice President-Administration and Secretary
Allan C. Schreiber 57 Vice President-Real Estate
Klaus W. Fritsch 54 Vice Chairman and Co-Founder-Morton's of Chicago
Mark D. Running 45 Vice President -- Operations -- Bertolini's
Restaurants
(1) Member of Executive Committee of the Board of Directors.
Allen J. Bernstein has been Chairman of the Board of the Company since
October 1994 and Chief Executive Officer and a Director of the Company since
December 1988. He has been President of the Company since September 1997 and was
previously President of the Company from December 1988 through October 1994.
Prior to co-founding the Company, Mr. Bernstein served as Chairman and Chief
Executive Officer of Le Peep Restaurants, Inc. from July 1983 to December 1988
and its predecessors from July 1981. From 1975 to 1981, Mr. Bernstein was
President and Chief Operating Officer of Wenco Food Systems, Inc., a New York
City area franchisee for Wendy's Restaurants, Inc. Mr. Bernstein has been a
director of Dave and Busters, Inc. since February 1996.
Thomas J. Baldwin was elected Executive Vice President in January 1997. He
previously served as Senior Vice President--Finance of the Company since June
1992, and was Vice President--Finance from December 1988 until June 1992. In
addition, Mr. Baldwin has been Chief Financial Officer, Assistant Secretary and
Treasurer of the Company since December 1988. Mr. Baldwin was the Chief
Financial Officer, Vice President of Finance and Treasurer of Le Peep
Restaurants, Inc. from October 1986 until December 1988. After seven years at
General Foods Corp., now a subsidiary of Philip Morris Companies, Inc., Mr.
Baldwin joined Citicorp in April 1985 and became Vice President responsible for
strategic planning and financial analysis at a major corporate banking division.
Mr. Baldwin has an M.B.A. and is also a licensed certified public accountant in
the State of New York.
Agnes Longarzo has been Vice President of Administration and Secretary of
the Company since December 1988. Ms. Longarzo had been Vice President of
Administration and Corporate Secretary for Le Peep Restaurants, Inc. from March
1983 to December 1988. Prior to joining Le Peep Restaurants, Inc., Ms. Longarzo
served as the Director of Administration of Wenco Food Systems, Inc.
Allan C. Schreiber has been Vice President of Real Estate since January 1996
and prior to that was Director of Real Estate since November 1995. Mr. Schreiber
had been a Senior Managing Director at The Galbreath Company since 1991. Prior
to joining Galbreath, he served as an Executive Vice President of
12
National Westminster Bank USA from 1982 to 1991. Previously, Mr. Schreiber
had been a Vice President and Division Executive of the Chase Manhattan Bank.
Klaus W. Fritsch has been the Vice Chairman of Morton's of Chicago, Inc.
since May 1992. Mr. Fritsch has been with Morton's of Chicago, Inc. since its
inception in 1978, when he co-founded Morton's. After Mr. Arnold Morton ceased
active involvement in 1987, Mr. Fritsch assumed all operating responsibilities
as President in which capacity he served until May 1992.
Mark D. Running has been Vice President of Operations for Bertolini's
Restaurants since December 1997. He had previously served as Director of
Operations for Morton's of Chicago from April 1996 to December 1997. Before
joining the Company, Mr. Running was the Executive Vice President and Chief
Operating Officer of Capital Grille and Bugaboo Creek Steak House since December
1993. Prior to that he served as the Chief Operating Officer of the American
Cafe Division of W. R. Grace, as the Vice President of Operations for the
Marriott Family Restaurants and was the Division Vice President for TGI Fridays
for nine years.
Officers are elected by and serve at the discretion of the Board of
Directors.
13
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
"Price Range of Common Stock and Related Matters" contained on page 36 of
the Company's Annual Report is hereby incorporated by reference.
Item 6. Selected Consolidated Financial and Operating Data
"Selected Financial Information" contained on page one of the Company's
Annual Report is hereby incorporated by reference.
The graphs labeled "Morton's and Bertolini's Revenues", "Morton's and
Bertolini's Restaurants at Year End", "Consolidated EBITDA" and "Morton's and
Bertolini's % Change in Comparable Revenues" on page one of the Company's
Annual Report shall not be deemed incorporated by reference into this Annual
Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained on pages 18 to 23 of the Company's Annual Report is hereby
incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The following items are hereby incorporated by reference to the Company's
Annual Report on the pages indicated:
Page
-------
(i) Independent Auditors' Report 23
(ii) Consolidated Balance Sheets as of December 28, 1997
and December 29, 1996 24
(iii) Consolidated Statements of Operations For the years
ended December 28, 1997, December 29, 1996, and
December 31, 1995. 25
(iv) Consolidated Statements of Stockholders' Equity For
the years ended December 28, 1997, December 29,
1996, and December 31, 1995. 25
(v) Consolidated Statements of Cash Flows For the years
ended December 28, 1997, December 29, 1996, and
December 31, 1995 26
(vi) Notes to Consolidated Financial Statements 27-36
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
14
Part III
Item 10. Directors and Executive Officers of the Registrant
"Election of Directors" and "Reporting under 16(A) of the Securities
Exchange Act of 1934" contained in the Proxy Statement is hereby incorporated by
reference. See also Item 4A, "Executive Officers of the Registrant" in Part I of
this Annual Report on Form 10-K.
Item 11. Executive Compensation
"Executive Compensation" contained in the Proxy Statement is hereby
incorporated by reference. The matters labeled "Compensation Committee Report"
and "Performance Graph" contained in the Proxy Statement shall not be deemed
incorporated by reference into this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
"Security Ownership of Certain Beneficial Owners and Management" contained
in the Proxy Statement is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
None.
15
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) The response to this portion of Item 14 is set forth in Item 8 of
Part II hereof.
(2) Financial Statement Schedules
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Exhibits
See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the
accompanying Index to Exhibits upon payment by such stockholder of
the Company's reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K:
Form 8-K filed on January 6, 1997 regarding the signing of definitive
agreements to sell Mick's Restaurants, Inc. and The Peasant Restaurants,
Inc.
Form 8-K filed on February 7, 1997 regarding the completion of the sale
of Mick's Restaurants, Inc. and The Peasant Restaurants, Inc.
Form 8-K filed on November 26, 1997 regarding the award of a judgment
against a subsidiary of the Registrant by the United States District
Court for the Northern District of California.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14 (a)(2) above.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MORTON'S RESTAURANT GROUP, INC.
(Registrant)
Date March 26, 1998 By: /s/ ALLEN J. BERNSTEIN
- --------------------- --------------------------------------
Allen J. Bernstein
Chairman of the Board of Directors,
President, and Chief Executive Officer
(Principal Executive Officer)
Date March 26, 1998 By: /s/ THOMAS J. BALDWIN
- --------------------- --------------------------------------
Thomas J. Baldwin
Executive Vice President, Chief
Financial Officer, Assistant Secretary
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date March 26, 1998 By: /s/ ALLEN J. BERNSTEIN
- --------------------- --------------------------------------
Allen J. Bernstein
Chairman of the Board of Directors,
President, and Chief Executive Officer
(Principal Executive Officer)
Date March 26, 1998 By: /s/ THOMAS J. BALDWIN
- --------------------- --------------------------------------
Thomas J. Baldwin
Executive Vice President, Chief
Financial Officer, Assistant Secretary
and Treasurer (Principal Financial and
Accounting Officer)
17
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. (Continued)
Date March 26, 1998 By: /s/ LEE M. COHN
- --------------------- --------------------------------------
Lee M. Cohn
Director
Date March 26, 1998 By: /s/ DIANNE H. RUSSELL
- --------------------- --------------------------------------
Dianne H. Russell
Director
Date March 26, 1998 By: /s/ ALAN A. TERAN
- --------------------- --------------------------------------
Alan A. Teran
Director
18
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. (Continued)
Date March 26, 1998 By: /s/ JOHN K. CASTLE
- --------------------- --------------------------------------
John K. Castle
Director
Date: March 26, 1998 By: /s/ DR. JOHN J. CONNOLLY
- --------------------- --------------------------------------
Dr. John J. Connolly
Director
Date March 26, 1998 By: /s/ DAVID B. PITTAWAY
- --------------------- --------------------------------------
David B. Pittaway
Director
19
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report:
Exhibit
Number Page Document
- ----------- ----- ----------
3.01 (a) Amended and Restated Certificate of Incorporation of the
Registrant. (7)
(b) Certificate of Designation for the Preferred Stock issuable
pursuant to the Rights Plan. (4)
(c) Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant. (7)
(d) Second Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant. (11)
3.02 Amended and Restated By-Laws of the Registrant, dated
January 17, 1995. (4)
4.01 (a) Specimen Certificate representing the Common Stock, par
value $.01 per share including Rights Legend. (4)
(b) Specimen Certificate representing the Common Stock, par
value $.01 per share including Rights Legend and name
change to Morton's Restaurant Group, Inc. (11)
4.02 (a) Registration Rights Agreement for Common Stock, dated as of
July 27, 1989, among the Registrant, BancBoston Capital
Inc., Legend Capital Group, L.P., Legend Capital
International, Ltd. and Allen J. Bernstein. (1)
(b) Amendment to Registration Rights Agreement for Common
Stock, dated as of April 1, 1992, among the Registrant,
BancBoston Capital Inc., Legend Capital Group, L.P., Legend
Capital International, Ltd., Allen J. Bernstein, Castle
Harlan, Inc. and certain executive officers of the
Registrant. (2)
4.03 (a) + Stock Option Agreement, dated as of March 30, 1992, between
Thomas J. Baldwin and the Registrant. (2)
(b) + Stock Option Agreement, dated as of March 30, 1992, between
Agnes Longarzo and the Registrant. (2)
(c) + Stock Option Agreement, dated as of March 30, 1992, between
Allen J. Bernstein and the Registrant. (1)
4.04 (a) Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated June 19, 1995 among the Registrant, The
Peasant Restaurants, Inc., Morton's of Chicago, Inc. and
The First National Bank of Boston, individually and as
agent. (7)
(b) First Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated
February 14, 1996 among the Registrant, The Peasant
Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (9)
20
Exhibit
Number Page Document
- ----------- ----- ----------
(c) Second Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated March 5,
1996 among the Registrant, The Peasant Restaurants, Inc.,
Morton's of Chicago, Inc. and The First National Bank of
Boston, individually and as agent. (9)
(d) Letter Agreement, dated May 2, 1996, among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc.
and The First National Bank of Boston, individually and as
agent. (10)
(e) Third Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated June 28,
1996 among the Registrant, The Peasant Restaurants, Inc.,
Morton's of Chicago, Inc. and The First National Bank of
Boston, individually and as agent. (11)
(f) Fourth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated
December 26, 1996 among the Registrant, The Peasant
Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (13)
(g) Fifth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated
December 31, 1996 among the Registrant, The Peasant
Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (13)
(h) Sixth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated
February 6, 1997 among the Registrant, The Peasant
Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (13)
(i) Seventh Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated
June 27, 1997 among the Registrant, Peasant Holding Corp.,
Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent. (14)
(j) Eighth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated
February 12, 1998 among the Registrant, Peasant Holding
Corp., Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent.
4.05 Rights Agreement, dated as of December 15, 1994, between
the Registrant and The First National Bank of Boston as
Rights Agent, which includes as Exhibit A thereto the form
of Certificate of Designation of Series A Junior
Participating Preferred Stock of the Registrant, as
Exhibit B thereto the form of Rights Certificate and as
Exhibit C thereto the Summary of Rights to Purchase
Preferred Stock. (5)
10.01 + Morton's of Chicago, Inc. Profit Sharing and Cash
Accumulation Plan as Amended Effective January 1,
1989. (4)
10.02 Commercial Lease, between American National Investor
Services, Inc. and Morton's of Chicago, Inc., dated
October 15, 1992, relating to the executive offices of
Morton's located at 350 West Hubbard Street, Chicago,
Illinois. (2)
10.03 Shareholders Agreement, dated January 1, 1990, among
Stephan D. Nygren, Robert A. Amick, the Registrant and
Peasant Holding Corp. (1)
21
Exhibit
Number Page Document
- ----------- ----- ----------
10.04 Commercial Lease, between X-Cell Realty Associates and the
Registrant, dated January 18, 1994 relating to the
executive offices of the Registrant located at 3333 New
Hyde Park Road, Suite 210, New Hyde Park, New York
11042. (3)
10.05 + Amended and Restated Employment Agreement, dated as of
February 1,1997, between the Registrant and William L.
Hyde, Jr. (13)
10.06 (a) Commercial Lease Commitment, dated February 7, 1994,
between BancBoston Leasing Inc. and the Registrant relating
to restaurant equipment. (3)
(b) Commercial Lease Commitment, dated August 30, 1994, between
General Electric Capital Corporation and the Registrant
relative to restaurant equipment. (4)
(c) Commercial Lease Commitment, dated February 14, 1995,
between BancBoston Leasing Inc. and the Registrant relating
to restaurant equipment. (4)
(d) Commercial Lease Commitment, dated May 26, 1995, between
ATEL Leasing Corporation and the Registrant relating to
restaurant equipment. (8)
10.07 + Employment Agreement, dated as of January 31, 1994, between
the Registrant and Allen J. Bernstein. (6)
10.08 (a)+ Change of Control Agreement, dated December 15, 1994,
between the Registrant and Allen J. Bernstein. (4)
(b) + Change of Control Agreement, dated December 15, 1994,
between the Registrant and William L. Hyde, Jr. (4)
(c) + Change of Control Agreement, dated December 15, 1994,
between the Registrant and Thomas J. Baldwin. (4)
10.09 + Second Amended and Restated Employment Agreement, dated as
of February 28, 1995, between the Registrant and Allen J.
Bernstein. (4)
10.10 + Quantum Restaurant Group, Inc. Stock Option Plan. (9)
10.11 Stock Purchase Agreement, dated as of December 31, 1996, by
and among Peasant Holding Corp., Morton's Restaurant Group,
Inc., and MRI Acquisition Corporation. (12)
10.12 Stock Purchase Agreement, dated as of December 31, 1996, by
and among Peasant Holding Corp., Morton's Restaurant Group,
Inc., and PRI Acquisition Corporation. (12)
10.13 Promissory Note, dated March 4, 1997, between CNL Financial
I, Inc., as Lender, and Morton's of Chicago, Inc. (13)
10.14 + Termination and Release Agreement, dated September 18, 1997
between the Registrant and William L. Hyde, Jr. (15)
22
Exhibit
Number Page Document
- ----------- ----- ----------
10.15 Commercial Mortgage Commitment, dated August 4, 1997,
between Franchise Finance Corporation of America and the
Registrant relating to mortgage financing.
13.01 Registrant's Annual Report to Stockholders for the year
ended December 28, 1997. Except for the portions thereof
which are expressly incorporated by reference into this
report, such Annual Report is furnished solely for the
information of the Commission and is not to be deemed
"filed" as part of this report.
21.01 Subsidiaries of the Registrant.
23.01 Independent Auditors' consent to the incorporation by
reference in the Company's Registration Statement on
Form S-8 of the independent auditors' report included in
the Company's Annual Report to Stockholders.
27.00 Financial Data Schedule
(1) Included as an exhibit to the Registrant's Registration
Statement on Form S-1 (No. 33-45738) and incorporated by
reference.
(2) Included as an exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992 and
incorporated by reference.
(3) Included as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993 and
incorporated by reference.
(4) Included as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended January 1, 1995 and
incorporated by reference.
(5) Included as an exhibit to the Registrant's Form 8-K dated
on December 15, 1994 and incorporated by reference.
(6) Included as an exhibit to the Registrant's Quarterly Report
on Form 10-Q, dated October 2, 1994.
(7) Included as an exhibit to the Registrant's Quarterly Report
on Form 10-Q, dated July 2, 1995.
(8) Included as an exhibit to the Registrant's Quarterly Report
on Form 10-Q, dated October 1, 1995.
(9) Included as an exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995 and
incorporated by reference.
(10) Included as an exhibit to the Registrant's Quarterly Report
on Form 10-Q, dated March 31, 1996.
(11) Included as an exhibit to the Registrant's Quarterly Report
on Form 10-Q, dated June 30, 1996.
23
Exhibit
Number Page Document
- ----------- ----- ----------
(12) Included as an exhibit to the Registrant's Form 8-K, dated
January 6, 1996.
(13) Included as an exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 29, 1996 and
incorporated by reference.
(14) Included as an exhibit to the Registrant's Quarterly Report
on Form 10-Q, dated June 29, 1997.
(15) Included as an exhibit to the Registrant's Quarterly Report
on Form 10-Q, dated September 28, 1997.
+ Management contracts or compensatory plans or arrangements
required to be filed as an exhibit to the Registrant's
Annual Report on Form 10-K pursuant to Item 14 (a)(3) of
this Form 10-K.
24