SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule Section240.14a-12
MORTON'S RESTAURANT GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
Not Applicable
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock
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(2) Aggregate number of securities to which transaction applies:
4,184,711
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
The filing fee of $4,885 was calculated pursuant to Exchange
Act Rule 0-11(c)(1) by (a) multiplying, 4,184,711 shares of
common stock, $0.01 per share, of the Registrant by $12.60
per share, (b) adding thereto $368,948, which is the
aggregate difference between $12.60 and the exercise prices
for options to acquire 232,612 shares of common stock of the
Registrant and (c) multiplying that sum by 0.000092.
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(4) Proposed maximum aggregate value of transaction:
$53,096,307.05
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(5) Total fee paid:
$4,885
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY COPY, SUBJECT TO COMPLETION, DATED APRIL 16, 2002
[INSERT LOGO]
MORTON'S RESTAURANT GROUP, INC.
3333 NEW HYDE PARK ROAD
NEW HYDE PARK, NEW YORK 11042
[ ], 2002
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Morton's Restaurant Group, Inc. ("Morton's") to be held at 9:00 a.m. (local
time) on [day], [ ] 2002, at [The Garden City Hotel, 45 Seventh
Street, Garden City, New York 11530].
At the special meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
March 26, 2002, by and among Morton's Acquisition Company ("Morton's
Acquisition"), Morton's Holdings, LLC (formerly known as Morton's
Holdings, Inc., "Morton's Holdings") and Morton's, and to approve the merger
contemplated by the merger agreement. Morton's Holdings is wholly owned by
Castle Harlan Partners III, L.P. ("CHP"), a private investment fund that makes
investments identified by its affiliates. Under the merger agreement, Morton's
Acquisition, a wholly owned subsidiary of Morton's Holdings, will be merged with
and into Morton's, with Morton's as the surviving corporation. Upon completion
of the merger, each issued and outstanding share of Morton's common stock will
be converted into the right to receive $12.60 in cash without interest (other
than shares held by Morton's or any of Morton's subsidiaries, held in Morton's
treasury, or held by Morton's Holdings or Morton's Acquisition, or shares held
by Morton's stockholders who perfect their appraisal rights under Delaware law).
Following completion of the merger, Morton's will continue its operations, but
as a privately held company.
The Board of Directors of Morton's formed a Special Committee, which is
composed of directors who are not officers or employees of Morton's, Morton's
Holdings, Morton's Acquisition or CHP and who have no financial interest in the
proposed merger different from Morton's stockholders generally. The Special
Committee, acting with the advice and assistance of its own legal and financial
advisors, evaluated and negotiated the merger proposal, including the terms of
the merger agreement, with Morton's Holdings and Morton's Acquisition. The
Special Committee unanimously determined that the proposed merger and merger
agreement are fair to and in the best interests of Morton's and its
stockholders, approved the merger and the merger agreement and recommended to
the Board of Directors to approve and adopt the merger agreement and approve the
merger. The Board of Directors, based in part on the unanimous recommendation of
the Special Committee, has determined by the unanimous vote of those
participating that the merger is fair to and in the best interests of Morton's
and its stockholders and has approved and adopted the merger agreement and
approved the merger. THEREFORE, THE BOARD OF DIRECTORS, BASED ON THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE, RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER.
In reaching their decisions, the Board of Directors and the Special
Committee considered, among other things, the oral opinion, subsequently
confirmed by the written opinion, dated March 26, 2002, of Greenhill & Co., LLC,
the Special Committee's financial advisor. This opinion stated that, based on
and subject to the considerations, limitations, assumptions and qualifications
set forth in the opinion, as of March 26, 2002, the $12.60 per share cash
consideration to be received by Morton's stockholders in the proposed merger was
fair, from a financial point of view, to Morton's stockholders (other than
Morton's Holdings and its subsidiaries, including Morton's Acquisition, and CHP
and its affiliates). A copy of Greenhill's written opinion is attached to the
proxy statement as Appendix B and should be read in its entirety.
The enclosed proxy statement provides information about Morton's, Morton's
Holdings, Morton's Acquisition, certain of their affiliates, the merger
agreement, the proposed merger and the special meeting. A copy of the merger
agreement is attached to the proxy statement as Appendix A for your information.
You may obtain additional information about Morton's from documents filed with
the Securities and Exchange Commission. PLEASE READ THE ENTIRE PROXY STATEMENT
CAREFULLY, INCLUDING THE APPENDICES. IN PARTICULAR, BEFORE VOTING, YOU SHOULD
CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION OF THE PROXY STATEMENT ENTITLED
"SPECIAL FACTORS."
YOUR VOTE IS VERY IMPORTANT. THE MERGER CANNOT BE COMPLETED UNLESS THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF MORTON'S COMMON STOCK
ENTITLED TO VOTE APPROVE AND ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY CARD. IF YOU COMPLETE, DATE, SIGN AND RETURN
YOUR PROXY CARD WITHOUT INDICATING HOW YOU WISH TO VOTE, YOUR PROXY WILL BE
COUNTED AS A VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE APPROVAL OF THE MERGER. IF YOU FAIL TO RETURN YOUR PROXY CARD AND FAIL
TO VOTE AT THE SPECIAL MEETING, THE EFFECT WILL BE THE SAME AS A VOTE AGAINST
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE
MERGER. RETURNING THE PROXY CARD DOES NOT DEPRIVE YOU OF YOUR RIGHT TO ATTEND
THE SPECIAL MEETING AND VOTE YOUR SHARES IN PERSON.
Sincerely,
Allen J. Bernstein
Chairman of the Board,
President and Chief Executive Officer
New Hyde Park, New York
This proxy statement is dated [ , 2002] and is first being
mailed to stockholders of Morton's on or about [ , 2002].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THIS TRANSACTION, PASSED UPON THE MERITS
OR FAIRNESS OF THIS TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED APRIL 16, 2002
[INSERT LOGO]
MORTON'S RESTAURANT GROUP, INC.
3333 NEW HYDE PARK ROAD
NEW HYDE PARK, NEW YORK 11042
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ , 2002]
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To the Stockholders of
Morton's Restaurant Group, Inc.:
Notice is hereby given that a special meeting of stockholders of Morton's
Restaurant Group, Inc., a Delaware corporation ("Morton's"), will be held at
[The Garden City Hotel, 45 Seventh Street, Garden City, New York 11530], at
9:00 a.m. (local time) on [ , 2002], for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of March 26, 2002, by and among
Morton's Holdings, LLC (formerly known as Morton's Holdings, Inc., "Morton's
Holdings"), Morton's Acquisition Company ("Morton's Acquisition") and
Morton's, and to approve the merger contemplated by the merger agreement.
Morton's Holdings is wholly owned by Castle Harlan Partners III, L.P., a
private investment fund that makes investments identified by its affiliates.
Under the merger agreement, Morton's Acquisition, a wholly owned subsidiary
of Morton's Holdings, will be merged with and into Morton's, with Morton's
as the surviving corporation. Upon completion of the merger, each issued and
outstanding share of Morton's common stock will be converted into the right
to receive $12.60 in cash without interest (other than shares held by
Morton's or any of Morton's subsidiaries, held in Morton's treasury, or held
by Morton's Holdings or Morton's Acquisition, or shares held by Morton's
stockholders who perfect their appraisal rights under Delaware law).
2. To consider and vote upon such other matters as may properly come
before the special meeting, including the approval of any adjournment of the
special meeting solely for the purpose of soliciting additional proxies in
favor of proposal 1, if necessary.
Only holders of record of Morton's common stock at the close of business on
[ , 2002], the record date, are entitled to notice of, and to vote
at, the special meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS, BASED IN PART ON THE UNANIMOUS RECOMMENDATION OF THE
SPECIAL COMMITTEE, HAS DETERMINED BY THE UNANIMOUS VOTE OF THOSE PARTICIPATING
THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF MORTON'S AND ITS
STOCKHOLDERS AND HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND APPROVED THE
MERGER. THEREFORE, THE BOARD OF DIRECTORS, BASED ON THE UNANIMOUS RECOMMENDATION
OF THE SPECIAL COMMITTEE, RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER.
Stockholders of Morton's who do not vote in favor of the approval and
adoption of the merger agreement and the approval of the merger will have the
right to seek appraisal of the fair value of their shares of Morton's common
stock if the merger is completed, but only if they submit a written demand for
an appraisal before the vote is taken on the merger agreement and the merger and
they comply with Delaware law as explained in the accompanying proxy statement.
YOUR VOTE IS VERY IMPORTANT. THE MERGER CANNOT BE COMPLETED UNLESS THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF MORTON'S COMMON STOCK
ENTITLED TO VOTE APPROVE AND ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER.
EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY CARD TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE SPECIAL MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. IF YOU ATTEND THE
SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE
IN PERSON. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE SPECIAL MEETING, YOU
MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
The merger is described in the accompanying proxy statement, which you are
urged to read carefully. A copy of the merger agreement is attached to the
accompanying proxy statement as Appendix A for your information.
By Order of the Board of Directors,
Agnes Longarzo
Secretary
New Hyde Park, New York
[ , 2002]
TABLE OF CONTENTS
PAGE
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SUMMARY TERM SHEET.......................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 2
SUMMARY..................................................... 5
The Merger................................................ 5
The Participants.......................................... 5
Reasons for the Recommendation of the Special Committee
and the Board of Directors.............................. 6
Position of Morton's Holdings, Morton's Acquisition and
CHP as to the Fairness of the Merger.................... 6
Opinion of Financial Advisor to the Special Committee..... 6
Interests of Morton's Directors and Officers in the
Merger.................................................. 7
Merger Financing.......................................... 8
The Special Meeting....................................... 8
Appraisal Rights.......................................... 9
The Merger Agreement...................................... 9
Conditions to Completing the Merger....................... 9
Limitation on Considering Other Acquisition Proposals..... 10
Termination............................................... 10
Termination Fee; Expense Reimbursement.................... 11
Certain Effects of the Merger............................. 11
Federal Regulatory Matters................................ 12
Liquor Licenses........................................... 12
Material U.S. Federal Income Tax Consequences............. 12
Litigation Challenging the Merger......................... 12
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... 13
MORTON'S SELECTED HISTORICAL FINANCIAL DATA................. 13
TRADING MARKETS AND MARKET PRICE............................ 15
THE SPECIAL MEETING......................................... 16
General................................................... 16
Record Date and Voting Information........................ 16
Proxies; Revocation....................................... 17
Expenses of Proxy Solicitation............................ 17
Adjournments.............................................. 17
THE PARTICIPANTS............................................ 18
Morton's Restaurant Group, Inc............................ 18
Morton's Holdings, LLC and Morton's Acquisition Company... 19
Castle Harlan Partners III, L.P........................... 19
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PAGE
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SPECIAL FACTORS............................................. 20
Background of the Merger.................................. 20
Reasons for the Recommendation of the Special Committee
and the Board of Directors.............................. 38
Position of Morton's Holdings, Morton's Acquisition and
CHP as to the Fairness of the Merger.................... 44
Forward-Looking Information............................... 46
Opinion of Financial Advisor to the Special Committee..... 48
Purpose and Structure of the Merger....................... 54
Effects of the Merger; Plans or Proposals After the
Merger.................................................. 54
Risks That the Merger Will Not Be Completed............... 55
Interests of Morton's Directors and Officers in the
Merger.................................................. 56
Certain Relationships Between CHP (and its affiliates) and
Morton's................................................ 60
Merger Financing.......................................... 60
Estimated Fees and Expenses of the Merger................. 61
Federal Regulatory Matters................................ 61
Liquor Licenses........................................... 62
Material U.S. Federal Income Tax Consequences............. 62
Litigation Challenging the Merger......................... 62
Appraisal Rights.......................................... 63
THE MERGER AGREEMENT........................................ 66
The Merger................................................ 66
Effective Time of the Merger.............................. 66
Certificate of Incorporation, Bylaws and Directors and
Officers of Morton's as the Surviving Corporation....... 66
Conversion of Common Stock................................ 67
Payment for Shares........................................ 67
Transfer of Shares........................................ 68
Treatment of Stock Options................................ 68
Representations and Warranties............................ 68
Conduct of Business Pending the Merger.................... 71
Limitation on Considering Other Acquisition Proposals..... 73
Special Meeting........................................... 75
Reasonable Best Efforts................................... 75
Employee Matters.......................................... 76
Indemnification and Insurance............................. 76
Stockholders Rights Plan.................................. 77
Conditions to Completing the Merger....................... 77
Termination............................................... 78
Termination Fee; Expense Reimbursement.................... 80
Letter Regarding Reimbursement of Certain Costs Relating
to Amendment No. 15 to Morton's Credit Agreement........ 81
COMMON STOCK PURCHASE INFORMATION........................... 82
Purchases by Morton's..................................... 82
Purchases by Directors and Officers of Morton's........... 82
Recent Transactions....................................... 82
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 83
INDEPENDENT AUDITORS........................................ 85
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PAGE
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FUTURE STOCKHOLDER MEETINGS AND PROPOSALS................... 85
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION................ 85
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APPENDIX A................................... Agreement and Plan of Merger, dated as of
March 26, 2002, by and among Morton's
Holdings, LLC (formerly known as Morton's
Holdings, Inc.), Morton's Acquisition Company
and Morton's Restaurant Group, Inc.
APPENDIX B................................... Opinion of Greenhill & Co., LLC, dated March
26, 2002.
APPENDIX C................................... Section 262 of the Delaware General
Corporation Law.
APPENDIX D................................... Information Relating to the Directors and
Executive Officers of Morton's Restaurant
Group, Inc.
APPENDIX E................................... Information Relating to Morton's Holdings,
LLC, Morton's Acquisition Company and Castle
Harlan Partners III, L.P. and Information
Relating to the Directors and Executive
Officers of Castle Harlan Partners III, G.P.,
Inc., Morton's Holdings, LLC and Morton's
Acquisition Company.
APPENDIX F................................... Annual Report on Form 10-K for the Fiscal
Year Ended December 30, 2001.
iii
SUMMARY TERM SHEET
This Summary Term Sheet highlights selected information contained in the
proxy statement and may not contain all of the information that is important to
you. You are urged to read the entire proxy statement carefully, including the
appendices. In the proxy statement, the terms Morton's and the Company refer to
Morton's Restaurant Group, Inc.
- STOCKHOLDER VOTE--You are being asked to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger, dated as of
March 26, 2002, by and among Morton's Acquisition Company, Morton's
Holdings, LLC (formerly known as Morton's Holdings, Inc.) and Morton's,
and the merger contemplated by the merger agreement. Under the merger
agreement, Morton's Acquisition will be merged into Morton's, with
Morton's as the surviving corporation. Approval and adoption of the merger
agreement and approval of the merger require the affirmative vote of the
holders of a majority of the outstanding shares of Morton's common stock.
See "The Special Meeting" beginning on page 16.
- PAYMENT--Upon completion of the merger, you will be entitled to receive
$12.60 in cash, without interest, for each share of Morton's common stock
that you own. You will not own any shares of Morton's common stock or any
other interest in Morton's after completion of the merger. Each
outstanding option to purchase shares of Morton's common stock will be
canceled at the effective time of the merger, and each option holder will
be entitled to receive a cash payment, without interest, equal to the
difference between $12.60 and the exercise price of the option, multiplied
by the number of shares subject to the option. Options with an exercise
price equal to or greater than $12.60 per share, however, will be canceled
at the effective time of the merger without any payment or other
consideration. See "The Merger Agreement" beginning on page 66.
- SPECIAL COMMITTEE--The Special Committee is a committee of Morton's Board
of Directors that, with the advice and assistance of its own legal and
financial advisors, evaluated and negotiated the merger proposal,
including the terms of the merger agreement, with Morton's Holdings and
Morton's Acquisition. The Special Committee consists solely of directors
who are not officers or employees of Morton's or of Morton's Holdings,
Morton's Acquisition or CHP and who have no financial interest in the
proposed merger different from Morton's stockholders generally. The
members of the Special Committee are Robert L. Barney, Lee M. Cohn
(Chairman) and Alan A. Teran.
- MORTON'S HOLDINGS--Morton's Holdings is Morton's Holdings, LLC, a newly
formed Delaware limited liability company wholly owned by Castle Harlan
Partners III, L.P., referred to as CHP, a private investment fund,
organized as a Delaware limited partnership, that makes investments
identified by its affiliates. See "The Participants" beginning on
page 18.
- MORTON'S ACQUISITION--Morton's Acquisition is Morton's Acquisition
Company, a newly formed Delaware corporation and a wholly owned subsidiary
of Morton's Holdings, LLC. See "The Participants" beginning on page 18.
- FAIRNESS OF THE MERGER--The Special Committee and, based in part upon the
unanimous recommendation of the Special Committee, the Board of Directors
of Morton's have each determined that the terms of the merger agreement
and the proposed merger are fair to and in the best interests of Morton's
and its stockholders. See "Special Factors--Reasons for the Recommendation
of the Special Committee and the Board of Directors" beginning on
page 38.
- TAX CONSEQUENCES--Generally, the merger will be taxable for U.S. federal
income tax purposes for Morton's stockholders. You will recognize taxable
gain or loss in the amount of the difference between $12.60 and your
adjusted tax basis for each share of Morton's common stock
1
that you own. See "Special Factors--Material U.S. Federal Income Tax
Consequences" beginning on page 62.
- CONDITIONS--The merger agreement and the merger are subject to approval by
the holders of a majority of the outstanding shares of Morton's common
stock, as well as other conditions, including that the parties obtain
required governmental consents and approvals (including liquor licenses
necessary to maintain continuity of service of alcoholic beverages
post-merger), that no court or governmental entity has imposed an order or
injunction prohibiting the merger, that Morton's has achieved a minimum
level of earnings, that Morton's has received identified third party
consents and approvals (including with respect to mortgage financing and
equipment leasing contracts) and that no event has occurred that has
resulted in or would reasonably be likely to result in a material adverse
effect on Morton's. See "The Merger Agreement--Conditions to Completing
the Merger" beginning on page 77.
- AFTER THE MERGER--Upon completion of the merger, Morton's Holdings will
own 100% of Morton's. You will cease to have ownership interests in
Morton's or rights as Morton's stockholders, and, as a result, if the
merger is completed, you will not participate in any future earnings,
losses, growth or decline of Morton's. See "Special Factors--Effects of
the Merger; Plans or Proposals After the Merger" beginning on page 54.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT AM I BEING ASKED TO VOTE UPON? (see page 16)
A: You are being asked to consider and vote upon a proposal to
approve and adopt the merger agreement and to approve the
merger contemplated by the merger agreement. Under the
merger agreement, Morton's Acquisition will be merged with
and into Morton's, with Morton's as the surviving
corporation. Morton's Acquisition is a newly formed Delaware
corporation that is wholly owned by Morton's Holdings, a
newly formed Delaware limited liability company. If the
merger agreement and the merger are approved and adopted and
the merger is completed, Morton's will no longer be a
publicly held corporation, and you will no longer own
Morton's common stock.
Q: WHAT WILL I RECEIVE IN THE MERGER? (see page 66)
A: Upon completion of the merger, you will be entitled to
receive $12.60 in cash, without interest, for each issued
and outstanding share of Morton's common stock.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE IN
FAVOR OF THE MERGER AGREEMENT AND THE MERGER? (see page 38)
A: In the opinion of the Board of Directors, the merger is fair
to and in the best interests of Morton's and its
stockholders. The Board of Directors has based this opinion,
in part, on (1) the unanimous recommendation of the Special
Committee of the Board of Directors, which consists solely
of directors who are not officers or employees of Morton's,
Morton's Holdings, Morton's Acquisition or CHP and who have
no financial interest in the proposed merger different from
Morton's stockholders generally, that the Board of Directors
approve and adopt the merger agreement and approve the
merger and (2) the oral opinion, subsequently confirmed by
the written opinion, dated March 26, 2002, of Greenhill &
Co., LLC, the Special Committee's financial advisor, that,
based on and subject to the considerations, limitations,
assumptions and qualifications set forth in the opinion, as
of March 26, 2002, the $12.60 per share cash consideration
to be received by Morton's stockholders in the proposed
merger was fair, from a financial point of view, to Morton's
stockholders (other than Morton's Holdings and its
subsidiaries, including Morton's Acquisition, and CHP and
its affiliates). THEREFORE, THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER. Because
of their affiliation with CHP, directors John K. Castle and
David B. Pittaway did not participate in or vote at the
meeting of the Board of Directors on
2
March 26, 2002 at which the Board of Directors discussed and
approved the merger agreement and the merger. They also were
not present during any deliberations of the Board of
Directors at which Morton's strategic alternatives were
discussed from the time that affiliates of Morton's Holdings
began exploring a possible transaction with Morton's in
August 2001.
Q: ARE THERE RISKS TO BE CONSIDERED? (see page 54)
A: Under the terms of the merger agreement, the cash
consideration of $12.60 per share will not change even if
the market price of our common stock changes before the
merger is completed. Additionally, if the merger is
completed, public stockholders of Morton's will not
participate in any future earnings, losses, growth or
decline of Morton's. For other factors to be considered, see
"Special Factors," particularly "--Effects of the Merger;
Plans or Proposals After the Merger" and "--Interests of
Morton's Directors and Officers in the Merger."
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: The parties to the merger agreement are working toward
completing the merger as quickly as possible. If Morton's
stockholders approve the merger agreement and the other
conditions to the merger are satisfied or waived, the merger
is expected to be completed in the summer of 2002.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER TO ME? (see page 62)
A: The receipt of cash for shares of common stock in the merger
will be a taxable transaction for U.S. federal income tax
purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws.
Generally, you will recognize gain or loss for these
purposes equal to the difference between $12.60 per share
and your tax basis for the shares of common stock that you
owned immediately before completion of the merger. For U.S.
federal income tax purposes, this gain or loss generally
would be a capital gain or loss if you held the shares of
common stock as a capital asset.
TAX MATTERS ARE VERY COMPLEX, AND THE TAX CONSEQUENCES OF
THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN
SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL
UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting of Morton's stockholders will be held at
[The Garden City Hotel, 45 Seventh Street, Garden City, New
York 11530], at 9:00 a.m. (local time) on [ ,
2002].
Q: WHO CAN VOTE ON THE MERGER AGREEMENT?
A: Holders of Morton's common stock at the close of business on
[ , 2002], the record date for the special
meeting, may vote in person or by proxy on the merger
agreement and the merger at the special meeting.
Q: WHAT VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND TO APPROVE THE MERGER?
A: The approval and adoption of the merger agreement and the
approval of the merger require the affirmative vote of the
holders of at least a majority of the outstanding shares of
Morton's common stock. The executive officers of Morton's,
owning an aggregate of approximately [6.80]% of Morton's
common stock, have indicated to us that they intend to vote
in favor of the merger agreement and the merger.
Q: WHAT DO I NEED TO DO NOW?
A: You should read this proxy statement carefully, including
its appendices, and consider how the merger affects you.
Then, mail your completed, dated and signed proxy card in
the enclosed return envelope as soon as possible so that
your shares can be voted at the special meeting of Morton's
stockholders.
Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD?
A: The failure to return your proxy card will have the same
effect as voting against the merger agreement and the
merger.
3
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the special meeting of Morton's
stockholders and vote your shares in person whether or not
you sign and return your proxy card. If your shares are held
of record by a broker, bank or other nominee and you wish to
vote at the special meeting, you must obtain a proxy from
the record holder.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY
CARD?
A: Yes. You may change your vote at any time before your proxy
card is voted at the special meeting. You can do this in one
of three ways. First, you can send a written notice stating
that you would like to revoke your proxy. Second, you can
complete and submit a new proxy card. Third, you can attend
the special meeting and vote in person. Your attendance
alone will not revoke your proxy. If you have instructed a
broker to vote your shares, you must follow directions
received from your broker to change those instructions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
A: Your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to
vote your shares, following the procedures provided by your
broker.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written
instructions for exchanging your shares of Morton's common
stock for a cash payment of $12.60 per share, without
interest.
Q: WHAT RIGHTS DO I HAVE TO SEEK AN APPRAISAL OF MY SHARES?
(see page 63)
A: If you wish, you may seek an appraisal of the fair value of
your shares, but only if you comply with all requirements of
Delaware law as described on pages 63 through 66 and in
Appendix C of this proxy statement. Depending upon the
determination of the Delaware Court of Chancery, the
appraised fair value of your shares of Morton's common
stock, which you will receive if you seek an appraisal, may
be less than, equal to or more than the $12.60 per share to
be paid in the merger.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: The information provided above in question-and-answer format
is for your convenience only and is merely a summary of the
information contained in this proxy statement. You should
carefully read the entire proxy statement, including the
appendices. If you would like additional copies, without
charge, of this proxy statement or if you have questions
about the merger, including the procedures for voting your
shares, you should contact:
Morton's Restaurant Group, Inc.
Attention: Thomas J. Baldwin
3333 New Hyde Park Road
New Hyde Park, New York 11042
Telephone: (516) 627-1515
OR
Georgeson Shareholder Communications Inc.
17 State Street, 10th Floor
New York, New York 10004
Telephone: (866) 300-8590
4
SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. For a more
complete understanding of the merger, you should carefully read this entire
document and the documents that it references. In particular, you should read
the documents that are part of the proxy statement, including the merger
agreement that is attached to the proxy statement as Appendix A for your
information. In addition, important information about Morton's is provided in
the Annual Report on Form 10-K for the fiscal year ended December 30, 2001,
included as Appendix F to the proxy statement. Page references are included in
parentheses at various points in this summary to direct you to a more detailed
description in the proxy statement of the topics presented.
THE MERGER (see page 66)
Under the merger agreement, Morton's Acquisition will merge with and into
Morton's, and each issued and outstanding share of Morton's common stock will be
converted into the right to receive $12.60 in cash, without interest (other than
shares held by Morton's or any of Morton's subsidiaries, held in Morton's
treasury, or held by Morton's Holdings or Morton's Acquisition, or shares held
by Morton's stockholders who perfect their appraisal rights under Delaware law).
Each outstanding option to purchase shares of Morton's common stock will be
canceled at the effective time of the merger, and each option holder will be
entitled to receive a cash payment, without interest, equal to the difference
between $12.60 and the exercise price of the option, multiplied by the number of
shares subject to the option. Options with an exercise price equal to or greater
than $12.60 per share, however, will be canceled at the effective time of the
merger without any payment or other consideration. The merger will become
effective upon the filing of a certificate of merger with the Secretary of State
of the State of Delaware. The parties intend to complete the merger as soon as
practicable once all conditions to the merger have been satisfied or waived,
which they anticipate will be in the summer of 2002. Upon completion of the
merger, Morton's will be the surviving corporation and will be a wholly-owned
subsidiary of Morton's Holdings, and Morton's Acquisition will cease to exist.
THE PARTICIPANTS (see page 18)
Morton's Restaurant Group, Inc.
Morton's owns and operates 61 Morton's of Chicago Steakhouse restaurants and
4 Bertolini's Authentic Trattoria restaurants. These concepts appeal to a broad
spectrum of consumer tastes and target separate price points and dining
experiences. Morton's provides strategic support and direction to its subsidiary
companies and evaluates and analyzes potential locations for new restaurants.
Morton's was incorporated in Delaware in October 1988 and its executive offices
are located at 3333 New Hyde Park Road, New Hyde Park, New York 11042.
Information about the directors and executive officers of Morton's is set forth
in Appendix D to this proxy statement.
Morton's Holdings, LLC and
Morton's Acquisition Company
Morton's Holdings, LLC, referred to as Morton's Holdings, is a Delaware
limited liability company that is wholly owned by its sole member, Castle Harlan
Partners III, L.P., referred to as CHP. Morton's Holdings was originally formed
as a Delaware corporation under the name of "Morton's Holdings, Inc." and was
recently converted into a Delaware limited liability company. Morton's
Acquisition Company, referred to as Morton's Acquisition, is a Delaware
corporation that is wholly owned by Morton's Holdings. Both Morton's Holdings
and Morton's Acquisition were formed solely for purposes of completing the
merger and have not participated in any activities to date other than those
incident to their formation and the transactions contemplated by the merger
agreement. Morton's Holdings and Morton's Acquisition were incorporated in
Delaware in March 2002. Morton's Holdings was converted into a Delaware limited
liability company in April 2002. Additional information about Morton's Holdings
and Morton's Acquisition and information about the directors and executive
officers of Morton's Holdings and Morton's Acquisition is set forth in
Appendix E to this proxy statement.
5
Castle Harlan Partners III, L.P.
Castle Harlan Partners III, L.P., referred to as CHP, is a private
investment fund, organized as a limited partnership under the laws of the State
of Delaware, which makes investments identified by its affiliates. CHP and its
affiliates have approximately $630 million of committed capital. Since 1987, CHP
and its predecessor investment funds have completed acquisitions of
approximately $5 billion. CHP and its affiliates are highly experienced
investors that have successfully completed 35 transactions in a wide variety of
industries, including aviation services, consumer products, energy services,
general manufacturing and restaurants. John K. Castle and David B. Pittaway are
executive officers of certain affiliates of CHP and are members of the Board of
Directors of Morton's. Additional information about CHP is set forth in
Appendix E to this proxy statement.
REASONS FOR THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS (see page 38)
The Board of Directors of Morton's formed a Special Committee, which is
composed of directors who are not officers or employees of Morton's, Morton's
Holdings, Morton's Acquisition or CHP and who have no financial interest in the
proposed merger different from Morton's stockholders generally. The Special
Committee, acting with the advice and assistance of its own legal and financial
advisors, evaluated and negotiated the merger proposal, including the terms of
the merger agreement, with Morton's Holdings and Morton's Acquisition. The
Special Committee unanimously determined that the proposed merger and merger
agreement are fair to and in the best interests of Morton's and its
stockholders, approved the merger and the merger agreement and recommended to
the Board of Directors to approve and adopt the merger agreement and approve the
merger. The Board of Directors, based in part on the unanimous recommendation of
the Special Committee, has determined by unanimous vote of those participating
that the merger is fair to and in the best interests of Morton's and its
stockholders and has approved and adopted the merger agreement and approved the
merger. THEREFORE, THE BOARD OF DIRECTORS, BASED ON THE UNANIMOUS RECOMMENDATION
OF THE SPECIAL COMMITTEE, RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER. Each of the Board of
Directors and the Special Committee based its decision on a number of factors,
including the oral opinion, subsequently confirmed by the written opinion, dated
March 26, 2002, of Greenhill & Co., LLC, the Special Committee's financial
advisor, referred to as Greenhill, that, based on and subject to the
considerations, limitations, assumptions and qualifications set forth in the
opinion, as of March 26, 2002, the $12.60 per share cash consideration to be
received by Morton's stockholders in the proposed merger was fair, from a
financial point of view, to Morton's stockholders (other than Morton's Holdings
and its subsidiaries, including Morton's Acquisition, and CHP and its
affiliates).
Because of their affiliation with CHP, directors John K. Castle and David B.
Pittaway did not participate in or vote at the meeting of the Board of Directors
on March 26, 2002 at which the Board of Directors discussed and approved the
merger agreement and the merger. They also were not present during any
deliberations of the Board of Directors at which Morton's strategic alternatives
were discussed from the time that affiliates of Morton's Holdings began
exploring a possible transaction with Morton's in August 2001.
POSITION OF MORTON'S HOLDINGS, MORTON'S ACQUISITION AND CHP AS TO THE FAIRNESS
OF THE MERGER (see page 44)
Each of Morton's Holdings, Morton's Acquisition and CHP believes that the
consideration to be received in the merger by Morton's stockholders is fair to
such stockholders from a financial point of view and that the merger is
procedurally fair to Morton's stockholders.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE (see page 48)
In deciding to approve the terms of the merger agreement and the merger, one
of the factors that the Board of Directors and the Special Committee considered
was the oral opinion, subsequently confirmed by the written opinion, dated
March 26, 2002, of Greenhill, the Special Committee's
6
financial advisor, that, based on and subject to the considerations,
limitations, assumptions and qualifications set forth in the opinion, as of
March 26, 2002, the $12.60 per share cash consideration to be received by
Morton's stockholders in the proposed merger was fair, from a financial point of
view, to Morton's stockholders (other than Morton's Holdings and its
subsidiaries, including Morton's Acquisition, and CHP and its affiliates). The
complete Greenhill opinion, including applicable considerations, limitations,
assumptions and qualifications, describes the basis for the opinion and is
attached as Appendix B to this proxy statement. YOU ARE URGED TO READ THE ENTIRE
OPINION CAREFULLY. GREENHILL'S OPINION WAS ADDRESSED TO THE SPECIAL COMMITTEE
AND THE BOARD OF DIRECTORS FOR THE PURPOSES OF THEIR EVALUATION OF THE MERGER
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY MORTON'S STOCKHOLDER AS TO HOW
TO VOTE WITH RESPECT TO THE PROPOSED MERGER.
INTERESTS OF MORTON'S DIRECTORS AND OFFICERS IN THE MERGER (see page 56)
The merger is not conditioned on any agreement or transaction with the
current management of Morton's. Prior to the execution of the merger agreement,
neither Morton's Holdings nor any of its affiliates (including Messrs. Castle
and Pittaway) had any discussions or negotiations with the executive officers of
Morton's regarding any proposed changes to their employment or other
compensation arrangements or the terms of any investment in Morton's Holdings or
Morton's following the completion of the merger. When considering the
recommendation of the Board of Directors that you vote for approval and adoption
of the merger agreement and approval of the merger, however, you should be aware
that a number of Morton's directors and officers have interests in the merger
that are different from, or in addition to, yours. These interests include the
following:
- John K. Castle and David B. Pittaway are executive officers of certain
affiliates of CHP, and each has an indirect financial interest in Morton's
Holdings;
- the merger agreement provides that the current officers of Morton's,
including Allen J. Bernstein and Thomas J. Baldwin, will continue as the
officers of Morton's immediately following the merger until their
successors are duly elected or appointed and qualified or until their
earlier death, resignation or removal;
- Allen J. Bernstein, Thomas J. Baldwin, John K. Castle, Lee M. Cohn, Alan
A. Teran, Dr. John J. Connolly and David B. Pittaway also serve on the
boards of directors of one or more private companies controlled by CHP and
its affiliates. Dr. Connolly and Mr. Castle are principals in several
medical publishing ventures. Dianne H. Russell is also an officer of one
of the Company's lenders;
- Morton's Holdings has informed Morton's that Morton's Holdings intends to
offer to certain senior employees, including Allen J. Bernstein and Thomas
J. Baldwin, the opportunity to subscribe for equity interests in Morton's
Holdings of up to an aggregate of approximately 7.5% of the total equity
interests of Morton's Holdings. It is expected that the subscription by
these individuals for equity interests in Morton's Holdings, if any, would
be on substantially the same terms as the subscription by CHP for equity
interests in Morton's Holdings at the time of completion of the merger.
Any such investment will reduce, on a dollar-for-dollar basis, the amount
of cash merger consideration to be received by any such individual in
exchange for such individual's shares of Morton's common stock in the
merger. The identity of the individuals who may subscribe for equity
interests in Morton's Holdings, and the percentage ownership of Morton's
Holdings that such individuals may hold following the merger in this
connection (not to exceed 7.5% in the aggregate), may vary and may not be
finally determined until shortly prior to completion of the merger. The
opportunities to invest in Morton's Holdings provides these individuals
with interests in the merger that are different from, or in addition to,
your interests as a Morton's stockholder;
- Morton's Holdings has informed Morton's that Morton's Holdings expects
that, following completion of the merger, an aggregate of approximately
10-15% of the common equity interests of Morton's Holdings will be
reserved pursuant to an employee equity incentive program that
7
provides for the issuance to employees of the surviving corporation of
options to purchase equity interests in Morton's Holdings and/or
restricted equity interests in Morton's Holdings. Morton's Holdings has
not determined the details of the employee equity incentive program and
has not determined who may be eligible to participate in the program or
the conditions for eligibility for and vesting of such awards;
- there are currently no plans, proposals or negotiations that relate to, or
would result in, a change in the terms of the employment or other
compensation arrangements of Morton's executive officers. All of these
employment or other compensation arrangements were entered into prior to,
and not in anticipation of, the negotiation of the merger agreement;
- pursuant to change of control agreements that were entered into prior to,
and not in anticipation of, the negotiation of the merger agreement, each
of the seven executive officers will receive payments of up to three times
their current compensation, which amounts range from approximately
$440,000 to approximately $4,546,000, if their employment is terminated
within three years of the merger by the employee for good reason or by the
employer without cause;
- all options for shares of Morton's common stock, specifically options for
843,475 shares held by Morton's executive officers and options for 298,799
shares held by other Morton's employees, will be fully vested immediately
prior to the effective time of the merger; and
- the merger agreement provides, as is customary for transactions of this
type, that indemnification and insurance arrangements will be maintained
for Morton's directors and officers.
Upon consummation of the merger, it is expected that Castle Harlan, Inc., an
affiliate of CHP which identifies and manages investments on behalf of certain
affiliated private investment funds, will enter into a consulting agreement with
Morton's. Pursuant to the consulting agreement, Morton's will agree to pay
Castle Harlan, Inc. an annual fee for management and consulting services to be
rendered to Morton's following the merger in an amount of up to $2.8 million per
year, subject to certain performance-based conditions being satisfied. The first
such annual fee in the amount of approximately $2.8 million will be paid in
advance to Castle Harlan, Inc. upon completion of the merger.
MERGER FINANCING (see page 60)
Morton's and Morton's Holdings estimate that the total amount of new funds
necessary to consummate the merger and related transactions will be
approximately $74.0 million. Approximately $10.0 million of this amount will be
used to retire existing bank debt of Morton's, and the remainder will be used to
pay the merger consideration and to pay fees and expenses necessary to complete
the merger and related transactions. CHP has committed to provide $74.0 million
of equity financing to Morton's Holdings at the time of completion of the
Merger. CHP and Morton's Holdings have agreed not to amend, modify or terminate
that commitment in any respect that would adversely affect the probability that
the transactions contemplated by the merger agreement will close, or that will
delay the closing, without the prior written consent of Morton's (which consent
requires the approval of the Special Committee).
Completion of the merger is not contingent on obtaining any additional
financing (other than the repayment of $10.0 million of bank debt contemplated
by the amendment to the credit agreement described below) to repay Morton's
existing bank debt. Morton's Holdings has negotiated on behalf of Morton's, and
Morton's and its bank lenders have executed, an amendment (which will only
become binding and effective concurrently with completion of the merger) to
Morton's credit agreement to allow the merger to take place. The amendment is
subject to completion of the merger, repayment of $10.0 million of bank debt and
other customary conditions for amendments of this type.
THE SPECIAL MEETING (see page 16)
TIME, DATE AND PLACE. A special meeting of the stockholders of Morton's
will be held at [The Garden City Hotel, 45 Seventh Street, Garden City, New York
11530], at 9:00 a.m. (local time) on
8
[ , 2002], to consider and vote upon the proposal to approve and
adopt the merger agreement and approve the merger.
RECORD DATE AND VOTING INFORMATION. You are entitled to vote at the special
meeting if you owned shares of Morton's common stock at the close of business on
[record date], which is the record date for the special meeting. You will have
one vote at the special meeting for each share of Morton's common stock you
owned at the close of business on the record date. On the record date, there
were [number] shares of Morton's common stock entitled to be voted at the
special meeting.
REQUIRED VOTE. The approval and adoption of the merger agreement and the
approval of the merger require the affirmative vote of the holders of a majority
of the shares of Morton's common stock outstanding at the close of business on
the record date. Abstentions and broker non-votes are equivalent to votes cast
against the proposal.
SHARES HELD BY MANAGEMENT. The executive officers of Morton's collectively
hold, as of the record date, approximately [6.80%] of the Company's outstanding
common stock. These stockholders have indicated to Morton's their intention to
vote their shares in favor of approving and adopting the merger agreement and
approving the merger.
APPRAISAL RIGHTS (see page 63)
Morton's is a corporation organized under Delaware law. Under Delaware law,
if you do not vote in favor of the merger and instead follow the appropriate
procedures for demanding appraisal rights as described on pages 63 through 66
and in Appendix C, you will receive a cash payment for the "fair value" of your
shares of Morton's common stock, as determined by the Delaware Court of
Chancery. The price determined by the Delaware Court of Chancery may be less
than, equal to or more than the $12.60 in cash you would have received for each
of your shares in the merger if you had not exercised your appraisal rights.
Generally, in order to exercise appraisal rights, among other things:
- you must not vote for approval and adoption of the merger agreement and
approval of the merger; and
- you must make written demand for appraisal in compliance with Delaware law
before the vote on the merger agreement and the merger.
Merely voting against the merger agreement and the merger will not perfect
your appraisal rights under Delaware law. Appendix C to this proxy statement
contains the Delaware statute relating to your appraisal rights. IF YOU WANT TO
EXERCISE YOUR APPRAISAL RIGHTS, PLEASE READ AND CAREFULLY FOLLOW THE PROCEDURES
DESCRIBED ON PAGES 63 THROUGH 66 AND IN APPENDIX C. FAILURE TO TAKE ALL OF THE
STEPS REQUIRED UNDER DELAWARE LAW MAY RESULT IN THE LOSS OF YOUR APPRAISAL
RIGHTS.
THE MERGER AGREEMENT (see page 66)
The merger agreement, including the conditions to the closing of the merger,
is described on pages 66 through 82 and is attached to this proxy statement as
Appendix A for your information. You should read carefully the entire merger
agreement as it is the legal document that governs the merger.
CONDITIONS TO COMPLETING THE MERGER (see page 77)
The merger agreement and the merger are subject to approval by the holders
of a majority of the outstanding shares of Morton's common stock, as well as
other conditions, including that the parties obtain required governmental
consents and approvals (including liquor licenses necessary to maintain
continuity of service of alcoholic beverages post-merger), that no court or
governmental entity has imposed an order or injunction prohibiting the merger,
that Morton's has achieved a minimum level of earnings, that Morton's has
received identified third party consents and approvals (including with respect
to certain mortgage financing and equipment leasing contracts) and that no event
has occurred that has resulted in or would reasonably be likely to result in a
material adverse effect on Morton's.
9
LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS (see page 73)
Morton's has agreed that it, including its subsidiaries, its affiliates and
each of its and their respective officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants and
other agents, will not take specified actions relating to other proposals to
acquire Morton's, including that it will not encourage, solicit, initiate or
facilitate, directly or indirectly, the making or submission of any acquisition
proposal or except in accordance with the terms of the merger agreement as
described below, enter into any agreement, arrangement or understanding with
respect to any acquisition proposal, or to agree to approve or endorse any
acquisition proposal or enter into any agreement, arrangement or understanding
that would require Morton's to abandon, terminate or fail to consummate the
merger or any other transaction contemplated by the merger agreement.
So long as Morton's has not breached the applicable provisions of the merger
agreement, prior to the special meeting, Morton's, in response to an unsolicited
acquisition proposal, may, subject to compliance with certain conditions, take
specified actions, including, if the acquisition proposal is or is reasonably
likely to lead to a superior proposal (as defined in the merger agreement),
requesting clarifications from, or furnishing information to, and if the
acquisition proposal is a superior proposal, participating in discussions with,
any person making such unsolicited acquisition proposal.
Morton's has agreed that neither the Board of Directors nor any Board
committee will (a) withdraw, modify or amend, or propose to withdraw, modify or
amend, in a manner adverse to Morton's Holdings or Morton's Acquisition, the
approval, adoption or recommendation, as the case may be, of the merger, the
merger agreement or any of the other transactions contemplated by the merger
agreement, (b) approve or recommend, or propose to approve or recommend, any
acquisition proposal, (c) cause Morton's to accept the acquisition proposal
and/or enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement, related to the acquisition proposal, or
(d) resolve to do any of the foregoing; unless the Board of Directors has
complied with the requirements of the merger agreement and, based on the
recommendation of the Special Committee, (a) the acquisition proposal is a
superior proposal, (b) the Board of Directors reasonably determines in
accordance with the terms of the merger agreement that it is necessary to take
these actions in order to comply with its fiduciary duties under applicable law
and all of the conditions to Morton's right to terminate the merger agreement in
accordance with the merger agreement have been satisfied and (c) simultaneously
or substantially simultaneously with the withdrawal, modification or
recommendation, Morton's terminates the merger agreement.
TERMINATION (see page 78)
Morton's or Morton's Holdings may terminate the merger agreement at any time
prior to the effective time of the merger, whether before or after the
stockholders of Morton's have approved and adopted the merger agreement, if:
- both parties agree by mutual written consent;
- the merger has not been consummated by September 23, 2002, so long as the
party attempting to terminate has not willfully and materially breached a
representation, warranty, obligation, covenant or agreement set forth in
the merger agreement; provided, that Morton's Holdings may extend the
termination date to December 21, 2002, if the only condition to closing
not met is with respect to authorizations, approvals and consents
necessary or required for the sale of alcoholic beverages;
- a governmental entity or court of competent jurisdiction has taken any
nonappealable final action that permanently restrains, enjoins or
otherwise prohibits the merger or the other transactions contemplated by
the merger agreement, so long as a material failure to fulfill any
10
obligation under the merger agreement by the party attempting to terminate
was not the principal cause of or did not result in such action;
- the holders of a majority of shares of Morton's outstanding common stock
do not adopt and approve the merger agreement and approve the merger at
the special meeting; or
- the other party has materially breached or failed to perform any of its
representations, warranties, covenants or agreements set forth in the
merger agreement.
Morton's Holdings may terminate the merger agreement if:
- (a) Morton's (1) withdraws, modifies or amends, or proposes to withdraw,
modify or amend, in a manner adverse to Morton's Holdings or Morton's
Acquisition, the approval, adoption or recommendation, as the case may be,
of the merger, the merger agreement or any of the other transactions
contemplated by the merger agreement or (2) approves or recommends, or
proposes to approve or recommend, or enters into any agreement,
arrangement or understanding with respect to, any acquisition proposal;
(b) the Board of Directors or any Board committee resolves to take any of
the actions set forth in preceding subclause (a); (c) if after an
acquisition proposal has been made, the Board of Directors or the Special
Committee fails to affirm its recommendation and approval of the merger
and the merger agreement within three business days of any request by
Morton's Holdings to do so; or (d) if a tender offer or exchange offer
constituting an acquisition proposal is commenced and the Board of
Directors or the Special Committee does not recommend against acceptance
of such offer by Morton's stockholders; or
- Morton's has breached the limitations on its consideration of other
acquisition proposals (See "--Limitation on Considering Other Acquisition
Proposals").
Morton's may terminate the merger agreement if Morton's receives a superior
proposal, and the Board of Directors reasonably determines in accordance with
the merger agreement that it is necessary to terminate the merger agreement and
enter into an agreement to effect the superior proposal in order to comply with
its fiduciary duties under applicable law.
TERMINATION FEE; EXPENSE REIMBURSEMENT (see page 80)
If the merger agreement is terminated then Morton's may be obligated to pay
to Morton's Holdings an amount equal to (a) the out-of-pocket expenses of
Morton's Holdings and Morton's Acquisition related to the merger and any related
financing up to $1,320,000 and (b) a fee equal to (1) $1,320,000 minus (2) the
amount paid as reimbursement of out-of-pocket expenses of Morton's Holdings and
Morton's Acquisition or an amount equal to the out-of-pocket expenses of
Morton's Holdings and Morton's Acquisition related to the merger and any related
financing up to $1,320,000.
CERTAIN EFFECTS OF THE MERGER (see page 54)
Upon completion of the merger, Morton's Holdings will own 100% of Morton's.
Subsequent to the merger, Morton's current stockholders (other than the members
of management, if any, that make an equity investment in Morton's Holdings) will
cease to have ownership interests in Morton's or rights as Morton's stockholders
and, as a result, if the merger is completed, such stockholders of Morton's will
not participate in any future earnings, losses, growth or decline of Morton's.
In addition, Morton's will be a privately held corporation, and there will be no
public market for its common stock. The common stock will cease to be quoted on
the New York Stock Exchange, and price quotations with respect to sales of
shares of Morton's common stock in the public market will no longer be
available. In addition, registration of the common stock under the Securities
Exchange Act of 1934, as amended, referred to as the Exchange Act, will be
terminated.
11
FEDERAL REGULATORY MATTERS (see page 61)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations promulgated thereunder, referred to as the HSR Act, require that
Morton's and the ultimate parent entity of Morton's Acquisition file
notification and report forms with respect to the merger and related
transactions with the Antitrust Division of the U.S. Department of Justice and
the U.S. Federal Trade Commission and observe a waiting period before completing
the merger. In compliance with the HSR Act, Morton's filed the necessary forms
with the U.S. Department of Justice and the U.S. Federal Trade Commission on
[April 11, 2002], and CHP filed them on [April 9, 2002]. However, the U.S.
Department of Justice and the U.S. Federal Trade Commission, state antitrust
authorities or a private person or entity could seek to enjoin the merger under
antitrust laws at any time before its completion or to compel rescission or
divestiture at any time subsequent to the merger.
LIQUOR LICENSES (see page 62)
As a condition to the completion of the merger, Morton's and Morton's
Holdings must have filed and/or obtained any and all authorizations, approvals,
consents or orders from any governmental entity necessary or required in order
to obtain and maintain in effect for a reasonable period of time following the
consummation of the merger all liquor licenses and other permits necessary to
maintain continuity of service of alcoholic beverages at each restaurant of the
Company, and all authorizations, approvals, consents and orders must be
effective and binding in accordance with their terms and may not have expired or
been withdrawn.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (see page 62)
The receipt of cash for shares of common stock in the merger will be a
taxable transaction for U.S. federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign or other tax laws.
Generally, you will recognize gain or loss for these purposes equal to the
difference between $12.60 per share and your tax basis for the shares of common
stock that you owned immediately before completion of the merger. TAX MATTERS
ARE VERY COMPLEX AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON
THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL
UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
LITIGATION CHALLENGING THE MERGER (see page 62)
Between March 27, 2002 and April 3, 2002, five substantially identical civil
actions were commenced, four of which were commenced in the Court of Chancery of
the State of Delaware in New Castle County and one of which was commenced in the
Supreme Court of the State of New York in Nassau County. The plaintiff in each
action seeks to represent a putative class consisting of the public stockholders
of Morton's (excluding officers and directors of Morton's). Named as defendants
in each of the complaints are Morton's, members of Morton's Board of Directors
and Castle Harlan, Inc. The plaintiffs allege, among other things, that the
proposed merger is unfair; the Morton's directors breached their fiduciary
duties by failing to disclose material non-public information related to the
value of Morton's and by engaging in self-dealing; Castle Harlan, Inc. aided and
abetted the Morton's directors' breaches of fiduciary duty; the price
contemplated in the merger agreement is inadequate; the merger agreement is a
product of a conflict of interest between the directors of Morton's and Morton's
public stockholders; and information regarding the value and prospects of
Morton's has not been publicly disclosed although that information is known to
the defendants. The complaints seek an injunction, damages and other relief.
Morton's believes that these lawsuits are without merit and intends to defend
against them vigorously.
12
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement includes statements that are not historical facts.
These forward-looking statements are based on Morton's and/or, where applicable,
Morton's Holdings', Morton's Acquisition's and CHP's current estimates and
assumptions and, as such, involve uncertainty and risk. Forward-looking
statements include the information concerning possible or assumed future results
of operations and also include those preceded or followed by words such as
"anticipates," "believes," "thinks," "could," "estimates," "expects," "intends,"
"may," "should," "plans," "targets" and/or similar expressions.
The forward-looking statements are not guarantees of future performance,
events or circumstances, and actual results may differ materially from those
contemplated by the forward-looking statements. In addition to the factors
discussed elsewhere in this proxy statement, including risks that stockholder
approval and regulatory and third party clearances may not be obtained in a
timely manner or at all, that the required minimum earnings level may not be
achieved by Morton's, that an order or injunction may be imposed prohibiting or
delaying the merger and that any other conditions to the merger may not be
satisfied or waived, other factors that could cause actual results to differ
materially include risks of the restaurant industry, including a highly
competitive industry with many well-established competitors with greater
financial and other resources than the Company, and the impact of changes in
consumer tastes, local, regional and national economic and market conditions,
restaurant profitability levels, expansion plans, demographic trends, traffic
patterns, employee availability and benefits, cost increases and regulatory
developments. In addition, the Company's ability to expand is dependent upon
various factors, such as contractual restrictions imposed by the Company's
credit agreement, the availability of attractive sites for new restaurants, the
ability to negotiate suitable lease terms, the ability to generate or borrow
funds to develop new restaurants and obtain various government permits and
licenses and the recruitment and training of skilled management and restaurant
employees. These and other factors are discussed elsewhere in this proxy
statement, and in the Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 2001, which is included in this proxy statement as
Appendix F and incorporated herein by reference.
Except to the extent required under the federal securities laws, neither
Morton's nor any of Morton's Holdings, Morton's Acquisition or CHP intends to
update or revise the forward-looking statements to reflect circumstances arising
after the date of the preparation of the forward-looking statements.
MORTON'S SELECTED HISTORICAL FINANCIAL DATA
Morton's selected historical financial data presented below as of and for
the five fiscal years ended December 30, 2001 are derived from Morton's audited
financial statements. The following selected historical financial data should be
read in conjunction with Morton's financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Morton's Annual Report on Form 10-K for the fiscal year
ended December 30, 2001, which is included in this proxy statement as
Appendix F and is incorporated by reference.
13
STATEMENT OF OPERATIONS INFORMATION
FISCAL YEARS
----------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues...................................... $237.1 $248.4 $206.9 $189.8 $172.7(5)
Income (Loss) Before Income Taxes and
Cumulative Effect of a Change in an
Accounting Principle........................ 0.3(1) 14.4 14.3(2) (6.1)(4) 9.2(6)
Income (Loss) Before Cumulative Effect of a
Change in an Accounting Principle........... 1.0(1) 10.1 10.7(2) (1.9)(4) 6.9(6)
Net Income (Loss)............................. 1.0(1) 10.1 8.5(2)(3) (1.9)(4) 6.9(6)
Net Income (Loss) Per Share Before Cumulative
Effect of a Change in an Accounting
Principle:
Basic..................................... 0.24(1) 2.20 1.81(2) (0.28)(4) 1.06(6)
Diluted................................... 0.23(1) 2.12 1.77(2) (0.28)(4) 1.00(6)
Net Income (Loss) Per Share:
Basic..................................... 0.24(1) 2.20 1.42(2)(3) (0.28)(4) 1.06(6)
Diluted................................... $ 0.23(1) $ 2.12 $ 1.39(2)(3) $(0.28)(4) $ 1.00(6)
BALANCE SHEET INFORMATION
FISCAL YEARS
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Current Assets........................................ $ 24.7 $ 23.8 $ 22.5 $19.3 $18.6
Property and Equipment, Net........................... 82.9 78.0 66.7 45.8 34.6
Total Assets.......................................... 134.7 124.4 114.4 95.0 81.9
Current Liabilities................................... 30.6 35.8 34.5 28.2 21.4
Obligations to Financial Institutions and Capital
Leases, Less Current Maturities..................... 100.2 85.0 61.0 40.3 28.7
Stockholders' Equity (Deficit)........................ $ (0.2) $ (0.9) $ 12.1 $23.0 $28.6
------------------------
(1) Includes pre-tax charge of $1.6 million representing restaurant closing
costs, pre-tax charge of $0.7 million for costs associated with strategic
alternatives and proxy contest and an income tax benefit of $0.7 million.
(2) Includes nonrecurring, pre-tax litigation benefit of $0.2 million.
(3) Includes a $2.3 million charge, net of income taxes, representing the
cumulative effect of the requisite change in accounting for pre-opening
costs.
(4) Includes nonrecurring, pre-tax charge of $19.9 million representing the
write-down of impaired Bertolini's restaurant assets and the write-down and
accrual of lease exit costs associated with the closure of specified
Bertolini's restaurants, as well as the remaining interests in Mick's and
Peasant restaurants.
(5) Includes Mick's and Peasant revenues of $8.4 million.
(6) Includes nonrecurring, pre-tax litigation charge of $2.3 million.
------------------------
Morton's book value per share of common stock was $(0.05) at December 30,
2001. No pro forma data giving effect to the proposed merger is provided.
Morton's does not believe that pro forma data is material to stockholders in
evaluating the merger and the merger agreement because the merger consideration
is all cash and, if the merger is completed, Morton's common stock will not be
publicly traded and Morton's stockholders will no longer have any equity
interest in Morton's. No separate financial data is provided for Morton's
Acquisition since it is a special purpose entity formed in connection with the
proposed merger and has no independent operations.
14
TRADING MARKETS AND MARKET PRICE
Shares of Morton's common stock are listed and traded on the New York Stock
Exchange, referred to as the NYSE, under the symbol "MRG." The following table
shows, for the periods indicated, the reported high and low sale prices per
share on the NYSE for Morton's common stock.
HIGH LOW
--------------- ---------------
FISCAL YEAR ENDED DECEMBER 31, 2000
First Quarter............................................... $ 19.81 $ 15.00
Second Quarter.............................................. 21.75 17.75
Third Quarter............................................... 21.50 19.88
Fourth Quarter.............................................. 23.50 18.69
FISCAL YEAR ENDED DECEMBER 30, 2001
First Quarter............................................... 24.15 19.15
Second Quarter.............................................. 28.00 18.70
Third Quarter............................................... 20.30 7.60
Fourth Quarter.............................................. 14.15 8.50
FISCAL YEAR ENDING DECEMBER 29, 2002
First Quarter............................................... 14.30 6.60
Second Quarter (through [date])............................. [] []
On February 14, 2002, the last full trading day before Morton's Holdings
initially submitted its formal proposal to acquire Morton's (then at the
proposed price of $12.00 per share), the closing price per share of Morton's
common stock as reported on the NYSE was $6.60. On March 26, 2002, the last full
trading day before the public announcement of the merger agreement, the high and
low sale prices for Morton's common stock as reported on the NYSE were $11.55
and $11.30 per share, respectively, and the closing sale price on that date was
$11.55 per share. On [date], the last practicable trading day for which
information was available prior to the date of the first mailing of this proxy
statement, the closing price per share of Morton's common stock as reported on
the NYSE was $[ ], and there were [ ] shares of common stock
outstanding. Stockholders should obtain a current market quotation for Morton's
common stock before making any decision with respect to the merger. On [record
date], there were approximately [number] holders of record of Morton's common
stock.
Morton's has received notice from the NYSE that Morton's is below the NYSE
continued listing standards regarding total market capitalization and
stockholders' equity. Morton's has submitted a business plan to the NYSE
demonstrating its plan to comply with such continued listing standards if the
merger is not completed. The NYSE has advised Morton's that its listing and
compliance committee has agreed to continue the listing of Morton's common stock
on the NYSE through completion of the merger. If the merger does not close by
early summer of 2002, however, the NYSE plans to review the circumstances
causing the delay and to reassess its decision to continue the listing of
Morton's common stock. Further, if the merger agreement is terminated, the NYSE
listing and compliance committee would either accept the Company's submitted
business plan and subject Morton's to quarterly monitoring for compliance with
the listing standards or would not accept the Company's submitted business plan
and subject Morton's to suspension and delisting of its common
15
stock. If the merger is completed, Morton's will be a private company, and its
common stock will no longer trade on the NYSE.
Morton's has never declared or paid cash dividends on its common stock and
does not plan to pay any cash dividends in the foreseeable future. Morton's
credit agreement prohibits the Company from paying dividends on its common
stock. In addition, under the merger agreement, the Company has agreed not to
pay any cash dividends on its common stock before the closing of the merger.
THE SPECIAL MEETING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Morton's for use at a special meeting of stockholders to be held on [day],
[date], at 9:00 a.m. local time, or at any adjournments or postponements
thereof, for the purposes set forth in this proxy statement and in the
accompanying notice of special meeting. The special meeting will be held at [The
Garden City Hotel, 45 Seventh Street, Garden City, New York 11530]. Morton's
intends to mail this proxy statement and accompanying proxy card on or about
[date] to all stockholders entitled to vote at the special meeting.
At the special meeting, the stockholders of Morton's are being asked to
consider and vote upon a proposal to approve and adopt the merger agreement and
to approve the merger contemplated by the merger agreement. Under the merger
agreement, Morton's Acquisition will merge with and into Morton's, and each
issued and outstanding share of Morton's common stock will be converted into the
right to receive $12.60 in cash without interest (other than shares held by
Morton's or any of Morton's subsidiaries, held in Morton's treasury, or held by
Morton's Holdings or Morton's Acquisition, or shares held by Morton's
stockholders who perfect their appraisal rights under Delaware law). Upon
completion of the merger, Morton's will be the surviving corporation and will be
a wholly-owned subsidiary of Morton's Holdings.
Morton's is also soliciting proxies to grant discretionary authority to vote
in favor of any adjournment of the special meeting solely for the purpose of
soliciting additional proxies in favor of voting to approve and adopt the merger
agreement and approve the merger, if necessary. Morton's does not expect a vote
to be taken on any other matters at the special meeting. However, if any other
matters are properly presented at the special meeting for consideration, the
holders of the proxies will have discretion to vote on these matters in
accordance with their best judgment.
RECORD DATE AND VOTING INFORMATION
Only holders of record of common stock at the close of business on [record
date] are entitled to notice of and to vote at the special meeting. At the close
of business on [record date], there were outstanding and entitled to vote
[number] shares of Morton's common stock. A list of Morton's stockholders will
be available for review at Morton's executive offices during regular business
hours for a period of 10 days before the special meeting. Each holder of record
of common stock on the record date will be entitled to one vote for each share
held. The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Morton's common stock entitled to vote at the special
meeting is necessary to constitute a quorum for the transaction of business at
the special meeting.
All votes will be tabulated by the inspector of election appointed for the
special meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Brokers who hold shares in street name for
clients typically have the authority to vote on "routine" proposals when they
have not received instructions from beneficial owners. However, absent specific
instructions from the beneficial owner of the shares, brokers are not allowed to
exercise their voting discretion with respect to the approval and adoption of
non-routine matters, such as the merger agreement and the merger;
16
proxies submitted without a vote by the brokers on these matters are referred to
as broker non-votes. Abstentions and broker non-votes are counted for purposes
of determining whether a quorum exists at the special meeting.
The merger agreement and Delaware law provide that the affirmative vote of
the holders of a majority of the outstanding shares of Morton's common stock is
required to approve and adopt the merger agreement and approve the merger.
Accordingly, proxies that reflect abstentions and broker non-votes, as well as
proxies that are not returned, will have the same effect as a vote AGAINST
approval and adoption of the merger agreement and approval of the merger.
Stockholders who do not vote in favor of approval and adoption of the merger
agreement and approval of the merger, and who otherwise comply with the
applicable statutory procedures of the Delaware General Corporation Law
summarized elsewhere in this proxy statement, will be entitled to seek appraisal
of the value of their Morton's common stock as set forth in Section 262 of the
Delaware General Corporation Law. See "Special Factors--Appraisal Rights."
PROXIES; REVOCATION
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of Morton's at the Company's executive offices located at 3333 New
Hyde Park Road, New Hyde Park, New York 11042, a written notice of revocation or
a duly executed proxy bearing a later date, or it may be revoked by attending
the special meeting and voting in person. Attendance at the special meeting will
not, by itself, revoke a proxy. Furthermore, if a stockholder's shares are held
of record by a broker, bank or other nominee and the stockholder wishes to vote
at the special meeting, the stockholder must obtain from the record holder a
proxy issued in the stockholder's name.
EXPENSES OF PROXY SOLICITATION
Morton's will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Morton's has retained
Georgeson Shareholder Communications Inc., at an estimated cost of [$ ] plus
reimbursement of expenses, to assist in the solicitation of proxies. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of common stock beneficially owned
by others to forward to these beneficial owners. Morton's may reimburse persons
representing beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, facsimile, telegram or
personal solicitation by directors, officers or other regular employees of
Morton's and of Georgeson Shareholder Communications Inc. No additional
compensation will be paid to Morton's directors, officers or other regular
employees for their services.
ADJOURNMENTS
Although it is not expected, the special meeting may be adjourned for the
purpose of soliciting additional proxies in favor of voting to approve and adopt
the merger agreement and approve the merger, if necessary. Any adjournment of
the special meeting may be made without notice, other than by an announcement
made at the special meeting, by approval of the holders of a majority of the
outstanding shares of Morton's common stock present in person or represented by
proxy at the special meeting, whether or not a quorum exists. Morton's is
soliciting proxies to grant discretionary authority to vote in favor of
adjournment of the special meeting. In particular, discretionary authority is
expected to be exercised if the purpose of the adjournment is to provide
additional time to solicit votes to approve and adopt the merger agreement and
approve the merger. THE BOARD OF DIRECTORS RECOMMENDS THAT MORTON'S STOCKHOLDERS
VOTE IN FAVOR OF THE PROPOSAL TO GRANT DISCRETIONARY AUTHORITY
17
TO VOTE ON OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING,
INCLUDING TO ADJOURN THE SPECIAL MEETING.
PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME. IN THE EVENT THE
MERGER IS COMPLETED, MORTON'S WILL DISTRIBUTE INSTRUCTIONS REGARDING THE
PROCEDURES FOR EXCHANGING EXISTING MORTON'S STOCK CERTIFICATES FOR THE $12.60
PER SHARE CASH PAYMENT.
THE PARTICIPANTS
MORTON'S RESTAURANT GROUP, INC.
3333 New Hyde Park Road
New Hyde Park, New York 11042
(516) 627-1515
Morton's owns and operates 61 Morton's of Chicago Steakhouse restaurants (54
in the continental United States; one each in Honolulu, Hawaii; San Juan, Puerto
Rico; Toronto and Vancouver, Canada; Singapore; and two in Hong Kong) and four
Bertolini's Authentic Trattoria restaurants located in 57 cities. These concepts
appeal to a broad spectrum of consumer tastes and target separate price points
and dining experiences. The Company provides strategic support and direction to
its subsidiary companies and evaluates and analyzes potential locations for new
restaurants. Management consists of Allen J. Bernstein, chairman of the board,
president and chief executive officer, and vice presidents responsible for site
selection and development, finance, communications and administration.
Morton's of Chicago offers its clientele a combination of excellent service
and large quantities of the highest quality menu items. Morton's of Chicago has
received awards in many locations for the quality of its food and hospitality.
Morton's of Chicago serves USDA prime aged beef, including, among others, a 24
oz. porterhouse, a 20 oz. NY strip sirloin and a 16 oz. ribeye. Morton's of
Chicago also offers fresh fish, lobster, veal and chicken. All Morton's of
Chicago restaurants 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 of Chicago'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 of Chicago 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 of Chicago caters primarily to high-end, business-oriented
clientele. During the fiscal year ended December 30, 2001, the average
per-person check, including dinner and lunch, was approximately $72.75.
Management believes that a vast majority of Morton's of Chicago weekday revenues
and a substantial portion of its weekend revenues are derived from business
people using expense accounts. Sales of alcoholic beverages accounted for
approximately 32% of Morton's of Chicago's revenues during fiscal 2001. In the
Morton's of Chicago restaurants serving both dinner and lunch during fiscal
2001, dinner service accounted for approximately 85% of revenues and lunch
service accounted for approximately 15%. All Morton's of Chicago restaurants are
open seven days a week. Those Morton's of Chicago serving only dinner are
typically open from 5:30 p.m. to 11:30 p.m., while those Morton's of Chicago
serving both dinner and lunch typically open at 11:30 a.m. for the lunch period.
All except for one Morton's of Chicago (including all restaurants opened since
the 1989 acquisition) have on-premises, private dining and meeting facilities
referred to as boardrooms. During fiscal 2001, boardroom revenues were
approximately 19% of sales in those locations offering boardrooms.
At December 30, 2001, the Company owned and operated four Bertolini's,
located in three cities. Bertolini's is a white tablecloth, authentic Italian
trattoria, which provides table service in a casual dining atmosphere. For the
fiscal year ended December 30, 2001, Bertolini's average per-person check,
including dinner and lunch, was approximately $22.50. Bertolini's restaurants
are open seven days a
18
week, for dinner and lunch, with typical hours of 11:00 a.m. to 12:00 midnight.
During fiscal 2001, dinner service accounted for approximately 68% of revenues
and lunch service accounted for approximately 32%. Sales of alcoholic beverages
accounted for approximately 22% of Bertolini's revenues during fiscal 2001.
If the merger agreement is approved and adopted and the merger is approved
by the requisite vote of Morton's stockholders at the special meeting and the
merger is completed, Morton's will continue its operations following the merger
as a private company. The Company was incorporated in Delaware on October 3,
1988.
A more detailed description of Morton's business and financial results is
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 2001, which is included in this proxy statement as Appendix F, and
is incorporated herein by reference. The information contained in Morton's
Annual Report on Form 10-K for the fiscal year ended December 30, 2001 is as of
March 29, 2002, the date of filing with the Securities and Exchange Commission,
referred to as the SEC, of the Form 10-K. See also "Where Stockholders Can Find
More Information."
MORTON'S HOLDINGS, LLC AND
MORTON'S ACQUISITION COMPANY
c/o Castle Harlan Partners III, L.P.
150 East 58th Street
New York, New York 10155
(212) 644-8600
Morton's Holdings, LLC, referred to as Morton's Holdings, is a Delaware
limited liability company that is wholly owned by its sole member, Castle Harlan
Partners III, L.P., referred to as CHP. Morton's Holdings was originally formed
as a Delaware corporation under the name of "Morton's Holdings, Inc." and was
recently converted into a Delaware limited liability company. Morton's
Acquisition Company, referred to as Morton's Acquisition, is a Delaware
corporation that is wholly owned by Morton's Holdings. Both of Morton's Holdings
and Morton's Acquisition were formed solely for purposes of completing the
merger and have not participated in any activities to date other than those
incident to their formation and the transactions contemplated by the merger
agreement. At the effective time of the merger, Morton's Acquisition will be
merged with and into Morton's, with Morton's as the surviving corporation.
Morton's Holdings and Morton's Acquisition were incorporated in Delaware in
March 2002. Morton's Holdings was converted into a Delaware limited liability
company in April 2002. Additional information about Morton's Holdings and
Morton's Acquisition and information about the directors and executive officers
of Morton's Holdings and Morton's Acquisition is set forth in Appendix E to this
proxy statement.
CASTLE HARLAN PARTNERS III, L.P.
150 East 58th Street
New York, New York 10155
(212) 644-8600
Castle Harlan Partners III, L.P., referred to as CHP, is a private
investment fund, organized as a limited partnership under the laws of the State
of Delaware, which makes investments identified by its affiliates. CHP and its
affiliates have approximately $630 million of committed capital. Since 1987, CHP
and its predecessor investment funds have completed acquisitions of
approximately $5 billion. CHP and its affiliates are highly experienced
investors that have successfully completed 35 transactions in a wide variety of
industries, including aviation services, consumer products, energy services,
general manufacturing and restaurants. John K. Castle and David B. Pittaway are
executive officers of certain affiliates of CHP and are members of the Board of
Directors of Morton's. Additional information about CHP is set forth in
Appendix E to this proxy statement.
19
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Morton's entered into the merger agreement following an extensive evaluation
of strategic alternatives that began in May 2001. This evaluation initially was
undertaken in the context of a proxy contest, later coupled with an unsolicited
acquisition proposal, at Morton's 2001 annual meeting of stockholders. This
evaluation included a formal process run by the Special Committee and its legal
and financial advisors in which Morton's Holdings emerged as the only firm and
final bidder.
On February 5, 2001, Barry Florescue, BFMA Holding Corporation and other
related parties, collectively referred to as BFMA (which is considered the first
potential interested party), jointly filed a Schedule 13D with the SEC reporting
collective beneficial ownership of approximately 9.3% of Morton's common stock.
They stated in this joint filing that their intention was to "increase their
shareholder position" and that they were "considering various alternatives with
respect to their shareholder position." From time to time thereafter, they
amended their Schedule 13D to report increased holdings of Morton's common
stock, changes in their stated intention regarding Morton's and various
communications regarding Morton's.
On February 15, 2001, the Board of Directors authorized Morton's to enter
into employment contracts with Mr. Baldwin, executive vice president and chief
financial officer, and Ms. Longarzo, vice president, administration and
secretary, in a form similar to Mr. Bernstein's existing employment contract.
The Board of Directors also authorized the execution of change of control
agreements with Ms. Longarzo and five other officers, in each case in a form
similar to existing agreements with Messrs. Bernstein and Baldwin. The Board of
Directors authorized these employment contracts and change of control agreements
after having determined that it was in the best interests of Morton's and its
stockholders to encourage the Company's key officers' full attention and
dedication to the Company's business notwithstanding the possibility, threat or
occurrence of a change of control, and to diminish the inevitable distraction of
these officers by virtue of the personal uncertainties and risks created by a
pending or threatened change of control. Also on February 15, 2001, the Board of
Directors authorized amendments to Morton's stockholders rights agreement,
originally adopted on December 15, 1994, to remove provisions that permitted
only certain directors to redeem the rights and to take certain other actions.
In late February and early March of 2001, Messrs. Bernstein and Baldwin,
along with Morton's primary legal counsel, Schulte Roth & Zabel LLP, a New York,
New York law firm, referred to as SRZ, met with four nationally known investment
banks to discuss Morton's possible retention of a financial advisor. Morton's
ultimately selected Greenhill, based primarily on Greenhill's reputation,
expertise in the food and beverage industry and proposed terms of engagement.
Morton's and Greenhill executed an engagement letter as of March 13, 2001.
On March 15, 2001, Mr. Baldwin met with Barry Florescue and Richard Bloom of
BFMA at their request, at which time Messrs. Florescue and Bloom asked
Mr. Baldwin to convey to the Board of Directors, on an informal basis, their
interest in joining the Board of Directors. Mr. Baldwin promptly relayed this
information to the Board's nominating committee, which met by telephone on
March 20, 2001 to consider the request. The nominating committee responded to
Messrs. Florescue and Bloom by letter, dated March 21, 2001, which stated that
the Board of Directors was already at the nine-member limit permitted by
Morton's certificate of incorporation and bylaws, that expanding the size of the
Board of Directors would require stockholder approval and that the nominating
committee had already recommended, and the Board of Directors had already
approved, the Board of Directors' nominees for election at the May 10, 2001
annual meeting of stockholders. The Board of Directors' nominees for re-election
as directors were Messrs. Bernstein, Baldwin and Castle.
20
In a letter dated March 20, 2001, received by Morton's after the nominating
committee had sent its March 21, 2001 letter, BFMA notified Morton's of a
proposed slate of three nominees for election to the Board of Directors, and
later solicited proxies in support of those nominees.
BFMA made no proposal to Morton's regarding a possible strategic transaction
until May 1, 2001, when Morton's received an unsolicited letter from BFMA,
referred to as the BFMA proposal, seeking to negotiate the purchase of Morton's
by BFMA. The BFMA proposal purported to offer, subject to various conditions, to
acquire all outstanding shares of Morton's common stock for $28.25 per share in
cash. BFMA included a copy of a letter from Icahn Associates Corp., referred to
as IAC, purportedly committing, subject to various conditions, to provide
temporary bridge financing for all but $20 million of BFMA's proposal. The next
day, Morton's publicly announced that it would give due consideration to the
proposal, and that it had retained Greenhill to advise the Board of Directors in
its deliberations.
On May 7, 2001, the Board of Directors met by telephone. SRZ also attended
this meeting. The Board of Directors discussed the possibility of postponing or
adjourning Morton's annual meeting of stockholders scheduled for May 10, 2001,
and authorized the Board's executive committee (consisting of
Messrs. Bernstein, Castle and Pittaway) to recommend, subject to full Board
approval, the postponement or adjournment of the annual meeting if, and only if,
the executive committee determined that it was in the best interests of Morton's
stockholders and legally permissible to do so. After Greenhill was invited into
the meeting, the Board of Directors informed Greenhill that the Board of
Directors intended to give the BFMA proposal full and fair consideration, and
requested that Greenhill carefully review the proposal. The Board of Directors
discussed preliminarily the BFMA proposal, alternatives to enhance stockholder
value that could be considered, such as recapitalization, acquisition or sale,
and, in view of the weakening economy, potential cost-cutting measures.
On May 8, 2001, the Board of Directors met by telephone. SRZ also attended
this meeting. The executive committee of the Board of Directors recommended that
the annual meeting of stockholders proceed as planned on the publicly announced
date without postponement or adjournment. The Board of Directors affirmed its
intention to give full and fair consideration to the BFMA proposal and any offer
that may be received for the acquisition of Morton's. The Board of Directors
also determined not to issue additional stock options to senior executives of
Morton's until further notice, and suspended Morton's stock repurchase program.
The Board of Directors discussed the possibility of exploring value-enhancing
strategic alternatives, and directed Greenhill to assist Morton's in evaluating
the full range of strategic alternatives, including a potential sale of
Morton's. The Board of Directors then discussed Morton's financial performance
and the financial outlook for the rest of the fiscal quarter. Also on May 8,
2001, Morton's issued a press release announcing the actions the Board of
Directors had taken, including its decision to evaluate the full range of
strategic alternatives, including a potential sale, and that, due to the
weakened economic environment, unfavorable business conditions and reduced
business travel, as well as investment banking, legal and other costs associated
with evaluating strategic alternatives and with the BFMA-initiated proxy
contest, it expected revenues and operating results to be adversely affected.
From time to time thereafter, Morton's received inquiries from potential
interested parties, which Morton's referred to Greenhill.
At Morton's annual meeting of stockholders on May 10, 2001, the stockholders
voted to re-elect Messrs. Bernstein, Baldwin and Castle to the Board of
Directors, and did not elect any of the candidates proposed by BFMA. At a Board
of Directors meeting immediately following the annual meeting of stockholders,
the Board of Directors formed a Special Committee of directors to lead the Board
of Directors in its evaluation of strategic alternatives, including
consideration of the BFMA proposal and any offers that Morton's might receive,
with any final decision with respect to undertaking any particular strategic
alternative to be subject to full Board approval. Four directors who were not
officers of Morton's, Robert L. Barney, John K. Castle, Lee M. Cohn and Alan A.
Teran, were named to the Special Committee, with Mr. Castle as Chairman.
Mr. Castle had informed the Board of Directors at that time that he was not
aware of any plan by CHP or any of its affiliates to make any
21
offer or proposal to purchase Morton's. Greenhill was invited into the meeting
and discussed its preliminary views on, among other things, the restaurant
industry, the stand-alone value of Morton's with reference to various factors,
and the range of possible strategic alternatives. Greenhill identified possible
strategic alternatives for Morton's, including merger with or acquisition by
Morton's of another company or business, recapitalization, leveraged buyout or
other sale of Morton's (including pursuant to the BFMA proposal) and a preferred
equity infusion. The discussion of the BFMA proposal included a preliminary
analysis of the disclosed financing terms from IAC and contingencies involved in
the proposal and the financing, as well as historical information on
Mr. Florescue and Carl Icahn.
The Special Committee held its first meeting on May 10, 2001 immediately
following the Board of Directors meeting. Greenhill and SRZ also attended this
meeting. The Special Committee directed Greenhill to contact BFMA promptly and
request a meeting between BFMA, Greenhill and SRZ in order to provide BFMA with
an opportunity to demonstrate to the Special Committee's representatives that it
was serious about completing its proposed acquisition and could reasonably
complete the financing of its proposal on the terms outlined in its proposal. In
particular, the Special Committee wanted to give BFMA an opportunity to provide
appropriate evidence of the sources of its purported equity and debt financing.
The Special Committee agreed to consider providing Morton's proprietary
non-public information to BFMA subject to BFMA signing a customary form of
confidentiality agreement. The Special Committee also discussed how to proceed
with the evaluation of Morton's strategic alternatives. As a result of this
discussion, the Special Committee directed Greenhill to prepare a preliminary
analysis of possible strategic alternatives for Morton's that would enhance
stockholder value. In order to proceed in a timely manner, the participants
agreed that Greenhill would develop the analysis at the same time that the
Special Committee was evaluating the BFMA proposal.
On May 15, 2001, Greenhill called BFMA to request a meeting. By letter to
Greenhill dated May 16, 2001, Mr. Bloom of BFMA provided a preliminary due
diligence request list and expressed BFMA's interest in executing a
confidentiality agreement and beginning a due diligence review of Morton's. On
May 21, 2001, Greenhill and SRZ met with BFMA and its counsel to gain further
information regarding, and to assess the quality of, BFMA's proposal and
financing on a preliminary basis. BFMA disclosed that the IAC financing was a
bridge loan from IAC with a one-year term, and that BFMA did not have any
permanent financing arranged to replace the IAC bridge loan upon its one-year
maturity. BFMA stated that, in view of the IAC financing's fees, rates and other
terms, if the opportunity arose it would seek alternative sources of financing,
and indicated (without providing any supporting information) that other
financing sources might be available. BFMA explicitly clarified that its
proposal and the IAC financing were each contingent on the respective entity's
satisfaction with due diligence, which in each case appeared to be more
comprehensive than the "limited due diligence" that BFMA had publicly stated it
would need. BFMA also stated that it was not planning to launch a tender offer
for Morton's, including a negotiated tender offer linked to a back-end merger.
When asked to provide evidence that IAC and BFMA were capable of funding their
respective commitments under the proposed financing, BFMA declined to do so at
that time and responded that at some time in the future each entity would be
prepared to do so. Greenhill and SRZ indicated that they would report the
results of this meeting to the Special Committee at the June 6, 2001 Special
Committee meeting.
During late May and early June of 2001, three private equity firms, referred
to as the second, third and fourth potential interested parties, initiated
contact with Greenhill regarding potential transactions with Morton's should the
Board of Directors determine that Morton's was for sale. Additionally, Greenhill
had separate conversations with three of Morton's institutional stockholders,
who indicated that they would like the Board of Directors to engage in a good
faith process to analyze Morton's strategic alternatives, to be receptive to
offers to purchase and to give serious consideration to the BFMA proposal. They
also indicated that they had a desire for Morton's to engage in a transaction
that would provide value realization for the stockholders. During this time,
Greenhill also had separate conversations with two nationally recognized banks
with extensive experience in the leveraged
22
acquisition financing area regarding the market for financing acquisitions in
the restaurant industry. The banks indicated that it was generally difficult at
that time to arrange financing for highly leveraged acquisitions, although
limited financing opportunities would be available. Greenhill also met with
Company management and had several follow-up telephone calls with management as
part of Greenhill's due diligence efforts.
On June 6, 2001, the Special Committee met by telephone. Greenhill and SRZ
also attended this meeting. Greenhill discussed with the Special Committee
actions that Greenhill had taken since the Special Committee's meeting on
May 10, 2001, as described above. Greenhill outlined on a preliminary basis, and
the participants discussed, five potential strategic alternatives for Morton's:
maintaining the status quo, acquiring another company or business,
recapitalizing Morton's capital structure, creating a minority equity position
and selling Morton's.
The Special Committee members further discussed, and expressed their general
discomfort with the financing for, the BFMA proposal. The Special Committee
discussed the possibility that the BFMA proposal was nothing more than an
attempt to put Morton's "in play" in the hope that a third party buyer would
come forward. The Special Committee was reluctant to provide commercially
sensitive information about Morton's to a party that was unwilling to agree to
keep the information confidential, particularly where the Special Committee did
not have sufficient information concerning the party's ability to finance and
complete a transaction. Nonetheless, the Special Committee supported the Board
of Directors' commitment to give full and fair consideration to the BFMA
proposal, and indicated that it would support providing due diligence material
to BFMA so long as BFMA first provided satisfactory evidence of its ability to
finance its proposal and signed a confidentiality agreement in customary form.
On June 11, 2001, at the request of the Special Committee, Greenhill sent a
letter to BFMA inviting BFMA to demonstrate that BFMA and IAC had the financial
ability to meet their respective commitments relating to the BFMA proposal. The
letter confirmed that if BFMA established this to the Special Committee's
reasonable satisfaction, the Special Committee was prepared to provide BFMA and
IAC with due diligence information regarding Morton's, subject to the execution
of a customary confidentiality agreement. The letter also invited BFMA to
provide a list of any additional due diligence material it would require.
On June 13, 2001, Morton's issued a press release announcing that due to the
continuing impact of the troubled economy, unfavorable business conditions and
reduced business travel, it expected to report a loss for the second quarter
ending July 1, 2001 and that, if such unfavorable conditions continued, future
results would also be adversely affected. Morton's also reconfirmed that,
assisted by Greenhill, it was continuing the process of exploring its full range
of strategic alternatives, including evaluating a potential sale of Morton's,
and in addition to an evaluation of the BFMA proposal, the process would include
an evaluation of any offers that may be received.
By letter to Greenhill, dated June 13, 2001, Mr. Florescue expressed his
dissatisfaction with the deliberate pace at which the Special Committee was
proceeding and with the Special Committee's invitation to BFMA to provide
evidence of BFMA's and IAC's ability to finance the BFMA proposal. He wrote that
BFMA's counsel had been provided the evidence, and requested that Greenhill
contact BFMA's counsel to arrange a meeting. Mr. Florescue indicated that he
expected to be provided with a confidentiality agreement and, once the
confidentiality agreement was executed, due diligence materials. Greenhill
promptly contacted BFMA's counsel and arranged a meeting for June 19, 2001.
By letter to Greenhill, dated June 15, 2001, IAC stated that it and its
affiliates, including an entity called High River Limited Partnership, had
collective cash, cash equivalents, marketable securities and net worth exceeding
$240 million. The letter contained no support for these statements and no
commitments from any of IAC's affiliates (or any other party) to provide any
funds to BFMA or to IAC.
23
On June 19, 2001, in a meeting with BFMA and its counsel, Greenhill and SRZ
were permitted to view, but not copy, bank and brokerage statements of varying
dates from BFMA and related parties purporting to show approximately
$20 million in available cash and marketable securities. BFMA provided no
commitments from the related parties to provide any funds to BFMA, and no
support for IAC's ability to finance the significant bridge debt in connection
with the BFMA proposal. BFMA subsequently provided letters from its related
parties indicating a willingness to commit their respective amounts to BFMA.
By letter to Greenhill, dated June 21, 2001, the second potential interested
party submitted a written expression of interest in a potential transaction with
Morton's. The letter was a follow-up to an earlier telephone conversation
between Greenhill and the second potential interested party.
On June 25, 2001, Greenhill was permitted to view, but not copy, a letter
from High River Limited Partnership stating that it or one of its affiliated
companies would act as the lender pursuant to the IAC financing commitment to
BFMA. Greenhill was also permitted to view, but not copy, brokerage statements
of High River Limited Partnership indicating marketable securities exceeding
$240 million.
By letter to Greenhill, dated June 27, 2001 and in a press release filed the
next day, BFMA expressed its dissatisfaction with the Special Committee's review
of Morton's strategic alternatives. BFMA also stated that it remained committed
to acquiring Morton's and, if necessary, would explore an extension of its IAC
financing commitment. BFMA also claimed to have received expressions of interest
from numerous alternative sources of capital. BFMA did not then, or at any
subsequent time, provide the Special Committee or Greenhill with any information
regarding alternative financing arrangements.
On June 29, 2001, the Special Committee met by telephone. Greenhill and SRZ
also attended this meeting. The participants discussed Morton's recent financial
performance. The participants also discussed the status of matters with BFMA,
including the timing and quality of BFMA's evidence of its financial ability to
purchase Morton's as it proposed. The Special Committee members again expressed
their concern over the legitimacy of BFMA's and IAC's intent and ability to
consummate the BFMA proposal. Notwithstanding the Special Committee's discomfort
with BFMA's ability to finance and complete the BFMA proposal, the Special
Committee agreed to provide BFMA with a customary form of confidentiality
agreement and, if BFMA and IAC signed the confidentiality agreement, to provide
them with due diligence material. This would have given BFMA approximately one
full month to conduct its due diligence and to make a fully financed firm offer
before expiration of the IAC financing. Greenhill then led a discussion of other
parties that had expressed varying degrees of interest in a potential
transaction with Morton's since Morton's announced its intention to explore
strategic alternatives. With respect to the second and fourth potential
interested parties, as they were both well recognized private equity firms with
substantial financial assets, the Special Committee agreed to provide them with
Morton's customary form of confidentiality agreement. With respect to the third
potential interested party, the Special Committee agreed to provide it with
Morton's customary form of confidentiality agreement upon presentation of a
stronger expression of interest. Greenhill also led a discussion of four
possible candidates for Morton's to acquire, should the Special Committee
determine to pursue acquisition of another company or business as an attractive
strategic alternative.
On June 29, 2001, following the Special Committee meeting, SRZ sent Morton's
customary form of confidentiality agreement to BFMA and to the second and fourth
potential interested parties. The fourth potential interested party signed and
returned the form promptly without alteration. The second potential interested
party negotiated minor revisions to the form, and signed and returned it as of
July 10, 2001. Subsequently, the second and fourth potential interested parties
performed their respective due diligence investigations of Morton's, including
discussions with Company management. In contrast, through its counsel, BFMA
insisted on substantial revisions to the form, and SRZ negotiated for several
days with BFMA's counsel regarding appropriate terms.
24
On July 19, 2001, based on a conversation with BFMA's counsel, Morton's
issued a press release announcing that BFMA had advised Morton's that BFMA did
not intend to renew the IAC financing, which would expire on or about July 30,
2001. Morton's also announced that negotiation of the confidentiality agreement
with BFMA terminated principally as a result of BFMA's requirement that it be
permitted to disclose Morton's confidential information to an unlimited number
of unidentified potential equity and debt financing sources. Morton's noted that
it had executed confidentiality agreements with other interested parties, none
of whom had objected to its form. Morton's reiterated that it was continuing the
process of exploring its full range of strategic alternatives, including
evaluating a potential sale of Morton's, discussions with interested parties and
an evaluation of any offers that may be received. Consistent with its earlier
announcement, Morton's reported a loss for the second quarter of 2001 and a
decline in comparable restaurant revenues, and cautioned that, if unfavorable
conditions continued, third quarter and future results also would be adversely
affected. Over the next few weeks Mr. Florescue and Morton's exchanged letters
and press releases stating their respective positions.
On July 31, 2001, the Special Committee held a meeting, which was also
attended by Greenhill and SRZ. Greenhill led a discussion of Morton's recent
financial performance based on information provided by Morton's management.
Greenhill then reviewed the status of discussions with various parties that had
expressed an interest in a potential transaction with Morton's, including BFMA,
the second, third and fourth potential interested parties, a competing
restaurant group, referred to as the fifth potential interested party, and an
individual with restaurant experience, referred to as the sixth potential
interested party. The Special Committee discussed the BFMA proposal, with
particular regard to BFMA (a) permitting its IAC financing to expire and its
stated intention not to renew the financing, (b) refusing to sign the Company's
customary form of confidentiality agreement despite other parties doing so, and
(c) insisting on discretion to disclose Morton's confidential information to an
unlimited number of potential equity and debt financing sources. Based on its
analysis of the BFMA proposal, the Special Committee determined that BFMA did
not appear to be a serious potential acquirer of Morton's and that the Special
Committee should focus on legitimate strategic alternatives, including
discussions with bona fide interested parties. Greenhill led a discussion
regarding the status of the second potential interested party's due diligence
investigation, as well as the fourth potential interested party's signing of a
confidentiality agreement and the status of discussions regarding when it would
have access to the due diligence materials. Greenhill also indicated that the
third potential interested party had not yet determined if it wanted to take
further steps toward a potential transaction with Morton's. The sixth potential
interested party expressed interest in a potential transaction that would be
financed by another individual. Greenhill had requested, but had not received,
evidence of the other individual's ability to finance a transaction with
Morton's. With respect to the fifth potential interested party, Greenhill
provided illustrative examples, from a financial perspective, of an acquisition
of Morton's by that party for cash and/or stock. The Special Committee members
indicated that they would consider a potential transaction with the fifth
potential interested party, but that it would not be in Morton's stockholders'
best interest to provide the competitor with Morton's confidential and
proprietary information at that time. The Special Committee then directed
Greenhill to find out more information about the structure and financing of a
potential transaction in which the fifth potential interested party would be
interested.
Greenhill also led an analysis and discussion regarding two of the potential
candidates for Morton's to acquire, one public and one private, including
background and financial information as well as accretion/dilution analyses with
certain projections and assumptions. Greenhill concluded that a transaction with
either candidate would be possible from a financial perspective. After further
discussion, the Special Committee members indicated that these two potential
acquisitions should be discussed with the full Board of Directors and with
Company management, although the consensus was that acquisition of another
company or business did not appear to be the most favorable alternative for
Morton's stockholders at that time because of, among other things, Morton's high
leverage and the
25
likelihood that the contemplated transactions would not create substantially
greater liquidity in Morton's stock or a value realization event for Morton's
stockholders. Greenhill agreed to speak with Company management regarding
potential synergies and to solicit management's view with respect to such a
strategy. The Special Committee also discussed the potential for a
recapitalization involving Morton's, and the consensus was that a
recapitalization did not appear to be the most favorable alternative for
Morton's stockholders at that time because of, among other things, Morton's
already high leverage and limited liquidity.
Greenhill then presented several suggestions for the Special Committee's
next steps. The Special Committee directed that (a) Greenhill attempt to contact
additional potential private equity/financial buyers to gauge the level of
interest in a potential transaction with Morton's, (b) Morton's continue the due
diligence process with the second and fourth potential interested parties and
other qualified interested parties that executed a customary confidentiality
agreement, (c) Greenhill schedule meetings between Company management and
interested parties that request management meetings, (d) Greenhill continue to
respond to parties that express interest in a potential transaction, including
the fifth potential interested party, and (e) at the appropriate time, Greenhill
contact additional potential strategic buyers to determine whether,
notwithstanding that no additional strategic buyers had expressed interest in
acquiring Morton's, some interest nevertheless could be discovered.
Based on the Special Committee's direction, Greenhill contacted an expanded
group of possible parties to gauge potential interest in a transaction involving
Morton's. Through the course of the process, from June 2001 through March 2002,
Greenhill either contacted or was contacted by approximately 30 separate
parties, including those discussed in this section, regarding potential interest
in a transaction with Morton's. Except for the potential interested parties
discussed herein, all of these parties either explicitly stated no interest or
never proceeded to a formal expression of interest. Except as described in this
proxy statement, no terms of potential transactions were ever discussed with
these parties.
Also on July 31, 2001, the Board of Directors held a meeting, a portion of
which was also attended by SRZ. The Special Committee members reported on the
actions of the Special Committee and on the status of the exploration of
strategic alternatives. The Board of Directors also discussed, among other
issues, Morton's results of operations and cost cutting initiatives.
In early August 2001, the fifth potential interested party clarified in
discussions with Greenhill that it would potentially be interested in a merger
using its stock as consideration. Based on the small size of the fifth potential
interested party's market capitalization and the consequent limited liquidity
for its shares, the proposed combination did not appear to achieve the objective
of offering Morton's stockholders a value realization event. The Special
Committee also did not view favorably the long-term prospects for the stock
consideration, on a preliminary basis. The Special Committee directed Greenhill
to indicate a preference for cash consideration. In a subsequent telephone
conversation, Greenhill stated the Special Committee's preference for cash
consideration and requested a response from the fifth potential interested party
regarding its continued interest. The fifth potential interested party never
responded to Greenhill.
On August 1, 2001, Morton's customary form of confidentiality agreement was
sent to a potentially interested restaurant operating company, referred to as
the seventh potential interested party. The seventh potential interested party
negotiated minor revisions to the form, and signed and returned it as of
August 8, 2001. Subsequently, the seventh potential interested party performed
its due diligence investigation of Morton's, including discussions with Company
management.
During the course of the annual Castle Harlan planning conference on
August 14-15, 2001, officers of certain affiliates of CHP discussed the
possibility of an affiliate of CHP acquiring Morton's. On August 15, 2001,
Mr. Castle resigned from the Special Committee. SRZ, which regularly represents
CHP and its affiliates (although not in connection with the merger or any
proposals related thereto),
26
advised the Special Committee to hire its own separate legal counsel. The
remaining three members of the Special Committee appointed Mr. Cohn as chairman,
and determined that they would promptly interview and select separate legal
counsel for the Special Committee.
On August 23, 2001, Morton's customary form of confidentiality agreement was
sent to an affiliate of CHP, which negotiated minor revisions to the form, and
executed the confidentiality agreement as of the same date. Subsequently,
affiliates of CHP performed their due diligence investigation of Morton's,
including discussions with Company management.
During the period between August 16, 2001 and early September 2001,
Mr. Cohn, the chairman of the Special Committee, interviewed representatives of
four nationally known law firms on behalf of the Special Committee. Prior to the
Special Committee meeting of September 19, 2001, Mr. Cohn, on behalf of the
Special Committee, retained Richards, Layton & Finger, P.A., a Wilmington,
Delaware law firm, referred to as RLF, as counsel to the Special Committee. RLF
was retained based on its reputation, expertise in matters of Delaware corporate
law and familiarity with Morton's circumstances, having served as Delaware
special counsel to Morton's from time to time. Beginning with the Special
Committee's retention of RLF, SRZ did not represent the Special Committee and
continued to represent the Company.
In late August 2001, Greenhill had preliminary discussions with another
potential interested party, which ultimately informed Greenhill that it that it
did not wish to pursue a potential transaction with Morton's at that time. No
terms of a potential acquisition were discussed.
On September 14, 2001, Morton's issued a press release announcing that it
continued to experience weak revenue trends and negative comparable restaurant
revenues, and consistent with its previous announcements expected to report a
loss for the third quarter ending September 30, 2001. Morton's also announced
that the building housing the Morton's of Chicago steakhouse in the Wall Street
area of New York City (located at 90 West Street) was damaged in the
September 11, 2001 attacks and was closed indefinitely. Morton's again stated
that it was continuing the process of exploring its strategic alternatives,
including evaluating a potential sale of Morton's.
On September 19, 2001, the Special Committee met telephonically. RLF and
Greenhill also attended this meeting. The Special Committee discussed the
retention of RLF as counsel, and the role RLF would play in the Special
Committee's process. RLF also advised the Special Committee concerning the
duties of its members under Delaware law. The Special Committee also considered
the continued retention of Greenhill as its financial advisor, and determined
that it would be appropriate to continue to retain Greenhill given Greenhill's
work to date and familiarity with Morton's and its industry.
The Special Committee then received advice relating to the proper scope of
the resolutions authorizing the Special Committee's activities, and directed RLF
to prepare a resolution for consideration by the full Board of Directors of
Morton's delegating broad authority to the Special Committee.
At the same meeting, the Special Committee also received an oral
presentation from Greenhill relating to its evaluation of potential interest
expressed by various parties. The question of whether Morton's should be sold or
continue operations on a stand-alone basis was explored. In particular, the
Special Committee considered the impact on Morton's of the continuing weak
economy as exacerbated by the September 11, 2001 attacks, Morton's prospects as
a stand-alone enterprise, the effect of the attacks on the debt market as well
as on merger and acquisition activity more generally, and the potential short
and long term impact on corporate spending and business travel generally and
Morton's business in particular.
Greenhill then briefed the Special Committee on its contacts with, and the
interest levels of, the various parties with which it had been in contact, and
the fact that all but four had expressed a lack of
27
interest in further pursuing a transaction with Morton's. Greenhill then
described the four entities, which included CHP, that appeared to continue to
demonstrate interest in a potential transaction with Morton's. Thereafter,
Greenhill recommended that it be authorized by the Special Committee to continue
to contact other parties to ascertain their interest in a possible transaction
involving Morton's. The Special Committee accepted this recommendation and
instructed Greenhill to continue to contact any and all potential interested
parties to attempt to generate additional interest in a transaction involving
Morton's.
On September 25, 2001, the Board of Directors held a meeting. SRZ also
attended a portion of this meeting. RLF had previously provided SRZ with a set
of resolutions broadening the authority and scope of activity of the Special
Committee. The Board of Directors reconfirmed its authorization of the Special
Committee to review and evaluate any and all strategic alternatives available to
Morton's notwithstanding the events of September 11, 2001 and the worsening
state of the economy generally and the fine dining segment of the restaurant
industry in particular. The Board of Directors adopted the resolutions provided
by the Special Committee and expressly delegated to the Special Committee the
power and authority to (a) review and evaluate any strategic alternatives
available to Morton's, (b) review and evaluate the terms and conditions of any
strategic alternatives available to Morton's, (c) determine the advisability of
any strategic alternatives available to Morton's, (d) negotiate with any parties
with respect to the terms and conditions of any strategic alternatives available
to Morton's, (e) determine whether any strategic alternative is fair to and in
the best interests of Morton's and its stockholders, and (f) recommend to the
whole Board of Directors what action, if any, should be taken by Morton's with
respect to any strategic alternatives. The Board of Directors also resolved,
among other things, that it would not consider the approval of any strategic
alternative, nor determine the advisability of any strategic alternative,
without first receiving a favorable recommendation of the strategic alternative
by the Special Committee. Messrs. Castle and Pittaway were not present for any
discussions at this meeting relating to the Special Committee and the
exploration of strategic alternatives.
By letter, dated as of September 25, 2001, the reconstituted Special
Committee formally retained Greenhill as financial advisor to the Special
Committee. This engagement letter superseded the March 13, 2001 engagement
letter between Morton's and Greenhill. The terms of the engagement letter are
discussed below in "--Opinion of Financial Advisor to the Special Committee."
In late September and early October 2001, Greenhill had preliminary
discussions with two additional potential interested parties, each of which
ultimately disengaged from pursuing a potential transaction with Morton's at
that time. No terms of a potential acquisition were discussed.
On October 8, 2001, at the direction of the Special Committee, Greenhill
sent a letter to the four remaining interested parties, which were the second,
fourth and seventh potential interested parties and CHP, requesting that
non-binding preliminary indications of interest with respect to an acquisition
of Morton's be delivered to Greenhill by October 25, 2001.
On October 23, 2001, Morton's issued a press release announcing that,
consistent with its earlier announcement, due to the severe nationwide impact of
the World Trade Center attacks and the other adverse circumstances previously
referred to, Morton's experienced a loss for the third quarter and for the nine
months ending September 30, 2001 and a decline in comparable restaurant
revenues. Morton's added that if such unfavorable conditions continued or
worsened, fourth quarter and future results also would be adversely affected.
Morton's again publicly confirmed that it was continuing the process of
exploring its strategic alternatives, including evaluating a potential sale of
Morton's.
On October 25, 2001, in their respective written non-binding preliminary
indications of interest, the second potential interested party indicated that it
may be willing to bid $11 to $13 per share, subject to certain contingencies,
the seventh potential interested party indicated that it may be willing to bid
$17
28
per share and CHP indicated that it may be willing to bid $15 to $18 per share.
No other pricing or other terms with respect to a potential acquisition were
received from any other party at this time.
The Special Committee met with Greenhill and RLF on October 29, 2001 to
review the preliminary indications of interest received by Greenhill. At that
meeting RLF advised the Special Committee of its duties and responsibilities in
considering a potential sale of Morton's, and Greenhill reviewed the preliminary
indications of interest received by it.
Greenhill then reviewed the conditions associated with each indication of
interest received and the status of the due diligence investigation conducted by
each potential bidder. The Special Committee also inquired as to why the fourth
potential interested party had not submitted an indication, and instructed
Greenhill to contact that party to assure that it was aware of the preliminary
indication of interest deadline and to inquire whether it was still interested
in pursuing a potential transaction with Morton's. Subsequent to the Special
Committee meeting, Greenhill telephoned the fourth potential interested party,
which confirmed that it did not submit, and would not be submitting, a proposal.
The Special Committee also reviewed the history of the interest previously
expressed in Morton's by BFMA, as well as BFMA's prior refusal to sign Morton's
customary form of confidentiality agreement. Notwithstanding BFMA's previous
position, the Special Committee instructed Greenhill to make contact with BFMA's
representatives, advise them of the changes in the composition of the Special
Committee and its advisors, and inquire whether BFMA would be interested in
participating in the process currently being run by the Special Committee.
At its October 29, 2001 meeting, the Special Committee also discussed with
Greenhill Morton's current financial performance, based on information provided
by Morton's management, and Greenhill's preliminary approach to assessing the
adequacy of the three preliminary indications of interest received. Greenhill
reported that the ranges indicated by the prospective bidders appeared to be in
the range of adequacy in light of Morton's current financial situation.
The Special Committee also considered how best to proceed. In light of the
fact that one indication of interest was in a price range substantially lower
than, and was significantly more conditional than, the other two, and because
the party making that preliminary indication had indicated that it would require
at least two to three months of additional due diligence while the other two
parties had expressed a willingness to proceed more quickly, the Special
Committee determined to invite only the two parties that had expressed higher
ranges, CHP and the seventh potential interested party, to proceed with a
potential transaction, and to advise the other party, the second potential
interested party, that in order for it to be considered in the ongoing process
it would need to indicate a material improvement in its price and be prepared to
move forward more quickly than it had previously indicated.
The Special Committee also considered the potential for continuing poor
financial results by Morton's, and determined to push potential interested
parties to move forward with a potential transaction before year-end, if
possible. The Special Committee also resolved to instruct senior management of
Morton's to make themselves available for due diligence meetings at the earliest
possible time.
On October 30, 2001, the Board of Directors held a meeting. SRZ attended a
portion of this meeting. Messrs. Castle and Pittaway were not present for the
discussion of matters related to strategic alternatives. The members of the
Special Committee summarized the status of the Special Committee's process,
including a summary of the indications of interest that had been received. By
unanimous vote of those Board members present, the Board of Directors authorized
the Special Committee to continue to explore the potential sale of Morton's, to
seek to obtain the best and final proposals as promptly as practicable, by
November 9, 2001 if possible, and to make its recommendation to the Board of
Directors promptly thereafter.
29
On November 6, 2001, the Special Committee met telephonically with Greenhill
and RLF, and received a progress report from Greenhill. Greenhill reported on
the current status of due diligence being conducted by two parties, and advised
the Special Committee that it did not appear that November 9, 2001 was a
realistic date by which due diligence could be completed. The Special Committee
instructed Greenhill to continue to press potential interested parties to
complete their due diligence process as promptly as practicable. RLF also
reported on contacts with counsel to BFMA, and specific requests made by BFMA to
modify Morton's customary form of confidentiality agreement, including
(a) elimination of the standstill provisions, and (b) discretion to disclose
Morton's confidential information to an unlimited number of potential equity and
debt financing sources. The Special Committee reviewed each of BFMA's proposed
changes to the confidentiality agreement and discussed how to proceed.
Finally, the Special Committee instructed Greenhill to call for final bids
from all interested parties at the earliest possible date consistent with the
parties being allowed a reasonable time to complete due diligence. Appropriate
dates were discussed, as was the timing of the process.
Following further discussions between RLF and counsel for BFMA regarding
BFMA's requested modifications to the confidentiality agreement, BFMA refused to
execute the confidentiality agreement, and issued a press release and a letter
to Morton's critical of Morton's management, Board of Directors and Special
Committee. Mr. Florescue claimed in his letter and public statement that BFMA
remained interested in acquiring Morton's. Additionally, Mr. Florescue stated
that any offer less than $20 per share would significantly undervalue Morton's.
Morton's issued a press release on November 13, 2001 disagreeing with certain of
Mr. Florescue's contentions.
On November 15, 2001, Greenhill distributed a form of merger agreement to
CHP and the seventh potential interested party, along with a request that each
party include any requested revisions to the form of merger agreement as part of
its bid. On November 26, 2001, Greenhill distributed to these parties a draft of
Morton's disclosure letter to accompany the merger agreement. Revised drafts of
the merger agreement and disclosure letter were distributed on November 29,
2001, with hard copies of the draft appendices to the disclosure letter
distributed on November 30, 2001.
On November 26, 2001, Greenhill sent a letter to Morton's Holdings and the
seventh potential interested party requesting that firm and binding offers
concerning an acquisition of Morton's be submitted to Greenhill by noon on
December 5, 2001. Greenhill's letter requested that the binding offer include
any required revisions to the merger agreement in a form that the parties would
be prepared to execute.
On December 3, 2001, the seventh potential interested party notified
Greenhill that it would not be submitting a bid to acquire Morton's based in
part on another transaction it was pursuing and in part on its discomfort with
the possibility of litigation by Mr. Florescue alluded to in his public
comments.
On December 5, 2001, the deadline for the potential interested parties to
submit firm and binding offers, the Special Committee met with Greenhill and RLF
to consider what was submitted. CHP submitted a letter to Greenhill declining to
make a bid at that time, but indicating that it was interested in doing so. The
letter further stated that with access to Morton's fiscal 2001 financial
information and more time to assess the results of cost control programs, it may
be in a better position to make a bid for Morton's. CHP proposed making a formal
bid on February 1, 2002, assuming that it received Morton's year-end financial
statements by that time. The Special Committee considered the lack of final
bids, and CHP's position that it needed to see year-end financial data before
proceeding. Greenhill advised the Special Committee that the second and seventh
potential interested parties also had expressed a desire to examine Morton's
year-end financial results in light of the September 11, 2001 attacks and their
impact on Morton's operations.
30
The Special Committee again considered whether it was appropriate to sell
Morton's at that time. After further deliberation, the Special Committee
determined to report to the full Board of Directors and, provided that the full
Board believed that it continued to be appropriate to pursue a sale of Morton's,
to re-contact the parties that had earlier provided preliminary indications of
interest with respect to a potential acquisition of Morton's to advise them that
Morton's would allow potential bidders to consider year-end results and would
consider a new bidding deadline in February 2002.
The Board of Directors met by telephone on December 7, 2001. SRZ attended a
portion of this meeting. At the meeting, Mr. Cohn updated the full Board of
Directors (other than Messrs. Castle and Pittaway, who did not participate in
this meeting) on the status of the Special Committee's evaluation of strategic
alternatives, including discussions regarding the seventh potential interested
party, CHP and BFMA. The Board of Directors directed the Special Committee to
continue its review and evaluation of any and all strategic alternatives
available to Morton's, as previously authorized, until February 15, 2002.
On December 10, 2001, Morton's issued a press release announcing that due to
the adverse circumstances previously referred to, Morton's expected to report
results substantially below 2000 levels, possibly including a loss for the
fourth quarter and year ending December 30, 2001. Morton's noted its continued
weak revenue trends and a decline in comparable restaurant revenues. Morton's
also reiterated its earlier warnings regarding future results, and again
publicly confirmed that it was continuing the process of exploring its strategic
alternatives, including evaluating a potential sale of Morton's.
On January 7, 2002, Morton's issued a press release announcing the closing
of its Sydney, Australia restaurant and that it had received notice from the
NYSE that it was below the NYSE's continued listing standards regarding total
market capitalization and stockholders' equity. Morton's stated that it intended
to submit a business plan demonstrating planned compliance, and that the NYSE
would determine whether Morton's common stock would continue to be eligible for
trading on the NYSE. Morton's again publicly confirmed that it was continuing
the process of exploring its strategic alternatives, including evaluating a
potential sale of Morton's.
On January 18, 2002, the Special Committee met telephonically with Greenhill
and RLF. Greenhill advised the Special Committee that it had contacted the
second and seventh potential interested parties to advise them that the Special
Committee's process would likely continue into February to allow all potential
interested parties the opportunity to review Morton's year-end financial
results. Greenhill also reported that it had received inquiries from one
additional potential strategic buyer, referred to as the twelfth potential
interested party, and three additional parties, referred to as the thirteenth,
fourteenth and fifteenth potential interested parties, all of whom had expressed
interest in a potential transaction with Morton's. Greenhill advised that, after
preliminary discussions with the twelfth potential interested party's investment
banker and after providing the investment banker with Morton's customary form of
confidentiality agreement, the investment banker indicated that its client would
not be interested in proceeding further due to other opportunities the client
was pursuing (no terms of a potential acquisition were discussed). Greenhill
also advised that Morton's customary form of confidentiality agreement had been
provided to the thirteenth, fourteenth and fifteenth potential interested
parties.
Greenhill reviewed with the Special Committee Morton's year-end financial
information provided to Greenhill by Company management. Greenhill observed that
Morton's December 2001 month EBITDA results had improved on a year over year
basis, although revenues and same store sales had continued to decline.
The Special Committee also discussed the timing of how it would proceed in
light of the emergence of new potential interested parties and the fact that CHP
had indicated in its letter of December 5, 2001 that it would be prepared to
submit a bid on February 1, 2002. Greenhill advised that calling for bids on
February 1, 2002 was not likely to draw the thirteenth, fourteenth and fifteenth
31
potential interested parties into the process, and that a more realistic
deadline for final bids was February 15, 2002, which should allow any seriously
interested party sufficient time to conduct its due diligence investigation of
Morton's. The Special Committee thereafter determined that Greenhill should be
instructed to discuss with the thirteenth, fourteenth and fifteenth potential
interested parties whether they could reasonably be prepared to submit bids by
February 15, 2002. In the event that these potential interested parties did not
react adversely to submitting bids by that date, Greenhill was instructed to
advise them that the Special Committee would call for best and final bids on
February 15, 2002.
Thereafter, Greenhill had preliminary discussions with the thirteenth and
fourteenth potential interested parties. The thirteenth potential interested
party negotiated minor revisions to Morton's customary form of confidentiality
agreement and executed the confidentiality agreement as of January 24, 2002, but
ultimately determined not to pursue a potential transaction with Morton's at
that time primarily because of an internal conflict of interest relating to a
third party (no terms of a potential acquisition were discussed). The fourteenth
potential interested party negotiated minor revisions to Morton's customary form
of confidentiality agreement and executed the confidentiality agreement as of
January 18, 2002. Subsequently, the fourteenth potential interested party
performed its due diligence investigation of Morton's, including discussions
with Company management. During the same time period, counsel for the fifteenth
potential interested party contacted RLF to negotiate the confidentiality
agreement. Following several discussions relating to the confidentiality
agreement, counsel for the fifteenth potential interested party advised RLF that
its client would not agree to the form of confidentiality agreement provided to
it (no terms of a potential acquisition were discussed). Thereafter, the
fifteenth potential interested party sent a series of letters, dated
February 11, 2002, February 27, 2002 and March 14, 2002, to the chairman of the
Special Committee and certain other directors, complaining that it was not
permitted access to the Special Committee's process without signing the
confidentiality agreement, that the standstill provisions of the confidentiality
agreement were inappropriate, and admonishing the Board of Directors as to the
discharge of its fiduciary duties and certain other matters. RLF responded in
writing to the February 11, 2002 letter on February 19, 2002 disagreeing with
certain of the contentions set forth in the February 11, 2002 letter.
The Board of Directors held a meeting on January 22, 2002. SRZ also attended
this meeting. At the meeting, Mr. Cohn updated the full Board (other than
Messrs. Castle and Pittaway, who did not participate in these discussions) on
the status of the Special Committee's evaluation of strategic alternatives,
including discussions regarding the remaining potential interested parties and
the deadline for submitting firm and final bids. At that time, it appeared that
only CHP and the fourteenth potential interested party remained interested,
although Morton's had recently sent updated financial information to the second
and fourth potential interested parties at their request.
On February 7, 2002, at the direction of the Special Committee, Greenhill
sent a letter notifying the remaining potential interested parties, CHP and the
fourteenth potential interested party, that firm and final bids would be due on
February 15, 2002. On February 8, 2002, a revised draft merger agreement was
distributed to the remaining potential interested parties.
In early to mid February 2002, the Company was contacted by a representative
of its senior lenders in connection with its Second Amended and Restated
Revolving Credit and Term Loan Agreement (referred to as the credit agreement).
The senior lenders questioned whether the Company was in compliance with one of
its financial ratios, and insisted on amending the credit agreement to reset
specified financial ratios and tests both as of December 30, 2001 and on a going
forward basis. They further indicated that they would require additional
amendments to the credit agreement, including restrictions on capital
expenditures, in conjunction with resetting the ratios and tests. The Company
initially resisted pressure from the senior lenders to accept these additional
proposed amendments to the credit agreement. At the same time, the Company's
independent auditors, in connection with their audit of the Company's fiscal
2001 financial statements, required confirmation from the senior lenders that
the Company was in compliance with the financial ratios and tests set forth in
the credit
32
agreement. Ultimately, after negotiations as to the form and scope of
amendments, Morton's entered into Amendment No. 14 to the credit agreement on
March 13, 2002.
On February 15, 2002, the Special Committee met with Greenhill and RLF to
review the status of the process with Greenhill. Greenhill described its
conversations with the potential interested parties that had remained in the
process. Greenhill advised that the fourteenth potential interested party had
orally informed Greenhill that, based on its analysis of Morton's financial
results, it was not interested in proceeding further. RLF updated the Special
Committee on the position taken by the fifteenth potential interested party, and
the communications received from this party. Greenhill then reported to the
Special Committee on a $12.00 per share cash bid it received from Morton's
Holdings (a wholly owned investment of CHP) and the bid's conditional nature, as
well as the updated valuation work that Greenhill had performed based upon
Morton's year-end financial results. The only bid received by the Special
Committee was from Morton's Holdings.
The Special Committee then discussed the conditional nature of the bid
received, and how best to proceed. As a result of this discussion, the Special
Committee determined that Greenhill should contact Morton's Holdings to review
certain key terms that would need to be resolved before the Special Committee
would proceed to negotiate a transaction, including an increase in the price and
the elimination of several of the more material contingencies contained in the
bid, as well as the elimination of Morton's Holdings' demand for an extended
exclusivity period, significant additional due diligence and a 4% termination
fee plus expense reimbursement.
Between February 15 and February 28, 2002, discussions took place between
Greenhill and Morton's Holdings to attempt to address the more material
contingencies identified by the Special Committee in Morton's Holdings' bid, as
well as the suggested timing of that bid and the price and other terms offered.
On February 28, 2002, the Special Committee met telephonically to address the
status of those discussions and how to proceed. At that meeting, Greenhill
reported on its contacts with Morton's Holdings' representatives, and the
Special Committee reaffirmed its view that unless additional matters were
resolved, including an increase in the price offered by Morton's Holdings, it
would not negotiate a definitive agreement with Morton's Holdings.
Between February 28 and March 7, 2002, further discussions took place among
the Special Committee and its legal and financial advisors and Morton's Holdings
and its legal advisor. The discussions focused on the following: (a) the amount
of the offer price, (b) the amount of the termination fee (including expense
reimbursement), (c) the condition requiring the achievement of a minimum level
of earnings before interest, taxes, depreciation and amortization (referred to
as EBITDA) by Morton's and its subsidiaries, (d) the condition requiring that no
litigation be pending or threatened by a third party (other than by a
governmental authority), (e) the appropriateness and duration of an exclusivity
period and (f) the restrictions to be imposed on Morton's with respect to
solicitation of other proposals during the contract period. During these
discussions, Greenhill sought to have Morton's Holdings increase the offer price
and limit or eliminate the other provisions. As a result of the active arms
length negotiations between the parties, Morton's Holdings twice increased the
price it offered, did not pursue an exclusivity period, agreed to limit the
litigation condition and agreed to significant reductions in the termination fee
and EBITDA condition, all as reflected in the final merger agreement.
On March 1, 2002, the Special Committee met telephonically with Greenhill
and RLF to review the current status of negotiations with Morton's Holdings.
Greenhill reported that it had spoken with Morton's Holdings' representatives
regarding the issues referred to above. During its meeting, the Special
Committee again examined the possibility of abandoning the sale process and
considered the value of Morton's on a stand-alone basis. Greenhill reported its
view that in evaluating Morton's on a stand-alone basis, the Special Committee
would need to take into account the highly leveraged capital structure of
Morton's, the letter from the NYSE regarding compliance with its listing
standards and the current status of Morton's discussions with its senior lenders
regarding potential amendments to the
33
credit agreement. A discussion followed as to whether Morton's would be viewed
as a "work out" situation by its senior lenders given its financial situation.
(Shortly after the signing of the merger agreement, the Company was notified by
representatives of its senior lenders that, in fact, it had been moved to the
work out group.) The participants also discussed the acceptability of an EBITDA
condition in any transaction, and Greenhill was encouraged to continue to
attempt to eliminate this condition, if possible, or to push Morton's Holdings
to accept the lowest possible level of EBITDA as a condition to its offer.
On March 5, 2002, the Special Committee met telephonically to receive a
further update on the status of discussions between Morton's Holdings and
Greenhill. Greenhill reported that Morton's Holdings had agreed to increase its
offer price for Morton's to $12.50 per share, expressed some willingness to
compromise on certain conditions to its offer, continued to press for additional
time to complete due diligence, and indicated that it could be flexible
regarding its EBITDA condition only if the price offered in the transaction were
lower. The Special Committee again discussed its negotiating position in this
regard, and again considered whether Morton's stockholders were likely to be
better off with or without a transaction if Morton's Holdings was not willing to
compromise on these conditions.
RLF advised the Special Committee that SRZ had informed RLF of Morton's
senior lenders' demand that Morton's credit agreement be amended, and that in
light of the timing of the Special Committee's process, Morton's had begun
negotiations with its senior lenders on such an amendment.
Following additional deliberation and discussion, the Special Committee
instructed Greenhill to advise Morton's Holdings that the Special Committee
intended to cease discussions with Morton's Holdings and pursue other
alternatives in 48 hours unless Morton's Holdings was willing to compromise
significantly on its key conditions, increase its price and agree to a
termination fee in any transaction not to exceed 2.5% of equity value (including
any expense reimbursement).
On March 5 and March 6, 2002, RLF discussed with White & Case LLP, a New
York, New York law firm, referred to as W&C, counsel to Morton's Holdings, the
following: (a) the condition requiring that no litigation be pending or
threatened by a third party (other than by a governmental authority), and
(b) the restrictions to be imposed on Morton's with respect to solicitation of
other proposals during the contract period. W&C agreed to limit the third party
litigation condition as reflected in the final merger agreement. Furthermore,
W&C discussed with RLF certain technical matters relating to the restrictions to
be imposed on Morton's with respect to solicitation of other proposals during
the contract period. At the conclusion of these discussions each of W&C and RLF
reported back to their respective clients that the foregoing matters had been
satisfactorily resolved.
On March 6, 2002, the Special Committee met telephonically with Greenhill
and RLF to receive an update on the status of negotiations. Greenhill reported
that Morton's Holdings had accepted a 2.5% termination fee, to be calculated on
the equity in the transaction and include expense reimbursement if payable.
Greenhill also reported that Morton's Holdings had refused to increase its price
above $12.50, but had agreed, after lengthy discussions, to lower the amount of
EBITDA that Morton's would need to achieve for the 12 month period ending
June 30, 2002 to $23 million. RLF, Greenhill and the Special Committee then
discussed how best to proceed and further discussed an appropriate negotiating
position to maximize stockholder value.
The Special Committee then discussed Morton's Holdings' position on price
and its EBITDA condition, and discussed its option to say "no" to Morton's
Holdings, and considered whether remaining a stand-alone Company was a viable
and attractive alternative. Greenhill gave input regarding the amount of
leverage that a financial buyer would be able to generate in a transaction of
this sort, and stated that the multiples of earnings and EBITDA implied in
Morton's Holdings' revised price exceeded several recent precedent transactions.
The Special Committee discussed the future of Morton's on a stand-alone basis,
and the proposed offer price. Following discussion, the Special Committee
instructed Greenhill to seek an increase in the price offered, and to
communicate that if
34
Morton's Holdings was willing to increase its offer price then the Special
Committee would authorize RLF to begin negotiating a merger agreement with W&C.
On March 7, 2002, the Special Committee met telephonically with Greenhill
and RLF and was advised that Morton's Holdings had increased its offer price to
$12.60 per share, but was unwilling to compromise further on price, or to
further adjust the EBITDA target condition in its offer. However, consistent
with the discussions between RLF and W&C, Morton's Holdings was willing to
compromise on the litigation condition to its offer. After discussion, the
Special Committee authorized RLF to open negotiations on definitive
documentation with Morton's Holdings.
Between March 7 and March 26, 2002, RLF negotiated the key provisions of the
merger agreement and ancillary documents with W&C. RLF was assisted in these
negotiations by SRZ to the extent that the documents addressed particular
representations and warranties specific to Morton's and other Company-specific
matters. RLF reported regularly to the chairman of the Special Committee with
respect to these negotiations. During this period, outside director Dianne H.
Russell reviewed drafts of the merger agreement with her separate counsel and
provided comments to RLF, which comments were incorporated into negotiations
with Morton's Holdings by the Special Committee.
On March 13, 2002, Morton's entered into Amendment No. 14 to its credit
agreement. Amendment No. 14 to the credit agreement, among other things,
(a) reset specified financial ratios and tests set forth in the credit
agreement, (b) modified the amortization of the term loan and increased the
interest rates applicable to the term loan and the revolving loans thereunder,
(c) prohibits Morton's from entering into any new capital expenditure
commitments or lease commitments for new restaurants until a specified cash flow
leverage ratio test is achieved, (d) limits capital expenditures to
$13.0 million in 2002, and further restricts capital expenditures in future
years, (e) prohibits the payment of dividends and the repurchase of Morton's
outstanding common stock, (f) reduces Morton's revolving credit facility to
$60,000,000 through June 30, 2003 unless a specified leverage ratio is achieved,
in which case the facility will return to $65,500,000, (g) provides for annual
additional mandatory prepayments as calculated based on Morton's net cash flows,
as defined, and (g) reduces Morton's revolving credit facility by $5 million
every 6 months from June 30, 2003 through June 30, 2005.
On March 14, 2002, Morton's issued a press release announcing that, due to
the adverse circumstances previously referred to, Morton's net income for the
fiscal 2001 fourth quarter and year were substantially below 2000 levels, and
announcing a decline in comparable restaurant revenues. Morton's also reported
continuing weak revenue trends and a decline in comparable restaurant revenues
through March 10, 2002, and reiterated its earlier warnings regarding future
results. Morton's again publicly confirmed that it was continuing the process of
exploring its strategic alternatives, including evaluating a potential sale of
Morton's.
Between March 15 and March 26, 2002, Morton's Holdings negotiated (on behalf
of Morton's) Amendment No. 15 (which would only become binding and effective
concurrently with completion of the merger) to Morton's credit agreement to
allow the merger to take place and to offer Morton's greater operational
flexibility post-merger. RLF reviewed Amendment No. 15 to Morton's credit
agreement and made comments to W&C with a view to attempting to assure that the
conditions to its effectiveness are reasonably likely to be met.
On March 15, 2002, Mr. Baldwin attended a bank meeting at which Morton's
Holdings discussed with representatives of the senior lenders the terms of
Amendment No. 15 to Morton's credit agreement. Amendment No. 15 would become
effective only upon completion of the merger. Amendment No. 15, among other
things, would permit the merger to occur and would require Morton's to prepay
$10.0 million of the outstanding principal of the term loan under the credit
agreement in connection with completion of the merger. The $10.0 million
prepayment would be funded by Morton's Holdings. Amendment No. 15 would also
adjust other provisions of Morton's credit agreement, such as interest rates,
financial and other covenants and amortization schedules, thereby giving
Morton's greater operational flexibility post-merger (as compared with Morton's
35
operational flexibility under Amendment No. 14). Mr. Baldwin only provided
financial information with respect to Morton's but did not engage in any
negotiations or discussions with Morton's Holdings with respect to the merger or
any of the related transactions.
On March 26, 2002, the Special Committee met with RLF and Greenhill to
consider the definitive documents that had been negotiated and to receive
Greenhill's report as to the fairness of the transaction from a financial point
of view. Ms. Russell, who had requested to attend the financial presentation at
the Special Committee's meeting, attended the portion of the meeting during
which Greenhill made its presentation.
Greenhill began its presentation by advising the Special Committee that it
was still in the process of completing a market check of potential acquirers of
Morton's and that this process needed to be completed before Greenhill could be
in a position to render an opinion as to the fairness from a financial point of
view of the proposed transaction with Morton's Holdings. Mr. Timothy George, the
senior member of the Greenhill team, then excused himself from the Special
Committee meeting to make inquiries of two additional potential strategic buyers
in order to complete Greenhill's market check.
RLF made a presentation to the Special Committee regarding the material
terms, conditions and contingencies in the merger agreement. The Special
Committee reviewed the specific provisions of the merger agreement addressed by
RLF and discussion followed.
RLF also reviewed with the Special Committee Amendment No. 15 to Morton's
credit agreement, which would become effective only upon consummation of the
merger, and which would allow the merger to be consummated without additional
outside debt financing for the purpose of replacing the existing bank financing,
thereby eliminating a significant potential contingency with respect to the
transaction. Finally, RLF distributed and reviewed with the Special Committee
the form of equity commitment letter pursuant to which CHP agreed, subject to
certain conditions, to subscribe to $74 million of equity of Morton's Holdings
to complete the transaction.
Mr. George of Greenhill then reported to the Special Committee that he had
made contact with senior officers of the two additional potential strategic
buyers that Greenhill needed to contact to complete its market check, and that
those senior officers reported that their respective organizations were aware of
Morton's and its sale process and were not interested in a possible transaction
with Morton's. Mr. George then advised that, based on these calls, Greenhill had
completed its market check, and was in a position to deliver its fairness
opinion. Following Mr. George's report, Greenhill then completed its
presentation to the Special Committee relating to the fairness of the proposed
transaction with Morton's Holdings from a financial point of view, and gave an
oral opinion to the Special Committee, subsequently confirmed in writing, to the
effect that, based on and subject to the considerations, limitations,
qualifications and assumptions made therein, as of March 26, 2002, the $12.60
per share cash consideration to be received by Morton's stockholders in the
proposed merger was fair, from a financial point of view, to stockholders of
Morton's other than Morton's Holdings and its subsidiaries, including Morton's
Acquisition, and CHP and its affiliates.
The Special Committee then assessed the benefits of the proposed transaction
relative to a Company stand-alone alternative. Among other things, the Special
Committee considered the different valuation ranges for the Company presented by
Greenhill, the likelihood that the Company's strategic plan could be achieved in
light of the effects of the current economic uncertainty, the fact that the
Company received notice from the NYSE that it was below the continued listing
standards and therefore may cease to be eligible for trading on the NYSE, and
the availability of debt or equity financing to meet the Company's ongoing needs
in light of the Company's level of leverage and potential lack of liquidity for
stockholders. After discussion, the Special Committee then unanimously
determined to recommend the transaction to the full Board of Directors.
Following the meeting of the Special Committee, the full Board of Directors,
excluding Messrs. Castle and Pittaway who did not participate in this meeting,
met with Greenhill, RLF and SRZ
36
to consider the report of the Special Committee and the advisability of the
proposed transaction. SRZ advised the members of the Board of Directors as to
their fiduciary duties in considering the transaction and the recommendation of
the Special Committee, and RLF briefed the Board of Directors on the material
terms and contingencies in Morton's Holdings' offer.
Greenhill then made a presentation to the Board of Directors. During the
Board of Directors' discussion of Greenhill's presentation, Mr. Baldwin,
Morton's executive vice president and chief financial officer, noted that
Morton's long term financial plan, dated January 2002, had not been updated to
incorporate Morton's recent completion of Amendment No. 14 to Morton's credit
agreement, pursuant to which, among other things, the lending banks restricted
Morton's from entering into any new capital expenditure commitments or lease
commitments for new restaurants called for under the January 2002 plan (other
than five restaurants with respect to which Morton's had already entered into
capital expenditure commitments or lease commitments). Mr. Baldwin noted that
the January 2002 plan required revisions to reflect the impact of Amendment
No. 14 to the credit agreement, including, among other things, higher interest
costs, accelerated principal amortization, reductions in commitment amounts and
restrictions on capital expenditures (which would prohibit Morton's from opening
any new restaurants in 2003). Amendment No. 14 to the credit agreement also
restricts, among other things, capital expenditures in 2004 and 2005. The impact
of Amendment No. 14 to the credit agreement would therefore result in lower
revenues and earnings in 2002 through 2005 due to fewer new restaurants being
permitted. Greenhill then advised the Board of Directors that it had not been
apprised of the impact of Amendment No. 14 to Morton's credit agreement on the
January 2002 plan, and would not be in a position to deliver its fairness
opinion to the full Board of Directors on the transaction until examining the
impact of the revisions on its financial analysis. Mr. Baldwin left the meeting
to revise the January 2002 plan. Greenhill then reviewed and analyzed those
changes. Following an adjournment of the meeting to allow Greenhill to complete
its work, the meeting reconvened, and Greenhill presented its revised analysis
orally (which was subsequently confirmed in writing). Greenhill reviewed the
changes to the analysis with the Board of Directors, observed that the reduction
in revenue and earnings growth as a result of opening fewer restaurants led to a
lower valuation range for Morton's pursuant to its discounted cash flow
analysis, and reconfirmed its opinion that the consideration to be received in
the transaction was fair from a financial point of view.
Following the review, Greenhill delivered its fairness opinion to the Board
of Directors, and the Board of Directors, including each member of the Special
Committee, voted by the unanimous vote of those directors present to recommend
the transaction to the stockholders of Morton's and to take all steps necessary
to convene and hold a meeting of stockholders to vote on the transaction. In
connection with the merger, the Board of Directors also amended its amended and
restated stockholders rights agreement to provide that, among other things, the
rights under the stockholders rights agreement will not become exercisable as a
result of the merger agreement and the transactions contemplated thereby, and
that the stockholders rights agreement will be terminated simultaneously with
the consummation of the merger.
The merger agreement was signed and delivered following the Board of
Directors meeting, and on March 27, 2002 Morton's issued a press release and
made regulatory filings announcing the transaction.
37
REASONS FOR THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS
The Special Committee, which is composed of directors who are not officers
or employees of Morton's, Morton's Holdings, Morton's Acquisition or CHP and who
have no financial interest in the proposed merger different from Morton's
stockholders generally, has unanimously determined that the proposed merger and
merger agreement are fair to and in the best interests of Morton's and its
stockholders. The Special Committee unanimously approved the merger and the
merger agreement and recommended to the Board of Directors to approve and adopt
the merger agreement and approve the merger. The Special Committee considered a
number of factors, as more fully described above under "--Background of the
Merger" and below under "--Reasons for the Special Committee's Determination,"
in determining to make its recommendation. The Board of Directors, based in part
on (1) the unanimous recommendation of the Special Committee and (2) the oral
opinion, subsequently confirmed by the written opinion, dated March 26, 2002, of
Greenhill, that, based on and subject to the considerations, limitations,
assumptions and qualifications set forth in the opinion, as of March 26, 2002,
the $12.60 per share cash consideration to be received by Morton's stockholders
in the proposed merger was fair, from a financial point of view, to Morton's
stockholders (other than Morton's Holdings and its subsidiaries, including
Morton's Acquisition, and CHP and its affiliates), has determined by the
unanimous vote of those participating that the merger agreement and the merger
are fair to and in the best interests of Morton's and its stockholders and has
approved, adopted and declared advisable the merger agreement and approved the
merger.
REASONS FOR THE SPECIAL COMMITTEE'S DETERMINATION. In recommending approval
and adoption of the merger agreement and approval of the merger to the Board of
Directors, the Special Committee considered a number of factors that it believed
supported its recommendation, including:
- the efforts of the Special Committee, assisted by Greenhill, commencing in
May 2001 and continuing over the subsequent ten months, to explore and
pursue strategic alternatives for the Company, including merger or
acquisition by Morton's of another company or business, recapitalization,
preferred equity infusion or leveraged buyout or other sale of Morton's,
and including with respect to the latter, publicly stating on multiple
occasions that the Special Committee would consider any offers received,
and the fact that during a ten-month period the Special Committee
(directly or through Greenhill) had contact with at least 30 parties,
entered into confidentiality agreements with six parties, provided five
parties with the opportunity to conduct extensive due diligence, received
preliminary indications of interest from three parties, and the only
definitive offer submitted was the offer from Morton's Holdings;
- the dramatic negative impact on the Company's financial position and
business performance of the troubled economy, unfavorable business
conditions in the Company's market, corporate spending cutbacks, reduced
business travel and the effects of the September 11, 2001 attacks, along
with the Company's high debt load, low stockholder liquidity and small
scale, as well as the uncertainty of near-term improvement in the
Company's business, which together suggested that continued operation of
the Company on a stand alone basis as a public company presented
significant risks, including to the public stockholders, as compared to
the $12.60 per share cash merger consideration;
- the declining financial position and business performance of Morton's had
caused Morton's to agree to Amendment No. 14 to Morton's credit agreement
in order to avoid a possible default and acceleration of the bank debt,
and that Amendment No. 14 to Morton's credit agreement imposes significant
restrictions on Morton's operating flexibility and capital expenditures,
thereby significantly reducing growth opportunities for Morton's for the
foreseeable future;
- trading prices for Morton's common stock, particularly the fact that
(1) the $12.00 per share offer submitted by Morton's Holdings on
February 15, 2002 represented an 81.8% premium over the market closing
price of $6.60 per share on February 14, 2002, the last full trading day
before
38
Morton's Holdings submitted its formal proposal to acquire Morton's and
(2) the $12.60 per share final offer represented a 10.1% premium over the
market closing price of $11.44 on March 25, 2002, the last full trading
day before the parties entered into the merger agreement;
- the presentations made by Greenhill to the Special Committee on March 26,
2002, and the oral opinion, subsequently confirmed by the written opinion,
dated March 26, 2002, of Greenhill, that, based on and subject to the
considerations, limitations, assumptions and qualifications set forth in
the opinion, as of March 26, 2002, the $12.60 per share cash consideration
to be received by Morton's stockholders in the proposed merger was fair,
from a financial point of view, to Morton's stockholders (other than
Morton's Holdings and its subsidiaries, including Morton's Acquisition,
and CHP and its affiliates), and the Special Committee's adoption of the
conclusions and analysis of Greenhill contained in its fairness opinion
(See "--Opinion of Financial Advisor to the Special Committee");
- the opportunity that the merger will afford Morton's stockholders, several
of whom have indicated to the Company that they desire a liquidity event,
to dispose of all of their common stock for cash in light of the
relatively thin trading market and lack of liquidity;
- the fact that the NYSE has informed Morton's that Morton's common stock
might be delisted, and that such a delisting likely would exacerbate the
already limited liquidity of the Company's common stock;
- the Special Committee's conclusion that the merger agreement, after giving
consideration to the requirements and limitations contained therein,
allows Morton's a reasonable opportunity to respond to certain third party
acquisition proposals, and, if a superior proposal were made, to terminate
the merger agreement and accept the superior proposal up until the time of
the stockholder vote on the merger, subject to certain limitations
including the payment of a termination fee and expense reimbursement (See
"The Merger Agreement--Limitation on Considering Other Acquisition
Proposals");
- the Special Committee's conclusion, based on advice from RLF, that under
prevailing law the percentage of the equity value of the transaction
represented by the termination fee and reimbursement of out-of-pocket fees
and expenses payable as discussed in "The Merger Agreement--Termination"
and "The Merger Agreement--Termination Fee and Expense Reimbursement,"
would not unduly discourage superior third-party offers, and, based on
advice from Greenhill, that the amount payable for reimbursement of
expenses and the termination fee is within the range of fees and expenses
payable in comparable transactions;
- the business reputation and financial resources of Morton's Holdings'
affiliates, the strong track record of Morton's Holdings' affiliates in
completing transactions similar to the merger, including transactions in
the restaurant industry, and their demonstrated ability to obtain liquor
licenses all supported the Special Committee's determination that Morton's
Holdings had the ability to complete the merger in a timely manner;
- CHP's commitment to provide $74.0 million of equity financing to Morton's
Holdings and the fact that neither CHP nor Morton's Holdings can amend,
modify or terminate that commitment in any respect that would adversely
affect the probability that the transactions contemplated by the merger
agreement will close, or that will delay the closing, without the prior
written consent of Morton's (which consent requires the approval of the
Special Committee), which, combined with the strong track record in
completing deals, supported the belief of the Special Committee that
Morton's Holdings would be able to meet its financing obligations pursuant
to the merger agreement and complete the merger;
- that Morton's Holdings was able to negotiate on behalf of Morton's, and
Morton's bank lenders executed, Amendment No. 15 (which will only become
binding and effective concurrently with completion of the merger) to
Morton's credit agreement to allow the merger to take place,
39
thereby virtually eliminating financing risk associated with the bank debt
with respect to the transaction;
- the Special Committee's determination, after review of the valuation
summary prepared by Greenhill, that the $12.60 per share cash merger
consideration was within the range of going concern value and that the
premium represented thereby is within the range of premiums for recently
announced transactions that Greenhill identified as comparable;
- the fact that the Special Committee was able to negotiate the purchase
price up to $12.60 per share from an initial offer price of $12.00 per
share, and the stated position of Morton's Holdings, following the Special
Committee's efforts to negotiate a higher purchase price, and after
Morton's Holdings had twice increased the price it was willing to offer,
that $12.60 per share was the highest price it was then willing to pay;
- the fact that the negotiations with Morton's Holdings resulted in the
elimination of numerous conditions and contingencies originally proposed
by Morton's Holdings (including the elimination of any requirement to
obtain landlord consents or landlord estoppels) and a 37% reduction of the
maximum amount payable to Morton's Holdings for a termination fee as
originally proposed by Morton's Holdings, and the fact that, as originally
proposed, there was no limit to the amount of expense reimbursement
payable as part of the termination fee but that, as renegotiated, expense
reimbursement is included within the termination fee;
- the fact that Morton's common stock has been trading, and continues to
trade, at lower multiples relative to comparable restaurant companies due
to higher leverage, lower liquidity and smaller scale than comparable
restaurant companies; and
- the Special Committee's consideration of the proposal by BFMA Holding
Corporation and the negotiations and process relating thereto, including
(a) the fact that on or about July 19, 2001, BFMA informed Morton's that
it did not intend to renew its debt financing commitment, and that it
never subsequently evidenced any alternative financing arrangement or
prospects therefor, (b) the fact that BFMA was unwilling to sign Morton's
customary form of confidentiality agreement, (c) the fact that BFMA
desired to provide Morton's confidential information to an unlimited
number of unidentified potential equity and debt financing sources and
(d) Barry Florescue's transactional history and background (See
"--Background of the Merger").
The Special Committee also considered the following factors, among others,
relating to the procedures involved in the negotiation of the merger:
- Morton's Board of Directors established the Special Committee to consider
and negotiate the merger agreement;
- the Special Committee, which consists solely of directors who are not
officers or employees of Morton's, Morton's Holdings, Morton's Acquisition
or CHP and who have no financial interest in the proposed merger different
from Morton's stockholders generally, was given exclusive authority to,
among other things, evaluate, negotiate and recommend the terms of any
proposed transaction;
- members of the Special Committee will have no continuing interest in
Morton's after completion of the merger;
- the Board of Directors had determined that it would not approve any
transaction that was not recommended by the Special Committee;
- the Special Committee retained and received advice from its own legal
counsel and financial advisor in evaluating, negotiating and recommending
the terms of the merger agreement;
- Greenhill rendered an oral opinion, subsequently confirmed by a written
opinion, dated March 26, 2002, that, based on and subject to the
considerations, limitations, assumptions and
40
qualifications set forth in the opinion, as of March 26, 2002, the $12.60
per share cash consideration to be received by Morton's stockholders in
the proposed merger was fair, from a financial point of view, to Morton's
stockholders (other than Morton's Holdings and its subsidiaries, including
Morton's Acquisition, and CHP and its affiliates);
- the $12.60 per share cash consideration and the other terms and conditions
of the merger agreement resulted from arm's-length bargaining between the
Special Committee and its representatives, on the one hand, and Morton's
Holdings and its representatives, on the other hand;
- the affirmative vote of the holders of a majority of the outstanding
Morton's shares of common stock entitled to vote on the matter is required
under Delaware law and the merger agreement to approve and adopt the
merger agreement; and
- Morton's stockholders have the right to demand appraisal of their shares
in accordance with the procedures established by Delaware law. See
"Appraisal Rights."
The Special Committee also considered a variety of risks and other
potentially negative factors concerning the merger but determined that these
factors were outweighed by the benefits of the factors supporting the merger.
These negative factors included the following:
- certain terms and conditions set forth in the merger agreement, required
by Morton's Holdings as a prerequisite to entering into the merger
agreement, prohibit Morton's and its representatives from soliciting
third-party bids and from accepting third-party bids except in specified
circumstances and upon reimbursement of expenses relating to the merger
agreement and related transactions and payment to Morton's Holdings of a
specified termination fee, and these terms could have the effect of
discouraging a third party from making a bid to acquire Morton's (See "The
Merger Agreement--Limitation on Considering Other Acquisition Proposals");
- the $12.60 per share cash merger consideration is lower than (1) the
historic trading prices of the Company's common stock on the NYSE prior to
the economic slowdown and the September 11, 2001 attacks, and (2) the BFMA
proposal in 2001;
- the $12.60 per share cash merger consideration is lower than the
preliminary valuations presented by Greenhill in earlier discussions and
analyses in 2001, although those preliminary valuations were based on a
variety of factors and assumptions, and on the economic, market, financial
and other conditions as in effect on, and the information made available
to Greenhill as of, the date of preparation, and in particular did not
reflect subsequent developments including the substantial negative impact
on Morton's of the troubled economy, unfavorable business conditions in
the Company's market, corporate spending cutbacks, reduced business
travel, the effects of the September 11, 2001 attacks and the impact of
the Company entering into Amendment No. 14 to the credit agreement;
- the conflict of interest created by Mr. Castle's and Mr. Pittaway's
affiliation with CHP and by Mr. Bernstein's and Mr. Baldwin's expectation
that they would continue as executives of Morton's after the merger, as
well as the other factors discussed in "--Interests of Morton's Directors
and Officers in the Merger;"
- if the merger is not consummated under circumstances further discussed in
"The Merger Agreement--Termination" and "The Merger Agreement--Termination
Fee and Expense Reimbursement" Morton's may be required to reimburse
Morton's Acquisition and Morton's Holdings for expenses relating to the
Merger agreement and related transactions and to pay to Morton's
Acquisition the specified termination fee; and
- following the merger, Morton's will be a privately held company, and its
current stockholders will cease to participate in any future earnings,
losses, growth or decline of Morton's.
41
In considering the merger, the Special Committee considered Greenhill's
"Analysis of Selected Precedent Transactions" and "Analysis of Selected
Comparable Publicly Traded Companies" to be the most relevant measures to
determine the going-concern value of Morton's. The Special Committee viewed
Greenhill's "Discounted Cash Flow Analysis" as relevant but more subjective
because this valuation methodology depends on estimates of Morton's standalone
enterprise value and was based on numerous assumptions, including financial
projections and the discount rate, the growth rate and the terminal multiple.
The Special Committee did not ask Greenhill to attempt to determine the
liquidation value of Morton's and gave little consideration to the book value of
Morton's (which was $(0.05) per share at December 30, 2001) because it believed
that those measures of asset value were not relevant to the market value of
Morton's business and would be considerably less than the merger consideration
of $12.60 per Morton's share. While the Special Committee reviewed with
Greenhill its various financial analyses and reviewed with officers of Morton's
its historical and projected results, the Special Committee did not
independently generate its own separate financial analysis of the merger. In
reaching its determination, the Special Committee did not consider the share
repurchases made by the Company in the past two years because, based on these
repurchases occurring in fiscal 2000 (and no purchases being made after
September 15, 2000) at a time when Company was in a much stronger financial
position, the Special Committee did not view these purchases as material or
relevant to a determination of fairness.
After considering these factors, the Special Committee concluded that the
positive factors relating to the merger outweighed the negative factors. Because
of the variety of factors considered, the Special Committee did not find it
practicable to quantify or otherwise assign relative weights to, and did not
make specific assessments of, the specific factors considered in reaching its
determination. However, individual members of the Special Committee may have
assigned different weights to various factors. The determination of the Special
Committee was made after consideration of all of the factors together.
REASONS FOR THE BOARD OF DIRECTORS' DETERMINATION. Morton's Board of
Directors consists of nine directors, three of whom served on the Special
Committee (following Mr. Castle's resignation on August 15, 2001). In reporting
to Morton's Board of Directors regarding its determination and recommendation,
the Special Committee, with its legal and financial advisors participating,
advised the other members of the Board of Directors in attendance of the course
of its negotiations with Morton's Holdings and W&C, its review of the merger
agreement and the related financing commitments and the factors it took into
account in reaching its determination that the terms of the merger agreement,
including the offer price of $12.60 per share, and the merger are fair to and in
the best interests of Morton's and its stockholders. In view of the wide variety
of factors considered in its evaluation of the proposed merger, the Board of
Directors did not find it practicable to quantify or otherwise assign relative
weights to, and did not make specific assessments of, the specific factors
considered in reaching its determination. Rather, the Board of Directors based
its position on the totality of the information presented and considered,
including Greenhill's oral opinion, subsequently confirmed by its written
opinion, dated March 26, 2002, that, based on and subject to the considerations,
limitations, assumptions and qualifications set forth in the opinion, as of
March 26, 2002, the $12.60 per share cash consideration to be received by
Morton's stockholders in the proposed merger was fair, from a financial point of
view, to Morton's stockholders (other than Morton's Holdings and its
subsidiaries, including Morton's Acquisition, and CHP and its affiliates). In
connection with its consideration of the recommendation of the Special
Committee, as part of its determination with respect to the merger, the Board of
Directors adopted the conclusion, and the analysis underlying such conclusion,
of the Special Committee, based upon its view as to the reasonableness of that
analysis. THEREFORE, THE BOARD OF DIRECTORS, BASED IN PART ON THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE OPINION OF GREENHILL, RECOMMENDS
THAT YOU VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE
APPROVAL OF THE MERGER.
42
FAIRNESS OF THE MERGER TO STOCKHOLDERS. The Board of Directors believes
that the merger agreement and the proposed merger are substantively and
procedurally fair to, and in the best interests of, Morton's stockholders for
all of the reasons set forth above. In addition, with respect to procedural
fairness, the Board of Directors established the Special Committee, consisting
originally of four and, after Mr. Castle's resignation on August 15, 2001, of
three directors of Morton's, none of whom is an officer or employee of Morton's
or (after Mr. Castle's resignation) of Morton's Holdings, Morton's Acquisition
or CHP.
In reaching these conclusions, the Board of Directors considered it
significant that:
- the merger consideration of $12.60 in cash per share was the highest price
that Morton's Holdings indicated it was then willing to pay, following
arm's-length negotiations between the Special Committee and
representatives of Morton's Holdings;
- no member of the Special Committee has a financial interest in the
proposed merger different from Morton's stockholders generally;
- the Special Committee retained its own financial and legal advisors who
have extensive experience with transactions similar to the merger and who
assisted the Special Committee in the negotiations with Morton's Holdings;
and
- Greenhill was retained to advise the Special Committee as to the fairness,
from a financial point of view, of offers received, and Greenhill had
reached the conclusion expressed in its oral opinion, subsequently
confirmed by its written opinion, dated March 26, 2002, that, based on and
subject to the considerations, limitations, assumptions and qualifications
set forth in the opinion, as of March 26, 2002, the $12.60 per share cash
consideration to be received by Morton's stockholders in the proposed
merger was fair, from a financial point of view, to Morton's stockholders
(other than Morton's Holdings and its subsidiaries, including Morton's
Acquisition, and CHP and its affiliates).
The Board of Directors believes that the merger agreement and the proposed
merger are substantively and procedurally fair to Morton's stockholders for all
of the reasons and factors described above, even though no disinterested
representative, other than the Special Committee and its advisors, was retained
to act solely on behalf of the stockholders. Because of their affiliation with
CHP, directors John K. Castle and David B. Pittaway were not present during any
deliberations of the Board of Directors at which Morton's strategic alternatives
were discussed from the time that affiliates of Morton's Holdings began
exploring a possible transaction with Morton's in August 2001. They also did not
participate in or vote at the meeting of the Board of Directors on March 26,
2002 at which the Board of Directors discussed and approved the merger agreement
and the merger. The remaining seven directors voted unanimously to adopt and
approve the merger agreement and to approve the merger.
THE BOARD OF DIRECTORS, BASED ON THE UNANIMOUS RECOMMENDATION OF THE SPECIAL
COMMITTEE, RECOMMENDS THAT MORTON'S STOCKHOLDERS VOTE FOR THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER.
The executive officers of Morton's, who collectively hold, as of the record
date, an aggregate of approximately [6.80]% of Morton's common stock, have
indicated to Morton's their intention to vote their shares in favor of approving
and adopting the merger agreement and approving the merger.
43
POSITION OF MORTON'S HOLDINGS, MORTON'S ACQUISITION AND CHP AS TO THE FAIRNESS
OF THE MERGER
The rules of the SEC require each of Morton's Holdings, Morton's Acquisition
and CHP to express its belief as to the fairness of the merger agreement and the
proposed merger to Morton's stockholders. None of Morton's Holdings, Morton's
Acquisition and CHP, as the parties proposing to purchase Morton's, have
participated in the deliberations of the Special Committee or the Board of
Directors regarding the fairness of the merger to Morton's stockholders, nor did
they receive any advice from Greenhill as to the fairness of the merger. Each of
Morton's Holdings, Morton's Acquisition and CHP recognizes the substantial risks
entailed in purchasing Morton's but believes that Morton's could be an
attractive long-term investment opportunity as a private company with CHP as an
equity investor and Morton's new capital structure, particularly its reduced
debt level and the operating flexibility and growth potential that will be
permitted by the new bank lending arrangements that will become effective upon
completion of the merger. Each of Morton's Holdings, Morton's Acquisition and
CHP has considered the factors considered by the Special Committee and the Board
of Directors referred to above, based only on the more limited information
available to it pursuant to the sale process described above. Based on the
factors considered by the Special Committee and the Board of Directors,
including, in particular, the following material factors, Morton's Holdings,
Morton's Acquisition and CHP believe that the $12.60 per share cash merger
consideration is fair to Morton's stockholders from a financial point of view:
- the fact that the deteriorating financial position and business
performance of Morton's, combined with a significant debt load, would
impose significant restrictions on Morton's operating flexibility and
growth opportunities unless the bank debt could be refinanced and their
belief that it was unlikely that the Company's bank lenders would
refinance the Company's bank debt to permit such flexibility without a
meaningful repayment of principal on the bank debt;
- the fact that, based in part on the strong reputation of affiliates of CHP
in the leveraged lending community and as a restaurant industry investor,
Morton's Holdings was able to negotiate on behalf of Morton's, and
Morton's bank lenders executed, Amendment No. 15 (which will only become
binding and effective concurrently with completion of the merger) to the
Company's credit agreement to allow the merger to take place, thereby
virtually eliminating financing risk associated with the bank debt with
respect to the transaction;
- the fact that Morton's Holdings does not believe that, in the current
lending environment, it is likely that the debt financing negotiated by
Morton's Holdings on behalf of Morton's (as set forth in Amendment No. 15
to the Company's credit agreement) would be available on better terms to
any other financial buyer;
- the fact that Morton's Holdings considered the Company's 2002 budget
highly optimistic with respect to comparable store sales growth and,
therefore, unlikely to be met;
- the fact that the NYSE has informed Morton's that Morton's common stock
might be delisted, and that such a delisting likely would exacerbate the
already limited liquidity of the Company's common stock;
- trading prices for Morton's common stock, particularly the fact that
(1) the $12.00 per share offer submitted by Morton's Holdings on
February 15, 2002 represented an 81.8% premium over the market closing
price of $6.60 per share on February 14, 2002, the last full trading day
before Morton's Holdings submitted its formal proposal to acquire Morton's
and (2) the $12.60 per share final offer represented a 10.1% premium over
the market closing price of $11.44 on March 25, 2002, the last full
trading day before the parties entered into the merger agreement;
- the fact that the consideration to be received by Morton's stockholders in
the merger would consist entirely of cash, eliminating any uncertainties
in valuing the merger consideration to be received by Morton's
stockholders;
44
- without adopting the opinion, the fact that the Special Committee received
a written opinion of its independent financial advisor as to the fairness,
from a financial point of view, of the merger consideration to Morton's
stockholders (other than Morton's Holdings and its subsidiaries, including
Morton's Acquisition, and CHP and its affiliates);
- the terms and conditions of the merger agreement, including the amount and
form of consideration to be paid, the parties' mutual representations,
warranties and covenants and the conditions to their respective
obligations and the absence of any future obligations on Morton's
shareholders; and
- the unanimous recommendation of the Special Committee and the
recommendation of the Board of Directors (based on the unanimous vote of
those directors participating in the meeting of the Board of Directors on
March 26, 2002).
None of Morton's Holdings, Morton's Acquisition or CHP considered the net
book value or liquidation value of Morton's to be a material factor in
determining the fairness of the transaction to the Company's stockholders
because they believe such values would be less than the merger consideration.
Morton's Holdings, Morton's Acquisition and CHP did not establish a pre-merger
going concern value for the equity of Morton's to determine the fairness of the
merger consideration to the Company's stockholders. Morton's Holdings, Morton's
Acquisition and CHP do not believe there is any single method of determining
going concern value. In this regard, however, they noted that the Special
Committee's exploration of a possible sale of Morton's contemplated the sale of
Morton's as a going concern. None of Morton's Holdings, Morton's Acquisition or
CHP relied on any report, opinion or appraisal in determining the fairness of
the transaction to the Company's stockholders, but none of them disagrees with
the conclusion expressed by Greenhill in its opinion to the Special Committee
and the Board of Directors.
Each of Morton's Holdings, Morton's Acquisition and CHP believes that the
merger is procedurally fair to Morton's stockholders because, among other
things:
- the Board of Directors appointed the Special Committee consisting solely
of directors who are not officers or employees of Morton's, Morton's
Holdings, Morton's Acquisition or CHP and who have no financial interest
in the proposed merger different from Morton's stockholders generally;
- the Special Committee was given exclusive authority to, among other
things, consider, negotiate and evaluate the terms of any proposed
transaction, including the merger;
- the Special Committee retained its own financial and legal advisors who
have extensive experience with transactions similar to the merger and who
assisted the Special Committee in the negotiations with Morton's Holdings;
- the $12.60 per share cash merger consideration and the other terms and
conditions of the merger agreement resulted from active arm's length
bargaining between the Special Committee and Morton's Holdings and their
respective advisors;
- the merger agreement and the merger must be approved by the affirmative
vote of the holders of a majority of the outstanding shares of Morton's
common stock;
- the Special Committee's financial and legal advisors reported directly to
the Special Committee and took direction exclusively from the Special
Committee;
- the Board of Directors acted upon the unanimous recommendation of the
Special Committee; and
- the Board of Directors determined that it would not approve any
transaction that was not recommended by the Special Committee.
45
In reaching its determination as to fairness, none of Morton's Holdings,
Morton's Acquisition or CHP assigned specific weight to particular factors, but
rather considered all factors as a whole.
FORWARD-LOOKING INFORMATION
Morton's does not, as a matter of course, make public projections as to
future sales, earnings or other results. However, in connection with Morton's
evaluation of strategic alternatives, Morton's management provided its 2001
operating plan and its 2002 operating plan, each of which was prepared in the
ordinary course of business in January of the respective year, to Greenhill and
to potential interested parties in connection with their respective due
diligence evaluations of the Company. The projections contained in these
operating plans are summarized below under the captions "Summary of Projections
from the 2001 Operating Plan (dated January 2001)" and "Summary of Projections
from the 2002 Operating Plan (dated January 2002)," respectively. As further
discussed above in "--Background of the Merger," Morton's amended the 2002
operating plan on March 26, 2002 to reflect the impact of Amendment No. 14 to
its credit agreement (which, among other things, restricted Morton's ability to
open new restaurants and limited Morton's capital expenditures), and provided
the revised operating plan to Greenhill (but not to Morton's Holdings, Morton's
Acquisition or CHP) in connection with Greenhill's analysis of the fairness of
the transaction from a financial point of view. The projections contained in the
revised 2002 operating plan are summarized below under the caption "Summary of
Projections from the Revised 2002 Operating Plan (dated March 26, 2002)."
The projections below were not prepared with a view to public disclosure or
compliance with published guidelines of the SEC or the guidelines established by
the American Institute of Certified Public Accountants regarding projections.
They are included in this proxy statement only because they were provided to
Greenhill or to Morton's Holdings or other potential interested parties in
connection with their consideration of a potential strategic transaction
involving Morton's. Neither Morton's independent auditors, nor any other
independent accountants, have compiled, examined or performed any procedures
with respect to these projections, nor have they expressed any opinion or other
form of assurance with respect to these projections or their achievability, and
assume no responsibility for, and disclaim any association with, them. The
inclusion of these projections in this document should not be regarded as a
representation by Morton's, Morton's Board of Directors, the Special Committee,
Morton's Holdings (or any of its affiliates) or any of their advisors, agents or
representatives that these projections are or will prove to be correct.
Projections of this type are based on a number of significant uncertainties and
contingencies, all of which are difficult to predict and most of which are
beyond Morton's control. As a result, there can be no assurance that any of
these projections will be realized.
The projections below are or involve forward-looking statements and are
based upon a variety of assumptions, including Morton's ability to achieve
strategic goals, objectives and targets over the applicable period. These
assumptions involve judgments with respect to future economic, competitive and
regulatory conditions, financial market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond Morton's control. Many important factors, in addition
to those discussed elsewhere in this proxy statement, could cause Morton's
results to differ materially from those expressed or implied by the
forward-looking statements. These factors include the Company's competitive
environment, its ability to open new restaurants on a timely basis and the
performance of those restaurants, general economic and other market conditions
in which it operates and matters affecting business generally, all of which are
difficult to predict and many of which are beyond Morton's control. Accordingly,
there can be no assurance that any of the projections are indicative of Morton's
future performance or that actual results will not differ materially from those
in the projections set forth below. See "Cautionary Statement Regarding
Forward-Looking Statements."
All three sets of projections below assume that Morton's will continue to
operate as a public company. All three sets of projections below also assume
that Morton's would be operating under its
46
credit agreement in effect at the time these projections were prepared (which in
the case of the 2001 operating plan and the 2002 operating plan was prior to the
entering into of Amendment No. 14 to the credit agreement, and in the case of
the revised 2002 operating plan was subsequent to the entering into of Amendment
No. 14 to the credit agreement). Additionally, (a) the projections contained in
the 2001 operating plan assume eight, ten, twelve, fourteen and seventeen new
restaurants would be opened in fiscal 2001 through 2005, respectively (it being
noted that six new restaurants were opened in 2001 (with one subsequently
closing in 2002) and no new restaurants were opened or planned to be opened in
the first fiscal quarter of 2002), and assume a comparable restaurant revenue
growth rate of 3.1% in fiscal 2001 (it being noted that comparable restaurant
revenues in fiscal 2001 declined 10.1%) (no separate assumption was made as to
comparable restaurant revenue growth rate for fiscal 2002 through 2005);
(b) the projections contained in the 2002 operating plan assume five, five, six,
eight and ten new restaurants would be opened in fiscal 2002 through 2006,
respectively (it being noted that no new restaurants were opened or planned to
be opened in the first fiscal quarter of 2002), assume one restaurant would be
closed in 2002 (Sydney, Australia), and assume a comparable restaurant revenue
growth rate of 5.2%, 3.0%, 4.5%, 4.5% and 4.5% in fiscal 2002 through 2006,
respectively (it being noted that comparable restaurant revenues in the first
fiscal quarter of 2002 declined 10.8%); and (c) the projections contained in the
revised 2002 operating plan assume five, zero, two, three and ten new
restaurants would be opened in fiscal 2002 through 2006, respectively (it being
noted that no new restaurants were opened or planned to be opened in the first
fiscal quarter of 2002), assume one restaurant would be closed in 2002 (Sydney,
Australia), and assume a comparable restaurant revenue growth rate of 4.9%,
3.0%, 4.5%, 4.5% and 4.5% in fiscal 2002 through 2006, respectively (it being
noted that comparable restaurant revenues in the first fiscal quarter of 2002
declined 10.8%).
SUMMARY OF PROJECTIONS FROM THE 2001 OPERATING PLAN (DATED JANUARY 2001)
PLAN ESTIMATE ESTIMATE ESTIMATE ESTIMATE
2001 2002 2003 2004 2005
-------- ---------- ---------- ---------- --------
($ IN THOUSANDS)
STATEMENT OF OPERATIONS INFORMATION
Total Revenues........................................... $285,678 $342,814 $411,377 $493,652 $592,382
Total Restaurant Expense (1)............................. $227,042 $273,984 $328,780 $394,536 $473,444
Restaurant Profit........................................ $ 58,636 $ 68,830 $ 82,596 $ 99,115 $118,939
Other Expenses (2)....................................... $ 35,192 $ 42,329 $ 51,045 $ 61,728 $ 73,314
EBIT..................................................... $ 23,444 $ 26,501 $ 31,552 $ 37,387 $ 45,624
Net Income............................................... $ 10,811 $ 13,511 $ 17,886 $ 23,371 $ 30,257
EBITDA................................................... $ 36,534 $ 42,109 $ 50,531 $ 60,637 $ 73,437
BALANCE SHEET INFORMATION
Current Assets........................................... $ 22,266 $ 25,373 $ 26,828 $ 30,873 $ 39,806
Property and Equipment, Net.............................. $ 86,935 $ 94,867 $104,752 $116,511 $131,646
Total Assets............................................. $132,695 $144,070 $155,641 $172,496 $197,105
Current Liabilities...................................... $ 34,170 $ 39,011 $ 45,587 $ 54,573 $ 64,803
Obligations to Financial Institutions and Capital Leases,
Less Current Maturities................................ $ 82,947 $ 74,262 $ 58,699 $ 40,531 $ 21,391
Stockholders' Equity (Deficit)........................... $ 10,722 $ 25,066 $ 43,774 $ 67,961 $ 99,030
------------------------------
(1) Includes costs of food and beverage, restaurant operating expenses and
restaurant level depreciation and non-cash charges.
(2) Includes general and administrative expenses, marketing and promotional
expenses, amortization and depreciation, and startup expenses.
------------------------------
47
SUMMARY OF PROJECTIONS FROM THE 2002 OPERATING PLAN (DATED JANUARY 2002)
PLAN ESTIMATE ESTIMATE ESTIMATE ESTIMATE
2002 2003 2004 2005 2006
-------- ---------- ---------- ---------- --------
($ IN THOUSANDS)
STATEMENT OF OPERATIONS INFORMATION
Total Revenues........................................... $262,436 $293,120 $330,585 $377,718 $438,022
Total Restaurant Expense(1).............................. $217,257 $242,659 $273,675 $312,694 $362,616
Restaurant Profit........................................ $ 45,179 $ 50,461 $ 56,911 $ 65,025 $ 75,406
Other Expenses(2)........................................ $ 27,194 $ 28,091 $ 31,730 $ 37,130 $ 43,240
EBIT..................................................... $ 17,985 $ 22,370 $ 25,180 $ 27,895 $ 32,166
Net Income............................................... $ 7,199 $ 10,899 $ 13,636 $ 16,307 $ 20,136
EBITDA................................................... $ 33,621 $ 36,794 $ 41,688 $ 47,428 $ 55,304
BALANCE SHEET INFORMATION
Current Assets........................................... $ 24,241 $ 27,114 $ 30,269 $ 34,621 $ 40,408
Property and Equipment, Net.............................. $ 85,991 $ 85,242 $ 84,848 $ 86,022 $ 88,468
Total Assets............................................. $137,716 $141,091 $146,101 $153,077 $163,260
Current Liabilities...................................... $ 35,770 $ 38,646 $ 44,534 $ 49,524 $ 58,029
Obligations to Financial Institutions and Capital Leases,
Less Current Maturities................................ $ 90,758 $ 78,706 $ 63,343 $ 47,572 $ 27,764
Stockholders' Equity (Deficit)........................... $ 6,196 $ 17,095 $ 30,731 $ 47,038 $ 67,174
------------------------------
(1) Includes costs of food and beverage, restaurant operating expenses and
restaurant level depreciation and non-cash charges.
(2) Includes general and administrative expenses, marketing and promotional
expenses, amortization and depreciation, startup expenses and costs, for
2002, associated with evaluation of strategic alternatives.
------------------------------
SUMMARY OF PROJECTIONS FROM THE REVISED 2002 OPERATING PLAN (DATED MARCH 26,
2002)
PROJECTED ESTIMATE ESTIMATE ESTIMATE ESTIMATE
2002 2003 2004 2005 2006
--------- ---------- ---------- ---------- --------
($ IN THOUSANDS)
STATEMENT OF OPERATIONS INFORMATION
Total Revenues........................................... $261,273 $281,232 $298,408 $323,453 $369,329
Total Restaurant Expense(1).............................. $216,013 $232,514 $246,716 $267,442 $305,351
Restaurant Profit........................................ $ 45,260 $ 48,717 $ 51,693 $ 56,031 $ 63,978
Other Expenses(2)........................................ $ 26,367 $ 25,692 $ 29,702 $ 34,524 $ 42,973
EBIT..................................................... $ 18,893 $ 23,025 $ 21,990 $ 21,507 $ 21,006
Net Income............................................... $ 7,189 $ 10,867 $ 11,403 $ 11,905 $ 12,184
EBITDA................................................... $ 33,203 $ 34,127 $ 34,775 $ 35,890 $ 40,724
BALANCE SHEET INFORMATION
Current Assets........................................... $ 24,744 $ 27,081 $ 29,286 $ 32,469 $ 37,467
Property and Equipment, Net.............................. $ 86,456 $ 80,674 $ 77,196 $ 74,486 $ 80,762
Total Assets............................................. $138,445 $135,750 $136,726 $138,649 $151,873
Current Liabilities...................................... $ 33,922 $ 38,073 $ 42,894 $ 47,278 $ 54,276
Obligations to Financial Institutions and Capital Leases,
Less Current Maturities................................ $ 92,550 $ 74,487 $ 58,389 $ 42,572 $ 35,264
Stockholders' Equity (Deficit)........................... $ 6,980 $ 17,847 $ 29,250 $ 41,156 $ 53,339
------------------------------
(1) Includes costs of food and beverage, restaurant operating expenses and
restaurant level depreciation and non-cash charges.
(2) Includes general and administrative expenses, marketing and promotional
expenses, amortization and depreciation, startup expenses and costs, for
2002, associated with evaluation of strategic alternatives.
------------------------------
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Greenhill, as part of its engagement as financial advisor to the Special
Committee, was asked to render an opinion to the Special Committee and the Board
of Directors with respect to the fairness, from a financial point of view, of
the $12.60 per share cash consideration to be received in the proposed merger by
Morton's stockholders (other than Morton's Holdings and its subsidiaries,
including Morton's Acquisition, and CHP and its affiliates).
48
The following is a summary of the report by Greenhill to the Special
Committee and the Board of Directors in connection with the rendering of its
oral opinion presented to the Special Committee and to the Board of Directors on
March 26, 2002, subsequently confirmed by a written opinion addressed to the
Special Committee and the Board of Directors, dated March 26, 2002.
The full text of the written opinion of Greenhill with respect to the $12.60
per share cash consideration to be received by Morton's stockholders in the
proposed merger, setting forth the assumptions made, matters considered and the
limits on the review undertaken, is attached as Appendix B to this proxy
statement and is incorporated herein by reference. Morton's stockholders are
urged to read the opinion in its entirety. Greenhill's written opinion is
addressed to the Special Committee and the Board of Directors, is directed only
to the proposed cash consideration of $12.60 per share payable in the merger and
does not constitute a recommendation to any Morton's stockholder as to how the
stockholder should vote at the Morton's special meeting nor does it constitute a
recommendation to either the Special Committee or the Board of Directors as to
whether they should approve the merger. The summary of the opinion of Greenhill
set forth in this proxy statement is qualified in its entirety by reference to
the full text of the opinion.
In arriving at its opinion, Greenhill, among other things,
- reviewed the draft dated March 26, 2002 of the merger agreement (which
Morton's has confirmed is identical in all material respects to the form
executed by the parties) and certain related documents;
- reviewed certain publicly available financial statements of Morton's;
- reviewed certain other publicly available business and financial
information relating to Morton's that Greenhill deemed relevant;
- reviewed certain information, including financial forecasts and other
financial and operating data concerning Morton's, prepared by the
management of Morton's;
- discussed the past and present operations and financial condition and the
prospects of Morton's with senior executives of Morton's;
- reviewed the historical market prices and trading activity for Morton's
common stock and analyzed its implied valuation multiples;
- compared the $12.60 per share cash consideration to be paid to Morton's
stockholders in the merger with the value of the consideration received in
certain publicly available transactions that Greenhill deemed relevant;
- compared the $12.60 per share cash consideration to be paid to Morton's
stockholders in the merger with the trading values of certain companies
that Greenhill deemed relevant;
- participated in discussions and negotiations among representatives of
Morton's and its legal advisors and Morton's Holdings, CHP and their legal
advisors;
- participated in discussions among representatives of certain other parties
with respect to a potential sale or other extraordinary transaction
involving Morton's;
- reviewed and took into consideration the disclosure by Morton's that the
NYSE has informed Morton's that it is below the NYSE continued listing
standards and may cease to be eligible for trading on the NYSE; and
- performed such other analyses and considered such other factors as
Greenhill deemed appropriate.
49
In preparing its opinion, Greenhill assumed and relied upon, without
independent verification, the accuracy and completeness of the information
supplied or otherwise made available to it for purposes of its opinion.
Greenhill also relied upon the assurances of the representatives of Morton's
that they were not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of Morton's provided to Greenhill, Greenhill assumed that these projections were
reasonably prepared on a basis reflecting the best currently available estimates
and good faith judgments of the management of Morton's as to the future
financial performance of Morton's. Greenhill expressed no opinion with respect
to such projections or the assumptions upon which they were based. In arriving
at its opinion, Greenhill did not conduct an independent valuation or appraisal
of the assets or liabilities of Morton's, nor was Greenhill furnished with any
such appraisals. Greenhill also assumed that the merger will be consummated in
accordance with the terms of the merger agreement, which Greenhill further
assumed would be identical in all material respects to the latest draft thereof
Greenhill reviewed.
Greenhill's opinion is necessarily based on the economic, market, financial
and other conditions as in effect on, and the information made available to
Greenhill as of, the date of the Greenhill opinion. Subsequent developments may
affect the conclusions contained in the written opinion, dated March 26, 2002,
and Greenhill does not have any obligation to update, revise or reaffirm its
opinion.
In accordance with customary investment banking practice, Greenhill employed
generally accepted valuation methods in reaching its opinion. The following
summarizes the material analyses performed by Greenhill in connection with the
rendering of its oral opinion of March 26, 2002, subsequently confirmed by the
written opinion, dated March 26, 2002. Some of the summaries below include
information in tabular format. The tables alone do not constitute a complete
description of the financial analyses and should be read together with the text
of each summary.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Using publicly available
information, Greenhill examined selected transactions with respect to industry
characteristics, growth prospects and other traits deemed relevant. Greenhill
noted that there are a limited number of recent precedent transactions that are
comparable to the merger. Specifically, Greenhill reviewed the following
transactions, listed in reverse chronological order beginning with the most
recently announced transaction:
- Landry's Restaurants' acquisition of C.A. Muer Corp.;
- Lone Star Funds' acquisition of Shoney's;
- Castle Harlan/Bruckmann, Rosser, Sherrill & Co.'s acquisition of
McCormick & Schmick;
- An investor group's acquisition of VICORP Restaurants;
- Bruckmann, Rosser, Sherrill & Co.'s acquisition of Il Fornaio (America)
Corporation; and
- Caxton-Iseman Capital's acquisition of Buffets.
Greenhill reviewed, among other information, the multiples of the precedent
transactions':
- implied enterprise value to LTM earnings before interest expense and tax
expenses plus depreciation and amortization (also known as EBITDA); and
- implied equity value to latest twelve months (also known as LTM) net
income.
Greenhill also reviewed the premium paid in these precedent transactions to
the stock price of the target company one month prior to the announcement of the
transaction.
50
Greenhill's analysis of the precedent transactions resulted in the following
range, mean and median multiples:
ENTERPRISE VALUE TO EQUITY VALUE TO PREMIUM PAID
EBITDA NET INCOME ONE MONTH
-------------------- --------------------- ---------------------
Range........................................ 4.1x - 6.1x 12.2x - 18.8x 27.4% - 52.0%
Mean......................................... 5.0x 14.6x 37.3%
Median....................................... 4.7x 12.7x 34.9%
Greenhill examined and analyzed other transactions that had been announced
prior to January 1, 2000, but deemed these transactions as less relevant on a
comparable basis due to the significant change in the stock markets and general
capital market environment since that time.
Greenhill then calculated the implied equity value and implied price per
share of Morton's common stock by applying relevant multiple and premium ranges
derived from the precedent transaction analyses described above to Morton's
actual and pro forma EBITDA for the year ended December 30, 2001, pro forma
includes certain one-time cost savings that, if implemented in 2001, would have
reduced Morton's overhead costs and resulted in an increase in its EBITDA and
net income, actual and pro forma net income for the year ended December 30, 2001
and the stock price of Morton's one month prior to the announcement of the
transaction. Greenhill used multiple ranges of 5.0x and 7.0x LTM EBITDA and
12.0x to 20.0x LTM net income and a one month premium range of 35.0% to 45.0%.
This analysis implied the ranges of equity values and prices per share of
Morton's common stock as set forth below:
IMPLIED EQUITY IMPLIED PRICE PER
VALUATION METRIC RANGE VALUE (a) SHARE (b)
---------------- --------------------- --------------------- -----------------------
LTM EBITDA (Actual)................... 5.0x - 7.0x $14.2 - $60.1 $3.40 - $14.37
LTM EBITDA (Pro Forma)................ 5.0x - 7.0x $27.5 - $78.6 $6.57 - $18.80
LTM Net Income (Actual)............... 12.0x - 20.0x $21.8 - $36.4 $5.22 - $ 8.70
LTM Net Income (Pro Forma)............ 12.0x - 20.0x $43.7 - $93.1 $10.46 - $17.43
One Month Premium Paid................ 35.0% - 45.0% $40.6 - $43.7 $9.72 - $10.44
------------------------
(a) $US in millions.
(b) Fully diluted shares calculated using the treasury method and 4.18 million
primary shares outstanding.
------------------------
Based on this analysis, Greenhill determined a valuation range for Morton's
common stock of approximately $6.00-$14.00 per share.
No company utilized in the selected precedent transaction analysis is
identical to Morton's nor is any transaction identical to the contemplated
transaction between Morton's and Morton's Holdings. An analysis of the results
therefore requires complex considerations and judgments regarding the financial
and operating characteristics of Morton's and the companies involved in the
precedent transactions. Greenhill made judgments and assumptions concerning
industry performance, general business, economic, market and financial
conditions and other matters. The numerical results are not in themselves
meaningful in analyzing the contemplated transaction as compared to the
precedent transactions.
DISCOUNTED CASH FLOW ANALYSIS. Greenhill performed and presented to the
Special Committee and the Board of Directors two different discounted cash flow
analyses of Morton's. The first analysis is referred to as the Management Case
and was based on financial forecasts prepared by Morton's management. The second
analysis is referred to as the IBES Case and was based on extrapolations
51
from a 2002 estimate of Morton's earnings per share (also known as EPS) of $0.13
published by I/B/E/S International, an industry provider of earnings estimates
published by various investment banking firms (also known as IBES).
In the discounted cash flow analysis, Greenhill determined the present value
of after-tax unlevered free cash flows generated over the forecast period plus a
terminal value, using terminal EBITDA multiples ranging from 5.0x to 6.0x and
discount rates ranging from 8.0% to 13.0% based on weighted average cost of
capital analysis. Greenhill also calculated and noted the perpetual growth rate
implied in the terminus. Net debt was then subtracted from the aggregate values
to derive the equity values. Based on this analysis, Greenhill calculated per
share values for Morton's in respect of the Management Case ranging from $25.18
to $40.77 and in respect of the IBES Case ranging from $2.81 to $14.18.
As discussed in "--Background of the Merger," during the course of its
presentation to the Board of Directors, Greenhill was advised that based upon
the recent completion of Amendment No. 14 to Morton's credit agreement, which
among other things restricted Morton's ability to open new restaurants,
management's long term financial plan prepared in January 2002 needed to be
revised. Using the revised financial plan information provided by the management
of Morton's, Greenhill performed a revised discounted cash flow analysis, which
is referred to as the Revised Management Case. Following the same methodology as
used previously for its discounted cash flow analysis (presented in the
immediately preceding paragraph), Greenhill calculated per share values for
Morton's in respect of the Revised Management Case ranging from $19.54 to
$31.44.
ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Greenhill
compared certain financial information of Morton's with corresponding publicly
available information of certain other companies which Greenhill deemed to be
reasonably similar to Morton's. In this portion of the analysis, Greenhill
compared certain financial information for four steakhouse restaurant chains:
Outback Steakhouse, RARE Hospitality International, Lone Star Steakhouse &
Saloon and The Smith & Wollensky Restaurant Group. These comparable steakhouse
restaurants are referred to as the Comparable Companies. Greenhill examined and
analyzed other publicly traded restaurant chains, but deemed these companies as
less relevant on a comparable basis.
Greenhill reviewed, among other information, the multiples of the Comparable
Companies':
- enterprise value to actual 2001 EBITDA and forecasted 2002 EBITDA; and
- price to actual 2001 earnings per share and forecasted 2002 earnings per
share.
Greenhill's analysis of the selected comparable publicly traded companies
resulted in the following range, mean and multiples:
ENTERPRISE VALUE TO
EBITDA (a) Price to EPS (b)
-------------------------------------------- ---------------------------------------------
2001A 2002E 2001A 2002E
--------------------- -------------------- --------------------- ---------------------
Range............................. 7.5x - 8.8x 5.9x - 7.8x 19.1x - 20.2x 15.4x - 17.4
Mean.............................. 8.2x 7.0x 19.5x 16.6x
Median............................ 8.1x 7.4x 19.2x 16.9x
------------------------
(a) EBITDA figures are before pre-opening costs, using assumptions where
necessary.
(b) Source: IBES Estimates as of March 2002.
------------------------
52
Greenhill then calculated the implied equity value and implied price per
share of Morton's common stock by applying multiple ranges that it deemed
relevant from the comparable company analysis described above to Morton's actual
2001 EBITDA, forecasted 2002 EBITDA based on the Management Case, forecasted
2002 EBITDA based on the IBES Case, actual 2001 net income, forecasted 2002 net
income based on the Management Case and forecasted 2002 net income based on the
IBES Case. Greenhill used multiple ranges of 6.0x to 8.5x actual 2001 EBITDA,
5.0x to 7.5x projected 2002 EBITDA for the IBES Case and the Management Case,
17.0x to 20.0x actual 2001 net income and 14.0x to 18.0x projected 2002 net
income for the IBES Case and the Management Case. This analysis implied the
ranges of equity values and prices per share of Morton's common stock as set
forth below:
Implied Price
VALUATION METRIC RANGE IMPLIED EQUITY VALUE(B) PER SHARE(C)
---------------- --------------------- ----------------------- -----------------------
2001A EBITDA(a)..................... 6.0x - 8.5x $37.2 - $94.5 $8.89 - $22.59
2002E EBITDA (IBES Case)............ 5.0x - 7.5x $18.2 - $77.5 $4.35 - $18.54
2002E EBITDA (Management Case)...... 5.0x - 7.5x $67.7 - $151.7 $16.19 - $36.29
2001A Net Income(a)................. 17.0x - 20.0x $30.9 - $36.4 $7.39 - $8.70
2002E Net Income (IBES Case)........ 14.0x - 18.0x $7.6 - $9.8 $1.82 - $2.34
2002E Net Income (Management Case).. 14.0x - 18.0x $131.9 - $169.5 $24.69 - $31.74
------------------------
(a) Reflects actual, rather than pro forma, results for 2001.
(b) $US in millions.
(c) Fully diluted shares calculated using the treasury method and 4.18 million
primary shares outstanding.
------------------------
Based upon this analysis, Greenhill determined an unaffected market
valuation range for Morton's of approximately $8.00 to $15.00 per share.
No company utilized in Greenhill's comparable publicly traded company
analysis is identical to Morton's. In evaluating the Comparable Companies,
Greenhill made judgments and assumptions concerning industry performance,
general business, economic market and financial conditions and other matters.
Greenhill also made judgments as to the relative comparability of such companies
to Morton's and judgments as to the relative comparability of the various
valuation parameters with respect to the companies. Mathematical analysis (such
as determining the mean or median) is not, in itself, a meaningful method of
using publicly traded company data.
The summary set forth above does not purport to be a complete description of
the analyses or data presented by Greenhill. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. In arriving at its opinion, Greenhill
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor considered by it. Furthermore,
Greenhill believes that selecting any portion of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying its opinion. In addition, Greenhill may have given various analyses
and factors more or less weight than other analyses and factors, and may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Greenhill's view of the actual value of Morton's. In
performing its analyses, Greenhill made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Morton's. Any estimates
contained in these analyses are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable than those
suggested by these estimates. Because this analysis is inherently subject to
uncertainty, being based upon numerous factors or events beyond the
53
control of Morton's, neither Greenhill nor Morton's assumes responsibility if
future results or actual values are materially different from these forecasts or
assumptions. The analyses do not purport to be appraisals or to reflect the
prices at which Morton's might actually be sold.
The Special Committee's engagement letter with Greenhill provides for
Morton's to pay Greenhill a fee of $500,000 (subject to credit for accrued fees
totaling $250,000 under the March 13, 2001 engagement letter) upon the receipt
by Morton's of one or more bona fide offers, $125,000 of which has been paid to
date, a fee of 1.5% of the transaction value upon the consummation of certain
change of control and other extraordinary transactions and reimbursement of
Greenhill's reasonable costs and expenses. The term of the letter extends until
the earlier of September 12, 2002 or the date of a change of control or other
extraordinary transaction; provided that termination of the letter will not
affect Greenhill's right to receive the transaction fee described above upon
consummation of the merger. Either party can terminate the engagement letter by
providing the other party with 30 days written notice. Morton's agreed to offer
Greenhill the opportunity to provide financial advisory services with respect to
any change of control or other extraordinary transaction entered into during the
12 months after the termination of the engagement letter other than by
Greenhill. The engagement letter also provides that Morton's will indemnify
Greenhill and its affiliates against liabilities and expenses in connection with
its engagement.
PURPOSE AND STRUCTURE OF THE MERGER
The purpose of the merger for Morton's is to allow Morton's stockholders to
realize the value of their investment in the Company in cash at a price that
represents a premium to the market price of Morton's common stock before the
public announcement of the merger. Morton's continues to be negatively impacted
by the troubled economy, unfavorable business conditions in the Company's
market, corporate spending cutbacks, reduced business travel and the effects of
the September 11, 2001 attacks, along with unfavorable revenue trends and
increased operating costs. These factors continue to create significant
uncertainty regarding Morton's near-term financial performance, which could
continue to adversely affect Morton's future stock price. As a result, the
Special Committee and the Board of Directors believe that the merger continues
to be in the best interests of the stockholders at this time.
The purpose of the merger for Morton's Holdings, Morton's Acquisition and
CHP is for Morton's Holdings to acquire ownership of Morton's for the reasons
described in "Special Factors--Position of Morton's Holdings, Morton's
Acquisition and CHP as to the Fairness of the Merger" beginning on page 44. The
proposed acquisition of Morton's has been structured as a merger of Morton's
Acquisition into Morton's in order to permit the cancellation of all of Morton's
common stock in a single step and to preserve Morton's identity and existing
contractual arrangements with third parties. The parties structured the merger
as a cash transaction in order to provide the public stockholders of Morton's
with cash for all of their shares and to provide a prompt and orderly transfer
of ownership of Morton's with reduced transaction costs. Although Morton's
Holdings considered acquiring Morton's through a tender offer followed by a
merger, Morton's Holdings determined that the merger is the most direct means of
effecting the acquisition of Morton's. No other alternatives were considered by
Morton's Holdings for the acquisition of Morton's.
EFFECTS OF THE MERGER; PLANS OR PROPOSALS AFTER THE MERGER
Subject to the matters described below, Morton's Holdings expects that,
initially following the merger, the business and operations of the Company will
generally continue as they are currently being conducted. As such, Morton's
Holdings currently intends to cause Morton's to continue to be run and managed
by, among others, the Company's existing executive officers. Morton's Holdings
will continue to evaluate all aspects of the business, operations,
capitalization and management of Morton's prior to and following the
consummation of the merger and will take such further actions, if any, as it
deems appropriate under the circumstances then existing. Morton's Holdings
intends to seek additional
54
information about Morton's during this period and to review such information as
part of a comprehensive review of the Company's business, operations,
capitalization and management. Morton's Holdings expects that Castle
Harlan, Inc. will enter into a consulting agreement with the Company pursuant to
which Morton's will agree to pay Castle Harlan, Inc. an annual fee for
management and consulting services to be rendered to Morton's following the
merger in an amount of up to $2.8 million per year, subject to certain
performance-based conditions being satisfied. The first such annual fee in the
amount of approximately $2.8 million will be paid in advance to Castle
Harlan, Inc. upon completion of the merger. Morton's Holdings is undertaking the
merger at this time for the reasons described in "Special Factors--Position of
Morton's Holdings, Morton's Acquisition and CHP as to the Fairness of the
Merger" beginning on page 44. Morton's Holdings determined that an acquisition
of Morton's on the terms described in this proxy statement represented an
attractive investment opportunity, and Morton's Holdings and Morton's
Acquisition negotiated and executed a merger agreement for the acquisition of
Morton's. Following the merger, Morton's will continue to be substantially
leveraged. Morton's Holdings has received no assurance that, following
consummation of the merger, Morton's will be able to service its indebtedness or
refinance its indebtedness on satisfactory terms.
If the merger is consummated, Morton's Holdings' interest in the Company's
net book value and net earnings and in the Company's equity generally will equal
100%, and Morton's Holdings and its affiliates and investors will be entitled to
all benefits resulting from such interest, including all income generated by the
Company's operations and any future increase in the Company's value. Similarly,
Morton's Holdings and its affiliates and investors will also bear all the risk
of losses generated by the Company's operations and any future decrease in the
value of the Company after the merger. Subsequent to the merger, Morton's
current stockholders (other than the members of management, if any, that make an
equity investment in Morton's Holdings) will cease to have ownership interests
in Morton's or rights as Morton's stockholders and, as a result, if the merger
is completed, such stockholders of Morton's will not participate in any future
earnings, losses, growth or decline of Morton's.
Morton's common stock is currently registered under the Exchange Act. As a
result of the merger, the common stock will be delisted from the NYSE, the
registration of the common stock under the Exchange Act will be terminated,
Morton's will be relieved of the obligation to comply with the proxy rules of
Regulation 14A under Section 14 of the Exchange Act, and its officers, directors
and beneficial owners of more than 10% of the common stock will be relieved of
the reporting requirements and restrictions on insider trading under Section 16
of the Exchange Act. Additionally, Morton's will no longer be subject to the
periodic reporting requirements of the Exchange Act and will cease filing any
information with the SEC. Accordingly, less information will be required to be
made publicly available than presently is the case.
Except as indicated in this proxy statement, Morton's Holdings does not have
any present plans or proposals that relate to, or will result in, an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving Morton's or any of its subsidiaries, sale or transfer of a
material amount of assets of Morton's or any other material changes in Morton's
capitalization, dividend policy, corporate structure, business or composition of
the Board of Directors or the management of Morton's. Morton's Holdings will,
however, continue to evaluate the business and operations of Morton's after the
merger and make such changes as it deems appropriate.
RISKS THAT THE MERGER WILL NOT BE COMPLETED
Completion of the merger is subject to various risks, including, but not
limited to, those described under "Merger Agreement--Conditions to Completing
the Merger." As a result of various risks to the completion of the merger,
Morton's cannot assure you that the merger will be completed even if the
requisite stockholder approval is obtained. It is expected that, if Morton's
stockholders do not approve
55
and adopt the merger agreement and the merger or if the merger is not completed
for any other reason, the current management of Morton's, under the direction of
the Board of Directors, will continue to manage Morton's as an ongoing business.
INTERESTS OF MORTON'S DIRECTORS AND OFFICERS IN THE MERGER
The merger is not conditioned on any agreement or transaction with the
current management of Morton's. Prior to the execution of the merger agreement,
neither Morton's Holdings nor any of its affiliates (including Messrs. Castle
and Pittaway) had any discussions or negotiations with the executive officers of
Morton's regarding any proposed changes to their employment or other
compensation arrangements or the terms of any investment in Morton's Holdings or
Morton's following the completion of the merger. In considering the
recommendations of the Board of Directors, Morton's stockholders should be aware
that Morton's executive officers and Board of Directors may have interests in
the transaction that are different from, or in addition to, the interests of
Morton's stockholders generally. The Board of Directors appointed the Special
Committee, consisting solely of directors who are not officers or employees of
Morton's, Morton's Holdings, Morton's Acquisition or CHP and who have no
financial interest in the proposed merger different from Morton's stockholders
generally, to evaluate, negotiate and recommend the merger agreement and to
evaluate whether the merger is in the best interests of Morton's stockholders.
The Special Committee was aware of these differing interests and considered
them, among other matters, in evaluating and negotiating the merger agreement
and the merger and in recommending to the Board of Directors that the merger
agreement and the merger be approved and adopted. Furthermore, the Board of
Directors was aware of these differing interests and considered them, among
other matters, in determining that the merger is fair to and in the best
interests of Morton's and its stockholders and approving and adopting the merger
agreement and approving the merger.
The Board of Directors determined that each member of the Special Committee
would receive no additional consideration for his service on the Special
Committee, regardless of whether any proposed transaction was entered into or
completed.
56
COMMON STOCK. As of the record date, Morton's directors and executive
officers held an aggregate of approximately 295,975 shares of Morton's common
stock, excluding stock options. These directors and executive officers have
confirmed to Morton's their intention to vote their shares in favor of approving
and adopting the merger agreement and approving the merger. The following table
sets forth the number of shares of Morton's common stock owned by each of
Morton's directors and executive officers, together with the aggregate payments
that are anticipated to be made in connection with such share ownership upon the
completion of the merger:
NO. OF SHARES OF AGGREGATE
POSITION COMMON STOCK PAYMENT
-------------------------------- ---------------- ----------
Allen J. Bernstein.............. Chairman, President and Chief 241,205 $3,039,183
Executive Officer
Thomas J. Baldwin............... Executive Vice President, Chief 33,500 422,100
Financial Officer, Assistant
Secretary, Treasurer and
Director
Roger J. Drake.................. Vice President--Communications -- --
Agnes Longarzo.................. Vice President--Administration -- --
and Secretary
Allan C. Schreiber.............. Senior Vice President-- -- --
Development
Klaus W. Fritsch................ Vice-Chairman and Co-Founder-- 10,000 126,000
Morton's of Chicago
John T. Bettin.................. President-Morton's of Chicago -- --
John K. Castle.................. Director 5,178 65,243
Dr. John J. Connolly............ Director 400 5,040
Dianne H. Russell............... Director 500 6,300
David B. Pittaway............... Director 3,132 39,462
Lee M. Cohn (1)................. Director 1,500 18,900
Robert L. Barney (1)............ Director -- --
Alan A. Teran (1)............... Director 560 7,056
------- ----------
Directors and Executive Officers
as
a Group......................................................... 295,975 $3,729,284
======= ==========
------------------------
(1) Member of Special Committee
------------------------
TREATMENT OF STOCK OPTIONS. As of the record date, Morton's directors who
are not also officers held no options to purchase shares of common stock.
Morton's executive officers held options to purchase an aggregate of
approximately [843,475] shares of common stock (including options to acquire
approximately [638,475] shares having exercise prices equal to or greater than
$12.60 per share). Pursuant to the terms of Morton's option plans, the vesting
of all unvested stock options to purchase Morton's common stock will accelerate
upon the completion of the merger, and, as a result, all outstanding options
will be fully vested upon the completion of the merger. Options with an exercise
price equal to or greater than $12.60 per share, however, will be canceled at
the effective time of the merger without any payment or other consideration. All
other options will be canceled, and each
57
option holder will be entitled to receive a cash payment equal to the difference
between $12.60 and the exercise price of the applicable option, multiplied by
the number of shares subject to the option. The aggregate amount to be paid to
Morton's executive officers for their outstanding stock options is expected to
be approximately $308,469, before taxes and other withholding. The following
table sets forth the cash amounts, before taxes and any withholding, that the
executive officers are expected to receive in respect of their stock options
upon completion of the merger.
COMMON SHARES SUBJECT
TO OPTIONS AT AN COMMON SHARES SUBJECT
EXERCISE PRICE EQUAL TO OPTIONS AT AN
TO OR GREATER THAN EXERCISE PRICE LESS
$12.60 PER SHARE THAN $12.60 PER SHARE AGGREGATE PAYMENT
--------------------- --------------------- -----------------
Allen J. Bernstein................... 310,000 140,000 $240,250
Thomas J. Baldwin.................... 136,000 15,000 16,969
Roger J. Drake....................... 16,375 0 --
Agnes Longarzo....................... 43,400 10,000 16,625
Allan C. Schreiber................... 31,000 25,000 15,000
Klaus W. Fritsch..................... 31,700 15,000 19,625
John T. Bettin....................... 70,000 0 --
------- ------- --------
Directors and Executive Officers as a
Group.............................. 638,475 205,000 $308,469
======= ======= ========
RELATIONSHIPS OF EXECUTIVE OFFICERS WITH THE SURVIVING CORPORATION. The
merger is not conditioned on any agreement or transaction with the current
management of Morton's. Prior to the execution of the merger agreement, neither
Morton's Holdings nor any of its affiliates (including Messrs. Castle and
Pittaway) had any discussions or negotiations with the executive officers of
Morton's regarding any proposed changes to their employment or other
compensation arrangements or any investment in Morton's Holdings or Morton's
following the completion of the merger.
EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION. The merger agreement
provides that the current officers of Morton's will continue as the officers of
Morton's immediately following the merger until their successors are duly
elected or appointed and qualified or until their earlier death, resignation or
removal. The executive officers of Morton's that are expected to remain officers
of Morton's following completion of the merger are Allen J. Bernstein, chairman
of the board, president and chief executive officer; Thomas J. Baldwin,
executive vice president, chief financial officer, assistant secretary,
treasurer and director; Roger J. Drake, vice president--communications; Agnes
Longarzo, vice president--administration and secretary; Allan C. Schreiber,
senior vice president--development; Klaus W. Fritsch, vice chairman and
co-founder--Morton's of Chicago; and John T. Bettin, president--Morton's of
Chicago.
POTENTIAL EQUITY INVESTMENT BY MANAGEMENT. Morton's Holdings has informed
Morton's that Morton's Holdings intends to offer to senior employees, including
Allen J. Bernstein and Thomas J. Baldwin, the opportunity to subscribe for
equity interests in Morton's Holdings of up to an aggregate of approximately
7.5% of the total equity interests of Morton's Holdings. It is expected that the
subscription by these individuals for equity interests in Morton's Holdings will
be on substantially the same terms as the subscription by CHP for equity
interests in Morton's Holdings at the time of completion of the merger. Any such
investment will reduce, on a dollar-for-dollar basis, the amount of cash merger
consideration to be received by any such individual in exchange for such
individual's shares of Morton's common stock in the merger. The identity of the
individuals who may subscribe for equity interests in Morton's Holdings, and the
percentage ownership of Morton's Holdings that such individuals may hold
following the merger in this connection (not to exceed 7.5% in the aggregate),
may vary and may not be finally determined until shortly prior to completion of
the merger. The
58
opportunities to invest in Morton's Holdings provides these individuals with
interests in the Merger that are different from, or in addition to, your
interests as a Morton's stockholder.
EMPLOYEE EQUITY INCENTIVES. Morton's Holdings has informed Morton's that
Morton's Holdings expects that following completion of the merger, an aggregate
of approximately 10-15% of the common equity interests of Morton's Holdings will
be reserved pursuant to an employee equity incentive program that provides for
the issuance to employees of the surviving corporation of options to purchase
equity interests in Morton's Holdings and/or restricted equity interests in
Morton's Holdings. Morton's Holdings has not determined the details of the
employee equity incentive program and has not determined who may be eligible to
participate in the program or the conditions for eligibility for and vesting of
such awards.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS' AND OFFICERS'
INSURANCE. The merger agreement provides that Morton's, as the surviving
entity, will indemnify and hold harmless each current and former director and
officer of Morton's for acts and omissions occurring before or as of the
effective time of the merger to the full extent permitted under Delaware law.
The merger agreement further provides that, for a period of at least six years
after the effective time of the merger, Morton's, as the surviving entity, will
maintain Morton's current directors' and officers' liability insurance and
indemnification policy with respect to events occurring before or as of the
effective time of the merger and covering all current or prior directors and
officers of the Company (however, in the event that the cost of this insurance
exceeds 200% of the current annual premiums, then Morton's, as the surviving
entity, must obtain insurance with the greatest coverage for a cost not
exceeding 200% of the current annual premiums); Morton's, as the surviving
entity, may substitute for the existing insurance substantially similar
insurance so long as it is on terms no less favorable, taken as a whole. See
"The Merger Agreement--Indemnification and Insurance."
CHANGE OF CONTROL AGREEMENTS. Morton's has entered into change of control
agreements with Allen J. Bernstein, Thomas J. Baldwin, Allan C. Schreiber, Agnes
Longarzo and Roger J. Drake, and Morton's of Chicago, Inc. has entered into
change of control agreements with Klaus W. Fritsch, John T. Bettin and Ronald M.
DiNella. Each change of control agreement has a three-year term, subject to
automatic renewal for additional three-year periods on each anniversary of the
change of control agreement unless Morton's or Morton's of Chicago, Inc., as
applicable, gives the officer at least 60 days' prior notice that the change of
control agreement will not be so extended. Pursuant to each change of control
agreement, Morton's or Morton's of Chicago, Inc., as applicable, agrees to
continue the officer in its employ for a three-year period following a defined
change of control of Morton's. If, during the three-year period, the officer's
employment is terminated by Morton's or Morton's of Chicago, Inc., as
applicable, other than for defined cause or if the officer terminates employment
with Morton's or Morton's of Chicago, Inc., as applicable, for defined good
reason, Morton's or Morton's of Chicago, Inc., as applicable, is required to
make a cash lump-sum payment to the officer equal to 2.99 times the officer's
base amount, as computed under the Internal Revenue Code, less any severance
payments payable to such officer pursuant to employment agreements, where
applicable; subject to reduction to the extent the total amount received by the
officer under the change of control agreement and any other agreement by reason
of a change of control would constitute a "parachute payment" under
Section 280G(b)(2) of the Internal Revenue Code. In addition, for a period of at
least three years after such termination, Morton's or Morton's of
Chicago, Inc., as applicable, is required to continue to provide the officer
with welfare benefits similar to those received by the officer when employed by
Morton's or Morton's of Chicago, Inc., as applicable. In general, an officer's
base amount as used above is the average annual compensation included in the
gross income of such officer for the most recent five taxable years ending
before a change of control.
EMPLOYMENT AGREEMENTS. Morton's has previously entered into employment
agreements with Allen J. Bernstein, Thomas J. Baldwin and Agnes Longarzo. There
are currently no plans, proposals or
59
negotiations that relate to, or would result in, a change in the terms of these
employment agreements. Each of these employment agreements was entered into
prior to, and not in anticipation of, the negotiation of the merger.
OTHER RELATIONSHIPS. Additional relationships involving Morton's directors
and officers are discussed below in "--Certain Relationships Between CHP (and
its affiliates) and Morton's." Dianne H. Russell is also senior vice president
and regional managing director of the technology and life sciences division of
Comerica Bank, one of Morton's lenders.
CERTAIN RELATIONSHIPS BETWEEN CHP (AND ITS AFFILIATES) AND MORTON'S
RELATIONSHIPS OF CERTAIN DIRECTORS AND EXECUTIVE OFFICERS WITH MORTON'S HOLDINGS
AND CHP
CHP beneficially owns 100% of the outstanding membership interests of
Morton's Holdings. Directors John K. Castle and David B. Pittaway are executive
officers of certain affiliates of CHP, and each has an indirect financial
interest in Morton's Holdings. As a result of these affiliations with CHP,
following the completion of the merger, each of these directors will participate
in future earnings, losses, growth or decline of Morton's, while other current
stockholders will not.
Upon consummation of the merger, it is expected that Castle Harlan, Inc.
will enter into a consulting agreement with Morton's. Pursuant to the consulting
agreement, Morton's will agree to pay Castle Harlan, Inc. an annual fee for
management and consulting services to be rendered to Morton's following the
merger in an amount of up to $2.8 million per year, subject to certain
performance-based conditions being satisfied. The first such annual fee in the
amount of approximately $2.8 million will be paid in advance to Castle
Harlan, Inc. upon completion of the merger.
Dr. Connolly and Mr. Castle are principals in several medical publishing
ventures.
Certain of Morton's other directors and executive officers serve on the
board of directors of or as consultants to one or more private companies
controlled by CHP or its affiliates and have previously made investments in
these companies. The aggregate annual fees paid to these individuals by these
private companies in respect of their services as directors or consultants and
the aggregate amounts of the investments made by these individuals are as
follows:
AGGREGATE ANNUAL FEES INVESTMENTS
--------------------- -----------
Allen J. Bernstein.................................... $220,000 $337,263
Thomas J. Baldwin..................................... 50,000 33,711
Lee M. Cohn (1)....................................... 30,000 0
John J. Connolly...................................... 32,000 0
Alan A. Teran (1)..................................... 10,000 0
------------------------
(1) Member of Special Committee
------------------------
TRANSACTIONS BETWEEN CHP AND MORTON'S. Morton's has previously invested an
aggregate of $80,714 in private companies controlled by CHP or its affiliates.
MERGER FINANCING
Morton's and Morton's Holdings estimate that the total amount of new funds
necessary to consummate the merger and related transactions will be
approximately $74.0 million. Approximately $10.0 million of this amount will be
used to retire existing bank debt of Morton's and the remainder will be used to
pay the merger consideration and to pay fees and expenses necessary to complete
the merger and related transactions. CHP has committed to provide $74.0 million
of equity financing to
60
Morton's Holdings at the time of completion of the Merger. CHP and Morton's
Holdings have agreed not to amend, modify or terminate that commitment in any
respect that would adversely affect the probability that the transactions
contemplated by the merger agreement will close, or that will delay the closing,
without the prior written consent of Morton's (which consent requires the
approval of the Special Committee).
Completion of the merger is not contingent on obtaining any additional
financing (other than the repayment of $10.0 million of bank debt contemplated
by Amendment No. 15 to the credit agreement described below) to repay Morton's
existing bank debt. Morton's Holdings has negotiated on behalf of Morton's, and
Morton's and its bank lenders have executed, Amendment No. 15 (which will only
become binding and effective concurrently with completion of the merger) to
Morton's credit agreement to allow the merger to take place. The amendment is
subject to completion of the merger, repayment of $10.0 million of bank debt and
other customary conditions for amendments of this type. The effectiveness of
this amendment is a condition to closing in the merger agreement.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Whether or not the merger is completed, in general, all fees and expenses
incurred in connection with the merger will be paid by the party incurring those
fees and expenses. Under certain circumstances described in "The Merger
Agreement--Termination Fee and Expense Reimbursement," Morton's will pay
Morton's Holdings up to an aggregate of $1,320,000 as a termination fee and
reimbursement of the out-of-pocket expenses of Morton's Holdings and Morton's
Acquisition incurred in connection with the merger and the proposed financing.
If the merger agreement is terminated under circumstances where Morton's
Holdings is not entitled to receive a termination fee and reimbursement of
out-of-pocket expenses, CHP has agreed to reimburse the Company for the
reasonable legal fees (not to exceed to $100,000) incurred by the Company with
respect to negotiation of the amendment to the Company's existing Second Amended
and Restated Revolving Credit and Term Loan Agreement with the Company's
existing senior lenders to allow the merger to take place. Fees and expenses of
the Company with respect to the merger are estimated at this time to be as
follows:
DESCRIPTION AMOUNT
----------- --------
Filing fees (SEC and HSR)................................... $
Legal, accounting and financial advisors' fees and
expenses..................................................
Printing, mailing and solicitation costs....................
Miscellaneous expenses......................................
-------
Total...................................................
=======
These expenses will not reduce the merger consideration to be received by
Morton's stockholders.
FEDERAL REGULATORY MATTERS
The HSR Act requires that Morton's and the ultimate parent entity of
Morton's Acquisition file notification and report forms with respect to the
merger and related transactions with the Antitrust Division of the U.S.
Department of Justice and the U.S. Federal Trade Commission and observe a
waiting period before completing the merger. In compliance with the HSR Act,
Morton's filed the necessary forms with the U.S. Department of Justice and the
U.S. Federal Trade Commission on [April 11, 2002], and CHP filed them on
[April 9, 2002]. However, the U.S. Department of Justice and the U.S. Federal
Trade Commission, state antitrust authorities or a private person or entity
could seek to enjoin the merger under antitrust laws at any time before its
completion or to compel rescission or divestiture at any time subsequent to the
merger.
61
LIQUOR LICENSES
As a condition to the completion of the merger, Morton's and Morton's
Holdings must have filed and/or obtained any and all authorizations, approvals,
consents or orders from any governmental entity necessary or required in order
to obtain and maintain in effect for a reasonable period of time following the
consummation of the merger all liquor licenses and other permits necessary to
maintain continuity of service of alcoholic beverages at each restaurant of the
Company, and all authorizations, approvals, consents and orders must be
effective and binding in accordance with their terms and may not have expired or
been withdrawn.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the merger to holders of Morton's common stock (including
holders exercising appraisal rights). This summary is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change, possibly with retroactive effect. This summary does not address all of
the U.S. federal income tax consequences that may be applicable to holders,
including holders who are subject to special treatment under U.S. federal income
tax law, including banks and other financial institutions, insurance companies,
tax-exempt investors, S corporations, holders who are properly classified as
"partnerships" under the Internal Revenue Code of 1986, as amended (referred to
as the Internal Revenue Code), dealers in securities, non-U.S. persons, holders
who hold their common stock as part of a hedge, straddle or conversion
transaction, holders who acquired common stock through the exercise of employee
stock options or other compensation arrangements and holders who do not hold
their shares of common stock as "capital assets" within the meaning of
Section 1221 of the Internal Revenue Code. In addition, this summary does not
address the tax consequences of the merger under applicable state, local or
foreign laws. HOLDERS OF MORTON'S COMMON STOCK SHOULD CONSULT THEIR INDIVIDUAL
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE APPLICATION OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The receipt of cash by holders of Morton's common stock in the merger or
upon exercise of appraisal rights will be a taxable transaction for U.S. federal
income tax purposes. A holder of Morton's common stock generally will recognize
capital gain or loss in an amount equal to the difference between the merger
consideration received by the holder (or, in the case of stockholders who
exercise appraisal rights, the amount received by the holder as determined under
Delaware law) and the holder's adjusted tax basis in the Morton's common stock.
Any capital gain or loss generally will be long-term capital gain or loss if the
Morton's common stock has been held by the holder for more than one year. If the
Morton's common stock has been held by the holder for less than one year, any
gain or loss will generally be taxed as a short-term capital gain or loss.
Long-term capital gain recognized by non-corporate taxpayers is subject to a
maximum federal tax rate of 20%. The ability to deduct capital losses is subject
to limitations.
None of Morton's Holdings, Morton's Acquisition, CHP or Morton's will
recognize gain or loss solely as a result of the merger.
LITIGATION CHALLENGING THE MERGER
Between March 27, 2002 and April 3, 2002, five substantially identical civil
actions were commenced, four of which were commenced in the Court of Chancery of
the State of Delaware in New Castle County and one of which was commenced in the
Supreme Court of the State of New York in Nassau County. The plaintiff in each
action seeks to represent a putative class consisting of the public stockholders
of Morton's (excluding officers and directors of Morton's). Named as defendants
in each of the complaints are Morton's, members of Morton's Board of Directors
and Castle Harlan, Inc. The plaintiffs allege, among other things, that the
proposed merger is unfair; the Morton's directors breached their fiduciary
duties by failing to disclose material non-public information related to the
62
value of Morton's and by engaging in self-dealing; Castle Harlan, Inc. aided and
abetted the Morton's directors' breaches of fiduciary duty; the price
contemplated in the merger agreement is inadequate; the merger agreement is a
product of a conflict of interest between the directors of Morton's and Morton's
public stockholders; and information regarding the value and prospects of
Morton's has not been publicly disclosed although that information is known to
the defendants. The complaints seek an injunction, damages and other relief.
Morton's believes that these lawsuits are without merit and intends to defend
against them vigorously.
APPRAISAL RIGHTS
Under Section 262 of the Delaware General Corporation Law, referred to as
the "DGCL," any holder of common stock who does not wish to accept $12.60 per
share in cash for the stockholder's shares of common stock may exercise
appraisal rights under the DGCL and elect to have the fair value of the
stockholder's shares of common stock on the date of the merger (exclusive of any
element of value arising from the accomplishment or expectation of the merger)
judicially determined and paid to the holder in cash, together with a fair rate
of interest, if any, provided that the stockholder complies with the provisions
of Section 262 of the DGCL.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL, and is qualified in its entirety by the full
text of Section 262, which is provided in its entirety as Appendix C to this
proxy statement. All references in Section 262 and in this summary to a
"stockholder" are to the record holder of the shares of common stock as to which
appraisal rights are asserted. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES
OF COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER
OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS
SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
Under Section 262, where a proposed merger is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the special
meeting, the corporation, not less than 20 days before the meeting, must notify
each of its stockholders entitled to appraisal rights that appraisal rights are
available and include in that notice a copy of Section 262. This proxy statement
constitutes that notice to stockholders, and the applicable statutory provisions
of the DGCL are attached to this proxy statement as Appendix C. Any stockholder
who wishes to exercise appraisal rights or who wishes to preserve that right
should review carefully the following discussion and Appendix C to this proxy
statement. Moreover, because of the complexity of the procedures for exercising
the right to seek appraisal of the common stock, Morton's believes that
stockholders who consider exercising such appraisal rights should seek the
advice of counsel, which counsel or other appraisal services will not be paid
for by Morton's. FAILURE TO COMPLY WITH THE PROCEDURES SPECIFIED IN SECTION 262
TIMELY AND PROPERLY WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
FILING WRITTEN DEMAND. Any stockholder wishing to exercise the right to
demand appraisal under Section 262 of the DGCL must satisfy each of the
following conditions:
- as more fully described below, the stockholder must deliver to Morton's a
written demand for appraisal of the stockholder's shares before the vote
on the merger agreement and the merger at the special meeting, which
demand must reasonably inform Morton's of the identity of the stockholder
and that the stockholder intends to demand the appraisal of the
stockholder's shares;
- the stockholder must not vote the stockholder's shares of common stock in
favor of the merger agreement and the merger at the special meeting; and,
as a result, a stockholder who submits a proxy and wishes to exercise
appraisal rights must vote against the merger agreement and the merger or
abstain from voting on the merger agreement and the merger, because a
proxy that does not contain voting instructions will, unless, revoked, be
voted in favor of the merger agreement and the merger; and
63
- the stockholder must continuously hold the shares from the date of making
the demand through the effective time of the merger; a stockholder who is
the record holder of shares of common stock on the date the written demand
for appraisal is made, but who thereafter transfers those shares before
the effective time of the merger, will lose any right to appraisal in
respect of those shares.
The written demand for appraisal must be in addition to and separate from
any proxy or vote. None of voting (in person or by proxy) against, abstaining
from voting or failing to vote on the proposed merger agreement and the merger
will constitute a written demand for appraisal within the meaning of
Section 262.
Only a stockholder of record of shares of common stock issued and
outstanding immediately before the effective time of the merger is entitled to
assert appraisal rights for the shares of common stock registered in that
stockholder's name. A demand for appraisal should be executed by or on behalf of
the stockholder of record, fully and correctly, as the stockholder's name
appears on the applicable stock certificates, should specify the stockholder's
name and mailing address, the number of shares of common stock owned and that
the stockholder intends to demand appraisal of the stockholder's common stock.
If the shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity.
If the shares are owned of record by more than one person, as in a joint tenancy
or tenancy in common, the demand should be executed by or on behalf of all
owners. An authorized agent, including one or more joint owners, may execute a
demand for appraisal on behalf of a stockholder; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for such owner or owners. A
record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more other beneficial owners while not exercising appraisal rights
with respect to the shares held for one or more beneficial owners; in such case,
the written demand should set forth the number of shares as to which appraisal
is sought, and where no number of shares is expressly mentioned, the demand will
be presumed to cover all shares held in the name of the record owner.
STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE ACCOUNTS OR OTHER NOMINEE FORMS
AND WHO WISH TO EXERCISE APPRAISAL RIGHTS ARE URGED TO CONSULT WITH THEIR
BROKERS TO DETERMINE APPROPRIATE PROCEDURES FOR THE MAKING OF A DEMAND FOR
APPRAISAL BY THE NOMINEE.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the shares subject to that demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares as of a record date
before the effective time of the merger).
Any stockholder may withdraw its demand for appraisal and accept $12.60 per
share by delivering to Morton's a written withdrawal of the stockholder's demand
for appraisal. However, any such attempt to withdraw made more than 60 days
after the effective date of the merger will require written approval of the
surviving corporation. No appraisal proceeding in the Delaware Court of Chancery
will be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just. If the
surviving corporation does not approve a stockholder's request to withdraw a
demand for appraisal when that approval is required, or if the Delaware Court of
Chancery does not approve the dismissal of an appraisal proceeding, the
stockholder will be entitled to receive only the appraised value determined in
any such appraisal proceeding, which value could be less than, equal to or more
than $12.60 per share.
A stockholder who elects to exercise appraisal rights under Section 262
should mail or deliver a written demand to Morton's Restaurant Group, Inc., 3333
New Hyde Park Road, New Hyde Park, New York 11042, Attention: Agnes Longarzo,
Secretary.
64
NOTICE BY MORTON'S. Within 10 days after the effective time of the merger,
the surviving corporation must send a notice as to the effectiveness of the
merger to each former stockholder of Morton's who (1) has made a written demand
for appraisal in accordance with Section 262 and (2) has not voted to approve
and adopt, nor consented to, the merger agreement and the merger. Under the
merger agreement, Morton's has agreed to give Morton's Holdings notice of any
demands for appraisal received by Morton's.
Within 120 days after the effective time of the merger, any former
stockholder of Morton's who has complied with the provisions of Section 262 to
that point in time will be entitled to receive from the surviving corporation,
upon written request, a statement setting forth the aggregate number of shares
not voted in favor of the merger agreement and the merger and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. The surviving corporation must mail that statement to
the stockholder within 10 days of receipt of the request or within 10 days after
expiration of the period for delivery of demands for appraisals under
Section 262, whichever is later.
FILING A PETITION FOR APPRAISAL. Within 120 days after the effective date
of the merger, either the surviving corporation or any stockholder who has
complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the value of the shares
of common stock held by all such stockholders. Morton's is under no obligation,
and has no present intent, to file a petition for appraisal, and stockholders
seeking to exercise appraisal rights should not assume that the surviving
corporation will file such a petition or that it will initiate any negotiations
with respect to the fair value of the shares. Accordingly, stockholders who
desire to have their shares appraised should initiate any petitions necessary
for the perfection of their appraisal rights within the time and the manner
prescribed in Section 262. Inasmuch as Morton's has no obligation to file such a
petition, the failure of a stockholder to do so within the time specified could
nullify the stockholder's previous written demand for appraisal.
A stockholder timely filing a petition for appraisal with the Delaware Court
of Chancery must deliver a copy to the surviving corporation, which will then be
obligated within 20 days to provide the Register in Chancery with a duly
verified list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the surviving corporation. After notice to
those stockholders, the Delaware Court of Chancery may conduct a hearing on the
petition to determine which stockholders have become entitled to appraisal
rights. The Delaware Court of Chancery may require stockholders who have
demanded an appraisal of their shares and who hold stock represented by
certificates to submit their certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings. If any
stockholder fails to comply with the requirement, the Delaware Court of Chancery
may dismiss the proceedings as to that stockholder.
DETERMINATION OF FAIR VALUE. After determining the stockholders entitled to
an appraisal, the Delaware Court of Chancery will appraise the shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
STOCKHOLDERS CONSIDERING SEEKING APPRAISAL SHOULD BE AWARE THAT THE FAIR
VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION 262 COULD BE LESS THAN, EQUAL
TO OR MORE THAN THE $12.60 PER SHARE THEY WOULD RECEIVE UNDER THE MERGER
AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES. STOCKHOLDERS SHOULD
ALSO BE AWARE THAT INVESTMENT BANKING OPINIONS ARE NOT OPINIONS AS TO FAIR VALUE
UNDER SECTION 262.
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In determining fair value and, if applicable, a fair rate of interest, the
Delaware Court of Chancery is to take into account all relevant factors. In
WEINBERGER V. UOP, INC., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair value,
the court must consider "market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which were known or
which could be ascertained as of the date of the merger and which throw any
light on future prospects of the merged corporation." Furthermore, the court may
consider "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation."
The costs of the action may be determined by the Delaware Court of Chancery
and taxed upon the parties as the Delaware Court of Chancery deems equitable.
Upon application of a dissenting stockholder, the Delaware Court of Chancery may
also order that all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all of the shares entitled to appraisal.
ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS URGED TO CONSULT
LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE APPRAISAL RIGHTS. FAILURE TO COMPLY
STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL MAY
RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL RIGHTS.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Agreement and
Plan of Merger, dated as of March 26, 2002, by and among Morton's Holdings,
Morton's Acquisition and Morton's referred to as the merger agreement. The full
text of the merger agreement is attached to this proxy statement as Appendix A
for your information. Stockholders are urged to read the entire merger
agreement.
THE MERGER
The merger agreement provides that, at the effective time of the merger,
Morton's Acquisition, a wholly owned subsidiary of Morton's Holdings, will merge
with and into Morton's. Upon completion of the merger, Morton's Acquisition will
cease to exist, and Morton's will continue as the surviving corporation.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware, which time is referred to
as the effective time. Morton's and Morton's Acquisition have agreed to file the
certificate of merger no later than 2 business days following the satisfaction
or waiver of the conditions to closing of the merger set forth in the merger
agreement.
CERTIFICATE OF INCORPORATION, BY-LAWS AND DIRECTORS AND OFFICERS OF MORTON'S AS
THE SURVIVING CORPORATION
When the merger is completed:
- the amended and restated certificate of incorporation of Morton's will be
amended in its entirety to read as the certificate of incorporation of
Morton's Acquisition in effect immediately prior to
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the merger except that the name of the surviving corporation will be
Morton's Restaurant Group, Inc.;
- the by-laws of Morton's Acquisition in effect immediately prior to the
effective time will be the by-laws of Morton's as the surviving
corporation;
- the directors of Morton's Acquisition immediately prior to the effective
time will become the directors of Morton's as the surviving corporation
until their successors are duly elected or appointed and qualified or
until their earlier death, resignation or removal; and
- the officers of Morton's immediately prior to the effective will remain
the officers of Morton's as the surviving corporation until their
successors are duly elected or appointed and qualified or until their
earlier death, resignation or removal.
CONVERSION OF COMMON STOCK
At the effective time, by virtue of the Merger, each share of Morton's
common stock outstanding immediately prior to the effective time will
automatically be converted into and represent the right to receive $12.60 in
cash, without interest, referred to as the merger consideration, except for:
- shares of Morton's stock in Morton's treasury, shares of Morton's stock
held by Morton's or any of its subsidiaries and shares of Morton's common
stock held by Morton's Acquisition or Morton's Holdings immediately prior
to the effective time (all of which will be canceled without any payment
therefor); and
- shares held by stockholders seeking appraisal rights in accordance with
Delaware law.
At the effective time, each share of capital stock of Morton's Acquisition
outstanding immediately before the effective time will be converted into and
exchanged for one fully paid and non-assessable share of common stock of
Morton's as the surviving corporation.
PAYMENT FOR SHARES
At or prior to the effective time of the merger, Morton's Holdings will
deposit in trust with a paying agent appointed by it sufficient funds to pay the
merger consideration. Within five business days after the effective time of the
merger, Morton's Holdings will cause the paying agent to mail to each holder of
record of shares of Morton's common stock immediately prior to the effective
time, a form of letter of transmittal and instructions to effect the surrender
of their share certificate(s) in exchange for payment of the merger
consideration.
A holder will be entitled to receive $12.60 per share only upon surrender to
the paying agent of a share certificate, together with such letter of
transmittal, duly completed in accordance with the instructions thereto. If a
share certificate has been lost, stolen or destroyed, the holder of such share
certificate is required to make an affidavit of that fact and to give to
Morton's, as the surviving corporation, a bond in such sum as the surviving
corporation may direct or otherwise indemnify the surviving corporation against
any claim that may be made against the surviving corporation with respect to
such share certificate before any payment of the merger consideration will be
made to such holder. If payment of the merger consideration is to be made to a
person whose name is other than that of the person in whose name the share
certificate is registered, it will be a condition of payment that (1) the share
certificate so surrendered be properly endorsed, with signature guaranteed, or
otherwise in proper form for transfer and (2) the person requesting such payment
pay any transfer and/or other taxes that may be required or establish to the
satisfaction of Morton's as the surviving corporation that such tax has either
been paid or is not applicable. No interest will be paid or will accrue upon the
surrender of the share certificates for the benefit of holders of the share
certificates on any merger consideration.
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At any time following six months after the effective time of the merger,
Morton's as the surviving corporation will be entitled to require the paying
agent to deliver to it any funds, including any interest received with respect
thereto, that have been deposited with the paying agent and that have not been
disbursed to holders of share certificates. Thereafter, holders of certificates
representing shares outstanding before the effective time will be entitled to
look only to the surviving corporation for payment of any claims for merger
consideration to which they may be entitled. Neither the surviving corporation
nor the paying agent will be liable to any person in respect of any merger
consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar laws.
TRANSFER OF SHARES
After the effective time of the merger, there will be no further transfer on
the records of Morton's as the surviving corporation or its transfer agent of
certificates representing shares of Morton's common stock, and any such
certificates presented to the surviving corporation for transfer, other than
shares held by stockholders seeking appraisal rights, will be canceled and
exchanged for the merger consideration. From and after the effective time of the
merger, the holders of share certificates will cease to have any rights with
respect to these shares except as otherwise provided for in the merger agreement
or by applicable law. All merger consideration paid upon the surrender for
exchange of those share certificates in accordance with the terms of the merger
agreement will be deemed to have been issued and paid in full satisfaction of
all rights pertaining to the share certificates.
TREATMENT OF STOCK OPTIONS
Immediately prior to the effective time of the merger, each outstanding
stock option to purchase shares of Morton's common stock will, in effect, become
fully vested. Stock options with an exercise price equal to or greater than
$12.60 per share will be canceled at the effective time of the merger without
any payment or other consideration. All other stock options will be canceled and
will represent solely the right to receive a cash payment equal to the
difference between $12.60 and the exercise price of the applicable option,
multiplied by the number of shares subject to the option. As of the effective
time of the merger, Morton's will terminate all stock plans and any other plan,
program or arrangement providing for the issuance or grant of any interest in
respect of the capital stock or equity of Morton's or any subsidiary of
Morton's.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties made by
Morton's to Morton's Acquisition and Morton's Holdings, subject to identified
exceptions, including representations and warranties relating to:
- the due organization, valid existence and good standing of Morton's and
each of its subsidiaries and the requisite corporate power and authority
of Morton's to own, lease and operate its properties and assets and to
carry on its business as it is conducted;
- the capitalization of Morton's;
- the corporate power and authorization to execute and deliver the merger
agreement and the execution, delivery, performance and enforceability of
the merger agreement;
- the absence of any conflicts between the merger agreement and Morton's
certificate of incorporation, by-laws, material agreements, judgments and
applicable laws;
- required consents or approvals;
- the completeness and accuracy of filings made by Morton's with the SEC
since January 1, 1999;
- the absence of any undisclosed liabilities;
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- the absence of certain changes in Morton's business, capitalization or
accounting practices since December 30, 2001;
- the filing of tax returns, payment of taxes and other tax matters;
- the title and absence of material defaults with respect to, all real and
personal property leased or owned by Morton's;
- the right to use, and absence of infringement of, material intellectual
property of Morton's;
- the validity, binding nature and absence of material defaults with respect
to material contracts of Morton's;
- the absence of any material action, suit, proceeding, claim, arbitration
or investigation against Morton's;
- compliance with laws related to environmental matters;
- matters relating to employee benefit plans;
- compliance with applicable federal, state, local, or foreign statutes,
orders, judgments, decrees, laws, rules, regulations or ordinances;
- the validity of and compliance with permits, approvals, licenses,
authorizations, certificates, rights, exemptions, orders and franchises
from governmental entities necessary for the ownership of assets and the
lawful conduct of the business including liquor licenses;
- the absence of an agreement or understanding with a labor union or labor
organization and the absence of labor disputes and other labor matters;
- the effectiveness and validity of insurance policies;
- the reliance on suppliers to continue supply;
- the absence of any development, franchise or license rights to operate
restaurants;
- the compliance with and the accuracy in all material respects of the
information in the proxy statement other than information supplied by
Morton's Holdings or Morton's Acquisition;
- the absence of undisclosed advisory, commissions or broker's or finder's
fees;
- the inapplicability of state takeover statutes to the merger and the
merger agreement;
- the stockholder voting requirements to approve the merger agreement;
- the amendments to Morton's stockholders rights agreement necessary to
render it inapplicable to the merger, the merger agreement and the other
transactions contemplated by the merger agreement;
- the receipt by the Special Committee and the Board of Directors of the
fairness opinion of Greenhill; and
- that breaches of the representations and warranties that would occur if
all references to phrases concerning materiality were deleted, in the
aggregate, have not resulted in and would not reasonably be likely to
result in, individually or in the aggregate, a Company material adverse
effect, as defined below, on Morton's.
Under the merger agreement, the term Company material adverse effect means
any event, change, occurrence, effect, fact, violation, development or
circumstance having or resulting in a material adverse effect on (a) the ability
of Morton's to duly perform its obligations under the merger agreement or to
consummate the transactions contemplated under the merger agreement on a timely
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basis or (b) the business, properties, assets, liabilities, financial condition
or results of operations of Morton's and its subsidiaries, taken as a whole,
provided that the following will not be taken into account in determining
whether there has been or would reasonably be likely to be a Company material
adverse effect under the merger agreement:
- adverse changes in the stock price of Morton's, in and of themselves, but
only so long as any such adverse changes do not reflect any other event,
change, occurrence, effect, fact, violation, development, or circumstance
that has had or would reasonably be likely to have, individually or in the
aggregate, a material adverse effect on (1) the ability of Morton's to
duly perform its obligations under the merger agreement or to consummate
the transactions contemplated under the merger agreement on a timely basis
or (2) the business, properties, assets, liabilities, financial condition
or results of operations of Morton's and its subsidiaries, taken as a
whole, in each case, other than those events, changes, occurrences,
effects, facts, developments or circumstances described in (a) through
(c) below; and
- other than as may relate to or arise from any disruption in the
availability of, or public health and safety concerns with respect to
ordinary consumption of, the primary foods and/or beverages supplied to or
served by Morton's or any of its subsidiaries, the following: (a) events,
changes, occurrences, effects, facts, developments or circumstances
generally adversely effecting the economy of a city, state, country, or
jurisdiction where Morton's and its subsidiaries operate and which do not
affect Morton's and its subsidiaries disproportionately; (b) events,
changes, occurrences, effects, facts, developments or circumstances
generally adversely affecting the United States securities markets or the
fine dining restaurant industry in general and which do not affect
Morton's and its subsidiaries disproportionately; and (c) any failure to
meet third party analysts' estimates with respect to the performance or
condition of Morton's and its subsidiaries, taken as a whole.
The merger agreement also contains various representations and warranties by
Morton's Acquisition and Morton's Holdings to Morton's, subject to identified
exceptions, including representations and warranties relating to:
- the due organization, valid existence, good standing of Morton's
Acquisition and Morton's Holdings and the requisite power and authority of
Morton's Acquisition and Morton's Holdings to own, lease and operate their
properties and assets and to carry on their business as is being
conducted;
- the capitalization of Morton's Acquisition;
- the power and authorization to execute and deliver the merger agreement
and the execution, delivery, performance and enforceability of the merger
agreement;
- the absence of any conflicts between the merger agreement and Morton's
Acquisition's and Morton's Holdings' respective certificate of
incorporation, by-laws, material agreements, judgments and applicable
laws;
- required consents or approvals;
- the accuracy of the information supplied by Morton's Acquisition and
Morton's Holdings for inclusion in the proxy statement; and
- the commitment of Morton's Holdings' equity investor to subscribe for
equity sufficient to provide Morton's Holdings with the funds necessary to
consummate the transactions contemplated by the merger agreement.
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None of the representations and warranties in the merger agreement will
survive after the completion of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Morton's is subject to restrictions on its conduct and operations until the
merger is completed. In the merger agreement, Morton's has agreed that, prior to
the effective time of the merger, it will act and carry on its business in the
ordinary course of business consistent with past practice and use reasonable
best efforts to maintain and preserve its business organization, assets and
properties, keep available the services of its officers and key employees and
maintain and preserve its advantageous business relationships with suppliers,
landlords and others having material business dealings with it. Morton's has
also agreed, subject to identified exceptions, that it will not do any of the
following without the prior written consent of Morton's Holdings or Morton's
Acquisition:
- amend its certificate of incorporation or by-laws or comparable governing
documents;
- sell, transfer or pledge or agree to sell, transfer or pledge any of its
capital stock or other equity interests;
- declare, set aside or pay any dividend or other distribution payable in
cash, securities or other property with respect to, or split, combine,
redeem or reclassify, or purchase or otherwise acquire, any shares of its
capital stock (or other equity interests) or other securities of Morton's
or any of its subsidiaries;
- issue or sell, or authorize to issue or sell, any shares of its capital
stock or any other securities, or issue or sell, or authorize to issue or
sell, any securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to purchase or
subscribe for, or enter into any arrangement or contract with respect to
the issuance or sale of, any shares of its capital stock of any class of
Morton's or voting debt or other securities, or make any other change in
its capital structure;
- acquire, make (or commit to make) any investment in, or make capital
contribution to, any person other than in the ordinary course of business
consistent with past practice;
- make (or commit to make) or enter into any contracts (or any amendments,
modifications, supplements or replacements to existing contracts) to be
performed relating to, capital expenditures with a value in excess of
$100,000 in any calendar year, or in the aggregate capital expenditures
with a value in excess of $250,000;
- acquire, by merging or consolidating with, by purchasing an equity
interest in or a portion of the assets of, or by any other manner, any
business or any person, or otherwise acquire any assets of any person
(other than the purchase of equipment, inventories and supplies in the
ordinary course of business consistent with past practice);
- transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of,
subject to any lien or otherwise encumber any material assets;
- increase the compensation or fringe benefits of any of its directors,
officers or employees, or grant any severance or termination pay not
currently required to be paid under existing severance plans, or enter
into any employment, consulting or severance agreement or arrangement with
any present or former director, officer or other employee of Morton's or
its subsidiaries, or establish, adopt, enter into or amend, modify,
supplement, replace or terminate any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the
collective benefit of any directors, officers or employees;
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- enter into or amend, modify, supplement or replace any employment,
consulting, severance or similar agreement (including any change of
control agreement) with any person, except with respect to new hires of
non-officer employees in the ordinary course of business;
- except as may be required by applicable law, GAAP or SEC position, make
any change in any of its accounting practices, policies or procedures or
any of its methods of reporting income, deductions or other items for
income tax purposes;
- adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of Morton's or any subsidiary;
- (a) incur, assume, modify or prepay any indebtedness for borrowed money,
issue any debt securities or warrants or other rights to acquire debt
securities, or guarantee, endorse or otherwise become liable or
responsible for the obligations or indebtedness of another person, other
than indebtedness owing to or guarantees of indebtedness owing to Morton's
or any direct or indirect wholly-owned subsidiary, or enter into any
capital lease, or (b) make any loans, extensions of credit or advances to
any other person, other than to Morton's or to any direct or indirect
wholly-owned subsidiary;
- accelerate the payment, right to payment or vesting of any bonus,
severance, profit sharing, retirement, deferred compensation, stock
option, insurance or other compensation or benefits;
- except as permitted by the merger agreement, pay, discharge, settle or
satisfy any claims, litigation, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise) that in the
aggregate exceed $250,000;
- other than as disclosed in Morton's documents filed with the SEC prior to
the date of the merger agreement, plan, announce, implement or effect any
material reduction in force, lay-off, early retirement program, severance
program or other program or effort concerning the termination of
employment of employees of Morton's or its subsidiaries;
- take any action or non-action which would, directly or indirectly,
restrict or impair the ability of Morton's Holdings to vote or otherwise
to exercise the rights and receive the benefits of a stockholder with
respect to securities of Morton's that may be acquired or controlled by
Morton's Holdings or Morton's Acquisition, or any action which would
permit any person to acquire securities of Morton's on a basis not
available to Morton's Holdings or Morton's Acquisition;
- take any action or non-action that (a) constitutes a violation of any
liquor license or (b) would (or would reasonably be likely to) materially
impede, delay, hinder or make more burdensome for Morton's Holdings to
obtain and maintain any and all authorizations, approvals, consents or
orders from any governmental entity or other third party necessary or
required to maintain the liquor licenses in effect at all times following
the merger on the same terms as in effect on the date of the merger
agreement;
- enter into any new material line of business or enter into any agreement
that restrains, limit or impedes Morton's or any of its subsidiaries'
ability to compete with or conduct any business or line of business;
- (a) file or cause to be filed any materially amended tax returns or claims
for refund; (b) make or rescind any material tax election or otherwise
fail to prepare all tax returns in a manner which is consistent with the
past practices of Morton's or its subsidiaries, as the case may be, with
respect to the treatment of items on such tax returns; (c) incur any
material liability for taxes other than in the ordinary course of
business; or (d) enter into any settlement or closing agreement with a
taxing authority that materially increases or would reasonably be likely
to materially increase the tax liability of Morton's for any period;
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- fail to maintain with current or other financially responsible insurance
companies insurance on its tangible assets and its businesses in such
amounts and against such risks and losses as are consistent with past
practice; or
- authorize, agree or announce an intention, in writing or otherwise, to
take any of the foregoing actions.
LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS
Morton's has agreed that it, including its subsidiaries, its affiliates and
each of its and their respective officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants and
other agents, will immediately cease any discussions or negotiations with any
other person with respect to any acquisition proposal, as defined below.
Additionally, Morton's has agreed that it, including its subsidiaries, its
affiliates and each of its and their respective officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants and
other agents, will not take any action:
- to encourage, solicit, initiate or facilitate, directly or indirectly, the
making or submission of any acquisition proposal;
- except in accordance with the terms of the merger agreement as described
below, to enter into any agreement, arrangement or understanding with
respect to any acquisition proposal, or to agree to approve or endorse any
acquisition proposal or enter into any agreement, arrangement or
understanding that would require Morton's to abandon, terminate or fail to
consummate the merger or any other transaction contemplated by the merger
agreement;
- except in accordance with the terms of the merger agreement as described
below, to initiate or participate in any way in any discussions or
negotiations with, or to furnish or disclose any information to, any
person in furtherance of any proposal that constitutes, or could
reasonably be expected to lead to, any acquisition proposal;
- except in accordance with the terms of the merger agreement as described
below, to facilitate or further in any other manner any inquiries or the
making or submission of any proposal that constitutes, or could reasonably
be expected to lead to, any acquisition proposal; or
- to grant any waiver or release under, or fail to enforce, any standstill,
confidentiality or similar agreement entered into by Morton's or any of
its affiliates or representatives.
So long as Morton's has not breached the applicable provisions of the merger
agreement, prior to the special meeting, Morton's, in response to an unsolicited
acquisition proposal, may:
- request clarifications from, or furnish information to, (but not enter
into discussions with) any person that makes an unsolicited acquisition
proposal if (a) the action is taken subject to a confidentiality agreement
with Morton's containing customary terms and conditions, (b) the action is
taken solely for the purpose of obtaining information reasonably necessary
to ascertain whether such acquisition proposal is, or is reasonably likely
to lead to, a superior proposal, as defined below, and (c) the Board of
Directors, based on the recommendation of the Special Committee,
reasonably determines in accordance with the requirements of the merger
agreement that it is necessary to take such actions in order to comply
with its fiduciary duties under applicable law; or
- participate in discussions with, request clarifications from, or furnish
information to, any person that makes an unsolicited acquisition proposal
if (a) the action is taken subject to a confidentiality agreement with
Morton's containing customary terms and conditions, (b) the Board of
Directors reasonably determines in accordance with the requirements of the
merger
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agreement that such acquisition proposal is a superior proposal and
(c) the Board of Directors, based on the recommendation of the Special
Committee, reasonably determines in good faith in accordance with the
requirements of the merger agreement that it is necessary to take such
actions in order to comply with its fiduciary duties under applicable law.
Morton's has agreed that neither the Board of Directors nor any Board
committee will (a) withdraw, modify or amend, or propose to withdraw, modify or
amend, in a manner adverse to Morton's Holdings or Morton's Acquisition, the
approval, adoption or recommendation, as the case may be, of the merger, the
merger agreement or any of the other transactions contemplated by the merger
agreement, (b) approve or recommend, or propose to approve or recommend, any
acquisition proposal, (c) cause Morton's to accept the acquisition proposal
and/or enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement, each an acquisition agreement, related to
such acquisition proposal, or (d) resolve to do any of the foregoing; unless the
Board of Directors has complied with the requirements of the merger agreement
and, based on the recommendation of the Special Committee, (a) the acquisition
proposal is a superior proposal, (b) the Board of Directors reasonably
determines in accordance with the terms of the merger agreement that it is
necessary to take such actions in order to comply with its fiduciary duties
under applicable law and all the conditions to Morton's right to terminate the
merger agreement in accordance with the merger agreement have been satisfied and
(c) simultaneously or substantially simultaneously with such withdrawal,
modification or recommendation, Morton's terminates the merger agreement.
Under the merger agreement, the term acquisition proposal means (a) any
inquiry, proposal or offer from any person or group relating to any direct or
indirect acquisition or purchase of 15% or more of the consolidated assets of
Morton's or 15% or more of any class of equity securities of Morton's in a
single transaction or a series of related transactions, (b) any tender offer
(including a self tender offer) or exchange offer that, if consummated, would
result in any person or group beneficially owning 15% or more of any class of
equity securities of Morton's or the filing with the SEC of a registration
statement under the Securities Act or any statement, schedule or report under
the Exchange Act in connection therewith, (c) any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Morton's or any of its subsidiaries, (d) any other
transaction the consummation of which could reasonably be expected to impede,
interfere with, prevent or materially delay the merger or which could reasonably
be expected to materially dilute the benefits to Morton's Holdings of the
transactions contemplated by the merger agreement or (e) any public announcement
by or on behalf of Morton's, its subsidiaries, or any of their respective
affiliates (or any of their respective officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants and
other agents) or by any third party of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing.
Under the merger agreement, the term superior proposal means a bona fide
written offer that is binding on the offeror and not solicited by or on behalf
of Morton's, its subsidiaries, or any of their respective affiliates (or any of
their respective officers, directors, employees, representatives, consultants,
investment bankers, attorneys, accountants and other agents) made by a third
party to acquire, directly or indirectly, all of the shares of Morton's common
stock pursuant to a tender offer followed by a merger, a merger or a purchase of
all or substantially all of the assets of Morton's and its subsidiaries (a) on
terms which the Board of Directors, based on the recommendation of the Special
Committee, reasonably determines in accordance with the terms of the merger
agreement to be more favorable from a financial point of view to Morton's and
its stockholders (in their capacity as such) than the transactions contemplated
by the merger agreement (to the extent the transactions contemplated thereby are
proposed to be modified by Morton's Holdings), (b) which is reasonably capable
of being consummated (taking into account certain factors the Board of Directors
and the Special Committee in good faith deem relevant, including, without
limitation, all legal, financial,
74
regulatory and other aspects of a proposal (including the terms of any financing
and the likelihood that the transaction would be consummated) and the identity
of the person making the proposal) and (c) which is not conditioned on any
financing, the obtaining of which in the reasonable good faith determination of
the Board of Directors, based on the recommendation of the Special Committee, is
less likely to be obtained than the financing proposed by Morton's Holdings.
Morton's has agreed to advise Morton's Holdings of (a) any request for
information with respect to any acquisition proposal; (b) any acquisition
proposal; (c) any inquiry, proposal, discussions or negotiation with respect to
any acquisition proposal; (d) the terms and conditions of such request,
acquisition proposal, inquiry, proposal, discussion or negotiation on the date
it is received or occurs. Morton's has agreed to provide to Morton's Holdings
copies of any written materials received by Morton's in connection with any of
the foregoing, and the identity of the person making any acquisition proposal or
the request, inquiry or proposal or with whom any discussions or negotiations
are taking place within one calendar day. Morton's has agreed to keep Morton's
Holdings fully informed of the status and material details of any request or
acquisition proposal and to keep Morton's Holdings fully informed as to the
material details of any information requested of or provided by Morton's and as
to the details of all discussions or negotiations with respect to any such
request, acquisition proposal, inquiry or proposal, and to provide to Morton's
Holdings with a copy of all written materials received by Morton's with respect
to a request, acquisition proposal, inquiry or proposal within one calendar day
of receipt. Morton's has agreed to promptly provide to Morton's Holdings any
non-public information concerning Morton's provided to any other person in
connection with any acquisition proposal, which was not previously provided to
Morton's Holdings.
Morton's may terminate the merger agreement if it receives a superior
proposal and the Board of Directors reasonably determines that it is necessary
to terminate the merger agreement and enter into an agreement to effect the
superior proposal in order to comply with its fiduciary duties under applicable
law, as discussed in "--Termination."
SPECIAL MEETING
Morton's has agreed to call, give notice of, convene and hold the special
meeting of its stockholders as promptly as practicable for the purpose of
considering and taking action upon the approval of the merger agreement and the
merger. Morton's has agreed to hold the special meeting even if (a) the
commencement, public proposal, public disclosure or communication to Morton's of
an acquisition proposal has occurred or (b) the Board of Directors has withdrawn
or modified its approval or recommendation of the merger agreement or the
merger.
REASONABLE BEST EFFORTS
Each of Morton's, Morton's Holdings and Morton's Acquisition has agreed to
use its reasonable best efforts to take all appropriate action to consummate the
merger and the other transactions contemplated by the merger agreement in the
most expeditious manner, including making all filings necessary, proper or
advisable under applicable laws, rules and regulations, obtaining all consents
and approvals of governmental entities and of other third parties under
identified contracts of Morton's, and obtaining all consents and approvals
needed to maintain the liquor licenses and other necessary permits of Morton's.
Morton's has also agreed to take all actions within its power to render state
takeover statutes or similar statutes inapplicable to the merger or the merger
agreement or any other transaction contemplated by the merger agreement.
Further, Morton's has agreed to defend any lawsuits or other legal proceedings
challenging the merger agreement or the transactions contemplated by the merger
agreement, to allow Morton's Holdings to participate in any such litigation and
not to settle any such litigation without Morton's Holdings prior consent.
Further, Morton's has agreed to execute and deliver any additional instruments
necessary to consummate the transactions contemplated by the merger agreement.
Morton's has also agreed that, in connection with obtaining any required
75
consents, approvals or authorizations with respect to the transactions
contemplated by the merger agreement, it will not take any of the following
actions without obtaining the prior written approval of Morton's Holdings:
- repay, in whole or in part, any loan agreement or contract for borrowed
money, other than (a) as may be required by Amendment No. 15 to the
Company's credit agreement, (b) by payment of an immaterial sum (in any
event not to exceed a basket amount of $100,000 in the aggregate, after
taking into account (x) any and all amounts that may be payable as
described in the immediately succeeding paragraph and (y) any and all
amounts payable in respect of refinancing or replacing certain identified
contracts), or (c) as currently required by its terms; and
- amend, modify, supplement or replace any material contract to increase the
amount payable thereunder (other than by an amount not to exceed a basket
amount of $100,000 in the aggregate, after taking into account (x) any and
all amounts that may be payable as described in the immediately preceding
paragraph and (y) any and all amounts payable in respect of refinancing or
replacing certain identified contracts) or otherwise to be more burdensome
(other than in an immaterial manner) to Morton's.
EMPLOYEE MATTERS
Morton's Holdings has agreed to cause the surviving corporation to maintain
employee benefit plans and arrangements for employees of Morton's for one year
following the effective time of the merger so that, taken as a whole, they
provide a level of benefits that is substantially comparable to the level of the
benefits, taken as a whole, provided by Morton's immediately prior to March 26,
2002. Morton's Holdings has agreed to ensure that the employees of Morton's
prior to the merger receive credit for service with Morton's or its subsidiaries
(to the same extent that it was granted under Morton's plans prior to the date
of the merger agreement) under the comparable employee benefit plans, programs
and policies of Morton's Holdings and Morton's as the surviving corporation of
the merger in which such employees became participants. Morton's Holdings has
agreed to cause Morton's as the surviving corporation to assume and honor all
written employment, severance, retention and termination agreements between
Morton's and its employees.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Morton's as the surviving entity will
indemnify and hold harmless each current and former director and officer of
Morton's who was covered by Morton's director and officer insurance as of the
date of the merger agreement for actions or omissions arising out of such
individuals' services as officers, directors, employees or agents of Morton's or
any of its subsidiaries or as trustees or fiduciaries of any plan for the
benefit of employees of Morton's occurring before or as of the effective time of
the merger to the full extent permitted by Delaware law. The merger agreement
further provides that for a period of at least six years after the effective
time of the merger, Morton's, as the surviving entity, will either (a) maintain
Morton's current directors' and officers' liability insurance with respect to
events occurring before or as of the effective time of the merger and covering
all current or prior directors and officers of Morton's; however, Morton's as
the surviving entity, may substitute substantially similar insurance or
(b) cause Morton's Holdings' insurance to provide such insurance on a comparable
basis. Morton's, as the surviving entity, will cause its certificate of
incorporation and by-laws to contain the provisions with respect to advancement
of expenses, indemnification and exculpation from liability of directors or
officers of Morton's set forth in the certificate of incorporation and by-laws
of Morton's on the date of the merger agreement for a period of six years from
the effective time of the merger.
76
STOCKHOLDERS RIGHTS PLAN
Subject to Morton's right to terminate the merger agreement and abandon the
merger in connection with a superior proposal and other than in connection with
the merger, Morton's may not (a) redeem the rights under the rights plan,
(b) amend the rights plan other than to delay a distribution date or render the
rights inapplicable to the merger, or terminate the rights plan prior to the
effective time of the merger unless required to do so by a court of competent
jurisdiction, or (c) take any action that would allow any person other than
Morton's Holdings or its affiliates to beneficially own 15% or more of Morton's
common stock without causing a distribution date or a stock acquisition date to
occur under the rights plan.
CONDITIONS TO COMPLETING THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION. The obligations of Morton's,
Morton's Acquisition and Morton's Holdings to complete the merger are subject to
the satisfaction or waiver of certain conditions, including the following:
- the stockholders of Morton's have approved the merger agreement and the
merger;
- the parties to the merger agreement have obtained all authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations of waiting periods imposed by, any governmental entity needed
in connection with the merger and the consummation of the other
transactions contemplated by the merger agreement, other than the filing
of the certificate of merger; and
- no court or other governmental entity of competent jurisdiction has
imposed a preliminary or permanent order or injunction precluding,
restraining, enjoining or prohibiting the consummation of the merger.
CONDITIONS TO MORTON'S ACQUISITION'S AND MORTON'S HOLDINGS' OBLIGATION. The
obligations of Morton's Acquisition and Morton's Holdings to complete the merger
are subject to the satisfaction or waiver of the following conditions:
- (a) the representations and warranties of Morton's in the merger agreement
that are qualified by references to the qualification "Company material
adverse effect" must be true and correct when made and immediately prior
to the closing of the merger (except representations and warranties made
as of a specified date, which must be true and correct only as of the
specified date), and (b) the representations and warranties of Morton's in
the merger agreement that are not so qualified must be true and correct
when made and immediately prior to the closing of the merger except for
inaccuracies that would not or would not reasonably be likely to result
in, individually or in the aggregate, a Company material adverse effect on
Morton's;
- Morton's must have performed or complied in all material respects with all
obligations, agreements or covenants required to be performed under the
merger agreement on or prior to the closing of the merger;
- there must have been no action taken, or statute, rule, regulation,
judgment or executive order promulgated, entered, enforced, enacted,
issued or deemed applicable to the merger by any governmental entity that
directly or indirectly prohibits or makes illegal the consummation of the
merger or the other transactions contemplated by the merger agreement;
- there may not be any threatened, instituted or pending action or
proceeding by any governmental entity before any court of competent
jurisdiction or governmental entity, domestic or foreign, challenging,
threatening or seeking to make illegal, impede, delay or otherwise
directly or indirectly restrain, prohibit or make materially more costly
the merger or seeking to obtain material damages;
77
- there may not be pending or instituted before any court of competent
jurisdiction or governmental entity, domestic or foreign, any action, suit
or proceeding brought by any third party against Morton's that could
reasonably be expected to result in, individually or in the aggregate, a
Company material adverse effect on Morton's;
- there may not have occurred any event, change, occurrence, effect, fact,
violation, development or circumstance that has resulted in or would
reasonably be likely to result in, individually or in the aggregate, a
Company material adverse effect on Morton's;
- the consolidated adjusted EBITDA, as defined in the merger agreement, for
the trailing twelve month period ending on June 30, 2002 must not be less
than $23,000,000;
- Amendment No. 15 to Morton's credit agreement, dated as of March 26, 2002,
must have become effective and binding on the parties thereto in
accordance with its terms, subject only to the satisfaction of conditions
to be satisfied at the closing of the merger; and
- Morton's must have filed and/or obtained (a) any and all authorizations,
approvals, consents or orders from any governmental entity or other third
party relating to or constituting required consents (including with
respect to certain mortgage financing and equipment leasing contracts);
(b) any and all authorizations, approvals, consents or orders from any
governmental entity or other third party necessary or required in order to
obtain and maintain in effect for a reasonable period of time following
the effective time of the merger all liquor licenses and other permits
necessary to maintain continuity of service of alcoholic beverages at each
restaurant of Morton's or its subsidiaries; and (c) any other
authorizations, approvals or consents of other third parties (other than
with respect to Morton's real estate leases or subleases), the failure to
obtain or file would result in, individually or in the aggregate, a
Company material adverse effect on Morton's.
CONDITIONS TO MORTON'S OBLIGATION. The obligation of Morton's to complete
the merger is subject to the satisfaction or waiver of the following conditions:
- the representations and warranties of Morton's Holdings and Morton's
Acquisition in the merger agreement must be true and correct when made and
immediately prior to the merger (except for representations and warranties
as of a specified date which need be true as of the specified date) except
for inaccuracies that would not, or would not reasonably be expected to,
result, individually or in the aggregate, in a material adverse effect on
Morton's Holdings or Morton's Acquisition and would not materially impair
either Morton's Holdings or Morton's Acquisition's ability to consummate
the transactions contemplated by the merger agreement;
- Morton's Holdings and Morton's Acquisition must have performed or complied
in all material respects with all obligations, agreements or covenants
required to be performed under the merger agreement on or prior to the
closing of the merger; and
- there must have been no action taken, or statute, rule, regulation,
judgment or executive order promulgated, entered, enforced, enacted,
issued or deemed applicable to the merger by any governmental entity that
directly or indirectly prohibits or makes illegal the consummation of the
merger or the other transactions contemplated by the merger agreement.
TERMINATION
Morton's or Morton's Holdings may terminate the merger agreement at any time
prior to the effective time of the merger, whether before or after the
stockholders of Morton's have approved and adopted the merger agreement, if:
- both parties agree by mutual written consent;
78
- the merger has not been consummated by September 23, 2002, so long as the
party attempting to terminate has not willfully and materially breached a
representation, warranty, obligation, covenant or agreement set forth in
the merger agreement; provided, that Morton's Holdings may extend the
termination date to December 21, 2002 if the only condition to closing not
met is with respect to authorizations, approvals and consents necessary or
required for the sale of alcoholic beverages;
- a governmental entity or court of competent jurisdiction has taken any
nonappealable final action that permanently restrains, enjoins or
otherwise prohibits the merger or the other transactions contemplated by
the merger agreement, so long as a material failure to fulfill any
obligation under the merger agreement by the party attempting to terminate
was not the principal cause of or did not result in such action; or
- the holders of a majority of shares of Morton's outstanding common stock
do not adopt and approve the merger agreement and approve the merger at
the special meeting.
Morton's Holdings may terminate the merger agreement if:
- (a) Morton's (1) withdraws, modifies or amends, or proposes to withdraw,
modify or amend, in a manner adverse to Morton's Holdings or Morton's
Acquisition, the approval, adoption or recommendation, as the case may be,
of the merger, the merger agreement or any of the other transactions
contemplated by the merger agreement or (2) approves or recommends, or
proposes to approve or recommend, or enters into any agreement,
arrangement or understanding with respect to, any acquisition proposal;
(b) the Board of Directors or any Board committee shall have resolved to
take any of the actions set forth in preceding subclause (a); (c) if after
an acquisition proposal has been made, the Board of Directors or the
Special Committee fails to affirm its recommendation and approval of the
merger and the merger agreement within three business days of any request
by Morton's Holdings to do so; or (d) if a tender offer or exchange offer
constituting an acquisition proposal is commenced and the Board of
Directors or the Special Committee does not recommend against acceptance
of the offer by Morton's stockholders;
- Morton's has breached the limitations on its consideration of other
acquisition proposals (See "--Limitation on Considering Other Acquisition
Proposals"); or
- Morton's has breached or failed to perform any of its representations,
warranties, covenants or agreements set forth in the merger agreement, and
(a) the breach or failure to perform would cause the closing conditions of
the merger agreement not to be satisfied, and (b) Morton's has not cured
the breach or failure to perform within 15 days following its receipt of
written notice of the breach from Morton's Holdings or by the termination
date.
Morton's may terminate the merger agreement if:
- Morton's receives a superior proposal, and the Board of Directors, based
on the recommendation of the Special Committee, reasonably determines in
accordance with the merger agreement that it is necessary to terminate the
merger agreement and enter into an agreement to effect the superior
proposal in order to comply with its fiduciary duties under applicable
law; provided, that Morton's may not terminate the merger agreement unless
it has complied with its obligations limiting its consideration of
acquisition proposals and until (a) five business days have elapsed
following delivery to Morton's Holdings of a written notice of the
determination by the Board of Directors and during this five business day
period Morton's has fully cooperated with Morton's Holdings with the
intent of enabling Morton's and Morton's Holdings to agree to a
modification of the terms and conditions of the merger agreement so that
the transactions contemplated by the merger agreement may be effected,
(b) at the end of such five business day period, the acquisition proposal
continues to constitute a superior
79
proposal, and the Board of Directors, based on the recommendation of the
Special Committee, continues to reasonably determine in accordance with
the merger agreement that it is necessary to terminate the merger
agreement and enter into an agreement to effect the superior proposal in
order to comply with its fiduciary duties under applicable law and
(c) (1) prior to such termination, Morton's Holdings has received all fees
and expense reimbursements set forth in the merger agreement and
(2) simultaneously or substantially simultaneously with such termination
Morton's enters into a definitive acquisition, merger or similar agreement
to effect the superior proposal; or
- Morton's Holdings or Morton's Acquisition has breached or failed to
perform any of its representations, warranties, covenants or agreements
set forth in the merger agreement, and (a) the breach or failure to
perform would cause the closing conditions of the merger agreement not to
be satisfied, and (b) Morton's Holdings or Morton's Acquisition has not
cured the breach or failure to perform within 15 days following its
receipt of written notice of the breach from Morton's by the termination
date.
Subject to limited exceptions, including the survival of any obligation to
pay the termination fee as described below, if the merger agreement is
terminated, then it will be void. Except as otherwise provided, there will be no
liability on the part of Morton's Acquisition, Morton's Holdings or Morton's or
their respective officers, directors, stockholders or affiliates, and all
obligations of the parties will cease. However, no party will be relieved from
its obligations with respect to any willful breach of the merger agreement.
TERMINATION FEE; EXPENSE REIMBURSEMENT
If the merger agreement is terminated:
- at a time when Morton's Holdings is entitled to terminate the merger
agreement (a) because (1) the merger has not been consummated by
September 23, 2002, or later date not beyond December 21, 2002 if extended
by Morton's Holdings or (2) Morton's stockholders do not approve the
merger and (b) after the date of the merger agreement, an acquisition
proposal has been made, proposed, communicated or publicly disclosed in a
manner which is or otherwise becomes public;
- at a time when Morton's Holdings is entitled to terminate the merger
agreement (a) because (1) the merger has not been consummated by
September 23, 2002, or later date not beyond December 21, 2002 if extended
by Morton's Holdings or (2) Morton's stockholders do not approve the
merger and (b) within 12 months of the termination, Morton's enters into
an agreement, arrangement or understanding (including a letter of intent)
with respect to or consummates any acquisition proposal;
- by Morton's Holdings because (a) the Company (1) withdraws, modifies or
amends, or proposes to withdraw, modify or amend, in a manner adverse to
Morton's Holdings or Morton's Acquisition, the approval, adoption or
recommendation, as the case may be, of the merger, the merger agreement or
any of the other transactions contemplated by the merger agreement or
(2) approves or recommends, or proposes to approve or recommend, or enters
into any agreement, arrangement or understanding with respect to, any
acquisition proposal; (b) the Board of Directors or any Board committee
resolves to take any of the actions set forth in preceding subclause (a);
(c) if after an acquisition proposal has been made, the Board of Directors
or the Special Committee fails to affirm its recommendation and approval
of the merger and the merger agreement within three business days of any
request by Morton's Holdings to do so; or (d) if a tender offer or
exchange offer constituting an acquisition proposal is commenced and the
Board of Directors or the Special Committee does not recommend against
acceptance of the offer by Morton's stockholders;
80
- by Morton's if Morton's receives a superior proposal, and the Board of
Directors, based on the recommendation of the Special Committee,
reasonably determines in accordance with the merger agreement that it is
necessary to terminate the merger agreement and enter into an agreement to
effect the superior proposal in order to comply with its fiduciary duties
under applicable law; provided, that the other conditions to termination
in the event of a superior proposal, described above, are met; or
- by Morton's Holdings if Morton's has breached the limitations on its
consideration of other acquisition proposals (See "--Limitation on
Consideration of Other Acquisition Proposals");
then Morton's will pay to Morton's Holdings an amount equal to (a) the
out-of-pocket expenses of Morton's Holdings and Morton's Acquisition related to
the merger and the transactions contemplated thereby and any related financing
up to $1,320,000 and (b) a fee equal to (1) $1,320,000 minus (2) the amount paid
as reimbursement of out-of-pocket expenses of Morton's Holdings and Morton's
Acquisition.
If the merger agreement is terminated at a time when Morton's Holdings is
entitled to terminate the merger agreement because (a) the merger has not been
consummated by September 23, 2002, or later date not beyond December 21, 2002 if
extended by Morton's Holdings, whether or not any acquisition proposal has then
been made, proposed, communicated or publicly disclosed in a manner which is or
otherwise has become public or (b) Morton's has breached its representations,
warranties, covenants or agreements, then Morton's will pay to Morton's Holdings
an amount equal to the out-of-pocket expenses of Morton's Holdings and Morton's
Acquisition related to the merger and the transactions contemplated thereby and
related financing up to $1,320,000.
If Morton's terminates the merger agreement and must pay fees or expenses to
Morton's Holdings, then Morton's must pay the fees on the date that it
terminates the merger agreement as a condition precedent to the termination. If
Morton's Holdings terminates the merger agreement, and Morton's must pay fees or
expenses to Morton's Holdings, then Morton's must pay the fees the first
business day after the date that Morton's Holdings terminates the merger
agreement. However, if either Morton's Holdings or Morton's Acquisition
terminates the merger agreement because (a) the merger has not been consummated
by September 23, 2002 or later date not beyond December 21, 2002 if extended by
Morton's Holdings, or (b) Morton's stockholders do not approve the merger and,
within 12 months of the termination, Morton's enters into an agreement,
arrangement or understanding with respect to or consummates any acquisition
proposal, then Morton's must pay the fees and expenses on the date that Morton's
enters into the agreement, arrangement or understanding (including a letter of
intent) with respect to or consummates the acquisition proposal. See "Limitation
on Considering Other Acquisition Proposals."
LETTER REGARDING REIMBURSEMENT OF CERTAIN COSTS RELATING TO AMENDMENT NO. 15 TO
MORTON'S CREDIT AGREEMENT
In connection with the merger agreement, Morton's Holdings, Morton's
Acquisition, CHP and Morton's have entered into a letter agreement, dated
March 26, 2002, pursuant to which the parties agreed that:
- in the event that the merger agreement is terminated (other than in
circumstances pursuant to which Morton's Holdings is entitled to receive
its expense reimbursement and/or termination fee at the time of such
termination), CHP would reimburse Morton's for any payments made by
Morton's with respect to the reasonable fees and expenses of (x) special
counsel to the agent under Morton's credit agreement for services rendered
by such special counsel to the agent in connection with Amendment No. 15
to Morton's credit agreement (in an amount not to exceed $95,000) and
(y) Morton's and the Special Committee's counsel for services rendered by
such
81
counsel in connection with Amendment No. 15 to Morton's credit agreement
(in an amount not to exceed $5,000); and
- any amounts paid by CHP pursuant to the letter agreement will be deemed to
constitute out-of-pocket expenses of Morton's Holdings and Morton's
Acquisition related to the merger agreement and, as such, under the
circumstances where Morton's Holdings is entitled to receive its expense
reimbursement from Morton's at a time subsequent to the termination of the
merger agreement, Morton's Holdings would be entitled to receive
reimbursement from Morton's of the aggregate amount paid by CHP pursuant
to the letter agreement (without regard to the limitation on the maximum
amount of the expense reimbursement specified in the merger agreement).
COMMON STOCK PURCHASE INFORMATION
PURCHASES BY MORTON'S
The table below sets forth information, by fiscal quarters, regarding
purchases by Morton's of its common stock since January 3, 2000, including the
number of shares purchased, the range of prices paid and the average purchase
price. Such purchases were made pursuant to an open-market repurchase program
first authorized on October 15, 1998, although no additional purchases were made
after September 15, 2000, and the plan was formally suspended on May 8, 2001.
AVERAGE
NO. OF PURCHASE
PERIOD SHARES PRICE RANGE PRICE
------ -------- ------------------- --------
First Quarter 2000................................... 599,300 $15.2155 - $19.2500 $17.3552
Second Quarter 2000.................................. 310,200 $18.0000 - $21.2500 $18.5768
Third Quarter 2000................................... 344,400 $20.1250 - $21.2500 $20.6627
Fourth Quarter 2000.................................. 0 -- --
First Quarter 2001................................... 0 -- --
Second Quarter 2001.................................. 0 -- --
Third Quarter 2001................................... 0 -- --
Fourth Quarter 2001.................................. 0 -- --
First Quarter 2002................................... 0 -- --
Second Quarter 2002 (through [date])................. 0 -- --
PURCHASES BY DIRECTORS AND OFFICERS OF MORTON'S
The table below sets forth information regarding purchases by each of
Morton's directors and executive officers of Morton's common stock since
January 3, 2000, including the number of shares purchased, the range of prices
paid and the average purchase price:
AVERAGE
PURCHASE
NAME DATE NO. OF SHARES PRICE RANGE PRICE
---- -------- ------------- --------------- --------
Allen J. Bernstein........................... 12/28/00 10,000 $ 10.750 $10.750
Klaus Fritsch................................ 2/13/01 10,000 $ 10.000 $10.000
Roger Drake.................................. 2/21/01 3,625 $12.000-$19.438 $17.285
RECENT TRANSACTIONS
None of Morton's, nor any of Morton's directors or officers, has engaged in
any transaction with respect to Morton's common stock within 60 days of the date
of this proxy statement.
82
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Morton's common stock as of April 10, 2002 by (1) all those known
by Morton's to be beneficial owners of more than 5% of its common stock;
(2) each director; (3) each executive officer; and (4) all executive officers
and directors of Morton's as a group. The information with respect to each
director and executive officer of the Company has been supplied by that
individual. The address of each of the directors and executive officers is c/o
Morton's Restaurant Group, Inc., 3333 New Hyde Park Road, New Hyde Park, New
York 11042. The addresses for the other 5% beneficial owners of the Company's
common stock are as follows: FMR Corp., 82 Devonshire Street, Boston,
Massachusetts 02109; Capital Research & Management Co., 333 South Hope Street,
Los Angeles, California 90071; Goldman, Sachs & Co., 32 Old Slip, New York, New
York 10005 and BFMA Holding Corporation, 50 East Sample Road, Suite 400, Pompano
Beach, Florida 33064.
BENEFICIAL OWNERSHIP
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES(1) TOTAL(2)
---------------- ---------- ----------
Allen J. Bernstein(3)....................................... 528,705 11.82%
Thomas J. Baldwin(3)........................................ 110,500 2.59%
Roger Drake(3).............................................. 4,375 *
Agnes Longarzo(3)........................................... 30,650 *
Allan C. Schreiber(3)....................................... 39,750 *
Klaus W. Fritsch(3)......................................... 39,525 *
John T. Bettin(3)........................................... 27,500 *
John K. Castle.............................................. 5,178 *
Dr. John J. Connolly........................................ 400 *
Dianne H. Russell........................................... 500 *
David B. Pittaway........................................... 3,132 *
Lee M. Cohn................................................. 1,500 *
Robert L. Barney............................................ 0 *
Alan A. Teran............................................... 560 *
FMR Corp.(4)(6)............................................. 784,800 18.75%
BFMA Holding Corp.(4)....................................... 573,900 13.71%
Capital Research and Management Company(4).................. 396,000 9.46%
Goldman, Sachs & Co.(4)..................................... 241,862 5.78%
Morton's Directors and Executive Officers as a Group (14
Persons)(5)............................................... 792,275 16.93%
------------------------
* Represents less than 1%.
(1) Unless otherwise noted, the beneficial owners listed have sole voting and
investment power over the shares listed.
(2) Percent of Class based upon 4,184,711 outstanding shares of common stock
plus, for those persons who hold options to acquire shares of common stock,
the number of shares of common stock beneficially owned by such person as of
June 1, 2002.
(3) Includes beneficial ownership of shares of common stock issuable upon
exercise of outstanding incentive stock options issued under the Morton's
Restaurant Group, Inc. 2000 Stock Option Plan ("Stock Option Plan") as
follows: Thomas J. Baldwin (77,000), John T. Bettin (27,500), Allen J.
Bernstein (287,500), Klaus W. Fritsch (29,525), Roger Drake (4,375), Agnes
Longarzo (30,650) and Allan C. Schreiber (39,750). Excludes shares of common
stock issuable upon exercise of incentive stock options issued under the
Stock Option Plan which are not exercisable by June 1, 2002.
83
(4) Shares of common stock beneficially owned by Capital Research and Management
Co. ("CRM"), and Goldman, Sachs & Co. ("Goldman") are listed according to
reports on Schedule 13G as of December 31, 2001, each of which was filed
during February 2002. Shares of common stock beneficially owned by FMR Corp.
are listed according to a report on Schedule 13G as of December 31, 2000,
which was filed during February 2001. Shares of common stock beneficially
owned by BFMA Holding Corporation ("BFMA") are listed according to a report
filed on Schedule 13D as of March 21, 2002, filed on March 22, 2002.
Based upon information set forth in such report on Schedule 13G filed by FMR
Corp., FMR Corp. and Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR Corp., each of which is the beneficial owner
of 784,800 shares or 18.75% of the common stock as a result of acting as an
investment advisor to several investment companies. Members of the Edward C.
Johnson 3rd family, FMR Corp., through its control of Fidelity, and the
aforementioned investment companies each has sole dispositive power over
these 784,800 shares. The ownership of two investment companies, Fidelity
Advisor Value Strategies Fund and Fidelity Low-Priced Stock Fund, amounted
to 424,800 shares or 10.15% and 360,000 shares or 8.60%, respectively, of
the common stock. The power to vote such shares resides with the
aforementioned investment companies' Boards of Trustees.
Based upon information set forth in such report on Schedule 13G filed by
CRM, CRM has sole dispositive power over 396,000 shares or 9.46% of the
common stock as a result of acting as investment advisor to SmallCap World
Fund, Inc. which has sole voting power over these 396,000 shares.
Based upon information set forth in such report on Schedule 13G filed by
Goldman, Goldman has sole voting power over 208,144 shares or 4.97% and sole
dispositive power over 241,862 shares or 5.78% of the common stock.
Based upon information set forth in such reports on Schedule 13D filed by
BFMA, BFMA has sole voting and dispositive power over 488,500 shares or
11.67% of the common stock and shared voting and dispositive power over
56,300 shares, or 1.35%. Barry W. Florescue, president, chief executive
officer, director and controlling shareholder of BFMA reports sole voting
and dispositive power over 517,600 shares or 12.27% of the common stock,
shared voting and dispositive power over 56,300 shares or 1.35% of the
common stock and aggregate beneficial ownership of 573,900 shares or 13.71%
of the common stock.
(5) Includes beneficial ownership of 496,300 shares of common stock issuable in
the aggregate upon exercise of outstanding incentive and non-qualified stock
options issued under Company's the stock option plan to officers of the
Company. Excludes shares of common stock issuable upon exercise of incentive
and non-qualified stock options issued under the stock option plan that are
not exercisable by June 1, 2002.
(6) Pursuant to the terms of the Company's amended and restated stockholders
rights plan, the rights issued thereunder have not become exercisable as a
result of the beneficial ownership held by FMR Corp. exceeding 15%. In
accordance with the terms of the rights plan, the rights issued thereunder
will not become exercisable upon a stockholder's beneficial ownership
exceeding 15% of the outstanding stock of the Company if the increase above
15% is caused by the Company's repurchase of stock. The beneficial ownership
of FMR Corp. has increased above 15% as a result of repurchases of stock by
the Company. Any further purchases of stock by FMR Corp. would activate the
rights plan. The Company has notified FMR Corp. of this fact. Management of
FMR Corp. has indicated that it does not intend to purchase any additional
shares of stock in the Company. The Company will continue to monitor the
beneficial ownership percentages of FMR Corp. and other significant
stockholders and notify those stockholders of the possibility of triggering
the rights plan.
------------------------
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INDEPENDENT AUDITORS
Morton's financial statements for each of the years in the three-year period
ended December 30, 2001, included in this proxy statement as part of
Appendix F, have been audited by KPMG LLP, independent auditors, as stated in
their report included in the Company's Annual Report on Form 10-K for the year
ended December 30, 2001, which is included in this proxy statement as
Appendix F. Representatives of KPMG LLP are expected to be available at the
special meeting to respond to appropriate questions of stockholders and to make
a statement if they desire to do so.
FUTURE STOCKHOLDER MEETINGS AND PROPOSALS
If the merger is completed, there will be no public participation in any
future meetings of stockholders of Morton's. However, if the merger is not
completed, Morton's stockholders will continue to be entitled to attend and
participate in Morton's stockholders' meetings. Morton's has scheduled its 2002
annual meeting to be held on [date] if the merger is not completed. Stockholder
proposals to be presented at the 2002 annual meeting, if held, must have been
received by [December 5, 2001] in order to be considered for inclusion in the
proxy statement and form of proxy relating to the 2002 annual meeting.
Stockholders who did not present a proposal for inclusion in the proxy statement
but who still intend to submit the proposal at the 2002 annual meeting, if held,
or at the special meeting, and stockholders who intend to submit nominations for
directors at the 2002 annual meeting, if held, must notify the secretary of the
Company in accordance with the Company's Certificate of Incorporation and
By-laws. The Company's Certificate of Incorporation provides that a proposal or
nomination may be made by a stockholder in writing, delivered or mailed to the
secretary of the Company, Morton's Restaurant Group, Inc., 3333 New Hyde Park
Road, New Hyde Park, New York 11042, not less than 45 days nor more than
60 days prior to the meeting, except that if the Company provides less than
55 days notice or prior public disclosure of the meeting, then the Company must
receive the stockholder proposal or nomination not later than the close of
business on the tenth day following the day on which the Company mailed or
publicly disclosed notice of the meeting, whichever first occurs. The
stockholder proposal or nomination must set forth, as applicable, a description
of each item of business proposed and the reasons for conducting the business,
all information regarding each proposed nominee that would be required in a
proxy statement soliciting proxies for the proposed nominee (including the
person's written consent to serve as a director if elected) and specified
information about the stockholder submitting the proposal or nomination. If the
Chairman of the meeting determines that a proposal or nomination was not made in
accordance with the proper procedures, the proposal or nomination will be
disregarded. Morton's has received notice from BFMA that BFMA intends to solicit
proxies in support of three nominees for election to Morton's Board of Directors
at the Company's 2002 annual meeting of stockholders.
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
Morton's files annual, quarterly and special reports, proxy statements and
other information with the SEC. In addition, because the merger may be
considered to be a "going private" transaction, Morton's, Morton's Holdings,
Morton's Acquisition and CHP have filed a Rule 13e-3 Transaction Statement on
Schedule 13E-3 with respect to the merger. The Schedule 13E-3, the exhibits to
the Schedule 13E-3 and such reports, proxy statements and other information
contain additional information about Morton's. Exhibits [ ] of the
Schedule 13E-3 will be made available for inspection and copying at Morton's
executive offices during regular business hours by any Morton's stockholder or a
representative of a stockholder as so designated in writing.
Morton's stockholders may read and copy the Schedule 13E-3 and any reports,
statements or other information filed by Morton's at the SEC's public reference
room located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional office of the SEC located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on
85
the operation of the public reference rooms. Morton's filings with the SEC are
also available to the public from commercial document retrieval services and at
the web site maintained by the SEC located at: "http://www.sec.gov."
This proxy statement is being furnished to stockholders together with a copy
of Morton's Annual Report on Form 10-K for the fiscal year ended December 30,
2001, which is attached to this proxy statement as Appendix F.
The SEC allows Morton's to "incorporate by reference" information into this
proxy statement. This means that Morton's can disclose important information by
referring to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this proxy statement. This
proxy statement and the information that Morton's files later with the SEC may
update and supersede the information incorporated by reference. Similarly, the
information that Morton's later files with the SEC may update and supersede the
information in this proxy statement. Morton's incorporates by reference each
document it files under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this proxy statement and before the special meeting. Morton's
also incorporates by reference into this proxy statement the following documents
filed by it with the SEC under the Exchange Act:
- Annual Report on Form 10-K for the fiscal year ended December 30, 2001;
and
- Current Report on Form 8-K filed March 27, 2002.
The proxy statement does not constitute an offer to sell or to buy, or a
solicitation of an offer to sell or to buy, any securities, or the solicitation
of a proxy, in any jurisdiction to or from any person to whom it is not lawful
to make any offer or solicitation in such jurisdiction.
Stockholders should not rely on information other than that contained in
this proxy statement (including its appendices). Morton's has not authorized
anyone to provide information that is different from that contained in this
proxy statement. This proxy statement is dated [date]. The information contained
in Morton's Annual Report on Form 10-K for the fiscal year ended December 30,
2001, included in this proxy statement as Appendix F, is as of March 29, 2002,
the date of filing with the SEC of the Form 10-K. No assumption should be made
that the information contained in this proxy statement is accurate as of any
other date, and the mailing or delivery of this proxy statement should not
create any implication to the contrary. In addition, information contained in
Appendix F may be updated and superceded by information contained elsewhere in
this proxy statement. MORTON'S HAS SUPPLIED ALL INFORMATION CONTAINED IN THIS
PROXY STATEMENT RELATING TO MORTON'S, ITS SUBSIDIARIES AND THEIR RESPECTIVE
DIRECTORS, OFFICERS AND AFFILIATES, AND MORTON'S HOLDINGS HAS SUPPLIED ALL
INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING TO MORTON'S HOLDINGS,
MORTON'S ACQUISITION, CHP AND THEIR RESPECTIVE DIRECTORS, OFFICERS AND
AFFILIATES (OTHER THAN JOHN K. CASTLE AND DAVID B. PITTAWAY SOLELY IN THEIR
RESPECTIVE CAPACITIES AS DIRECTORS OF MORTON'S).
No provisions have been made in connection with the merger to grant
unaffiliated stockholders access to Morton's corporate files or the corporate
files of CHP, Morton's Holdings or Morton's Acquisition, or to obtain counsel or
appraisal services for unaffiliated stockholders at Morton's expense or the
expense of CHP, Morton's Holdings or Morton's Acquisition.
86
APPENDIX A
EXECUTION COPY
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MORTON'S HOLDINGS, INC.,
MORTON'S ACQUISITION COMPANY
AND
MORTON'S RESTAURANT GROUP, INC.
--------------------------------------------------------------
DATED AS OF MARCH 26, 2002
---------------------------------------------------------------
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER..............................................................................................2
1.1. The Merger.........................................................................................2
1.2. Effective Time of the Merger.......................................................................2
1.3. Directors and Officers.............................................................................2
1.4. Closing............................................................................................3
1.5. Additional Actions.................................................................................3
ARTICLE II CONVERSION OF SECURITIES...............................................................................3
2.1. Conversion of Capital Stock........................................................................3
2.2. Payment of Cash Merger Consideration...............................................................4
2.3. Appraisal Rights...................................................................................6
2.4. Stock Options......................................................................................7
2.5. Further Assurances.................................................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................8
3.1. Organization.......................................................................................8
3.2. Capitalization....................................................................................10
3.3. Authorization; Validity of Agreement; Company Action..............................................12
3.4. Consents and Approvals; No Violations.............................................................12
3.5. SEC Reports and Financial Statements..............................................................13
3.6. No Undisclosed Liabilities........................................................................14
3.7. Absence of Certain Changes........................................................................14
3.8. Taxes ...........................................................................................15
3.9. Title to Properties; Owned and Leased Real Properties; No Liens...................................18
3.10. Intellectual Property.............................................................................19
3.11. Agreements, Contracts and Commitments.............................................................21
3.12. Litigation........................................................................................23
3.13. Environmental Matters.............................................................................23
3.14. Employee Benefit Plans............................................................................24
3.15. Compliance with Laws..............................................................................25
3.16. Permits; Liquor Licenses..........................................................................26
3.17. Labor Matters.....................................................................................26
3.18. Insurance.........................................................................................27
3.19. Suppliers.........................................................................................28
3.20. Franchise Matters.................................................................................28
3.21. Information in Proxy Statement....................................................................28
3.22. Brokers...........................................................................................28
3.23. State Takeover Statutes...........................................................................28
3.24. Voting Requirements...............................................................................29
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3.25. Rights Agreement..................................................................................29
3.26. Opinion of Financial Advisor......................................................................29
3.27. Cumulative Breach.................................................................................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY SUBSIDIARY.............................30
4.1. Organization......................................................................................30
4.2. Capitalization....................................................................................30
4.3. Authorization; Validity of Agreement; Necessary Action............................................30
4.4. Consents and Approvals; No Violations.............................................................31
4.5. Information in Proxy Statement....................................................................31
4.6. Equity Commitment.................................................................................32
ARTICLE V COVENANTS..............................................................................................32
5.1. Interim Operations of the Company.................................................................32
5.2. Confidentiality...................................................................................36
5.3. No Solicitation of Other Offers...................................................................36
5.4. Access to Information.............................................................................40
5.5. Special Meeting...................................................................................40
5.6. Proxy Statement...................................................................................41
5.7. Reasonable Best Efforts...........................................................................42
5.8. Public Disclosure.................................................................................45
5.9. Employee Stock Purchase Plan......................................................................45
5.10. Other Employee Benefits...........................................................................45
5.11. Directors' and Officers' Insurance and Indemnification............................................46
5.12. Notification of Certain Matters...................................................................48
5.13. Rights Agreement..................................................................................48
5.14. Subsequent Filings................................................................................48
5.15. Communication to Employees........................................................................49
ARTICLE VI CONDITIONS TO EFFECT THE MERGER.......................................................................49
6.1. Conditions to Each Party's Obligation to Effect the Merger........................................49
6.2. Conditions to the Buyer's and the Transitory Subsidiary's Obligation to Effect the Merger.........49
6.3. Conditions to the Company's Obligation to Effect the Merger.......................................51
ARTICLE VII TERMINATION..........................................................................................52
7.1. Termination.......................................................................................52
7.2. Effect of Termination.............................................................................54
7.3. Fees and Expenses.................................................................................55
7.4. Amendment.........................................................................................56
7.5. Extension; Waiver.................................................................................56
ARTICLE VIII DEFINITIONS.........................................................................................57
8.1. Definitions.......................................................................................57
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ARTICLE IX MISCELLANEOUS.........................................................................................60
9.1. Nonsurvival of Representations and Warranties.....................................................60
9.2. Notices...........................................................................................60
9.3. Entire Agreement..................................................................................61
9.4. No Third Party Beneficiaries......................................................................61
9.5. Assignment........................................................................................62
9.6. Interpretation....................................................................................62
9.7. Counterparts......................................................................................62
9.8. Severability......................................................................................62
9.9. Governing Law.....................................................................................62
9.10. Submission to Jurisdiction........................................................................62
9.11. Remedies..........................................................................................63
9.12. Waiver of Jury Trial..............................................................................63
ANNEX A: Definition of "Consolidated Adjusted EBITDA"
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AGREEMENT AND PLAN OF MERGER
AGREEMENT entered into as of March 26, 2002 (as amended,
modified or supplemented from time to time, this "AGREEMENT") by and among
Morton's Holdings, Inc., a Delaware corporation (the "BUYER"), Morton's
Acquisition Company, a Delaware corporation and a direct wholly-owned subsidiary
of the Buyer (the "TRANSITORY SUBSIDIARY"), and Morton's Restaurant Group, Inc.,
a Delaware corporation (the "COMPANY"). The Buyer, the Transitory Subsidiary and
the Company are individually referred to herein as a "PARTY" and collectively
referred to herein as the "PARTIES".
PRELIMINARY STATEMENT
WHEREAS, the respective Boards of Directors of the Company,
the Buyer and the Transitory Subsidiary deem it advisable and in the best
interests of their respective corporations and their respective stockholders
that the Buyer acquire the Company on the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, the acquisition of the Company shall be effected
through a merger (the "MERGER") of the Transitory Subsidiary with and into the
Company on the terms and subject to the conditions set forth in this Agreement
and the General Corporation Law of the State of Delaware (as in effect from time
to time, the "DGCL"), as a result of which the Company shall become a
wholly-owned subsidiary of the Buyer;
WHEREAS, a Special Committee of the Board of Directors of the
Company, duly authorized and constituted and comprised solely of directors of
the Company who are not employees of the Company (the "SPECIAL COMMITTEE"),
after receiving the written opinion of Greenhill & Co., LLC, the financial
advisor to the Special Committee ("GREENHILL"), at a meeting thereof duly called
and held, (i) unanimously determined that the Merger and the other transactions
contemplated herein are fair to, and in the best interests of, the Company and
the stockholders of the Company, and has declared the Merger advisable, (ii)
unanimously approved the Merger and this Agreement, and (iii) unanimously
recommended to the Board of Directors of the Company to approve and adopt the
Merger and this Agreement;
WHEREAS, the Board of Directors of the Company, based in part
on the unanimous recommendation of the Special Committee and the written opinion
of Greenhill, at a meeting thereof duly called and held, (i) determined that the
Merger and the other transactions contemplated herein are fair to, and in the
best interests of, the Company and the stockholders of the Company, and has
declared the Merger advisable, (ii) approved the Merger and this Agreement and
(iii) resolved to recommend that the stockholders of the Company vote to approve
and adopt the Merger and this Agreement in conjunction with their approval of
the principal terms of the Merger; and
WHEREAS, the respective Boards of Directors of the Buyer (on
its own behalf as a Party to this Agreement and as the sole stockholder of the
Transitory Subsidiary) and the Transitory Subsidiary have approved and adopted
this Agreement in conjunction with their approval of the principal terms of the
Merger;
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NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
below, the Parties agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. On the terms and subject to the conditions
set forth in this Agreement, at the Effective Time (as defined in Section 1.2),
the Company and the Transitory Subsidiary shall consummate the Merger pursuant
to which (a) the Transitory Subsidiary shall be merged with and into the Company
and the separate corporate existence of the Transitory Subsidiary shall
thereupon cease, (b) the Company shall be the successor or surviving corporation
in the Merger (the "SURVIVING CORPORATION") and shall continue to be governed by
the laws of the State of Delaware, (c) the Amended and Restated Certificate of
Incorporation of the Company shall be amended in its entirety to read as the
Certificate of Incorporation of the Transitory Subsidiary, as in effect
immediately prior to the Effective Time; PROVIDED that Article I of the
Certificate of Incorporation of the Surviving Corporation shall read in its
entirety as follows: "The name of the corporation is: Morton's Restaurant Group,
Inc.", and as so amended shall be the Certificate of Incorporation of the
Surviving Corporation until further amended in accordance with the terms thereof
and the DGCL, and (d) the By-laws of the Transitory Subsidiary, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until further amended in accordance with the terms thereof and the
DGCL. The Merger shall have the effects set forth in Section 259(a) of the DGCL.
1.2. EFFECTIVE TIME OF THE MERGER. On the terms and subject to
the conditions set forth in this Agreement, prior to the Closing (as defined in
Section 1.4), the Transitory Subsidiary and the Company shall prepare, execute,
and on the Closing Date (as defined in Section 1.4) shall cause to be filed with
the Secretary of State of the State of Delaware, a certificate of merger in such
form as is required by the relevant provisions of the DGCL (the "CERTIFICATE OF
MERGER"). The Merger shall become effective upon the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware or at such later
time as is established by the Parties and set forth in the Certificate of Merger
(the "EFFECTIVE TIME").
1.3. DIRECTORS AND OFFICERS. The directors of the Transitory
Subsidiary immediately prior to the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and By-laws of the
Surviving Corporation, until such director's successor is duly elected or
appointed and qualified or until his or her earlier death, resignation or
removal in accordance with the Certificate of Incorporation and the By-laws of
the Surviving Corporation. The officers of the Company immediately prior to the
Effective Time shall be, from and after the Effective Time, the officers of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, until such officer's
successor is duly elected or appointed and qualified or until his or her earlier
death, resignation or removal in accordance with the Certificate of
Incorporation and the By-laws of the Surviving Corporation.
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1.4. CLOSING. Unless this Agreement shall have been terminated
and the transactions contemplated hereby shall have been abandoned pursuant to
Article VII, and subject to the satisfaction or waiver (to the extent permitted
by applicable law) of all of the conditions set forth in Article VI, the closing
of the Merger (the "CLOSING") shall take place at 10:00 a.m. on a date to be
specified by the Parties, which shall be no later than two (2) Business Days (as
defined below) following the satisfaction or waiver (to the extent permitted by
applicable law) of all of the conditions set forth in Article VI other than such
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver (to the extent permitted by applicable law) of
those conditions (the "CLOSING DATE"), at the offices of Schulte Roth & Zabel
LLP, 919 Third Avenue, New York, New York 10022, unless another date, place or
time is agreed to in writing by the Parties. For purposes of this Agreement, the
term "BUSINESS DAY" means any day except a Saturday, a Sunday or any other day
on which commercial banks are required or authorized to close in New York, New
York.
1.5. ADDITIONAL ACTIONS. The Surviving Corporation may, at any
time after the Effective Time, take any action (including, without limitation,
executing and delivering any document in the name and on behalf of the Company)
in order to consummate the transactions contemplated by this Agreement.
ARTICLE II
CONVERSION OF SECURITIES
2.1. CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of any Party or the
holders of any shares of common stock, par value $0.01 per share, of the Company
(collectively, the "COMMON STOCK" or the "SHARES" and, individually, a "SHARE")
or holders of any shares of common stock, par value $0.01 per share, of the
Transitory Subsidiary (collectively, the "TRANSITORY SUBSIDIARY COMMON STOCK"):
(a) CAPITAL STOCK OF THE TRANSITORY SUBSIDIARY. Each issued
and outstanding share of Transitory Subsidiary Common Stock shall be converted
into and become one fully paid and nonassessable share of common stock, par
value $0.01 per share, of the Surviving Corporation and shall be the only issued
and outstanding capital stock of the Surviving Corporation. From and after the
Effective Time, each outstanding certificate theretofore representing shares of
Transitory Subsidiary Common Stock shall be deemed for all purposes to evidence
ownership and to represent the same number of shares of common stock of the
Surviving Corporation;
(b) CANCELLATION OF TREASURY STOCK AND BUYER-OWNED STOCK. All
Shares that are owned by the Company or by any Subsidiary (as defined in Section
3.1(b)) or held in the Company's treasury and any Shares owned by the Buyer, the
Transitory Subsidiary or any other subsidiary of the Buyer, immediately prior to
the Effective Time, shall be cancelled and shall cease to exist and no
consideration shall be delivered in exchange therefor; and
(c) EXCHANGE OF SHARES. Each issued and outstanding Share
(other than (i) Shares to be cancelled in accordance with Section 2.1(b) and
(ii) any Appraisal Shares (as
A-3
defined in Section 2.3(c))) shall be converted into the right to receive $12.60
in cash without interest (the "CASH MERGER CONSIDERATION"), payable to the
holder thereof. Such Cash Merger Consideration shall be paid upon surrender of
the certificate formerly representing such Share pursuant to Section 2.2. The
Shares converted into the right to receive the Cash Merger Consideration are
hereinafter referred to collectively as the "CASH MERGER SHARES". All such Cash
Merger Shares, from and after the Effective Time, shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any Cash Merger Shares shall cease to
have any rights with respect thereto, except the right to receive the Cash
Merger Consideration therefor upon the surrender of such certificate in
accordance with Section 2.2, without interest.
2.2. PAYMENT OF CASH MERGER CONSIDERATION. (a) PAYING AGENT.
At or prior to the Effective Time, the Buyer shall (i) designate a bank or trust
company located in the United States of America to act as paying agent for the
holders of the Cash Merger Shares in connection with the Merger (the "PAYING
AGENT") to receive the funds to which holders of the Cash Merger Shares shall
become entitled pursuant to Section 2.1(c) and (ii) deposit in trust with the
Paying Agent cash in an aggregate amount sufficient to pay the Cash Merger
Consideration and to enable the Paying Agent to make payments pursuant to
Section 2.1(c) and this Section 2.2 (such amount being hereinafter referred to
as the "PAYMENT FUND"). The Payment Fund shall be invested by the Paying Agent
as directed by the Buyer (x) in direct obligations of the United States of
America, obligations for which the full faith and credit of the United States is
pledged to provide for the payment of principal and interest, commercial paper
of an issuer organized under the laws of a state of the United States of America
rated of the highest quality by Moody's Investors Service, Inc., or Standard &
Poor's Ratings Group, or certificates of deposit, bank repurchase agreements or
bankers' acceptances of a United States commercial bank having at least
$1,000,000,000 in assets (collectively, "PERMITTED INVESTMENTS"), or (y) in
money market funds which are invested in Permitted Investments, and any net
earnings with respect thereto shall be paid to the Buyer as and when requested
by the Buyer. The Paying Agent shall, pursuant to irrevocable instructions, make
the payments referred to in Section 2.1(c) and this Section 2.2 out of the
Payment Fund. The Payment Fund shall not be used for any other purpose except as
otherwise agreed to by the Buyer. If the amount of cash in the Payment Fund is
insufficient to pay all of the amounts required to be paid pursuant to Section
2.1(c) and this Section 2.2, the Buyer from time to time after the Effective
Time shall promptly take all steps necessary to enable and cause the Surviving
Corporation to deposit in trust additional cash with the Paying Agent sufficient
to make all such payments.
(b) EXCHANGE PROCEDURES.
(i) Within five (5) Business Days following the Effective
Time, the Buyer shall cause the Paying Agent to mail to each holder of record of
a certificate or certificates that immediately prior to the Effective Time
represented outstanding Cash Merger Shares (collectively, the "CERTIFICATES"),
whose Shares were converted pursuant to Section 2.1(c) into the right to receive
the Cash Merger Consideration, (A) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon actual delivery of the Certificates to the Paying Agent,
and shall otherwise be in customary form), and (B) instructions for use in
effecting the surrender of the Certificates in exchange for payment of the Cash
Merger Consideration.
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(ii) Upon surrender of a Certificate for cancellation to
the Paying Agent or to such other agent or agents as may be appointed by the
Surviving Corporation, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereon, together with any
other items specified by the letter of transmittal or otherwise reasonably
required by the Paying Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor the Cash Merger Consideration for each Share
formerly represented by such Certificate, and the Certificate so surrendered
shall forthwith be cancelled. Until so surrendered, each Certificate shall be
deemed, for all corporate purposes, to evidence only the right to receive upon
such surrender the Cash Merger Consideration deliverable in respect thereof to
which the holder thereof is entitled pursuant to Section 2.1(c) and this Section
2.2. No interest will be paid or will accrue in respect of any cash payable upon
the surrender of any Certificate.
(iii) If any Certificate shall have been lost, stolen or
destroyed, then, upon the making of an affidavit of that fact by the Person (as
defined in Section 9.6) claiming such Certificate to be lost, stolen or
destroyed, the Buyer shall cause the Paying Agent to pay in exchange for such
lost, stolen or destroyed Certificate the Cash Merger Consideration deliverable
in respect thereof to which the holder thereof is entitled pursuant to Section
2.1(c) and this Section 2.2; PROVIDED that the Person to whom any such Cash
Merger Consideration is paid shall, as a condition precedent to the payment
thereof, give the Surviving Corporation a bond in such sum as it may direct or
otherwise indemnify the Surviving Corporation in a manner reasonably
satisfactory to it against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been lost, stolen or
destroyed.
(iv) If payment of Cash Merger Consideration is to be made
to a Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered be properly endorsed or be otherwise in proper form for transfer and
that the Person requesting such payment shall have paid any transfer and other
taxes required by reason of the payment of Cash Merger Consideration to a Person
other than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such tax
either has been paid or is not applicable. Each of the Paying Agent, the Buyer
and the Surviving Corporation shall be entitled to deduct and withhold, or cause
to be deducted and withheld, from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder of Cash
Merger Shares such amounts as may be required to be deducted and withheld
therefrom under the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "CODE") or any provision of state, local
or foreign tax law or under any other applicable legal requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the Person to whom
such amounts would otherwise have been paid and shall be paid to the appropriate
governmental entity on behalf of such Person.
(v) The Surviving Corporation shall pay all charges and
expenses of the Paying Agent in connection with the exchange of the Cash Merger
Consideration for the Cash Merger Shares.
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(c) NO FURTHER TRANSFER OR OWNERSHIP RIGHTS IN THE SHARES.
From and after the Effective Time, the stock transfer books of the Company shall
be closed with respect to Shares and there shall be no further registration of
transfers of the Cash Merger Shares on the records of the Company (or the
Surviving Corporation) or its transfer agent of Certificates representing
Shares, and if any such Certificates are presented to the Company (or the
Surviving Corporation) for transfer, they shall be cancelled and exchanged as
provided in this Article II, subject to applicable law in the case of Appraisal
Shares. From and after the Effective Time, the holders of Certificates
evidencing ownership of Cash Merger Shares outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such Shares except
as otherwise provided for herein or by applicable law. All Cash Merger
Consideration paid upon the surrender for exchange of Certificates in accordance
with the terms of this Article II shall be deemed to have been issued (and paid)
in full satisfaction of all rights pertaining to the Shares exchanged for Cash
Merger Consideration theretofore represented by such Certificates.
(d) TERMINATION OF FUND; NO LIABILITY. At any time following
the date which is the six (6) month anniversary of the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds (including, without limitation, any and all interest and other
income received with respect thereto) that had been made available to the Paying
Agent and that have not been disbursed to holders of Certificates, and
thereafter, such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) with respect to
the Cash Merger Consideration payable upon due surrender of their Certificates,
without any interest thereon; PROVIDED that such holders shall have no greater
rights against the Surviving Corporation than may be accorded to general
creditors of the Surviving Corporation under applicable laws. Any portion of the
Payment Fund remaining unclaimed as of a date which is immediately prior to such
time as such amounts would otherwise escheat to or become property of any
government entity shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation free and clear of any claims or interest
of any Person previously entitled thereto. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Paying Agent shall be liable to any
Person for any amounts delivered to a public official pursuant to any applicable
abandoned property, escheat or other similar laws.
2.3. APPRAISAL RIGHTS. (a) Notwithstanding anything to the
contrary contained in this Agreement but only to the extent required by the
DGCL, any Shares that constitute Appraisal Shares shall not be converted into or
represent the right to receive the Cash Merger Consideration in accordance with
Sections 2.1(c) and 2.2, and each holder of Appraisal Shares shall be entitled
only to such rights with respect to such Appraisal Shares as may be granted to
such holder pursuant to Section 262 of the DGCL. From and after the Effective
Time, a holder of Appraisal Shares shall not have and shall not be entitled to
exercise any of the voting rights or other rights of a stockholder of the
Surviving Corporation. If any holder of Appraisal Shares shall effectively
withdraw or lose (through failure to perfect or otherwise) such holder's right
to appraisal under Section 262 of the DGCL, then (i) any right of such holder to
a judicial appraisal of such Shares shall be extinguished, and (ii) such Shares
shall automatically be converted into and shall represent only the right to
receive (upon the surrender of the certificate or certificates representing such
Shares) the Cash Merger Consideration, without interest, in accordance with
Sections 2.1(c) and 2.2.
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(b) The Company shall give the Buyer (i) prompt notice of any
demand for appraisal pursuant to the DGCL received by the Company, withdrawals
of such demands and copies of any related documents or instruments received by
the Company, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal. The Company shall not, except with the
prior written consent of the Buyer, voluntarily make any payment with respect to
any demands for appraisal or settle or offer to settle any such demands for
appraisal.
(c) For purposes of this Agreement, "APPRAISAL SHARES" shall
refer to any Shares outstanding immediately prior to the Effective Time that are
held by stockholders who are entitled to demand and who properly demand
appraisal of such Shares pursuant to, and who comply with the applicable
provisions of, Section 262 of the DGCL.
2.4. STOCK OPTIONS. With respect to any options to purchase
Common Stock outstanding on the Closing Date (collectively, the "OPTIONS"),
prior to the Effective Time, the Company shall take such action as shall be
required to effectuate (i) the cancellation, as of the Effective Time, of all
Options (whether or not then exercisable and without regard to the exercise
price of such Options) granted under any stock option plan or agreement of the
Company or otherwise (collectively, the "STOCK PLANS") and to cause, pursuant to
the Stock Plans, all outstanding Options to represent solely the right to
receive, in accordance with this Section 2.4, a cash payment in the amount of
the Option Consideration (as defined below), if any, with respect to any such
Option and to no longer represent the right to receive Common Stock or any other
equity securities of the Company, the Buyer, the Surviving Corporation or any
other Person or any other consideration, (ii) the termination, as of the
Effective Time, of the Stock Plans and any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock or equity of the Company or any affiliate thereof (collectively,
with the Stock Plans, the "STOCK INCENTIVE PLANS") and (iii) the amendment, as
of the Effective Time, of the provisions of any Company Employee Plan (as
defined in Section 3.14(a)) or any Executive Agreement (as defined in Section
3.14(b)) providing for the issuance, transfer or grant of any capital stock or
equity of the Company or any such affiliate, or any interest in respect of any
capital stock or equity of the Company or any such affiliate, to provide no
continuing rights to acquire, hold, transfer or grant any capital stock or
equity of the Company or any such affiliate or any interest in the capital stock
or equity of the Company or any such affiliate. The forgoing actions shall take
effect immediately prior to the Effective Time. Each holder of an Option shall
receive from the Company, in respect and in consideration of each Option so
cancelled, as soon as practicable following the Effective Time, an amount (net
of applicable taxes) equal to the excess, if any, of the Cash Merger
Consideration over the exercise price of such Option, multiplied by the number
of Shares subject to such Option, without any interest thereon (the "OPTION
CONSIDERATION"). As soon as practicable following the execution of this
Agreement, the Company shall mail to each person who is a holder of such Options
a letter describing the treatment of and payments for such Options pursuant to
this Section 2.4 and providing instructions for use in obtaining payment for
such Options. The Company shall take all steps to ensure that neither it nor any
of its affiliates is or shall be bound by any Options, other options, warrants,
rights or agreements which would entitle any Person, other than the Buyer or its
affiliates, to own any capital stock or equity of the Company or any of the
Subsidiaries or to receive any payment in respect thereof, except as expressly
contemplated by this Section 2.4. Except as otherwise contemplated herein, any
then outstanding stock appreciation rights or
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limited stock appreciation rights, and any other rights or interest in respect
of the capital stock or equity of the Company or any affiliate thereof issued by
the Company or any affiliate thereof shall be cancelled immediately prior to the
Effective Time without any payment therefor.
2.5. FURTHER ASSURANCES. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either of the constituent corporations in the Merger, or (b) otherwise to carry
out the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors or their designees shall be authorized to execute and
deliver, in the name and on behalf of either of the constituent corporations in
the Merger, all such deeds, bills of sale, assignments and assurances and do, in
the name and on behalf of such constituent corporations, all such other acts and
things necessary, desirable or proper, consistent with the terms of this
Agreement, to vest, perfect or confirm its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
such constituent corporations and otherwise to carry out the purposes of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Buyer and
the Transitory Subsidiary that the statements contained in this Article III are
true and correct. The Company has delivered to the Buyer a Disclosure Letter,
dated the date hereof (the "COMPANY DISCLOSURE LETTER"), receipt of which has
been acknowledged in writing thereon by the Buyer, which Company Disclosure
Letter is arranged in sections corresponding to the numbered and lettered
Sections contained in this Article III (it being understood and agreed that any
matter disclosed in any section of the Company Disclosure Letter shall be deemed
to be disclosed and incorporated in any other section of the Company Disclosure
Letter when the appropriateness of such disclosure and incorporation is readily
apparent from the context).
3.1. ORGANIZATION. (a) The Company and each of the
Subsidiaries is an entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and has all requisite power
and authority to own, lease and operate its properties and assets and to carry
on its business as now being conducted. The Company and each of the Subsidiaries
is duly qualified or licensed to do business, and is in good standing as a
foreign entity in each jurisdiction where the character of its properties or
assets owned, operated and leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or licensed
or in good standing has not resulted in and would not reasonably be likely to
result in, individually or in the aggregate, a Company Material Adverse Effect
(as defined below). The Company has, prior to the date of this Agreement,
delivered to the Buyer and the Transitory Subsidiary (or made available to the
Buyer and the Transitory Subsidiary in the data room established by the Company
for purposes of the due diligence investigation of the Buyer and the Transitory
Subsidiary during the periods of time that the representatives of the Buyer and
the Transitory Subsidiary visited the data room) true, complete and correct
copies of the Certificate of Incorporation and the By-laws of the Company and
the comparable governing
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documents of each of the Subsidiaries, in each case as amended and in full force
and effect as of the date of this Agreement. The respective certificates of
incorporation and by-laws or other organizational documents of the Subsidiaries
do not contain any provision limiting or otherwise restricting the ability of
the Company to control such Subsidiaries. For purposes of this Agreement, the
term "COMPANY MATERIAL ADVERSE EFFECT" means any event, change, occurrence,
effect, fact, violation, development or circumstance having or resulting in a
material adverse effect on (i) the ability of the Company to duly perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby on a timely basis or (ii) the business, properties, assets, liabilities,
financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole; PROVIDED that the following shall not be taken
into account in determining whether there has been or would reasonably be likely
to be a "Company Material Adverse Effect" under this Agreement:
(i) adverse changes in the stock price of the Company (as
quoted on the New York Stock Exchange), in and of themselves, but only so long
as any such adverse changes do not reflect any other event, change, occurrence,
effect, fact, violation, development or circumstance that has had or would
reasonably be likely to have, individually or in the aggregate, a material
adverse effect on (A) the ability of the Company to duly perform its obligations
under this Agreement or to consummate the transactions contemplated hereby on a
timely basis or (B) the business, properties, assets, liabilities, financial
condition or results of operations of the Company and the Subsidiaries, taken as
a whole, in each case, other than those events, changes, occurrences, effects,
facts, developments or circumstances described in any of subclauses (x) through
(z), inclusive, of immediately succeeding clause (ii); and
(ii) other than as may relate to or arise from any
disruption in the availability of, or public health and safety concerns with
respect to ordinary consumption of, the primary foods and/or beverages supplied
to or served by the Company or any of the Subsidiaries, the following:
(x) events, changes, occurrences, effects,
facts, developments or circumstances generally adversely
affecting the economy of a city, state, country or
jurisdiction where the Company and the Subsidiaries operate
and which do not affect the Company and the Subsidiaries
disproportionately;
(y) events, changes, occurrences, effects,
facts, developments or circumstances generally adversely
affecting the United States securities markets or the fine
dining restaurant industry in general and which do not affect
the Company and the Subsidiaries disproportionately; and
(z) any failure to meet third party
analysts' estimates with respect to the performance or
condition of the Company and the Subsidiaries, taken as a
whole.
(b) Section 3.1(b) of the Company Disclosure Letter sets forth
a complete and accurate list of the Subsidiaries and a description of the
Company's direct or indirect equity interest(s) therein. As used in this
Agreement, the term "SUBSIDIARY" shall mean all corporations
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or other entities in which the Company owns a majority of the issued and
outstanding capital stock or similar interests normally entitled to vote in an
election of directors or similar governing body, as applicable. Except for the
Company's interest in the Subsidiaries and other than loans, extensions of
credit or advances constituting trade receivables arising in the ordinary course
of business consistent with past practice, or as set forth in Section 3.1(b) of
the Company Disclosure Letter, neither the Company nor any of the Subsidiaries
owns directly or indirectly any interest or investment (whether equity or debt)
in, nor is the Company or any of the Subsidiaries subject to any obligation or
requirement to provide for or to make any investment (whether equity or debt) to
or in, any Person.
3.2. CAPITALIZATION. (a) The authorized capital stock of the
Company consists of (a) 25,000,000 shares of Common Stock, (b) 3,000,000 shares
of preferred stock, par value $0.01 per share, and (c) 3,000,000 shares of
nonvoting common stock, par value $0.01 per share. As of the close of business
on the date hereof, (i) with respect to Common Stock, 4,182,475 shares are
issued and outstanding, 2,612,326 shares are issued and held in the treasury of
the Company and 1,142,274 shares are reserved for issuance upon exercise of
outstanding options granted under the Company's stock option plans or otherwise;
(ii) with respect to preferred stock, no shares are issued and outstanding, or
held in the treasury of the Company and 200,000 shares are designated Series A
Junior Participating Preferred Stock and are reserved for issuance in connection
with the Company's stockholder rights plan pursuant to the Amended and Restated
Rights Agreement, dated as of March 22, 2001 (as in effect on the date hereof
and without giving any effect to any amendments, modifications or supplements
after the date hereof, the "RIGHTS AGREEMENT"), by and between the Company and
Equiserve Trust Company (formerly known as The First National Bank of Boston),
as rights agent thereunder; and (iii) with respect to nonvoting common stock, no
shares are issued and outstanding, or held in the treasury of the Company or
reserved for issuance. Section 3.2(a) of the Company Disclosure Letter sets
forth the exercise price, grant date, expiration date for and number of shares
subject to all outstanding Options. All outstanding shares of capital stock or
other equity interests, as the case may be, of the Company and each of the
Subsidiaries are duly authorized, validly issued, fully paid and non-assessable,
and are not subject to, nor were issued in violation of, any preemptive rights,
purchase option, call option, right of first refusal, subscription right or any
similar right, in each case granted by the Company or any Subsidiary or, to the
Company's Knowledge (as defined below), any other Person, and were issued in
compliance with applicable securities laws and regulations. All shares of
capital stock of the Company subject to issuance on the terms and conditions set
forth in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and non-assessable, and will not be
subject to, nor issued in violation of, any preemptive rights, purchase option,
call option, right of first refusal, subscription right or any similar right,
and will be issued in compliance with applicable securities laws and
regulations. Except for the transactions contemplated by this Agreement, (i)
there are no shares of capital stock or other securities (voting or nonvoting)
of the Company or any of the Subsidiaries authorized, issued or outstanding,
(ii) there are no outstanding or authorized options (other than the Options
described in Section 3.2(a) of the Company Disclosure Letter), warrants, calls,
preemptive rights, subscriptions or other rights, convertible or exchangeable
securities, "phantom" stock rights, stock appreciation rights ("SARS"),
stock-based performance units, agreements, arrangements, commitments or claims
of any character, contingent or otherwise, relating to the issued or unissued
capital stock of the Company or any of the Subsidiaries or obligating the
Company or any of the Subsidiaries to issue, transfer or sell or cause to be
issued,
A-10
transferred or sold any shares of capital stock or other equity interests in the
Company or any of the Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company or
any of the Subsidiaries to grant, extend or enter into any such option, warrant,
call, preemptive right, subscription or other right, convertible or exchangeable
security, agreement, arrangement, commitment or claim, (iii) there are no
outstanding contractual obligations of the Company or any of the Subsidiaries to
repurchase, redeem or otherwise acquire any Shares or any capital stock of the
Company or any Subsidiary or to provide funds to make any investment (whether
equity or debt) in any Subsidiary or any other entity, and (iv) neither the
Company nor any of the Subsidiaries has authorized or outstanding bonds,
debentures, notes or other indebtedness or obligations which entitle the holders
thereof to vote (or which are convertible into or exercisable or exchangeable
for securities which entitle the holders thereof to vote) with the stockholders
of the Company or such Subsidiary, as the case may be, on any matter
(collectively, "VOTING DEBT"). For purposes of this Agreement, "TO THE COMPANY'S
KNOWLEDGE" or any other phrase of similar import shall be deemed to refer to the
actual knowledge, after due inquiry, of any of (w) Allen J. Bernstein, (x)
Thomas J. Baldwin, (y) John T. Bettin and (z) Agnes Longarzo; PROVIDED that "TO
THE COMPANY'S KNOWLEDGE" or any other phrase of similar import shall be deemed
to also include matters that come to the actual knowledge, after due inquiry, of
any of (x) Allan C. Schreiber and (y) Klaus W. Fritsch, after the date of this
Agreement.
(b) All of the outstanding shares of capital stock or other
equity interests of each of the Subsidiaries are owned, of record and
beneficially, by the Company, directly or indirectly, and all such shares or
ownership interests have been duly authorized, validly issued, fully paid and
non-assessable, and are not subject to, nor were issued in violation of, any
preemptive rights and all such shares or ownership interests are owned, of
record and beneficially, by either the Company or one or more of the
Subsidiaries, in each case free and clear of all liens, security interests,
charges, claims or encumbrances of any kind or nature. No shares of capital
stock of, or ownership interests in, any of the Subsidiaries are reserved for
issuance.
(c) There are no voting trusts, proxies, registration rights
agreements, or other agreements, commitments, arrangements or understandings of
any character by which the Company or any of the Subsidiaries is bound with
respect to the voting of any shares of capital stock or other equity interests
of the Company or any of the Subsidiaries or with respect to the registration of
the offering, sale or delivery of any shares of capital stock or other equity
interests of the Company or any of the Subsidiaries under the Securities Act of
1933, as amended (including the rules and regulations promulgated thereunder)
(the "SECURITIES ACT").
(d) None of the Company or its Subsidiaries is required to
redeem, repurchase or otherwise acquire shares of capital stock or other equity
interests of the Company or any of its Subsidiaries as a result of the
transactions contemplated by this Agreement.
(e) Except as contemplated by the Company Senior Credit
Agreement (as defined below), there are no restrictions of any kind which
prevent or restrict the payment of dividends by the Company or any of the
Subsidiaries other than those imposed by laws of general applicability of their
respective jurisdictions of organization. For purposes of this Agreement, the
term "COMPANY SENIOR CREDIT AGREEMENT" means the Second Amended and
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Restated Revolving Credit and Term Loan Agreement, dated as of June 19, 1995, by
and among the Company, Peasant Holding Corp. and Morton's of Chicago, Inc.
(collectively as borrowers thereunder), Fleet National Bank, as agent for the
lenders thereunder, and Fleet National Bank, in its individual capacity as a
lender thereunder, and the other lenders party thereto, as such agreement is in
effect on the date hereof and without giving any effect to any amendments,
modifications or supplements after the date hereof.
3.3. AUTHORIZATION; VALIDITY OF AGREEMENT; COMPANY ACTION. The
Company has full corporate power and authority to execute and deliver this
Agreement and each instrument required hereby to be executed and delivered by
the Company prior to or at the Effective Time, and, subject to obtaining
stockholder approval to the extent (if any) required by the DGCL, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance by the Company of
this Agreement and each instrument required hereby to be executed and delivered
by the Company prior to or at the Effective Time and the performance of its
obligations hereunder and thereunder and the consummation by it of the
transactions contemplated hereby have been duly authorized by its Board of
Directors, and, except for obtaining the approval of its stockholders as
contemplated by Section 5.5, no other corporate action on the part of the
Company is necessary to authorize the execution, delivery and performance by the
Company of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, assuming due and valid authorization, execution and delivery hereof
by the Buyer and the Transitory Subsidiary, is a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
3.4. CONSENTS AND APPROVALS; NO VIOLATIONS. The execution and
delivery of this Agreement by the Company does not, and the consummation by the
Company of the transactions contemplated by this Agreement and the compliance by
the Company with the applicable provisions of this Agreement will not:
(i) subject to the obtaining of the approval of the
stockholders of the Company to the extent required by the DGCL, violate or
conflict with or result in any breach of any provision of the Certificate of
Incorporation or the By-laws of the Company or the comparable governing
documents of any of the Subsidiaries;
(ii) require any filing, recordation, declaration or
registration with, or permit, order, authorization, consent or approval of, or
action by or in respect of, or the giving of notice to (each, a "GOVERNMENTAL
APPROVAL"), any federal, state, local or foreign government, any court, arbitral
tribunal, administrative agency or commission or other governmental or other
regulatory authority, commission or agency or any non-governmental,
self-regulatory authority, commission or agency (each, a "GOVERNMENTAL ENTITY"),
except for (1) the filing by the Company of a premerger notification and report
form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT") and the expiration or termination of any waiting periods under
the HSR Act; (2) the filing with the Securities and Exchange Commission (the
"SEC") of (A) the Proxy Statement (as defined in Section 5.6(a)), and (B) such
reports under Section 13, 14(f), 15(d) or 16(a) of the Securities and Exchange
Act of 1934, as amended (including the rules and regulations promulgated
thereunder, the "EXCHANGE ACT"), as may be required in connection with this
Agreement and the transactions contemplated by this
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Agreement; (3) the receipt of Governmental Approvals with respect to Liquor
Licenses (as defined in Section 3.16(b)); and (4) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company and
the Subsidiaries are qualified to do business;
(iii) subject to obtaining the third party consents
identified in Section 3.4(iii) of the Company Disclosure Letter, result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default under, give rise to any penalty, right of
amendment, modification, renegotiation, termination, cancellation, payment or
acceleration or any right or obligation or loss of any material benefit or right
under, or result in the creation of any pledges, claims, equities, options
(other than the Options described in Section 3.2(a) of the Company Disclosure
Letter), liens, charges, mortgages, easements, rights-of-way, call rights,
rights of first refusal, "tag"- or "drag"- along rights, encumbrances, security
interests or other similar restrictions of any kind or nature whatsoever
(collectively, "LIENS") upon any of the properties or assets of the Company or
any of the Subsidiaries under any of the terms, conditions or provisions of any
loan or credit agreement, note, bond, mortgage, indenture, lease, license,
sublicense, franchise, permit, concession, agreement, contract, obligation,
commitment, understanding, arrangement, franchise agreement or other instrument,
obligation or authorization applicable to the Company or any of the
Subsidiaries, or by which any such Person or any of its properties or assets may
be bound; or
(iv) violate or conflict with any judgment, order, writ,
injunction, decree, law, statute, ordinance, rule or regulation applicable to
the Company or any of the Subsidiaries or by which any of their properties or
assets may be bound;
excluding from preceding clauses (ii), (iii) and (iv) such matters that have not
resulted in and would not reasonably be likely to result in, individually or in
the aggregate, a Company Material Adverse Effect.
3.5. SEC REPORTS AND FINANCIAL STATEMENTS. The Company has
timely filed with the SEC all forms, reports, schedules, statements and other
documents (including, in each case, exhibits, schedules, amendments or
supplements thereto, and any other information incorporated by reference
therein) required to be filed by it since January 1, 1999 under the Exchange Act
or the Securities Act (as such documents have been amended or supplemented
between the time of their respective filing and the date hereof, collectively,
the "COMPANY SEC DOCUMENTS". The term "Company SEC Documents" shall also include
the draft form of the Company's Form 10-K for the fiscal year ended December 30,
2001, to the extent and in the form that such draft form has been provided to
the Buyer prior to the date hereof). The Company has, prior to the date of this
Agreement, provided the Buyer and the Transitory Subsidiary with (or made
available to the Buyer and the Transitory Subsidiary in the data room
established by the Company for purposes of the due diligence investigation of
the Buyer and the Transitory Subsidiary during the periods of time that the
representatives of the Buyer and the Transitory Subsidiary visited the data
room) true, complete and correct copies of all portions of any Company SEC
Documents not publicly available. Except to the extent amended or superseded by
a subsequent filing with the SEC made prior to the date hereof, as of their
respective dates (and if so amended or superseded, then on the date of such
filing prior to the date hereof), the Company SEC Documents (including, without
limitation, any financial
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statements or schedules included therein) and any forms, reports, schedules,
statements, registration statements, proxy statements and other documents
(including in each case, exhibits, schedules, amendments or supplements thereto,
and any other information incorporated by reference therein) filed by the
Company with the SEC subsequent to the date hereof (collectively, the
"SUBSEQUENT FILINGS") (a) did not, and in the case of Subsequent Filings will
not, contain any untrue statement of a material fact or omit, or in the case of
Subsequent Filings will not omit, to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied, and
in the case of Subsequent Filings will comply, in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by the Buyer or the Transitory
Subsidiary in writing relating to the Buyer, the Transitory Subsidiary or any
affiliate thereof (other than the Company or any of the Subsidiaries), as the
case may be, expressly for inclusion or incorporation by reference in the Proxy
Statement. None of the Subsidiaries is required to file any forms, reports or
other documents with the SEC. Each of the financial statements contained or to
be contained in the Company SEC Documents (including, in each case, any related
notes and schedules) has been prepared from, and is in accordance with, the
books and records of the Company and its consolidated Subsidiaries, complies in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, has been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) ("GAAP") and fairly presents the
consolidated financial position and the consolidated results of operations and
cash flows of the Company and its consolidated Subsidiaries at the dates and for
the periods covered thereby. The Company has heretofore provided the Buyer with
true and correct copies of any filings or any amendments or modifications to any
Company SEC Documents (in final form or, if such final form is not available,
then in draft form) which have not yet been filed with the SEC but that are
required to be filed with the SEC as of the date hereof, in accordance with
applicable requirements of the federal securities laws and the SEC rules and
regulations promulgated thereunder.
3.6. NO UNDISCLOSED LIABILITIES. Except as disclosed on
Section 3.6 of the Company Disclosure Letter or as accrued on the December 30,
2001 balance sheet included in the Company SEC Documents, the Company and its
Subsidiaries do not have any claims, liabilities, indebtedness or obligations of
any nature (whether known, accrued, absolute, contingent, asserted, liquidated
or otherwise) which would be required to be reflected in or reserved against in
financial statements prepared in accordance with GAAP, whether due or to become
due, except for any claims, liabilities, indebtedness or obligations that have
not resulted in and would not reasonably be likely to result in, individually or
in the aggregate, a Company Material Adverse Effect.
3.7. ABSENCE OF CERTAIN CHANGES. Since December 30, 2001, the
Company and its Subsidiaries have conducted their respective businesses only in
the ordinary and usual course and:
(a) there has not occurred any event, change, occurrence,
effect, fact, violation, development or circumstance that has resulted in or
would reasonably be likely to
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result in, individually or in the aggregate, a Company Material Adverse Effect;
(b) there has been no declaration, setting aside or payment of
any dividend or other distribution payable in cash, securities or other property
with respect to, or split, combination, redemption, reclassification, purchase
or other acquisition of, any shares of capital stock (or other equity interests)
or other securities of the Company or any of the Subsidiaries, other than those
payable by a wholly-owned Subsidiary solely to the Company or to another
wholly-owned Subsidiary, or any other change in the capital structure of the
Company or any of the Subsidiaries;
(c) there has been no change by the Company or any of the
Subsidiaries in any accounting practices, policies or procedures or any methods
of reporting income, deductions or other items for income tax purposes (except
insofar as may have been required by applicable law, GAAP or SEC position);
(d) (i) any granting by the Company to any officer or director
of the Company or any of the Subsidiaries of any increase in compensation
(including, without limitation, wages, salaries, bonuses or any other
remuneration), except in the ordinary course of business consistent with past
practice or as was required under employment agreements in effect as of the date
of the most recent audited financial statements included in the Company SEC
Documents, (ii) any granting by the Company or any of the Subsidiaries to any
such officer or director of any increase in severance or termination pay, except
as was required under employment, severance or termination agreements in effect
as of the date of the most recent audited financial statements included in the
Company SEC Documents or (iii) any entry by the Company or any of the
Subsidiaries into any employment, severance or termination agreement with any
such officer or director; or
(e) neither the Company nor any of the Subsidiaries has taken
any action which, if taken subsequent to the execution and delivery of this
Agreement and on or prior to the Closing Date, would constitute a breach of the
covenants set forth in Section 5.1.
3.8. TAXES. (a) TAX RETURNS. Except as set forth in Section
3.8(a) of the Company Disclosure Letter, the Company has timely filed or caused
to be timely filed with the appropriate taxing authorities all income Tax
Returns and other material Tax Returns (as defined in Section 3.8(d)) that are
required to be filed by, or with respect to, the Company and the Subsidiaries on
or prior to the Closing Date.
(b) PAYMENT OF TAXES. Except as set forth in Section 3.8(b) of
the Company Disclosure Letter, all material Taxes and Tax liabilities due by or
with respect to the income, assets or operations of the Company and the
Subsidiaries for all taxable years or other taxable periods that end on or
before the Closing Date have been either timely paid or will be timely paid in
full on or prior to the Closing Date or accrued and adequately disclosed and
fully provided for in the Company SEC Documents in accordance with GAAP. With
respect to any taxable year or other taxable period beginning on or before and
ending after the Closing Date, neither the Company nor any of the Subsidiaries
has incurred any material Tax liability outside of the ordinary course of
business with respect to the portion of such taxable year or other taxable
period ending on and including the Closing Date.
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(c) OTHER TAX MATTERS. Except as set forth in Section 3.8(c)
of the Company Disclosure Letter:
(1) (i) Neither the Company nor any of the
Subsidiaries is currently the subject of an audit or other examination
of Taxes by the tax authorities of any nation, state or locality, (ii)
no such audit is pending, or to the Company's Knowledge, threatened,
and (iii) neither the Company nor any of the Subsidiaries has received
any written notices from any taxing authority relating to any issue
which would have or would be reasonably likely to have a material
adverse effect on the Tax liability of the Company or any of the
Subsidiaries.
(2) Neither the Company nor any of the Subsidiaries
(i) has entered into an agreement or waiver in effect as of the Closing
Date or been requested to enter into an agreement or waiver extending
any statute of limitations relating to the payment or collection of
Taxes of the Company or any of the Subsidiaries, or (ii) is presently
contesting the Tax liability of the Company or any of the Subsidiaries
before any court, tribunal or agency.
(3) Neither the Company nor any of the Subsidiaries
has been included in any "consolidated", "unitary" or "combined" Tax
Return with any Person (other than the Company or any current
Subsidiary) provided for under the law of the United States, any
foreign jurisdiction or any state or locality with respect to Taxes for
any taxable period for which the statute of limitations has not
expired.
(4) All material Taxes which the Company and each or
any of the Subsidiaries is (or was) required by law to withhold or
collect in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party have
been duly withheld or collected, and have been timely paid over to the
proper authorities to the extent due and payable.
(5) No claim has been made in writing with respect to
the 1995 tax year or subsequent tax years or, to the Company's
Knowledge, with respect to any tax year prior to the 1995 tax year by
any taxing authority in a jurisdiction where the Company or any of the
Subsidiaries does not file Tax Returns that the Company or any of the
Subsidiaries is or may be subject to taxation by that jurisdiction.
(6) There are no tax sharing, allocation,
indemnification or similar agreements in effect as between the Company
or any of the Subsidiaries or any predecessor or affiliate thereof
(other than the Buyer and its affiliates) and any other party under
which the Buyer, the Transitory Subsidiary, the Company or any of the
Subsidiaries could be liable for any Taxes or other claims of any party
after the Closing Date.
(7) Neither the Company nor any of the Subsidiaries
has applied for, been granted, or agreed to any accounting method
change for which it will be required to take into account any
adjustment under Section 481 of the Code or any
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similar provision of the Code or the corresponding tax laws of any
nation, state or locality.
(8) No election under Section 341(f) of the Code has
been made or shall be made prior to the Closing Date to treat the
Company or any of the Subsidiaries as a consenting corporation, as
defined in Section 341 of the Code.
(9) Neither the Company nor any of the Subsidiaries
is a party to any agreement that would require (including, without
limitation, as a result of the execution and delivery of this Agreement
or the consummation of the Merger or any of the other transactions
contemplated by this Agreement) the Company or any of the Subsidiaries
or any affiliate thereof to make any payment that would constitute an
"excess parachute payment" for purposes of Sections 280G and 4999 of
the Code or that would not be deductible pursuant to Section 162(m) of
the Code.
(10) The Company and each Subsidiary have delivered
to the Buyer and the Transitory Subsidiary (or made available to the
Buyer and the Transitory Subsidiary in the data room established by the
Company for purposes of the due diligence investigation of the Buyer
and the Transitory Subsidiary during the periods of time that the
representatives of the Buyer and the Transitory Subsidiary visited the
data room) true, complete and correct copies of each of the Tax Returns
for income Taxes filed on behalf of the Company and each Subsidiary for
the 1998 tax year or subsequent tax years.
(11) (i) There are no deferred intercompany
transactions between the Company and any of the Subsidiaries or between
the Subsidiaries and there is no excess loss account (within the
meaning of Treasury Regulations Section 1.1502-19 with respect to the
stock of the Company or any of the Subsidiaries) which will or may
result in the recognition of income upon the consummation of the
transaction contemplated by this Agreement, and (ii) there are no other
transactions or facts existing with respect to the Company and/or the
Subsidiaries which by reason of the consummation of the transaction
contemplated by this Agreement will result in the Company and/or the
Subsidiaries recognizing income.
(12) No indebtedness of the Company or any of the
Subsidiaries consists of "corporate acquisition indebtedness" within
the meaning of Section 279 of the Code.
(13) The Company and each of the Subsidiaries is in
substantial compliance with any and all material requirements with
respect to the reporting, withholding, payment of employment Taxes and
filing of Tax Returns with respect to tips received by the employees of
the Company and the Subsidiaries.
(d) DEFINITIONS. For purposes of this Agreement, (i) the term
"TAXES" means all taxes, charges, fees, levies or other similar assessments or
liabilities (whether payable directly or by withholding and whether or not
requiring the filing of a Tax Return), including, without limitation, duties,
income, gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, services, transfer, withholding, employment,
payroll,
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franchise, profits, capital gains, capital stock, occupation, severance,
windfall profits, stamp, license, social security and other taxes imposed by the
United States or any state, local or foreign government, or any agency thereof,
or other political subdivision of the United States or any such government, and
any interest, fines, penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest or dispute
thereof and any liability for such amounts as a result either of being a member
of a combined, consolidated, unitary or affiliated group or of a contractual
obligation to indemnify any Person and (ii) the term "TAX RETURNS" means all
material tax returns, statements, forms and reports (including elections,
declarations, disclosures, schedules, estimates and information Tax returns and
other information required to be supplied to a taxing authority in connection
with Taxes) for Taxes that are required to be filed by, or with respect to, the
Company and the Subsidiaries on or prior to the Closing Date.
3.9. TITLE TO PROPERTIES; OWNED AND LEASED REAL PROPERTIES; NO
LIENS. (a) The Company and each of the Subsidiaries has good, and in the case of
owned real property, marketable fee simple, title to, or, in the case of leased
properties and assets, valid leasehold interests in, (A) all of its material
tangible properties and assets (real and personal), including, without
limitation, all such properties and assets reflected in the Company's
consolidated balance sheet as of December 30, 2001 contained in the Company SEC
Documents, except as indicated in the notes thereto or as sold or otherwise
disposed of in the ordinary course of business after such date, and (B) all the
material tangible properties and assets that have been purchased by the Company
or any of the Subsidiaries since December 30, 2001, except for such properties
and assets that have been sold or otherwise disposed of in the ordinary course
of business, in each case subject to no Liens, except for (1) Liens reflected in
the Company's consolidated balance sheet as of December 30, 2001 contained in
the Company SEC Documents (including the notes thereto), (2) Liens consisting of
zoning or planning restrictions, easements, permits and other restrictions or
limitations on the use of real property or irregularities in title thereto that
do not materially detract from the value of, or materially impair the use of,
such property by the Company or any of the Subsidiaries in the operation of its
respective business, (3) statutory liens or liens of landlords, carriers,
warehousemen, mechanics, suppliers, materialmen or repairmen arising in the
ordinary course of business or (4) Liens for current taxes, assessments or
governmental charges or levies on property not yet due and delinquent, all of
such Liens referred to in preceding clauses (1) through (4), inclusive, having
not resulted in and would not reasonably be likely to result in, individually or
in the aggregate, a Company Material Adverse Effect (such Liens, collectively,
"PERMITTED LIENS").
(b) Section 3.9(b) of the Company Disclosure Letter sets forth
a complete and correct list of the addresses of all real property owned in whole
or in part by the Company or any Subsidiary (collectively, the "OWNED REAL
PROPERTY").
(c) Section 3.9(c) of the Company Disclosure Letter sets forth
a complete and correct list of the addresses of all real property leased,
subleased or licensed by the Company or any of the Subsidiaries (as lessor or
lessee or under which the Company or any of the Subsidiaries has any liability)
(collectively, the "LEASED REAL PROPERTY" and, together with the Owned Real
Property, collectively, the "COMPANY REAL PROPERTY"). The Company or one of the
Subsidiaries has valid leasehold interests in all Leased Real Property described
in Section 3.9(c) of the Company Disclosure Letter (or required to be set forth
in Section 3.9(c) of the Company
A-18
Disclosure Letter), free and clear of any and all Liens except for Permitted
Liens. Except as set forth in Section 3.9(c) of the Company Disclosure Letter,
each lease with respect to the premises set forth in Section 3.9(c) of the
Company Disclosure Letter (or required to be set forth in Section 3.9(c) of the
Company Disclosure Letter) is in full force and effect in accordance with its
terms in all material respects; in each case, the lessee has been in peaceable
possession since the commencement of the original term of such lease and is not
in default thereunder in any material respect, and there exists no default or
event, occurrence, condition or act (including the Merger and transactions
contemplated hereby) which, with the giving of notice, the lapse of time or the
happening of any further event or condition (including, without limitation, the
Merger and the other transactions contemplated by this Agreement), would become
a default in any material respect under such lease. Except as set forth in
Section 3.9(c) of the Company Disclosure Letter, neither the Company nor any of
the Subsidiaries has violated any of the terms or conditions under any such
lease in any material respect, and, to the Company's Knowledge, all of the
covenants to be performed by any other party under any such lease have been
fully performed in all material respects. The Company has, prior to the date of
this Agreement, provided to the Buyer true, complete and correct copies of each
lease or other agreement (including, in each case, any and all amendments,
modifications and supplements thereto except for any immaterial amendments,
modifications or supplements) with respect to each of the premises set forth in
Section 3.9(c) of the Company Disclosure Letter.
(d) All of the buildings, structures and appurtenances
situated on the Company Real Property are in good operating condition and in a
state of good maintenance and repair (ordinary wear and tear excepted), are
adequate and suitable for the purposes for which they are presently being used
and, with respect to each, the Company or one of the Subsidiaries has adequate
rights of ingress and egress for operation of the business of the Company or
such Subsidiary in the ordinary course, except as has not resulted in and would
not reasonably be likely to result in, individually or in the aggregate, a
Company Material Adverse Effect. None of such buildings, structures or
appurtenances (or any equipment therein), nor the operation or maintenance
thereof, violates any restrictive covenant or any provision of any law,
ordinance, regulation, code, permit, license or order, or encroaches on any
property owned by others, except as has not resulted in and would not reasonably
be likely to result in, individually or in the aggregate, a Company Material
Adverse Effect. No condemnation, expropriation, eminent domain or similar
proceeding is pending or, to the Company's Knowledge, threatened which would
preclude or impair the use of any such Company Real Property by the Company or
such Subsidiary for the purposes for which it is currently used. None of the
Company nor any of the Subsidiaries is obligated under or bound by any option,
right of first refusal, purchase contract, or other agreement or commitment to
sell or otherwise dispose any Company Real Property or any other interest in any
Company Real Property.
3.10. INTELLECTUAL PROPERTY. (a) Except as set forth in
Section 3.10 of the Company Disclosure Letter, the Company and the Subsidiaries
own, license or otherwise possess legally enforceable rights to use all
Intellectual Property (as defined below) used in or necessary to the conduct of
the business of the Company and the Subsidiaries, including rights to make,
exclude others from using, reproduce, modify, adapt, create derivative works of,
translate, distribute (directly or indirectly), transmit, display, perform,
license, rent, lease, and, with respect to Intellectual Property owned by the
Company, assign and sell such Intellectual Property (collectively, the "COMPANY
INTELLECTUAL PROPERTY"), except where the failures to own, license or
A-19
have rights to use such Company Intellectual Property have not resulted in and
would not reasonably be likely to result in, individually or in the aggregate, a
Company Material Adverse Effect. To the Company's Knowledge, there is no pending
or extant claim, allegation or dispute asserted in writing regarding the right
of the Company or any Subsidiary to use the Company Intellectual Property as
currently used by the Company or any Subsidiary. For purposes of this Agreement,
the term "INTELLECTUAL PROPERTY" means foreign and domestic (i) patents,
registered and unregistered trademarks, service marks, brand names, trade dress
and trade names, domain names, registered and unregistered copyrights
(including, without limitation, software) and designs, (ii) any applications for
(and registrations of) such patents, trademarks, service marks, trade names,
domain names, copyrights and designs, (iii) trade secrets and other tangible or
intangible proprietary or confidential information and material, and (iv) any
goodwill associated with any of the foregoing.
(b) Section 3.10(b) of the Company Disclosure Letter sets
forth a complete and correct list of all Registered Company Intellectual
Property (as defined below) or Company Intellectual Property material to the
conduct of the business of the Company and the Subsidiaries (excluding
off-the-shelf software otherwise available to the general public under
shrinkwrap or clickwrap agreements); PROVIDED that the list of such Intellectual
Property that is owned by Persons other than the Company or any of the
Subsidiaries is complete and correct to the Company's Knowledge with respect to
the identity of the owner of such Intellectual Property. For purposes of this
Agreement, "REGISTERED COMPANY INTELLECTUAL PROPERTY" means Company Intellectual
Property issued, registered, renewed or the subject of a pending application, or
the substantive equivalent, without regard to the owner, assignee or registrant
thereof. Each item of Registered Company Intellectual Property owned by the
Company or any of the Subsidiaries has not been abandoned or cancelled, and
remains in full force and effect. There are no actions that must be taken or
payments that must be made by the Company or any of the Subsidiaries within
ninety (90) days following the Closing Date that, if not taken, would reasonably
be likely to have a material adverse effect on any Company Intellectual Property
or on the right of the Company or any Subsidiary to use any Company Intellectual
Property as and where used by the Company or the Subsidiaries.
(c) The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby will not result in the
breach of, or create on behalf of any third party the right to terminate or
modify, any license, sublicense or other agreement relating to any Company
Intellectual Property, except for such breaches and rights to terminate or
modify that have not resulted in and would not reasonably be likely to result
in, individually or in the aggregate, a Company Material Adverse Effect, and
excluding for the purposes of this Section 3.10(c) all such agreements between
the Company and/or the Subsidiaries. Except as set forth in Section 3.10 of the
Company Disclosure Letter, neither the Company nor any of the Subsidiaries has
received or has Knowledge of any written notice or claim from any Person
challenging the right of the Company or any of the Subsidiaries to use any of
the Company Intellectual Property and (ii) to the extent any Intellectual
Property is used under license in the business of the Company and/or any of the
Subsidiaries, no notice of material default has been sent or received by the
Company or any of the Subsidiaries under any such license which remains uncured.
(d) Except for those that have not resulted in and would not
reasonably be likely to result in, individually or in the aggregate, a Company
Material Adverse Effect, (i) all
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patents and registrations and applications for registered trademarks, service
marks and copyrights that are held by the Company or any of the Subsidiaries are
valid, enforceable and subsisting and (ii) the Company and the Subsidiaries have
taken reasonable measures to protect the proprietary nature of the Company
Intellectual Property. To the Company's Knowledge, no other Person (including,
without limitation, any employee or former employee of the Company or the
Subsidiaries) is infringing, violating or misappropriating any of the Company
Intellectual Property, except for infringements, violations or misappropriations
that have not resulted in and would not reasonably be likely to result in,
individually or in the aggregate, a Company Material Adverse Effect. None of the
business or activities conducted by the Company or any of the Subsidiaries
infringes, violates or constitutes a misappropriation of any Intellectual
Property of any third party, except for infringements, violations or
misappropriations that have not resulted in and would not reasonably be likely
to result in, individually or in the aggregate, a Company Material Adverse
Effect. Neither the Company nor any of the Subsidiaries has received any written
(and the Company has no Knowledge of any) complaint, claim or notice alleging
any such infringement, violation or misappropriation.
(e) The Company and/or the Subsidiaries (i) owns the entire
right and interest in and to, or is licensed to use, all Company Intellectual
Property, free and clear of any Liens (other than Liens with respect to the
Company Senior Credit Agreement and related security documents), (ii) is in
compliance with each license of Company Intellectual Property, and (iii) except
as disclosed in Section 3.10(e) of the Company Disclosure Letter, is the
beneficiary of either (x) a representation and warranty as to the absence of
infringement and/or (y) an indemnity, limited or full, under each such license
for costs and liabilities arising from infringement of third party Intellectual
Property rights by the subject matter of such license, except that no
representation is made under Sections 3.10(e)(ii) and (iii) with respect to
licenses where failure of such representations and warranties have not resulted
in and would not reasonably be likely to result in, individually or in the
aggregate, a Company Material Adverse Effect.
3.11. AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set
forth in Section 3.11 of the Company Disclosure Letter or filed or incorporated
by reference as exhibits to the Company SEC Documents on the date of this
Agreement, neither the Company nor any of the Subsidiaries is currently a party
to or bound by any contracts, agreements, instruments, arrangements, guarantees,
licenses, executory commitments or understandings that continue to be binding on
the Company or its Subsidiaries (each, a "CONTRACT") of the following nature
(collectively, the "COMPANY MATERIAL CONTRACTS"):
(i) Contracts with any current or former employee,
director or officer of the Company or any of the Subsidiaries;
(ii) Contracts that involve the performance of services of
an amount, payments or value (as measured by the revenue derived therefrom
during the fiscal year ended December 30, 2001) in excess of $250,000 annually,
unless terminable by the Company on not more than ninety (90) days notice
without material penalty;
(iii) Contracts (x) for the sale of assets of the Company
or any of the Subsidiaries involving aggregate consideration of $150,000 or
more, or (y) for the grant to any
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Person of any preferential rights to purchase any material amount of assets of
the Company or any of the Subsidiaries;
(iv) Contracts for the acquisition, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any Person or assets of any
Person (other than the purchase of equipment, inventories and supplies in the
ordinary course of business consistent with past practice);
(v) Contracts (including, without limitation, loan
agreements, credit agreements, notes, bonds, mortgages or other agreements,
indentures or instruments) relating to indebtedness for borrowed money, letters
of credit, the deferred purchase price of property, conditional sale
arrangements, capital lease obligations, obligations secured by a Lien, or
interest rate or currency hedging activities (including guarantees or other
contingent liabilities in respect of any of the foregoing but in any event
excluding trade payables arising in the ordinary course of business consistent
with past practice, intercompany indebtedness and immaterial leases for
telephones, copy machines, facsimile machines and other office equipment);
(vi) Loans or advances to (other than advances to
employees in respect of travel and entertainment expenses in the ordinary course
of business in amounts of $12,500 or less to any individual on any date of
determination, and $150,000 in the aggregate on any date of determination), or
investments in, any Person, other than the Company or a Subsidiary, or any
Contracts relating to the making of any such loans, advances or investments or
any Contracts involving a sharing of profits (except for bonus arrangements with
employees entered into in the ordinary course of business consistent with past
practice);
(vii) Contracts relating to any material joint venture,
partnership, strategic alliance or similar arrangement (including, without
limitation, any franchising agreement);
(viii) Contracts to be performed relating to capital
expenditures with a value in excess of $250,000 in any calendar year, or in the
aggregate capital expenditures with a value in excess of $1,000,000;
(ix) Contracts relating to any Liquor License of any
Company Restaurant (as defined in Section 3.16(b));
(x) Contracts which contain restrictions with respect to
payment of dividends or any other distribution in respect of its capital stock
(other than the Company Senior Credit Agreement);
(xi) Contracts containing covenants purporting to restrict
the Company or any of its affiliates from competing with any Person or which
restrict any other Person from competing with the Company or any of its
affiliates;
(xii) Contracts which are material to the Company or any
of the Subsidiaries and which restrict the Company or any of the Subsidiaries
from disclosing any information concerning or obtained from any other Person
(other than Contracts entered into in the ordinary course of business);
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(xiii) Contracts that would be required to be disclosed
under Item 404 of Regulation S-K under the Securities Act; or
(xiv) Contracts of the type described under Item
601(b)(10) of Regulation S-K under the Securities Act.
Each Company Material Contract is in full force and effect, is a valid and
binding obligation of the Company or the Subsidiary party thereto and, to the
Company's Knowledge, each other party thereto. There exists no default or event
of default or event, occurrence, condition or act (including the consummation of
the transactions contemplated hereby) on the part of the Company or any
Subsidiary or, to the Company's Knowledge, on the part of any other party to any
Company Material Contract that, with the giving of notice or the lapse of time
or both, would become a default or event of default under any Company Material
Contract, except for such defaults or events of default which have not resulted
in and would not reasonably be likely to result in, individually or in the
aggregate, a Company Material Adverse Effect.
3.12. LITIGATION. Except as set forth in Section 3.12 of the
Company Disclosure Letter, there is no action, suit, proceeding, claim,
arbitration or investigation pending or, to the Company's Knowledge, threatened
against or binding on the Company or any of the Subsidiaries, or any of their
respective properties or rights, or judgment, order or decree outstanding
against or binding on the Company or any of its Subsidiaries, or any of their
respective properties or rights, except for actions, suits, proceedings, claims,
arbitrations and investigations, and judgments, orders and decrees that have not
resulted in and would not reasonably be likely to result in, individually or in
the aggregate, a Company Material Adverse Effect. Except as set forth in Section
3.12 of the Company Disclosure Letter, there are no actions, suits, claims,
proceedings or investigations pending or, to the Company's Knowledge,
threatened, seeking to prevent or challenging the transactions contemplated by
this Agreement, that could reasonably be expected to result in, individually or
in the aggregate, a Company Material Adverse Effect.
3.13. ENVIRONMENTAL MATTERS. (a) Except as has not resulted in
and would not reasonably be likely to result in, individually or in the
aggregate, a Company Material Adverse Effect: (i) the Company and each of the
Subsidiaries have all permits, licenses and approvals required under
Environmental Laws (as defined in Section 3.13(b)) to operate and conduct their
respective businesses in material compliance with all Environmental Laws
(collectively, "ENVIRONMENTAL PERMITS"); (ii) the Company and each of the
Subsidiaries have complied in all material respects with all, and are not
currently in material violation of any, applicable Environmental Laws and the
requirements of all Environmental Permits; (iii) there are no claims,
proceedings, investigations or actions by any Governmental Entity or other
Person pending, or to the Company's Knowledge threatened, against the Company or
the Subsidiaries under any Environmental Law; and (iv) there are no facts,
circumstances or conditions relating to the past or present business or
operations of the Company or any of the Subsidiaries (including the disposal of
any wastes, hazardous substances or other materials), or to any real property
currently or formerly owned or operated by the Company or any of the
Subsidiaries, that would reasonably be expected to give rise to a material
claim, proceeding or action, or to any liability, under any Environmental Law.
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(b) For purposes of this Agreement, "ENVIRONMENTAL LAW" means
any federal, state, local or foreign law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement of any jurisdiction
relating to: (i) the protection, investigation or restoration of the
environment, human health and safety, or natural resources, (ii) the handling,
use, storage, treatment, manufacture, transportation, presence, disposal,
release or threatened release of any hazardous substance or (iii) noise, odor,
wetlands, pollution, contamination or any injury or threat of injury to persons
or property.
3.14. EMPLOYEE BENEFIT PLANS. (a) Section 3.14(a) of the
Company Disclosure Letter sets forth a true, complete and correct list of all
employee benefit or fringe benefit plans, programs, and/or arrangements
maintained, or contributed to (or required to be contributed to), by the Company
and/or any of the Subsidiaries and, with respect to plans subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), all
employers (whether or not incorporated) that would be treated together with the
Company and/or any Subsidiary as a single employer within the meaning of Section
414 of the Code) (collectively, the "COMPANY EMPLOYEE PLANS"). (i) Each Company
Employee Plan is in substantial compliance with all applicable laws including,
without limitation, ERISA and the Code) and has been administered and operated
in all material respects in accordance with its terms; (ii) neither the Company
nor any Subsidiary has ever maintained or contributed to, or had any obligation
to contribute to (or borne any liability with respect to) any "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA) or any plan covered by Title
IV of ERISA or subject to Section 412 of the Code or Section 302 of ERISA; (iii)
neither the Company nor any Subsidiary has incurred or expects to incur any
material liability (including, without limitation, additional contributions,
fines, taxes or penalties) as a result of a failure to administer or operate any
Company Employee Plan that is a "group health plan" (as such term is defined in
Section 607(1) of ERISA or Section 5000(b)(1) of the Code) in compliance with
the applicable requirements of Part 6 of Subtitle B of Title I of ERISA or
Section 4980B of the Code ("COBRA"); (iv) no Company Employee Plan or Executive
Agreement provides for post-employment or retiree health, life insurance or
other welfare benefits (except to the extent required by COBRA); (v) neither the
Company nor any Subsidiary has any unfunded liabilities pursuant to any Company
Employee Plan which is an "employee pension benefit plan" (within the meaning of
Section 3(2) of ERISA) that is not intended to be qualified under Section 401(a)
of the Code; (vi) each Company Employee Plan which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has as currently in effect been
determined to be so qualified by the Internal Revenue Service (or has submitted
within the remedial amendment period, or is within the remedial amendment period
for submitting, an application to the Internal Revenue Service for such a
determination) and since the date of each such determination (or submission, if
applicable), no event has occurred and no condition or circumstance has existed
that resulted or is likely to result in the revocation of such determination (or
the refusal of the Internal Revenue Service to issue such a favorable
determination); (vii) no liability, claim, action, litigation, audit,
examination, investigation or administrative proceeding has been made, commenced
or, to the Company's Knowledge, threatened, with respect to any Company Employee
Plan (other than routine claims for benefits payable in the ordinary course)
which could result in a material liability of the Company or any Subsidiary
thereof; (viii) neither the Company nor any Subsidiary, nor any of their
respective directors, officers or employees, nor, to the Company's Knowledge,
any other "disqualified person" or "party in interest" (as defined in Section
4975(e)(2) of the Code and Section 3(14) of ERISA, respectively) has engaged in
any
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transaction, act or omission to act in connection with any Company Employee Plan
that could reasonably be expected to result in the imposition of a material
penalty or fine pursuant to Section 502 of ERISA, damages pursuant to Section
409 of ERISA or a tax pursuant to Section 4975 of the Code; and (ix) except as
required to maintain the tax qualified status of any Company Employee Plan
intended to qualify under Section 401(a) of the Code, no condition or
circumstance exists that would prevent the amendment or termination of any
Company Employee Plan.
(b) Neither the Company nor any Subsidiary is a party to any
oral or written (i) agreement with any executive officer or employee of the
Company (A) the benefits of which are contingent, or the payment or terms of
which are accelerated or materially altered, upon the occurrence of a
transaction involving the Company or any Subsidiary of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such executive officer or
employee; or (ii) agreement or plan binding the Company or any Subsidiary,
including any stock option plan, stock appreciation right plan, restricted stock
plan, stock purchase plan or severance benefit plan, any of the benefits of
which shall be increased, or the vesting of the benefits of which shall be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement (either alone or upon the occurrence of any additional or subsequent
event) or the value of any of the benefits of which shall be calculated on the
basis of any of the transactions contemplated by this Agreement (such agreements
and plans referred to in clause (i) or (ii), collectively, the "EXECUTIVE
AGREEMENTS"). For purposes of this Section 3.14, the term "EXECUTIVE OFFICER"
shall have the meaning set forth in Rule 3b-7 of the Exchange Act.
(c) The Company has provided to the Buyer and the Transitory
Subsidiary (or made available to the Buyer and the Transitory Subsidiary in the
data room established by the Company for purposes of the due diligence
investigation of the Buyer and the Transitory Subsidiary during the periods of
time that the representatives of the Buyer and the Transitory Subsidiary visited
the data room) true, complete and correct copies of each Company Employee Plan
and each Executive Agreement, together with all amendments thereto, and, to the
extent applicable, (i) all current summary plan descriptions; (ii) the annual
report on Internal Revenue Service Form 5500-series, including any attachments
thereto, for each of the last three (3) plan years; and (iii) the most recent
Internal Revenue Service determination letter.
3.15. COMPLIANCE WITH LAWS. The Company and each of the
Subsidiaries have complied with, are not in violation of, and have not received
any notice alleging any such violation with respect to, any applicable
provisions of any federal, state, local or foreign statute, order, judgment,
decree, law, rule, regulation or ordinance (including, without limitation, as
the same relates to food preparation and handling) applicable to the conduct of
their businesses or the ownership or operation of their properties or assets,
except for such failures to comply and violations which have not resulted in and
would not reasonably be likely to result in, individually or in the aggregate, a
Company Material Adverse Effect. No investigation or review by any Governmental
Entity with respect to the Company or any of the Subsidiaries is pending or, to
the Company's Knowledge, threatened, nor, to the Company's Knowledge, has any
Governmental Entity indicated an intention to conduct the same, other than, in
each case, those which have not
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resulted in and would not reasonably be likely to result in, individually or in
the aggregate, a Company Material Adverse Effect.
3.16. PERMITS; LIQUOR LICENSES. (a) The Company and each of
the Subsidiaries have complied with and are in compliance with all permits,
approvals, licenses, authorizations, certificates, rights, exemptions, orders
and franchises from Governmental Entities necessary for the ownership of their
assets and lawful conduct of their businesses as now conducted, including those
relating to, among others, food preparation and handling, alcoholic beverage
control, public health and safety, zoning and fire codes (collectively, the
"COMPANY PERMITS"), and there has not occurred any default under any such
Company Permit, except to the extent that any failure to hold Company Permits
and any such defaults have not resulted in and would not reasonably be likely to
result in, individually or in the aggregate, a Company Material Adverse Effect.
(b) Section 3.16(b) of the Company Disclosure Letter sets
forth a complete and correct list of all liquor licenses (including, without
limitation, beer and wine licenses) held or used by the Company or any of the
Subsidiaries (collectively, the "LIQUOR LICENSES") in connection with the
operation of each restaurant owned or operated by the Company or any of the
Subsidiaries (each, a "COMPANY RESTAURANT"), along with the address of each such
Company Restaurant and the expiration date of each such Liquor License. To the
extent required by applicable law, rule, regulation or ordinance, each Company
Restaurant currently in operation possesses a Liquor License. The Company has no
reason to believe that it will not be able to obtain Liquor Licenses for
restaurants currently being brought into operation identified in Section 3.16(b)
of the Company Disclosure Letter. Each of the Liquor Licenses has been validly
issued and is in full force and effect and is adequate for the current conduct
of the operations at the Company Restaurant for which it is issued. Neither the
Company nor any of the Subsidiaries has received any written notice of any
pending or, to the Company's Knowledge, threatened modification, suspension or
cancellation of a Liquor License or any proceeding related thereto that would
reasonably be expected to have any material adverse impact on any Company
Restaurant, the ability to maintain or renew any Liquor License or the nature or
level of discipline imposed on account of future violations of the laws related
to sales and service of alcoholic beverages. Since January 31, 1999, there have
been no such proceedings relating to any of the Liquor Licenses. There are no
pending disciplinary actions or past disciplinary actions that would reasonably
be expected to have any material adverse impact on any Company Restaurant, the
ability to maintain or renew any Liquor License or the nature or level of
discipline imposed on account of future violations of the laws related to sales
and service of alcoholic beverages.
3.17. LABOR MATTERS. Neither the Company nor any of the
Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization. To the Company's Knowledge, there is no material pending or
threatened labor strike, or dispute, walkout, work stoppage, slow-down, lockout
or organizational effort involving employees of the Company or any of the
Subsidiaries. There is no unfair labor practice charge or complaint against the
Company or any of the Subsidiaries, either pending or, to the Company's
Knowledge, threatened that has resulted in or would reasonably be likely to
result in, individually or in the aggregate, a Company Material Adverse Effect;
no union is currently certified, and there is no union representation question
and
A-26
no union or other organizational activity that would be subject to the National
Labor Relations Act (20 U.S.C. ss.151 ET SEQ.) exists or, to the Company's
Knowledge, is threatened with respect to the Company's or any of the
Subsidiaries' operations; neither the Company nor any of the Subsidiaries has
any Equal Employment Opportunity Commission charges or other claim of employment
discrimination pending or, to the Company's Knowledge, currently threatened
against them that has resulted in or would reasonably be likely to result in,
individually or in the aggregate, a Company Material Adverse Effect; no wage and
hour department investigation has been made of the Company or any of the
Subsidiaries that has resulted in or would reasonably be likely to result in,
individually or in the aggregate, a Company Material Adverse Effect; there are
no occupational health and safety claims against the Company or any of the
Subsidiaries that has resulted in or would reasonably be likely to result in,
individually or in the aggregate, a Company Material Adverse Effect; neither the
Company nor any of the Subsidiaries has effectuated (i) a "PLANT CLOSING" (as
defined in the Worker Adjustment and Retraining Notification Act (as amended,
the "WARN ACT")) affecting any site of employment or one or more facilities or
operating units within any site of employment of the Company or any Subsidiary;
or (ii) a "MASS LAYOFF" (as defined in the WARN Act) affecting any site of
employment or facility of the Company or any Subsidiary; nor has the Company
been engaged in layoffs or employment terminations sufficient in number to
trigger application of any similar state or local law; and none of the affected
employees has suffered an "EMPLOYMENT LOSS" (as defined in the WARN Act) since
ninety (90) days prior to the date hereof; the Company and the Subsidiaries are
in compliance with the terms and provisions of the Immigration Reform and
Control Act of 1986, as amended, and all related regulations promulgated
thereunder, the failure of which has not resulted in and would not reasonably be
likely to result in, individually or in the aggregate, Company Material Adverse
Effect.
3.18. INSURANCE. Section 3.18 of the Company Disclosure Letter
sets forth the material insurance coverages maintained by the Company and the
Subsidiaries. The Company has provided to the Buyer and the Transitory
Subsidiary (or made available to the Buyer and the Transitory Subsidiary in the
data room established by the Company for purposes of the due diligence
investigation of the Buyer and the Transitory Subsidiary during the periods of
time that the representatives of the Buyer and the Transitory Subsidiary visited
the data room) copies of all insurance policies which are owned by the Company
or the Subsidiaries or which name the Company or any of the Subsidiaries as an
insured, additional insured or loss payee (including, without limitation, those
pertaining to the Company's or any of the Subsidiaries' assets, employees or
operations) (collectively, the "INSURANCE POLICIES"). (i) Each of the Insurance
Policies is in full force and effect and is valid, outstanding and enforceable,
and all premiums due thereon have been paid in full and cover against the risks
of the nature normally insured against by entities in the same or similar lines
of business in coverage amounts typically and reasonably carried by such
entities, (ii) none of the Insurance Policies shall terminate or lapse (or be
affected in any other adverse manner) by reason of the transactions contemplated
by this Agreement, (iii) each of the Company and the Subsidiaries has complied
in all material respects with the provisions of each Insurance Policy under
which it is the insured party, (iv) no insurer under any Insurance Policy has
cancelled or generally disclaimed liability under any such Insurance Policy or
indicated any intent to do so or not to renew any such Insurance Policy and (v)
all material claims under the Insurance Policies have been filed in a timely
fashion.
A-27
3.19. SUPPLIERS. No supplier of the Company or any of the
Subsidiaries whose failure to continue to be a supplier of the Company or its
Subsidiaries and would reasonably be likely to result in, individually or in the
aggregate, a Company Material Adverse Effect has indicated to the Company or any
of the Subsidiaries that it will stop, or materially decrease the rate of,
supplying products or services to the Company or any of the Subsidiaries.
3.20. FRANCHISE MATTERS. Except as set forth in Section 3.20
of the Company Disclosure Letter, neither the Company nor any of the
Subsidiaries has granted to any Person any development, franchise or license
rights to operate restaurants.
3.21. INFORMATION IN PROXY STATEMENT. The Proxy Statement will
comply in all material respects with the requirements of the Exchange Act and
any other applicable laws. If at any time prior to the date of the Special
Meeting (as defined in Section 5.5) any event occurs which should be described
in an amendment or supplement to the Proxy Statement, the Company will file and
disseminate, as required, an amendment or supplement which complies in all
material respects with the Exchange Act and any other applicable laws. Prior to
its filing with the SEC, the amendment or supplement shall be delivered to the
Buyer and its outside counsel. The information contained in the Proxy Statement,
any amendment or supplement thereto or any other documents filed with the SEC by
the Company in connection with the Merger, when filed with the SEC and, in case
of the Proxy Statement, when mailed to the stockholders of the Company and at
the time of the Special Meeting (except for information supplied by the Buyer or
the Transitory Subsidiary in writing relating to the Buyer or the Transitory
Subsidiary or any affiliate thereof (other than the Company or any of the
Subsidiaries), as the case may be, expressly for inclusion or incorporation by
reference therein, as to which no representation by the Company is made), will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any information supplied by the Buyer or the
Transitory Subsidiary in writing relating to the Buyer or the Transitory
Subsidiary or any affiliate thereof (other than the Company or any of the
Subsidiaries), as the case may be, expressly for inclusion or incorporation by
reference in the Proxy Statement.
3.22. BROKERS. Except for the fees and expenses of Greenhill
(whose fees and expenses shall be paid by the Company in accordance with the
Company's agreement with such firm, a true, complete and correct copy of which
has been previously delivered to the Buyer by the Company), no agent, broker,
Person or firm acting on behalf of the Company, the Special Committee or the
Board of Directors of the Company is or will be entitled to any advisory
commission or broker's or finder's fee from any of the Parties (or their
respective affiliates) in connection with this Agreement or any of the
transactions contemplated hereby.
3.23. STATE TAKEOVER STATUTES. The Special Committee and the
Board of Directors of the Company have approved the Merger and this Agreement,
and such approval is sufficient to render the restrictions contained in Section
203 of the DGCL inapplicable to the Merger and this Agreement (including all of
the other transactions contemplated hereby). Except for Section 203 of the DGCL
(which has been rendered inapplicable), no other "fair price", "moratorium",
"control share acquisition", "business combination" or other state takeover
statute
A-28
or similar statute, rule or regulation is applicable or purports to be
applicable to the Merger, this Agreement or any of the other transactions
contemplated hereby.
3.24. VOTING REQUIREMENTS. The affirmative vote of the holders
of at least a majority of the outstanding shares of Common Stock (voting as one
class, with each share of Common Stock having one (1) vote) entitled to be cast
in adopting this Agreement is the only vote of the holders of any class or
series of the Company's capital stock or other securities of the Company
necessary under applicable law or stock exchange (or similar self-regulatory
organization) regulations to adopt this Agreement and approve the transactions
contemplated by this Agreement and for consummation by the Company of the
transactions contemplated by this Agreement.
3.25. RIGHTS AGREEMENT. The Company and the Board of Directors
of the Company have taken all necessary action to amend the Rights Agreement
(without redeeming the Rights identified therein), and shall maintain in effect
all necessary action (i) to render the Rights Agreement inapplicable with
respect to the Merger, this Agreement and the other transactions contemplated
hereby and (ii) to ensure that (x) neither the Buyer nor the Transitory
Subsidiary nor any of their "AFFILIATES" (as such term is defined in the Rights
Agreement) or "ASSOCIATES" (as such term is defined in the Rights Agreement) is
considered to be an "ACQUIRING PERSON" (as such term is defined in the Rights
Agreement) and (y) the provisions of the Rights Agreement, including the
occurrence of a "DISTRIBUTION DATE" (as such term is defined in the Rights
Agreement), are not and shall not be triggered by reason of the announcement or
consummation of the Merger, this Agreement or the consummation of any of the
other transactions contemplated hereby. The Company has delivered to the Buyer a
true, complete and correct copy of the Rights Agreement, as amended, and the
Rights Agreement has not been further modified or amended.
3.26. OPINION OF FINANCIAL ADVISOR. The Special Committee and
the Board of Directors of the Company have received the written opinion of
Greenhill, dated March 26, 2002, a true, complete and correct signed copy of
which shall be delivered to the Buyer promptly after receipt of a written copy
thereof by the Company, to the effect that, as of the date of such written
opinion and on the basis of and subject to the assumptions set forth therein,
the Cash Merger Consideration to be received in the Merger by the holders of
Shares, other than the Buyer and the Transitory Subsidiary, is fair to such
holders from a financial point of view, and such opinion has not been withdrawn
or modified as of the date of this Agreement. The Company has been authorized by
Greenhill to permit the inclusion of such fairness opinion in the Proxy
Statement.
3.27. CUMULATIVE BREACH. The breaches, if any, of the
representations and warranties made by the Company in this Agreement that would
occur if all references in such representations and warranties to phrases
concerning materiality, including references to the qualification "Company
Material Adverse Effect" were deleted, in the aggregate, have not resulted in
and would not reasonably be likely to result in, individually or in the
aggregate, a Company Material Adverse Effect.
A-29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE BUYER AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary hereby
represents and warrants to the Company that the statements contained in this
Article IV are true and correct.
4.1. ORGANIZATION. Each of the Buyer and the Transitory
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and has all
requisite corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as it is currently being conducted. Each
of the Buyer and the Transitory Subsidiary is duly qualified or licensed to do
business, and is in good standing as a foreign corporation in each jurisdiction
where the character of its properties or assets owned, operated and leased or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or licensed or in good standing has not resulted
in and would not reasonably be likely to result in, individually or in the
aggregate, a material adverse effect on either the Buyer or the Transitory
Subsidiary or materially impair the ability of either the Buyer or the
Transitory Subsidiary to consummate the transactions contemplated hereby.
4.2. CAPITALIZATION. The authorized capital stock of the
Transitory Subsidiary consists of 1,000 shares of Transitory Subsidiary Common
Stock, all of which are outstanding, owned by the Buyer and are duly authorized,
validly issued and outstanding and fully paid and nonassessable. As of the date
of this Agreement, all of the outstanding capital stock of the Buyer and the
Transitory Subsidiary is owned directly or indirectly by Castle Harlan Partners
III, L.P., a Delaware limited partnership.
4.3. AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION.
Each of the Buyer and the Transitory Subsidiary has full corporate power and
authority to execute and deliver this Agreement and each instrument required
hereby to be executed and delivered by it prior to or at the Effective Time, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
each of the Buyer and the Transitory Subsidiary of this Agreement and each
instrument required hereby to be executed and delivered by it prior to or at the
Effective Time and the performance of its obligations hereunder and thereunder
and the consummation by it of the transactions contemplated hereby have been
duly authorized by the Board of Directors of each of the Buyer and the
Transitory Subsidiary, by the stockholders of the Buyer and by the Buyer as the
sole stockholder of the Transitory Subsidiary, and no other corporate action on
the part of the Buyer or the Transitory Subsidiary is necessary to authorize the
execution, delivery and performance by the Buyer and the Transitory Subsidiary
of this Agreement and the consummation by them of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of the Buyer
and the Transitory Subsidiary and, assuming due and valid authorization,
execution and delivery hereof by the Company, is a valid and binding obligation
of each of the Buyer and the Transitory Subsidiary enforceable against each of
them in accordance with its terms.
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4.4. CONSENTS AND APPROVALS; NO VIOLATIONS. The execution and
delivery of this Agreement by the Buyer and the Transitory Subsidiary does not,
and the consummation by the Buyer and the Transitory Subsidiary of the
transactions contemplated by this Agreement and the compliance by the Buyer and
the Transitory Subsidiary with the applicable provisions of this Agreement will
not:
(i) violate or conflict with or result in any breach of
any provision of the Certificate of Incorporation or the By-laws of the Buyer or
the Transitory Subsidiary;
(ii) require any filing, recordation, declaration or
registration with, or permit, order, authorization, consent or approval of, or
action by or in respect of, or the giving of notice to, any Governmental Entity,
except for (1) the filing by the Buyer of a premerger notification and report
form under the HSR Act and the expiration or termination of any waiting periods
under the HSR Act; (2) the filing with the SEC of (A) the Proxy Statement, and
(B) such reports under Section 13, 14(f), 15(d) or 16(a) of the Exchange Act, as
may be required in connection with this Agreement and the transactions
contemplated by this Agreement; (3) the receipt of Governmental Approvals with
respect to Liquor Licenses; and (4) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware and appropriate documents with
the relevant authorities of other states in which the Buyer and the Transitory
Subsidiary are qualified to do business;
(iii) result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default
under, give rise to any penalty, right of amendment, modification,
renegotiation, termination, cancellation, payment or acceleration or any right
or obligation or loss of any material benefit or right under, or result in the
creation of any Liens upon any of the properties or assets of the Buyer or the
Transitory Subsidiary under, any of the terms, conditions or provisions of any
loan or credit agreement, note, bond, mortgage, indenture, lease, license,
sublicense, franchise, permit, concession, agreement, contract, obligation,
commitment, understanding, arrangement, franchise agreement or other instrument,
obligation or authorization applicable to the Buyer or the Transitory
Subsidiary, or by which any such Person or any of its properties or assets may
be bound; or
(iv) violate or conflict with any judgment, order, writ,
injunction, decree, law, statute, ordinance, rule or regulation applicable to
the Buyer or the Transitory Subsidiary or by which any of their properties or
assets may be bound;
excluding from preceding clauses (ii), (iii) and (iv) such matters that have not
resulted in and would not reasonably be likely to result in, individually or in
the aggregate, a material adverse effect on either the Buyer or the Transitory
Subsidiary and would not materially impair the ability of either the Buyer or
the Transitory Subsidiary to consummate the transactions contemplated hereby.
4.5. INFORMATION IN PROXY STATEMENT. None of the information
supplied or to be supplied by the Buyer and the Transitory Subsidiary in writing
relating to the Buyer, the Transitory Subsidiary or any affiliate thereof (other
than the Company or any of the Subsidiaries), as the case may be, expressly for
inclusion or incorporation by reference in the Proxy Statement, any amendment or
supplement thereto or any other documents filed with the
A-31
SEC by the Company in connection with the Merger, when supplied to the Company,
when filed with the SEC and, in case of the Proxy Statement, when mailed to the
stockholders of the Company and at the time of the Special Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, the Buyer and the Transitory Subsidiary make no
representation or warranty with respect to any information supplied by the
Company in writing relating to the Company or any affiliate thereof (other than
the Buyer or the Transitory Subsidiary) expressly for inclusion or incorporation
by reference in the Proxy Statement.
4.6. EQUITY COMMITMENT. On or prior to the date of this
Agreement, the Buyer has provided to the Company a true, complete and correct
copy of a letter from the Buyer's equity investor, pursuant to which the Buyer's
equity investor has agreed to subscribe for equity in the Buyer as described and
subject to the conditions and limitations therein (the "EQUITY COMMITMENT
LETTER") sufficient to provide to the Buyer the funds necessary to consummate
the transactions contemplated by this Agreement assuming the satisfaction of the
conditions set forth in Sections 6.1 and 6.2. Such letter is in full force and
effect. Neither the Buyer, the Transitory Subsidiary, nor any of their
affiliates, will terminate or amend in any respect the Equity Commitment Letter
in a manner which would adversely affect the probability that the CHP Equity
Financing (as defined therein) will be funded, or the timing thereof, without
the prior written consent of the Company. The Buyer will use its reasonable best
efforts to cause the conditions to funding set forth in such letter to be
fulfilled on a timely basis and to obtain such funding to permit the Closing to
occur hereunder. Subject to the satisfaction of the conditions to funding under
the Equity Commitment Letter and the conditions set forth in Article VI, the
Buyer will draw the funds available to it pursuant to the terms of the Equity
Commitment Letter on the Closing Date.
ARTICLE V
COVENANTS
5.1. INTERIM OPERATIONS OF THE COMPANY. Except as expressly
provided herein or as consented to in writing by the Buyer or the Transitory
Subsidiary, from and after the date of this Agreement until the earlier of the
termination of this Agreement in accordance with its terms or the Effective
Time, the Company shall, and shall cause each of its Subsidiaries to, act and
carry on its business only in the ordinary course of business consistent with
past practice and use reasonable best efforts to maintain and preserve its
business organization, assets and properties, keep available the services of its
officers and key employees and maintain and preserve its advantageous business
relationships with suppliers, landlords and others having material business
dealings with it. Without limiting the generality of the foregoing, except as
expressly set forth in Section 5.1 of the Company Disclosure Letter, from and
after the date of this Agreement until the earlier of the termination of this
Agreement in accordance with its terms or the Effective Time, the Company shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly, do
any of the following without the prior written consent of the Buyer or the
Transitory Subsidiary:
(a) except as contemplated by Section 1.1, amend its
Certificate of
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Incorporation or By-laws or comparable governing documents;
(b) sell, transfer or pledge or agree to sell, transfer or
pledge any shares of capital stock or other equity interests owned by it in any
other Person;
(c) declare, set aside or pay any dividend or other
distribution payable in cash, securities or other property with respect to, or
split, combine, redeem or reclassify, or purchase or otherwise acquire, any
shares of its capital stock (or other equity interests) or other securities of
the Company or any of the Subsidiaries (other than the making of a dividend or
other distribution by a wholly-owned Subsidiary to another wholly-owned
Subsidiary or to the Company);
(d) except as contemplated by Sections 1.1 and 2.1, issue or
sell, or authorize to issue or sell, any shares of its capital stock or any
other securities, or issue or sell, or authorize to issue or sell, any
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to purchase or subscribe for, or enter into
any arrangement or contract with respect to the issuance or sale of, any shares
of its capital stock of any class of the Company or Voting Debt or other
securities, or make any other change in its capital structure, except for the
possible issuance by the Company of shares of Common Stock pursuant to the terms
of any Options outstanding on the date hereof;
(e) acquire, make (or commit to make) any investment in, or
make capital contribution to, any Person other than in the ordinary course of
business consistent with past practice, other than transactions between a
wholly-owned Subsidiary and the Company or between wholly-owned Subsidiaries;
(f) make (or commit to make), or enter into any Contracts (or
any amendments, modifications, supplements or replacements to existing
Contracts) to be performed relating to, capital expenditures with a value in
excess of $100,000 in any calendar year, or in the aggregate capital
expenditures with a value in excess of $250,000; PROVIDED that, other than as
expressly set forth in Section 5.1 of the Company Disclosure Letter, in no event
shall the Company or any of the Subsidiaries make (or commit to make), or enter
into any Contracts (or any amendments, modifications, supplements or
replacements to existing Contracts) to be performed relating to, capital
expenditures with respect to any new restaurants or maintenance of existing
restaurants;
(g) acquire, by merging or consolidating with, by purchasing
an equity interest in or a portion of the assets of, or by any other manner, any
business or any Person, or otherwise acquire any assets of any Person (other
than the purchase of equipment, inventories and supplies in the ordinary course
of business consistent with past practice);
(h) transfer, lease, license, guarantee, sell, mortgage,
pledge, dispose of, subject to any Lien (other than a Permitted Lien) or
otherwise encumber any material assets other than with respect to (i)
transactions between a wholly-owned Subsidiary and the Company or between
wholly-owned Subsidiaries, (ii) dispositions of excess or obsolete assets in the
ordinary course of business consistent with past practice and (iii) leases,
licenses or sales in the ordinary course of business consistent with past
practice;
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(i) except to the extent required under existing employee and
director benefit plans, agreements or arrangements in effect on the date of the
most recent audited financial statements included in the Company SEC Documents
or required by applicable law or contemplated by Section 2.4, increase the
compensation or fringe benefits of any of its directors, officers or employees,
except for immaterial increases to employees who are not officers of the Company
or any of the Subsidiaries in the ordinary course of business consistent with
past practice, or grant any severance or termination pay not currently required
to be paid under existing severance plans, or enter into any employment,
consulting or severance agreement or arrangement with any present or former
director, officer or other employee of the Company or any of the Subsidiaries,
or establish, adopt, enter into or amend, modify, supplement, replace or
terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the collective benefit of any directors,
officers or employees (it being understood and agreed that in no event shall the
Company or any of the Subsidiaries amend, modify, supplement, replace or
terminate the policy in effect on the date hereof and previously disclosed to
the Buyer with respect to suspension of any increases in the compensation or
other remuneration of officers and other employees of the Company and the
Subsidiaries);
(j) enter into or amend, modify, supplement or replace any
employment, consulting, severance or similar agreement (including any change of
control agreement) with any Person, except with respect to new hires of
non-officer employees in the ordinary course of business;
(k) except as may be required by applicable law, GAAP or SEC
position, make any change in any of its accounting practices, policies or
procedures or any of its methods of reporting income, deductions or other items
for income tax purposes;
(l) except as contemplated by Sections 1.1 and 2.1, adopt or
enter into a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any Subsidiary (other than as may exclusively involve one or more
wholly-owned Subsidiaries but only so long as the same shall not have and would
not reasonably be likely to have (x) a material adverse effect on the Tax
liability of the Company and the Subsidiaries or (y) a material adverse effect
on the operations of the Company and the Subsidiaries) or any agreement relating
to an Acquisition Proposal, except as expressly permitted in Section 5.3;
(m) except as contemplated by Section 5.7(a)(i), (i) incur,
assume, modify or prepay any indebtedness for borrowed money, issue any debt
securities or warrants or other rights to acquire debt securities, or guarantee,
endorse or otherwise become liable or responsible for the obligations or
indebtedness of another Person, other than indebtedness owing to or guarantees
of indebtedness owing to the Company or any direct or indirect wholly-owned
Subsidiary, or enter into any capital lease, or (ii) make any loans, extensions
of credit or advances to any other Person, other than to the Company or to any
direct or indirect wholly-owned Subsidiary, except, (A) in the case of preceding
clause (i), for (x) borrowings under the Company Senior Credit Agreement in the
ordinary course of business consistent with past practice and (y) the making of
scheduled amortization payments to the extent required by
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the Company Senior Credit Agreement and ordinary course repayments of borrowings
under the working capital facility of the Company Senior Credit Agreement, (B)
in the case of preceding clauses (i) and (ii), for loans, extensions of credit
or advances constituting trade payables or receivables arising in the ordinary
course of business and (C) in the case of preceding clause (ii), for advances to
employees in respect of travel and entertainment expenses in the ordinary course
of business in amounts of $12,500 or less to any individual on any date of
determination and $150,000 in the aggregate on any date of determination;
(n) except as permitted by Section 2.4, accelerate the
payment, right to payment or vesting of any bonus, severance, profit sharing,
retirement, deferred compensation, stock option, insurance or other compensation
or benefits;
(o) pay, discharge, settle or satisfy any claims, litigation,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than (i) the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice,
of (1) liabilities reflected or reserved against in the December 30, 2001
balance sheet included in the Company SEC Documents or (2) liabilities (other
than litigation) subsequently incurred in the ordinary course of business
consistent with past practice and (ii) other claims, litigation, liabilities or
obligations (qualified as aforesaid) that in the aggregate do not exceed
$250,000.
(p) other than as disclosed in Company SEC Documents filed
prior to the date hereof, plan, announce, implement or effect any material
reduction in force, lay-off, early retirement program, severance program or
other program or effort concerning the termination of employment of employees of
the Company or the Subsidiaries; PROVIDED that routine employee terminations in
the ordinary course of business shall not be considered subject to this
subclause;
(q) take any action or non-action (including, without
limitation, the adoption of any shareholder-rights plan or amendments to its
Certificate of Incorporation or By-laws (or comparable governing documents))
which would, directly or indirectly, restrict or impair the ability of the Buyer
to vote or otherwise to exercise the rights and receive the benefits of a
stockholder with respect to securities of the Company that may be acquired or
controlled by the Buyer or the Transitory Subsidiary, or any action which would
permit any Person to acquire securities of the Company on a basis not available
to the Buyer or the Transitory Subsidiary;
(r) take any action or non-action which (x) constitutes a
violation of any Liquor License, which violation would result in or would
reasonably be likely to result in, individually or in the aggregate, the
modification, suspension, cancellation, termination of any one or more Liquor
Licenses or otherwise have or would reasonably be likely to have a material
adverse impact on any Company Restaurant or the nature or level of discipline
imposed on account of future violations of the laws related to sales and service
of alcoholic beverages or (y) would (or would reasonably be likely to)
materially impede, delay, hinder or make more burdensome for the Buyer to obtain
and maintain any and all authorizations, approvals, consents or orders from any
Governmental Entity or other third party necessary or required to maintain the
Liquor Licenses in effect at all times following the Merger on the same terms as
in effect on the date of this Agreement;
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(s) enter into any new material line of business or enter into
any agreement that restrains, limit or impedes the Company's or any Subsidiary's
ability to compete with or conduct any business or line of business;
(t) (i) file or cause to be filed any materially amended Tax
Returns or claims for refund; (ii) make or rescind any material tax election or
otherwise fail to prepare all Tax Returns in a manner which is consistent with
the past practices of the Company and each Subsidiary, as the case may be, with
respect to the treatment of items on such Tax Returns except to the extent that
any inconsistency (1) would not or may not materially increase the Buyer's, the
Company's, or any Subsidiary's liability for Taxes for any period or (2) is
required by law; (iii) incur any material liability for Taxes other than in the
ordinary course of business; or (iv) enter into any settlement or closing
agreement with a taxing authority that materially increases or would reasonably
be likely to materially increase the Tax liability of the Company or any of the
Subsidiaries for any period;
(u) fail to maintain with current or other financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are consistent
with past practice; or
(v) authorize, agree or announce an intention, in writing or
otherwise, to take any of the foregoing actions.
5.2. CONFIDENTIALITY. The Parties acknowledge that Castle
Harlan, Inc. and the Company have previously executed a confidentiality
agreement, dated as of August 23, 2001 (as in effect from time to time, the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms, except as expressly modified
herein or pursuant hereto.
5.3. NO SOLICITATION OF OTHER OFFERS. (a) Each of the Company
and the Subsidiaries shall, and shall use reasonable best efforts to cause its
affiliates and each of its and their respective officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants and
other agents to, immediately cease any discussions or negotiations with any
other Person or Persons that may be ongoing with respect to any Acquisition
Proposal. Each of the Company and the Subsidiaries shall not take, and shall
cause its affiliates and each of its and their respective officers, directors,
employees, representatives, consultants, investment bankers, attorneys,
accountants and other agents not to take, any action (i) to encourage, solicit,
initiate or facilitate, directly or indirectly, the making or submission of any
Acquisition Proposal (including, without limitation, by taking any action that
would make the Rights Agreement inapplicable to an Acquisition Proposal), (ii)
to enter into any agreement, arrangement or understanding with respect to any
Acquisition Proposal, other than a confidentiality agreement referred to below,
in accordance with the terms and under the circumstances contemplated below in
this Section 5.3(a), or to agree to approve or endorse any Acquisition Proposal
or enter into any agreement, arrangement or understanding that would require the
Company to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by this Agreement, (iii) to initiate or participate in
any way in any discussions or negotiations with, or furnish or disclose any
information to, any Person (other than the Buyer or the Transitory Subsidiary)
in furtherance of any proposal that constitutes, or could reasonably be expected
to
A-36
lead to, any Acquisition Proposal, (iv) to facilitate or further in any other
manner any inquiries or the making or submission of any proposal that
constitutes, or could reasonably be expected to lead to, any Acquisition
Proposal, or (v) to grant any waiver or release under any standstill,
confidentiality or similar agreement entered into by the Company or any of its
affiliates or representatives; PROVIDED that so long as there has been no breach
of this Section 5.3(a), prior to the Special Meeting the Company, in response to
an unsolicited Acquisition Proposal and otherwise in compliance with its
obligations under Section 5.3(c), may (x) request clarifications from, or
furnish information to, (but not enter into discussions with) any Person which
makes such unsolicited Acquisition Proposal if (A) such action is taken subject
to a confidentiality agreement with the Company containing customary terms and
conditions; PROVIDED that if such confidentiality agreement contains provisions
that are less restrictive than the comparable provisions of the Confidentiality
Agreement, or omits restrictive provisions contained in the Confidentiality
Agreement, then the Confidentiality Agreement shall be deemed to be
automatically amended to contain in substitution for such comparable provisions
such less restrictive provisions, or to omit such restrictive provisions, as the
case may be, and in connection with the foregoing, the Company agrees not to
waive any of the provisions in any such confidentiality agreement without
waiving the similar provisions in the Confidentiality Agreement to the same
extent, (B) such action is taken solely for the purpose of obtaining information
reasonably necessary to ascertain whether such Acquisition Proposal is, or is
reasonably likely to lead to, a Superior Proposal (as defined in Section
5.3(b)), and (C) the Board of Directors of the Company reasonably determines in
good faith, after receiving advice from outside nationally recognized legal
counsel (which may be its current outside legal counsel) and based on the good
faith recommendation of the Special Committee, which has also received advice
from its outside nationally recognized legal counsel (which may be its current
outside legal counsel), that it is necessary to take such actions in order to
comply with its fiduciary duties under applicable law or (y) participate in
discussions with, request clarifications from, or furnish information to, any
Person which makes such unsolicited Acquisition Proposal if (A) such action is
taken subject to a confidentiality agreement with the Company containing
customary terms and conditions; PROVIDED that if such confidentiality agreement
contains provisions that are less restrictive than the comparable provisions of
the Confidentiality Agreement, or omits restrictive provisions contained in the
Confidentiality Agreement, then the Confidentiality Agreement shall be deemed to
be automatically amended to contain in substitution for such comparable
provisions such less restrictive provisions, or to omit such restrictive
provisions, as the case may be, and in connection with the foregoing, the
Company agrees not to waive any of the provisions in any such confidentiality
agreement without waiving the similar provisions in the Confidentiality
Agreement to the same extent, (B) the Board of Directors of the Company
reasonably determines in good faith, after receiving advice from outside
nationally recognized legal counsel
A-37
(which may be its current outside legal counsel), advice from Greenhill or
another independent nationally recognized investment bank and based on the good
faith recommendation of the Special Committee, which has also received advice
from its outside nationally recognized legal counsel (which may be its current
outside legal counsel) and advice from Greenhill or another independent
nationally recognized investment bank, that such Acquisition Proposal is a
Superior Proposal and (C) the Board of Directors of the Company reasonably
determines in good faith, after receiving advice from outside nationally
recognized legal counsel (which may be its current outside legal counsel) and
based on the good faith recommendation of the Special Committee, which has also
received advice from its outside nationally recognized legal counsel (which may
be its current outside legal counsel), that it is necessary to take such actions
in order to comply with its fiduciary duties under applicable law. Without
limiting the foregoing, the Buyer, the Transitory Subsidiary and the Company
agree that any violation of the restrictions set forth in this Section 5.3(a) by
any affiliate, officer, director, employee, representative, consultant,
investment banker, attorney, accountant or other agent of the Company or any of
the Subsidiaries or their respective affiliates (other than any such Person who
is an affiliate or employee of the Buyer or of any of its affiliates), whether
or not such Person is purporting to act on behalf of the Company or any of the
Subsidiaries or their respective affiliates, shall constitute a breach by the
Company of this Section 5.3(a). The Company shall enforce, to the fullest extent
permitted under applicable law, the provisions of any standstill,
confidentiality or similar agreement entered into by the Company or any of the
Subsidiaries or their respective affiliates or representatives, including,
without limitation, where necessary, obtaining injunctions to prevent any
breaches of such agreements and to enforce specifically the terms and provisions
thereof in any court having jurisdiction.
(b) Neither the Board of Directors of the Company nor any
committee thereof (including, without limitation, the Special Committee) shall
(i) withdraw, modify or amend, or propose to withdraw, modify or amend, in a
manner adverse to the Buyer or the Transitory Subsidiary, the approval, adoption
or recommendation, as the case may be, of the Merger, this Agreement or any of
the other transactions contemplated hereby, (ii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal, (iii) cause the
Company to accept such Acquisition Proposal and/or enter into any letter of
intent, agreement in principle, acquisition agreement or other similar agreement
(each, an "ACQUISITION AGREEMENT") related to such Acquisition Proposal, or (iv)
resolve to do any of the foregoing; PROVIDED that the Board of Directors of the
Company, based on the recommendation of the Special Committee, may take such
actions prior to the Special Meeting if (w) the Company has complied with its
obligations under this Section 5.3, (x) the Acquisition Proposal is a Superior
Proposal, (y) the Board of Directors of the Company reasonably determines in
good faith, after receiving advice from outside nationally recognized legal
counsel (which may be its current outside legal counsel) and based on the good
faith recommendation of the Special Committee, which has also received advice
from its outside nationally recognized legal counsel (which may be its current
outside legal counsel), that it is necessary to take such actions in order to
comply with its fiduciary duties under applicable law, all the conditions to the
Company's right to terminate this Agreement in accordance with Section 7.1(f)
have been satisfied (including the expiration of the five (5) Business Day
period described therein and the payment of all amounts required pursuant to
Section 7.3) and (z) simultaneously or substantially simultaneously with such
withdrawal, modification or recommendation, this Agreement is terminated in
accordance with Section 7.1(f).
For purposes of this Agreement, the term "ACQUISITION
PROPOSAL" means (i) any inquiry, proposal or offer (including, without
limitation, any proposal to stockholders of the Company) from any Person or
group relating to any direct or indirect acquisition or purchase of fifteen
percent (15%) or more of the consolidated assets of the Company and the
Subsidiaries or fifteen percent (15%) or more of any class of equity securities
of the Company or any of the Subsidiaries in a single transaction or a series of
related transactions, (ii) any tender offer (including a self tender offer) or
exchange offer that, if consummated, would result in any Person or group
beneficially owning fifteen percent (15%) or more of any class of equity
securities of
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the Company or any of the Subsidiaries or the filing with the SEC of a
registration statement under the Securities Act or any statement, schedule or
report under the Exchange Act in connection therewith, (iii) any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company or any of the Subsidiaries, (iv)
any other transaction the consummation of which could reasonably be expected to
impede, interfere with, prevent or materially delay the Merger or which could
reasonably be expected to materially dilute the benefits to the Buyer of the
transactions contemplated hereby or (v) any public announcement by or on behalf
of the Company, any of the Subsidiaries or any of their respective affiliates
(or any of their respective officers, directors, employees, representatives,
consultants, investment bankers, attorneys, accountants and other agents) or by
any third party of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing.
For purposes of this Agreement, the term "SUPERIOR PROPOSAL"
means a bona fide written offer which is binding on the offeror and not
solicited by or on behalf of the Company, any of the Subsidiaries or any of
their respective affiliates (or any of their respective officers, directors,
employees, representatives, consultants, investment bankers, attorneys,
accountants and other agents) made by a third party to acquire, directly or
indirectly, all of the Shares pursuant to a tender offer followed by a merger, a
merger or a purchase of all or substantially all of the assets of the Company
and the Subsidiaries (i) on terms which the Board of Directors of the Company
reasonably determines in good faith, after receiving the advice of Greenhill or
another independent nationally recognized investment bank and based on the good
faith determination of the Special Committee (after receiving the advice of
Greenhill or another independent nationally recognized investment bank), to be
more favorable from a financial point of view to the Company and its
stockholders (in their capacity as such) than the transactions contemplated
hereby (to the extent the transactions contemplated hereby are proposed to be
modified by the Buyer in accordance with Section 7.1(f)), (ii) which is
reasonably capable of being consummated (taking into account such factors as the
Board of Directors of the Company and the Special Committee in good faith deems
relevant, including, without limitation, all legal, financial, regulatory and
other aspects of such proposal (including the terms of any financing and the
likelihood that the transaction would be consummated) and the identity of the
Person making such proposal) and (iii) which is not conditioned on any
financing, the obtaining of which in the reasonable good faith determination of
the Board of Directors of the Company based on the recommendation of the Special
Committee is less likely to be obtained than the effectiveness of the Fifteenth
Amendment to Company Senior Credit Agreement (as defined in Section 6.2(g)).
(c) In addition to the obligations of the Company set forth in
paragraph (a), on the date of receipt or occurrence thereof, the Company shall
advise the Buyer of any request for information with respect to any Acquisition
Proposal or of any Acquisition Proposal, or any inquiry, proposal, discussions
or negotiation with respect to any Acquisition Proposal, the terms and
conditions of such request, Acquisition Proposal, inquiry, proposal, discussion
or negotiation and the Company shall, within one (1) calendar day of the receipt
thereof, promptly provide to the Buyer copies of any written materials received
by the Company in connection with any of the foregoing, and the identity of the
Person making any such Acquisition Proposal or such request, inquiry or proposal
or with whom any discussions or negotiations are taking place. The Company shall
keep the Buyer fully informed of the status and material details (including
amendments or proposed amendments) of any such request or Acquisition Proposal
and keep the
A-39
Buyer fully informed as to the material details of any information requested of
or provided by the Company and as to the details of all discussions or
negotiations with respect to any such request, Acquisition Proposal, inquiry or
proposal, and shall provide to the Buyer within one (1) calendar day of receipt
thereof all written materials received by the Company with respect thereto. The
Company shall promptly provide to the Buyer any non-public information
concerning the Company provided to any other Person in connection with any
Acquisition Proposal, which was not previously provided to the Buyer.
(d) The Company shall promptly request in writing each Person
which has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring the Company or any portion thereof to return all
confidential information heretofore furnished to such Person by or on behalf of
the Company, and the Company shall use its reasonable best efforts to have such
information returned or destroyed (to the extent destruction of such information
is permitted by such confidentiality agreement).
5.4. ACCESS TO INFORMATION. The Company shall (and shall cause
each of its Subsidiaries to) afford to the Buyer's officers, employees,
accountants, consultants, financing sources, counsel and other agents and
representatives reasonable access, upon reasonable advance notice, during normal
business hours during the period prior to the Effective Time, to all of the
properties, books, contracts, commitments, personnel and records and accountants
of the Company and its Subsidiaries and, during such period, the Company shall
(and shall cause each of the Subsidiaries to) furnish to the Buyer (a) a copy of
each report, schedule, registration statement and other document filed or
received by it or any of the Subsidiaries during such period pursuant to the
requirements of federal or state securities laws and (b) all other information
concerning business, properties, assets and personnel of the Company and the
Subsidiaries as the Buyer may reasonably request. The Buyer, the Transitory
Subsidiary and their affiliates and representatives will hold any such
information that is nonpublic in confidence in accordance with the
Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 5.4 or otherwise shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the Parties to consummate the Merger.
5.5. SPECIAL MEETING. As promptly as practicable after the
execution and delivery of this Agreement, the Company, acting through its Board
of Directors, shall, in accordance with applicable law, duly call, give notice
of, convene and hold a special meeting of its stockholders (the "SPECIAL
MEETING"), which meeting shall be held as promptly as practicable following the
preparation of the Proxy Statement, for the purpose of considering and taking
action upon the approval of this Agreement and the Merger, and the Company
agrees that this Agreement and the Merger shall be submitted at such meeting.
Subject to Section 5.3(b), the Company shall use its reasonable best efforts to
solicit and obtain from its stockholders proxies, and shall take all other
action necessary and advisable to secure the vote of stockholders required by
applicable law and by the Certificate of Incorporation of the Company or the
By-laws of the Company to obtain their adoption of this Agreement and approval
of the Merger, and the Board of Directors of the Company shall recommend that
the stockholders of the Company vote in favor of the adoption of this Agreement
and the approval of the Merger at the Special Meeting, and the Company agrees
that it shall include in the Proxy Statement such recommendation of the Board of
Directors of the Company that the stockholders of the Company adopt this
Agreement
A-40
and approve the Merger. Without limiting the generality of the foregoing, the
Company agrees that its obligations pursuant to the first sentence of this
Section 5.5 shall not be affected by (i) the commencement, public proposal,
public disclosure or communication to the Company, any of the Subsidiaries or
any of their respective affiliates (or any of their respective officers,
directors, employees, representatives, consultants, investment bankers,
attorneys, accountants and other agents) of any Acquisition Proposal or (ii) the
withdrawal or modification by the Board of Directors of the Company of its
approval or recommendation of this Agreement or the Merger. The Buyer will cause
all Shares owned by the Buyer and its subsidiaries (including the Transitory
Subsidiary), if any, to be voted in favor of the Merger.
5.6. PROXY STATEMENT. As promptly as practicable after the
execution and delivery of this Agreement, the Company shall:
(a) prepare and, after consultation with and review by the
Buyer, file with the SEC a preliminary proxy statement relating to the Merger
and this Agreement and use its reasonable best efforts (i) to obtain and furnish
the information required to be included by the SEC in the Proxy Statement and,
after consultation with and review by the Buyer, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy statement and
promptly cause a definitive proxy statement (the "PROXY STATEMENT") to be mailed
to its stockholders and, if necessary, after the definitive Proxy Statement
shall have been so mailed, promptly circulate amended or supplemental proxy
material and, if required in connection therewith, resolicit proxies; PROVIDED
that no such amended or supplemental proxy material will be mailed by the
Company without consultation with and review by the Buyer and (ii) to obtain the
necessary approvals of the Merger and this Agreement by its stockholders;
(b) promptly notify the Buyer of the receipt of the comments
of the SEC and of any request from the SEC for amendments or supplements to the
preliminary proxy statement or the definitive Proxy Statement or for additional
information, and will promptly supply the Buyer with copies of all written
correspondence between the Company or its representatives, on the one hand, and
the SEC or members of its staff, on the other hand, with respect to the
preliminary proxy statement, the definitive Proxy Statement or the Merger;
(c) promptly inform the Buyer if at any time prior to the
Special Meeting any event should occur that is required by applicable law to be
set forth in an amendment of, or a supplement to, the Proxy Statement, in which
case, the Company, with the cooperation of and in consultation with the Buyer,
will, upon learning of such event, promptly prepare and mail such amendment or
supplement; and
(d) it is expressly understood and agreed that (i) the Buyer,
the Transitory Subsidiary and the Company will cooperate with each other in
connection with all aspects of the preparation, filing and clearance by the SEC
of the Proxy Statement (including the preliminary proxy and any and all
amendments or supplements thereto), (ii) the Company shall give the Buyer and
its outside counsel the opportunity to review the Proxy Statement prior to it
being filed with the SEC and shall give the Buyer and its outside counsel the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC and each of the Company and
the Buyer agrees to use its reasonable best efforts, after consultation with
A-41
the other, to respond promptly to all such comments of and requests by the SEC,
(iii) to the extent practicable, the Company and its outside counsel shall (and
the Company shall cause the Special Committee and its outside counsel to) permit
the Buyer and its outside counsel to participate in all communications with the
SEC and its staff (including, without limitation, all meetings and telephone
conferences) relating to the Proxy Statement, this Agreement or any of the
transactions contemplated thereby (PROVIDED that in the event that such
participation by the Buyer is not practicable, the Company shall promptly inform
the Buyer and its counsel of the content of all such communications and the
participants involved therein), and (iv) the Company will not file with, or send
to, the SEC the Proxy Statement (including the preliminary proxy statement and
any and all amendments or supplements thereto and any and all responses to
requests for additional information and replies to comments relating thereto) or
mail any Proxy Statement (including the preliminary proxy statement and any and
all amendments or supplements thereto) or use any proxy material in connection
with the Special Meeting, in each case without the Buyer's prior approval (not
to be unreasonably withheld).
5.7. REASONABLE BEST EFFORTS. Subject to the terms and
conditions provided herein, each of the Company, the Buyer and the Transitory
Subsidiary shall, and the Company shall cause each of the Subsidiaries to,
cooperate and use their reasonable best efforts to take, or cause to be taken,
all appropriate action, and do, or cause to be done, and assist and cooperate
with the other Parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this Agreement (including,
without limitation, the satisfaction of the respective conditions set forth in
Article VI), and to make, or cause to be made, all filings necessary, proper or
advisable under applicable laws, rules and regulations to consummate and make
effective the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, each of the Company, the Buyer and the Transitory
Subsidiary shall, and the Company shall cause each of the Subsidiaries to,
cooperate and use their reasonable best efforts to promptly:
(a) make any and all filings, recordations, declarations or
registrations with, obtain any and all actions or non-actions, licenses,
permits, consents, approvals, waivers, authorizations, qualifications and orders
of, give any and all notices to, take reasonable steps to avoid an action or
proceeding by, any and all Governmental Entities (including, without limitation,
all filings under the HSR Act) and parties to contracts with the Company and the
Subsidiaries, in each case prior to the Closing Date, as are necessary, proper
or advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement; it being understood and agreed that:
(i) the Company and the Subsidiaries shall use their
reasonable best efforts to cooperate with the Buyer in any manner reasonably
requested by the Buyer in connection with obtaining at or prior to the Closing
of approvals, consents or waivers (collectively, the "REQUIRED CONSENTS") under
each of the Contracts identified in Section 5.7(a)(i) of the Company Disclosure
Letter (collectively, the "IDENTIFIED CONTRACTS") with respect to the Merger
(including the change of control resulting therefrom) and the other transactions
contemplated by this Agreement (no such Required Consent to be conditioned on
any increase in the amount payable under the applicable Identified Contract or
any reduction in the term thereof or any other material changes in the
provisions thereof, except as may be required by the express
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terms of the applicable Identified Contract, and such Required Consent shall
otherwise be on terms and conditions reasonably satisfactory to the Buyer); in
connection with the foregoing, neither the Company nor any of the Subsidiaries
shall, without the prior written consent of the Buyer, make (or commit to make)
any payment or otherwise provide (or commit to provide) any value or benefit to
any Person in connection with obtaining any Required Consent (except as may be
required by the express terms of the respective Identified Contracts); PROVIDED
that, notwithstanding anything to the contrary set forth in Section 5.1, with
the prior written consent of the Buyer (not to be unreasonably withheld or
delayed; it being understood and agreed that any objection to a refinancing
raised by any lender under the Company Senior Credit Agreement shall be a
reasonable basis for withholding or delaying consent), the Company shall be
permitted to enter into one or more Contracts (collectively, the "REPLACEMENT
CONTRACTS") to refinance any Identified Contract on terms not materially less
favorable (after taking into account any and all fees and expenses incurred in
connection with such refinancing) to the Company (or the applicable Subsidiary)
or the Surviving Corporation than the terms of such Identified Contract,
whereupon the respective Replacement Contract shall be deemed to be disclosed on
Section 5.7(a)(i) of the Company Disclosure Letter and to constitute an
Identified Contract for purposes of this Section 5.7(a)(i) (it being understood
and agreed that fees paid to refinance any Identified Contract as contemplated
above shall be counted for purposes of the last sentence of this Section 5.7).
(ii) each of the Parties shall expeditiously give and make
any and all notices and reports required to be made by such Party to the
appropriate Persons with respect to the Liquor Licenses and each of the Parties
shall, prior to the Effective Time, use its reasonable best efforts to cooperate
with the other in any manner reasonably requested by the other in connection
with obtaining at or prior to the Closing the regulatory approvals or consents
as may be required by any Governmental Entities in order to obtain and maintain
in effect at all times following the Effective Time all Liquor Licenses and
other permits necessary to maintain continuity of service of alcoholic beverages
at each Company Restaurant; without limiting the foregoing, each of the Parties
shall, to the extent necessary of such Party, (1) duly and promptly file and
process any and all applications necessary to obtain all required regulatory
approvals or consents as a result of the consummation of the transactions
contemplated by this Agreement, including, without limitation, the amendment of
any and all documents required to be amended with respect to the existing
licensees under the Liquor Licenses, (2) duly and promptly file and process
Liquor License applications with respect to each of the restaurants being
brought into operation at any time prior to the Effective Time and to duly and
promptly file appropriate amendments, if any, as a result of the consummation of
the transactions contemplated by this Agreement, and (3) duly and promptly file
with all appropriate Governmental Entities, and thereafter duly process renewal
applications for all of the licensed Subsidiaries whose licenses will expire
during the period from the date of this Agreement and until all of the
respective applications shall have been approved; PROVIDED that, without the
Company's prior consent (not to be unreasonably withheld or delayed), neither
the Buyer nor the Transitory Subsidiary shall, from and after the date hereof,
until the Effective Time, (1) add any officer or director of the Buyer or the
Transitory Subsidiary (other than (x) any individual who is currently an officer
or director of the Company or any of the Subsidiaries or (y) any individual who
is an officer or director of an affiliate of Castle Harlan, Inc., which
affiliate has at any time during which such individual is or was an officer or
director of such affiliate received regulatory approval or consent to obtain,
renew or maintain in effect a liquor license) or (2) issue or sell any equity
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interest in the Buyer or the Transitory Subsidiary to any Person (other than
their current stockholders or any individual who is currently an officer or
director of the Company or any of the Subsidiaries), if, in the case of either
(1) or (2) above, the Buyer is aware, after due inquiry, that such action would
or would be reasonably likely to materially impede, delay, hinder or make more
burdensome the obtaining and maintaining of any and all authorizations,
approvals, consents or orders from any Governmental Entity or other third party
necessary to maintain continuity of service of alcoholic beverages at each
Company Restaurant in effect for a reasonable period of time following the
Effective Time on terms no less favorable to the Company or the Surviving
Corporation than those in effect on the date of this Agreement; and
(iii) the Company and its Board of Directors shall (A)
take all action within its power to make any "fair price", "moratorium",
"control share acquisition", "business combination" or other state takeover
statute or similar statute, rule or regulation inapplicable to the Merger, this
Agreement or any of the other transactions contemplated hereby and (B) if any
state takeover statute or similar statute, rule or regulation becomes applicable
to the Merger, this Agreement or any of the other transactions contemplated
hereby, take all action within its power to ensure that the Merger and such
other transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute, rule or regulation on the Merger and such other transactions;
(b) defend any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
any of the transactions contemplated hereby (including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed); it being understood and agreed that the Company shall
promptly notify the Buyer of any litigation (including any stockholder
litigation), other than where the Buyer is the adverse party, against the
Company and/or its directors relating to any of the transactions contemplated by
this Agreement and the Company shall give the Buyer the opportunity to
participate in the defense or settlement of any such litigation; PROVIDED that
no settlement with respect to any such litigation shall be agreed to without the
Buyer's prior consent (which shall not be unreasonably withheld); and
(c) execute and deliver any additional instruments necessary
to consummate the transactions contemplated by this Agreement and to fully carry
out the purposes of this Agreement.
Notwithstanding the foregoing to the contrary, except as may be required by the
Fifteenth Amendment to Company Senior Credit Agreement (as defined in Section
6.2(g)), no loan agreement or contract for borrowed money shall be repaid, in
whole or in part, except by payment of an immaterial sum (in any event not to
exceed a basket amount equal to $100,000 in the aggregate with respect to all
such loan agreements and contracts for borrowed money, after taking into account
any and all amounts payable pursuant to the immediately succeeding parenthetical
or pursuant to Section 5.7(a)(i)) or as currently required by its terms, and no
material Contract shall be amended, modified, supplemented or replaced to
increase the amount payable thereunder (other than by an amount not to exceed a
basket amount equal to $100,000 in the aggregate with respect to all such
material Contracts, after taking into account any and all amounts payable
pursuant to the immediately preceding parenthetical or pursuant to Section
5.7(a)(i)) or otherwise to be more burdensome (other than in an immaterial
manner) to the
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Company or any of the Subsidiaries in order to obtain any such consent, approval
or authorization without first obtaining the written approval of the Buyer,
which shall not be unreasonably withheld.
5.8. PUBLIC DISCLOSURE. The press release announcing the
execution of this Agreement shall be issued only in such form as shall be
mutually agreed upon by the Company and the Buyer and (b) each of the Company
and the Buyer shall consult with, and obtain the consent of, the other Party
before issuing any other press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to consulting with and obtaining
the prior consent of the other Party; PROVIDED that a Party may, without
consulting with or obtaining the prior consent of the other Party, issue such
press release or make such public statement as may be required by applicable
law, rule or regulation or by any listing agreement with a national securities
exchange or automated quotation system to which the Buyer (or an affiliate
thereof) or the Company, as the case may be, is a party, if such Party has used
reasonable best efforts to consult with the other Party and to obtain such other
Party's consent, but has been unable to do so in a timely manner.
5.9. EMPLOYEE STOCK PURCHASE PLAN. As of the end of the
Offering Period (within the meaning of the Company's Employee Stock Purchase
Plan (the "ESPP")) ending March 31, 2002, the ESPP shall be terminated. Prior to
the end of such Offering Period, the Company shall take all actions (including
preventing any payroll deductions under the ESPP with respect to any period
after such Offering Period and, if appropriate, amending the terms of the ESPP)
that are necessary to effect such termination.
5.10. OTHER EMPLOYEE BENEFITS. (a) For a period of one (1)
year following the Effective Time, the Buyer shall or shall cause the Surviving
Corporation to maintain in effect employee benefit plans and arrangements for
employees of the Surviving Corporation (to the extent that such plans and
arrangements have heretofore been disclosed by the Company to the Buyer) that,
taken as a whole, provide a level of benefits that is substantially comparable
to the level of the benefits, taken as a whole, provided by the Company Employee
Plans immediately prior to the date of this Agreement (other than stock option
or stock-based plans or arrangements); PROVIDED that employees covered by
collective bargaining agreements need not be provided with any such benefits.
The provisions of this Section 5.10(a) shall not create in any current or former
employee of the Company or any of the Subsidiaries any rights to employment or
continued employment with the Buyer, the Surviving Corporation or the Company or
any of their respective subsidiaries or affiliates or any right to specific
terms or conditions of employment. Notwithstanding anything in this Agreement to
the contrary, subject to any existing employment contracts disclosed in Section
5.10 of the Company Disclosure Letter, from and after the Effective Date, the
Surviving Corporation shall have sole discretion over the hiring, promotion,
retention, termination and other terms and conditions of the employment of the
employees of the Surviving Corporation.
(b) The Buyer shall ensure that employees of the Company as of
the Effective Time receive credit (for all purposes including eligibility to
participate, vesting, vacation entitlement and severance benefits) for service
with the Company or the Subsidiaries (to the same extent such service credit was
granted under the Company Employee Plans immediately prior to the date of this
Agreement) under the comparable employee benefit plans, programs and
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policies of the Buyer and the Surviving Corporation in which such employees
shall become participants as contemplated by Section 5.10(a) (other than benefit
accrual under any pension plan).
(c) The Buyer shall cause the Surviving Corporation to assume
and honor in accordance with their respective terms all written employment,
severance, retention and termination agreements (including any change in control
provisions therein) applicable to employees of the Company; PROVIDED that
nothing herein shall obligate the Buyer or the Surviving Corporation to maintain
any particular plan or arrangement in accordance with its terms after the
Effective Date (other than the existing employment, severance, retention and
termination agreements disclosed in Section 5.10 of the Company Disclosure
Letter).
5.11. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION.
(a) After the Effective Time, subject to Section 5.11(b), the Surviving
Corporation (or any successor to the Surviving Corporation) shall indemnify,
defend and hold harmless the present and former officers and directors of the
Company and the Subsidiaries who are covered on the date of this Agreement by
the Company's directors' and officers' liability insurance policy (each, an
"INDEMNIFIED PARTY") against all losses, claims, damages, liabilities, fees and
expenses (including reasonable fees and disbursements of counsel) and judgments,
fines, losses, claims, liabilities and amounts paid in settlement (PROVIDED that
any such settlement is effected with the written consent of the Surviving
Corporation, such consent not to be unreasonably withheld) arising out of
actions or omissions arising out of such individuals' services as officers,
directors, employees or agents of the Company or any of the Subsidiaries or as
trustees or fiduciaries of any plan for the benefit of employees of the Company
or any of the Subsidiaries, occurring at or prior to the Effective Time to the
full extent permitted under Delaware law, such right to include advancement of
expenses incurred in the defense of any action or suit; PROVIDED that any
determination required to be made with respect to whether such Indemnified Party
is entitled to indemnity hereunder (including, without limitation, whether, with
respect to the indemnification of such Indemnified Party by the Surviving
Corporation, an Indemnified Party's conduct complies with the standards set
forth under the DGCL), shall be made at the Surviving Corporation's expense by
independent counsel mutually acceptable to the Surviving Corporation and the
Indemnified Party; PROVIDED, FURTHER, that nothing herein shall impair any
rights or obligations of any present or former directors or officers of the
Company or any of its Subsidiaries.
(b) For a period of not less than six (6) years after the
Effective Date, the Surviving Corporation shall either (i) maintain the
Company's existing officers' and directors' liability insurance covering claims
arising from facts or events that occurred at or prior to the Effective Time (a
true and correct copy of which has been previously delivered to the Buyer) ("D&O
INSURANCE"); PROVIDED that in no event shall the Buyer be required to expend in
any one (1) year an amount in excess of two hundred percent (200%) of the annual
premiums currently paid by the Company for such insurance (in this regard, the
Company represents that the premiums currently paid by the Company for such
insurance with respect to the thirty-six (36) month period ending on June 3,
2003 to be $253,500); PROVIDED, FURTHER, that if the annual premiums of such
insurance coverage exceed such amount, the Surviving Corporation shall be
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount; PROVIDED, FURTHER, that the Surviving Corporation may
substitute for such Company
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policies other policies of substantially similar coverage and amounts containing
terms no less favorable, taken as a whole, to such former directors or officers;
PROVIDED, FURTHER, that if the existing D&O Insurance expires, is terminated or
cancelled during such period, the Surviving Corporation will obtain
substantially similar D&O Insurance or (ii) cause the Buyer's directors' and
officers' liability insurance then in effect to cover the Indemnified Parties
with respect to those matters covered by, and on terms no less favorable, taken
as a whole, than those set forth in, the Company's directors' and officers'
liability insurance policy.
(c) To the extent permitted by applicable law, the Certificate
of Incorporation and the By-laws of the Surviving Corporation for so long as the
Surviving Corporation shall continue to exist shall contain the provisions with
respect to advancement of expenses, indemnification and exculpation from
liability set forth in the Certificate of Incorporation and By-laws of the
Company on the date of this Agreement, which provisions shall not be amended,
repealed or otherwise modified for a period of six (6) years from the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who on or prior to the Effective Time were directors or officers of
the Company, unless such modification is required by law or regulation.
(d) In the event the Surviving Corporation or any of its
respective successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity in
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each case, proper provision
shall be made so that the successors and assigns of the Surviving Corporation
honor the indemnification obligations set forth in this Section 5.11.
(e) The obligations of the Surviving Corporation under this
Section 5.11 shall not be terminated, modified or assigned in such a manner as
to adversely affect any current or former director or officer to whom this
Section 5.11 applies without the consent of such affected director or officer
(it being expressly agreed that the directors and officers to whom this Section
5.11 applies shall be third-party beneficiaries of this Section 5.11).
(f) Any Indemnified Party entitled to and wishing to claim
indemnification under Section 5.11(a), upon learning of any such claim, action,
suit, proceeding or investigation after the Effective Time, shall promptly
notify the Surviving Corporation thereof (PROVIDED that the failure to provide
prompt notice shall not relieve the Surviving Corporation of its obligations
pursuant to this Section 5.11 except to the extent that it has been prejudiced
thereby). In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) the
Surviving Corporation shall have the right, from and after the Effective Time,
to assume the defense thereof (with counsel engaged by the Surviving Corporation
to be reasonably acceptable to the relevant Indemnified Party), and the
Surviving Corporation shall not be liable to such Indemnified Party for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof, (ii) such
Indemnified Party shall cooperate in the defense of any such matter and (iii)
the Surviving Corporation shall not be liable for any settlement effected
without its prior written consent; PROVIDED that the Surviving Corporation shall
not have any obligation under Section 5.11(a) to any Indemnified Party when and
if it is determined in accordance with Section 5.11(a) that the Indemnified
Party is not entitled to indemnity hereunder.
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5.12. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to the Buyer and the Buyer shall give prompt notice to the
Company, of (a) the occurrence or non-occurrence of any event known to such
Party, the occurrence or non-occurrence of which has resulted in, or is
reasonably likely to result in, any representation or warranty set forth in this
Agreement made by such Party that is qualified as to materiality to be untrue or
inaccurate, or any such representation and warranty that is not so qualified to
be untrue or inaccurate in any material respect; (b) any material failure by
such Party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; or (c) any action, suit, proceeding,
inquiry or investigation pending or, to the knowledge of such Party, threatened
which questions or challenges this Agreement or the consummation of any of the
transactions contemplated hereby; PROVIDED that the delivery of any notice
pursuant to this Section 5.12 shall not limit or otherwise affect the remedies
available hereunder to the Party receiving such notice and that no such
notification shall modify the representations or warranties of any Party or the
conditions to the obligations of any Party hereunder. Each of the Company, the
Buyer and the Transitory Subsidiary shall give prompt notice to the other
Parties of any notice or other communication from any third party alleging that
the consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement.
5.13. RIGHTS AGREEMENT. Subject to the Company's right to
terminate this Agreement and abandon the Merger and the other transactions
contemplated by this Agreement pursuant to and in accordance with Section
7.1(f), and other than in connection with the transactions contemplated hereby,
the Company shall not (i) redeem the Rights, (ii) amend (other than to delay the
"Distribution Date" (as such term is defined in the Rights Agreement) or to
render the Rights inapplicable to the Merger) or terminate the Rights Agreement
prior to the Effective Time, unless required to do so by a court of competent
jurisdiction or (iii) take any action which would allow any "PERSON" (as such
term is defined in the Rights Agreement) other than the Buyer or the Transitory
Subsidiary (or their affiliates) to be the "BENEFICIAL OWNER" (as such term is
defined in the Rights Agreement) of fifteen percent (15%) or more of the Common
Stock without causing a "Distribution Date" (as such term is defined in the
Rights Agreement) or a "STOCK ACQUISITION DATE" (as such term is defined in the
Rights Agreement) to occur.
5.14. SUBSEQUENT FILINGS. Until the Effective Time, the
Company will timely file with the SEC each Subsequent Filing required to be
filed by the Company and will promptly deliver to the Buyer and the Transitory
Subsidiary copies of each such Subsequent Filing filed with the SEC. As of their
respective dates, none of such Subsequent Filings (a) shall contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading and (b) shall
comply, in all material respects with all applicable requirements of the federal
securities laws and the SEC rules and regulations promulgated thereunder.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by the Buyer or the Transitory
Subsidiary in writing relating to the Buyer or the Transitory Subsidiary, as the
case may be, expressly for inclusion or incorporation by reference in the Proxy
Statement. Each of the audited consolidated financial statements and unaudited
interim financial statements (including, in each case, any related notes and
schedules) contained or to be contained in the Subsequent Filings shall be
prepared from, and shall be in accordance with, the books and records of the
Company and its consolidated Subsidiaries, shall comply in all material respects
with applicable accounting requirements and
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with the published rules and regulations of the SEC with respect thereto, shall
be prepared in accordance with GAAP (except as may be indicated in the notes
thereto) and shall fairly present the consolidated financial position and the
consolidated results of operations and cash flows of the Company and its
consolidated Subsidiaries at the dates and for the periods covered thereby.
5.15. COMMUNICATION TO EMPLOYEES. The Company and the Buyer
will cooperate with each other with respect to, and endeavor in good faith to
agree in advance upon the method and content of, all written or oral
communications or disclosure to employees of the Company or any of the
Subsidiaries with respect to the Merger and any other transactions contemplated
by this Agreement.
ARTICLE VI
CONDITIONS TO EFFECT THE MERGER
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each Party to this Agreement to effect the
Merger shall be subject to the satisfaction or waiver (to the extent permitted
by applicable law) on or prior to the Closing Date of each of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have been duly adopted and approved by the requisite affirmative vote of the
Company's stockholders in accordance with applicable law, the Company's
Certificate of Incorporation and the Company's By-laws;
(b) GOVERNMENTAL APPROVALS. Other than the filing of the
Certificate of Merger as contemplated by Section 1.2, all authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations of waiting periods imposed by, any Governmental Entity in connection
with the Merger and the consummation of the other transactions contemplated by
this Agreement, the failure of which to file, obtain or occur, individually or
in the aggregate, would result or would reasonably be likely to result in a
Company Material Adverse Effect, shall have been filed, been obtained or
occurred and shall not have expired or been withdrawn (including any filings
under the HSR Act and the expiration or termination of any waiting periods
imposed or required by the HSR Act); PROVIDED that the right to assert this
condition shall not be available to a Party whose material failure to fulfill
any obligation under this Agreement has been the principal cause of or resulted
in the failure of this condition to be satisfied.
(c) INJUNCTIONS. There shall be no preliminary or permanent
order or injunction of a court or other Governmental Entity of competent
jurisdiction precluding, restraining, enjoining or prohibiting consummation of
the Merger.
6.2. CONDITIONS TO THE BUYER'S AND THE TRANSITORY SUBSIDIARY'S
OBLIGATION TO EFFECT THE MERGER. The obligation of the Buyer and the Transitory
Subsidiary to effect the Merger shall be subject to the satisfaction on or prior
to the Closing Date of each of the following conditions, any and all of which
may be waived in whole or in part by the Buyer or the Transitory Subsidiary to
the extent permitted by applicable law:
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(a) REPRESENTATIONS AND WARRANTIES. (i) The representations
and warranties of the Company set forth in this Agreement that are qualified by
references to the qualification "Company Material Adverse Effect" shall be true
and correct when made and on the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct only as
of the specified date), as if made on and as of such date and (ii) all other
representations and warranties of the Company set forth in this Agreement shall
have been true and correct when made and on and as of the Closing Date (except
for representations and warranties made as of a specified date, which need be
true and correct only as of the specified date) as if made on and as of such
date, except for such inaccuracies as have not resulted in and would not
reasonably be likely to result in, individually or in the aggregate, a Company
Material Adverse Effect. The Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate, signed on behalf of the Company by the
Chief Executive Officer of the Company, to such effect.
(b) COVENANTS. The Company shall have performed or complied in
all material respects with all obligations, agreements or covenants required to
be performed under this Agreement on or prior to the Closing Date. The Company
shall have delivered to the Buyer and the Transitory Subsidiary a certificate,
signed on behalf of the Company by the Chief Executive Officer of the Company,
to such effect.
(c) ILLEGALITY. There shall have been no action taken, or
statute, rule, regulation, judgment or executive order promulgated, entered,
enforced, enacted, issued or deemed applicable to the Merger by any Governmental
Entity that directly or indirectly prohibits or makes illegal the consummation
of the Merger or the other transactions contemplated by this Agreement.
(d) LITIGATION. (i) There shall not be any threatened,
instituted or pending action or proceeding by any Governmental Entity before any
court of competent jurisdiction or Governmental Entity, domestic or foreign,
challenging, threatening or seeking to make illegal, impede, delay or otherwise
directly or indirectly restrain, prohibit or make materially more costly the
Merger or seeking to obtain material damages (all as determined in the Buyer's
good faith judgment); and (ii) there shall not be pending or instituted before
any court of competent jurisdiction or Governmental Entity, domestic or foreign,
any action, suit or proceeding brought by any third party against the Company or
any of the Subsidiaries, except for, in the case of this subclause (ii),
actions, suits and proceedings that could not reasonably be expected to result
in, individually or in the aggregate, a Company Material Adverse Effect.
(e) COMPANY MATERIAL ADVERSE EFFECT. There shall not have
occurred any event, change, occurrence, effect, fact, violation, development or
circumstance that has resulted in or would reasonably be likely to result in,
individually or in the aggregate, a Company Material Adverse Effect. The Company
shall have delivered to the Buyer and the Transitory Subsidiary a certificate,
signed on behalf of the Company by the Chief Executive Officer of the Company,
to such effect.
(f) MINIMUM CONSOLIDATED ADJUSTED EBITDA. The Consolidated
Adjusted EBITDA (as defined on ANNEX A attached hereto) for the trailing twelve
month period ending on June 30, 2002 (the "LTM PERIOD") shall not be less than
$23,000,000, and the Company shall
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have furnished to the Buyer evidence (in reasonable detail) thereof reasonably
satisfactory in form and substance to the Buyer, which evidence shall be subject
to review and confirmation by the Buyer's accountants to the reasonable
satisfaction of the Buyer.
(g) FIFTEENTH AMENDMENT TO COMPANY SENIOR CREDIT AGREEMENT.
Amendment No. 15 to Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of March 26, 2002 (the "FIFTEENTH AMENDMENT TO COMPANY
SENIOR CREDIT AGREEMENT"), by and among the Company and certain of the
Subsidiaries (as borrowers thereunder) and certain financial institutions
identified therein shall have become effective and binding on the parties
thereto in accordance with its terms, subject only to the satisfaction of
conditions to effectiveness thereof that, by their nature, are to be satisfied
at the Closing.
(h) MATERIAL CONSENTS. The Company shall have filed and/or
obtained (and furnished to the Buyer evidence thereof reasonably satisfactory to
the Buyer) the following (each of which shall be required to be in form and
substance reasonably satisfactory to the Buyer):
(i) any and all authorizations, approvals, consents or
orders from any Governmental Entity or other third party relating to or
constituting Required Consents, and such authorizations, approvals, consents and
orders shall have become effective and binding in accordance with their terms
and shall not have expired or been withdrawn;
(ii) any and all authorizations, approvals, consents or
orders from any Governmental Entity or other third party (including, to the
extent permitted by applicable law, the Company or any of the Subsidiaries)
necessary or required in order to obtain and maintain in effect for a reasonable
period of time following the Effective Time all Liquor Licenses and other
permits necessary to maintain continuity of service of alcoholic beverages at
each Company Restaurant (in each case, on terms no less favorable than the terms
in effect on the date of this Agreement), and such authorizations, approvals,
consents and orders shall have become effective and binding in accordance with
their terms and shall not have expired or been withdrawn; and
(iii) other than with respect to (x) the Required Consents
and (y) the Liquor Licenses, any and all authorizations, approvals or consents
of other third parties (other than with respect to real estate leases or
subleases identified on Section 3.9(c) of the Company Disclosure Letter) in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement, the failure of
which to obtain or file would result in or would reasonably be likely to result
in, individually or in the aggregate, a Company Material Adverse Effect; and
such authorizations, approvals and consents (subject to such exception) shall
have become effective and binding in accordance with their terms and shall not
have expired or been withdrawn.
6.3. CONDITIONS TO THE COMPANY'S OBLIGATION TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, to the extent permitted by applicable law:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Buyer and the Transitory Subsidiary set forth in this
Agreement shall have been true and correct
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when made and on and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct only as
of the specified date) as if made on and as of such date, except for such
inaccuracies as have not resulted in and would not reasonably be likely to
result in, individually or in the aggregate, a material adverse effect on either
the Buyer or the Transitory Subsidiary and would not materially impair the
ability of either the Buyer or the Transitory Subsidiary to consummate the
transactions contemplated by this Agreement. The Buyer and the Transitory
Subsidiary shall have delivered to the Company a certificate, signed on behalf
of the Buyer and the Transitory Subsidiary by the Chief Executive Officer of the
Buyer and the Transitory Subsidiary, to such effect.
(b) COVENANTS. The Buyer and the Transitory Subsidiary shall
have performed or complied in all material respects with all obligations,
agreements or covenants required to be performed under this Agreement on or
prior to the Closing Date. The Buyer and the Transitory Subsidiary shall have
delivered to the Company a certificate, signed on behalf of the Buyer and the
Transitory Subsidiary by the Chief Executive Officer of the Buyer and the
Transitory Subsidiary, to such effect.
(c) ILLEGALITY. There shall have been no action taken, or
statute, rule, regulation, judgment or executive order promulgated, entered,
enforced, enacted, issued or deemed applicable to the Merger by any Governmental
Entity that directly or indirectly prohibits or makes illegal the consummation
of the Merger or the other transactions contemplated by this Agreement.
ARTICLE VII
TERMINATION
7.1. TERMINATION. This Agreement may be terminated and the
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, by written notice by the
terminating Party to the other Parties, whether before or after Company
stockholder approval thereof, as follows:
(a) by mutual written consent of the Buyer and the Company;
(b) by either the Buyer or the Company, if the Merger shall
not have been consummated on or prior to 180 days after the signing of this
Agreement (or such later date as may be agreed to in writing by the Buyer and
the Company) (as the same may be extended from time to time as contemplated
below, the "TERMINATION DATE"), unless the Merger shall not have been
consummated because of a material breach of any representation, warranty,
obligation, covenant or agreement set forth in this Agreement on the part of the
Party seeking to terminate this Agreement (it being understood and agreed that
the Buyer shall have the unilateral right (but not the obligation), in its sole
discretion, by notice to the Company to be delivered on or prior to the
Termination Date then in effect, to extend the Termination Date from time to
time (but in any event not beyond the date that is 270 days after the signing of
this Agreement) if (A) all of the conditions set forth in Sections 6.1 and 6.2
shall have then been satisfied (or are capable of being satisfied, subject only
to the filing of the Certificate of Merger in the case of the conditions set
forth in Sections 6.1(b) and 6.2(g)) or waived (to the extent permitted by
applicable law) other
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than the condition set forth in Section 6.2(h)(ii) and (B) the Buyer is then
still attempting in good faith to obtain the authorizations, approvals,
consents, orders and certificates contemplated by such Section 6.2(h)(ii));
(c) by either the Buyer or the Company, if a Governmental
Entity or court of competent jurisdiction shall have issued a nonappealable
final order, decree or ruling or taken any other nonappealable final action, in
each case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger or the other transactions contemplated by this Agreement
(PROVIDED that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any Party whose material failure to fulfill any
obligation under this Agreement has been the principal cause of or resulted in
such order, decree ruling or action);
(d) by either the Buyer or the Company, if at the Special
Meeting (including any adjournment or postponement thereof permitted by this
Agreement), the requisite vote of the stockholders of the Company approving this
Agreement and the Merger shall not have been obtained;
(e) by the Buyer, if (w) the Company shall have (A) withdrawn,
modified or amended, or proposed to withdraw, modify or amend, in a manner
adverse to the Buyer or the Transitory Subsidiary, the approval, adoption or
recommendation, as the case may be, of the Merger, this Agreement or any of the
other transactions contemplated hereby or (B) approved or recommended, or
proposed to approve or recommend, or entered into any agreement, arrangement or
understanding with respect to, any Acquisition Proposal; (x) the Company's Board
of Directors or any committee thereof shall have resolved to take any of the
actions set forth in preceding subclause (w); (y) if after an Acquisition
Proposal has been made, the Board of Directors of the Company or the Special
Committee fail to affirm their recommendation and approval of the Merger and
this Agreement within three (3) Business Days of any request by the Buyer to do
so; or (z) if a tender offer or exchange offer constituting an Acquisition
Proposal is commenced and the Board of Directors of the Company or the Special
Committee do not recommend against acceptance of such offer by the Company's
stockholders (including by taking no position or a neutral position with respect
thereto);
(f) by the Company, if a Superior Proposal is received and the
Board of Directors of the Company reasonably determines in good faith, after
receiving advice from outside nationally recognized legal counsel (which may be
its current outside legal counsel) and based on the good faith recommendation of
the Special Committee, which has also received advice from its outside
nationally recognized legal counsel (which may be its current outside legal
counsel), that it is necessary to terminate this Agreement and enter into an
agreement to effect the Superior Proposal in order to comply with its fiduciary
duties under applicable law; PROVIDED that the Company may not terminate this
Agreement pursuant to this Section 7.1(f) unless the Company has complied with
its obligations under Section 5.3 and until (x) five (5) Business Days have
elapsed following delivery to the Buyer of a written notice of such
determination by the Board of Directors of the Company and during such five (5)
Business Day period the Company has fully cooperated with the Buyer (including,
without limitation, informing the Buyer of the terms and conditions of such
Superior Proposal and the identity of the Person making such Superior Proposal)
with the intent of enabling the Parties to agree to a modification of the terms
and conditions of this Agreement so that the transactions contemplated
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hereby may be effected, (y) at the end of such five (5) Business Day period, the
Acquisition Proposal continues to constitute a Superior Proposal, and the Board
of Directors of the Company continues to reasonably determine in good faith,
after receiving advice from outside nationally recognized legal counsel (which
may be its current outside legal counsel) and based on the good faith
recommendation of the Special Committee, which has also received advice from its
outside nationally recognized legal counsel (which may be its current outside
legal counsel), that it is necessary to terminate this Agreement and enter into
an agreement to effect the Superior Proposal in order to comply with its
fiduciary duties under applicable law and (z) (A) prior to such termination, the
Buyer has received all fees and expense reimbursements set forth in Section 7.3
by wire transfer in same day funds and (B) simultaneously or substantially
simultaneously with such termination the Company enters into a definitive
acquisition, merger or similar agreement to effect the Superior Proposal;
(g) by the Buyer, if there shall have been a breach by the
Company of any provision of Section 5.3;
(h) by the Buyer, if there has been a breach of or failure to
perform any representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement, which breach or failure to perform (i)
would cause the conditions set forth in Section 6.2(a) or 6.2(b) not to be
satisfied, and (ii) cannot or has not been cured prior to the earlier of (x) the
fifteenth (15th) calendar day following receipt by the Company of written notice
of such breach from the Buyer and (y) the Termination Date; or
(i) by the Company, if there has been a breach of or failure
to perform any representation, warranty, covenant or agreement on the part of
the Buyer or the Transitory Subsidiary set forth in this Agreement, which breach
or failure to perform (i) would cause the conditions set forth in Section 6.3(a)
or 6.3(b) not to be satisfied, and (ii) cannot or has not been cured prior to
the earlier of (x) the fifteenth (15th) calendar day following receipt by the
Buyer of written notice of such breach from the Company and (y) the Termination
Date.
The right of any Party to terminate this Agreement pursuant to this Section 7.1
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Party, any Person controlling any such
Party or any of their respective officers or directors, whether prior to or
after the execution of this Agreement.
7.2. EFFECT OF TERMINATION. In the event of termination of
this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other Party or Parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall immediately
become void and there shall be no liability or obligation on the part of the
Buyer, the Company, the Transitory Subsidiary or their respective officers,
directors, stockholders or affiliates; PROVIDED that (i) any such termination
shall not relieve any Party from liability for any willful breach of this
Agreement and (ii) the provisions of Section 3.22, the provisos set forth in
Sections 5.3(a)(x)(A) and 5.3(a)(y)(A), the provisions of Sections 5.2, 5.8,
this Section 7.2, Section 7.3, Article VIII and Article IX and the
Confidentiality Agreement shall remain in full force and effect and survive any
termination of this Agreement.
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7.3. FEES AND EXPENSES. (a) Except as set forth in this
Section 7.3, all fees and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the Party incurring
such fees and expenses, whether or not the Merger is consummated.
(b) (i) If this Agreement is terminated:
(1) at a time when the Buyer is entitled to terminate
this Agreement in accordance with either Section 7.1(b) or Section
7.1(d) and an Acquisition Proposal (or an intention to make an
Acquisition Proposal) has been made, proposed, communicated or
disclosed, after the date of this Agreement, in a manner which is or
otherwise becomes public (including being known to unaffiliated
stockholders of the Company);
(2) at a time when the Buyer is entitled to terminate
this Agreement in accordance with Section 7.1(b) or Section 7.1(d) and,
within twelve (12) months of such termination, the Company enters into
an agreement, arrangement or understanding (including a letter of
intent) with respect to or consummates any Acquisition Proposal; or
(3) pursuant to Section 7.1(e), Section 7.1(f) or
Section 7.1(g);
then the Buyer shall be entitled to receive (in accordance with Section
7.3(c)) from the Company (x) reimbursement for the out-of-pocket
expenses of the Buyer and the Transitory Subsidiary (including, without
limitation, printing fees, filing fees and fees and expenses of its
legal and financial advisors and all fees and expenses payable to any
financing sources) related to this Agreement and the transactions
contemplated hereby and any related financing (such reimbursement
amount for all purposes of this Section 7.3(b) not to exceed
$1,320,000, the "EXPENSE REIMBURSEMENT") and (y) an amount (the
"TERMINATION FEE"), in no event less than $0, equal to (A) $1,320,000
MINUS (B) the Expense Reimbursement.
(ii) If this Agreement is terminated at a time when the
Buyer is entitled to terminate this Agreement in accordance with Section 7.1(b)
whether or not any Acquisition Proposal (or an intention to make an Acquisition
Proposal) shall have then been made, proposed, communicated or disclosed in a
manner which is or otherwise has become public (including being known to
unaffiliated stockholders of the Company) or pursuant to Section 7.1(h), then
the Buyer shall be entitled to receive (in accordance with Section 7.3(c)) from
the Company the Expense Reimbursement.
(c) Any amounts owing by the Company to the Buyer pursuant to
Section 7.3(b) shall be paid as follows:
(i) if the Company shall have terminated this Agreement
(but only to the extent it is entitled to do so) pursuant to the circumstances
contemplated by Section 7.3(b)(i)(1), Section 7.3(b)(i)(3) or Section
7.3(b)(ii), then such amounts shall be paid by the Company to the Buyer by wire
transfer of same day funds on the date of such termination and as a condition
precedent for such termination;
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(ii) if the Buyer shall have terminated this Agreement
(but only to the extent it is entitled to do so) pursuant to the circumstances
contemplated by Section 7.3(b)(i)(1), Section 7.3(b)(i)(3) or Section
7.3(b)(ii), then such amounts shall be paid by the Company to the Buyer by wire
transfer of same day funds no later than the first Business Day next succeeding
the date of such termination; and
(iii) if the Buyer or the Company shall have terminated
this Agreement (but only to the extent such Party is entitled to do so) pursuant
to the circumstances contemplated by Section 7.3(b)(i)(2), then such amounts
shall be paid by the Company to the Buyer by wire transfer of same day funds on
the date on which the Company shall have entered into an agreement, arrangement
or understanding (including a letter of intent) with respect to any Acquisition
Proposal or, if earlier, the date of consummation of any Acquisition Proposal.
(d) The Company acknowledges that the Termination Fee and
Expense Reimbursement provided for in this Section 7.3 are an integral part of
the transactions contemplated by this Agreement and not a penalty, and that,
without the Termination Fee and Expense Reimbursement provided for above,
neither the Buyer nor the Transitory Subsidiary would enter into this Agreement.
Furthermore, nothing in this Section 7.3 shall be deemed to limit any liability
of any Party for any breach in any material respect of any representations,
warranties or covenants contained in this Agreement that occurs prior to
termination of this Agreement.
7.4. AMENDMENT. To the extent permitted by applicable law,
this Agreement may be amended by the Parties, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of the
Company; PROVIDED that after any such approval, no amendment shall be made that
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the Parties.
7.5. EXTENSION; WAIVER. At any time prior to the Effective
Time, the Parties, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other Parties, (ii)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein; PROVIDED that after the approval
of the Merger by the stockholders of the Company, no extension or waiver shall
be made that by law requires further approval by such stockholders without such
further approval. Any agreement on the part of a Party to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such Party. The failure of any Party to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.
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ARTICLE VIII
DEFINITIONS
8.1. DEFINITIONS. For purposes of this Agreement, each of the
defined terms is defined in the Section of this Agreement indicated below:
Index of Defined Terms
Acquiring Person.............................................................................................. 3.25
Acquisition Agreement...................................................................................... 5.3(b)
Acquisition Proposal.........................................................................................5.3(b)
Affiliates.................................................................................................... 3.25
Agreement............................................................................................ Introduction
Appraisal Shares.............................................................................................2.3(c)
Associates.................................................................................................... 3.25
Beneficial Owner............................................................................................. 5.13
Business Day................................................................................................... 1.4
Buyer................................................................................................ Introduction
Cash Merger Consideration................................................................................... 2.1(c)
Cash Merger Shares.......................................................................................... 2.1(c)
Certificate of Merger.......................................................................................... 1.2
Certificates............................................................................................. 2.2(b)(i)
Closing.........................................................................................................1.4
Closing Date................................................................................................... 1.4
COBRA.......................................................................................................3.14(a)
Code.....................................................................................................2.2(b)(iv)
Common Stock................................................................................................... 2.1
Company............................................................................................... Introduction
Company Disclosure Letter.............................................................................. Article III
Company Employee Plans......................................................................................3.14(a)
Company Intellectual Property...............................................................................3.10(a)
Company Material Adverse Effect..............................................................................3.1(a)
Company Material Contracts.....................................................................................3.11
Company Permits............................................................................................ 3.16(a)
Company Real Property....................................................................................... 3.9(c)
Company Restaurant........................................................................................ 3.16(b)
Company SEC Documents.......................................................................................... 3.5
Company Senior Credit Agreement............................................................................. 3.2(e)
Company's Knowledge......................................................................................... 3.2(a)
Confidentiality Agreement...................................................................................... 5.2
Consolidated Adjusted EBITDA.............................................................................. Annex A
Contract...................................................................................................... 3.11
D&O Insurance.............................................................................................. 5.11(b)
DGCL......................................................................................... Preliminary Statement
Distribution Date............................................................................................. 3.25
Effective Time..................................................................................................1.2
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employment loss............................................................................................... 3.17
Environmental Law...........................................................................................3.13(b)
Environmental Permits...................................................................................... 3.13(a)
Equity Commitment Letter...................................................................................... 4.6
ERISA.......................................................................................................3.14(a)
ESPP........................................................................................................... 5.9
Exchange Act............................................................................................... 3.4(ii)
Executive Agreements....................................................................................... 3.14(b)
executive officer.......................................................................................... 3.14(b)
Expense Reimbursement................................................................................ 7.3(b)(i)(3)
Fifteenth Amendment to Company Senior Credit Agreement..................................................... 6.2(g)
GAAP.......................................................................................................... 3.5
Governmental Approval...................................................................................... 3.4(ii)
Governmental Entity........................................................................................ 3.4(ii)
Greenhill.................................................................................... Preliminary Statement
HSR Act.................................................................................................... 3.4(ii)
Identified Contracts..................................................................................... 5.7(a)(i)
Indemnified Party.......................................................................................... 5.11(a)
Insurance Policies............................................................................................ 3.18
Intellectual Property...................................................................................... 3.10(a)
Leased Real Property........................................................................................ 3.9(c)
Liens......................................................................................................3.4(iii)
Liquor Licenses............................................................................................ 3.16(b)
LTM Period.................................................................................................. 6.2(f)
mass layoff................................................................................................... 3.17
Merger....................................................................................... Preliminary Statement
Merger Agreement.......................................................................................... Annex A
Option Consideration........................................................................................... 2.4
Options........................................................................................................ 2.4
Owned Real Property......................................................................................... 3.9(b)
Parties................................................................................................Introduction
Party................................................................................................. Introduction
Paying Agent................................................................................................ 2.2(a)
Payment Fund................................................................................................ 2.2(a)
Permitted Investments....................................................................................... 2.2(a)
Permitted Liens............................................................................................. 3.9(a)
Person....................................................................................................... 5.13
plant closing................................................................................................. 3.17
Proxy Statement............................................................................................. 5.6(a)
Registered Company Intellectual Property................................................................... 3.10(b)
Replacement Contracts.................................................................................... 5.7(a)(i)
Required Consents........................................................................................ 5.7(a)(i)
Rights Agreement............................................................................................ 3.2(a)
SARs........................................................................................................ 3.2(a)
SEC........................................................................................................ 3.4(ii)
Securities Act.............................................................................................. 3.2(c)
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Share...........................................................................................................2.1
Shares......................................................................................................... 2.1
Special Committee.............................................................................Preliminary Statement
Special Meeting................................................................................................ 5.5
Stock Acquisition Date....................................................................................... 5.13
Stock Incentive Plans.......................................................................................... 2.4
Stock Plans.................................................................................................... 2.4
Subsequent Filings............................................................................................. 3.5
Subsidiary...................................................................................................3.1(b)
Superior Proposal........................................................................................... 5.3(b)
Surviving Corporation.......................................................................................... 1.1
Tax Returns................................................................................................. 3.8(d)
Taxes....................................................................................................... 3.8(d)
Termination Date........................................................................................... 7.1(b)
Termination Fee...................................................................................... 7.3(b)(i)(3)
Transitory Subsidiary................................................................................. Introduction
Transitory Subsidiary Common Stock............................................................................. 2.1
Voting Debt................................................................................................. 3.2(a)
WARN Act..................................................................................................... 3.17
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ARTICLE IX
MISCELLANEOUS
9.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
respective representations and warranties of the Company, on the one hand, and
each of the Buyer and the Transitory Subsidiary, on the other hand, contained in
this Agreement or in any document, certificate or instrument delivered prior to
or at the Closing shall not be deemed waived or otherwise affected by any
investigation made by any Party. Each and every such representation and warranty
shall expire with, and be terminated and extinguished by, the Closing, and
thereafter none of the Company, the Buyer or the Transitory Subsidiary shall be
under any liability whatsoever with respect to any such representation and
warranty. This Section 9.1 shall have no effect upon any other obligations of
the Parties, whether to be performed before or after the Effective Time.
9.2. NOTICES. All notices, requests, claims and demands and
other communications hereunder shall be in writing and shall be deemed duly
delivered (i) four (4) Business Days after being sent by registered or certified
mail, return receipt requested, postage prepaid, or (ii) one (1) Business Day
after being sent for next business day delivery, fees prepaid, via a reputable
nationwide overnight courier service, in each case to the intended recipient as
set forth below:
(a) if to the Buyer or the Transitory Subsidiary, to:
Morton's Holdings, Inc.
Morton's Acquisition Company
150 East 58th Street
New York, New York 10155
Attention: Justin B. Wender
Telephone: (212) 317-6442
Facsimile: (212) 207-8042
with a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: Timothy B. Goodell, Esq.
Gregory Pryor, Esq.
Telephone: (212) 819-8200
Facsimile: (212) 354-8113; and
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(b) if to the Company, to:
Morton's Restaurant Group, Inc.
3333 New Hyde Park Road
New Hyde Park, New York 11042
Attention: Allen J. Bernstein
Telephone: (516) 627-1515
Facsimile: (516) 627-1898
with a copy to:
Richards, Layton & Finger, P.A.
One Rodney Square, P.O. Box 551
Wilmington, Delaware 19899
Attention: C. Stephen Bigler, Esq.
Telephone: (302) 651-7700
Facsimile: (302) 651-7701
and a copy to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Marc Weingarten, Esq.
Telephone: (212) 756-2000
Facsimile: (212) 593-5955.
Any Party may give any notice or other communication hereunder using any other
means (including personal delivery, messenger service, facsimile or ordinary
mail), but no such notice or other communication shall be deemed to have been
duly given unless and until it actually is received by the Party for whom it is
intended. Any Party may change the address to which notices and other
communications hereunder are to be delivered by giving the other Parties to this
Agreement notice in the manner herein set forth.
9.3. ENTIRE AGREEMENT. This Agreement (including the Company
Disclosure Letter and the other documents and instruments referred to herein
that are to be delivered at the Closing, together with that certain letter
agreement dated the date hereof among the Parties regarding reimbursement of
certain amendment costs) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or among
the Parties, or any of them, written or oral, with respect to the subject matter
hereof; PROVIDED that the Confidentiality Agreement shall remain in effect in
accordance with its terms.
9.4. NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended, and shall not be deemed, to confer any rights or remedies upon any
Person other the Parties and their respective successors and permitted assigns,
to create any agreement of employment with any Person or to otherwise create any
third-party beneficiary hereto, except as specifically stated in Section
5.11(e).
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9.5. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the Parties without
the prior written consent of the other Parties, and any such assignment without
such prior written consent shall be null and void, except that the Buyer may
substitute any direct or indirect wholly-owned subsidiary of the Buyer for the
Transitory Subsidiary without consent of the Company and, at any time prior to
the first filing or notice made by the Buyer in connection with obtaining any
regulatory consent or approval with respect to Liquor Licenses required in
connection with the Merger, the Buyer may assign its rights and obligations
under this Agreement to a newly formed affiliate of the Buyer; PROVIDED that the
Buyer and/or the Transitory Subsidiary, as the case may be, shall remain liable
for all of its obligations under this Agreement. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the Parties and their respective successors and assigns.
9.6. INTERPRETATION. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation." As used in this Agreement, (x) the term
"AFFILIATE(S)" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act and (y) the term "PERSON" means and includes an individual, a partnership, a
joint venture, a corporation, a trust, a limited liability company, an
unincorporated organization and a government or other department or agency
thereof.
9.7. COUNTERPARTS. This Agreement may be executed in two (2)
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two (2) or more counterparts have been
signed by each of the Parties and delivered to the other Parties.
9.8. SEVERABILITY. If any term, provision, agreement, covenant
or restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, agreements, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated so long as the economic or legal substance of the transactions
contemplated hereby is not effected in any manner materially adverse to any
Party. Upon such a determination, the Parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.
9.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
laws of any jurisdictions other than those of the State of Delaware.
9.10. SUBMISSION TO JURISDICTION. Any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby shall be brought exclusively in any federal or
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state court located in the State of Delaware, and each of the Parties hereby
consents to the jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by law, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
in any such court or that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient form. Process in any such suit,
action or proceeding may be served on any Party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each Party agrees that service of process on such Party as provided
in Section 9.2 as to giving notice hereunder shall be deemed effective service
of process on such Party.
9.11. REMEDIES. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a Party shall be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such Party. No failure or delay on the part of any Party in the exercise of
any right hereunder shall impair such right or be construed to be a waiver of,
or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. The Company agrees that
irreparable damage would occur to the Buyer and the Transitory Subsidiary in the
event that any of the provisions of this Agreement were not performed by the
Company in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Buyer and the Transitory Subsidiary shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any federal or
state court located in the State of Delaware (as to which the Parties agree to
submit jurisdiction of the purposes of such action), this being in addition to
any other remedy to which they are entitled at law or in equity including those
set forth in Section 7.3. The Company further agrees to waive any requirement
for the securing or posting of any bond in connection with obtaining any such
injunction or other equitable relief.
9.12. WAIVER OF JURY TRIAL. EACH OF THE BUYER, THE TRANSITORY
SUBSIDIARY AND THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THE ACTIONS OF THE BUYER, THE TRANSITORY SUBSIDIARY OR
THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT.
[Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the Company, the Buyer and the Transitory
Subsidiary have caused this Agreement to be signed by their respective officers
thereunto duly authorized as of the date first written above.
MORTON'S RESTAURANT GROUP, INC.
By: /s/ Allen J. Bernstein
--------------------------------------
Name: Allen J. Bernstein
Title: Chairman of the Board of
Directors, President and Chief
Executive Officer
MORTON'S HOLDINGS, INC.
By: /s/ Justin B. Wender
--------------------------------------
Name: Justin B. Wender
Title: President and Chief Executive
Officer
MORTON'S ACQUISITION COMPANY
By: /s/ Justin B. Wender
--------------------------------------
Name: Justin B. Wender
Title: President and Chief Executive
Officer
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ANNEX A
DEFINITION OF
"CONSOLIDATED ADJUSTED EBITDA"
For purposes of Section 6.2(f) of the Agreement and Plan of Merger (the
"MERGER AGREEMENT") to which this ANNEX A is attached, (a) "CONSOLIDATED
ADJUSTED EBITDA" shall mean Consolidated EBITDA (as defined in the Company
Senior Credit Agreement) plus (or minus) the following items (but only to the
extent that the respective items reduce (increase) Consolidated EBITDA), without
duplication:
(i) any losses (or income) of the Company associated with
personal property insurance (not including amounts related to business
interruption insurance, except to the extent that such amounts exceed
$990,000 of income in the aggregate for the period from December 31,
2001 through June 30, 2002) claims for the Company's 90 West Street,
New York, NY restaurant;
(ii) expenses actually incurred by the Company in connection
with the Merger Agreement and the transactions contemplated thereby,
including (x) expenses actually incurred by the Company in connection
with the preparation, execution and delivery of the Fifteenth Amendment
to Company Senior Credit Agreement and related documents and
instruments, and (y) expenses actually incurred by the Company from
December 31, 2001 through the date of the Merger Agreement related to
the Company's exploration of strategic alternatives; PROVIDED that
expenses actually incurred by the Company from December 31, 2001
through June 30, 2002 in connection with any defense of a potential
proxy contest (including stockholders' lawsuits in connection with this
transaction which are actively being defended by the Company but in no
event including settlement thereof or judgment with respect thereto)
with respect to the Company shall, for purposes of calculating
"Consolidated Adjusted EBITDA" pursuant to this ANNEX A, in no event
exceed $1,000,000 in the aggregate;
(iii) any reversal of accruals or reserves taken subsequent to
December 30, 2001 that were determined to be established prior to
December 31, 2001, as determined in accordance with GAAP and consistent
with past practices; and
(iv) legal and/or settlement expenses actually incurred by the
Company from December 31, 2001 through June 30, 2002 related to
existing employee litigation matters, in any event not to exceed
$250,000 in the aggregate.
(b) The Parties hereby agree that, for the purposes of calculating
Consolidated Adjusted EBITDA as provided above, without duplication:
(i) all adjustments to Consolidated Net Income (as defined in
the Company Senior Credit Agreement) to arrive at Consolidated Adjusted
EBITDA shall be prepared in accordance with GAAP and consistent with
past practices;
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(ii) only extraordinary income and expenses classified as such
by GAAP will be eliminated to arrive at Consolidated Net Income (as
defined in the Company Senior Credit Agreement);
(iii) Interest Charges (as defined in the Company Senior
Credit Agreement) will be net of any interest income; and
(iv) notwithstanding anything to the contrary set forth on
this ANNEX A, Consolidated Adjusted EBITDA for the fiscal months
specified below shall be determined exclusively in accordance with the
following table (with no adjustments thereto):
CONSOLIDATED
PERIOD ADJUSTED EBITDA
--------------------------------------------------------------- ---------------
Fiscal month ended closest to July 31, 2001 $ 566,000
Fiscal month ended closest to August 31, 2001 $ 485,000
Fiscal month ended closest to September 30, 2001 $ 630,000
Fiscal month ended closest to October 31, 2001 $ 2,490,000
Fiscal month ended closest to November 30, 2001 $ 1,585,000
Fiscal month ended closest to December 31, 2001 $ 4,066,000
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APPENDIX B
Greenhill & Co., LLC
300 Park Avenue
New York, NY 10022 [Logo]
(212) 389-1500
(212) 389-1700 Fax
CONFIDENTIAL
March 26, 2002
Special Committee of the Board of Directors
and the Board of Directors
Morton's Restaurant Group, Inc.
3333 New Hyde Park Road
Suite 210
New Hyde Park, NY 11042
Members of the Special Committee and the Board:
We understand that Morton's Restaurant Group, Inc. ("Morton's"), Morton's
Holdings, Inc. (the "Buyer") and Morton's Acquisition Company ("Transitory
Subsidiary") propose to enter into an Agreement and Plan of Merger (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Transitory Subsidiary, a wholly-owned subsidiary of the Buyer, with and into
Morton's, as a result of which Morton's would become a wholly-owned subsidiary
of the Buyer. Pursuant to the Merger, each issued and outstanding share of
common stock, par value $0.01 per share, of Morton's (the "Morton's Common
Stock"), other than shares of Morton's Common Stock held by Morton's or the
Buyer or any of their respective wholly-owned subsidiaries or in Morton's
treasury, shall be converted into the right to receive a cash payment of $12.60
per share (the "Consideration"). The terms and conditions of the Merger are more
fully set forth in the Merger Agreement.
You have asked for our opinion as to whether, as of the date hereof, the
Consideration to be received by the holders of Morton's Common Stock (other than
the Buyer and its subsidiaries, including Transitory Subsidiary, and Castle
Harlan Partners III, L.P. ("CHP III") and its affiliates) pursuant to the Merger
Agreement is fair, from a financial point of view, to such holders. We have not
been requested to opine as to, and our opinion does not in any manner address
the underlying business decision to proceed with or effect the Merger.
For purposes of the opinion set forth herein, we have:
1. reviewed the draft Merger Agreement dated March 26, 2002 and certain
related documents;
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[Logo]
2. reviewed certain publicly available financial statements of Morton's;
3. reviewed certain other publicly available business and financial
information relating to Morton's that we deemed relevant;
4. reviewed certain information, including financial forecasts and other
financial and operating data concerning Morton's, prepared by the
management of Morton's;
5. discussed the past and present operations and financial condition and
the prospects of Morton's with senior executives of Morton's;
6. reviewed the historical market prices and trading activity for the
Morton's Common Stock and analyzed its implied valuation multiples;
7. compared the value of the Consideration with that received in certain
publicly available transactions that we deemed relevant;
8. compared the value of the Consideration with the trading valuations of
certain publicly traded companies that we deemed relevant;
9. participated in discussions and negotiations among representatives of
Morton's and its legal advisors and the Buyer, CHP III and their
financial and legal advisors;
10. participated in discussions among representatives of certain other
parties with respect to a potential sale or other extraordinary
transaction involving Morton's;
11. reviewed and took into consideration the disclosure by Morton's that it
has been informed by the New York Stock Exchange, Inc. (the "NYSE") that
it is below the NYSE continued listing standards and may cease to be
eligible for trading on the NYSE; and
12. performed such other analyses and considered such other factors as we
deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information supplied or otherwise made
available to us by representatives of Morton's for the purposes of this opinion
and have further relied upon the assurances of the representatives of Morton's
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of Morton's that have been furnished to us, we have assumed that they have been
reasonably prepared on a basis reflecting the best currently available estimates
and good faith judgments of the management of Morton's as to the future
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[Logo]
financial performance of Morton's. We express no opinion with respect to such
projections or the assumptions upon which they are based. In addition, we have
not made any independent valuation or appraisal of the assets or liabilities of
Morton's, nor have we been furnished with any such appraisals. In addition, we
have assumed that the Merger will be consummated in accordance with the terms
set forth in the final, executed Merger Agreement, which we have further assumed
will be identical in all material respects to the latest draft thereof we have
reviewed. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as of
the date hereof.
We have acted as financial advisor to the Special Committee of the Board of
Directors (the "Committee") of Morton's in connection with the Merger and will
receive a fee for our services, a significant portion of which is contingent
upon the consummation of the Merger or a similar transaction.
It is understood that this letter is for the information of the Committee
and the Board of Directors (the "Board") of Morton's and is rendered to the
Committee and the Board in connection with their consideration of the Merger and
may not be used for any other purpose without our prior written consent, except
that this opinion may, if required by law, be included in its entirety in any
filing made by Morton's with the Securities and Exchange Commission in
connection with the Merger. We are not expressing an opinion as to any aspect of
the Merger other than the fairness to the holders of Morton's Common Stock
(other than the Buyer and its subsidiaries, including Transitory Subsidiary, and
CHP III and its affiliates) of the Consideration to be received by the holders
of Morton's Common Stock (other than the Buyer and its subsidiaries, including
Transitory Subsidiary, and CHP III and its affiliates) from a financial point of
view. This opinion is not intended to be and does not constitute a
recommendation to the Committee or the Board as to whether they should approve
the Merger, nor does it constitute an opinion or recommendation as to how the
shareholders of Morton's should vote at the shareholders meeting to be held in
connection with the Merger.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of Morton's Common
Stock (other than the Buyer and its subsidiaries, including Transitory
Subsidiary, and CHP III and its affiliates) pursuant to the Merger Agreement is
fair from a financial point of view to such holders.
Very best regards,
GREENHILL & CO., LLC
By: /s/ Timothy M. George
-----------------------------------------
Timothy M. George
Managing Director
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APPENDIX C
DELAWARE CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, then either a constituent corporation before
the effective date of the merger or consolidation or the surviving or
resulting corporation within 10 days thereafter shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within
20 days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of
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the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or
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expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the surviving or
resulting corporation would have had to pay to borrow money during the pendency
of the proceeding. Upon application by the surviving or resulting corporation or
by any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted such stockholder's certificates of
stock to the Register in Chancery, if such is required, may participate fully in
all proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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APPENDIX D
INFORMATION RELATING TO THE DIRECTORS AND
EXECUTIVE OFFICERS OF MORTON'S RESTAURANT GROUP, INC.
The name, current principal occupation or employment, principal business and
address of employer, and material occupations, positions, offices or employment
for the past five years, of each director and executive officer of Morton's
Restaurant Group, Inc. are set forth below. The business address of each
director and executive officer is c/o Morton's Restaurant Group, Inc., 3333 New
Hyde Park Road, New Hyde Park, New York 11042. The business telephone number of
each director and executive officer is (516) 627-1515. Each of the directors and
executive officers is a United States citizen. None of the directors or
executive officers has been convicted in a criminal proceeding during the past
five years (excluding traffic violations or similar misdemeanors). None of the
directors or executive officers has been a party to any judicial or
administrative proceeding during the past five years (except for matters that
were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
Thomas J. Baldwin was elected a director of the Company in November 1998 and
executive vice president in January 1997. He previously served as senior vice
president, finance of the Company since June 1992, and vice president, finance
since December 1988. In addition, Mr. Baldwin has been chief financial officer,
assistant secretary and treasurer of the Company since December 1988. His
previous experience includes seven years at General Foods Corp., now a
subsidiary of Kraft General Foods/ Philip Morris Companies, Inc., where he
worked in various financial management and accounting positions, and two years
at Citicorp where he served as Vice President responsible for strategic planning
and financial analysis at a major corporate banking division. Mr. Baldwin is
currently a director of Charlie Browns Acquisition Corp., which is owned by an
affiliate of Castle Harlan, Inc. Mr. Baldwin is a licensed certified public
accountant in the State of New York.
Robert L. Barney has been a director of the Company since February 2001.
Mr. Barney previously served as a director of the Company from December 1991
through August 1997. Mr. Barney was the chairman of Wendy's Restaurants, Inc., a
restaurant company, from February 1982 to May 1990, and its chief executive
officer from September 1982 to February 1989.
Allen J. Bernstein has been chairman of the board of the Company since
October 1994 and chief executive officer and a director of the Company since
December 1988. He has been president of the Company since September 1997 and was
previously president of the Company from December 1988 through October 1994.
Mr. Bernstein has worked in many various aspects of the restaurant industry
since 1970. Mr. Bernstein is also a director of Dave and Busters, Inc., Charlie
Browns Acquisition Corp., Luther's Acquisition Corp., Wilshire Restaurant
Group, Inc. and McCormick and Schmick Holdings LLC, the last four of which are
owned by an affiliate of Castle Harlan, Inc.
John K. Castle has been a director of the Company since December 1988.
Mr. Castle has been chairman, controlling stockholder and a director of Castle
Harlan, Inc. since 1987 and of Castle Harlan Partners III, G.P., Inc. since
1997. Mr. Castle is also chairman and chief executive officer of Branford
Castle, Inc., an investment company formed in 1986, located at 150 East 58th
Street, New York, New York 10155. Immediately prior to forming Castle
Harlan, Inc., Mr. Castle was president and chief executive officer and a
director of Donaldson Lufkin & Jenrette, Inc., one of the nation's leading
investment banking firms. Mr. Castle is a director of Sealed Air Corporation,
American Achievement Corporation, AdobeAir, Inc., Wilshire Restaurant
Group, Inc., Equipment Support Services, Inc. and a managing director of Statia
Terminals Group, N.V. Mr. Castle is a member of the Corporation of the
Massachusetts Institute of Technology and is also a trustee of the New
York-Presbyterian Hospital, Inc.
D-1
and the Whitehead Institute of Biomedical Research. Formerly, Mr. Castle was a
director of The Equitable Life Assurance Society of the United States and the
New York Medical College (for 11 years he was chairman of the board).
Lee M. Cohn has been a director of the Company since August 1997. Mr. Cohn
co-founded and has been the chief executive officer of Big 4 Restaurants, Inc.,
located at 16601 North Pima Road, Scottsdale, Arizona 85260, since 1973.
Mr. Cohn has served on the boards of Valley Big Brothers and the Phoenix Ballet
Company and is an active member of The Phoenix Thunderbirds, The Fiesta Bowl
Committee and the Young Presidents Organization. Mr. Cohn is a director of
Luther's Acquisition Corp. and Wilshire Restaurant Group, Inc., which are owned
by an affiliate of Castle Harlan, Inc.
Dr. John J. Connolly has been a Director since October 1994. He is the
president and chief executive officer of Castle Connolly Medical Ltd., located
at 42 West 24th Street, New York, New York 10010, since 1991. He previously
served as president and chief executive officer of New York Medical College for
over ten years. He serves on the President's Advisory Council of the United
Hospital Fund, as a director of Funding First and as a director of the New York
Business Group on Health. He also has served as chairman of the Board of
Trustees of St. Francis Hospital in Poughkeepsie and as a member of the Board of
Trustees of St. Agnes Hospital in White Plains. He is a fellow of the New York
Academy of Medicine and is a founder and past chairman of the American Lyme
Disease Foundation. Dr. Connolly serves as a trustee emeritus and past chairman
of the board of the Culinary Institute of America and director of the
Westchester County Association. Dr. Connolly also presently serves as a director
of Dearborn Risk Management, Charlie Browns Acquisition Corp., which is an
affiliate of Castle Harlan, Inc., Gradipore, Inc. and as chairman and a director
of AlphaGene, Inc. (located at 260 West Cummings Park, Woburn, Massachusetts
01801).
David B. Pittaway has been a director of the Company since December 1988. He
was a vice president from December 1988 through May 1993 and assistant secretary
from May 1988 through September 1993. Mr. Pittaway is currently the senior
managing director, senior vice president and secretary of Castle Harlan, Inc.
and secretary of Castle Harlan Partners III, G.P., Inc. He has been with Castle
Harlan, Inc. since 1987 and with Castle Harlan Partners III, G.P., Inc. since
1997. Mr. Pittaway has been vice president and secretary of Branford
Castle, Inc., an investment company, since October 1986, located at 150 East
58th Street, New York, New York 10155. From 1987 to 1998 he was vice president,
chief financial officer and a director of Branford Chain, Inc., a marine
wholesale company, located at 150 East 58th Street, New York, New York 10155,
where he is now a director and vice chairman. Prior thereto, Mr. Pittaway was
vice president of strategic planning and assistant to the president of Donaldson
Lufkin & Jenrette, Inc. Mr. Pittaway is also a director of American Achievement
Corporation, Equipment Support Services, Inc., Charlie Browns Acquisition Corp.,
Luther's Acquisition Corp., Wilshire Restaurant Group, Inc., McCormick and
Schmick Holdings LLC, and The Dystrophic Epidermolysis Bullosa Research
Association of America, Inc. and a managing director of Statia Terminals Group,
N.V.
Dianne H. Russell has been a director of the Company since May 1993.
Ms. Russell is a senior vice president and regional managing director of the
Technology and Life Sciences Division of Comerica Bank (formerly Imperial Bank)
in Boston, one of the Company's lenders, located at 100 Federal Street, Boston,
Massachusetts 02110, heading the Northeast Region. Formerly, Ms. Russell was
president of Hyde Boston Capital, a financial consulting company, since
January 1992, and before that, a senior vice president and department executive
at BankBoston, N.A., a national bank, where she was employed from 1975 to 1991.
Ms. Russell is the chairman of the Financial Advisory Board of the Commonwealth
of Massachusetts.
Alan A. Teran has been a director of the Company since May 1993. Mr. Teran
was the president of Cork 'N' Cleaver Restaurants from 1975 to 1981. Since 1981,
Mr. Teran has been a principal in private restaurant businesses. Mr. Teran is
currently a director of Good Times, Inc. and Charlie Browns
D-2
Acquisition Corp., an affiliate of Castle Harlan, Inc., and previously served on
the board of Boulder Valley Bank and Trust.
John T. Bettin has been president of Morton's of Chicago since July 1998.
Prior to joining the Company, Mr. Bettin had been executive vice president of
Capital Restaurant Concepts, Ltd., located at 1305 Wisconsin Avenue, Northwest,
Washington, District of Columbia, 20007, since April 1994. Previously,
Mr. Bettin worked for Gilbert Robinson, Inc. where he served in various
positions including corporate executive chef, vice president operations and
senior vice president concept development since 1975.
Roger J. Drake has been vice president of communications since May 1999 and
director of communications since February 1994. Mr. Drake previously owned and
operated Drake Productions, a video and marketing communications company, from
April 1987 to December 1993. Prior to that, Mr. Drake served as producer,
editor, and copywriter at Major League Baseball Productions, from May 1981 to
June 1986.
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.
Agnes Longarzo has been vice president of administration and secretary of
the Company since December 1988. Ms. Longarzo had been vice president of
administration and corporate secretary for Le Peep Restaurants, Inc. from
March 1983 to December 1988. Prior to joining Le Peep Restaurants, Inc.,
Ms. Longarzo served as the director of administration of Wenco Food
Systems, Inc.
Allan C. Schreiber has been senior vice president, development since
January 1999, vice president of real estate since January 1996 and director of
real estate since November 1995. Mr. Schreiber had been a senior managing
director at The Galbreath Company since 1991. Prior to joining Galbreath, he
served as an executive vice president of National Westminster Bank USA from 1982
to 1991. Previously, Mr. Schreiber had been a vice president and division
executive of the Chase Manhattan Bank.
D-3
APPENDIX E
INFORMATION RELATING TO
MORTON'S HOLDINGS, LLC, MORTON'S ACQUISITION COMPANY
AND CASTLE HARLAN PARTNERS III, L.P.
AND
INFORMATION RELATING TO THE DIRECTORS AND EXECUTIVE OFFICERS OF
CASTLE HARLAN PARTNERS III, G.P., INC.,
MORTON'S HOLDINGS, LLC AND
MORTON'S ACQUISITION COMPANY
Neither CHP, Morton's Holdings nor Morton's Acquisition has been convicted
in a criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors). Neither CHP, Morton's Holdings nor Morton's
Acquisition has been a party to any judicial or administrative proceeding during
the past five years (except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws.
Castle Harlan Partners III, L.P. is the sole member in Morton's Holdings.
Castle Harlan Associates III, L.P., referred to as CHA, is a Delaware limited
partnership and the general partner of Castle Harlan Partners III, L.P. Castle
Harlan Partners III, G.P., Inc., referred to as CHPGP, is a Delaware corporation
and the general partner of CHA.
The name, current principal occupation or employment, principal business and
address of employer, and material occupations, positions, offices or employment
for the past five years, of each director and executive officer of CHPGP is set
forth below. The business address of each director and executive officer is c/o
Castle Harlan, Inc., 150 East 58th Street, New York, New York 10155. The
business telephone number of each director and executive officer is
(212) 644-8600. Each of the directors and executive officers is a United States
citizen. None of the directors or executive officers was convicted in a criminal
proceeding during the past five years (excluding traffic violations or similar
misdemeanors). None of the directors or executive officers was a party to any
judicial or administrative proceeding during the past five years (except for
matters that were dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
John K. Castle has been chairman, controlling stockholder and a director of
Castle Harlan, Inc. since 1987 and of CHPGP since 1997. Mr. Castle is also
chairman and chief executive officer of Branford Castle, Inc., an investment
company formed in 1986, located at 150 East 58th Street, New York, New York
10155. Immediately prior to forming Castle Harlan, Inc., Mr. Castle was
president and chief executive officer and a director of Donaldson Lufkin &
Jenrette, Inc., one of the nation's leading investment banking firms.
Mr. Castle is a director of Morton's Restaurant Group, Inc., Sealed Air
Corporation, American Achievement Corporation, AdobeAir, Inc., Wilshire
Restaurant Group, Inc., Equipment Support Services, Inc. and a managing director
of Statia Terminals Group, N.V. Mr. Castle is a member of the Corporation of the
Massachusetts Institute of Technology and is also a trustee of the New
York-Presbyterian Hospital, Inc. and the Whitehead Institute of Biomedical
Research. Formerly, Mr. Castle was a director of The Equitable Life Assurance
Society of the United States and the New York Medical College (for 11 years he
was chairman of the board).
Leonard M. Harlan has been president and a director of Castle Harlan, Inc.
since 1987 and of CHPGP since 1997. Mr. Harlan is also a member of the Executive
Committee of Castle Harlan Australian Mezzanine Partners, an affiliate of Castle
Harlan, Inc., located at 150 East 58th Street, New
E-1
York, New York 10155. Mr. Harlan is currently a director of StackTeck Systems
Incorporated, Carret and Company, Inc., Ion Track Instruments, Associated
Packaging Enterprises, Inc., and Gravograph Industrie International, and is a
director-designee of The Bulgarian American Enterprise Fund, established by the
U.S. Congress. Mr. Harlan is a member of the Board of Overseers of the Joan and
Sanford I. Weill Medical College and the Graduate School of Medical Sciences of
Cornell University and Vice Chairman of the Medical College Capital Campaign.
Mr. Harlan is currently a Trustee of the New York City Citizens Budget
Commission and is on the Advisory Board of The Journal of Private Equity. From
1969 to 1995, he was chairman and chief executive officer of The Harlan
Company, Inc. a real estate investment banking and advisory firm.
David B. Pittaway is currently the senior managing director, senior vice
president and secretary of Castle Harlan, Inc. and secretary of CHPGP. He has
been with Castle Harlan, Inc. since 1987 and with CHPGP since 1997. He was a
vice president of Morton's Restaurant Group, Inc. from December 1988 through
May 1993 and assistant secretary from May 1988 through September 1993.
Mr. Pittaway has been vice president and secretary of Branford Castle, Inc., an
investment company, since October 1986, located at 150 East 58th Street, New
York, New York 10155. From 1987 to 1998 he was vice president, chief financial
officer and a director of Branford Chain, Inc., a marine wholesale company,
located at 150 East 58th Street, New York, New York 10155, where he is now a
director and vice chairman. Prior thereto, Mr. Pittaway was vice president of
strategic planning and assistant to the president of Donaldson Lufkin &
Jenrette, Inc. Mr. Pittaway is also a director of Morton's Restaurant
Group, Inc., American Achievement Corporation, Equipment Support
Services, Inc., Charlie Browns Acquisition Corp., Luther's Acquisition Corp.,
Wilshire Restaurant Group, Inc., McCormick and Schmick Holdings LLC and The
Dystrophic Epidermolysis Bullosa Research Association of America, Inc. and a
managing director of Statia Terminals Group, N.V.
Howard Weiss has been senior vice president and chief financial officer of
Castle Harlan, Inc. and CHPGP. He has been with Castle Harlan, Inc. since 1987
and with CHPGP since 1997. Prior to joining Castle Harlan, Mr. Weiss was chief
financial officer and partner of The Harlan Company, a diversified real estate
finance and advisory company. Before joining The Harlan Company, he was vice
president and controller with Sotheby's, the international fine art and
collectibles auctioneer. Mr. Weiss is a Certified Public Accountant.
Justin B. Wender has been a managing director of Castle Harlan, Inc. since
1999. Prior to joining Castle Harlan in 1993, Mr. Wender worked in the Corporate
Finance Group of Merrill Lynch & Co., where he assisted clients with a variety
of corporate finance matters. He is a board member of Statia Terminals Group,
N.V. and Charlie Brown's. Mr. Wender is also the incoming chair of the Alumni
Annual Fund of Carleton College. Previously, Mr. Wender was a board member of
Land 'N' Sea Distributing, Inc., MAG Aerospace Industries, Inc. and US Synthetic
Corporation.
The name, current principal occupation or employment, principal business and
address of employer, and material occupations, positions, offices or employment
for the past five years, of each director and executive officer of Morton's
Holdings, LLC and Morton's Acquisition Company are set forth below. The business
address of each director and executive officer is c/o Castle Harlan, Inc.,
150 East 58th Street, New York, New York 10155. The business telephone number of
each director and executive officer is (212) 644-8600. Each of the directors and
executive officers is a United States citizen. None of the directors or
executive officers was convicted in a criminal proceeding during the past five
years (excluding traffic violations or similar misdemeanors). None of the
directors or executive officers was a party to any judicial or administrative
proceeding during the past five years (except for matters that were dismissed
without sanction or settlement) that resulted in a judgment, decree or final
order enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws.
E-2
Justin B. Wender has been chairman of the board of directors, president,
chief executive officer and treasurer of Morton's Acquisition Company since the
incorporation of Morton's Acquisition Company in March 2002. Mr. Wender is also
a managing director of Castle Harlan, Inc. Prior to joining Castle Harlan in
1993, Mr. Wender worked in the Corporate Finance Group of Merrill Lynch & Co.,
where he assisted clients with a variety of corporate finance matters. He is a
board member of Statia Terminals Group, N.V. and Charlie Brown's. Mr. Wender is
also the incoming chair of the Alumni Annual Fund of Carleton College.
Previously, Mr. Wender was a board member of Land 'N' Sea Distributing, Inc.,
MAG Aerospace Industries, Inc. and US Synthetic Corporation.
John E. Morningstar has been a director, vice president and secretary of
Morton's Acquisition Company since the incorporation of Morton's Acquisition
Company in March 2002. Mr. Morningstar is also an associate of Castle
Harlan, Inc. Prior to joining Castle Harlan, Mr. Morningstar was an analyst in
the Retail Investment Banking department of Merrill Lynch & Co., located at 4
World Financial Center, New York, New York 10080 from 1998 to 2000, where he
assisted clients in corporate finance and strategic mergers.
E-3
APPENDIX F
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--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/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 30, 2001
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 ______________
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, 11042
NEW HYDE PARK, NY (zip code)
(Address of principal executive
offices)
516-627-1515
(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
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(Title of Class)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 15, 2002, the aggregate market value of voting stock held by
non-affiliates of the registrant was $41,002,575.
As of March 15, 2002, the registrant had 4,182,475 shares of its common
stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the registrant's definitive proxy statement (to be filed
pursuant to Regulation 14A) for the 2002 Annual Meeting of Stockholders (the
"Proxy Statement") are incorporated by reference into Part III hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
Morton's Restaurant Group, Inc. was incorporated as a Delaware corporation
on October 3, 1988. As used in this Report, the terms "MRG" or "Company" refer
to Morton's Restaurant Group, Inc. and its consolidated subsidiaries.
RECENT DEVELOPMENTS
On March 26, 2002, the Company entered into a definitive merger agreement
("Merger Agreement") providing for the acquisition of the Company by an
affiliate of Castle Harlan, Inc., a New York based private equity investment
firm. Under the terms of the Merger Agreement, the Company's stockholders will
receive $12.60 in cash for each share of common stock. Completion of the merger
is subject to various closing conditions including, but not limited to, approval
of the Company's stockholders and customary industry regulatory approvals,
receipt of third party consents and achievement of a minimum level of earnings.
There can be no assurance that these or other conditions to the merger will be
satisfied or that the merger will be completed. If the merger is not completed
for any reason, it is expected that the current management of the Company, under
the direction of the Board of Directors, will continue to manage the Company as
an ongoing business. The Company has also entered into an amendment to its
Credit Agreement which allows for the transactions contemplated under the
merger; however, this amendment will only become effective upon the completion
of the merger. The merger is currently expected to be completed in early summer
of 2002.
GENERAL
At December 30, 2001, the Company owned and operated 62 Morton's of Chicago
Steakhouse restaurants ("Morton's") and 4 Bertolini's Authentic Trattoria
restaurants ("Bertolini's"). These concepts appeal to a broad spectrum of
consumer tastes and target separate price points and dining experiences. During
January 2002, the Morton's of Chicago steakhouse in Sydney, Australia was
closed.
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, communications and administration.
The Company's Credit Agreement restricts capital expenditures (see Note 6 to
the Company's consolidated financial statements), limiting the Company to five
new Morton's restaurants during 2002 and no new restaurant development in 2003.
The Company has executed agreements to open Morton's of Chicago Steakhouses in
Arlington, VA; Burbank, CA; Paramus, NJ; King of Prussia, PA; and Richmond, VA.
Additional sites are under review for potential new Morton's restaurants to
open; however, under the Company's Credit Agreement, the Company may not enter
into new restaurant leases until a specified cash flow leverage ratio is
achieved. 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. No new Bertolini's are planned for the
foreseeable future. The Company has no current intention to acquire other
restaurant concepts, although it may do so in the future. The Company does not
currently intend to develop a franchise program.
MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS
At December 30, 2001, the Company owned and operated 62 Morton's of Chicago
steakhouses (54 in the continental United States, one each in Honolulu, HI; San
Juan, Puerto Rico; Toronto and Vancouver, Canada; Singapore; Sydney, Australia
and two in Hong Kong) located in 57 cities. As a result of the World Trade
Center terrorist attacks on September 11, 2001, the Morton's of Chicago
F-2
steakhouse restaurant located at 90 West Street, two blocks from the World Trade
Center, was closed permanently due to structural damage. During January 2002,
the Morton's of Chicago steakhouse in Sydney, Australia was closed. Morton's
offers its clientele a combination of excellent service and large quantities of
the highest quality menu items. Morton's has received awards in many locations
for the quality of its food and hospitality. Morton's serves USDA prime aged
beef, including, among others, a 24 oz. porterhouse, a 20 oz. NY strip sirloin
and a 16 oz. ribeye. Morton's also offers fresh fish, lobster, veal and chicken.
All Morton's have identical dinner menu items. While the emphasis is on beef,
the menu selection is broad enough to appeal to many taste preferences. The
Morton's dinner menu consists of a tableside presentation by the server of many
of the dinner items, including a 48 oz. porterhouse steak and a live Maine
lobster, and all Morton's restaurants feature an open display kitchen where
steaks are prepared. Each restaurant has a fully stocked bar with a complete
list of name brands and an extensive premium wine list that offers approximately
175 selections.
Morton's caters primarily to high-end, business-oriented clientele. During
the fiscal year ended December 30, 2001, the average per-person check, including
dinner and lunch, was approximately $72.75. Management believes that a vast
majority of Morton's weekday revenues and a substantial portion of its weekend
revenues are derived from business people using expense accounts. Sales of
alcoholic beverages accounted for approximately 32% of Morton's revenues during
fiscal 2001. In the ten Morton's serving both dinner and lunch during fiscal
2001, dinner service accounted for approximately 85% of revenues and lunch
service accounted for approximately 15%. All Morton's are open seven days a
week. Those 52 Morton's serving only dinner are typically open from 5:30 p.m. to
11:30 p.m., while those Morton's serving both dinner and lunch typically open at
11:30 a.m. for the lunch period. All except for one Morton's (including all
restaurants opened since the 1989 acquisition) have on-premises, private dining
and meeting facilities referred to as "Boardrooms." During fiscal 2001,
Boardroom revenues were approximately 19% of sales in those locations offering
Boardrooms.
Morton's believes that its operations and cost systems, developed over
23 years, enable Morton's to maintain tight controls over operating expenses.
The cooking staff is highly trained and experienced. Uniform staffing patterns
throughout Morton's restaurants enhance operating efficiencies. Morton's
management believes that its centralized sourcing from primary suppliers of USDA
prime aged beef gives it significant cost and availability advantages over many
independent restaurants. Morton's purchases Midwest-bred, grain-fed, USDA prime
aged beef (approximately the finest two to three percent of a 1,200 pound
steer).
BERTOLINI'S AUTHENTIC TRATTORIA RESTAURANTS
At December 30, 2001, the Company owned and operated 4 Bertolini's, located
in three cities. Bertolini's is a white tablecloth, authentic Italian trattoria,
which provides table service in a casual dining atmosphere. For the fiscal year
ended December 30, 2001, Bertolini's average per-person check, including dinner
and lunch, was approximately $22.50. Bertolini's restaurants are open seven days
a week, for dinner and lunch, with typical hours of 11:00 a.m. to 12:00
midnight. During fiscal 2001, dinner service accounted for approximately 68% of
revenues and lunch service accounted for approximately 32%. Sales of alcoholic
beverages accounted for approximately 22% of Bertolini's revenues during fiscal
2001. During 2001, one restaurant was closed and during fiscal 2000 and 1999
seven restaurants were closed. See Note 3 to the Company's consolidated
financial statements.
SITE DEVELOPMENT AND EXPANSION
GENERAL. To date, the Company has attempted to maximize its capital
resources by obtaining substantial development or rent allowances from its
landlords. The Company's leases typically provide for substantial landlord
development and or rent allowances and an annual percentage rent based on gross
revenues, subject to market-based minimum annual rents. This leasing strategy
enables the Company to reduce its net investments in newly developed
restaurants.
F-3
The costs of opening a Morton's vary by restaurant depending upon, among
other things, the location of the site and construction required. The Company
generally leases its restaurant sites and operates both free-standing and
in-line restaurants. In recent years, the Company has received substantial
landlord development and or rent allowances for leasehold improvements,
furniture, fixtures and equipment. The Company currently targets its average
cash investment, net of such landlord allowances in new restaurants, in leased
premises, to be less than $2.0 million per restaurant, although the Company may
expend greater amounts for particular restaurants.
During fiscal 1998 and fiscal 1999, the Company executed contracts to
purchase six parcels of land to develop five Morton's and one Bertolini's, all
of which were built and opened.
The Company believes that the locations of its restaurants are critical to
its long-term success, and management devotes significant time and resources to
analyzing each prospective site. As it has expanded, the Company has developed
specific criteria by which each prospective site is evaluated. Potential sites
are generally sought in major metropolitan areas. Management considers such
factors as demographic information, average household size, income, traffic
patterns, proximity to shopping areas and office buildings, area restaurant
competition, accessibility and visibility. The Company's ability to open new
restaurants depends upon, among other things, locating satisfactory sites,
negotiating favorable lease terms, securing appropriate government permits and
approvals, obtaining liquor licenses, recruiting or transferring additional
qualified management personnel and access to financing. 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 operations headquarters are still located. From 1978 to 1989, Morton's
expanded to a group of nine restaurants in nine cities. Since the 1989
acquisition by the Company, Morton's has grown from nine to 61 restaurants as of
March 1, 2002. During 2001, new Morton's opened in Louisville, KY; Los Angeles
(downtown), CA; Hong Kong, the second in that region; Honolulu, HI; Reston, VA
and Sydney, Australia. One Morton's was relocated within Orange County, CA. As a
result of the World Trade Center terrorist attacks on September 11, 2001, the
Morton's of Chicago steakhouse restaurant located at 90 West Street, two blocks
from the World Trade Center, was closed permanently due to structural damage.
During January 2002, the Morton's of Chicago steakhouse in Sydney, Australia was
closed.
Morton's are very similar in terms of style concept and decor and are
located in retail, hotel, commercial and office building complexes in major
metropolitan areas and urban centers. Management believes that fixed investment
costs and occupancy costs have been relatively low, as appropriate space for new
Morton's restaurants has been readily available. The approximate gross costs to
the Company for the seven Morton's opened or relocated in leased premises
between January 1, 2001 and March 1, 2002 ranged from $1.9 million to
$4.0 million, including costs for leasehold construction, improvements,
furniture, fixtures, equipment, and pre-opening expenses. These aggregate
per-restaurant costs were substantially offset by landlord development and or
rent allowances ranging from $0.1 million to $1.3 million and equipment lease
financings ranging from $0 million to $0.4 million. The Company's average net
cash investment for those seven restaurants was approximately $2.0 million, in
each case, net of landlord development and or rent allowances and restaurant
equipment lease financings.
The Company's Credit Agreement restricts capital expenditures (see Note 6 to
the Company's consolidated financial statements), limiting the Company to five
new Morton's restaurants during 2002 and no new restaurant development in 2003.
The Company has executed agreements to open Morton's of Chicago Steakhouses in
Arlington, VA; Burbank, CA; Paramus, NJ; King of Prussia, PA; and Richmond, VA.
Additional sites are under review for potential new Morton's restaurants to
open;
F-4
however, under the Company's Credit Agreement, the Company may not enter into
new restaurant leases until a specified cash flow leverage ratio is achieved.
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.
BERTOLINI'S AUTHENTIC TRATTORIA RESTAURANTS. The first Bertolini's opened
in Las Vegas in May 1992, and is located in the Forum Shops Mall, adjacent to
Caesars Palace Casino. At December 30, 2001 the Company owned and operated four
Bertolini's. No Bertolini's were opened during fiscal 2001 and none are planned
for the foreseeable future.
RESTAURANT LOCATIONS
The Company owned and operated 61 Morton's and 4 Bertolini's as of March 1,
2002.
The following table provides information with respect to those restaurants:
MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS DATE OPENED
------------------------------------------ --------------
Chicago, IL(1)............................................. December 1978
Washington (Georgetown), DC................................ November 1982
Westchester/Oakbrook, IL................................... June 1986
Dallas (Downtown), TX...................................... May 1987
Boston, MA................................................. December 1987
Rosemont, IL............................................... June 1989
Cleveland, OH.............................................. September 1990
Tysons Corner, VA.......................................... November 1990
Columbus, OH............................................... April 1991
Cincinnati, OH............................................. August 1991
San Antonio, TX............................................ September 1991
Palm Beach, FL............................................. November 1991
Minneapolis, MN............................................ December 1991
Beverly Hills, CA(2)....................................... October 1992
Detroit (Southfield), MI................................... November 1992
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
Denver (Downtown), CO...................................... March 1995
Atlanta (Downtown), GA..................................... November 1995
Houston, TX................................................ January 1996
Phoenix, AZ................................................ March 1996
Orlando, FL................................................ March 1996
Washington (Connecticut Ave.), DC.......................... January 1997
San Diego, CA.............................................. April 1997
Baltimore, MD.............................................. August 1997
Miami (Downtown), FL....................................... December 1997
Stamford, CT............................................... February 1998
Singapore.................................................. May 1998
North Miami Beach, FL...................................... July 1998
Toronto, Canada............................................ September 1998
Portland, OR............................................... December 1998
Nashville, TN.............................................. January 1999
F-5
MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS (CONTINUED) DATE OPENED
------------------------------------------------------ --------------
Scottsdale, AZ............................................. January 1999
Philadelphia, PA........................................... July 1999
Boca Raton, FL............................................. August 1999
Kansas City, MO............................................ October 1999
Indianapolis, IN........................................... November 1999
Schaumburg, IL............................................. December 1999
Hong Kong (Kowloon)........................................ December 1999
Seattle, WA................................................ December 1999
Denver (Tech Center), CO................................... March 2000
Las Vegas, NV.............................................. May 2000
Jacksonville, FL........................................... June 2000
Hartford, CT............................................... September 2000
San Juan, PR............................................... October 2000
Great Neck (Long Island), NY............................... October 2000
Vancouver, Canada.......................................... October 2000
New Orleans, LA............................................ December 2000
Hong Kong (Central District)............................... May 2001
Louisville, KY............................................. June 2001
Reston, VA................................................. July 2001
Santa Ana/Costa Mesa (Orange), CA(3)....................... November 2001
Los Angeles (Downtown), CA(2).............................. November 2001
Honolulu, HI............................................... November 2001
BERTOLINI'S AUTHENTIC TRATTORIAS DATE OPENED
-------------------------------- --------------
Las Vegas, NV.............................................. May 1992
King of Prussia, PA........................................ November 1995
Indianapolis, IN........................................... October 1996
West Las Vegas, NV......................................... December 1998
(1) Does not have Morton's Boardroom Banquet facilities.
(2) Operates under the name "Arnie Morton's of Chicago."
(3) The Morton's Orange County, CA location was relocated in November 2001 to a
new site. The original location had been open since March 1995.
The Company's Credit Agreement restricts capital expenditures (see Note 6 to
the Company's consolidated financial statements), limiting the Company to five
new Morton's restaurants during 2002 and no new restaurant development in 2003.
The Company has executed agreements to open Morton's of Chicago Steakhouses in
Arlington, VA; Burbank, CA; Paramus, NJ; King of Prussia, PA; and Richmond, VA.
Additional sites are under review for potential new Morton's restaurants to
open; however, under the Company's Credit Agreement, the Company may not enter
into new restaurant leases until a specified cash flow leverage ratio is
achieved. 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.
RESTAURANT OPERATIONS AND MANAGEMENT
Morton's and Bertolini's restaurants have a well-developed management
infrastructure and are operated and managed as distinct concepts. Operations for
the Company's restaurants are supervised by regional managers, each of whom is
responsible for several restaurants and reports to a division vice president.
Division vice presidents and regional managers meet frequently with senior
management to review operations and to resolve any issues. Working in concert
with vice presidents, regional managers and restaurant general managers, senior
management defines operations and performance objectives for each restaurant.
Incentive plans tied to achievement of specified revenue, profitability and
operating targets and related quality objectives have been established for vice
presidents, regional managers and certain restaurant managers.
F-6
The Company strives to maintain quality and consistency in its restaurants
through the careful training and supervision of personnel and the establishment
of standards relating to food and beverage preparation, maintenance of
facilities and conduct of personnel. Restaurant managers, many of whom are
developed from the Company's restaurant personnel, must complete a training
program of typically eight to twelve weeks during which they are instructed in
areas of restaurant management, including food quality and preparation, customer
service, alcoholic beverage service, liquor liability avoidance and employee
relations. Restaurant managers are also provided with operations manuals
relating to food and beverage preparation and operation of restaurants. These
manuals are designed to ensure uniform operations, consistently high quality
products and service, and proper accounting for restaurant operations. The
Company holds regular meetings of its restaurant managers to discuss menu items,
continuing training and other aspects of business management.
The staff for a typical Morton's consists of one general manager, up to four
assistant managers and approximately 40 to 60 hourly employees. The staff for a
typical Bertolini's consists of one general manager, up to six assistant
managers and approximately 100 hourly employees. Each new restaurant employee of
the Company participates in a training program during which the employee works
under the close supervision of restaurant managers. Management strives to
instill enthusiasm and dedication in its employees. Restaurant management
regularly solicits employee suggestions concerning restaurant operations,
strives to be responsive to the employees' concerns and meets regularly with
employees at each of the restaurants.
The Company devotes considerable attention to controlling food costs. The
Company makes extensive use of information technology providing management with
pertinent information on daily revenues and inventory requirements, thus
minimizing the need to carry excessive quantities of food inventories. This cost
management system is complemented by the Company's ability to obtain certain
volume-based discounts. In addition, each Morton's and Bertolini's have similar
menu items and common operating methods, allowing for more simplified management
operating controls.
The Company maintains financial and accounting controls for each of its
restaurants through the use of centralized accounting and management information
systems and reporting requirements. Revenue, cost and related information is
collected daily for each restaurant. Restaurant managers are provided with
operating statements for their respective restaurants. Cash and credit card
receipts are controlled through daily deposits to local operating accounts, the
balances of which are wire transferred or deposited to cash concentration
accounts.
PURCHASING
The Company's ability to maintain consistent quality throughout its
restaurants depends in part upon the ability to acquire food products and
related items from reliable sources in accordance with Company specifications.
The Company has no long-term contracts for any food items used in its
restaurants. The Company currently does not engage in any futures contracts and
all purchases are made at prevailing market or contracted prices. While
management believes adequate alternative sources of supply are readily
available, these alternative sources might not provide as favorable terms to the
Company as its current suppliers when viewed on a long-term basis. All of
Morton's USDA prime aged beef is shipped to Morton's restaurants by refrigerated
common carrier from its primary suppliers. Other products used by Morton's are
procured locally based on strict Company specifications. Bertolini's restaurants
also adhere to strict product specifications and use national, regional, and
local suppliers. Food and supplies are shipped directly to the restaurants and
invoices for purchases are sent for payment to the headquarters office.
F-7
MARKETING
Management believes that the Company's commitment to quality food,
hospitality and value/price is the most effective approach to attracting guests.
Accordingly, the Company has historically focused its resources on providing its
customers with superior service and value, and has relied primarily on word of
mouth to attract new customers. The Company utilizes public relations
consultants, local restaurant promotions and limited print, billboard and direct
mail advertising. The Company's expenditure for advertising, marketing and
promotional expenses, as a percentage of its revenues, was 2.9% during fiscal
2001.
COMPETITION
The restaurant business is highly competitive and fragmented, and the
number, size and strength of competitors varies widely by region. The Company
believes that restaurant competition is based on, among other things, quality of
food products, customer service, reputation, restaurant location, name
recognition and menu price points. The Company's restaurants compete with a
number of restaurants within their markets, both locally owned restaurants and
other restaurants which are members of regional or national chains. Some of the
Company's competitors are significantly larger and have greater financial and
other resources and greater name recognition than the Company and its
restaurants. Many of such competitors have been in existence longer than the
Company and are better established in areas where the Company's restaurants are,
or are planned to be, located. The restaurant business is often affected by
changes in consumer taste and spending habits, national, regional or local
economic conditions, population and traffic patterns and weather. In addition,
factors such as inflation, increased costs, food, labor and benefits and the
lack of experienced management and hourly staff employees may adversely affect
the restaurant industry in general and, in particular, the Company's
restaurants.
SERVICE MARKS AND TRADEMARKS
The Company has registered the names Morton's, Morton's of Chicago,
Bertolini's and certain other names used by its restaurants as trademarks or
service marks with the United States Patent and Trademark Office and in certain
foreign countries. The Company is aware of names similar to that of the
Company's restaurants used by third parties in certain limited geographical
areas, although the Company does not anticipate that such use will prevent the
Company from using its marks in such areas. The Company is not aware of any
infringing uses that could materially affect its business. The Company believes
that its trademarks and service marks are valuable to the operation of its
restaurants and are important to its marketing strategy.
GOVERNMENT REGULATION
The Company's business is subject to extensive Federal, state and local
government regulation, including those relating to, among others, alcoholic
beverage control, public health and safety, zoning and fire codes. Failure to
obtain or retain food, liquor or other licenses would adversely affect the
operations of the Company's restaurants. The Morton's of Chicago steakhouse
restaurant in Sydney, Australia was closed in January 2002, based in part on
newly imposed restrictions on importing certain cuts of USDA prime beef from the
United States, an essential ingredient of the Morton's dining experience. While
the Company has not experienced and does not anticipate any additional 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, or adversely impact the viability of, a restaurant in a
particular area. Approximately 32% and 22% of the revenues of Morton's and
Bertolini's, respectively, for fiscal 2001 were attributable to the sale of
alcoholic beverages. Each restaurant has appropriate licenses to sell liquor,
beer, wine and food. The Company's licenses to sell alcoholic beverages must be
renewed annually and may be suspended or revoked at any time for cause,
F-8
including violation by the Company, or its employees, of any law or regulation
pertaining to alcoholic beverage control, such as those regulating the minimum
age of patrons or employees, advertising, wholesale purchasing, and inventory
control, handling and storage. However, each restaurant is operated in
accordance with certain standards and procedures designed to comply with
applicable codes and regulations.
The Company is subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment which wrongfully served alcoholic beverages to
such person. While the Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance, a judgment against the
Company under a dram-shop statute in excess of the Company's liability coverage,
or inability to continue to obtain such insurance coverage at reasonable costs,
could have a material adverse effect on the Company.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Management believes that Federal and state environmental regulations have not
had a material effect on the Company's operations, but more stringent and varied
requirements of local government bodies with respect to zoning, land use and
environmental factors could delay construction and increase development costs
for new restaurants.
The Company is also subject to the Fair Labor Standards Act, the Immigration
Reform and Control Act of 1986 and various Federal and state laws governing such
matters as minimum wages, overtime, tips, tip credits and other working
conditions. A significant number of the Company's hourly staff are paid at rates
related to the Federal minimum wage and, accordingly, increases in the minimum
wage or decreases in allowable tip credits will increase the Company's labor
cost.
EMPLOYEES
As of December 30, 2001, the Company had 3,786 employees, of whom 3,284 were
hourly restaurant employees, 399 were salaried restaurant employees engaged in
administrative and supervisory capacities and 103 were corporate and office
personnel. Many of the hourly employees are employed on a part-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.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The information regarding revenues, which is reported on the "Consolidated
Statements of Income", includes revenues generated from operations in foreign
countries of $13.1 million, $11.5 million, and $5.8 million for 2001, 2000, and
1999 respectively. The information regarding net property and equipment, which
is reported on the "Consolidated Balance Sheets", includes net property and
equipment in foreign countries of $5.3 million, $4.1 million, and $3.4 million
for 2001, 2000, and 1999 respectively. For information regarding the risks
associated with foreign operations, see "Business--Government Regulation" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quantitative and Qualitative Disclosures about Market Risk".
FORWARD-LOOKING STATEMENTS
This Form 10-K contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements, written, oral or otherwise made, represent the Company's expectation
or belief concerning future events. Without limiting the foregoing, the words
"believes," "thinks," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. The Company cautions that
these statements are further qualified by important economic and competitive
factors that could cause actual results to differ materially, or otherwise, from
those in the forward-looking statements, including, without limitation, risks of
the restaurant industry,
F-9
including a highly competitive industry with many well-established competitors
with greater financial and other resources than the Company, and the impact of
changes in consumer tastes, local, regional and national economic and market
conditions, restaurant profitability levels, expansion plans, demographic
trends, traffic patterns, employee availability and benefits and cost increases,
and other risks detailed from time to time in the Company's periodic earnings
releases and reports filed with the Securities and Exchange Commission. In
addition, the Company's ability to expand is dependent upon various factors,
such as restrictions under the Company's Credit Agreement, the availability of
attractive sites for new restaurants, the ability to negotiate suitable lease
terms, the ability to generate or borrow funds to develop new restaurants and
obtain various government permits and licenses and the recruitment and training
of skilled management and restaurant employees. Accordingly, such forward-
looking statements do not purport to be predictions of future events or
circumstances and therefore there can be no assurance that any forward-looking
statement contained herein will prove to be accurate.
ITEM 2. PROPERTIES
The Company's restaurants are generally located in space leased by
subsidiaries of the Company. Restaurant lease expirations, including renewal
options, range from 1 to 41 years. The Company's leases typically provide for
renewal options for terms ranging from five years to twenty years. Restaurant
leases provide for a specified annual rent, and most leases call for additional
or contingent rent based on revenues above specified levels. Generally, leases
are "net leases" which require the Company's subsidiary to pay its pro rata
share of taxes, insurance and maintenance costs. In some cases, the Company or
another subsidiary guarantees the performance of new leases of the tenant
subsidiary for a portion of the lease term, typically not exceeding the first
five years. See Note 10 to the Company's consolidated financial statements. The
Company currently operates six restaurants on properties which it owns.
The Company maintains its executive offices in leased space of approximately
9,800 square feet in New Hyde Park, New York and approximately 16,500 square
feet in Chicago. The Company believes its current office and operating space is
suitable and adequate for its intended purposes.
ITEM 3. LEGAL PROCEEDINGS
During fiscal 1998, the Company identified several underperforming
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants which have all been closed. The Company is involved in
legal action relating to such closures, however, the Company does not believe
that the ultimate resolution of these actions will have a material effect beyond
that recorded during fiscal 1998. See Note 3(c) to the Company's consolidated
financial statements.
On or about March 27, 2002, several substantially similar civil actions were
commenced in the Court of Chancery in the State of Delaware in New Castle County
by purported stockholders of the Company. The plaintiff in each action seeks to
represent a putative class consisting of the public stockholders of the Company.
Named as defendants in each of the complaints are the Company, the members of
the Company's Board of Directors and Castle Harlan, Inc. The complaints allege,
among other things, that the proposed merger is unfair and that the Company's
directors breached their fiduciary duties in connection with the
previously-announced entry into the Merger Agreement. The complaints seek an
injunction, damages and other relief. The Company believes that the allegations
in the complaints are without merit and intends to contest the matters
vigorously.
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 or capital resources.
F-10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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)..................... 56 Chairman of the Board, President and Chief
Executive Officer
Thomas J. Baldwin......................... 46 Executive Vice President, Chief Financial
Officer, Assistant Secretary, Treasurer
and Director
Roger J. Drake............................ 41 Vice President-Communications
Agnes Longarzo............................ 63 Vice President-Administration and
Secretary
Allan C. Schreiber........................ 61 Senior Vice President-Development
Klaus W. Fritsch.......................... 58 Vice Chairman and Co-Founder-Morton's of
Chicago
John T. Bettin............................ 46 President-Morton's of Chicago
(1) Member of Executive Committee of the Board of Directors.
Allen J. Bernstein has been Chairman of the Board of the Company since
October 1994 and Chief Executive Officer and a Director of the Company since
December 1988. He has been President of the Company since September 1997 and was
previously President of the Company from December 1988 through October 1994.
Mr. Bernstein has worked in many various aspects of the restaurant industry
since 1970. Mr. Bernstein is also a director of Dave and Busters, Inc., Charlie
Browns Acquisition Corp., Luther's Acquisition Corp., Wilshire Restaurant
Group, Inc. and McCormick and Schmick Holdings LLC.
Thomas J. Baldwin was elected a Director of the Company in November 1998 and
Executive Vice President in January 1997. He previously served as Senior Vice
President, Finance of the Company since June 1992, and Vice President, Finance
since December 1988. In addition, Mr. Baldwin has been Chief Financial Officer,
Assistant Secretary and Treasurer of the Company since December 1988. His
previous experience includes seven years at General Foods Corp., now a
subsidiary of Kraft General Foods/Philip Morris Companies, Inc., where he worked
in various financial management and accounting positions and two years at
Citicorp where he served as Vice President responsible for strategic planning
and financial analysis at a major corporate banking division. Mr. Baldwin is
also a director of Charlie Browns Acquisition Corp. Mr. Baldwin is a licensed
certified public accountant in the State of New York.
Roger J. Drake has been Vice President of Communications since May 1999 and
Director of Communications since February 1994. Mr. Drake previously owned and
operated Drake Productions, a video and marketing communications company, from
April 1987 to December 1993. Prior to that, Mr. Drake served as producer,
editor, and copywriter at Major League Baseball Productions, from May 1981 to
June 1986.
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.
F-11
Allan C. Schreiber has been Senior Vice President, Development since
January 1999, Vice President of Real Estate since January 1996 and Director of
Real Estate since November 1995. Mr. Schreiber had been a Senior Managing
Director at The Galbreath Company since 1991. Prior to joining Galbreath, he
served as an Executive Vice President of National Westminster Bank USA from 1982
to 1991. Previously, Mr. Schreiber had been a Vice President and Division
Executive of the Chase Manhattan Bank.
Klaus W. Fritsch has been the Vice Chairman of Morton's of Chicago, Inc.
since May 1992. Mr. Fritsch has been with Morton's of Chicago, Inc. since its
inception in 1978, when he co-founded Morton's. After Mr. Arnold Morton ceased
active involvement in 1987, Mr. Fritsch assumed all operating responsibilities
as President in which capacity he served until May 1992.
John T. Bettin has been President of Morton's of Chicago since July 1998.
Prior to joining the Company, Mr. Bettin had been Executive Vice President of
Capital Restaurant Concepts, Ltd. since April 1994. Previously, Mr. Bettin
worked for Gilbert Robinson, Inc. where he served in various positions including
Corporate Executive Chef, Vice President Operations and Senior Vice President
Concept Development since 1975.
Officers are elected by and serve at the discretion of the Board of
Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "MRG". The Company has received notice from the NYSE that it is
below the NYSE continued listing standards regarding total market capitalization
and stockholders' equity. The Company is in discussion with the NYSE regarding
planned compliance with such continued listing standards. The NYSE will
determine whether the Company's common stock will continue to be eligible for
trading on the NYSE. It cannot be assured that the Company's common stock will
remain listed on the NYSE. If the common stock is delisted from the NYSE, the
Company may seek another established trading market for the common stock,
although it cannot be assured that another established trading market would be
available. The following table sets forth, for the periods indicated, the
highest and lowest sale prices for the Common Stock, as reported by the NYSE.
FISCAL YEAR 2001 ENDED DECEMBER 30, 2001 HIGH LOW
---------------------------------------- -------- --------
First Quarter............................................... $24.15 $19.15
Second Quarter.............................................. 28.00 18.70
Third Quarter............................................... 20.30 7.60
Fourth Quarter.............................................. 14.15 8.50
FISCAL YEAR 2000 ENDED DECEMBER 31, 2000 HIGH LOW
---------------------------------------- -------- --------
First Quarter............................................... $19.81 $15.00
Second Quarter.............................................. 21.75 17.75
Third Quarter............................................... 21.50 19.88
Fourth Quarter.............................................. 23.50 18.69
On December 30, 2001, the last reported sale price of the Common Stock on
the NYSE was $11.30. On March 1, 2002, the last reported sale price of the
Common Stock on the NYSE was $8.90.
As of March 1, 2002, there were approximately 105 holders of record of the
Company's Common Stock. The Company believes that as of such date there were
approximately 1,000 beneficial owners of its Common Stock.
F-12
The Company has not paid any dividends on its Common Stock since its
inception. The Company currently intends to retain all of its earnings to
support the continued development of its business. The Company's Credit
Agreement prohibits the payment of dividends. See Note 6 to the Company's
consolidated financial statements.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial data of the
Company as of and for each of the past five fiscal years. The Company derived
this statement of operations and balance sheet information from the Company's
audited historical consolidated financial statements.
FISCAL YEARS
----------------------------------------------------------------
STATEMENT OF OPERATIONS INFORMATION 2001 2000 1999 1998 1997
----------------------------------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues....................................... $237.1 $248.4 $206.9 $189.8 $172.7(5)
Income (Loss) Before Income Taxes and
Cumulative
Effect of a Change in an Accounting
Principle.................................... 0.3(1) 14.4 14.3(2) (6.1)(4) 9.2(6)
Income (Loss) Before Cumulative Effect of a
Change in an Accounting Principle............ 1.0(1) 10.1 10.7(2) (1.9)(4) 6.9(6)
Net Income (Loss).............................. 1.0(1) 10.1 8.5(2)(3) (1.9)(4) 6.9(6)
Net Income (Loss) Per Share Before Cumulative
Effect of a Change in an Accounting
Principle:
Basic........................................ 0.24(1) 2.20 1.81(2) (0.28)(4) 1.06(6)
Diluted...................................... 0.23(1) 2.12 1.77(2) (0.28)(4) 1.00(6)
Net Income (Loss) Per Share:
Basic........................................ 0.24(1) 2.20 1.42(2)(3) (0.28)(4) 1.06(6)
Diluted...................................... $ 0.23(1) $ 2.12 $ 1.39(2)(3) $(0.28)(4) $ 1.00(6)
FISCAL YEARS
----------------------------------------------------
BALANCE SHEET INFORMATION 2001 2000 1999 1998 1997
------------------------- -------- -------- -------- -------- --------
Current Assets...................................... $ 24.7 $ 23.8 $ 22.5 $ 19.3 $ 18.6
Property and Equipment, Net......................... 82.9 78.0 66.7 45.8 34.6
Total Assets........................................ 134.7 124.4 114.4 95.0 81.9
Current Liabilities................................. 30.6 35.8 34.5 28.2 21.4
Obligations to financial institutions and capital
leases, less current maturities................... 100.2 85.0 61.0 40.3 28.7
Stockholders' Equity (Deficit)...................... $ (0.2) $ (0.9) $ 12.1 $ 23.0 $ 28.6
------------------------
(1) Includes pre-tax charge of $1.6 million representing restaurant closing
costs, pre-tax charge of $0.7 million for costs associated with strategic
alternatives and proxy contest and an income tax benefit of $0.7 million.
(2) Includes nonrecurring, pre-tax litigation benefit of $0.2 million.
(3) Includes a $2.3 million charge, net of income taxes, representing the
cumulative effect of the requisite change in accounting for pre-opening
costs.
(4) Includes nonrecurring, pre-tax charge of $19.9 million representing the
write-down of impaired Bertolini's restaurant assets and the write-down and
accrual of lease exit costs associated with the closure of specified
Bertolini's restaurants, as well as the remaining interests in Mick's and
Peasant restaurants.
(5) Includes Mick's and Peasant revenues of $8.4 million.
(6) Includes nonrecurring, pre-tax litigation charge of $2.3 million.
F-13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to recoverability of fixed assets, intangible assets, and reserves related to
income taxes, and contingent liabilities. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Management believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Future adverse changes in market
conditions or poor operating results of underlying restaurant locations could
result in losses or an inability to recover the carrying value of the long-lived
assets that may not be reflected in the long-lived assets current carrying
value, thereby possibly requiring an impairment charge in the future. The
Company records a valuation allowance to reduce its deferred tax assets to the
amount that it believes is more likely than not to be realized. While the
Company has considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for the valuation allowance, in
the event the Company were to determine that it would not be able to realize all
or part of its net deferred tax assets in the future, an adjustment to the
deferred tax assets would be charged to income in the period such determination
was made. Likewise, should the Company determine that it would be able to
realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax assets would increase income in the
period such determination was made.
RESULTS OF OPERATIONS
2001 COMPARED TO 2000
Revenues decreased $11.3 million, or 4.5%, to $237.1 million for fiscal
2001, from $248.4 million for fiscal 2000. Incremental restaurant revenues of
$19.6 million were attributable to thirteen new restaurants opened after
January 2, 2000 which were offset by $23.0 million, or 10.1%, attributable to a
reduction in comparable revenues from restaurants open all of both periods.
Revenues decreased $2.7 million for the Morton's of Chicago Steakhouse
restaurant located in the Wall Street area of downtown Manhattan (closed since
September 11, 2001). Revenues for the four Bertolini's restaurants closed during
2001 and 2000 decreased by $5.4 million compared to fiscal 2000. Included in
2001 revenues is approximately $0.2 million representing the sale of the
Company's remaining interests in the Atlanta-based Mick's and Peasant
restaurants. Average revenue per restaurant open for a full period decreased
12.7%. Revenues for fiscal 2001 reflect the impact of menu price increases of
approximately 1% in each of February 2000 and May 2000. As of December 30, 2001,
the Company operated 66 restaurants (62 Morton's and 4 Bertolini's) and as of
December 31, 2000, 62 restaurants (57 Morton's and 5 Bertolini's).
F-14
Percentage changes in comparable restaurant revenues for fiscal 2001 versus
fiscal 2000 for restaurants open all of both periods are as follows:
PERCENTAGE CHANGE
-----------------
Morton's.................................................... -10.7%
Bertolini's................................................. -2.9%
Total....................................................... -10.1%
The Company believes that due to the severe nationwide impact of the World
Trade Center terrorist attacks, the continuing impact of the troubled economy,
unfavorable business conditions, corporate spending cutbacks and reduced
business travel, it has and will continue to experience weak revenue trends and
negative comparable restaurant revenues. These adverse operating conditions,
unfavorable revenue trends, increased operating costs and investment banking,
legal and other costs associated with the Company's evaluation of strategic
alternatives are expected to negatively impact results. The Company believes
that if such unfavorable conditions continue or worsen, future results will also
be adversely affected, the full extent of which cannot be determined or
forecasted at this time.
The building in which the Morton's of Chicago Steakhouse restaurant was
located in the Wall Street area of downtown Manhattan (located at 90 West
Street, two blocks from the World Trade Center) was damaged and has been closed
permanently. Accordingly the restaurant has been excluded from comparable
restaurant revenues.
On March 26, 2002, the Company entered into a definitive merger agreement
("Merger Agreement") providing for the acquisition of the Company by an
affiliate of Castle Harlan, Inc., a New York based private equity investment
firm. Under the terms of the Merger Agreement, the Company's stockholders will
receive $12.60 in cash for each share of common stock. Completion of the merger
is subject to various closing conditions including, but not limited to, approval
of the Company's stockholders and customary industry regulatory approvals,
receipt of third party consents and achievement of a minimum level of earnings.
There can be no assurance that these or other conditions to the merger will be
satisfied or that the merger will be completed. If the merger is not completed
for any reason, it is expected that the current management of the Company, under
the direction of the Board of Directors, will continue to manage the Company as
an ongoing business. The Company has also entered into an amendment to its
Credit Agreement which allows for the transactions contemplated under the
merger; however, this amendment will only become effective upon the completion
of the merger. The merger is currently expected to be completed in early summer
of 2002.
Food and beverage costs decreased from $84.2 million for fiscal 2000 to
$82.2 million for fiscal 2001. Primarily as a result of higher meat costs, these
costs as a percentage of revenues increased from 33.9% for fiscal 2000 to 34.6%
for the comparable 2001 period.
Restaurant operating expenses, which include labor, occupancy and other
operating expenses, increased from $105.6 million for fiscal 2000 to
$107.9 million for fiscal 2001. Those costs as a percentage of revenues
increased 3.0% from 42.5% for fiscal 2000 to 45.5% for fiscal 2001. Included in
fiscal 2000, is a gain of approximately $1.1 million resulting from the
disposition of certain restaurant assets. Included in fiscal 2001 is a recovery
of approximately $0.9 million for business interruption insurance recovery
related to costs incurred from the closing of the Morton's of Chicago Steakhouse
restaurant located in the Wall Street area of downtown Manhattan as a result of
the World Trade Center attacks. As of December 30, 2001, the Company has
received $500,000 related to this recovery in fiscal 2001 for such insurance. In
fiscal 2002, the Company received an additional $3,250,000 related to this
recovery and property insurance claims, $250,000 of which was accrued for in
fiscal 2001. The Company believes that additional benefits will be recorded in
fiscal 2002 relating to future insurance recoveries.
Pre-opening costs, depreciation, amortization and non-cash charges increased
from $11.1 million for fiscal 2000 to $12.7 million for fiscal 2001 and
increased from 4.5% of revenues to 5.3%,
F-15
respectively. Of the increase, $1.1 million was attributable to incremental
depreciation expense associated with thirteen new restaurants opened after
January 2, 2000. In accordance with the adoption of SOP 98-5 (see Note 2 to the
Company's consolidated financial statements), the Company expenses all costs
incurred during start-up activities, including pre-opening costs, as incurred.
Pre-opening costs incurred and recorded as expense for fiscal 2001 and 2000 were
$3.7 million and $4.0 million, respectively. The timing and number of restaurant
openings, as well as costs per restaurant, affected the amounts of such costs.
Included in fiscal 2000 are charges of approximately $0.5 million related to the
disposition of one Bertolini's restaurant and charges of approximately
$0.6 million related to the write-down, to net realizable values, of another
Bertolini's restaurant. Effective April 3, 2000, the Company changed the
estimated useful lives for computer equipment and software. As a result of such
change, the first quarter of fiscal 2001 included approximately $48,000 of
additional depreciation expense.
General and administrative expenses for fiscal 2001 were $17.2 million, a
decrease of $2.6 million, from $19.8 million for fiscal 2000. Decreases in such
costs were due in part to the Company's reduction in certain staff, travel and
other overhead expenditures. Such costs as a percentage of revenues were 7.3%
for fiscal 2001, a decrease of 0.7% from fiscal 2000.
Marketing and promotional expenses were $6.9 million, or 2.9% of revenues,
for fiscal 2001 versus $6.9 million, or 2.8% of revenues, for fiscal 2000.
Costs associated with the Company's 2001 proxy contest and its evaluation of
strategic alternatives were $0.7 million for fiscal 2001.
Interest expense, net of interest income, increased $1.2 million, from
$6.4 million for fiscal 2000 to $7.6 million for fiscal 2001. This increase in
interest expense was due to increased borrowings, partially offset by a decrease
in interest rates.
Restaurant closing costs recorded during fiscal 2001 represent a pre-tax
charge of $1.6 million for the write-down and exit costs associated with the
closing of one restaurant. Based on a strategic assessment of recent and current
revenue trends, the Company closed the Morton's of Chicago steakhouse restaurant
in Sydney, Australia in January 2002. Newly-imposed restrictions on importing
certain cuts of USDA prime beef from the United States, an essential ingredient
of the Morton's dining experience, contributed to the decision to close the
restaurant.
The Company's income tax (benefit) provision for income taxes consisted of a
tax benefit of $0.7 million for fiscal 2001, or an effective tax recovery of
254.5%, compared to a tax provision of $4.3 million for fiscal 2000, or an
effective tax rate of 30%. The effective tax rate variance represents the
establishment of additional deferred tax assets relating to FICA and other tax
credits that were generated during fiscal 2001. See Note 7 to the Company's
consolidated financial statements.
2000 COMPARED TO 1999
Revenues increased $41.5 million, or 20.1%, to $248.4 million for fiscal
2000, from $206.9 million for fiscal 1999. Of the increase in revenues,
$30.3 million was attributable to incremental restaurant revenues from fourteen
new restaurants opened after January 4, 1999 and $15.3 million, or 8.1%, was
attributable to additional comparable revenues from restaurants open all of both
periods. Revenues for the seven Bertolini's restaurants closed during 1999 and
2000 decreased by $3.7 million compared to fiscal 1999. Included in 1999
revenues is approximately $0.4 million of consulting fee income. Average revenue
per restaurant open for a full period increased 10.6%. Higher revenues for
fiscal 2000 reflect the impact of menu price increases of approximately 1% in
each of September 1999, February 2000 and May 2000. Additionally, as reflected
in the table below, certain Bertolini's restaurants have generated lower than
anticipated revenues, which have adversely impacted average restaurant revenues,
earnings and earnings trends. As of December 31, 2000, the Company operated 62
restaurants (57 Morton's and 5 Bertolini's) and as of January 2, 2000, 58
restaurants (50 Morton's and 8 Bertolini's).
F-16
Percentage changes in comparable restaurant revenues for fiscal 2000 versus
fiscal 1999 for restaurants open all of both periods are as follows:
PERCENTAGE CHANGE
-----------------
Morton's.................................................... 9.5%
Bertolini's................................................. -1.9%
Total....................................................... 8.1%
Food and beverage costs increased from $69.9 million for fiscal 1999 to
$84.2 million for fiscal 2000. These costs as a percentage of related revenues
remained consistent with fiscal 1999.
Restaurant operating expenses, which include labor, occupancy and other
operating expenses, increased from $90.0 million for fiscal 1999 to
$105.6 million for fiscal 2000. Those costs as a percentage of revenues
decreased 1.0% from 43.5% for fiscal 1999 to 42.5% for fiscal 2000. Included in
fiscal 2000, is a gain of approximately $1.1 million resulting from the
disposition of certain restaurant assets.
Pre-opening costs, depreciation, amortization and non-cash charges increased
from $7.6 million for fiscal 1999 to $11.1 million for fiscal 2000 and increased
from 3.7% of revenues to 4.5%, respectively. Of the increase, $1.4 million was
attributable to incremental depreciation expense associated with fourteen new
restaurants opened after January 4, 1999. Included in fiscal 2000 are charges of
approximately $0.5 million related to the disposition of one Bertolini's
restaurant and charges of approximately $0.6 million related to the write-down,
to net realizable values, of another Bertolini's restaurant. Such charges were
not previously provided for in the fiscal 1998 charge (see Note 3 to the
Company's consolidated financial statements). Effective April 3, 2000, the
Company changed the estimated useful lives for computer equipment and software.
As a result of such change, fiscal 2000 included approximately $144,000 of
additional depreciation expense. Beginning in fiscal 1999, in accordance with
its adoption of SOP 98-5 (see Note 2 to the Company's consolidated financial
statements), the Company expenses all costs incurred during start-up activities,
including pre-opening costs, as incurred. Pre-opening costs incurred and
recorded as expense for fiscal 2000 and 1999 were $4.0 million and
$3.1 million, respectively. The timing and number of restaurant openings, as
well as costs per restaurant, affected the amounts of such costs.
General and administrative expenses for fiscal 2000 were $19.8 million, an
increase of $4.3 million, from $15.5 million for fiscal 1999. Such costs as a
percentage of revenues were 8.0% for fiscal 2000, an increase of 0.5% from
fiscal 1999. The increase in such costs is driven by incremental costs
associated with increased restaurant development, training and salary costs.
Marketing and promotional expenses were $6.9 million, or 2.8% of revenues,
for fiscal 2000 versus $5.7 million, or 2.7% of revenues, for fiscal 1999.
Interest expense, net of interest income, increased $2.3 million, from
$4.1 million for fiscal 1999 to $6.4 million for fiscal 2000. This increase in
interest expense was due to increased borrowings and higher interest rates.
During fiscal 1999, the Company settled all claims relating to a lawsuit.
The amount of the final settlement, including all related legal and other costs,
resulted in the Company recording a nonrecurring, pre-tax benefit of
approximately $159,000. See Note 3 to the Company's consolidated financial
statements.
Income tax expense of $4.3 million for fiscal 2000 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 2000, as well as state income taxes. See Note 7 to the Company's
consolidated financial statements.
F-17
LIQUIDITY AND CAPITAL RESOURCES
At present and in the past, the Company has had, and may have in the future,
negative working capital balances. The working capital deficit is principally
the result of the Company's investment in long-term restaurant operating assets
and real estate. The Company does not have significant receivables or
inventories and receives trade credit based upon negotiated terms in purchasing
food and supplies. Funds available from cash sales not 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.
Obligations to financial institutions and capital leases consists of the
following:
DEC. 30, DEC. 31,
2001 2000
-------- --------
(AMOUNTS IN THOUSANDS)
Credit Facility (a)......................................... $ 75,960 $64,925
Loan Agreement with CNL Financial I, Inc., due in monthly
principal and interest payments at 10.002% per annum,
matures on April 1, 2007.................................. 1,614 1,837
Mortgage loans with GE Capital Franchise Finance (formerly
FFCA Acquisition Corp.), due in monthly principal and
interest payments scheduled over twenty-year periods at
interest rates ranging from 7.68% to 9.26% per annum.
(b)....................................................... 18,093 11,574
Capital leases (see Note 11 to the Company's consolidated
financial statements)..................................... 9,042 11,435
-------- -------
Total obligations to financial institutions and capital
leases................................................ 104,709 89,771
Less current portion of obligations to financial
institutions and capital leases....................... 4,477 4,759
-------- -------
Obligations to financial institutions and capital
leases, less current maturities....................... $100,232 $85,012
======== =======
The following table represents contractual commitments associated with
obligations to financial institutions, capital leases and restaurant operating
leases (amounts in thousands):
2002 2003 2004 2005 2006 THEREAFTER TOTAL
-------- -------- -------- -------- -------- ---------- --------
Credit Facility(a)......... $ 1,500 $ 7,000 $14,210 $53,250 $ 0 $ 0 $ 75,960
Loan Agreement with CNL
Financial I, Inc......... 246 293 274 329 364 108 1,614
Mortgage loans with GE
Capital Franchise
Finance(b)............... 448 486 528 574 625 15,432 18,093
Capital leases (see Note 11
to the Company's
consolidated financial
statements).............. 3,783 2,200 1,745 1,016 298 0 9,042
------- ------- ------- ------- ------- -------- --------
Subtotal............... 5,977 9,979 16,757 55,169 1,287 15,540 104,709
Restaurant Operating
Leases(c)................ 15,748 15,990 16,131 16,081 15,375 104,377 183,702
------- ------- ------- ------- ------- -------- --------
Total.................. $21,725 $25,969 $32,888 $71,250 $16,662 $119,917 $288,411
======= ======= ======= ======= ======= ======== ========
(a) Credit Facility obligations relate to borrowings under the Company's
Second Amended and Restated Revolving Credit and Term Loan Agreement, dated
June 19, 1995, between the Company and Fleet National Bank ("Fleet"), as amended
from time to time (the "Credit Agreement"), pursuant to
F-18
which the Company's credit facility (the "Credit Facility"), at December 30,
2001, was $89,750,000. At December 30, 2001, the Credit Facility consisted of a
$24,250,000 term loan (the "Term Loan") and a $65,500,000 revolving credit
facility (the "Revolving Credit"). Loans made pursuant to the Credit Agreement
bear interest at a rate equal to the lender's base rate plus applicable margin
or, at the Company's option, the Eurodollar Rate plus applicable margin. At
December 30, 2001, calculated pursuant to the Credit Agreement, the Company's
applicable margin on the Revolving Credit was 1.25% on base rate loans and 3.25%
on Eurodollar Rate loans and the Company's applicable margin on the Term Loan
was 1.50% on base rate loans and 3.50% on Eurodollar Rate loans. In addition,
the Company was 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. Pursuant to an amendment of the
Credit Agreement dated March 13, 2002 (see Note 6 to the Company's consolidated
financial statements), calculated pursuant to the Credit Agreement, the
Company's applicable margin on the Revolving Credit and on the Term Loan is
3.00% on base rate loans and 4.50% on Eurodollar Rate loans. Additionally, if
the borrowings under the Revolving Credit exceed $55,000,000, an additional
0.50% will be added to the applicable margin on base rate loans and Eurodollar
Rate loans under the Revolving Credit facility. In addition, the Company is
obligated to pay fees of 0.75% on unused loan commitments 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 Credit Agreement also provides for annual
additional mandatory prepayments as calculated based on the Company's net cash
flows, as defined. The amendment reduces the Revolving Credit facility to
$60,000,000 through June 30, 2003 unless a specified leverage ratio is achieved,
in which case the facility will return to $65,500,000, and also reduces the
Revolving Credit facility by $5 million every 6 months from June 30, 2003
through June 30, 2005.
At December 30, 2001, $267,000 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 $13,523,000 and the weighted
average interest rate on all borrowings under the Credit Facility was 6.33% on
December 30, 2001. Fleet has syndicated portions of the Credit Facility to First
Union National Bank (formerly First Union Corporation), Comerica Bank (formerly
Imperial Bank), JPMorgan Chase Bank and LaSalle Bank National Association.
Borrowings under the Credit Agreement have been classified as noncurrent on
the Company's consolidated balance sheet since the Company may borrow amounts
due under the Term Loan from the Revolving Credit, including the Term Loan
principal payments which commenced in September 2001.
Borrowings under the Credit Agreement are secured by all tangible and
intangible assets of the Company. The Credit Agreement contains, among other
things, certain restrictive covenants with respect to the Company that create
limitations (subject to certain exceptions) on: (i) the incurrence or existence
of additional indebtedness or the granting of liens on assets or contingent
obligations; (ii) the making of certain investments; (iii) mergers, dispositions
of assets or consolidations; (iv) prepayment of certain other indebtedness;
(v) making capital expenditures above specified amounts; 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 prohibits the Company
from entering into any new capital expenditure commitments or lease commitments
for new restaurants until a specified cash flow leverage ratio test is achieved
and prohibits the payment of dividends and the repurchase of the Company's
outstanding common stock. The Company's Credit Agreement also requires the
Company to satisfy certain financial ratios and tests. On March 13, 2002, the
Company amended the Credit Agreement to, among other things, reset these
financial ratios and tests (see Note 6 to the Company's consolidated financial
statements).
F-19
On April 7, 1998 and May 29, 1998, the Company entered into interest rate
swap agreements with Fleet on notional amounts of $10,000,000 each. Interest
rate swap agreements are used to reduce the potential impact of interest rate
fluctuations relating to $20,000,000 of variable rate debt. Such agreements
terminate on April 7, 2003 and May 29, 2003, respectively. The adoption of
SFAS 133 on January 1, 2001, increased assets by approximately $141,000 and
liabilities by approximately $385,000, and the Company recognized a loss of
approximately $244,000 in accumulated other comprehensive income (loss). As of
December 30, 2001, in accordance with SFAS 133, assets were increased by
approximately $320,000 and liabilities by approximately $875,000 and the Company
recognized a loss of approximately $555,000 in accumulated other comprehensive
income (loss).
(b) Mortgage loans relate to loan commitments entered into during 1999 and
1998 by various subsidiaries of the Company and GE Capital Franchise Finance
(formerly known as FFCA Acquisition Corporation), to fund the purchases of land
and construction of restaurants. During 2001, 2000 and 1999, $6,900,000,
$1,927,000 and $4,757,000, respectively, was funded.
(c) Included in obligations for restaurant operating leases are certain
restaurant operating leases for which the Company or another subsidiary of the
Company guarantees the performance of the restaurant operating lease for such
subsidiary for a portion of the lease term, typically not exceeding the first
five years. See Note 10 to the Company's consolidated financial statements.
During the third quarter of fiscal 1999, the Company entered into
sale-leaseback transactions whereby the Company sold, and leased back, existing
restaurant equipment at 15 of its restaurant locations. Aggregate proceeds of
$6,000,000 were used to reduce the Company's revolving credit facility. These
transactions are being accounted for as financing arrangements. Recorded in the
accompanying consolidated balance sheet as of December 30, 2001 and
December 31, 2000 are such capital lease obligations, related equipment of
$1,218,000 and $3,300,000, respectively, and a deferred gain of approximately
$1,279,000 and $3,173,000, respectively, each of which are being recognized over
the three year lives of such transactions.
During fiscal 2001, the Company's net investment in fixed assets and related
investment costs, including pre-opening costs and net of capitalized leases,
approximated $18.6 million. Mortgage financing of approximately $6.9 million
offset this amount. The Company estimates that it will expend up to an aggregate
of $13.0 million in 2002 to finance ordinary refurbishment of existing
restaurants and capital expenditures, net of landlord development and or rent
allowances and net of equipment lease financing, for new restaurants. As a
result of the March 13, 2002 amendment to the Company's Credit Agreement (see
Note 6 to the Company's consolidated financial statements), capital expenditures
have been limited to $13.0 million in 2002, and further restricted in future
years. As a result, the Company is limited to five new Morton's of Chicago
steakhouse restaurants in 2002 and no new development in 2003 (see Note 6 to the
Company's consolidated financial statements). The Company may not enter into new
restaurant leases until a specified cash flow leverage ratio is achieved.
Subject to the Company's performance, which if adversely affected, could
adversely affect the availability of funds, the Company anticipates that funds
generated through operations and funds available under the Credit Agreement will
be sufficient to fund planned expansion during 2002.
From fiscal October 1998 through fiscal July 2000, the Company's board of
directors authorized repurchases of the Company's outstanding common stock of up
to 2,930,600 shares. The Company had repurchased 2,635,090 shares at an average
stock price of $17.80. The Company suspended the stock repurchase program on
May 8, 2001.
At December 30, 2001, the Company had Federal and various state income tax
net operating loss carryforwards which expire in various periods through 2019.
As of December 30, 2001, the Company had approximately $11.6 million in FICA and
other tax credits expiring in various periods through 2019 available to reduce
income taxes payable in future years. Approximately $3.0 million of the
Company's deferred tax assets represents capital loss carryforwards. In
assessing the realizability of deferred tax
F-20
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon generating future taxable
income during the periods in which temporary differences become deductible and
net operating losses can be carried forward. Management considers the scheduled
reversal of deferred tax assets, projected future taxable income and tax
planning strategies in making this assessment. See Note 7 to the Company's
consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENT TO BE ADOPTED
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 141, "Business Combinations" which
supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations". SFAS 141 eliminates the pooling-of-interests method of accounting
for business combinations and modifies the application of the purchase
accounting method. The elimination of the pooling-of-interests method is
effective for transactions initiated after June 30, 2001. The remaining
provisions of SFAS 141 were effective for transactions accounted for using the
purchase method completed after June 30, 2001.
In July 2001, the Financial Accounting Standards Board also issued
SFAS 142, "Goodwill and Intangible Assets" which supersedes APB Opinion No. 17,
"Intangible Assets". SFAS 142 eliminates the current requirement to amortize
goodwill and indefinite-lived intangible assets, addresses the amortization of
intangible assets with a defined life and addresses the impairment testing and
recognition for goodwill and intangible assets. SFAS 142 will apply to goodwill
and intangible assets arising from transactions completed before and after the
Statement's effective date. SFAS 142 is effective for the Company beginning
December 31, 2001.
In connection with the transitional goodwill impairment evaluation,
SFAS 142 will require the Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. A transitional impairment loss, if any, would be recognized as the
cumulative effect of a change in accounting principle in the Company's
consolidated statement of income.
As of December 31, 2001, the Company will cease recording goodwill
amortization amounting to approximately $0.4 million annually. Because of the
extensive effort needed to comply with adopting SFAS 142 it is not practicable
to reasonably estimate the impact of adopting this Statement on the Company's
consolidated financial statements at the date of this report for any
transitional impairment losses.
In October 2001, the Financial Accounting Standards Board issued SFAS 144,
"Accounting for the Impairment of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supercedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", while retaining the
fundamental recognition and measurement provisions of that statement. SFAS 144
requires that a
F-21
long-lived asset to be abandoned, exchanged for a similar productive asset or
distributed to owners in a spinoff to be considered held and used until it is
disposed of. However, SFAS 144 requires that management consider revising the
depreciable life of such long-lived asset. With respect to long-lived assets to
be disposed of by sale, SFAS 144 retains the provisions of SFAS 121 and,
therefore, requires that discontinued operations no longer be measured on a net
realizable value basis and that future operating losses associated with such
discontinued operations no longer be recognized before they occur. SFAS 144 is
effective for all fiscal quarters of fiscal years beginning after December 15,
2001 and thus is effective for the Company beginning December 31, 2001. The
Company has not determined the effect, if any, that the adoption of SFAS 144
will have on the Company's consolidated financial statements.
INFLATION
The impact of inflation on labor, food and occupancy costs can significantly
affect the Company's operations. Many of the Company's employees are paid hourly
rates related to the Federal minimum wage. Food costs as a percentage of net
sales have been somewhat stable due to procurement efficiencies and menu price
adjustments. The Company currently does not engage in any futures contracts and
all purchases are made at prevailing market or contracted prices. Costs for
construction, taxes, repairs, maintenance and insurance all impact the Company's
occupancy costs, which increased during the period. Management believes the
current practice of maintaining operating margins through a combination of menu
price increases, cost controls, careful evaluation of property and equipment
needs, and efficient purchasing practices is its most effective tool for dealing
with inflation.
SEASONALITY
The Company's business is somewhat seasonal in nature, with revenues being
less in the third quarter primarily due to Morton's reduced summer volume. The
2001 third quarter includes the impact of the September 11, 2001 World Trade
Center terrorist attacks. The following table sets forth historical, unaudited
quarterly revenues for the Company's Morton's and Bertolini's restaurants which
were open for the entire period from January 1, 2001 to December 30, 2001 (53
restaurants), and for the entire period from January 3, 2000 to December 31,
2000 (47 restaurants):
COMPARABLE RESTAURANT REVENUES
2001 2000 2000 1999
------------------- ------------------- ------------------- -------------------
53 RESTAURANTS 47 RESTAURANTS
----------------------------------------- -----------------------------------------
$ % $ % $ % $ %
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
First Quarter............... 59,489 29.0 61,546 27.0 55,021 26.9 49,807 26.4
Second Quarter.............. 50,560 24.7 55,441 24.3 49,007 24.0 45,260 23.9
Third Quarter............... 43,296 21.1 50,855 22.3 46,305 22.7 41,823 22.1
Fourth Quarter.............. 51,687 25.2 60,187 26.4 53,974 26.4 52,105 27.6
------- ----- ------- ----- ------- ----- ------- -----
205,032 100.0 228,029 100.0 204,307 100.0 188,995 100.0
======= ===== ======= ===== ======= ===== ======= =====
F-22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The inherent risk in market risk sensitive instruments and positions
primarily relates to potential losses arising from adverse changes in foreign
currency exchange rates and interest rates.
As of December 30, 2001, the Company operated six international locations;
two in Hong Kong (opened December 1999 and May 2001), one in Singapore (opened
May 1998), one in Sydney, Australia (opened May 2001), one in Toronto (opened
September 1998) and one in Vancouver, Canada (opened October 2000). As a result,
the Company is subject to risk from changes in foreign exchange rates. These
changes result in cumulative translation adjustments which are included in other
comprehensive income (loss). The potential loss resulting from a hypothetical
10% adverse change in quoted foreign currency exchange rates, as of
December 30, 2001 is not considered material. The Morton's of Chicago steakhouse
in Sydney, Australia was closed in January 2002.
The Company is subject to market risk from exposure to changes in interest
rates based on its financing activities. This exposure relates to borrowings
under the Company's Credit Facility which are payable at floating rates of
interest. The Company has entered into interest rate swap agreements to manage
some of its exposure to interest rate fluctuations. See Note 6 to the Company's
consolidated financial statements. The change in fair value of long-term debt
resulting from a hypothetical 10% fluctuation in interest rates as of
December 30, 2001 is not considered material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited consolidated financial statements follow on pages 24 to 45.
F-23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Morton's Restaurant Group, Inc.:
We have audited the accompanying consolidated balance sheets of Morton's
Restaurant Group, Inc. and subsidiaries as of December 30, 2001 and
December 31, 2000 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 30, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Morton's
Restaurant Group, Inc. and subsidiaries as of December 30, 2001 and
December 31, 2000 and the results of their operations and their cash flows for
each of the years in the three-year period ended December 30, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Melville, New York
January 30, 2002, except as to
Note 6, which is as of March 13, 2002
F-24
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2001 AND DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,827 $ 2,296
Accounts receivable....................................... 3,988 4,639
Income taxes receivable................................... 560 --
Inventories............................................... 8,061 8,303
Landlord construction receivables, prepaid expenses and
other
current assets.......................................... 2,632 2,867
Deferred income taxes..................................... 4,616 5,653
-------- --------
Total current assets.................................... 24,684 23,758
-------- --------
Property and equipment, net................................. 82,936 78,047
Intangible assets, net of accumulated amortization of $5,072
at December 30, 2001 and $4,668 at December 31, 2000...... 10,923 11,327
Other assets and deferred expenses, net of accumulated
amortization of $649 at December 30, 2001 and $518 at
December 31, 2000......................................... 7,582 6,412
Insurance receivable........................................ 1,682 --
Deferred income taxes....................................... 6,907 4,866
-------- --------
$134,714 $124,410
======== ========
See accompanying notes to consolidated financial statements.
F-25
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 30, 2001 AND DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,566 $ 8,677
Accrued expenses.......................................... 19,531 21,375
Current portion of obligations to financial institutions
and capital leases........................................ 4,477 4,759
Accrued income taxes...................................... -- 1,004
-------- --------
Total current liabilities............................... 30,574 35,815
-------- --------
Obligations to financial institutions and capital leases,
less current maturities................................... 100,232 85,012
Other liabilities........................................... 4,118 4,506
-------- --------
Total liabilities....................................... 134,924 125,333
-------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value per share. Authorized
3,000,000 shares,
no shares issued or outstanding......................... -- --
Common stock, $0.01 par value per share. Authorized
25,000,000 shares,
issued 6,803,801 at December 30, 2001 and 6,778,363 at
December 31, 2000....................................... 68 68
Nonvoting common stock, $0.01 par value per share.
Authorized 3,000,000
shares, no shares issued or outstanding................. -- --
Additional paid-in capital................................ 63,478 63,077
Accumulated other comprehensive loss...................... (907) (150)
Accumulated deficit....................................... (16,095) (17,084)
Less treasury stock, at cost, 2,624,154 shares at December
30, 2001 and
2,630,361 shares at December 31, 2000................... (46,754) (46,834)
-------- --------
Total stockholders' equity (deficit).................... (210) (923)
-------- --------
$134,714 $124,410
======== ========
See accompanying notes to consolidated financial statements.
F-26
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
DEC. 30, DEC. 31, JAN. 2,
2001 2000 2000
-------- -------- --------
Revenues.................................................... $237,112 $248,382 $206,869
Food and beverage costs..................................... 82,150 84,224 69,873
Restaurant operating expenses............................... 107,905 105,580 89,988
Pre-opening costs, depreciation, amortization and non-cash
charges................................................... 12,678 11,087 7,592
General and administrative expenses......................... 17,201 19,811 15,497
Marketing and promotional expenses.......................... 6,927 6,879 5,669
Costs associated with strategic alternatives and proxy
contest................................................... 730 -- --
Interest expense, net....................................... 7,617 6,427 4,100
Restaurant closing costs.................................... 1,625 -- --
Nonrecurring benefit........................................ -- -- (159)
-------- -------- --------
Income before income taxes and cumulative effect of a
change in
an accounting principle............................... 279 14,374 14,309
Income tax (benefit) expense................................ (710) 4,312 3,577
-------- -------- --------
Income before cumulative effect of a change in an
accounting
principle............................................. 989 10,062 10,732
Cumulative effect of a change in an accounting principle,
net of income tax benefit of $1,357....................... -- -- 2,281
-------- -------- --------
Net income.............................................. $ 989 $ 10,062 $ 8,451
======== ======== ========
Net income (loss) per share--basic:
Before cumulative effect of a change in an accounting
principle................................................. $ 0.24 $ 2.20 $ 1.81
Cumulative effect of a change in an accounting
principle................................................. -- -- (0.39)
-------- -------- --------
Net income.............................................. $ 0.24 $ 2.20 $ 1.42
======== ======== ========
Net income (loss) per share--diluted:
Before cumulative effect of a change in an accounting
principle................................................. $ 0.23 $ 2.12 $ 1.77
Cumulative effect of a change in an accounting
principle................................................. -- -- (0.38)
-------- -------- --------
Net income.............................................. $ 0.23 $ 2.12 $ 1.39
======== ======== ========
Weighted average common and potential common shares
outstanding:
Basic..................................................... 4,172 4,565 5,938
======== ======== ========
Diluted................................................... 4,241 4,756 6,078
======== ======== ========
See accompanying notes to consolidated financial statements.
F-27
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
TOTAL
ACCUMULATED STOCK-
ADDITIONAL OTHER TREASURY HOLDERS'
COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCK EQUITY
STOCK CAPITAL DEFICIT INCOME (LOSS) AT COST (DEFICIT)
--------- ---------- ----------- ------------- --------- ---------
Balance at January 3, 1999..... $ 67 $ 62,717 $ (35,597) $ (34) $ (4,196) $ 22,957
Comprehensive income (loss):
Net income................... -- -- 8,451 -- --
Foreign currency translation
adjustments................ -- -- -- (45) --
---------
Total comprehensive income
(loss)....................... 8,406
---------
Exercise of stock options...... 1 132 -- -- -- 133
Purchase of 1,146,790 shares of
common stock (average cost of
$16.94 per share)............ -- -- -- -- (19,428) (19,428)
--------- --------- --------- --------- --------- ---------
Balance at January 2, 2000..... 68 62,849 (27,146) (79) (23,624) 12,068
Comprehensive income (loss):
Net income................... -- -- 10,062 -- --
Foreign currency translation
adjustments................ -- -- -- (71) --
---------
Total comprehensive income
(loss)....................... 9,991
---------
Exercise of stock options...... -- 228 -- -- -- 228
Purchase of 1,249,171 shares of
common stock (average cost of
$18.57 per share)............ -- -- -- -- (23,210) (23,210)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2000... 68 63,077 (17,084) (150) (46,834) (923)
Comprehensive income (loss):
Net income................... -- -- 989 -- --
Foreign currency translation
adjustments................ -- -- -- (202) --
Fair value of interest rate
swaps........................ -- -- -- (555) --
---------
Total comprehensive income
(loss)....................... 232
---------
Return of "short swing" profit
realized by insider pursuant
to Section 16(b)............. -- 68 -- -- -- 68
Exercise of stock options...... -- 333 -- -- -- 333
Issuance of 6,207 shares of
treasury stock (average cost
of $13.00 per share)......... -- -- -- -- 80 80
--------- --------- --------- --------- --------- ---------
Balance at December 30, 2001... $ 68 $ 63,478 $ (16,095) $ (907) $ (46,754) $ (210)
========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-28
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(AMOUNTS IN THOUSANDS)
DEC. 30, DEC, 31, JAN. 2,
2001 2000 2000
-------- -------- --------
Cash flows from operating activities:
Net income................................................ $ 989 $10,062 $ 8,451
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of a change in an accounting
principle, net of income tax benefit................ -- -- 2,281
Depreciation of property and equipment................ 7,501 6,624 3,391
Amortization of intangible assets, deferred occupancy
costs and other deferred expenses................... 1,478 455 1,120
Deferred income taxes................................. (1,004) 2,691 2,618
Restaurant closing costs.............................. 1,625 -- --
Nonrecurring benefit.................................. -- -- (159)
Change in assets and liabilities:
Accounts receivable................................. 643 (3,549) (197)
Income taxes receivable............................. (560) -- --
Inventories......................................... (39) (1,181) (730)
Landlord construction receivables, prepaid expenses
and other assets.................................. (938) (692) 258
Accounts payable, accrued expenses and other
liabilities....................................... (4,531) (359) 7,666
Accrued income taxes................................ (1,004) 864 (232)
------- ------- -------
Net cash provided by operating activities......... 4,160 14,915 24,467
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (14,939) (15,714) (15,432)
------- ------- -------
Net cash used by investing activities............. (14,939) (15,714) (15,432)
------- ------- -------
Cash flows from financing activities:
Principal reduction on obligations to financial
institutions and capital leases......................... (11,421) (11,196) (13,952)
Proceeds from obligations to financial institutions and
capital leases.......................................... 24,285 31,477 27,958
Issuance (purchases) of treasury stock.................... 80 (23,210) (19,428)
Net proceeds from issuance of stock and other............. 401 228 133
------- ------- -------
Net cash provided (used) by financing
activities...................................... 13,345 (2,701) (5,289)
------- ------- -------
Effect of exchange rate changes on cash..................... (35) (10) (57)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 2,531 (3,510) 3,689
Cash and cash equivalents at beginning of year.............. 2,296 5,806 2,117
------- ------- -------
Cash and cash equivalents at end of year.................... $ 4,827 $ 2,296 $ 5,806
======= ======= =======
See accompanying notes to consolidated financial statements.
F-29
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(1) ORGANIZATION AND OTHER MATTERS
Morton's Restaurant Group, Inc. (the "Company") was incorporated as a
Delaware corporation in October 1988 and is engaged in the business of owning
and operating restaurants under the names Morton's of Chicago ("Morton's") and
Bertolini's Authentic Trattorias ("Bertolini's"). As of December 30, 2001, the
Company owned and operated 66 restaurants (62 Morton's and 4 Bertolini's).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and results of
operations of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) REPORTING PERIOD
The Company uses a fiscal year which consists of 52 weeks. Approximately
every six or seven years, a 53rd week will be added.
(c) INVENTORIES
Inventories consist of food, beverages and supplies and are recorded at the
lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets.
Improvements to leased premises and property under capital leases are amortized
on the straight-line method over the shorter of the lease term, including
planned extensions, or estimated useful lives of the improvements. Effective
April 3, 2000, the Company changed the estimated useful lives for depreciation
of computer equipment and software, from periods ranging from three to ten years
to periods ranging from three to five years, so as to more accurately reflect
the relative replacement periods. As a result of such change, fiscal 2001 and
2000 included approximately $48,000 and $144,000, respectively, of additional
depreciation expense. In fiscal 2001, 2000 and 1999, interest costs capitalized
during the construction period for leasehold improvements were approximately
$150,000, $577,000 and $350,000, respectively.
(e) OTHER ASSETS AND DEFERRED EXPENSES
Beginning in fiscal 1999, in accordance with its adoption of SOP 98-5, the
Company expenses all costs incurred during start-up activities, including
pre-opening costs, as incurred. In connection with the adoption, the Company
recorded a charge for the cumulative effect of an accounting change of
approximately $2,281,000, net of income tax benefits of approximately
$1,357,000. Pre-opening costs incurred and recorded as expense for fiscal 2001
and 2000 were approximately $3,700,000 and $4,008,000, respectively. Included in
"Other assets and deferred expenses" are smallwares of approximately $2,754,000
and $2,580,000 at the end of fiscal 2001 and 2000, respectively.
(f) INCOME TAXES
The Financial Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") 109, "Accounting for Income Taxes", requires a change from
the deferred method of accounting for income taxes of Accounting Principles
Board ("APB") Opinion 11 to the asset and liability method of
F-30
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
accounting for income taxes. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(g) INTANGIBLE ASSETS
Intangible assets represent goodwill which arose from the acquisition of
Morton's. Amortization is recognized on a straight-line basis over forty years.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
In July 2001, the Financial Accounting Standards Board issued SFAS 141,
"Business Combinations" which supersedes APB Opinion No. 16, "Business
Combinations". SFAS 141 eliminates the pooling-of-interests method of accounting
for business combinations and modifies the application of the purchase
accounting method. The elimination of the pooling-of-interests method is
effective for transactions initiated after June 30, 2001. The remaining
provisions of SFAS 141 were effective for transactions accounted for using the
purchase method completed after June 30, 2001.
In July 2001, the Financial Accounting Standards Board also issued
SFAS 142, "Goodwill and Intangible Assets" which supersedes APB Opinion No. 17,
"Intangible Assets". SFAS 142 eliminates the current requirement to amortize
goodwill and indefinite-lived intangible assets, addresses the amortization of
intangible assets with a defined life and addresses the impairment testing and
recognition for goodwill and intangible assets. SFAS 142 will apply to goodwill
and intangible assets arising from transactions completed before and after the
Statement's effective date. SFAS 142 is effective for the Company beginning
December 31, 2001.
In connection with the transitional goodwill impairment evaluation,
SFAS 142 will require the Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. A transitional impairment loss, if any, would be recognized as the
cumulative effect of a change in accounting principle in the Company's
consolidated statement of income.
F-31
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
As of December 31, 2001, the Company will cease recording goodwill
amortization amounting to approximately $0.4 million annually. Because of the
extensive effort needed to comply with adopting SFAS 142 it is not practicable
to reasonably estimate the impact of adopting this Statement on the Company's
consolidated financial statements at the date of this report for any
transitional impairment losses.
(h) DERIVATIVE FINANCIAL INSTRUMENTS
Amounts receivable or payable under interest rate swap agreements are
accounted for as adjustments to interest expense.
The Company adopted SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS 137 and SFAS 138, as of January 1, 2001.
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. The Company's derivative
financial instruments consist of two interest rate swap agreements with notional
amounts of $10,000,000 each. The interest rate swap agreements are designated as
cash flow hedges for purposes of SFAS 133. Based on regression analysis, the
Company has determined that its interest rate swap agreements are highly
effective. The adoption of SFAS 133 on January 1, 2001, increased assets by
approximately $141,000 and liabilities by approximately $385,000, and recognized
a loss of approximately $244,000 in accumulated other comprehensive income
(loss). As of December 30, 2001, in accordance with SFAS 133, assets were
increased by approximately $320,000 and liabilities by approximately $875,000,
and recognized a loss of approximately $555,000 in accumulated other
comprehensive income (loss).
(i) MARKETING AND PROMOTIONAL EXPENSES
Marketing and promotional expenses in the accompanying consolidated
statements of income include advertising expenses of approximately $3,190,000,
$3,767,000 and $3,296,000 for fiscal 2001, 2000 and 1999, respectively.
Advertising costs are expensed as incurred.
(j) STATEMENTS OF CASH FLOWS
For the purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. The Company paid cash interest and fees,
net of amounts capitalized, of approximately $7,199,000, $6,027,000 and
$3,774,000 and income taxes, net of refunds, of approximately $1,541,000,
$757,000 and $1,179,000 for fiscal 2001, 2000 and 1999, respectively. During
fiscal 2001, 2000 and 1999, the Company entered into capital lease finance
agreements of approximately $2,106,000, $4,132,000 and $3,290,000, respectively,
for restaurant equipment. In addition, during fiscal 1999 the Company entered
into sale-leaseback transactions aggregating $6,000,000 for existing restaurant
equipment (see Note 11). In addition, as of December 30, 2001, the Company has
written off the net book value of the assets of the Morton's of Chicago
Steakhouse restaurant located in the Wall Street area of downtown Manhattan and
recorded a receivable in "Insurance receivable" in the accompanying consolidated
balance sheet of approximately $1,682,000, representing minimum expected
insurance proceeds relating to such assets.
F-32
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(k) EARNINGS PER SHARE
Basic income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding during each
period. Diluted income (loss) per share is computed assuming the conversion of
stock options with a market value greater than the exercise price.
(l) USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(m) LONG-LIVED ASSETS
The Company's accounting policies relating to the recording of long-lived
assets, including property and equipment and intangibles, are discussed above.
Pursuant to SFAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", the Company reviews long-lived assets
to be held and used or disposed of for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is determined on a
restaurant-by-restaurant basis by a comparison of the carrying amount of an
asset to undiscounted future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of or sold are
reported at the lower of the carrying amount or fair value less costs to sell.
In October 2001, the Financial Accounting Standards Board issued SFAS 144,
"Accounting for the Impairment of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supercedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", while retaining the
fundamental recognition and measurement provisions of that statement. SFAS 144
requires that a long-lived asset to be abandoned, exchanged for a similar
productive asset or distributed to owners in a spinoff to be considered held and
used until it is disposed of. However, SFAS 144 requires that management
consider revising the depreciable life of such long-lived asset. With respect to
long-lived assets to be disposed of by sale, SFAS 144 retains the provisions of
SFAS 121 and, therefore, requires that discontinued operations no longer be
measured on a net realizable value basis and that future operating losses
associated with such discontinued operations no longer be recognized before they
occur. SFAS 144 is effective for all fiscal quarters of fiscal years beginning
after December 15, 2001 and thus is effective for the Company beginning
December 31, 2001. The Company has not determined the effect, if any, that the
adoption of SFAS 144 will have on the Company's consolidated financial
statements.
(n) STOCK-BASED COMPENSATION
The Company applies the provisions of SFAS 123 which encourages, but does
not require companies to record compensation expense for stock-based employee
compensation plans at fair value. The Company applies the intrinsic value-based
method of accounting prescribed by APB Opinion 25, Accounting for Stock Issued
to Employees, and related interpretations, in accounting for its fixed plan
stock options. As such, compensation expense would be recorded on the date of
grant only if the
F-33
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
current market price of the underlying stock exceeded the exercise price. The
Company discloses the pro forma net earnings and pro forma earnings per share
for stock option grants made beginning in fiscal 1995 as if such method had been
used to account for stock-based compensation costs as described in SFAS 123.
(o) TRANSLATION OF FOREIGN CURRENCIES
As of December 30, 2001, the Company operated six international locations,
two in Hong Kong (opened December 1999 and May 2001), one in Singapore (opened
May 1998), one in Toronto (opened September 1998), one in Vancouver, Canada
(opened October 2000) and one in Sydney, Australia (opened May 2001). The
restaurant in Sydney, Australia was closed on January 6, 2002 (see Note 3). The
financial position and results of operations of the Company's foreign businesses
are measured using local currency as the functional currency. Assets and
liabilities are translated into U.S. dollars at year-end rates of exchange, and
revenues and expenses are translated at the average rates of exchange for the
year. Gains or losses resulting from the translation of foreign currency
financial statements are accumulated as a separate component of stockholders'
equity.
(p) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for the reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and equity adjustments from foreign
currency translation and interest rate swaps and is presented in the
consolidated statements of stockholders' equity.
(q) REVENUE RECOGNITION
Sales from restaurants are recognized as revenue at the point of the
delivery of meals and services.
(r) RECLASSIFICATION
Certain items previously reported in specific financial statement captions
have been reclassed to conform to the fiscal 2001 presentation.
(3) RESTAURANT CLOSING COSTS AND NONRECURRING (BENEFIT) CHARGES
(a) MORTON'S OF CHICAGO--SYDNEY
Based on a strategic assessment of revenue trends, the Company closed the
Morton's of Chicago steakhouse restaurant in Sydney, Australia in January 2002.
Newly imposed restrictions on importing certain cuts of USDA prime beef from the
United States, an essential ingredient of the Morton's dining experience,
contributed to the decision to close the restaurant. The Company recorded a 2001
fourth quarter, pre-tax charge of approximately $1,625,000, representing the
write-down and exit costs associated with the closing of the restaurant.
(b) MORTON'S OF CHICAGO--90 WEST STREET, NY
As a result of the impact of the World Trade Center terrorist attacks on
September 11, 2001, the building in which the Morton's of Chicago Steakhouse
restaurant was located in the Wall Street area of downtown Manhattan (located at
90 West Street, two blocks from the World Trade Center) was damaged and has been
closed permanently. The Company recorded a benefit in "Restaurant operating
expenses" in the accompanying consolidated statements of income of approximately
$860,000 through December 30, 2001 representing business interruption insurance
recovery related to costs incurred from
F-34
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
the closing of that restaurant since September 11, 2001. As of December 30,
2001, the Company has received $500,000 for such insurance. The Company believes
that additional benefits will be recorded in fiscal 2002 and possibly future
periods relating to future insurance recoveries. In addition, as of
December 30, 2001, the Company has written off the net book value of the assets
of the restaurant and recorded a receivable in "Insurance receivable" in the
accompanying consolidated balance sheet of approximately $1,682,000,
representing expected minimum insurance proceeds relating to such assets. Such
proceeds may be in excess of the net book value of the assets and may give rise
to a gain, the amount of which cannot be determined at this time, and has not
been recorded in the accompanying consolidated financial statements.
(c) BERTOLINI'S
Based on a strategic assessment of trends and a downturn in comparable
revenues of Bertolini's Authentic Trattorias, during the fourth quarter of
fiscal 1998, pursuant to the approval of the Board of Directors, the Company
recorded a nonrecurring, pre-tax charge of $19,925,000 representing the
write-down of impaired Bertolini's restaurant assets, the write-down and accrual
of lease exit costs associated with the closure of specified Bertolini's
restaurants as well as the write-off of the residual interests in Mick's and
Peasant restaurants. The Company performed an in-depth analysis of historical
and projected operating results and, as a result of significant operating
losses, identified several nonperforming restaurants which were all closed in
fiscal 1999. At December 30, 2001 and December 31, 2000, included in "Accrued
expenses" in the accompanying consolidated balance sheets is approximately
$1,714,000 and $2,153,000, respectively, representing the costs to exit
contractual lease obligations and costs for current litigation that was
initiated by a landlord as a result of closing one restaurant. This landlord has
alleged multiple claims, including breach of contract and breach of guarantee
and is seeking to recover substantial financial damages. Such litigation is
currently in the discovery stage and the trial date has been set for
November 2002. Additionally, the analysis identified several underperforming
restaurants, which reflected a pattern of historical operating losses and
negative cash flow, as well as continued projected negative cash flow and
operating results. Accordingly, the Company recorded an impairment charge in the
fourth quarter of fiscal 1998 to write-down these impaired assets. During 2001,
one such underperforming restaurant was closed and during 2000 and 1999 three
such underperforming restaurants were closed. (See "Part II--Other Information,
Item 1. Legal Proceedings".)
(d) LITIGATION AND RELATED EXPENSES
During 1999, the Company settled all claims relating to a lawsuit. The
amount of the final settlement, which was paid in fiscal 2000, including all
related legal and other costs, resulted in the Company recording a nonrecurring,
pre-tax benefit of approximately $159,000 in the third quarter of fiscal 1999.
(e) MICK'S AND PEASANT RESTAURANTS
In the fourth quarter of fiscal 1998, the Company evaluated the
recoverability of its ownership interests in Mick's and Peasant and the related
promissory notes received in connection with its February 1997 sale of such
restaurants. The analysis was based upon a review of the purchaser's 1998
operating performance, including anticipated future cash flows, and concluded
that pursuant to the provisions of SFAS 114 and SFAS 115, the notes receivable
and investment carrying values were impaired and therefore recorded an
impairment charge of $2,200,000. Additionally, the Company recorded additional
lease termination liabilities of $1,688,000, based upon additional defaults of
F-35
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
sublease agreements and litigation charges for certain Mick's and Peasant
Restaurants, previously guaranteed by the Company. During fiscal 2001 the
Company sold its remaining interests in Mick's and Peasant for $200,000. At
December 30, 2001 and December 31, 2000, included in "Accrued expenses" in the
accompanying consolidated balance sheets, is $0 and approximately $162,000,
respectively, representing the remaining lease disposition liabilities for such
restaurants.
(4) PROPERTY AND EQUIPMENT
The costs and related accumulated depreciation and amortization of major
classes of assets as of December 30, 2001 and December 31, 2000 are set forth
below:
DECEMBER 30, 2001 DECEMBER 31, 2000
----------------- -----------------
(AMOUNTS IN THOUSANDS)
Furniture, fixtures and equipment........................... $41,100 $35,842
Leasehold improvements...................................... 60,692 51,052
Land........................................................ 6,241 6,337
Construction in progress.................................... 669 2,160
------- -------
108,702 95,391
Less accumulated depreciation and amortization............ 25,766 17,344
------- -------
Net property and equipment.................................. $82,936 $78,047
======= =======
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 30, 2001 DECEMBER 31, 2000
----------------- -----------------
(AMOUNTS IN THOUSANDS)
Accrued gift certificates................................... $ 3,773 $ 2,997
Restaurant operating expenses............................... 2,551 2,873
Payroll and related taxes................................... 1,768 2,427
Sales and use tax........................................... 1,718 1,969
Bertolini's accrued lease exit costs........................ 1,714 2,153
Rent and property taxes..................................... 1,607 2,033
Accrued construction costs.................................. 1,534 2,129
Deferred gain on sale of assets............................. 1,279 1,813
Other....................................................... 3,587 2,981
------- -------
Total accrued expenses.................................... $19,531 $21,375
======= =======
F-36
(6) OBLIGATIONS TO FINANCIAL INSTITUTIONS
Obligations to financial institutions and capital leases consists of the
following:
DEC. 30, DEC. 31,
2001 2000
-------- --------
(AMOUNTS IN
THOUSANDS)
Credit Facility (a)......................................... $ 75,960 $64,925
Loan Agreement with CNL Financial I, Inc., due in monthly
principal and interest payments at 10.002% per annum,
matures on April 1, 2007.................................. 1,614 1,837
Mortgage loans with GE Capital Franchise Finance (formerly
FFCA Acquisition Corp.), due in monthly principal and
interest payments scheduled over twenty-year periods at
interest rates ranging from 7.68% to 9.26% per annum.
(b)....................................................... 18,093 11,574
Capital leases (see Note 11)................................ 9,042 11,435
-------- -------
Total obligations to financial institutions and capital
leases.................................................... 104,709 89,771
Less current portion of obligations to financial
institutions and capital leases........................... 4,477 4,759
-------- -------
Obligations to financial institutions and capital leases,
less current maturities................................... $100,232 $85,012
======== =======
Future maturities of obligations to financial institutions and capital
leases are as follows as of December 30, 2001:
2002 2003 2004 2005 2006 THEREAFTER TOTAL
-------- -------- -------- -------- -------- ---------- --------
(AMOUNTS IN THOUSANDS)
Credit Facility (a)......... $ 1,500 $ 7,000 $14,210 $53,250 $ 0 $ 0 $ 75,960
Loan Agreement with CNL
Financial I, Inc.......... 246 293 274 329 364 108 1,614
Mortgage loans with GE
Capital Franchise
Finance(b)................ 448 486 528 574 625 15,432 18,093
Capital leases (see Note
11)....................... 3,783 2,200 1,745 1,016 298 0 9,042
------- ------- ------- ------- ------- ------- --------
Total................... $ 5,977 $ 9,979 $16,757 $55,169 $ 1,287 $15,540 $104,709
======= ======= ======= ======= ======= ======= ========
(a) Credit Facility obligations relate to borrowings under the Company's
Second Amended and Restated Revolving Credit and Term Loan Agreement, dated
June 19, 1995, between the Company and Fleet National Bank ("Fleet"), as amended
from time to time (the "Credit Agreement"), pursuant to which the Company's
credit facility (the "Credit Facility"), at December 30, 2001, was $89,750,000.
At December 30, 2001, the Credit Facility consisted of a $24,250,000 term loan
(the "Term Loan") and a $65,500,000 revolving credit facility (the "Revolving
Credit"). Loans made pursuant to the Credit Agreement bear interest at a rate
equal to the lender's base rate plus applicable margin or, at the Company's
option, the Eurodollar Rate plus applicable margin. At December 30, 2001,
calculated pursuant to the Credit Agreement, the Company's applicable margin on
the Revolving Credit was 1.25% on base rate loans and 3.25% on Eurodollar Rate
loans and the Company's applicable margin on the Term Loan was 1.50% on base
rate loans and 3.50% on Eurodollar Rate loans. In addition, the Company was
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. Pursuant to an amendment of the Credit
Agreement dated March 13, 2002, calculated pursuant to the Credit Agreement, the
Company's applicable margin on the Revolving Credit and on the Term Loan is
3.00% on base rate loans and 4.50% on Eurodollar Rate loans. Additionally, if
the borrowings under the Revolving Credit exceed $55,000,000, an additional
0.50% will be added to the applicable margin on base rate loans and Eurodollar
Rate loans under the Revolving Credit facility. In addition, the
F-37
Company is obligated to pay fees of 0.75% on unused loan commitments 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 Credit Agreement also
provides for annual additional mandatory prepayments as calculated based on the
Company's net cash flows, as defined. The amendment reduces the Revolving Credit
facility to $60,000,000 through June 30, 2003 unless a specified leverage ratio
is achieved, in which case the facility will return to $65,500,000, and also
reduces the Revolving Credit facility by $5 million every 6 months from
June 30, 2003 through June 30, 2005.
At December 30, 2001, $267,000 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 $13,523,000 and the weighted
average interest rate on all borrowings under the Credit Facility was 6.33% on
December 30, 2001. Fleet has syndicated portions of the Credit Facility to First
Union National Bank (formerly First Union Corporation), Comerica Bank (formerly
Imperial Bank), JPMorgan Chase Bank and LaSalle Bank National Association.
Borrowings under the Credit Agreement have been classified as noncurrent on
the Company's consolidated balance sheet since the Company may borrow amounts
due under the Term Loan from the Revolving Credit, including the Term Loan
principal payments which commenced in September 2001.
Borrowings under the Credit Agreement are secured by all tangible and
intangible assets of the Company. The Credit Agreement contains, among other
things, certain restrictive covenants with respect to the Company that create
limitations (subject to certain exceptions) on: (i) the incurrence or existence
of additional indebtedness or the granting of liens on assets or contingent
obligations; (ii) the making of certain investments; (iii) mergers, dispositions
of assets or consolidations; (iv) prepayment of certain other indebtedness;
(v) making capital expenditures above specified amounts; (vi) the ability to
make certain fundamental changes or to change materially the present method of
conducting the Company's business. The Credit Agreement prohibits the Company
from entering into any new capital expenditure commitments or lease commitments
for new restaurants until a specified cash flow leverage ratio test is achieved
and prohibits the payment of dividends and the repurchase of the Company's
outstanding common stock. The Company's Credit Agreement also requires the
Company to satisfy certain financial ratios and tests. On March 13, 2002, the
Company amended the Credit Agreement to, among other things, reset these
financial ratios and tests.
On April 7, 1998 and May 29, 1998, the Company entered into interest rate
swap agreements with Fleet on notional amounts of $10,000,000 each. Interest
rate swap agreements are used to reduce the potential impact of interest rate
fluctuations relating to $20,000,000 of variable rate debt. Such agreements
terminate on April 7, 2003 and May 29, 2003, respectively. The adoption of
SFAS 133 on January 1, 2001, increased assets by approximately $141,000 and
liabilities by approximately $385,000, and the Company recognized a loss of
approximately $244,000 in accumulated other comprehensive income (loss). As of
December 30, 2001, in accordance with SFAS 133, assets were increased by
approximately $320,000 and liabilities by approximately $875,000 and the Company
recognized a loss of approximately $555,000 in accumulated other comprehensive
income (loss).
(b) Mortgage loans relate to loan commitments entered into during 1999 and
1998 by various subsidiaries of the Company and GE Capital Franchise Finance
(formerly known as FFCA Acquisition Corporation), to fund the purchases of land
and construction of restaurants. During 2001, 2000 and 1999, $6,900,000,
$1,927,000 and $4,757,000, respectively, was funded.
Management believes that the carrying amount of long-term debt approximates
fair value since the interest rate is variable and the margins are consistent
with those available to the Company under similar terms.
F-38
(7) INCOME TAXES
Income tax (benefit) expense is comprised of the following:
2001 2000 1999
-------- -------- --------
(AMOUNTS IN THOUSANDS)
Federal: Current............................................ $ (341) $ 1,215 $ --
Deferred............................................. (557) 2,402 2,798
------- ------- -------
(898) 3,617 2,798
State and Local: Current.................................... 635 406 509
Deferred...................................... (447) 289 270
------- ------- -------
188 695 779
------- ------- -------
Income tax (benefit) expense................................ $ (710) $ 4,312 $ 3,577
======= ======= =======
Income tax (benefit) expense differed from the amounts computed by applying
the U.S. Federal income tax rates to income before income taxes as a result of
the following:
2001 2000 1999
-------- -------- --------
(AMOUNTS IN THOUSANDS)
Computed "expected" tax expense (benefit)................... $ 95 $ 4,887 $ 4,865
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal income tax
benefit................................................... 124 459 514
FICA tax credits.......................................... (1,488) (1,386) (1,555)
Change in valuation allowance............................. (268) (242) --
Other, net................................................ 827 594 (247)
------- ------- -------
$ (710) $ 4,312 $ 3,577
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at the end of fiscal 2001
and 2000 are presented below:
DECEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
(AMOUNTS IN THOUSANDS)
Deferred tax assets:
Federal and state net operating loss carryforwards........ $ 3,509 $ 3,106
Capital loss carryforwards................................ 2,970 3,285
Nonrecurring charge for write-down and related charges for
assets held
for sale................................................ -- 59
Nonrecurring charge for write-down and related charges for
impaired
assets.................................................. 1,310 1,001
Interest rate swap agreements............................. 320 --
Deferred rent and start-up amortization................... 2,639 2,740
FICA and other tax credits................................ 11,640 9,386
------- -------
Total gross deferred tax assets......................... 22,388 19,577
Less valuation allowance................................ (5,264) (5,533)
------- -------
Net deferred tax assets................................. 17,124 14,044
Deferred tax liabilities:
Property and equipment depreciation....................... 5,601 3,525
------- -------
Net deferred tax assets and liabilities..................... $11,523 $10,519
======= =======
F-39
At December 30, 2001, the Company had Federal and various state income tax
net operating loss carryforwards, capital loss carryforwards, and FICA and other
tax credits expiring in various periods through 2019, 2006 and 2019,
respectively.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible and net operating losses can be
carried forward. Management considers the scheduled reversal of deferred tax
assets, projected future taxable income and tax planning strategies in making
this assessment. In order to fully realize the deferred tax asset, the Company
will need to generate future taxable income of approximately $30,200,000.
Taxable income (loss), before the application of net operating loss
carryforwards and FICA and other tax credits, for the years ended December 31,
2000 and January 2, 2000 was approximately $8,300,000 and $(3,391,000),
respectively, and for the year ended December 30, 2001 is estimated to be
approximately $(1,300,000). The Company assesses the recoverability of its net
deferred tax asset based upon the level of historical income and projections of
future taxable income. Deferred tax assets arising from capital losses have been
fully reserved. The amount of the deferred tax asset considered realizable could
be reduced in the near term if estimates of future taxable income during the
carryforward periods are reduced.
(8) CAPITAL STOCK
(a) On December 15, 1994, the Company adopted a Stockholder Protection
Rights Plan ("Rights Plan"). Pursuant to the Rights Plan, a dividend of one
Right for each outstanding share of the Company's common stock was issued to
shareholders of record on January 3, 1995. Under certain conditions, each Right
may be exercised to purchase 1/100 of a share of Series A Junior Participating
Preferred Stock (the "Preferred Stock") of the Company at a price of $42. The
Rights will become exercisable following the tenth day after a person or group
acquires 15% or more of the Company's common stock or announces a tender or
exchange offer, the consummation of which would result in ownership by such
person or group of 15% or more of the Company's common stock. If a person or
group acquires 15% or more of the Company's outstanding common stock, each Right
will entitle its holder (other than such person or members of such group) to
purchase, at the Right's then-current purchase price, in lieu of 1/100 of a
share of Preferred Stock, a number of shares of the Company's common stock
having a market value of twice the Right's purchase price. In addition, if the
Company is acquired in a merger or other business combination, 50% or more of
its assets or earning power is sold or transferred, or a reclassification or
recapitalization of the Company occurs that has the effect of increasing by more
than 1% the proportionate ownership of the Company's common stock by the
acquiring person, then, each Right will entitle its holder to purchase, at the
Right's then-current purchase price, a number of the acquiring company's shares
of common stock having a market value at that time of twice the Right's purchase
price.
The Rights may be redeemed prior to becoming exercisable by the Company,
subject to approval of the Board of Directors for $.01 per Right, in accordance
with the provisions of the Rights Plan. The Rights expire on January 3, 2005.
The Company has reserved 200,000 shares of Preferred Stock for issuance upon
exercise of the Rights.
(b) The Company's Stock Option Plan (the "Stock Option Plan"), as amended,
provides for the issuance, to employees, of incentive stock options ("ISOs") and
non-qualified stock options ("NQSOs"), having a maximum term of ten years, to
purchase up to 900,000 shares of Common Stock. During fiscal 2000, pursuant to
shareholder approval, the Company adopted the Morton's Restaurant Group 2000
Stock Option Plan which provides an additional 550,000 shares to be granted
under the same terms as the Stock Option Plan.
F-40
The exercise price of ISOs will be equal to the fair market value of the
shares subject to option on the date of grant, while the exercise price of NQSOs
will be determined by a committee of the Board of Directors. Options vest and
become exercisable commencing at the second anniversary date of the grant at the
rate of 25% per year. Options vest and become exercisable immediately upon a
defined change of control. During fiscal 2001 and 2000, the Company issued
96,800 and 176,100 NQSOs, respectively.
Activity in stock options is summarized as follows:
2001 2000 1999
--------------------------------- --------------------------------- ----------------
WEIGHTED AVERAGE SHARES SUBJECT WEIGHTED AVERAGE SHARES SUBJECT WEIGHTED AVERAGE
EXERCISE PRICE TO OPTION EXERCISE PRICE TO OPTION EXERCISE PRICE
---------------- -------------- ---------------- -------------- ----------------
Beginning of year............ $16.10 1,159,337 $15.16 911,400 $13.73
Options granted.............. 20.49 96,800 18.93 298,450 15.31
Options exercised............ 13.10 25,438 11.33 20,163 1.26
Options canceled............. 19.61 32,650 18.81 30,350 20.01
------ --------- ------ --------- ------
End of year.................. $16.43 1,198,049 $16.10 1,159,337 $15.16
====== ========= ====== ========= ======
1999
--------------
SHARES SUBJECT
TO OPTION
--------------
Beginning of year............ 835,955
Options granted.............. 208,700
Options exercised............ 96,830
Options canceled............. 36,425
---------
End of year.................. 911,400
=========
As of December 30, 2001, there were 505,862 options exercisable with a
weighted average exercise price of $14.32.
The following table summarizes information about stock options outstanding
at December 30, 2001:
WEIGHTED
RANGE OF EXERCISE SHARES WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES AVERAGE
PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISABLE PRICE
------------------------ ----------- ---------------- ---------------- ----------- -----------------
$9.875-$15.00........... 491,312 5.40 yrs. $12.32 316,061 $11.75
$15.00-$20.00........... 408,312 6.87 yrs. $17.71 143,063 $17.29
$20.00-$26.10........... 298,425 8.06 yrs. $21.42 46,738 $22.59
--------- -------
Total................. 1,198,049 6.56 yrs. $16.43 505,862 $14.32
========= =======
(c) SFAS 123, "Accounting for Stock-Based Compensation", was adopted by the
Company in 1996. The Company has elected to disclose the pro forma net income
and earnings per share as if such method had been used to account for
stock-based compensation cost as described in SFAS 123.
The per share weighted average fair value of stock options granted during
fiscal 2001, 2000 and 1999 was $8.44, $8.33 and $6.93 on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: 2001-- expected dividend yield 0.0%, risk-free interest rate of
4.46%, volatility of 36% and an expected life of 5.5 years; 2000--expected
dividend yield 0.0%, risk-free interest rate of 6.3%, volatility of 33% and an
expected life of 5.9 years; 1999--expected dividend yield 0.0%, risk-free
interest rate of 5.8%, volatility of 35% and an expected life of 6.3 years.
F-41
The Company applies APB Opinion 25 in accounting for its Stock Option Plan
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS 123, the Company's net income (loss) and net income (loss)
per diluted share would have been reduced to the pro forma amounts indicated
below:
2001 2000 1999
-------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income (loss) as reported....................... $ 989 $10,062 $8,451
Pro forma......................................... $ (127) $ 9,082 $7,647
Net income (loss) per diluted share as reported..... $ 0.23 $ 2.12 $ 1.39
Pro forma......................................... $(0.03) $ 1.94 $ 1.27
Pro forma net income (loss) only reflects options granted from 1995 on.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting period of
five years and compensation cost for options granted prior to January 1, 1995 is
not considered.
(d) From October 1998 through July 2000, the Company announced that its
Board of Directors authorized repurchases of up to 2,930,600 shares of the
Company's outstanding common stock. The timing and amount of the purchases were
at the full discretion of the Company's senior management and subject to market
conditions and applicable securities and tax regulations. Repurchases were
accomplished through periodic purchases at prevailing prices on the open market,
by block purchases or in privately negotiated transactions. The repurchased
shares have been retained as treasury stock to use for corporate purposes. On
May 8, 2001, the Company suspended the stock repurchase program. At
December 30, 2001 and December 31, 2000 the Company had repurchased 2,635,090
shares of its common stock at an average purchase price of $17.80.
(e) In October 1999, the Company commenced an Employee Stock Purchase Plan
under which 600,000 shares of the Company's common stock have been reserved for
future employee purchases. Pursuant to this plan, and as approved by
stockholders, all employees with a minimum of one year of service may purchase,
at a 15% discount, shares of common stock of the Company on a quarterly basis.
In fiscal 2001, there were 6,207 shares issued from treasury shares at an
average price of $13.00 per share.
(9) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
2001 2000 1999
--------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE DATA)
Net income.................................................. $ 989 $ 10,062 $ 8,451
======== ======== ========
Weighted average common shares (denominator for basic
earnings per share)....................................... 4,172 4,565 5,938
Effect of dilutive securities: Employee stock options....... 69 191 140
-------- -------- --------
Weighted average common and potential common shares
outstanding (denominator for diluted earnings per
share).................................................... 4,241 4,756 6,078
======== ======== ========
Basic earnings per share.................................... $ 0.24 $ 2.20 $ 1.42
======== ======== ========
Diluted earnings per share.................................. $ 0.23 $ 2.12 $ 1.39
======== ======== ========
Options to purchase 877,837, 167,188 and 277,050 shares of common stock were
outstanding for the years ended 2001, 2000, and 1999, respectively, but were not
included in the computation of diluted earnings per share because their effect
would be anti-dilutive. For additional disclosures regarding employee stock
options see Note 8.
F-42
(10) OPERATING LEASES
The Company's operations are generally conducted in leased premises.
Including renewal options, remaining lease terms range from 1 to 41 years.
In connection with entering into leases, the Company is frequently provided
with development allowances from the lessors. These allowances for leasehold
improvements, furniture, fixtures and equipment are offset against the related
fixed asset accounts and the net amount is amortized on a straight-line basis
over the shorter of the lease term, including planned extensions, or estimated
useful lives of the assets. At the end of fiscal 2001 and 2000, approximately
$655,000 and $762,000, respectively, of development allowances were due from
lessors and are included in "Landlord construction receivables, prepaid expenses
and other current assets" in the accompanying consolidated balance sheets.
The Company leases certain office and restaurant facilities and related
equipment under noncancelable operating lease agreements with third parties.
Certain leases contain contingent rental provisions based upon a percent of
gross revenues and or provide for rent deferral during the initial term of such
leases. Included in obligations for restaurant operating leases are certain
restaurant operating leases for which the Company or another subsidiary of the
Company guarantees the performance of the restaurant operating lease for such
subsidiary for a portion of the lease term, typically not exceeding the first
five years. Included in "Other liabilities" in the accompanying consolidated
balance sheets at the end of fiscal 2001 and fiscal 2000 are accruals related to
such rent deferrals of approximately $4,118,000 and $3,322,000, respectively.
For financial reporting purposes, such leases are accounted for on a
straight-line rental basis. Future minimum annual rental commitments under these
leases are approximately as follows:
(AMOUNTS IN THOUSANDS)
----------------------
Fiscal 2002............................................. $ 15,748
Fiscal 2003............................................. 15,990
Fiscal 2004............................................. 16,131
Fiscal 2005............................................. 16,081
Fiscal 2006............................................. 15,375
Fiscal 2007 and thereafter.............................. 104,377
--------
Total minimum lease payments............................ $183,702
========
Contingent rental payments on building leases are typically made based upon
the percentage of gross revenues on the individual restaurants that exceed
predetermined levels. The percentages of gross revenues to be paid, and the
related gross revenues, vary by restaurant. Contingent rental expense was
approximately $1,987,000, $3,267,000 and $2,727,000 for fiscal 2001, 2000 and
1999, respectively.
Rental expense, inclusive of contingent rent, for all such leases was
approximately $16,370,000, $15,801,000 and $13,419,000, for fiscal 2001, 2000
and 1999, respectively.
(11) CAPITAL LEASES
The Company has typically financed the purchase of certain restaurant
equipment through capital leases. At December 30, 2001, the Company had
approximately $284,000 commitments available for future fundings. At
December 30, 2001 and December 31, 2000, furniture, fixtures and equipment
include approximately $11,764,000 and $15,057,000, respectively, of net assets
recorded under capital leases. These assets are amortized over the life of the
respective leases. At December 30, 2001 and December 31, 2000, capital lease
obligations of approximately $5,259,000 and $7,180,000, respectively, are
included in "Obligations to financial institutions and capital leases, less
current maturities" in the accompanying consolidated balance sheets.
During the third quarter of fiscal 1999, the Company entered into
sale-leaseback transactions whereby the Company sold, and leased back, existing
restaurant equipment at 15 of its restaurant locations. Aggregate proceeds of
$6,000,000 were used to reduce the Company's Revolving Credit
F-43
facility. These transactions are being accounted for as financing arrangements.
Recorded in the accompanying consolidated balance sheets as of December 30, 2001
and December 31, 2000 are such capital lease obligations, related equipment of
$1,218,000 and $3,300,000, respectively, and a deferred gain of approximately
$1,279,000 and $3,173,000, respectively, each of which are being recognized over
the three year lives of such transactions.
The Company's minimum future obligations under capital leases as of
December 30, 2001 are as follows:
(AMOUNTS IN THOUSANDS)
----------------------
Fiscal 2002............................................. $4,297
Fiscal 2003............................................. 2,527
Fiscal 2004............................................. 1,917
Fiscal 2005............................................. 1,074
Fiscal 2006............................................. 306
------
Total minimum lease payments............................ 10,121
Less amount representing interest....................... 1,079
------
Present value of net minimum lease payments
(including current portion of $3,783)................. 9,042
======
(12) EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its Chief Executive
Officer and two senior officers. The agreements, as amended, are terminable by
the Company upon 60 months and 36 months prior notice, respectively. The Company
is a party to change of control agreements with its Chief Executive Officer and
seven other senior officers which grant these employees the right to receive up
to approximately three times their total compensation (as computed under the
Internal Revenue Code) if there is a change in control of the Company and
termination of their employment during a specified period by the Company without
cause or by such officer with good reason.
(13) EMPLOYEE BENEFIT PLANS
Employees of the Company and its subsidiaries who are over the age of 21 and
who have completed one year of service are eligible for voluntary participation
in a profit sharing plan. Employer contributions to the plan are made at the
discretion of the Board of Directors. Employer contributions for fiscal 2001,
2000 and 1999 were approximately $406,000, $734,000, and $523,000, respectively.
(14) LEGAL MATTERS AND CONTINGENCIES
During fiscal 1998, the Company identified several underperforming
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants which have all been closed. The Company is involved in
legal action relating to certain closures, however, the Company does not believe
that the ultimate resolution of these actions will have a material effect beyond
that recorded during fiscal 1998.
The Company is also involved in other various legal actions incidental to
the normal conduct of its business. Management does not believe that the
ultimate resolution of these actions will have a material adverse effect on the
Company's consolidated financial position, equity, results of operations,
liquidity and capital resources.
F-44
(15) UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of unaudited quarterly operating results:
(amounts in thousands, except per share data)
FIRST SECOND THIRD FOURTH
FISCAL YEAR 2001 QUARTER QUARTER QUARTER QUARTER TOTAL
---------------- -------- -------- -------- -------- --------
Revenues...................................... $66,342 $57,006 $52,274 $61,490 $237,112
Gross Profits*................................ 15,839 10,919 6,653 13,646 47,057
Net income (loss)............................. 2,744 (1,535) (1,952) 1,732 989
Net income (loss) per share:
Basic....................................... 0.66 (0.37) (0.47) 0.41 0.24
Diluted..................................... $ 0.62 $ (0.37) $ (0.47) $ 0.41 $ 0.23
FIRST SECOND THIRD FOURTH
FISCAL YEAR 2000 QUARTER QUARTER QUARTER QUARTER TOTAL
---------------- -------- -------- -------- -------- --------
Revenues...................................... $63,595 $58,600 $56,314 $69,873 $248,382
Gross Profits*................................ 15,821 13,847 11,250 17,660 58,578
Net income.................................... 3,051 2,109 925 3,977 10,062
Net income per share:
Basic....................................... 0.60 0.45 0.21 0.96 2.20
Diluted..................................... $ 0.58 $ 0.43 $ 0.20 $ 0.91 $ 2.12
* Revenues less Food and beverage costs and Restaurant operating expenses.
Net income per share for each of the quarters are based on weighted-average
number of shares outstanding in each period. Therefore, the sum of the quarters
in a year does not necessarily equal the year's income per share.
(16) SUBSEQUENT EVENTS (UNAUDITED)
On March 26, 2002, the Company entered into a definitive merger agreement
("Merger Agreement") providing for the acquisition of the Company by an
affiliate of Castle Harlan, Inc., a New York based private equity investment
firm. Under the terms of the Merger Agreement, the Company's stockholders will
receive $12.60 in cash for each share of common stock. Completion of the merger
is subject to various closing conditions including, but not limited to, approval
of the Company's stockholders and customary industry regulatory approvals,
receipt of third party consents and achievement of a minimum level of earnings.
There can be no assurance that these or other conditions to the merger will be
satisfied or that the merger will be completed. If the merger is not completed
for any reason, it is expected that the current management of the Company, under
the direction of the Board of Directors, will continue to manage the Company as
an ongoing business. The Company has also entered into an amendment to its
Credit Agreement which allows for the transactions contemplated under the
merger; however, this amendment will only become effective upon the completion
of the merger. The merger is currently expected to be completed in early summer
of 2002.
In addition, on March 26, 2002, the Company amended the Rights Plan to,
among other things, provide that the rights under the Rights Plan will not
become exercisable as a result of the Merger Agreement and the transactions
contemplated thereby, and that the Rights Plan will be terminated simultaneously
with the consummation of the merger (see Note 8).
On or about March 27, 2002, several substantially similar civil actions were
commenced in the Court of Chancery in the State of Delaware in New Castle County
by purported stockholders of the Company. The plaintiff in each action seeks to
represent a putative class consisting of the public stockholders of the Company.
Named as defendants in each of the complaints are the Company, the members of
the Company's Board of Directors and Castle Harlan, Inc. The complaints allege,
among other things, that the proposed merger is unfair and that the Company's
directors breached their fiduciary duties in connection with the
previously-announced entry into the Merger Agreement. The complaints seek an
injunction, damages and other relief. The Company believes that the allegations
in the complaints are without merit and intends to contest the matters
vigorously.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
F-45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"Election of Directors" and "Reporting Under Section 16(a) of the Securities
Exchange Act of 1934" contained in the Proxy Statement are 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,"
"Audit Committee Report" and "Performance Graph" contained in the Proxy
Statement shall not be deemed incorporated by reference into this Annual Report
on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" contained
in the Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Compensation Committee Interlocks and Insider Participation" and
"Compensation Committee Report" contained in the Proxy Statement are hereby
incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
(1) ALL FINANCIAL STATEMENTS
The response to this portion of Item 14 is set forth in Item 8 of Part II
hereof.
(2) FINANCIAL STATEMENT SCHEDULES
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
(3) EXHIBITS
See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the accompanying
Index to Exhibits upon payment by such stockholder of the Company's
reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K:
None.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14 (a)(2) above.
F-46
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)
By: /s/ Allen J. Bernstein
-----------------------------------------
Allen J. Bernstein
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT, AND CHIEF EXECUTIVE OFFICER
Date: March 29, 2002 (PRINCIPAL EXECUTIVE OFFICER)
Date: March 29, 2002 By: /s/ Thomas J. Baldwin
-----------------------------------------
Thomas J. Baldwin
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, ASSISTANT SECRETARY, TREASURER
AND DIRECTOR (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
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 29, 2002 By: /s/ Allen J. Bernstein
-----------------------------------------
Allen J. Bernstein
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT, AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Date: March 29, 2002 By: /s/ Thomas J. Baldwin
-----------------------------------------
Thomas J. Baldwin
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, ASSISTANT SECRETARY, TREASURER
AND DIRECTOR (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
F-47
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)
By: /s/ Robert L. Barney
-----------------------------------------
Robert L. Barney
Date: March 29, 2002 DIRECTOR
Date: March 29, 2002 By: /s/ Lee M. Cohn
-----------------------------------------
Lee M. Cohn
DIRECTOR
F-48
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)
By: /s/ Dianne H. Russell
-----------------------------------------
Dianne H. Russell
Date: March 29, 2002 DIRECTOR
Date: March 29, 2002 By: /s/ Alan A. Teran
-----------------------------------------
Alan A. Teran
DIRECTOR
F-49
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)
By: /s/ John K. Castle
-----------------------------------------
John K. Castle
Date: March 29, 2002 DIRECTOR
Date: March 29, 2002 By: /s/ Dr. John J. Connolly
-----------------------------------------
Dr. John J. Connolly
DIRECTOR
Date: March 29, 2002 By: /s/ David B. Pittaway
-----------------------------------------
David B. Pittaway
DIRECTOR
F-50
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report:
EXHIBIT
NUMBER DOCUMENT
--------------------- ------------------------------------------------------------
2.01 Agreement and Plan of Merger, dated as of March 26, 2002, by
and among Morton's Holding's, Inc., Morton's Acquisition
Company and Morton's Restaurant Group, Inc. (28)
3.01(a) Amended and Restated Certificate of Incorporation of the
Registrant.(5)
(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.(5)
(d) Second Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant.(8)
3.02 Amended and Restated By-Laws of the Registrant, dated
January 17, 1995.(4)
4.01(a) Specimen Certificate representing the Common Stock, par
value $.01 per share including Rights Legend and name change
to Morton's Restaurant Group, Inc.(8)
4.02(a) Registration Rights Agreement for Common Stock, dated as of
July 27, 1989, among the Registrant, BancBoston Capital
Inc., Legend Capital Group, L.P., Legend Capital
International, Ltd. and Allen J. Bernstein.(1)
(b) Amendment to Registration Rights Agreement for Common Stock,
dated as of April 1, 1992, among the Registrant, BancBoston
Capital Inc., Legend Capital Group, L.P., Legend Capital
International, Ltd., Allen J. Bernstein, Castle Harlan, Inc.
and certain executive officers of the Registrant.(2)
4.04(a) Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated June 19, 1995 among the Registrant, The
Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The
First National Bank of Boston, individually and as agent.(5)
(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.(6)
(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.(6)
(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.(7)
(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.(8)
F-51
EXHIBIT
NUMBER DOCUMENT
--------------------- ------------------------------------------------------------
(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.(10)
(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.(10)
(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.(10)
(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.(11)
(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.(12)
(k) Letter Agreement, dated April 6, 1998, among BankBoston,
N.A. and the Registrant regarding an Extendible Swap
Transaction.(13)
(l) Letter Agreement, dated May 29, 1998, among BankBoston, N.A.
and the Registrant regarding an Extendible Swap
Transaction.(14)
(m) Ninth Amendment to the Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated September 25, 1998
among the Registrant, Peasant Holding Corp., Morton's of
Chicago, Inc. and BankBoston, N.A., individually and as
agent.(15)
(n) Tenth Amendment to the Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated November 18, 1998
among the Registrant, Peasant Holding Corp., Morton's of
Chicago, Inc. and BankBoston, N.A., individually and as
agent.(16)
(o) Eleventh Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated May 20, 1999
among the Registrant, Peasant Holding Corp., Morton's of
Chicago, Inc. and BankBoston, N.A., individually and as
agent.(18)
(p) Twelfth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated June 21,
2000 among the Registrant, Peasant Holding Corp., Morton's
of Chicago, Inc. and BankBoston, N.A., individually and as
agent.(21)
(q) Thirteenth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated September
29, 2000 among the Registrant, Peasant Holding Corp.,
Morton's of Chicago, Inc. and Fleet National Bank,
individually and as agent.(22)
(r) Instrument of Adherence to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated February 28,
2001 among the Registrant, Peasant Holding Corp., Morton's
of Chicago, Inc. and Fleet National Bank, individually and
as agent.(26)
(s) Assignment and Acceptance to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated March 9,
2001 among the Registrant, Peasant Holding Corp., Morton's
of Chicago, Inc. and Fleet National Bank, individually and
as agent.(26)
F-52
EXHIBIT
NUMBER DOCUMENT
--------------------- ------------------------------------------------------------
(t) Fourteenth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated March 13,
2002 among the Registrant, Peasant Holding Corp., Morton's
of Chicago, Inc. and Fleet National Bank, individually and
as agent.(28)
(u) Fifteenth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated March 26,
2002 among the Registrant, Peasant Holding Corp., Morton's
of Chicago, Inc. and Fleet National Bank, individually and
as agent.(28)
4.05(a) Amended and Restated Rights Agreement, dated as of March 22,
2001, between the Registrant and EquiServe Trust Company,
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.(24)
(b) First Amendment to the Amended and Restated Rights
Agreement, dated as of March 26, 2002, between the
Registrant and EquiServe Trust Company, NA.(28)
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 Commercial Lease, between X-Cell Realty Associates and the
Registrant, dated January 18, 1994 relating to the executive
offices of the Registrant located at 3333 New Hyde Park
Road, Suite 210, New Hyde Park, New York 11042.(3)
10.04(a)+ Change of Control Agreement, dated December 15, 1994,
between the Registrant and Allen J. Bernstein.(4)
(c)+ Change of Control Agreement, dated March 1, 2001, between
the Registrant and Agnes Longarzo.(26)
(d)+ Change of Control Agreement, dated March 1, 2001, between
the Registrant and Allan C. Schreiber.(26)
(e)+ Change of Control Agreement, dated March 1, 2001, between
the Registrant and Roger J. Drake.(26)
(f)+ Change of Control Agreement, dated March 1, 2001, between
Morton's of Chicago, Inc. and Klaus W. Fritsch.(26)
(g)+ Change of Control Agreement, dated March 1, 2001, between
Morton's of Chicago, Inc. and John T. Bettin.(26)
(h)+ Change of Control Agreement, dated March 1, 2001, between
Morton's of Chicago, Inc. and Ronald M. DiNella.(26)
10.05(a)+ Second Amended and Restated Employment Agreement, dated as
of February 28, 1995, between the Registrant and Allen J.
Bernstein.(4)
(b)+ Employment Agreement, dated March 1, 2001, between the
Registrant and Thomas J. Baldwin.(26)
(c)+ Employment Agreement, dated March 1, 2001, between the
Registrant and Agnes Longarzo.(26)
F-53
EXHIBIT
NUMBER DOCUMENT
--------------------- ------------------------------------------------------------
10.06+ Quantum Restaurant Group, Inc. Stock Option Plan.(6)
10.07 Stock Purchase Agreement, dated as of December 31, 1996, by
and among Peasant Holding Corp., Morton's Restaurant Group,
Inc., and MRI Acquisition Corporation.(9)
10.08 Stock Purchase Agreement, dated as of December 31, 1996, by
and among Peasant Holding Corp., Morton's Restaurant Group,
Inc., and PRI Acquisition Corporation.(9)
10.09 Promissory Note, dated March 4, 1997, between CNL Financial
I, Inc., as Lender, and Morton's of Chicago, Inc.(10)
10.10 Amended and Restated Promissory Note, dated September 18,
1998, among FFCA Acquisition Corporation and Morton's of
Chicago/North Miami Beach, Inc., a subsidiary of the
Registrant.(15)
10.11+ First Amendment to the Second Amended and Restated
Employment Agreement, dated October 1, 1998, between the
Registrant and Allen J. Bernstein.(15)
10.12 Amended and Restated Promissory Note, dated March 19, 1999,
among FFCA Acquisition Corporation and Morton's of
Chicago/Scottsdale, Inc., a subsidiary of the
Registrant.(17)
10.13 Amended and Restated Promissory Note, dated March 17, 1999,
among FFCA Acquisition Corporation and Bertolini's at
Village Square, Inc., a subsidiary of the Registrant.(17)
10.14+ Form of Indemnification Agreement for Directors and
Executive Officers.(20)
10.15+ Morton's Restaurant Group, Inc. Employee Stock Purchase
Plan.(19)
10.16 Amended and Restated Promissory Note, dated January 31,
2000, among FFCA Acquisition Corporation and Morton's of
Chicago/Schaumburg, Inc., a subsidiary of the
Registrant.(20)
10.17+ Morton's Restaurant Group, Inc. 2000 Stock Option Plan.(23)
10.18+ Form of individual non-qualified stock option
agreements.(25)
10.19 Promissory Note, dated March 5, 2001, among FFCA Funding
Corporation and Morton's of Chicago/Jacksonville LLC, a
subsidiary of the Registrant.(26)
10.20 Promissory Note, dated March 27, 2001, among FFCA Funding
Corporation and Morton's of Chicago/Great Neck LLC, a
subsidiary of the Registrant.(26)
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.
------------------------
(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.
F-54
(5) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated July 2, 1995 and incorporated by reference.
(6) 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.
(7) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated March 31, 1996 and incorporated by reference.
(8) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated June 30, 1996 and incorporated by reference.
(9) Included as an exhibit to the Registrant's Form 8-K, dated January 6, 1996
and incorporated by reference.
(10) 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.
(11) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated June 29, 1997 and incorporated by reference.
(12) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 28, 1997 and incorporated by reference.
(13) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated March 29, 1998 and incorporated by reference.
(14) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated June 28, 1998 and incorporated by reference.
(15) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated September 27, 1998 and incorporated by reference.
(16) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 3, 1999 and incorporated by reference.
(17) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated April 4, 1999 and incorporated by reference.
(18) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated July 4, 1999 and incorporated by reference.
(19) Included as an exhibit to the Registrant's Form S-8 dated August 27, 1999
and incorporated by reference.
(20) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 2000 and incorporated by reference.
(21) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated July 2, 2000 and incorporated by reference.
(22) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated October 1, 2000 and incorporated by reference.
(23) Included as an exhibit to the Registrant's Form S-8 dated November 9, 2000
and incorporated by reference.
(24) Included as an exhibit to the Registrant's Form 8-K dated March 22, 2001
and incorporated by reference.
F-55
(25) Included as an exhibit to the Registrant's Form S-8 dated November 9, 2000
and incorporated by reference.
(26) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 and incorporated by reference.
(27) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q,
dated April 1, 2001 and incorporated by reference.
(28) Included as an exhibit to the Registrant's Form 8-K, dated March 26, 2002,
and incorporated by reference.
+ Management contracts or compensatory plans or arrangements.
F-56
1125-AR-02
MORTON'S RESTAURANT GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
OF MORTON'S RESTAURANT GROUP, INC.
TO BE HELD ON [DAY], [DATE]
The undersigned, revoking all previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated [date] in
connection with the Special Meeting of Stockholders of Morton's Restaurant
Group, Inc. to be held on [day], [date], at 9:00 a.m., local time, at [The
Garden City Hotel, 45 Seventh Street, Garden City, New York 11530], and hereby
appoints [names] and each of them (with full power to act alone), as attorneys
and proxies of the undersigned, with full power of substitution to each, to vote
all shares of common stock of Morton's Restaurant Group, Inc. registered in the
name provided herein that the undersigned may be entitled to vote at the [date]
Special Meeting of Stockholders of Morton's Restaurant Group, Inc., and at any
and all postponements, continuations and adjournments thereof, with all powers
that the undersigned would have if personally present, upon and in respect of
the following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE. YOU NEED NOT MARK ANY BOXES. IF
YOU INDICATE SPECIFIC INSTRUCTIONS, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THOSE INSTRUCTIONS.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
THIS IS YOUR PROXY
YOUR VOTE IS IMPORTANT
Regardless of whether you plan to attend the Special Meeting of
Stockholders, you can be sure your shares are represented at the
Special Meeting by promptly returning your Proxy (attached below)
in the enclosed envelope. Thank you for your attention to this
important matter.
/X/ Please mark votes as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BELOW.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL.
1. To approve and adopt the Agreement and Plan of Merger, dated as of
March 26, 2002, by and among Morton's Holdings, LLC (formerly known as
Morton's Holdings, Inc.), Morton's Acquisition Company and Morton's
Restaurant Group, Inc., and to approve the merger contemplated thereby,
pursuant to which Morton's Acquisition Company will be merged with and into
Morton's, with Morton's as the surviving corporation.
/ / FOR / / AGAINST / / ABSTAIN
2. To vote in their discretion, upon such other business as may properly come
before the meeting and any and all adjournments or postponements thereof,
including, without limitation, a proposal to adjourn to provide additional
time to solicit votes to approve and adopt the merger agreement and approve
the merger.
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE, WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Signature: ________________________________ Date: _______________
Signature: ________________________________ Date: _______________