10-K

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

For the fiscal year ended December 27, 2008

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-50845

MCCORMICK & SCHMICK’S SEAFOOD RESTAURANTS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	20-1193199
(State or other jurisdiction of incorporation or organization)	(I.R.S Employer Identification No.)
720 SW Washington Street, Suite 550 Portland, Oregon	97205
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (503) 226-3440

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 (Section 229.405 of this chapter) 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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common stock held by non-affiliates (based on the closing price on December 27, 2008 on The Nasdaq Stock Market Global Market) was $28,453,481. There were 14,841,540 shares of common stock outstanding as of March 2, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference information from the registrant’s Proxy Statement for the 2009 Annual Meeting of Stockholders.

TABLE OF CONTENTS

PART I
	ITEM 1.	BUSINESS	1
	ITEM 1A.	RISK FACTORS	13
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	20
	ITEM 2.	PROPERTIES	20
	ITEM 3.	LEGAL PROCEEDINGS	20
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
	ITEM 4A.	EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES	21
PART II
	ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	23
	ITEM 6.	SELECTED FINANCIAL DATA	26
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	43
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	44
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	69
	ITEM 9A.	CONTROLS AND PROCEDURES	69
	ITEM 9B.	OTHER INFORMATION	69
PART III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	70
	ITEM 11.	EXECUTIVE COMPENSATION	70
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	70
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	70
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	70
PART IV
	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	71
		SIGNATURES	72
		EXHIBITS	74

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Forward Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements represent our expectations or beliefs concerning future events, including the following: any statements regarding future sales, costs and expenses and gross profit percentages; any statements regarding the continuation of historical trends; any statements regarding the expected number of future restaurant openings and expected capital expenditures; and any statements regarding the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs. In addition, the words “believes,” “anticipates,” “plans,” “expects,” “should,” “estimates” and similar expressions are intended to identify forward-looking statements. We have identified significant factors that could cause actual results to differ materially from those stated or implied in the forward-looking statements in Item 1A, “Risk Factors.”

Reorganization in Connection with Initial Public Offering

In connection with our initial public offering in July 2004, we converted McCormick & Schmick Holdings LLC, a Delaware limited liability company, into McCormick & Schmick’s Seafood Restaurants, Inc., a Delaware corporation. Because our operations are conducted by wholly owned subsidiaries, the conversion did not affect our financial statements, except with respect to information regarding the membership units in McCormick & Schmick Holdings LLC. Except where specifically noted, references in this Annual Report on Form 10-K to “we” or to “the Company” means McCormick & Schmick Holdings LLC for periods before July 20, 2004 and McCormick & Schmick’s Seafood Restaurants, Inc. for periods on and after July 20, 2004.

PART  I

ITEM 1. BUSINESS

Overview

McCormick & Schmick’s Seafood Restaurants, Inc. is a leading national seafood restaurant operator in the affordable upscale dining segment. We have successfully grown our business during the past 37 years by focusing on serving a broad selection of fresh seafood. As of December 27, 2008, we had 92 restaurants, including 86 restaurants in the United States, of which one is operated pursuant to a management agreement, and six restaurants in Canada under The Boathouse name.

Our daily-printed menu typically contains between 85 and 100 made-to-order dishes, including an extensive selection of international, national, regional and local species of seafood. Our signature “Fresh List,” prominently displayed at the top of our daily-printed menu, features 20 to 40 varieties of fresh seafood, based on product availability, price and customer preferences. We also offer alternatives to seafood, including high quality beef, creative salads and fresh pasta dishes.

Our restaurants are designed to capture the distinctive characteristics of each local market, positioning us to compete successfully in a sector comprised primarily of locally owned and operated seafood restaurants. We seek to create an inviting atmosphere which allows us to attract a diverse customer base of men and women, primarily ages 30 to 60, typically college-educated and in the middle to upper-middle income brackets. We believe the combination of our restaurant atmosphere and our extensive menu offerings and broad range of price points appeals to a diverse customer base from casual diners, families and tourists to business travelers and special occasion diners.

We believe we are the only high quality seafood restaurant that operates on a national scale. We believe we have successfully differentiated ourselves from our competitors by focusing on the following core strengths of our business model.

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Fresh Seafood

Our primary business focus for more than 37 years has been to consistently offer a broad selection of fresh seafood, which we believe commands strong loyalty from our customers. Our daily-printed menu typically contains between 85 and 100 made-to-order dishes, including an extensive selection of nationally available species such as Atlantic lobster, Dungeness crab and Alaskan halibut, as well as seasonal products such as wild king salmon, Columbia River sturgeon, sashimi grade tuna, exotic Hawaiian catch and an extensive variety of cold water oysters. The executive chef and general manager at the majority of our restaurants tailor the menu, at least once daily, based on the availability of different species of fresh seafood, price and customer preferences.

We believe we successfully differentiate our concept from both independent local seafood restaurants and national and regional seafood restaurant chains by including in our daily-printed menu our signature “Fresh List” of typically 20 to 40 fresh seafood items, sourced from throughout the United States and from select international locations. We are able to offer a wide variety of consistently fresh, high quality seafood through our close relationships with reputable local and national seafood vendors. We encourage our vendors to adopt preferred and sustainable fishing practices to guarantee the current and future quality and supply of our seafood. During our daily “fresh talk,” the executive chef at each of our restaurants educates our restaurant staff on the menu items of the day so we can effectively communicate the sourcing, freshness, quality and method of preparation of our products to our customers.

Attraction of Our Full-Service Bar

We consider our bar operations to be an integral part of the “McCormick & Schmick’s” brand and central to our broad appeal. We believe the success of our first restaurant, Jake’s Famous Crawfish, was largely driven by its bar operation, which enhanced the dining room business by creating a social forum and building clientele. Our bar operation remains a cornerstone of our restaurant concept, showcasing our commitment to traditionalism and quality. We attract patrons to our bar as a final destination, where they can enjoy a broad selection of liquors, wines and beers in a traditional yet lively environment. Our cocktail drinks are created using traditional methods and are hand-shaken, hand-poured and made with freshly squeezed juices, underlining our focus on product quality. We also offer value-priced items from our full restaurant menu in our bars, which tends to attract younger customers whom we aim to develop into regular restaurant customers.

As a result of our focus on our bar operations as an integral part of our business, our bars drive sales to our restaurants. We run our bar operations as a profit center rather than a mere holding area for diners. In 2008, alcohol sales, predominantly from our bar, accounted for approximately 29% of our revenues and contributed higher gross margins than food sales. The higher gross margins we generate from bar sales allows us the flexibility to offer lower prices on some of our food menu items, helping us maintain our broad guest appeal.

Broad Appeal of Our Concept

We believe we appeal to a broad range of customers by providing an attractive price-value proposition, with prices that are generally more affordable than those of our upscale competitors. Additionally, we believe we offer service that is superior to that of most casual dining operators. The price of a typical meal, including beverages, ranges from $16 to $33 for lunch and $36 to $61 for dinner, with an average of approximately $23 and $51, respectively. Over the past few years, we have enhanced our menu to offer our customers a more affordable dining option by including a selection of lower priced items on our menus for both lunch and dinner. For example, we offer a variety of dining room specials starting at $6.95 as well as our happy hour menu that is served in our bars with several options starting at $1.95. We believe even the price sensitive diner values our superior service, and we have received recognition from our customers and industry awards for our service quality.

The combination of our high quality seafood, pricing strategy and customer service enables us to attract a broad customer demographic. Most of our customers are 30 to 60 years old, primarily college-educated, in the

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middle to upper-middle income brackets and split relatively evenly between male and female customers, with a significant number of our customers comprising the post-war baby boomer generation. These baby boomers, who are the largest segment of the U.S. population (approximately 29% of the total) and a primary driver in the restaurant industry, generally have the greatest level of disposable income and tend to be more focused on better health and specialized diets than other age groups. As our core customers, we believe baby boomers typically prefer restaurants that offer higher quality food items, stronger flavor profiles and wider menu diversity. In addition to this core customer base, our bar operations allow us to also capture the 25 to 35 year old professionals, positioning us to attract a younger clientele as dedicated restaurant customers.

Our broad appeal is supported by our catering and banquet services, which we offer both in our restaurants and at other locations as customers request. Our presence in and near hotels enables us to expand the reach of our banquet offerings. In 2008, banquets accounted for approximately 11% of our revenues.

Entrepreneurial Culture with Corporate Control

A key component of our success for over 37 years has been our commitment to promoting and sustaining an entrepreneurial culture throughout our restaurants while maintaining strong corporate oversight and financial controls. Within this strong corporate infrastructure, each restaurant has profit and loss responsibility and a high degree of operating autonomy. The executive chef and general manager at each restaurant have the flexibility, within clearly defined corporate guidelines, to structure menus to cater to customer preferences in that restaurant’s market and respond to changes in product availability and market conditions. We offer quarterly and annual cash performance incentives to certain exempt employees at the restaurant level based on the restaurant’s revenues, costs and profitability, compliance with corporate administrative and payroll guidelines, and the success of other initiatives, such as local community involvement.

We believe our entrepreneurial culture helps us to attract and retain highly qualified and motivated individuals. We have historically retained substantially all of our regional chefs and regional managers and our average retention rate for our restaurant general managers and executive chefs is over 80%. We believe our decentralized, employee-oriented, entrepreneurial culture creates a sense of pride in our company and allows us to ensure quality service execution at the restaurant level. We believe the stability of our management team and operating personnel, coupled with our disciplined but entrepreneurial culture, positions us for the continued success and growth of our concept.

Portability of Our Brand

We have expanded the McCormick & Schmick’s seafood restaurant concept throughout the United States and have competed successfully with both national and regional restaurant chains and independent local operators, due in part to the flexibility of our real estate model and our nationwide infrastructure. As of December 27, 2008, we had 92 restaurants, including 86 restaurants in the United States, of which one is operated pursuant to a management agreement, and six restaurants in Canada under The Boathouse name.

Our restaurants are designed to have broad consumer appeal. We customize our restaurant design and appearance to appeal to local consumer affinities and preferences, and have many restaurants located in buildings that have local significance, including some historic buildings. We have a proven track record of successfully opening restaurants in a variety of sizes, typically ranging from 6,000 to 14,000 square feet and in a number of real estate formats, including both freestanding and in-line locations. The typical size for our current restaurant prototype is 8,000 square feet. We believe the flexibility of our real estate model is a competitive advantage, allowing us to cost-effectively and opportunistically open restaurants in attractive markets without being constrained by a standard prototype or other limiting real estate factors.

We compete on a restaurant-by-restaurant basis with independent local restaurant operators while leveraging the operating strengths of our national infrastructure. We have successfully executed our concept at the local level while maintaining quality and consistency on a national basis in a manner that is not formulaic and that

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enables us to celebrate the uniqueness of each of our markets. We believe the breadth and scale of our restaurant operations and our more than 37 years of experience in the business give us a competitive advantage in terms of the quality, sourcing and freshness of our menu offerings, and flexibility of price points, making our model difficult to replicate. This competitive advantage contributes to our brand’s reputation for quality and service in the affordable upscale dining sector, which we believe commands strong loyalty from our customers.

Our Growth Strategy

We believe our flexible business model, combined with our fresh menu offerings, professional customer service and inviting restaurant environment, provide us with significant opportunities to further grow our business. Key elements of our growth strategy include the following:

Expansion in Existing Markets

We remain focused on the disciplined growth of our McCormick & Schmick’s brand in our existing markets. We believe we have established the necessary market analysis and site selection procedures for identifying new restaurant opportunities in these markets. In particular, we will continue to evaluate opportunities in affluent suburban areas near existing restaurants in downtown areas to better diversify our presence in existing markets. This strategy enables us to achieve a higher degree of market penetration and brand awareness, resulting in increased repeat business from our broad and diverse customer base. Additionally, we will further leverage the economies of scale of our operations to enhance our competitive advantage against independent local competitors, principally in the areas of advertising, purchasing and distribution infrastructure. We intend to open one new restaurant in an existing U.S. market in 2009.

Entry into New Markets

In selecting new market opportunities, we continue to focus on downtown and affluent suburban areas that have large middle to upper-middle income populations, have high customer traffic from thriving businesses or retail markets, and that are convenient for and appealing to business and leisure travelers. We will continue to promote the McCormick & Schmick’s brand image and our broad appeal by opening new restaurants in prime real estate locations and by customizing each new restaurant to the local market. We intend to open one new restaurant in a new U.S. market in 2009.

The acquisition of The Boathouse restaurants marked our entry into the Canadian market through a well established brand known for its premier locations, broad appeal and operational excellence. Under the purchase agreement, we acquired five existing restaurants and one that was under construction, which we opened in October 2007, in the greater Vancouver B.C. area. Our acquisition of The Boathouse restaurants was our first significant expansion through acquisition. We continue to evaluate acquisition opportunities in new markets and existing markets as they arise, paying particular attention to how restaurants or restaurant groups would fit with our existing restaurants and business plan.

Capture of Ancillary Business Opportunities

We will continue to pursue secondary opportunities that are complementary to our primary concept and further our growth objectives. We operate seven restaurants under the name M&S Grill and one under the name Jake’s Grill, each of which offers an alternative menu to that of our seafood restaurants. These restaurants are located near our existing seafood restaurants to take advantage of management and operating efficiencies. We will also continue to consider catering opportunities and management agreements with hotels. As of December 27, 2008, we operated one restaurant under a management agreement.

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Unit Level Economics

Our average cash investment per restaurant opened since 1997 has been approximately $2.9 million, including leasehold improvements, furniture, fixtures and equipment, and net of landlord incentive allowances. We have reduced the size of our restaurant prototype, to facilitate our entry into a greater variety of markets and provide us with increased flexibility with site selection. We anticipate that our average investment per restaurant will be between approximately $2.7 million and $3.6 million going forward. We believe our focus on a traditional decor has allowed us to benefit from lower restaurant-level maintenance or upgrade costs than those incurred by some of our competitors.

The average annualized restaurant sales volume in 2008 for restaurants opened as of December 27, 2008 was approximately $4.6 million. Restaurants opened prior to 2003, were, on average, approximately 10,000 square feet each. Since the beginning of 2002, we have added 56 company-owned restaurants, including the restaurants acquired in The Boathouse acquisition, which averaged approximately 8,000 square feet each. Our growth model assumes average unit sales volumes for our 8,000 square feet restaurants of $4.4 million in the third year of operations.

Menu, Food Preparation, Quality Control and Purchasing

Most of our menu items are prepared from scratch daily at each restaurant and each order is assembled when the order is placed with the kitchen staff. Each restaurant has an executive chef responsible for overseeing kitchen operations, including planning the daily-printed menu and ordering necessary ingredients and supplies. At a typical McCormick and Schmick’s restaurant the executive chef is assisted by one to three sous chefs, who help to manage food preparation and service timing.

We maintain strict quality standards at all of our restaurants. We expect each of our employees to adhere to these standards, and it is the responsibility of the general manager and the executive chef at each restaurant to ensure these standards are upheld. We are committed to providing our guests with high quality, fresh products and superior service. We regularly hold regional management meetings designed to re-emphasize McCormick & Schmick’s philosophy, culture, standards of operation and culinary development. Through use of our standard training materials and our commitment to the hiring, development and training of chefs, we are able to maintain high standards and guidelines for our regularly purchased seafood species.

At the restaurant level, purchasing is primarily directed by the executive chef, who is trained in our purchasing practices and philosophy and is supervised by an experienced regional chef. To provide the freshest ingredients and products and to improve operating efficiencies between purchase and use, each executive chef determines the daily requirements for food ingredients, products and supplies. The executive chef orders accordingly from local suppliers and regional and national distributors. Fresh seafood is sourced through multiple vendors in varying geographic regions and delivered daily to each restaurant.

The majority of our restaurants primarily purchase seafood from a network of preferred vendors we have identified as consistently supplying seafood that meets our high standards. The identification and selection of seafood suppliers is reviewed regularly based on product quality, sanitation, fishing practices, pricing and customer service. We prefer suppliers who use day-boats rather than those who are at sea for multiple days because their product is typically fresher. We believe our national and regional presence allows us to achieve better quality and pricing terms for key products, such as fresh fin fish and shellfish, than most of our competitors. Other food products, such as high quality beef and dry goods, are sourced primarily from SYSCO Corporation, a national food distributor, while liquor, beer and wine are purchased from local distributors. SYSCO accounted for approximately 21% of our food purchases in 2008. No other vendor accounted for more than 10% of our purchases in 2008.

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Restaurant Design and Atmosphere

Our restaurant designs and decor are intended to capture distinctive attributes of each local market, varying from traditional New England-style fish houses to contemporary dinner houses with waterfront views. Some of our restaurants are located in historic buildings, which reinforces our commitment to local design elements and further promotes the appeal and ambience of our restaurants. Our flexible approach to our restaurant designs contributes to the uniqueness of each restaurant and allows us to successfully compete in a sector comprised primarily of independent, locally-owned and operated seafood restaurants.

Our restaurants are generally modeled after two styles:

• “turn-of-the-century” style, which blends different types and colors of wood; and

• classic art deco style.

Additionally, our interior decor fosters an inviting atmosphere that we believe is equally appealing to both men and women.

Our wait staff and bartenders are typically uniformed in traditional white jackets and black ties and are committed to providing our guests with superior service to further enhance their dining experience.

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Restaurant Locations, Lease Arrangements and Management Fee Arrangements

As of December 27, 2008 we operated 92 restaurants including 86 restaurants in the United States, of which one is operated pursuant to a management agreement, and six restaurants in Canada under The Boathouse name. We lease all but two of our restaurant sites, one we operate under a management agreement and one we own. Terms vary by restaurant, but we generally lease space for 10 to 20 years with one to three five-year renewal options.

The following is a schedule of restaurants we operated as of December 27, 2008:

Restaurant Name	City	Year Added
Alabama
McCormick & Schmick’s Seafood Restaurant	Birmingham	2004
Arizona
McCormick & Schmick’s Seafood Restaurant	Phoenix	1999
McCormick & Schmick’s Seafood Restaurant	Scottsdale	2008
California
McCormick & Schmick’s Seafood Restaurant	Irvine	1989
McCormick & Kuleto’s Seafood Restaurant	San Francisco	1991
McCormick & Schmick’s Seafood Restaurant	Los Angeles	1992
McCormick & Schmick’s Seafood Restaurant	Pasadena	1993
McCormick & Schmick’s a Pacific Seafood Grill	Beverly Hills	1994
McCormick & Schmick’s Seafood Restaurant	El Segundo	1998
Spenger’s Fresh Fish Grotto	Berkeley	1999
McCormick & Schmick’s Seafood Restaurant	San Jose	2004
McCormick & Schmick’s Seafood Restaurant*	San Diego	2004
McCormick & Schmick’s Seafood Restaurant	Burbank	2006
McCormick & Schmick’s Seafood Restaurant	Sacramento	2007
McCormick & Schmick’s Seafood Restaurant	Santa Ana	2007
McCormick & Schmick’s Seafood Restaurant	Anaheim	2008
Colorado
McCormick’s Fish House & Bar	Denver	1987
McCormick & Schmick’s Seafood Restaurant	Denver	2004
District of Columbia
McCormick & Schmick’s Seafood Restaurant	Washington	1996
M&S Grill	Washington	1998
McCormick & Schmick’s Seafood Restaurant	Washington	2004
Florida
McCormick & Schmick’s Seafood Restaurant	Orlando	2002
McCormick & Schmick’s Seafood Restaurant	Boca Raton	2006
McCormick & Schmick’s Seafood Restaurant	Naples	2008
Georgia
McCormick & Schmick’s Seafood Restaurant	Atlanta	2000
McCormick & Schmick’s Seafood Restaurant	Atlanta	2002
Illinois
McCormick & Schmick’s Seafood Restaurant	Chicago	1998
McCormick & Schmick’s Seafood Restaurant	Chicago	2006
McCormick & Schmick’s Seafood Restaurant	Schaumburg	2007
McCormick & Schmick’s Seafood Restaurant	Oak Brook	2007
McCormick & Schmick’s Seafood Restaurant	Skokie	2007
McCormick & Schmick’s Seafood Restaurant	Rosemont	2008

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Restaurant Name	City	Year Added
Indiana
McCormick & Schmick’s Seafood Restaurant	Indianapolis	2005
Maryland
McCormick & Schmick’s Seafood Restaurant	Baltimore	1998
McCormick & Schmick’s Seafood Restaurant	Bethesda	1999
M&S Grill	Baltimore	2003
McCormick & Schmick’s Seafood Restaurant	Annapolis	2007
McCormick & Schmick’s Seafood Restaurant	National Harbor	2008
Massachusetts
McCormick & Schmick’s Seafood Restaurant	Boston	2000
McCormick & Schmick’s Seafood Restaurant	Boston	2001
Michigan
McCormick & Schmick’s Seafood Restaurant	Troy	2001
Minnesota
McCormick & Schmick’s Seafood Restaurant	Minneapolis	2000
M&S Grill	Minneapolis	2006
McCormick & Schmick’s Seafood Restaurant	Edina	2008
Missouri
McCormick & Schmick’s Seafood Restaurant	Kansas City	2000
M&S Grill	Kansas City	2005
Nevada
McCormick & Schmick’s Seafood Restaurant	Las Vegas	1998
New Jersey
McCormick & Schmick’s Seafood Restaurant	Hackensack	2002
McCormick & Schmick’s Seafood Restaurant	Bridgewater	2003
McCormick & Schmick’s Seafood Restaurant	Atlantic City	2008
McCormick & Schmick’s Seafood Restaurant /William Douglas Steakhouse	Cherry Hill	2008
New York
McCormick & Schmick’s Seafood Restaurant	New York	2004
North Carolina
McCormick & Schmick’s Seafood Restaurant	Charlotte	2005
McCormick & Schmick’s Seafood Restaurant	Charlotte	2005
McCormick & Schmick’s Seafood Restaurant	Raleigh	2008
Ohio
McCormick & Schmick’s Seafood Restaurant	Columbus	2006
McCormick & Schmick’s Seafood Restaurant	Cincinnati	2006
McCormick & Schmick’s Seafood Restaurant	Cleveland	2007
McCormick & Schmick’s Seafood Restaurant	Dayton	2007
Oregon
Jake’s Famous Crawfish	Portland	1972
McCormick & Schmick’s Seafood Restaurant	Portland	1979
McCormick’s Fish House & Bar	Beaverton	1981
McCormick & Schmick’s Harborside at the Marina	Portland	1985
Jake’s Grill / Jake’s Catering	Portland	1994
The Heathman Restaurant	Portland	2000
McCormick & Schmick’s Seafood Grill	Tigard	2005

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Restaurant Name	City	Year Added
Pennsylvania
McCormick & Schmick’s Seafood Restaurant	Philadelphia	2001
McCormick & Schmick’s Seafood Restaurant	Pittsburgh	2005
McCormick & Schmick’s Seafood Restaurant	Pittsburgh	2007
Rhode Island
McCormick & Schmick’s Seafood Restaurant	Providence	2004
Texas
McCormick & Schmick’s Seafood Restaurant	Houston	1999
McCormick & Schmick’s Seafood Restaurant	Dallas	2003
McCormick & Schmick’s Seafood Restaurant	Austin	2004
McCormick & Schmick’s Seafood Restaurant	Austin	2007
McCormick & Schmick’s Seafood Restaurant	Houston	2008
Virginia
McCormick & Schmick’s Seafood Restaurant	Reston	1997
McCormick & Schmick’s Seafood Restaurant	McLean	2000
M&S Grill	Reston	2004
McCormick & Schmick’s Seafood Restaurant	Arlington	2004
McCormick & Schmick’s Seafood Restaurant	Virginia Beach	2007
Washington
McCormick’s Fish House & Bar	Seattle	1977
McCormick & Schmick’s Seafood Restaurant	Seattle	1984
McCormick & Schmick’s Catering at the Museum of Flight in Seattle	Seattle	1994
McCormick & Schmick’s Harborside on Lake Union	Seattle	1996
McCormick & Schmick’s Seafood Restaurant	Bellevue	2005
Wisconsin
McCormick & Schmick’s Seafood Restaurant	Milwaukee	2008
Canada
The Boathouse Restaurant	Vancouver, B.C.	2007
The Boathouse Restaurant	New Westminster, B.C.	2007
The Boathouse Restaurant	White Rock, B.C.	2007
The Boathouse Restaurant	Richmond, B.C.	2007
The Boathouse Restaurant	Horseshoe Bay, B.C.	2007
The Boathouse Restaurant	Port Moody, B.C.	2007

* We operate this restaurant under a management agreement.

Site Selection

We believe our site selection strategy is critical to our growth strategy. We carefully consider potential markets and we devote a substantial amount of time and effort evaluating each potential restaurant site. We identify new restaurant development opportunities through an established real estate broker network and developer relationships. Our site specifications are flexible and we believe this allows us to consider a broader range of possible locations than most of our regional and national competitors. The criteria we consider in developing our expansion plans and in siting new restaurants include:

• population density and the income and educational level of the population;

• competitive conditions and price points;

• estimates of the return on investment;

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• available square footage and lease economics;

• the proximity of hotels and office space and the density of pedestrian and vehicle traffic;

• the suitability of the site for an affordable, upscale restaurant with a traditional ambience;

• capacity expansion possibilities; and

• management’s experience in the market and the locations of our existing restaurants.

A majority of our restaurants are located in high-traffic, metropolitan areas and several are located in historic buildings. We believe there are many additional markets that meet our demographic and geographic profiles.

Of our 92 restaurants, including one we operate under a management agreement, 34, or 37%, were opened or acquired within the last three years and 50, or 54%, were opened or acquired within the last five years. Although our expansion has increased in the last five years, we believe it has been steady, controlled and prudent. We opened eleven restaurants in 2008 and our plan for 2009 includes the opening of two restaurants. The typical lead-time from the selection of a location to the opening of a restaurant at that location is approximately twelve to fifteen months. We evaluate acquisition opportunities as they arise, paying particular attention to how restaurants or restaurant groups would fit with our existing restaurants and our business plan.

Marketing and Advertising

The goals of our marketing efforts are to:

• increase comparable restaurant sales by attracting new guests;

• increase the frequency of visits by our current guests;

• support new restaurant openings to achieve sales and profit goals; and

• communicate and promote the uniqueness, appeal, quality and consistency of our brand.

In 2008, our combined marketing and advertising expenditures were 3% of revenues.

Local Marketing

Approximately 60 days before a scheduled restaurant opening, our local public relations firms collaborate with the local media to publicize our restaurant opening and to generate awareness of our brand. For example, we typically host several social events in the local community to generate publicity before the official opening of a restaurant. Post-opening, we maintain a strong relationship with our public relations firms and remain focused on our commitment to promoting our brand in the local market through various programs, such as cooking demonstrations by our chefs or discussions on seafood and related offerings on local news broadcasts. We also advertise with local daily and weekly publications, key monthly magazines and local business journals in most urban markets.

Our restaurants actively promote our special holiday programs and sponsor community events, such as donations, charitable and non-profit organizations and visual and performing cultural arts activities. We believe that, in addition to benefiting our local communities, these activities generate positive media attention and publicity for our brand and enhance our local public image.

National Advertising

Our national advertising program has focused on national periodicals such as United Airlines’, Delta Airlines’, Southwest Airlines’ and Alaska Airlines’ in-flight magazines and WHERE Magazine. Additionally, we advertised across the national network of The Business Journal publications and USA Today during 2008.

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To reinforce our broad differentiation, we highlight the breadth and freshness of our seafood in both local and national advertising. We periodically offer promotional certificates and maintain contact with organizations in the travel and convention industries, such as hotels, travel agents, convention centers and local shops, to further enhance both brand and restaurant location awareness and to target specific guest groups.

Operations

Restaurant Management

Our U.S. restaurant operations are organized into three divisions (West Coast, Midwest, and East Coast), each with a vice president of operations overseeing all aspects of restaurant operations within the designated division, including financial performance, new restaurant openings, capital expenditure requests, management development and marketing. Each of our vice presidents reports to our executive vice president of operations.

Sixteen multi-restaurant managers, of whom nine are regional managers and seven are regional chefs, are each responsible for four to seventeen restaurants and report to a vice president of operations. Both regional managers and regional chefs are responsible for overall restaurant operations, but have an increased focus on their respective areas of expertise. For example, regional chefs focus more heavily on negotiating food costs, ensuring high food quality, developing and nurturing executive and sous chefs and being responsive to overall kitchen staff needs. Regional managers focus primarily on revenues, profitability, front-of-house management and marketing activities.

Our typical restaurant management team consists of a general manager and an executive chef, two to four assistant managers, one to three sous chefs and, in some cases, a meeting planner/banquet coordinator. The remaining restaurant-level employees are hourly personnel varying in number based on restaurant size. Our typical restaurant employs 80 to 90 full-time and part-time employees. The general manager is responsible for all management functions, including purchasing (other than food), hiring and terminations and oversight of restaurant-level bookkeeping and cash controls. The executive chef is responsible for managing all kitchen functions, including training, menu design and food purchasing, quality and presentation.

We emphasize frequent interaction between our vice presidents, regional managers and restaurant level management. As a result, neither vice presidents nor regional managers operate out of our corporate office and are routinely accessible to restaurant staff.

All management levels in operations, from vice presidents to assistant managers, participate in incentive bonus programs. These incentive programs are designed to establish specific goals and objectives and to ensure accountability and reward performance.

Restaurant Operations

Our restaurants are generally open 365 days each year, serve lunch and dinner and are generally open from 11:00 a.m. to 11:00 p.m. Sunday through Thursday and 11:00 a.m. to 1:00 a.m. Friday and Saturday. In 2008, dinner comprised approximately 77% of revenues, while lunch comprised approximately 23% of revenues, and our restaurants served an average of 888 guests per week during lunch and 1,328 guests per week during dinner. To accommodate guests who have limited time available during lunch, we offer a 45-minute lunch guarantee.

Additionally, we offer catering and banquet services both in our restaurants and at other locations as customers’ request. Our presence in and near hotels enables us to expand the reach of our banquet offerings. In 2008, banquets accounted for approximately 11% of our revenues.

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Employees

As of December 27, 2008 we employed 7,432 persons, of whom 742 were salaried and 6,690 were hourly personnel. None of our employees are represented by unions and, in general, we consider our relationship with our employees to be good. Our employees are summarized by major functional area in the table below.

Functional Area	Number of Employees
VPs/regional managers/regional chefs	23
General managers	93
Assistant managers	265
Executive chefs	93
Sous chefs	186
Non-salaried restaurant staff	6,643
Corporate salaried	82
Corporate non-salaried	47
Total	7,432

Management Information Systems

All of our information processing is managed from our headquarters in Portland, Oregon. Point-of-sale terminals at each restaurant allow us to generate the daily reports needed to manage our restaurants and our business. These reports include, among other things, daily and weekly revenues, guest counts, meal period sales breakouts and food and liquor consumption. The data from the point-of-sale system is electronically transferred each night to a third party intranet provider, with the data then accessible by us through the Internet. Financial operating results are reviewed at the corporate office and studied by restaurant level and regional management. Variances from expectations are analyzed and addressed at frequent financial meetings.

Industry and Competition

Industry

We operate in a highly competitive industry that is affected by changes in consumer eating habits and dietary preferences, population trends and traffic patterns, and local and national economic conditions. Key competitive factors in the industry include the taste, quality and price of the food products offered, quality and speed of guest service, brand name identification, attractiveness of facilities, restaurant location, and overall dining experience. We believe we compete favorably with respect to each of these factors and have successfully overcome the following barriers faced by seafood restaurants:

• developing and maintaining consistent, reliable sources of high quality, fresh seafood;

• hedging against increases in seafood costs is often not possible;

• preparing and handling seafood is more complicated than for other types of cuisine; and

• consumer tastes in seafood products vary from region to region.

Competition

While we compete with a range of restaurant operators for consumers’ dining preferences and with both restaurants and retailers for site locations and personnel requirements, we consider our principal competitors to include the following:

• independent, local seafood restaurants;

• regional seafood restaurant concepts, such as Cameron Mitchell’s, King’s Seafood, Landry’s Seafood, Legal Sea Foods, Oceanaire and Roy’s; and

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• upscale “steak and chop” restaurants such as Capital Grille, Morton’s, Ruth’s Chris, Smith & Wollensky and The Palm, among others.

Available Information

We make available free of charge on or through our website at www.mccormickandschmicks.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we file these materials with the Securities and Exchange Commission. These materials are also available on the Security and Exchange Commission’s website at www.sec.gov.

ITEM 1A. RISK FACTORS

Disruptions in the economy and the financial markets may adversely impact our business and results of operations, and could increase our cost of borrowing.

The restaurant industry is being affected by economic factors, including changes in national, regional, and local economic conditions, employment levels and consumer spending patterns. The recent increased concerns about the economy and financial markets have reduced consumer confidence and decreased restaurant traffic, particularly at upscale restaurants, which is harmful to our business and results of operations. If these conditions continue or worsen, deteriorating financial performance could affect the financial ratios and covenants under our credit agreement, which, in turn, could affect our ability to borrow, increase our cost of borrowing or result in accelerated payment of outstanding loans.

In addition, adverse general economic conditions may affect:

• Our vendors and suppliers, some of which are local or regional and may be less able to survive in a difficult economic environment than national suppliers;

• Our customers, who may have less disposable income or who may decrease discretionary spending; and

• Real estate developers, who may be unable to meet commitments to fill space in developments where our restaurants are located.

If our vendors, customers or other service providers are adversely affected, our business and results of operations may also be adversely affected.

Restaurant companies have been the target of class-actions and other lawsuits alleging, among other things, violation of federal and state law.

We are subject to a variety of claims arising in the ordinary course of our business brought by or on behalf of our customers or employees, including personal injury claims, contract claims, and employment-related claims. In recent years, a number of restaurant companies have been subject to lawsuits, including class-action lawsuits, alleging violations of federal and state law regarding workplace, employment and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted against us from time to time. In 2007, we incurred a $2.2 million charge for a class action legal settlement relating to an employment claim. Regardless of whether any claims against us are valid or whether we are ultimately determined to be liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could materially adversely affect our financial condition or results of operations, and adverse publicity resulting from these allegations may materially adversely affect our business. We may incur substantial damages and expenses resulting from lawsuits, which could have a material adverse effect on our business.

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Failure of our existing or new restaurants to achieve predicted results could have a negative impact on our revenues and performance results.

The results achieved by our restaurants may not be indicative of longer term performance or the potential market acceptance of restaurants in other locations. New restaurants we open may not have operating results similar to those of previously opened restaurants. The failure of restaurants to perform as predicted could result in an impairment charge, which could negatively impact our results of operations. In 2008, we recorded an impairment charge of $2.8 million related to long lived assets at two of our restaurants. In 2007, we recorded an impairment charge of $5.4 million related to long lived assets at three of our restaurants.

Our ability to expand our restaurant base is influenced by factors beyond our control and therefore we may not be able to achieve our planned growth.

Our growth strategy depends in large part on our ability to open new restaurants and to operate these restaurants profitably. Delays or failures in opening new restaurants could impair our ability to meet our growth objectives. We have in the past experienced delays in restaurant openings and may experience similar delays in the future. Our ability to expand our business successfully will depend upon numerous factors, including:

• hiring, training and retaining skilled management, chefs and other qualified personnel to open, manage and operate new restaurants;

• locating and securing a sufficient number of suitable new restaurant sites in new and existing markets on acceptable lease terms;

• managing the amount of time and construction and development costs associated with the opening of new restaurants;

• obtaining adequate financing for the construction of new restaurants;

• securing governmental approvals and permits required to open new restaurants in a timely manner, if at all;

• successfully promoting our new restaurants and competing in the markets in which our new restaurants are located; and

• general economic conditions.

Some of these factors are beyond our control. We may not be able to achieve our expansion goals and our new restaurants may not be able to achieve operating results similar to those of our existing restaurants. Due to the economic outlook, we have planned to open two restaurants in 2009, which is fewer than in the last several years. Based on capital availability and economic conditions improving, we may open additional restaurants in new or existing markets in 2009.

Our operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, resulting in a decline in our stock price.

Our operating results may fluctuate significantly because of several factors, including:

• our ability to achieve and manage our planned expansion;

• our ability to achieve market acceptance, particularly in new markets;

• our ability to raise capital;

• changes in the availability and costs of food;

• the loss of key management personnel;

• the concentration of our restaurants in specific geographic areas;

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• our ability to protect our name and logo and other proprietary information;

• changes in consumer preferences or discretionary spending;

• fluctuations in the number of visitors or business travelers to downtown locations;

• health concerns about seafood or other foods;

• our ability to attract, motivate and retain qualified employees;

• increases in labor costs;

• the impact of federal, state or local government regulations relating to our employees or the sale or preparation of food and the sale of alcoholic beverages;

• the impact of litigation;

• the effect of competition in the restaurant industry; and

• economic trends generally.

Our business also is subject to seasonal fluctuations. Historically, sales in most of our restaurants have been higher during the second and fourth quarter of each year. As a result, our quarterly and annual operating results and restaurant sales may fluctuate significantly as a result of seasonality and the factors discussed above. Accordingly, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease. Our operating results may also fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.

Our operations are susceptible to changes in food availability and costs, which could adversely affect our operating results.

Our profitability depends significantly on our ability to anticipate and react to changes in seafood costs. We rely on local, regional and national suppliers to provide our seafood. Increases in distribution costs or sale prices or failure to perform by these suppliers could cause our food costs to increase. We could also experience significant short-term disruptions in our supply if a significant supplier failed to meet its obligations. The supply of seafood is more volatile than other types of food. The type, variety, quality and price of seafood is subject to factors beyond our control, including weather, governmental regulation, availability and seasonality, each of which may affect our food costs or cause a disruption in our supply. Changes in the price or availability of certain types of seafood could affect our ability to offer a broad menu and price offering to customers and could materially adversely affect our profitability.

Unexpected expenses and low market acceptance could adversely affect the profitability of restaurants that we open in new markets.

Our growth strategy includes opening restaurants in markets where we have little or no operating experience and in which potential customers may not be familiar with our restaurants. The success of these new restaurants may be affected by different competitive conditions, consumer tastes and discretionary spending patterns, and our ability to generate market awareness and acceptance of the McCormick & Schmick’s brand and our other brands. As a result, we may incur costs related to the opening, operation and promotion of these new restaurants that are greater than those incurred in other areas. Even though we may incur substantial additional costs with these new restaurants, they may attract fewer customers than our more established restaurants in existing markets. Sales at restaurants we open in new markets may take longer to reach our average annual sales, if at all. As a result, the results of operations at our new restaurants may be inferior to those of our existing restaurants. We may not be able to profitably open restaurants in new markets.

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Our growth may strain our infrastructure and resources, which could slow our development of new restaurants and adversely affect our ability to manage our existing restaurants.

We opened twelve company-owned restaurants and acquired five The Boathouse restaurants in 2007, and in 2008 we opened eleven company-owned restaurants. We plan to open two company-owned restaurants in 2009. Our expansion and our future growth may strain our restaurant management systems and resources, financial controls and information systems. Those demands on our infrastructure and resources may also adversely affect our ability to manage our existing restaurants. If we fail to continue to improve our infrastructure or to manage other factors necessary for us to meet our expansion objectives, our operating results could be materially and adversely affected.

Any acquisition of new restaurants could strain our financial resources or result in dilution to our existing stockholders.

Future acquisitions of existing restaurants, which may be accomplished with cash or through the issuance of our equity securities, or a combination of both, could result in dilutive issuances of our equity securities and/or the incurrence of debt and contingent liabilities, either of which could harm our business, financial condition or results of operations.

A decline in visitors or business travelers to downtown areas where our restaurants are located could negatively affect our restaurant sales.

Many of our restaurants are located in downtown areas. We depend on both local residents and business travelers to frequent these locations. If the number of visitors to downtown areas declines due to economic or other conditions, changes in consumer preferences, changes in discretionary consumer spending or for other reasons, our revenues could decline significantly and our results of operations could be adversely affected.

If we lose the services of any of our key management personnel our business could suffer.

We depend on the services of our key senior management personnel. If we lose the services of any members of our senior management or key personnel for any reason, we may be unable to replace them with qualified personnel, which could have a material adverse effect on our business and growth. We do not carry key person life insurance on any of our executive officers.

Many of our restaurants are concentrated in local or regional areas and, as a result, we are sensitive to economic and other trends and developments in these areas.

As of December 27, 2008, we operated five restaurants in the Seattle, Washington area, seven in the Portland, Oregon area, thirteen in California, and six in the greater Vancouver, British Columbia area; our East Coast restaurants are concentrated in and around Washington, D.C. As a result, adverse economic conditions, weather and labor markets in any of these areas could have a material adverse effect on our overall results of operations.

In addition, given our geographic concentrations, negative publicity regarding any of our restaurants in these areas could have a material adverse effect on our business and operations, as could other regional occurrences such as local strikes, oil spills, terrorist attacks, energy shortages or increases in energy prices, droughts or earthquakes or other natural disasters.

Our success depends on our ability to protect our proprietary information. Failure to protect our trademarks, service marks or trade secrets could adversely affect our business.

Our business prospects depend in part on our ability to develop favorable consumer recognition of the McCormick & Schmick’s name. Although McCormick & Schmick’s, M&S Grill, The Boathouse Restaurants,

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and other of our service marks are registered trademarks, our trademarks could be imitated in ways that we cannot prevent. In addition, we rely on trade secrets, proprietary know-how, concepts and recipes. Our methods of protecting this information may not be adequate, however, and others could independently develop similar know-how or obtain access to our trade secrets, know-how, concepts and recipes.

Moreover, we may face claims of misappropriation or infringement of third parties’ rights that could interfere with our use of our proprietary know-how, concepts, recipes or trade secrets. Defending these claims may be costly and, if unsuccessful, may prevent us from continuing to use this proprietary information in the future, and may result in a judgment or monetary damages.

We do not maintain confidentiality and non-competition agreements with all of our executives, key personnel or suppliers. If competitors independently develop or otherwise obtain access to our know-how, concepts, recipes or trade secrets, the appeal of our restaurants could be reduced and our business could be harmed.

Our insurance policies may not provide adequate levels of coverage against all claims.

We believe we maintain insurance coverage that is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Our primary insurer has informed us it believes we have exhausted our insurance coverage with respect to employment claims arising in our 2004 coverage year. We disagree with this interpretation of our coverage, but we have taken this interpretation into account in connection with the charge we have taken related to our settlement of class action claims in California. See Item 3, “Legal Proceedings.” We may not succeed in our planned contest of our insurer’s conclusion. If we are unsuccessful, and if our insurer determines that other existing employment claims arose in 2004 and are therefore not covered, our resolution of those claims would be more expensive.

Expanding our restaurant base by opening new restaurants in existing markets could reduce the business of our existing restaurants.

Our growth strategy includes opening restaurants in markets in which we already have existing restaurants. We may be unable to attract enough customers to the new restaurants for them to operate at a profit. Even if we are able to attract enough customers to the new restaurants to operate them at a profit, those customers may be former customers of one of our existing restaurants in that market and the opening of new restaurants in the existing market could reduce the revenue of our existing restaurants in that market.

We may not be able to successfully integrate into our business the operations of restaurants that we acquire, which may adversely affect our business, financial condition and results of operations.

We completed our purchase of The Boathouse restaurants in March 2007. These restaurants, all of which are located in the greater Vancouver, British Columbia area, are the first we own and operate outside of the United States. We may seek to selectively acquire existing restaurants and integrate them into our business operations. Achieving the expected benefits of any restaurants that we acquire will depend in large part on our ability to successfully integrate the operations of the acquired restaurants and personnel in a timely and efficient manner. The risks involved in such restaurant acquisitions and integration include:

• challenges and costs associated with the acquisition and integration of restaurant operations located in markets where we have limited or no experience;

• possible disruption to our business as a result of the diversion of management’s attention from its normal operational responsibilities and duties; and

• consolidation of the corporate, information technology, accounting and administrative infrastructure and resources of the acquired restaurants into our business.

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We may be unable to successfully integrate the operations, or realize the anticipated benefits, of any restaurants that we acquire. If we cannot overcome the challenges and risks that we face in integrating the operations of newly acquired restaurants, our business, financial condition and results of operations could be adversely affected.

Negative publicity concerning food quality, health and other issues and costs or liabilities resulting from litigation may have a material adverse effect on our results of operations.

We are sometimes the subject of complaints or litigation from customers alleging illness, injury or other food quality, health or operational concerns. Litigation or adverse publicity resulting from these allegations may materially and adversely affect us or our restaurants, regardless of whether the allegations are valid or whether we are liable. Further, these claims may divert our financial and management resources from revenue-generating activities and business operations.

Health concerns relating to the consumption of seafood or other foods could affect consumer preferences and could negatively impact our results of operations.

We may lose customers based on health concerns about the consumption of seafood or negative publicity concerning food quality, illness and injury generally, such as negative publicity concerning the accumulation of mercury or other carcinogens in seafood, e-coli, “mad cow” or “foot-and-mouth” disease, publication of government or industry findings about food products served by us or other health concerns or operating issues stemming from one of our restaurants. In addition, our operational controls and training may not be fully effective in preventing all food-borne illnesses. Some food-borne illness incidents could be caused by food suppliers and transporters and would be outside of our control. Any negative publicity, health concerns or specific outbreaks of food-borne illnesses attributed to one or more of our restaurants, or the perception of an outbreak, could result in a decrease in guest traffic to our restaurants and could have a material adverse effect on our business.

Changes in consumer preferences or discretionary consumer spending could negatively impact our results of operations.

The restaurant industry is characterized by the introduction of new concepts and is subject to rapidly changing consumer preferences, tastes and purchasing habits. Our continued success depends in part upon the popularity of seafood and the style of dining we offer. Shifts in consumer preferences away from this cuisine or dining style could materially and adversely affect our operating results. Our success will depend in part on our ability to anticipate and respond to changing consumer preferences, tastes and purchasing habits, and to other factors affecting the restaurant industry, including new market entrants and demographic changes. If we change our concept and menu to respond to changes in consumer tastes or dining patterns, we may lose customers who do not like the new concept or menu, and may not be able to attract a sufficient new customer base to produce the revenue needed to make the restaurant profitable. Our success also depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in these factors could reduce guest traffic or impose practical limits on pricing, either of which could harm our results of operations.

Labor shortages or increases in labor costs could slow our growth or harm our business.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including regional operational managers and regional chefs, restaurant general managers and executive chefs, necessary to continue our operations and keep pace with our growth. Qualified individuals are in short supply and competition for these employees is intense. If we are unable to recruit and retain sufficient qualified individuals, our business and our growth could be adversely affected. Additionally, competition for qualified employees could require us to pay higher wages, which could result in higher labor costs. If our labor costs increase, our results of operations will be negatively affected.

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We may incur costs or liabilities and lose revenue, and our growth strategy may be adversely impacted, as a result of government regulation.

Our restaurants are subject to various federal, state and local government regulations, including those relating to employees, the preparation and sale of food and the sale of alcoholic beverages. These regulations affect our restaurant operations and our ability to open new restaurants.

Each of our restaurants must obtain licenses from regulatory authorities to sell liquor, beer and wine, and each restaurant must obtain a food service license from local health authorities. Each liquor license must be renewed annually and may be revoked at any time for cause, including violation by us or our employees of any laws and regulations relating to the minimum drinking age, advertising, wholesale purchasing and inventory control. In certain jurisdictions where we operate the number of alcoholic beverage licenses available is limited and licenses are traded at market prices.

The failure to maintain our food and liquor licenses and other required licenses, permits and approvals could adversely affect our operating results. Difficulties or failure in obtaining the required licenses and approvals could delay or result in our decision to cancel the opening of new restaurants.

We are subject to “dram shop” statutes in some states. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. A judgment substantially in excess of our insurance coverage could harm our operating results and financial condition.

Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, and citizenship requirements. Additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, increased tax reporting and tax payment requirements for employees who receive gratuities, or a reduction in the number of states that allow tips to be credited toward minimum wage requirements could harm our operating results and financial condition.

The Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. Although our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for, disabled persons.

Our operations and profitability are susceptible to the effects of violence, war and economic trends.

Terrorist attacks and other acts of violence or war and U.S. military reactions to such attacks may negatively affect our operations and an investment in our shares of common stock. The terrorist attacks in New York and Washington, D.C. on September 11, 2001 led to a temporary interruption in deliveries from some of our suppliers and, we believe, contributed to the decline in average annual comparable restaurant sales in 2001 and 2002.

Future acts of violence or war could cause a decrease in travel and in consumer confidence, decrease consumer spending, result in increased volatility in the United States and worldwide financial markets and economy, or result in an economic recession in the United States or abroad. They could also impact consumer leisure habits, for example, by increasing time spent watching television news programs at home, and may reduce the number of times consumers dine out, which could adversely impact our revenue. Any of these occurrences could harm our business, financial condition or results of operations, and may result in the volatility of the market price for our securities and on the future price of our securities.

Terrorist attacks could also directly impact our physical facilities or those of our suppliers, and attacks or armed conflicts may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect our revenues.

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We may not be able to compete successfully with other restaurants, which could adversely affect our results of operations.

The restaurant industry is intensely competitive with respect to price, service, location, food quality, ambiance and the overall dining experience. Our competitors include a large and diverse group of restaurant chains and individual restaurants that range from independent local operators to well capitalized national restaurant companies. Some of our competitors have been in existence for a substantially longer period than we have and may be better established in the markets where our restaurants are or may be located. Some of our competitors may have substantially greater financial, marketing and other resources than we do. If our restaurants are unable to compete successfully with other restaurants in new and existing markets, our results of operations will be adversely affected. We also compete with other restaurants for experienced management personnel and hourly employees, and with other restaurants and retail establishments for quality restaurant sites.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters are located in Portland, Oregon. We occupy this facility under a lease that terminates in December 2009. We lease all of our restaurant facilities, except for one we own and one that we operate under a management agreement.

ITEM 3. LEGAL PROCEEDINGS

Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including claims resulting from “slip and fall” accidents, employment related claims and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns. These may include claims brought against us by private party plaintiffs and various government agencies, including federal, state and local taxing agencies, various state and local health departments, and the Equal Employment Opportunity Commission and other employment related agencies, among others. In certain instances we may settle claims if management concludes that future costs to defend the suits outweigh the costs to settle the claims.

In 2006, we were named in a class action complaint regarding employment practices filed in the U.S. District Court for the Northern District of California. We have contested the claims and have negotiated with the plaintiffs to reach a settlement. On February 28, 2008, we negotiated a resolution of the claims and the parties submitted the settlement to the Court for approval. The negotiated settlement includes a monetary settlement and some changes to our hiring and employment practices. We recorded a $2.2 million charge in fiscal 2007 for the settlement of the claims. We do not anticipate the changes to our hiring and employment practices in connection with the settlement will significantly affect our operations. The settlement was approved by the court, and the settlement amount was paid, in April 2008.

Our primary insurer has informed us it believes we have exhausted our insurance coverage with respect to employment claims arising in our 2004 coverage year, which it believes includes the litigation in California and possibly similar future claims. Furthermore, the insurer has also taken the position that several claims arising in 2005-2008 are related to certain 2004 claims, and therefore not eligible for coverage. We disagree with this interpretation of the coverage, but have taken this interpretation into account in connection with the accounting for employment claims. In fiscal year 2008, we initiated litigation to contest the insurer’s conclusion.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report.

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ITEM 4A. EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES

Douglas L. Schmick (age 61) co-founded McCormick & Schmick’s in 1972 and was appointed chief executive officer in February 2007 and chairman of the board of directors in 2004. From 1997 through January 2007 he served as president and from 1997 through 1999 he also served as chief executive officer, and he served as secretary, treasurer, and chief executive officer from 1974 through 1997. Mr. Schmick has served on the board of directors since August 22, 2001. Mr. Schmick received his Bachelor of Science degree from the University of Idaho. On November 13, 2008, it was announced Mr. Schmick would resign as chief executive officer in January 2009. Mr. Schmick remains chairman of the board.

William T. Freeman (age 49) joined McCormick and Schmick’s as the chief executive officer on January 12, 2009, and was elected a director on January 27, 2009. Mr. Freeman has more than 20 years of experience in the restaurant and entertainment industries, most recently as the founder, president and chief executive officer of B&B Restaurant Ventures, LLC, which operated Fox Sports Grill, where he was responsible for the creation, development, operation and growth of the concept from inception. The Fox Sports Grill restaurants were sold in a prepackaged Chapter 11 bankruptcy filed in July 2008 by B&B Restaurant Ventures. Mr. Freeman has also held senior management positions with Robert Redford’s Sundance Entertainment, where he was responsible for all operating divisions including the Sundance Channel, Sundance Resort and the development of the Sundance Film Centers; and Disney Regional Entertainment, where he developed, operated and grew the ESPN brand on a national basis through the development of retail, restaurant and live production venues. Mr. Freeman received his Bachelor of Science in accounting from Furman University and began his career as a certified public accountant at Ernst & Whinney.

Emanuel (Manny) N. Hilario (age 41) joined McCormick & Schmick’s in April 2004 as chief financial officer. For the four years before joining us, Mr. Hilario was with Angelo and Maxie’s, Inc. (formerly Chart House Enterprises, Inc.) most recently as chief financial officer. From December 1997 until April 2000, Mr. Hilario was with ACCO North America, a then wholly owned subsidiary of Fortune Brands, where he held various positions. Previously, he spent nine years with McDonald’s Corporation. Mr. Hilario received his Bachelor of Science and Commerce degree in accounting from Santa Clara University and is a certified public accountant.

Michael B. Liedberg (age 46) joined McCormick & Schmick’s in January 2004 and was appointed executive vice president of operations in January 2007. From 2004 through 2006, he was vice president of operations. Mr. Liedberg has over 20 years of management experience in the restaurant industry including service as the president and chief executive officer of Desert Moon Restaurants from December 2001 to January 2004. Before 2001, Mr. Liedberg held various positions for thirteen years with Avado Brands, Inc. Mr. Liedberg’s education includes a certificate from the Management Program at Georgia Institute of Technology and a Human Resources Certificate from the University of Georgia.

Jeffrey H. Skeele (age 54) has been a senior vice president of operations of McCormick & Schmick’s since January 2008, and from 1998 to 2007 he was a vice president of operations. He also has held the positions of senior manager (1991-1996) and general manager (1986-1988). From 1988 to 1991, Mr. Skeele was a vice president at West Group Partners.

Daniel P. Cunningham (age 38) has been vice president of information technology since May of 2008. Mr. Cunningham joined the company in 2005 as the director of financial systems and has held the positions of director of information technology and executive director of information technology. Prior to joining us Mr. Cunningham spent three years with The Revere Group, most recently as a managing consultant. From 1998 to 2002 Mr. Cunningham held various positions, most recently as the accounting manager for Chart House Enterprises, Inc., a publicly traded full-service restaurant operator. Mr. Cunningham received his Bachelor of Science degree from Marquette University in accounting.

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Steven B. Foote (age 49) has been a vice president of operations of McCormick & Schmick’s since January 2007. Mr. Foote also has held the positions of regional senior chef (2003-2006) and executive chef (1999-2003). Mr. Foote had over 12 years of chef and related culinary experience prior to joining McCormick & Schmick’s.

Martin P. Gardner (age 48) has been our vice president of finance since January 2007 and our corporate controller since June 2007. Mr. Gardner joined us in 2004 and previously served as our director of finance. From 2000 to 2004, Mr. Gardner was corporate controller of Lexar, Inc. From 1995 to 2000, Mr. Gardner held various management positions, including corporate controller, for Mattson Technology, Inc. Mr. Gardner received his Bachelor of Science degree in accounting from San Jose State University, his Master of Science degree in finance from Golden Gate University and is a certified public accountant.

Kelly A.B. Gordon (age 51) joined McCormick & Schmick’s in 2007 as a vice president as part of The Boathouse Restaurants acquisition. In addition to his responsibilities over The Boathouse Restaurants, in December of 2008 he assumed operational responsibility for McCormick & Schmick’s restaurants in Washington state. Prior to joining McCormick & Schmick’s, he spent seven years as vice president of operations for The Spectra Group. Prior to that, Mr. Gordon was a partner with The Keg Steakhouse & Bar restaurants for eight years. Mr. Gordon received his Bachelors degree from Simon Fraser University, majoring in business and economics.

William H.P. King (age 57) has been vice president of culinary development and training of McCormick & Schmick’s since 2006. Mr. King joined McCormick & Schmick’s in 1985 and has held various positions, including executive chef, regional senior chef and executive director of training & culinary development. Mr. King attended Cornell University’s School of Hotel and Restaurant Administration and has over 30 years experience in the culinary and hospitality industry.

Christopher C. Westcott (age 49) has been a vice president of operations of McCormick & Schmick’s since September 2007. Mr. Westcott has held the positions of regional manager from 1997 to 2007, executive chef from 1994 to 1997, general manager from 1991 to 1994, and assistant manager from 1990 to 1991. Mr. Westcott is a graduate of The Culinary Institute of America and has 15 years of related restaurant experience prior to joining McCormick & Schmick’s.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock is listed on the NASDAQ Global Stock Market under the symbol “MSSR”. The table below sets forth the high and low closing price for our common stock in the first, second, third and fourth quarters of fiscal 2008 and 2007, as reported by the NASDAQ Global Stock Market.

	Sales Price
	High		Low
4th Quarter 2008	$	9.74	$	3.34
3rd Quarter 2008		11.43		7.15
2nd Quarter 2008		12.62		8.73
1st Quarter 2008		14.40		9.72
4th Quarter 2007		19.75		11.98
3rd Quarter 2007		27.98		18.83
2nd Quarter 2007		28.86		24.08
1st Quarter 2007		27.64		23.98

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Stock Performance Graph

The following graph compares the total return on an indexed basis of a $100 investment in our common stock, the Nasdaq Composite Index and the Dow Jones U.S. Restaurants and Bars Index. For comparison purposes, the data points of our common stock are as of July 20, 2004, the day our common stock was first sold in our initial public offering, and December 23, 2004, December 30, 2005, December 29, 2006, December 28, 2007 and December 26, 2008, the last trading day in our fiscal years 2004, 2005, 2006, 2007 and 2008, respectively. The data points for both the NASDAQ Composite Index and the Dow Jones U.S. Restaurants & Bars Index are as of July 20, 2004 and the last trading day in December 2004, 2005, 2006, 2007 and 2008. The historical stock performance presented below is not intended to and may not be indicative of future stock performance.

	7/04		12/04		12/05		12/06		12/07		12/08
McCormick & Schmick’s Seafood Restaurants, Inc.	$	100.00	$	124.80	$	182.74	$	194.81	$	97.08	$	33.71
NASDAQ Composite Index	$	100.00	$	106.74	$	109.31	$	121.78	$	133.05	$	78.01
Dow Jones US Restaurants & Bars Index	$	100.00	$	125.02	$	131.08	$	161.43	$	168.33	$	151.91

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Holders of Record

As of March 2, 2009 there were approximately 45 holders of record of our common stock.

Dividend Policy

We expect to retain all of our earnings to finance the expansion and development of our business, including managing working capital and debt levels, and we have not paid dividends in the prior three fiscal years and have no plans to pay cash dividends to our stockholders for the foreseeable future. The payment of dividends is within the discretion of our board of directors and will depend upon our earnings, capital requirements and operating and financial condition, among other factors. Our revolving credit agreement restricts our ability to pay dividends.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information about compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance to employees or non-employees (such as directors and consultants) at December 27, 2008.

	Number of securities to be issued upon exercise of outstanding options	Weighted- average exercise price of outstanding options		Number of restricted shares subject to forfeiture	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in columns (a))
	(a)	(b)		(a)	(c)
Equity compensation plans approved by security holders:
2004 Stock Incentive Plan	319,311	$	12.62	115,388	506,604

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during 2008.

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ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial and operating data below is derived from our consolidated financial statements for the fiscal years 2004, 2005, 2006, 2007 and 2008, which have been audited by an independent registered public accounting firm.

The selected consolidated financial and operating data below represent portions of our financial statements, which should be read together with Part II—Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included in Part II—Item 8, Financial Statements and Supplementary Data. Historical results are not necessarily indicative of future performance. Our fiscal year ends on the last Saturday in December. Each of the fiscal years 2004 through 2008 comprised 52 weeks, except for fiscal year 2005 which comprised 53 weeks.

	Year Ended
	2004			2005		2006			2007			2008
	(in thousands, except per share data)
Statement of Operations Data:
Revenues	$	238,757		$	278,813	$	308,323		$	358,647		$	390,718
Restaurant operating costs
Food and beverage		70,873			81,630		89,443			104,468			117,642
Labor		75,081			86,823		95,886			112,503			125,811
Operating		35,204			41,857		46,044			54,892			61,375
Occupancy		21,401			24,790		27,650			32,048			36,874
Total restaurant operating costs		202,559			235,100		259,023			303,911			341,702
General and administrative expenses		12,062			15,105		16,651			22,166			21,026
Restaurant pre-opening costs		2,393			2,496		2,892			4,527			4,428
Depreciation and amortization		10,723			9,608		10,640			11,940			15,043
Management fees and covenants not to compete		4,241			—		—			—			—
Impairment/restructuring charges		—			—		—			5,427			83,913
Total costs and expenses		231,978			262,309		289,206			347,971			466,112
Operating income (loss)		6,779			16,504		19,117			10,676			(75,394	)
Interest expense (income), net		2,680			550		(228	)		(226	)		1,173
Write off of loan transaction costs		1,288			—		—			—			376
Other income, net		—			—		—			—			(308	)
Accrued dividends and accretion on mandatorily redeemable preferred stock		5,759			—		—			—			—
Income (loss) before income taxes		(2,948	)		15,954		19,345			10,902			(76,635	)
Income tax expense (benefit)		(3,651	)		4,946		5,997			2,088			(7,024	)
Net income (loss)	$	703		$	11,008	$	13,348		$	8,814		$	(69,611	)
Net income (loss) per share
Basic	$	0.07		$	0.80	$	0.94		$	0.60		$	(4.73	)
Diluted	$	0.07		$	0.78	$	0.92		$	0.60		$	(4.73	)
Shares used in computing net income (loss) per share
Basic		10,387			13,798		14,227			14,569			14,707
Diluted		10,416			14,047		14,521			14,769			14,707

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	Year End
	2004			2005			2006			2007			2008
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	451		$	4,705		$	10,553		$	7,343		$	4,428
Total assets		179,060			204,160			228,420			285,643			217,519
Long-term debt, revolving credit facility and obligations under capital leases, including current portion		13,140			706			338			16,107			26,526
Total stockholders’ equity		124,070			143,453			160,230			178,797			105,795
	Year End
	2004			2005			2006			2007			2008
	(in thousands)
Other Data:
Restaurants open at end of period (including managed restaurants)		52			59			66			82			92
Net cash provided by operating activities	$	21,452		$	30,158		$	34,427		$	35,231		$	27,358
Net cash used in investing activities		(27,284	)		(21,416	)		(30,314	)		(56,001	)		(48,538	)
Net cash provided by (used in) financing activities		3,830			(4,488	)		1,735			17,627			18,557

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our company was founded in 1972 with our acquisition of Jake’s Famous Crawfish in Portland, Oregon. As of December 27, 2008 we have expanded our restaurant base to 92 restaurants, including one restaurant operated pursuant to a management contract.

We have grown our business by offering our guests a twice daily-printed menu in most of our locations, with a broad selection of affordable, quality fresh seafood in an upscale environment, serviced by knowledgeable and professional management and staff. Our revenues are generated by sales at our restaurants, including banquets. In 2008, banquets accounted for approximately 11% of our revenues. In 2008, food and non-alcoholic beverage sales accounted for approximately 71% of revenues and the remaining 29% of revenues was from the sale of alcoholic beverages.

We measure performance using key operating indicators such as comparable restaurant sales, food and beverage costs, and restaurant operating expenses, with a focus on labor as a percentage of revenues and total occupancy costs. We also track trends in average weekly revenues at both the restaurant level and on a consolidated basis as an indicator of our performance. The key financial measure used by management in evaluating our operating results is operating income. Operating income is calculated by deducting restaurant operating costs, general and administrative expenses, restaurant pre-opening costs, depreciation and amortization and other corporate costs from revenues. We monitor general and administrative expenses as a percentage of revenues against budgeted levels. Restaurant pre-opening costs are analyzed based on the number and timing of restaurant openings and by comparison to budgeted amounts, with an overall target of approximately $0.3 million to $0.4 million per restaurant opening, which may include up to $0.1 million in non-cash rent expense during the construction period.

Our most significant restaurant operating costs are food and beverage costs and labor and related employee benefits. We believe our national and regional presence allow us to achieve better quality and pricing on key products than most of our competitors. We closely monitor food and beverage costs and regularly review our selection of preferred vendors on the basis of several key metrics, including pricing. In addition, because we print our menu twice daily in most of our locations, we are able to adapt the seafood items we offer to changes in vendor pricing to optimize our revenue mix and mitigate the impact of cost increases in any particular seafood item by substituting a lower-cost alternative on our menu or by adjusting the price. With respect to labor costs, we believe the combination of future growth in revenues and the resulting greater leverage of our vice presidents of operations and regional managers will allow us to better leverage payroll expenses over time. Our employee benefits include health insurance, the cost of which continues to increase faster than the general rate of inflation. We monitor this cost and review strategies to effectively control increases but we are subject to the overall trend of increases in healthcare costs.

General and administrative expenses are controlled in absolute amounts and monitored as a percentage of revenues. As we continue our growth, we have incurred substantial training costs and made significant investments in infrastructure, including our information systems. As we continue to grow and are able to leverage investments made in our people and systems, we expect these expenses to decrease as a percentage of revenues over time.

Identification of appropriate new restaurant sites is essential to our growth strategy. We evaluate and invest in new restaurants based on site-specific projected returns on investment. We believe our restaurant model and flexible real estate strategy provide us with continued opportunities to find attractive real estate locations on favorable terms. We evaluate acquisition opportunities as they arise, paying particular attention to how restaurants or restaurant groups would fit with our existing restaurants and our business plan.

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Strategic Focus and Operating Outlook

Our primary business focus for over 37 years has been to consistently offer a broad selection of high quality, fresh seafood, which we believe commands strong loyalty from our guests. We have successfully expanded our McCormick & Schmick’s seafood restaurant concept throughout the United States and have competed effectively with both national and regional restaurant chains as well as with local operators. We opened seven company-owned restaurants in 2006, twelve in 2007, acquired five The Boathouse Restaurants in 2007, and terminated management operations of one restaurant under management contract. In 2008, we opened eleven, and closed one, company-owned restaurants.

Our objective is to continue to prudently grow McCormick & Schmick’s seafood restaurants in existing and new markets. Our plan for 2009 includes the opening of two restaurants. Based on capital availability and economic conditions improving, we may open additional restaurants in new or existing markets in 2009. In addition to new restaurant growth, we are committed to maximizing comparable restaurant sales and guest counts as well as restaurant level operating margins.

Results of Operations

Our operating results for the fiscal years 2006, 2007 and 2008 are expressed as a percentage of revenues below:

	2006		2007		2008
Revenues	100.0	%	100.0	%	100.0	%
Food and beverage	29.0	%	29.1	%	30.1	%
Labor	31.1	%	31.4	%	32.2	%
Operating	14.9	%	15.3	%	15.7	%
Occupancy	9.0	%	8.9	%	9.4	%
Total restaurant operating costs	84.0	%	84.7	%	87.5	%
General and administrative expenses	5.4	%	6.2	%	5.4	%
Restaurant pre-opening costs	0.9	%	1.3	%	1.1	%
Depreciation and amortization	3.5	%	3.3	%	3.8	%
Impairment /restructuring charges	—		1.5	%	21.5	%
Total costs and expenses	93.8	%	97.0	%	119.3	%
Operating income (loss)	6.2	%	3.0	%	(19.3	)%
Interest expense (income), net	(0.1	)%	(0.1	)%	0.3	%
Write off of loan transaction costs	—		—		0.1	%
Other income, net	—		—		(0.1	)%
Income (loss) before income taxes	6.3	%	3.1	%	(19.6	)%
Income tax expense (benefit)	1.9	%	0.6	%	(1.8	)%
Net income (loss)	4.4	%	2.5	%	(17.8	)%

Description of Terms

Revenues consist of revenues from comparable restaurants, new restaurants and a management agreement. For purposes of comparable restaurant sales, a restaurant is included in the comparable restaurant base in the first full quarter following the eighteenth month of operations. New restaurant revenues include revenues from restaurants we opened during the period under discussion.

Restaurant operating costs consist of:

• food and beverage costs;

• labor costs, consisting of restaurant management salaries, hourly staff payroll and other payroll-related items including taxes and fringe benefits;

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• operating costs, consisting of advertising, maintenance, utilities, insurance, bank and credit card charges, and any other restaurant level expenses; and

• occupancy costs, consisting of both fixed and variable portions of rent, common area maintenance charges, property insurance premiums, and real property taxes.

General and administrative expenses consist of expenses associated with corporate administrative functions that support development and restaurant operations and provide an infrastructure to support future growth, including management and staff salaries, employee benefits, travel, legal and professional fees, technology and market research.

Restaurant pre-opening costs, which are expensed as incurred, consist of costs incurred prior to opening a new restaurant and are comprised principally of manager salaries and relocation, employee payroll and related training costs for new employees, including practice and rehearsal of service activities. Restaurant pre-opening costs also include non-cash rent expense during the construction period.

Depreciation and amortization consists of depreciation of equipment and amortization of leasehold improvements and capitalized loan costs.

Fiscal Year ends on the last Saturday in December. All of the fiscal years 2006, 2007 and 2008 were comprised of 52 weeks.

Financial Performance Overview

The following are highlights of our financial performance for fiscal 2008 compared to fiscal 2007:

• Revenues increased 8.9% to $390.7 million from $358.6 million

• Comparable restaurant sales decreased 7.5%

• Operating loss of $75.4 million compared to operating income of $10.7 million. Included in operating loss are impairment/restructuring charges of $83.9 million, and includes the impairment of goodwill, trademarks and long-lived assets at two restaurants, and a restructuring charge

• Net loss of $69.6 million compared to net income of $8.8 million

• Diluted net loss per share of $4.73 compared to diluted net income per share of $0.60

Revenues and Restaurant Operating Costs

The following table sets forth revenues and restaurant operating costs, including food and beverage, labor, operating and occupancy costs from our consolidated statements of operations.

	Year Ended				Change
	December 29, 2007		December 27, 2008
					$	%
	(in thousands)
Revenues	$	358,647	$	390,718	32,071	8.9	%
Restaurant operating costs
Food and beverage	$	104,468	$	117,642	13,174	12.6	%
Labor		112,503		125,811	13,308	11.8	%
Operating		54,892		61,375	6,483	11.8	%
Occupancy		32,048		36,874	4,826	15.1	%
Total restaurant operating costs	$	303,911	$	341,702	37,791	12.4	%

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Revenues. Revenues increased by $32.1 million, or 8.9%, to $390.7 million in 2008 from $358.6 million in 2007. This increase was primarily attributable to revenues of $26.8 million generated by the eleven company-owned restaurants added since December 29, 2007, and a $30.8 million increase in revenues in 2008 from the seventeen restaurants added in 2007, partially offset by a 7.5% decrease in comparable restaurant sales. We estimate that our 7.5% decrease in comparable sales was a result of a 9.9% decrease in traffic, which was partially offset by increased pricing of 1.7% and an increase of 0.7% due to changes in product mix.

Food and Beverage Costs. Food and beverage costs increased $13.2 million, or 12.6%, primarily due to the eleven company-owned restaurants added since December 29, 2007. Food and beverage costs as a percentage of revenues increased to 30.1% from 29.1%, primarily due to the higher mix of new restaurants, which typically run higher food and beverage costs as a percentage of revenues during the first 18 months of operation, as well as an increase in input costs primarily due to inflation of commodity costs.

Labor Costs. Labor costs increased $13.3 million, or 11.8%, primarily due to the eleven company-owned restaurants added since December 29, 2007. Labor costs as a percentage of revenues increased to 32.2% from 31.4%, primarily due to the deleveraging of fixed labor costs at the comparable restaurants, coupled with higher mix of new restaurants, which typically run higher labor as a percentage of revenues. Deleveraging occurs when sales decline and fixed costs have a relatively larger impact as a percentage of revenues.

Operating Costs. Operating costs increased $6.5 million, or 11.8%, primarily due to the eleven company-owned restaurants added since December 29, 2007. Operating costs as a percentage of revenues increased to 15.7% from 15.3%, primarily due to increases in utilities and renewals cost, which includes the costs associated with the replenishment of glassware, dishware and silverware at our restaurants.

Occupancy Costs. Occupancy costs increased $4.8 million, or 15.1%, primarily due to the eleven company-owned restaurants added since December 29, 2007. Occupancy costs as a percentage of revenues increased to 9.4% from 8.9%, primarily due to deleveraging of fixed costs at the comparable restaurants.

General and Administrative Expenses, Restaurant Pre-Opening Cost, Depreciation and Amortization and Impairment/Restructuring Charges

The following table sets forth general and administrative, restaurant pre-opening, depreciation and amortization, and impairment/restructuring charges costs from our consolidated statements of operations.

	Year Ended				Change
	December 29, 2007		December 27, 2008
					$		%
	(in thousands)
General and administrative expenses	$	22,166	$	21,026	(1,140	)	(5.1	)%
Restaurant pre-opening costs		4,527		4,428	(99	)	(2.2	)%
Depreciation and amortization		11,940		15,043	3,103		26.0	%
Impairment/restructuring charges		5,427		83,913	78,486		*

* Not meaningful

General and Administrative Expenses. General and administrative expenses decreased $1.1 million, or 5.1%, to $21.0 million from $22.2 million, primarily due to lower legal fees and share-based compensation, partially offset by the increases in costs associated with the eleven company-owned restaurants added since December 29, 2007. General and administrative expenses as a percentage of revenues decreased to 5.4% from 6.2%, primarily due to decreased legal fees.

Restaurant Pre-Opening Costs. Restaurant pre-opening costs were $4.4 million compared to $4.5 million in the prior year, primarily due to the timing of restaurants opening and restaurants under construction.

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Depreciation and Amortization. Depreciation and amortization increased $3.1 million, or 26.0%, primarily due to the eleven company-owned restaurants added since December 29, 2007. Depreciation and amortization expense as a percentage of revenues increased to 3.8% in 2008 from 3.3% in 2007, primarily due to the eleven company-owned restaurants added since December 29, 2007.

Impairment/Restructuring Charges. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

In our most recent impairment evaluation for long-lived assets, we identified assets that were determined to be impaired as of December 27, 2008. We recorded an impairment charge of $2.8 million related to the impairment of fixtures, equipment, and leasehold improvements at two of our restaurants. A restructuring charge in the amount of $0.5 million was incurred related to the closure of one of our restaurants, Restaurant K, in Washington D.C. The restructuring charge was related to exit costs, including the estimated liability on our operating lease that terminates in June, 2016. All of the leasehold improvements related to Restaurant K were written off in conjunction with the impairment charge recorded in the year ended December 29, 2007.

In 2007, we recorded an impairment charge of $5.4 million related to the impairment of fixtures, equipment, and leasehold improvements at three restaurants. There were no impairments during 2006.

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, we consider the relationship between our market capitalization and our book value, among other factors, when reviewing for indicators of impairment. Goodwill impairment tests are based on determining the fair value based on our judgments and assumptions using income and market valuation approaches to arrive at a conclusion. Goodwill represents the excess of the purchase price over the fair value of the net assets of the business acquired. Other intangible assets deemed to have indefinite lives include trademarks and tradenames used in the advertising and marketing of our restaurants. Other intangible assets deemed to have definite lives are amortized over their estimated useful lives.

The impairment evaluation for goodwill and indefinite lived intangible assets, which for us are trademarks and tradenames, is conducted during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about our appropriate revenue growth rates, operating margins, weighted average cost of capital (“WACC”), and comparable company market multiples. When developing these key judgments and assumptions, we consider economic, operational and market conditions that could impact our fair value. However, estimates are inherently uncertain and represent only our reasonable expectations regarding future developments.

We consider the relationship between our market capitalization and our book value, among other factors, when reviewing for indicators of impairment. We believe that the weakness in the U.S. residential housing and financial markets are principal factors in the prolonged decline in the stock markets, and as a result, the decline in our market capitalization as compared to our book value. As of December 27, 2008, our fair value was estimated to approximate our market capitalization plus a reasonable control premium. Our adjusted market capitalization is based the average closing stock price for the 15 days of trading prior to the year ended December 27, 2008. We believe the control premium represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest. The criteria used to derive the control premium included calculated control premiums for recent transactions of companies within our peer group.

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We completed our most recent impairment test on balances as of December 27, 2008, and determined that there was an impairment related to trademarks and tradenames of $54.4 million, and goodwill of $26.2 million, based primarily on the difference between our adjusted market capitalization and the carrying value of our assets. There were no impairments in 2006 or 2007 related to goodwill, trademarks and tradenames.

A summary of impairment/restructuring charges incurred were as follows:

	December 29, 2007		December 27, 2008
	(in millions)
Impairment of goodwill	$	—	$	26.2
Impairment of long lived assets		5.4		2.8
Impairment of trademarks and tradenames		—		54.4
Restructuring charge		—		0.5
Total impairment/restructuring charges	$	5.4	$	83.9

Interest Income, net, Write Off of Loan Transaction Costs, Other Income, net, Income Tax Expense (Benefit) and Net Income (Loss)

The following table sets forth interest income, net, write off of loan transaction costs, other income, net, income tax expense (benefit) and net income (loss) from our consolidated statements of operations.

	Year Ended						Change
	December 29, 2007			December 27, 2008
							$			%
	(in thousands)
Interest expense (income), net	$	(226	)	$	1,173		$	1,399		*
Write off of loan transaction costs		—			376			376		100.0	%
Other income, net		—			(308	)		(308	)	(100.0	)%
Income (loss) before income taxes	$	10,902		$	(76,635	)		(87,537	)	*
Income tax expense (benefit)		2,088			(7,024	)		(9,112	)	*
Net income (loss)	$	8,814		$	(69,611	)		(78,425	)	*

* Not meaningful

Interest Expense (Income), net. Interest expense (income), net was an expense of $1.2 million in 2008 as compared to an income of $0.2 million in 2007. The increase in the interest expense was primarily due to the increase in the average outstanding balance on the revolving credit facility of $12.0 million as compared to the average outstanding balance of the credit facility for the fifty-two weeks ended December 29, 2007 of $10.0 million, coupled with lower interest income.

Write Off of Loan Transaction Costs. A write off of loan transaction costs in the amount of $0.4 million was incurred in the fourth quarter due to the amendment of our credit facility which decreased our available borrowings.

Other Income, Net. Other income, net was $0.3 million due to business interruption insurance proceeds. The business interruption was caused by weather related damage to our location at the CNN Center in Atlanta, GA, which caused the restaurant to close briefly for repairs.

Income Tax Expense (Benefit). The provision for income tax was a benefit of $7.0 million in 2008, compared to tax expense of $2.1 million in 2007. Our effective annual tax rate in 2008 was 9.2% compared to 19.2% in 2007. The change in our effective annual tax rate was primarily a result of the deferred tax asset valuation allowance of $24.0 million recorded in 2008.

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Net Income (Loss). The change in net income (loss) was $78.4 million, to a net loss of $69.7 million from net income of $8.8 million in the fifty-two week period ended December 27, 2008, primarily due to the asset impairment charges of $83.9 million.

Financial Performance Overview

The following are highlights of our financial performance for fiscal 2007 compared to fiscal 2006:

• Revenues increased 16.3% to $358.6 million from $308.3 million

• Comparable restaurant sales increased 0.9%

• Operating income of $10.7 million compared to $19.1 million, a decrease of 44.2%. Included in operating income is an impairment charge of $5.4 million, related to the long-lived assets at three restaurants and a $2.2 million charge for a legal settlement

• Net income was $8.8 million compared to $13.3 million

• Diluted net income per share was $0.60 compared to $0.92

Revenues and Restaurant Operating Costs

The following table sets forth revenues and restaurant operating costs, including food and beverage, labor, operating and occupancy costs from our consolidated statements of operations.

	Year Ended				Change
	December 30, 2006		December 29, 2007
					$		%
	(in thousands)
Revenues	$	308,323	$	358,647	$	50,324	16.3	%
Restaurant operating costs
Food and beverage	$	89,443	$	104,468	$	15,025	16.8	%
Labor		95,886		112,503		16,617	17.3	%
Operating		46,044		54,892		8,848	19.2	%
Occupancy		27,650		32,048		4,398	15.9	%
Total restaurant operating costs	$	259,023	$	303,911	$	44,888	17.3	%

Revenues. Revenues increased by $50.3 million, or 16.3%, to $358.6 million in 2007 from $308.3 million in 2006. This increase was attributable to revenues of $33.6 million generated by seventeen company-owned restaurants added in 2007, a $15.0 million increase in revenues in 2007 from restaurants added in 2006, and a $1.9 million increase from restaurants added prior to 2006.

Food and Beverage Costs. Food and beverage costs increased $15.0 million, or 16.8%, primarily due to the seventeen company-owned restaurants added since December 30, 2006. Food and beverage costs as a percentage of revenues increased to 29.1% from 29.0%.

Labor Costs. Labor costs increased $16.6 million, or 17.3%, primarily due to the seventeen company-owned restaurants added since December 30, 2006. Labor costs as a percentage of revenues increased to 31.4% from 31.1% for the fifty-two week period ended December 30, 2006, primarily due to increased management labor, coupled with restaurant hourly labor inefficiency.

Operating Costs. Operating costs increased $8.8 million, or 19.2%, primarily due to the seventeen company-owned restaurants added since December 30, 2006. Operating costs as a percentage of revenues increased to 15.3% from 14.9%, primarily due to increases in advertising expenses, credit card discount fees as a percentage of revenues, and repairs and maintenance expenses.

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Occupancy Costs. Occupancy costs increased $4.4 million, or 15.9%, primarily due to the seventeen company-owned restaurants added since December 30, 2006. Occupancy costs as a percentage of revenues decreased to 8.9% from 9.0%, primarily due to increased leverage on fixed occupancy costs and the addition of The Boathouse restaurants.

General and Administrative Expenses, Restaurant Pre-Opening Cost, Depreciation and Amortization and Impairment Charge

The following table sets forth general and administrative, restaurant pre-opening, depreciation and amortization, and impairment charge from our consolidated statements of operations.

	Year Ended				Change
	December 30, 2006		December 29, 2007
					$		%
	(in thousands)
General and administrative expenses	$	16,651	$	22,166	$	5,515	33.1	%
Restaurant pre-opening costs		2,892		4,527		1,635	56.5	%
Depreciation and amortization		10,640		11,940		1,300	12.2	%
Impairment charge		—		5,427		5,427	*

* Not meaningful

General and Administrative Expenses. General and administrative expenses increased $5.5 million, or 33.1%, to $22.2 million from $16.7 million, primarily due to a legal charge of $2.2 million for a legal settlement, coupled with the seventeen restaurants added since December 30, 2006. General and administrative expenses as a percentage of revenues increased to 6.2% from 5.4%, primarily due to the charge for a legal settlement coupled with the addition of seventeen company-owned restaurants since December 30, 2006.

Restaurant Pre-Opening Costs. Restaurant pre-opening costs were $4.5 million compared to $2.9 million in the prior year, primarily due to the timing of restaurants opening and restaurants under construction.

Depreciation and Amortization. Depreciation and amortization increased $1.3 million, or 12.2%, primarily due to the seventeen company-owned restaurants added since December 30, 2006. Depreciation and amortization expense as a percentage of revenues decreased to 3.3% in 2007 from 3.5% in 2006, primarily due to the increase in revenues.

Impairment Charge. We review property and equipment (which includes leasehold improvements) for impairment when events or circumstances indicate these assets might be impaired. During 2007, we recorded an impairment charge for long-lived assets in the amount of $5.4 million. The charge was related to the impairment of fixtures and equipment and leasehold improvements at three restaurants. Historically, the fourth quarter has been our strongest revenue quarter for our restaurants, however the three restaurants on which an impairment charge was incurred experienced individual circumstances in the fourth quarter within their local markets, which management believes will permanently impact the future cash flows of the restaurants. This decline in the expected cash flows caused management to determine that it was not probable that the assets would be recoverable. Therefore, the assets were written down to the estimated fair value, which was based on discounted future cash flows.

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Interest Income, net, Income Tax Expense and Net Income

The following table sets forth interest income, net, income tax expense and net income from our consolidated statements of operations.

	Year Ended						Change
	December 30, 2006			December 29, 2007
							$		%
	(in thousands)
Interest income, net	$	(228	)	$	(226	)	2		(0.9	)%
Income before income taxes	$	19,345		$	10,902		(8,443	)	(43.6	)%
Income tax expense		5,997			2,088		(3,909	)	(65.2	)%
Net income	$	13,348		$	8,814		(4,534	)	(34.0	)%

Interest Income, net. Interest income was $0.2 million in 2007 and 2006.

Income Tax Expense. Income tax expense reflects an effective annual tax rate of 19.2% compared to 31.0% in the fifty-two week period ended December 30, 2006. The decrease in the effective annual tax rate is primarily due to the effect of FICA tip credits earned during a period with a lower income before taxes.

Net Income. Net income decreased $4.5 million, or 34.0%, to $8.8 million from $13.3 million in the fifty-two week period ended December 29, 2007, primarily due to the asset impairment charge coupled with the charge for a legal settlement, partially offset by a decrease in the effective tax rate resulting in a lower income tax expense.

Potential Fluctuations in Quarterly Results and Seasonality

Our quarterly operating results may fluctuate significantly as a result of a variety of factors. See Item 1A, “Risk Factors.”

Our business is also subject to seasonal fluctuations. Historically, revenues in most of our restaurants have been higher during the spring months and winter holiday season. For the reasons and factors discussed above, our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. If this occurs, the price of our common stock would likely decrease.

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The following table sets forth quarterly unaudited operating results in each of the 2007 and 2008 fiscal quarters:

	2007												2008
	Q1			Q2			Q3			Q4			Q1			Q2			Q3			Q4
	(in thousands, except per share data)
Revenues	$	81,428		$	89,646		$	88,095		$	99,478		$	92,337		$	99,699		$	99,897		$	98,785
Restaurant operating costs
Food and beverage		23,547			25,825			25,668			29,428			28,071			30,038			30,117			29,416
Labor		25,764			27,604			28,373			30,763			30,397			32,095			32,403			30,916
Operating		12,153			13,587			13,899			15,252			14,501			15,384			15,674			15,816
Occupancy		7,486			7,815			8,001			8,747			8,798			9,297			9,263			9,516
Total restaurant operating costs		68,950			74,831			75,941			84,190			81,767			86,814			87,457			85,664
General and administrative expenses		4,703			5,060			4,658			7,746			5,569			5,138			5,169			5,150
Restaurant pre-opening costs		448			479			2,097			1,502			1,184			692			1,460			1,092
Depreciation and amortization		2,800			2,831			2,952			3,357			3,394			3,652			3,932			4,065
Impairment/restructuring charges		—			—			—			5,427			—			452			—			83,461
Total costs and expenses		76,901			83,201			85,648			102,222			91,914			96,748			98,018			179,432
Operating income (loss)		4,527			6,445			2,447			(2,744	)		423			2,951			1,879			(80,647	)
Interest expense (income), net		(176	)		(104	)		(70	)		124			329			87			278			480
Write off of loan transaction costs		—			—			—			—			—			—			—			376
Other income, net		—			—			—			—			(75	)		(184	)		(50	)		—
Income (loss) before income taxes		4,703			6,549			2,517			(2,868	)		169			3,048			1,651			(81,503	)
Income tax expense (benefit)		1,458			2,030			477			(1,878	)		51			691			291			(8,057	)
Net income (loss)	$	3,245		$	4,519		$	2,040		$	(990	)	$	118		$	2,357		$	1,360		$	(73,446	)
Net income (loss) per share
Basic	$	0.23		$	0.31		$	0.14		$	(0.07	)	$	0.01		$	0.16		$	0.09		$	(4.99	)
Diluted	$	0.22		$	0.31		$	0.14		$	(0.07	)	$	0.01		$	0.16		$	0.09		$	(4.99	)
Shares used in computing net income (loss) per share
Basic		14,403			14,549			14,639			14,685			14,685			14,699			14,716			14,721
Diluted		14,701			14,783			14,817			14,685			14,685			14,699			14,721			14,721

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operations and borrowings under our credit facility. Historically, our need for capital resources has been driven by our construction of new restaurants.

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The following table sets forth our sources and uses of cash:

	Year Ended
	2006			2007			2008
	(in thousands)
Net cash provided by operating activities	$	34,427		$	35,231		$	27,358
Net cash used in investing activities		(30,314	)		(56,001	)		(48,538	)
Net cash provided by financing activities		1,735			17,627			18,557
Effect of exchange rate changes on cash and cash equivalents		—			(67	)		(292	)
Net increase (decrease) in cash and cash equivalents	$	5,848		$	(3,210	)	$	(2,915	)

Net cash provided by operating activities was $27.4 million in 2008, compared to $35.2 million in 2007 and $34.4 million in 2006. The decrease in net cash provided by operating activities in 2008 compared to 2007 was primarily due to the change in net income (loss) excluding non-cash impairment/restructuring charges, coupled with changes in working capital. The increase in net cash provided by operating activities in 2007 compared to 2006 was primarily due to changes in working capital and deferred taxes.

Net cash used in investing activities was $48.5 million in 2008, $56.0 million in 2007, and $30.3 million in 2006. We use cash primarily for property and equipment to open new restaurants, to purchase restaurants, and to upgrade and add capacity to existing restaurants. Net cash used in investing activities varied in the periods presented based on the number of new restaurants opened and existing restaurant capacity expanded during the period. Our net cash used in investing activities in 2008 reflects $43.8 million of expenditures related to restaurant openings. In 2007 we also purchased all of the assets of The Boathouse Restaurants in Vancouver B.C. for $14.5 million. Purchases of property and equipment also include purchases of information technology systems and expenditures relating to our corporate headquarters.

Net cash provided by financing activities was $18.6 million in 2008, $17.6 million in 2007 and $1.7 million in 2006. Net cash provided by financing activities in 2008 was primarily the result of borrowings, net of payments, of $11.0 million on our revolving credit facility, coupled with deemed landlord financing contributions of $8.3 million. Net cash provided by financing activities in 2007 was primarily the result of borrowings, net of payments, of $13.0 million on our revolving credit facility, coupled with proceeds from exercised stock options of $4.1 million. Net cash provided by financing activities in 2006 was primarily a result of proceeds from exercised stock options of $1.5 million.

As of December 27, 2008, the outstanding balance on our revolving credit facility was $24.0 million. On January 29, 2009, we amended our revolving credit facility. In conjunction with the amendment, the maximum availably under the facility was adjusted from $150.0 million to $90.0 million, with an additional $50.0 million available at our request if specified conditions are met. The amended facility also makes certain financial covenants less restrictive, including the minimum fixed charge ratio and the maximum adjusted leverage ratio covenants. The interest rate on U.S. borrowings under the credit facility, prior to amendment, was based on the financial institution’s base rate plus a margin of up to 0.50% or the Eurodollar rate plus a margin of 0.625% to 1.50%, with margins determined by certain financial ratios. The terms of the facility also allow us to borrow up to $10.0 million in Canadian dollars, which reduces the limit available for borrowings under the credit facility by an equal amount, with an interest rate based on the Canadian Eurodollar Rate plus a margin of 0.725% to 1.60%, with margins determined by certain financial ratios. As of January 29, 2009, the interest rate on U.S. borrowings is based on the financial institution’s base rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin of 1.25% to 2.50%, and the interest rate on Canadian borrowings is based on the Canadian Eurodollar Rate plus a margin of 1.35% to 2.60%, with margins determined by certain financial ratios.

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Under the revolving credit facility, we are required to comply with certain financial covenants, including a maximum adjusted leverage ratio, a minimum fixed charge ratio and a maximum growth capital expenditure. We were in compliance with these covenants as of December 27, 2008. As of December 27, 2008, our effective interest rate on our borrowings was 3.25%.

Under our revolving credit facility agreement, loans are collateralized by the stock of the subsidiaries of the Company and are scheduled to mature on December 28, 2012. The revolving credit facility agreement also provides for bank guarantees under standby letter of credit arrangements in the normal course of business operations. Our commercial bank issues standby letters of credit to secure our obligations to pay or perform when required to do so pursuant to the requirements of an underlying agreement or the provision of goods and services. The standby letters of credit are cancelable only at the option of the beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its terms. As of December 27, 2008 the maximum exposure under these standby letters of credit was $3.0 million. At December 27, 2008 we had $123.0 million available under our $150.0 million revolving credit facility, which was reduced to $90.0 million on January 29, 2009.

We believe the net cash provided by operating activities and funds available from our revolving credit facility will be sufficient to satisfy our working capital and capital expenditure requirements, including restaurant construction, pre-opening costs, and potential initial operating losses related to new restaurants, for at least the next 12 months.

Off-Balance Sheet Arrangements

As of December 27, 2008, we had no off-balance sheet arrangements, as defined in Item 303(a)(4) of the Securities and Exchange Commission Regulation S-K.

Contractual Obligations

Our contractual obligations consist of long-term debt, operating leases (primarily restaurant leases) and capital leases. We lease a majority of our restaurants and our corporate offices under non-cancelable operating leases. Most of our restaurants have an initial operating lease term of 10 to 20 years and one to three, five-year renewal options. Contractual obligations as of December 27, 2008 were as follows:

	Payments Due by Period
	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
	(in thousands)
Long-term debt	$	24,000	$	—	$	24,000	$	—	$	—
Operating leases		255,829		27,091		54,206		50,338		124,194
Capital leases, including interest		3,080		207		2,873		—		—
Purchase obligations(1)		415		415		—		—		—
Total	$	283,324	$	27,713	$	81,079	$	50,338	$	124,194

(1) Purchase obligations include commitments related to the construction of new restaurants and other non-food supply and service agreements.

The amounts presented in the table above may not necessarily reflect our actual future cash funding requirements, because the actual timing of the future payments made may vary from the stated contractual obligation. In addition, due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 27, 2008, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority. Therefore, $713,000 of unrecognized tax benefits have been excluded from the contractual obligations table above. Related to the unrecognized tax benefits not included in the table above, the Company has also recorded a liability for potential interest of $169,000.

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Critical Accounting Policies and Use of Estimates

Our significant accounting policies are those that we believe are both important to the portrayal of our financial condition and results and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe our critical accounting policies and estimates used in the preparation of our consolidated financial statements are the following:

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment consists primarily of restaurant equipment, furniture, fixtures and smallwares. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Equipment under capitalized leases are amortized over the shorter of the useful life of the asset or the length of the related lease term. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term as defined in Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases” (“SFAS 13”), as amended, or the estimated useful life of the asset. As discussed in SFAS 13, the lease term includes any period covered by a renewal option where the renewal is reasonably assured because failure to renew the lease would impose an economic penalty to the lessee. Repairs and maintenance are expensed as incurred; renewals and betterments are capitalized. Estimated useful lives are generally as follows: equipment—3 to 10 years; furniture and fixtures—5 to 10 years; buildings—39 years; and leasehold improvements—7 to 30 years. Judgments and estimates made by us related to the expected useful lives of these assets are affected by factors such as changes in economic conditions and changes in operating performance. If these assumptions change in the future, we may be required to record impairment charges for these assets.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Goodwill and Other Indefinite Lived Assets

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, we consider the relationship between our market capitalization and its book value, among other factors, when reviewing for indicators of impairment. Goodwill impairment tests are based on determining our fair value based on our judgments and assumptions using income and market valuation approaches to arrive at its conclusion. Goodwill represents the excess of purchase price over the fair value of the net assets of the business acquired. Other intangible assets deemed to have indefinite lives include trademarks and tradenames used in the advertising and marketing of the restaurants. Other intangible assets deemed to have definite lives are amortized over their estimated useful lives.

The impairment evaluation for goodwill and indefinite lived intangible assets, which for us are trademarks and tradenames, is conducted during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about our appropriate revenue growth rates, operating margins, weighted average cost of capital (“WACC”), and comparable company market multiples. When developing these key judgments and assumptions, we consider economic, operational and market conditions that could impact our fair value. However, estimates are inherently uncertain and represent only our reasonable expectations regarding future developments.

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Insurance Liability

We maintain various insurance policies including workers’ compensation, employee health, and general liability. Pursuant to those policies, we are responsible for losses up to certain limits and are required to estimate a liability that represents our ultimate exposure for aggregate losses below those limits. This liability is based on management’s estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions. If actual trends differ from our estimates, our financial results could be impacted. In addition, we may exceed our insurance coverage for specified matters. Our primary insurer has informed us it believes we have exhausted our insurance coverage with respect to claims arising in our 2004 coverage year. We disagree with this interpretation of our coverage, but we have taken this interpretation into account in connection with the charge we have taken related to our settlement of class action claims in California. See Item 3, “Legal Proceedings.”

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.

We adopted the provisions of FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on December 31, 2006. As a result of the implementation of FIN 48, we recorded a $500,000 increase in other long-term liabilities, representing accrued income taxes and interest, in our consolidated balance sheet for unrecognized tax benefits. This amount, net of a related increase of $230,000 to non-current deferred tax assets, was accounted for as a cumulative effect adjustment to the December 31, 2006 balance of retained earnings.

We recognize interest and penalties related to unrecognized tax benefits within income tax expense in our consolidated statement of operations. Accrued interest and penalties are included within the related tax liability in the consolidated balance sheet.

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Operating Leases

We generally operate our restaurants in leased premises. We record the minimum base rents for our operating leases on a straight-line basis over the life of the lease term, including option periods which are reasonably assured of renewal due to the presence of certain economic penalties. For purposes of calculating straight-line rents, the lease term commences on the date the lessee obtains control of the property, which is normally when the property is ready for normal tenant improvements (build-out-period). For certain leases we only have the right to exercise our option for renewal if certain sales targets are achieved at or near the renewal date. These renewal option periods have been included in the lease term when we determine at lease inception or at the acquisition date of the restaurant, if later, that the sales targets are non-substantive and achievement of such sales targets is virtually certain. The difference between rent expense calculated on a straight-line basis and rent paid is recorded as deferred rent liability.

We receive certain tenant improvement allowances which are considered lease incentives and are amortized as a reduction of rent expense over the lease term. Accordingly, we have recorded a deferred rent liability including tenant improvement allowances for the straight lining of rents and lease incentives, which is included in other long-term liabilities of $20.4 million and $23.7 million as of December 29, 2007 and December 27, 2008, respectively. Certain other landlord tenant improvement allowances received, depending on the specifics of the leased space, the lease agreement and in accordance with Emerging Issues Task Force (“EITF”) 97-10, “The Effect of Lessee Involvement in Asset Construction,” for the amounts paid for structural components during the construction period are recorded as construction in progress and the landlord tenant improvement allowances received are recorded as a landlord financing liability. Upon completion of construction for those leases that meet the criteria of EITF 97-10, those leases that do not qualify for sale leaseback treatment in accordance with SFAS No. 98, the landlord financing liability is amortized under the effective interest rate method over the lease term based on the rent payments designated in the lease agreement.

Share-Based Compensation

We account for share-based compensation in accordance with the fair value recognition provisions of SFAS No. 123, “Share Based Payment (revised 2004)” (“SFAS 123R”). We adopted SFAS 123R using the modified prospective transition method as of January 1, 2006, the first day of our fiscal year 2006. Under SFAS 123R, we determined the fair value of share-based payment awards on the date of grant using the Black-Scholes option-pricing model. The model is affected by our stock price as well as our assumptions regarding a number of complex and subjective variables, including but not limited to our expected stock price volatility over the term of the awards, life of the option, expected term of the option, the estimated forfeiture rate, the risk-free interest rate and the expected dividend yield.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The standard expands required disclosures about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We adopted SFAS 157 which did not result in a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, a replacement of SFAS No. 141, “Business Combinations” (“SFAS 141(R)”). The provisions of SFAS 141(R) establish principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest acquired and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination, and applies to business combinations for which the acquisition date is on or after December 15, 2008.

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Effect of Inflation

We do not believe inflation has had a significant effect on our operations during the past several years. We generally have been able to substantially offset increases in our restaurant and operating costs resulting from inflation by altering selected offerings and pricing on our twice daily printed menus.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including changes in interest rates and foreign currency exchange rates. Our foreign exchange rate risk relates to operations in Canada.

Our market risk exposure for changes in interest rates relates to our cash and cash equivalents and revolving credit facility. We invest any excess cash in highly liquid short-term investments with maturities of less than one year. These investments are not held for trading or other speculative purposes. Changes in interest rates affect the investment income we earn on our investments and, therefore, impact our cash flows and results of operations.

We are exposed to market risk from changes in interest rates on borrowings, which under the terms of our revolving credit facility at December 27, 2008, bear interest at the financial institution’s prime rate plus a margin of up to 0.50% or the Eurodollar rate plus a margin of 0.625% to 1.50%, with margins determined by certain financial ratios. At our option, we may convert loans under our revolving credit facility from one type of rate to the other. The terms of the facility also allow us to borrow up to $10.0 million in Canadian dollars, with an interest rate based on the Canadian Eurodollar Rate plus a margin of 0.725% to 1.60%, with margins determined by certain financial ratios. At the end of 2008, there was an outstanding balance of $24.0 million under our revolving credit facility. A hypothetical 40 basis point change in our effective borrowing rate would not have a material effect on our results of operations. We amended our credit facility on January 29, 2009. The change in terms under the amended credit facility would not have a material effect on the market risks we face.

A portion of our revenue is generated in Canada. As a result, we conduct some transactions in Canadian currency, which increases our exposure to fluctuations in foreign currency exchange rates relative to the U.S. dollar. In 2008 we incurred a $4.5 million currency translation adjustment, which is reflected in other comprehensive income (loss) on the balance sheet. A hypothetical 10% decline in the foreign exchange rate between the Canadian dollar and the U.S. dollar would have a material effect on our financial results.

43

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Index to Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	45
Consolidated Financial Statements:
Consolidated Balance Sheets	46
Consolidated Statements of Operations	47
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)	48
Consolidated Statements of Cash Flows	49
Notes to Consolidated Financial Statements	50

44

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

McCormick and Schmick’s Seafood Restaurants, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders’ equity and comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of McCormick and Schmick’s Seafood Restaurants, Inc. and its subsidiaries at December 27, 2008 and December 29, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Report of Management on Internal Control Over Financial Reporting appearing under item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 12 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006. As discussed in Note 9 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions in 2007.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Portland, Oregon

March 10, 2009

45

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share data)

	December 29, 2007		December 27, 2008
Assets
Current assets
Cash and cash equivalents	$	7,343	$	4,428
Trade accounts receivable, net		10,135		9,283
Tenant improvement allowance receivables		7,663		2,344
Income tax receivable		1,736		3,789
Inventories		5,997		6,028
Prepaid rent		2,129		86
Prepaid expenses and other current assets		1,810		2,604
Deferred income taxes		5,206		97
Total current assets		42,019		28,659
Property and equipment, net		156,956		185,171
Other assets		58,899		3,689
Goodwill		27,769		—
Total assets	$	285,643	$	217,519
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	24,158	$	18,919
Accrued expenses		33,668		31,361
Capital lease obligations		3,107		—
Total current liabilities		60,933		50,280
Other long-term liabilities		21,392		33,158
Revolving credit facility		13,000		24,000
Capital lease obligations		—		2,526
Deferred income taxes		11,521		1,760
Total liabilities		106,846		111,724
Commitments and Contingencies (Notes 13 and 16)
Stockholders’ equity
Common stock, $0.001 par value, 120,000 shares authorized, 14,685 shares issued and outstanding in 2007 and 14,721 shares issued and outstanding in 2008		15		15
Additional paid in capital		146,918		148,030
Accumulated other comprehensive income (loss)		2,828		(1,675	)
Retained earnings (accumulated deficit)		29,036		(40,575	)
Total stockholders’ equity		178,797		105,795
Total liabilities and stockholders’ equity	$	285,643	$	217,519

The accompanying notes are an integral part of these consolidated financial statements.

46

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

	Year Ended
	December 30, 2006			December 29, 2007			December 27, 2008
Revenues	$	308,323		$	358,647		$	390,718
Restaurant operating costs
Food and beverage		89,443			104,468			117,642
Labor		95,886			112,503			125,811
Operating		46,044			54,892			61,375
Occupancy		27,650			32,048			36,874
Total restaurant operating costs		259,023			303,911			341,702
General and administrative expenses		16,651			22,166			21,026
Restaurant pre-opening costs		2,892			4,527			4,428
Depreciation and amortization		10,640			11,940			15,043
Impairment/restructuring charges		—			5,427			83,913
Total costs and expenses		289,206			347,971			466,112
Operating income (loss)		19,117			10,676			(75,394	)
Interest expense (income), net		(228	)		(226	)		1,173
Write off of loan transaction costs		—						376
Other income, net		—			—			(308	)
Income (loss) before income taxes		19,345			10,902			(76,635	)
Income tax expense (benefit)		5,997			2,088			(7,024	)
Net income (loss)	$	13,348		$	8,814		$	(69,611	)
Net income (loss) per share
Basic	$	0.94		$	0.60		$	(4.73	)
Diluted	$	0.92		$	0.60		$	(4.73	)
Shares used in computing net income (loss) per share
Basic		14,227			14,569			14,707
Diluted		14,521			14,769			14,707

The accompanying notes are an integral part of these consolidated financial statements.

47

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)

(in thousands, except share data)

	Common Stock			Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total
	Shares	Amount
Balances at December 31, 2005	14,179,206	$	14	$	136,292		$	7,147		$	—		$	143,453
Share based compensation	—		—		1,326			—			—			1,326
Exercise of stock options	123,925		—		1,487			—			—			1,487
Tax effect of share based compensation	—		—		616			—			—			616
Net Income	—		—		—			13,348			—			13,348
Balances at December 30, 2006	14,303,131		14		139,721			20,495			—			160,230
Cumulative effect of FIN 48	—		—		—			(273	)		—			(273	)
Share based compensation	—		—		1,377			—			—			1,377
Exercise of stock options and vesting of restricted stock	381,860		1		4,107			—			—			4,108
Tax effect of share based compensation	—		—		1,713			—			—			1,713
Cumulative currency translation adjustment	—		—		—			—			2,828			2,828
Net Income	—		—		—			8,814			—			8,814
Total Comprehensive income	—		—		—			8,814			2,828			11,642
Balances at December 29, 2007	14,684,991		15		146,918		$	29,036			2,828			178,797
Share based compensation	—		—		1,117			—			—			1,117
Vesting of restricted stock	36,056		—		—			—			—			—
Tax effect of share based compensation	—		—		(5	)		—			—			(5	)
Cumulative currency translation adjustment	—		—		—			—			(4,503	)		(4,503	)
Net loss	—		—		—			(69,611	)		—			(69,611	)
Total Comprehensive loss	—		—		—			(69,611	)		(4,503	)		(74,114	)
Balances at December 27, 2008	14,721,047	$	15	$	148,030		$	(40,575	)	$	(1,675	)	$	105,795

The accompanying notes are an integral part of these consolidated financial statements.

48

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended
	December 30, 2006			December 29, 2007			December 27, 2008
Operating activities
Net income (loss)	$	13,348		$	8,814		$	(69,611	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		10,640			11,940			15,043
Deferred income taxes		2,370			(1,138	)		(4,638	)
Share based compensation		1,326			1,377			1,117
Impairment/restructuring charges		—			5,427			83,913
Write off of loan transaction costs		—			—			376
Changes in operating assets and liabilities
Trade accounts receivable		(1,417	)		(3,692	)		775
Tenant improvement allowance receivable		242			(6,125	)		5,319
Income tax receivable		—			(1,736	)		(2,053	)
Inventories		(465	)		(1,229	)		(126	)
Prepaid expenses and other current assets		(898	)		(45	)		1,213
Accounts payable		2,208			8,396			(4,821	)
Accrued expenses		5,046			10,761			(2,716	)
Other long-term liabilities		2,027			2,481			3,567
Net cash provided by operating activities		34,427			35,231			27,358
Investing activities
Purchase of property and equipment		(30,072	)		(41,578	)		(48,245	)
Acquisition of The Boathouse Restaurants of Canada, Inc. assets, net		—			(14,481	)		—
Other assets		(242	)		58			(293	)
Net cash used in investing activities		(30,314	)		(56,001	)		(48,538	)
Financing activities
Loan costs		—			(799	)		(619	)
Borrowings made on revolving credit facility		—			41,500			135,500
Payments made on revolving credit facility		—			(28,500	)		(124,500	)
Proceeds from stock options exercised		1,487			4,108			—
Deemed landlord financing proceeds		—			—			8,315
Deemed landlord financing payments		—			—			(100	)
Payments on capital lease obligations		(368	)		(395	)		(34	)
Tax effect of share based compensation		616			1,713			(5	)
Net cash provided by financing activities		1,735			17,627			18,557
Effect of exchange rate changes on cash and cash equivalents		—			(67	)		(292	)
Net increase (decrease) in cash and cash equivalents		5,848			(3,210	)		(2,915	)
Cash and cash equivalents, beginning of year		4,705			10,553			7,343
Cash and cash equivalents, end of year	$	10,553		$	7,343		$	4,428
Supplemental disclosure of cash flow information
Cash paid during the year
Interest	$	290		$	741		$	1,305
Income taxes, net of refunds		2,267			3,789			(706	)

The accompanying notes are an integral part of these consolidated financial statements.

49

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. The Business and Organization

McCormick and Schmick’s Seafood Restaurants, Inc. is a leading national seafood restaurant operator in the affordable upscale dinning segment and, as of December 27, 2008, operates 92 restaurants including 86 restaurants in 25 states throughout the United States including one pursuant to a management agreement, and six restaurants under The Boathouse name in the greater Vancouver, British Columbia area. The Company has aggregated its operations into one reportable segment.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the assets, liabilities and results of operations of McCormick & Schmick’s Seafood Restaurants, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

Fiscal Year

The Company utilizes a 52 or 53 week accounting period that ends on the last Saturday in December. The fiscal years ended December 30, 2006, December 29, 2007 and December 27, 2008 were each comprised of 52 weeks. Approximately every six years a 53 week fiscal year occurs.

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances at the time. Actual results could differ from those estimates under different assumptions or conditions.

Cash and Cash Equivalents

The Company considers all highly liquid investment instruments purchased with an initial maturity of three months or less to be cash equivalents. Cash consists of cash on hand in restaurant locations and deposits held at major banks that may at times exceed FDIC-insured limits.

Trade Accounts Receivable

Trade accounts receivable consists of balances receivable from credit card companies and other third parties. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable losses in its existing accounts receivable. The Company reviews the need for an allowance by assessing individual accounts receivable over a specific aging and amount. The Company has established an allowance for doubtful accounts as follows:

	Balance at Beginning of Year		Charged to Costs and Expenses		Deductions		Balance at End of Year
	(in thousands)
December 30, 2006	$	107	$	44	$	44	$	107
December 29, 2007		107		57		164		—
December 27, 2008		—		—		—		—

50

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Inventories

Inventories, which consist principally of restaurant food, beverages and supplies, are stated at the lower of cost or market using the first-in, first-out method.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment consists primarily of restaurant equipment, furniture, fixtures and smallwares. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Equipment under capitalized leases are amortized over the shorter of the useful life of the asset or the length of the related lease term. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term, including option periods which are reasonably assured of renewal or the estimated useful life of the asset. Repairs and maintenance are expensed as incurred; renewals and betterments are capitalized. Upon disposal of equipment and leasehold improvements, the accounts are relieved of the costs and related accumulated depreciation or amortization, and resulting gains or losses are reflected in results of operations.

Estimated useful lives are generally as follows:

Equipment	3-10 years
Furniture and fixtures	5-10 years
Leasehold improvements	7-30 years
Buildings	39 years

Other Assets and Goodwill

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. Goodwill impairment tests are based on determining the fair value of the Company based on management judgments and assumptions using income and market valuation approaches to arrive at its conclusion. Goodwill represents the excess of purchase price over the fair value of the net assets of the business acquired. Other intangible assets deemed to have indefinite lives include trademarks and tradenames used in the advertising and marketing of the restaurants. Other intangible assets deemed to have definite lives are amortized over their estimated useful lives.

The impairment evaluation for goodwill and indefinite lived intangible assets, which for the Company are trademarks and tradenames, is conducted during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about the Company’s appropriate revenue growth rates, operating margins, weighted average cost of capital (“WACC”), and comparable company market multiples. When developing these key judgments and assumptions, the Company considers economic, operational and market conditions that could impact the fair value of the Company. However, estimates are inherently uncertain and represent only management’s reasonable expectations regarding future developments.

The Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. The Company believes that the weakness in the U.S. residential housing and financial markets are principal factors in the prolonged decline in the stock markets, and as a result, the decrease in its market capitalization as compared to its book value. As of December 27, 2008, the

51

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

fair value of the Company was estimated to approximate its market capitalization plus a reasonable control premium. The Company’s adjusted market capitalization is based on the average closing stock price for the 15 days of trading prior to the year ended, December 27, 2008. The Company believes the control premium represents the estimated amount an investor would pay for its equity securities to obtain a controlling interest. The criteria used to derive the control premium included calculated control premiums for recent transactions of companies within our peer group.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of such asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of such asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, receivables, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of long-term debt is determined using current applicable rates for similar instruments and collateral as of the balance sheet date and approximates the carrying value of such debt.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Recognition of deferred tax assets is limited to amounts considered more likely than not to be realized in future periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Revenue Recognition

Revenues are recognized at the point of delivery of products and services.

The Company recognizes income from gift cards when the gift card is redeemed by the customer; or the likelihood of the gift card being redeemed by the customer is remote (gift card breakage) and the Company determines there is no legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions.

The Company determines the gift card breakage rate based upon historical redemption patterns. The Company recognizes breakage income for those cards for which the likelihood of redemption is deemed to be remote. Gift card income is included within revenues in the consolidated statements of operations. Revenues are presented net of sales tax and the related obligation is recorded as a liability until the taxes are remitted to the appropriate taxing authorities.

52

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Share-Based Compensation Plan

The Company adopted Statements of Financial Accounting Standards (“SFAS”) No. 123, “Share Based Payment (revised 2004)” (“SFAS 123R”) using the modified prospective transition method, which required the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. Share-based compensation expense recognized under SFAS 123R for the years ended December 30, 2006, December 29, 2007 and December 27, 2008 was $1.3 million, $1.4 million and $1.1 million, respectively, which consisted of share-based compensation expense related to employee stock options and restricted stock awards.

The Company determined the fair value of stock option awards on the date of grant using the Black-Scholes option-pricing model. The model is affected by the Company’s stock price as well as the Company’s assumptions regarding a number of complex and subjective variables, including but not limited to the Company’s expected stock price volatility over the term of the awards, life of the option, expected term of the option, the estimated forfeiture rate, the risk-free interest rate and the expected dividend yield. The Company’s expected stock price volatility was based on historical volatility of the Company’s stock price since the initial public offering in 2004. The option life was based on the contractual life of the option. The expected term of the option was based on an average of selected peer companies in the Company’s industry and our expectation of average time until exercise of the options by the grantees. The estimated forfeiture rate was based on historical data and estimated future terminations over the vesting period of the award. The risk-free interest rate was based on the implied yield available at the time of grant on U.S. Treasury zero-coupon issues. Dividend yield is based on management’s estimation of dividends to be paid in the future.

The fair value of the Company’s stock options was estimated using the following assumptions. The Company did not grant any options during fiscal year 2008.

	Year Ended
	December 30, 2006		December 29, 2007
Expected volatility	24.3	%	24.8	%
Option life	10 years		10 years
Expected term	5.5 years		5.5 years
Estimated forfeiture rate	14	%	14	%
Risk-free interest rate	3.9	%	3.9	%
Dividend yield	0	%	0	%

On June 16, 2004, the Company adopted a 2004 Stock Incentive Plan (the “Plan”) under which 1,500,000 shares were reserved for issuance. Under the Plan, the Company may grant stock options, restricted stock and other awards to employees, directors, consultants, and to any parent or subsidiary of the Company. On July 20, 2004, the Company issued to officers and employees options to purchase an aggregate of 879,600 shares of common stock at $12.00 per share. These options vest over a three-year period and are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. In May 2006, the Board of Directors approved up to a total of 30,000 options to be issued to employees at the discretion of management. During fiscal year 2007 a total of 25,000 options were awarded to various employees at a price equal to the stock price on the date of the grant. One third of the grant vests on each of the three anniversary dates following the grant date if the grantee is then employed by the Company.

53

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Incentive stock options must have an exercise price that is at least equal to the fair market value of the common stock, or 110% of fair market value of the common stock for any greater than 10% owner of the Company’s common stock, on the date of grant. Vesting of awards under the Plan may vary. Each award granted under the Plan may, at the discretion of the board of directors of the Company, become fully exercisable or payable, as applicable, upon a change of control of the Company.

Each award shall expire on the date determined at the date of grant, however, the maximum term of options, stock appreciation rights (“SARs”) and other rights to acquire common stock under the Plan is 10 years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances. These and other awards may also be issued solely or in part for services. Any shares subject to awards that are not paid or exercised before they expire or are terminated will become available for other award grants under the Plan. If not sooner terminated by the Company’s board of directors, the Plan will terminate on June 16, 2014. As of December 27, 2008, options to acquire a total of 904,600 shares of the Company’s common stock have been granted under the Plan at a price equal to the fair market value of the stock on the date of grant.

Restaurant Pre-Opening Costs

Restaurant pre-opening costs, consisting primarily of wages and salaries, hourly employee recruiting, license fees, meals, lodging and travel, and non-cash rent expenses during the construction period are expensed as incurred.

Advertising Costs

Advertising costs are expensed as incurred and were $3.7 million, $5.0 million, and $5.5 million for the fiscal years ended December 30, 2006, December 29, 2007 and December 27, 2008, respectively.

Insurance Liability

The Company maintains various insurance policies including workers’ compensation, employee health, and general liability. Pursuant to those policies, the Company is responsible for losses up to certain limits. The Company records a liability for the estimated exposure for aggregate losses below those limits. This liability is based on estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions.

Basic and Diluted Net Income per Share

Basic net income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of employee stock options and restricted stock.

SFAS No. 128, “Earnings per Share,” requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money options and is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, assumed proceeds include the amount the employee must pay for exercising stock options, the purchase price the grantee pays for restricted stock, if any, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits, if any, that would be credited to additional paid-in capital upon the exercise of the options or vesting of the restricted stock.

54

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Options to purchase 700,691, 337,277, and 319,311 shares of common stock were outstanding at December 30, 2006, December 29, 2007, and December 27, 2008, respectively. Restricted stock outstanding was 138,500, 73,322, and 115,388 on December 30, 2006, December 29, 2007, and December 27, 2008, respectively. The diluted weighted average number of shares calculation includes 293,457 and 199,805 shares subject to stock options or restricted stock grants for the years ended December 30, 2006 and December 29, 2007. There were no diluted shares for the year ended December 27, 2008. For the fifty-two week periods ended December 29, 2007, and December 27, 2008, 23,464 and 321,223, respectively, of the Company’s shares were excluded from the calculation due to their anti-dilutive effect.

Operating Leases

The Company generally operates its restaurants in leased premises. The Company records the minimum base rents for its operating leases on a straight-line basis over the life of the lease term, including option periods which are reasonably assured of renewal due to the presence of certain economic penalties. For purposes of calculating straight-line rents, the lease term commences on the date the lessee obtains control of the property, which is normally when the property is ready for normal tenant improvements (build-out-period). For certain leases the Company only has the right to exercise its option for renewal if certain sales targets are achieved at or near the renewal date. These renewal option periods have been included in the lease term when the Company determines at lease inception or at the acquisition date of the restaurant, if later, that the sales targets are non-substantive and achievement of such sales targets is virtually certain. The difference between rent expense calculated on a straight-line basis and rent paid is recorded as deferred rent liability.

The Company receives certain tenant improvement allowances which are considered lease incentives and are amortized over the life of the lease term, as a reduction of rent expense over the lease term. Accordingly, the Company has recorded a deferred rent liability including tenant improvement allowances for the straight lining of rents and lease incentives, which is included in other long-term liabilities of $20.4 million and $23.7 million as of December 29, 2007 and December 27, 2008, respectively. Certain other landlord tenant improvement allowances received, depending on the specifics of the leased space, the lease agreement and in accordance with Emerging Issues Task Force (“EITF”) 97-10, “The Effect of Lessee Involvement in Asset Construction,” for the amounts paid for structural components during the construction period are recorded as construction in progress and the landlord tenant improvement allowances received are recorded as a landlord financing liability. Upon completion of construction for those leases that meet the criteria of EITF 97-10, those leases that do not qualify for sale leaseback treatment in accordance with SFAS No. 98, the landlord financing liability is amortized under the effective interest rate method over the lease term based on the rent payments designated in the lease agreement.

Derivative Instruments and Hedging Activities

The Company accounts for all derivative instruments on the balance sheet at fair value. Changes in the fair value (i.e., gains or losses) of the derivatives are recorded each period in the consolidated statements of operations or accumulated other comprehensive income (loss). For a derivative designated as a cash flow hedge, the gain or loss on the derivative is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into the statement of operations when the hedged transaction affects earnings. For derivatives recognized as a fair value hedge, the gain or loss on the derivative in the period of change and the offsetting loss or gain of the hedged item attributed to the hedged risk are recognized in the consolidated statement of operations. For derivatives not recognized as hedges, the gain or loss on the derivative in the period of change is recognized as other income.

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

If the Company were to terminate an interest rate swap, any gain or loss realized upon termination would be deferred and amortized to interest expense over the remaining term of the underlying debt instrument it was intended to modify or would be recognized immediately if the underlying debt instrument were settled prior to maturity. As of December 29, 2007, and December 27, 2008, the Company did not hold a position in a derivative instrument and did not have any hedges outstanding.

3. Property and Equipment

Property and Equipment and related accumulated depreciation and amortization consist of the following:

	December 29, 2007			December 27, 2008
	(in thousands)
Fixtures and equipment	$	68,356		$	82,107
Equipment under capital leases(1)		1,713			—
Leasehold improvements		127,786			157,840
Construction in progress		7,791			6,827
Buildings		4,008			4,008
Buildings under capital lease		3,563			2,825
Land		1,563			1,563
		214,780			255,170
Less: Accumulated depreciation and amortization		(57,824	)		(69,999	)
Property and equipment, net	$	156,956		$	185,171

(1) All capital leases for equipment ended during fiscal year 2008, at which time these assets were acquired by the Company and transferred to Fixtures and equipment.

The Company capitalized $580,000 in interest costs for the year ended December 29, 2007 and $449,000 for the year ended December 27, 2008. Depreciation and amortization expense related to equipment and leasehold improvements for the years ended December 30, 2006, December 29, 2007 and December 27, 2008 was $10.6 million, $11.9 million and $15.0 million, respectively.

4. Other Assets

Other assets consist of the following:

	December 29, 2007			December 27, 2008
	(in thousands)
Tradename and trademarks	$	55,449		$	—
Loan costs		1,649			1,892
Liquor licenses		1,788			2,054
Notes receivable		268			233
Other		303			302
		59,457			4,481
Less accumulated amortization of loan costs		(558	)		(792	)
	$	58,899		$	3,689

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Amortization expense related to other assets (loan costs, prepaid management contract and covenants not to compete agreement) was $187,000, $162,000 and $235,106 for the years ended December 30, 2006, December 29, 2007 and December 27, 2008, respectively.

	(in thousands)
Loan costs, net as of December 29, 2007	$	1,091
Amortization expense recorded in the year ended December 27, 2008		235
Write off of loan transaction costs		376
Loan cost associated with the amendment of the credit facility		620
Loan costs, net as of December 27, 2008	$	1,100

Estimated aggregate amortization expense related to loan costs is as follows (in thousands):

2009	$	275
2010		275
2011		275
2012		275
	$	1,100

5. Accrued Expenses

Accrued expenses consist of the following:

	December 29, 2007		December 27, 2008
	(in thousands)
Accrued compensation and benefits	$	13,898	$	13,727
Gift card liability		10,506		10,365
Accrued sales tax		2,261		2,008
Accrued rent		1,186		931
Unearned income		511		611
Accrued legal settlements		2,200		264
Other		3,106		3,455
	$	33,668	$	31,361

6. Long-Term Debt

As of December 27, 2008, the outstanding balance on the Company’s revolving credit facility was $24.0 million. On January 29, 2009 the existing revolving credit facility was amended. In conjunction with the amendment, the availably under the facility was adjusted from $150.0 million to $90.0 million, with an additional $50.0 million available at the Company’s request if specified conditions are met. The amended facility also makes certain financial covenants less restrictive, including the minimum fixed charge ratio and the maximum adjusted leverage ratio covenants. The interest rate on the U.S. borrowings, prior to amendment, was based on the financial institution’s base rate plus a margin of up to 0.50% or the Eurodollar rate plus a margin of 0.625% to 1.50%, with margins determined by certain financial ratios. The terms of the facility also allow the Company to borrow up to $10.0 million in Canadian dollars, which reduces the limit available for borrowings under the credit facility by an equal amount, with an interest rate based on the Canadian Eurodollar Rate plus a margin of 0.725% to 1.60%, with margins determined by certain financial ratios. As of January 29, 2009, the interest rate

57

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

on U.S. borrowings is based on the financial institution’s base rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin of 1.25% to 2.50%, and the interest rate on Canadian borrowings is based on the Canadian Eurodollar Rate plus a margin of 1.35% to 2.60%, with margins determined by certain financial ratios.

Under the revolving credit facility, the Company is required to comply with certain financial covenants, including a maximum adjusted leverage ratio, a minimum fixed charge ratio and a maximum growth capital expenditures. The Company was in compliance with these covenants as of December 27, 2008. As of December 27, 2008, the Company’s effective interest rate on its borrowings was 3.25%, which was calculated using the financial institution’s base rate of 3.25%.

Under the Company’s revolving credit facility agreement, loans are collateralized by the stock of the subsidiaries of the Company and mature on December 28, 2012. The revolving credit facility agreement also provides for bank guarantee under standby letter of credit arrangements in the normal course of business operations. The Company’s commercial bank issues standby letters of credit to secure its obligations to pay or perform when required to do so pursuant to the requirements of an underlying agreement or the provision of goods and services. The standby letters of credit are cancelable only at the option of the beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its terms. As of December 27, 2008 the maximum exposure under these standby letters of credit was $3.0 million. At December 27, 2008 the Company had $123.0 million available under its $150.0 million revolving credit facility, which was reduced to $90.0 million on January 29, 2009.

7. Other Long-Term Liabilities

Other long-term liabilities consist of the following:

	December 29, 2007		December 27, 2008
	(in thousands)
Deferred rent	$	14,594	$	17,674
Unamortized tenant improvement allowances		5,497		5,747
Deemed landlord financing liability		—		8,215
Other		1,301		1,522
	$	21,392	$	33,158

8. Capital Leases

The Company leases its restaurant facilities in Port Moody, British Columbia. The Company has a purchase option, which upon exercise, gives the Company the right to acquire the building at a predetermined price. The purchase option expires October 1, 2011. The lessor has a put option, which upon exercise, would require the Company to purchase the property. The put option may only be exercised within 60 days of the fifth anniversary of the commencement date of the lease, October 1, 2012, at a predetermined price. The Company was also the lessee of equipment and other assets under capital leases. The assets and related liabilities under capital leases are recorded at the fair value of the assets at the inception of the lease.

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The building, equipment and related accumulated amortization recorded under capital leases are as follows:

	December 29, 2007			December 27, 2008
	(in thousands)
Building	$	3,563		$	2,825
Equipment(1)		1,713			—
Less: Accumulated amortization		(1,147	)		(88	)
Capital leases, net	$	4,129		$	2,737

(1) All capital leases for equipment ended during fiscal year 2008, at which time these assets were acquired by the Company and transferred to Fixtures and equipment.

Minimum future lease payments under capital leases as of December 27, 2008 are as follows (in thousands):

2009	$	207
2010		2,873
Total minimum lease payments		3,080
Less: Amount representing interest		(554	)
Present value of net minimum lease payments		2,526
Less: Current portion		—
Long-term portion	$	2,526

9. Income Taxes

The provision for income taxes consists of:

	Year Ended
	December 30, 2006		December 29, 2007			December 27, 2008
	(in thousands)
Income (loss) before income taxes
United States	$	19,345	$	9,726		$	(68,143	)
Foreign		—		1,176			(8,492	)
		19,345		10,902			(76,635	)
Current tax expense (benefit)
Federal		2,961		2,355			(2,688	)
State and local		666		692			34
Foreign		—		179			268
		3,627		3,226			(2,386	)
Deferred tax expense (benefit)
Federal		1,907		(1,283	)		(3,915	)
State and local		463		(31	)		(543	)
Foreign		—		176			(180	)
		2,370		(1,138	)		(4,638	)
Total tax expense (benefit)	$	5,997	$	2,088		$	(7,024	)

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The effective income tax rate differs from the federal statutory rate as follows:

	Year Ended
	December 30, 2006		December 29, 2007		December 27, 2008
Federal statutory rate	35.0	%	35.0	%	35.0	%
State and local taxes	5.2	%	5.6	%	4.3	%
Foreign rate differential	—		(0.5	)%	(0.5	)%
Nondeductible expenses	0.3	%	0.6	%	(0.1	)%
FICA tip credits	(9.2	)%	(17.6	)%	2.6	%
Other	(0.3	)%	(3.9	)%	(0.4	)%
U.S. valuation allowance	—		—		(28.1	)%
Foreign valuation allowance	—		—		(3.6	)%
	31.0	%	19.2	%	9.2	%

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are:

	December 29, 2007			December 27, 2008
	(in thousands)
Deferred tax assets:
Accrued expenses	$	2,006		$	1,034
Deferred rent		5,809			7,020
Basis difference for intangible assets		—			14,228
Federal & state credits		1,004			2,324
FICA tip credits		10,268			16,969
Foreign		—			2,369
Other		885			1,356
Subtotal		19,972			45,300
Less valuation allowance		(86	)		(24,017	)
Total deferred tax assets		19,886			21,283
Deferred tax liabilities:
Prepaid expenses		(554	)		(616	)
Basis difference for fixed assets		(11,787	)		(22,112	)
Basis difference for intangible assets		(12,097	)		—
Smallwares		(1,380	)		—
Foreign		(194	)		—
Other		(189	)		(218	)
Total deferred tax liabilities		(26,201	)		(22,946	)
Net deferred tax liability	$	(6,315	)	$	(1,663	)

U.S. income taxes have not been provided on the undistributed earnings of the Company’s Canadian subsidiary. It is not practicable to estimate the amount of tax that might be payable. The Company’s intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. Accordingly, the Company believes that any U.S. tax on repatriated earnings would be substantially offset by U.S. foreign tax credits.

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

As of December 27, 2008, for federal income tax purposes, the Company had FICA tip credit carryforwards of $17.0 million, various employment based credits of $1.1 million, and alternative minimum tax credit carryforwards of $0.4 million. As of December 27, 2008, for state and local income tax purposes, the Company had net operating loss carryforwards of $13.3 million and other miscellaneous state credits of $0.8 million. If not used to reduce taxable income in future periods, portions of the FICA tip credit carryforwards and employment based credits will expire between 2021 and 2028, and the state and local net operating loss carryforwards will expire between 2009 and 2028. The alternative minimum tax credits and other miscellaneous state credits have indefinite lives and do not expire.

As a result of certain realization requirements of SFAS 123R, certain deferred tax assets that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting are excluded from the total deferred tax assets. As of December 27, 2008, the Company had approximately $0.5 million of net operating loss carryforwards that are not included in the total deferred tax assets. If these net operating losses are recognized it is expected that any benefit would be recorded directly to additional paid in capital.

As of December 29, 2007 and December 27, 2008, the Company has provided a valuation allowance of $0.1 million and $24.0 million, respectively, against a portion of the deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. The valuation allowance relates to net operating loss and credit carryforwards and temporary differences for which we believe that realization is uncertain. If recognized, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets at December 27, 2008 will be recognized as a reduction of income tax expense.

The Company adopted the provisions of FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on December 30, 2006, the first day of the Company’s 2007 fiscal year. As a result of the implementation of FIN 48, the Company recorded a $500,000 increase in other long-term liabilities, representing accrued income taxes and interest, in the Company’s consolidated balance sheet for unrecognized tax benefits. This amount, net of a related increase of $230,000 to non-current deferred tax assets, was accounted for as a cumulative effect adjustment to the December 30, 2006 balance of retained earnings.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

Gross unrecognized tax benefits at December 30, 2006	$	500,000
Increases in tax positions for current year		78,000
Lapse in statute of limitations		(22,000	)
Gross unrecognized tax benefits at December 29, 2007		556,000
Increases in tax positions for current year		77,000
Increases in tax positions for prior years		91,000
Lapse in statute of limitations		(11,000	)
Gross unrecognized tax benefits at December 27, 2008	$	713,000

Included in the balance of unrecognized tax benefits at December 29, 2007 and December 27, 2008 are $539,000 and $622,000, respectively, of tax benefits that, if recognized, would affect the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of

61

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

December 29, 2007 and December 27, 2008, the Company had accrued $120,000 and $169,000 of interest related to uncertain tax positions, respectively. The Company has accrued no penalties. The Company’s unrecognized tax benefits are largely related to certain state filing positions. The Company believes that it is reasonably possible that approximately $300,000 of its unrecognized tax benefits, primarily related to state tax filing positions, may be recognized by the end of 2009 as a result of a lapse of the statute of limitations. The Company does not expect any significant increase of its unrecognized tax benefits during 2009. As of December 29, 2007, the Company did not expect any significant increases or decreases in its unrecognized tax benefits during the year ended December 27, 2008. During the year ended December 27, 2008 unrecognized tax benefits, related to current year state filing positions and prior year federal tax filing positions, increased by $77,000 and $91,000, respectively.

The Company is subject to U.S. federal tax, Canadian federal and provincial tax and income tax of multiple state and local jurisdictions. The Company is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for years before 2001. The Company’s operations in Canada began in 2007 and are not subject to examination prior to the 2007 tax year.

10. Acquisition of The Boathouse Restaurants

On March 30, 2007, the Company acquired all of the operating assets and intellectual property of The Boathouse restaurant brand from The Spectra Group of Great Restaurants, Inc. There are six operating The Boathouse restaurants in the greater Vancouver, British Columbia area, including the Port Moody location, which opened October 1, 2007.

The aggregate purchase price for The Boathouse restaurants was $14.9 million, including capitalized transaction costs of $0.4 million. The acquisition was funded with operating cash and borrowings under the Company’s credit facility. The total cost of the acquisition has been allocated to the assets acquired (principally tangible and intangible assets) and the liabilities assumed based on their estimated fair values at the date of acquisition in accordance with SFAS No. 141, “Business Combinations.” Goodwill and other intangibles, which are deductible for tax purposes, recorded in connection with the acquisition, totaled $6.6 million and $4.1 million, respectively. The goodwill amount recognized in the acquisition resulted primarily from the acquisition of the assembled restaurant workforce and a proven record of profitable restaurant operations. The $4.1 million of other intangibles was entirely assigned to “The Boathouse” registered trademark and was determined to have an indefinite life.

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company’s accompanying consolidated financial statements include the accounts of The Boathouse restaurants and the results of their operations since the acquisition date of March 30, 2007. The Boathouse assets acquired and liabilities assumed based on their estimated fair values at March 30, 2007 are as follows (in thousands).

Assets acquired:
Cash	$	90
Prepaid expenses		38
Inventory		272
Property and equipment		4,171
Trademark and other		4,111
Goodwill		6,594
Total assets acquired	$	15,276
Liabilities assumed:
Current liabilities	$	396
Total liabilities assumed		396
Net assets acquired	$	14,880

No unaudited pro forma data is presented due to the insignificant impact of the acquisition on the Company’s consolidated results of operations.

In connection with our most recent impairment tests for goodwill and trademarks, all of the goodwill and trademarks associated with the purchase of The Boathouse restaurants were deemed to be impaired and were written off. See Note 14.

11. Related Party Transactions

The Company leases properties from landlords controlled by certain stockholders of the Company. Total rent paid to these landlords was $0.9 million, $1.0 million and $1.0 million for the years ended December 30, 2006, December 29, 2007 and December 27, 2008, respectively.

12. Share-Based Compensation

The Company adopted SFAS 123R using the modified prospective transition method, which required the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. In accordance with the modified prospective transition method, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Share-based compensation expense recognized under SFAS 123R for the fiscal years ended December 30, 2006, December 29, 2007 and December 27, 2008 was $1.3 million, $1.4 million and $1.1 million, respectively, which consisted of share-based compensation expense related to employee stock options and restricted stock.

In March 2005, the Securities and Exchange Commission (“SEC”) released SEC Staff Accounting Bulletin No. 107 (“SAB 107”). SAB 107 provides the SEC staff position regarding the application of SFAS 123R. SAB 107 contains interpretive guidance relating to the interaction between SFAS 123R and certain SEC rules and regulations, as well as the staff’s views regarding the valuation of share-based payment arrangements for public companies. SAB 107 also highlights the importance of disclosures made related to the accounting for share-based payment transactions. As of January 1, 2006 the Company adopted SAB 107 as part of its adoption of SFAS 123R.

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

On June 16, 2004, the Company adopted a 2004 Stock Incentive Plan (the “Plan”) under which 1,500,000 shares were reserved for issuance. Under the Plan, the Company may grant stock options, restricted stock and other awards to employees, directors, consultants and to any parent or subsidiary of the Company. On July 20, 2004, the Company issued to officers and employees options to purchase an aggregate of 879,600 shares of common stock at $12.00 per share. These options vest over a three-year period and are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. In May 2006, the Board of Directors approved up to a total of 30,000 options to be issued to employees at the discretion of management. During fiscal year 2007 a total of 25,000 options were awarded to various employees at a price equal to the stock price on the date of the grant. One third of the grant vests on each of the three anniversary dates following the grant date if the grantee is then employed by the Company.

In May 2006, the Company issued 142,000 shares of restricted stock to certain employees and executive officers at a price equal to $23.05, the fair market value of the stock on the date of grant. One third of the restricted stock grant vests on each of the three anniversary dates following the grant date if the grantee is then employed by the Company. In April 2008, the Company issued 15,765 shares of restricted stock to the non-employee members of the Board of Directors at a price equal to $11.10, the fair market value of the stock on the date of grant. The restricted stock granted vests one year from the date of grant if the director is still serving the Company as of the anniversary date. In March 2008, the Company issued 68,968 shares of restricted stock to certain employees and executive officers at a price equal to $11.71, the fair market value of the stock on the date of grant. One-third of the restricted stock grant vests on each of the three anniversary dates following the grant date if the grantee is then employed by the Company. As of December 27, 2008 there were 115,388 shares of restricted stock outstanding. Additional awards granted under the Plan may be in the form of nonqualified stock options, incentive stock options, SARs, restricted stock, stock bonuses and performance-based awards.

Incentive stock options must have an exercise price that is at least equal to the fair market value of the common stock, or 110% of fair market value of the common stock for any greater than 10% owner of the Company’s common stock, on the date of grant. Vesting of awards under the Plan may vary. Each award granted under the Plan may, at the discretion of the board of directors of the Company, become fully exercisable or payable, as applicable, upon a change of control of the Company.

Each award shall expire on the date determined at the date of grant, however, the maximum term of options, SARs and other rights to acquire common stock under the Plan is 10 years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances. These and other awards may also be issued solely or in part for services. Any shares subject to awards that are not paid or exercised before they expire or are terminated will become available for other award grants under the Plan. If not sooner terminated by the Company’s board of directors, the Plan will terminate on June 16, 2014. As of December 27, 2008, options to purchase a total of 904,600 shares of the Company’s common stock have been granted under the Plan at a price equal to the fair market value of the stock on the date of grant.

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The table below summarizes the status of the Company’s stock based compensation plans, including stock options and restricted stock grants, as of December 27, 2008:

	Stock Options	Weighted Average Exercise Price		Restricted Stock	Total Shares	Aggregate Intrinsic Value
Outstanding at December 31, 2005	832,846	$	12.00	—	832,846
Awards granted	—		—	142,000	142,000
Awards exercised	123,925		12.00	—	123,925
Awards forfeited	8,230		12.00	3,500	11,730
Outstanding at December 30, 2006	700,691		12.00	138,500	839,191
Awards granted	25,000		24.71	—	25,000
Awards exercised	342,348		12.00	39,512	381,860
Awards forfeited	46,066		12.00	25,666	71,732
Outstanding at December 29, 2007	337,277		12.94	73,322	410,599
Awards granted	—		—	85,620	85,620	$	356,179
Awards exercised	—		—	36,056	36,056		362,690
Awards forfeited	17,966		18.68	7,498	25,464		31,192
Outstanding at December 27, 2008	319,311		12.62	115,388	434,699		480,014
Exercisable at December 27, 2008	255,979	$	12.26	—	255,979	$	—

The table below summarizes information about stock options outstanding at December 27, 2008:

Outstanding					Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Remaining Years of Contractual Life	Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price
$12.00 – $26.81	319,311	5.4	$	12.62	255,979	$	12.26

As of December 29, 2007 and December 27, 2008, the unamortized compensation cost related to stock options and restricted stock granted to employees under the Company’s 2004 Stock Incentive Plan was $1.4 million and $1.0 million, respectively.

The following table summarizes share-based compensation expense related to employee stock options under SFAS 123R for the fifty-two week period ended December 27, 2008 (in thousands).

	Year ended December 27, 2008
Labor	$	14
General and administrative expenses		1,103
Share-based compensation expense included in total costs and expenses		1,117
Income tax benefit related to share-based compensation		417
Share-based compensation expense related to employee stock options, net of tax	$	700

65

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

13. Commitments and Contingencies

Occasionally, the Company is a defendant in litigation arising in the ordinary course of its business, including claims resulting from “slip and fall” accidents, employment related claims and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns. These may include claims brought against the Company by private party plaintiffs and various government agencies, including federal, state and local taxing agencies, various state and local health departments, and the Equal Employment Opportunity Commission and other employment related agencies, among others. In certain instances the Company may settle claims if management concludes that future costs to defend the suits outweigh the costs to settle the claims.

In 2006, the Company was named in a class action complaint regarding employment practices filed in the U.S. District Court for the Northern District of California. The Company has contested the claims and has negotiated with the plaintiffs to reach a settlement. On February 28, 2008, the Company negotiated a resolution of the claims and the parties submitted the settlement to the Court for approval. The negotiated settlement included a monetary settlement and some changes to the Company’s hiring and employment practices. The Company took a $2.2 million charge in fiscal 2007 for the settlement of the claims. The Company does not anticipate the changes to its hiring and employment practices in connection with the settlement will significantly affect its operations. The settlement was approved by the court, and the settlement amount was paid, in April 2008.

The Company’s primary insurer has informed the Company it believes the Company has exhausted its insurance coverage with respect to claims arising in the Company’s 2004 coverage year. The Company disagrees with this interpretation of the coverage, but has taken this interpretation into account in connection with the charge taken related to the settlement of class action claims. The Company has initiated litigation to contest the insurer’s conclusion. If the Company is unsuccessful, and if the Company’s insurer determines that other existing employment claims arose in 2004 and are therefore not covered, the resolution of those claims could be more expensive.

14. Impairment/Restructuring Charges

In the Company’s most recent impairment evaluation for long-lived assets, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company identified assets at two restaurant locations that were determined to be impaired as of December 27, 2008. The Company recorded an impairment charge of $2.8 million related to the impairment of fixtures, equipment, and leasehold improvements at two of its restaurants and a restructuring charge in the amount of $0.5 million related to the closure of one of its restaurants, Restaurant K, in Washington D.C. The restructuring charge was related to exit costs, including the estimated liability on its operating lease that terminates in June 2016. The Company is attempting to sublease the property in order to minimize net costs incurred over the remaining term of the lease. All of the leasehold improvements related to Restaurant K were fully impaired as of the end of fiscal year 2007.

In 2007, the Company recorded an impairment charge of $5.4 million related to the impairment of fixtures, equipment, and leasehold improvements at three restaurants. There were no impairments during 2006.

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, the impairment evaluation for goodwill and indefinite lived intangible assets, which for the Company are trademarks and tradenames, is conducted during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about the Company’s appropriate revenue growth rates, operating margins, weighted average cost of capital (“WACC”), and comparable company market

66

McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

multiples. When developing these key judgments and assumptions, the Company considers economic, operational and market conditions that could impact the fair value of the Company. However, estimates are inherently uncertain and represent only management’s reasonable expectations regarding future developments.

The Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. The Company believes that the weakness in the U.S. residential housing and financial markets are principal factors in the prolonged decline in its market capitalization as compared to its book value. As of December 27, 2008, the fair value of the Company was estimated to approximate its market capitalization plus a reasonable control premium. The Company’s adjusted market capitalization is based the average closing stock price for the 15 days of trading prior to the year ended, December 27, 2008. The Company believes the control premium represents the estimated amount an investor would pay for its equity securities to obtain a controlling interest. The criteria used to derive the control premium included calculated control premiums for recent transactions of companies within our peer group.

The Company completed its most recent impairment test on balances as of December 27, 2008, and determined that there was an impairment related to trademarks and tradenames, of $54.4 million, and goodwill, of $26.2 million, based primarily on the difference between its adjusted market capitalization and the carrying value of its assets. There were no impairments in 2006 or 2007 related to goodwill, trademarks and tradenames.

A summary of impairment/restructuring charges incurred were as follows:

	December 29, 2007		December 27, 2008
	(in millions)
Impairment of goodwill	$	—	$	26.2
Impairment of long lived assets		5.4		2.8
Impairment of trademarks and tradenames		—		54.4
Restructuring charge		—		0.5
Total impairment/restructuring charges	$	5.4	$	83.9

15. Employee Benefit Plans

The Company has a 401(k) contributory benefit plan for eligible employees, under which the Company may make discretionary contributions up to a maximum of 3% of the participant’s eligible compensation. For the years ended December 30, 2006, December 29, 2007 and December 27, 2008, Company matching contributions totaled approximately $0.4 million, $0.4 million, and $0.5 million respectively.

16. Operating Leases

The Company generally operates its restaurants in leased premises. The typical restaurant premises lease is for an initial term between 10 and 20 years with one to three five-year renewal options. The leases generally require the Company to pay property taxes, utilities, and various other use and occupancy costs.

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McCormick & Schmick’s Seafood Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Minimum rent payments under lease commitments as of December 27, 2008 are as follows:

	(in thousands)
2009	$	27,091
2010		27,734
2011		26,472
2012		26,062
2013		24,276
Thereafter		124,194
	$	255,829

Rent expense charged to operations under all operating leases is as follows:

	Year Ended
	December 30, 2006		December 29, 2007		December 27, 2008
	(in thousands)
Fixed rent	$	18,027	$	20,905	$	24,930
Contingent rent, based on revenues		2,421		2,975		2,386
Non-cash rent		2,203		2,403		2,102
	$	22,651	$	26,283	$	29,418

17. Foreign Currency

The Canadian dollar is the functional currency of the Company’s subsidiary in Canada. All assets and liabilities of the subsidiary are translated at the prevailing exchange rate in effect at each applicable fiscal reporting period. Revenues and expenses are translated at the average rate of exchange for the applicable fiscal reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included in other comprehensive income (loss) in stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in the Company’s results of operations.

18. Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The standard expands required disclosures about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS 157 which did not result in a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, a replacement of SFAS No. 141, “Business Combinations” (“SFAS 141(R)”). The provisions of SFAS 141(R) establish principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest acquired and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination, and applies to business combinations for which the acquisition date is on or after December 15, 2008.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Report of Management on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

Under the supervision and with the participation of our management, we assessed the effectiveness of internal controls over financial reporting as of December 27, 2008. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on our assessment we determined that, as of December 27, 2008, our internal control over financial reporting is effective based on those criteria.

PricewaterhouseCoopers LLP, our independent registered public accounting firm, has issued an audit report on our management’s assessment of the effectiveness of our internal control over financial reporting as of December 27, 2008 which is included in the Report of Independent Registered Public Accounting Firm contained in Item 8.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred in our fiscal quarter ended December 27, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information about our directors is incorporated by reference to our definitive proxy statement, for our 2009 annual meeting of stockholders (the “2009 Proxy Statement”), under the caption “Proposal 1: Election of Directors,” to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, which proxy statement we expect to file no later than 120 days after the end of our fiscal year ended December 27, 2008. Information with respect to our executive officers is included under Item 4A of Part I of this report.

Information regarding our audit committee and our audit committee financial expert is incorporated by reference to the 2009 Proxy Statement under the captions “Corporate Governance—Board Committees” and “Report of the Audit Committee”.

Information regarding the process by which shareholders may nominate directors is incorporated by reference to the 2009 Proxy Statement under the caption “Additional Information—Stockholder Nominations for Directors”.

Information regarding disclosure of compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the 2009 Proxy Statement.

We have adopted a Business and Ethics Code of Conduct for the guidance of our directors, officers, and employees, including our principal executive, financial and accounting officers and our controller. Our code of conduct, along with other corporate governance documents, is posted on our website at www.McCormickandSchmicks.com, Investors, Corporate Governance. Any waivers or amendments to our code of conduct will be posted on our website.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is hereby incorporated by reference to the 2009 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information setting forth the security ownership of certain beneficial owners and management is hereby incorporated by reference to our 2009 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management”.

Information regarding our share based compensation plan is included in Item 5 of this Annual Report on Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information regarding certain relationships and related transactions, and director independence is hereby incorporated by reference to our 2009 Proxy Statement under the caption “Corporate Governance—Director Independence” and “Transactions with Related Persons, Promoters, and Certain Control Persons”.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services, appearing under the caption “Report of the Audit Committee—Fees Paid to Independent Registered Public Accounting Firm,” is hereby incorporated by reference to our 2009 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) and (a)(2) Financial Statements. The Financial Statements of the Company are filed in Part II—Item 8 of this Annual Report on Form 10-K. The Financial Statement schedules have been omitted because they are not required or because the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

(a)(3) Exhibits. See Exhibit Index beginning on page 74 for a description of the documents that are filed as Exhibits to this Annual Report on Form 10-K or incorporated herein by reference.

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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, as of March 10, 2009.

MCCORMICK & SCHMICK’S SEAFOOD RESTAURANT, INC.
By:	/S/    WILLIAM T. FREEMAN
	William T. Freeman
	Chief Executive Officer (Principal Executive Officer)
MCCORMICK & SCHMICK’S SEAFOOD RESTAURANT, INC.
By:	/S/    EMANUEL N. HILARIO
	Emanuel N. Hilario
	Chief Financial Officer (Principal Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, jointly and severally, William T. Freeman and Emanuel N. Hilario, and each of them, attorneys-in-fact for the undersigned, each with the power of substitution, for the undersigned in any and all capacities to sign any and all amendments to this Annual Report on Form 10-K for the year ended December 27, 2008, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated as of March 10, 2009.

Signatures	Title
/s/    WILLIAM T. FREEMAN         William T. Freeman	Chief Executive Officer (Principal Executive Officer)
/s/    EMANUEL N. HILARIO         Emanuel N. Hilario	Chief Financial Officer and Director (Principal Financial and Accounting Officer)
/s/    DOUGLAS L. SCHMICK         Douglas L. Schmick	Director
/s/    J. RICE EDMONDS         J. Rice Edmonds	Director
/s/    ELLIOTT H. JURGENSEN JR.         Elliott H. Jurgensen Jr.	Director
/s/    DAVID B. PITTAWAY         David B. Pittaway	Director

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Signatures	Title
/s/    JEFFREY D. KLEIN         Jeffrey D. Klein	Director
/s/    JAMES R. PARISH         James R. Parish	Director

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EXHIBITS.

Items identified with an asterisk (*) are management contracts or compensatory plans or arrangements.

3.1		Certificate of Incorporation of McCormick & Schmick’s Seafood Restaurants, Inc., as amended. Incorporated by reference to Exhibit 3.1 to our registration statement on Form S-1, File No. 333-114977.
3.2		Amended and Restated Bylaws of McCormick & Schmick’s Seafood Restaurants, Inc., as amended (incorporated by reference to Exhibit 3.1 to our current report on Form 8-K dated February 14, 2008)
10.1		Amended and Restated Revolving Credit Agreement dated December 28, 2007 among McCormick & Schmick Acquisition Corp. and The Boathouse Restaurants of Canada, Inc., as borrowers, Bank of America, N.A., as administrative agent and collateral agent, Banc of America Securities LLC, as sole lead arranger, and other specified lenders (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed January 2, 2008) ; Amendment No. 1 to Amended and Restated Credit Agreement dated March 7, 2008 (incorporated by reference to Exhibit 10.1 to our annual report on Form 10-K for the period ended December 29, 2007); Amendment No. 2 to Amended and Restated Credit Agreement dated January 29, 2009 (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed January 30, 2009)
10.2		Retail Lease Agreement, dated as of February 14, 1985, between Harborside Partners, LLC, as successor in interest to Cornerstone Development Company, and McCormick & Schmick Restaurant Corp., as successor in interest to the Cornerstone-McCormick Joint Venture dba Harborside Restaurant, and Amendments 4 and 5 thereto (incorporated by reference to Exhibit 10.10 to our registration statement on Form S-1, file No. 333-114977)
10.3		Lease, dated June 18, 2004, between DLS Investments, LLC and McCormick & Schmick Restaurant Corp. (incorporated by reference to Exhibit 10.11 to our registration statement on Form S-1, file No. 333-114977) and Amendment to Lease dated November 23, 2005 between DLS Investments, LLC and the Company (incorporated by reference to Exhibit 10.2 to our current report on Form 8-K dated November 23, 2005)
10.4	*	Form of Amended and Restated Executive Severance Agreement entered into by Douglas L. Schmick, Emanuel N. Hilario and McCormick & Schmick’s Seafood Restaurants, Inc.
10.5	*	Employment Agreement between McCormick & Schmick’s Seafood Restaurants, Inc. and William T. Freeman dated November 13, 2008; Executive Severance and Non-Competition Agreement between McCormick & Schmick’s Seafood Restaurants, Inc. and William T. Freeman dated November 13, 2008
10.6	*	McCormick & Schmick’s Seafood Restaurants, Inc. 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 to our registration statement on Form S-1, file No. 333-114977)
10.7	*	Form of McCormick & Schmick’s Seafood Restaurants, Inc. Incentive Stock Option Agreement; form of McCormick & Schmick’s Seafood Restaurants, Inc. Non-Statutory Stock Option Agreement (incorporated by reference to Exhibit 10.17 to our registration statement on Form S-1, file No. 333-114977)
10.8	*	Form of Restricted Stock Agreement, as amended (incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the period ended July 1, 2006)
10.9	*	Form of Restricted Stock Agreement with Non-Employee Directors (incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the period ended March 29, 2008)
21.1		Subsidiaries of McCormick & Schmick’s Seafood Restaurants, Inc.
23.1		Consent of PricewaterhouseCoopers LLP
24.1		Power of Attorney (included on signature page)

74

31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

75

EX-10.4

Exhibit 10.4

AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT

December     , 2008

[                                         ]

Executive

McCormick & Schmick’s Seafood Restaurants, Inc.

720 SW Washington Street

Suite 550

Portland, OR 97205

Company

The Company considers the attraction and retention of highly qualified management personnel to be essential to promoting the best interests of the Company and its shareholders. In this connection, the Company recognizes that, as is the case of many publicly held corporations, the possibility of a change of control exists and this possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. To induce Executive to remain employed by the Company in the face of uncertainties about the long-term strategies of the Company and possible change of control of the Company and their potential impact on Executive’s position with the Company, this Agreement, which has been approved by the Board of Directors of the Company, sets forth the severance benefits that the Company will provide to Executive if Executive’s employment by the Company is terminated in the circumstances described in this Agreement.

1. Employment Relationship. Executive is currently employed by the Company as                     . Executive and the Company acknowledge that either party may terminate this employment relationship at any time and for any or no reason, subject to the obligation of the Company to provide the severance benefits specified in this Agreement in accordance with its terms.

2. Release of Claims. In consideration for and as a condition precedent to receiving the severance benefits outlined in this Agreement, Executive shall execute a Release of Claims in the form attached as Exhibit A (“Release of Claims”) no later than 30 days after a Termination of Executive’s Employment (as defined in Section 8.1).

3. Compensation Upon Termination. In the event of a Termination of Executive’s Employment (as defined in Section 7.1) at any time after                      other than for Cause (as defined in Section 7.2), and contingent upon Executive’s compliance with Section 9 and execution of the Release of Claims and the expiration of the seven-day revocation period provided by the Age Discrimination in Employment Act of 1967, as amended by the Older Worker Benefit Protection Act of 1990, without revocation of the Release of Claims by Executive, the Company shall pay or provide the following to Executive:

3.1 As severance pay and in lieu of any other compensation for periods subsequent to the date of termination, the Company shall pay Executive, in a single payment within ten days after the date of termination, an amount in cash equal to (a) one year of Executive’s annual base pay at the rate in effect immediately prior to the date of termination plus (b) the annual average of the amount paid to Executive under all annual cash incentive plans during the prior two full years ending prior to the date of termination.

3.2 The Company shall pay Executive a lump sum payment in an amount equivalent to the reasonably estimated cost Executive may incur to extend for a period of six months under the COBRA continuation laws Executive’s group health and dental plan coverage in effect at the time of termination. Executive may use this payment for such continuation coverage or for any other purpose.

3.3 The Company shall pay Executive a portion of the benefits under all annual cash incentive plans in effect at the time of termination equal to the estimated amount payable under such plans for the full year (based on performance or results to the date of termination) prorated for the portion of the plan year during which Executive was a participant. For purposes of this Agreement, Executive’s participation in any such plan will be considered to have ended on Executive’s date of termination. In making the proration calculation, the amount of Executive’s award if Executive had been a participant for the full incentive period shall be divided by the total number of days in the incentive period and the result multiplied by the actual number of days Executive participated in the plan. The Company shall pay such amount within 10 days after the date of termination.

3.4 If Executive’s employment with the Company terminates for any reason prior to a Change of Control (as defined in Section 7.3), other than at the direction of a person who has entered into an agreement with the Company the consummation of which will constitute a Change of Control, Executive shall not be entitled to benefits under Section 4.

4. Compensation Upon Termination Following A Change of Control. In the event of a Termination of Executive’s Employment other than for Cause within 12 months following a Change of Control, or prior to a Change of Control at the direction of a person who has entered into an agreement with the Company, the consummation of which will constitute a Change of Control, and contingent upon Executive’s compliance with Section 9 and execution of the Release of Claims and the expiration of the seven-day revocation period provided by the Age Discrimination in Employment Act of 1967, as amended by the Older Worker Benefit Protection Act of 1990, without revocation of the Release of Claims by Executive, the Company shall pay or provide the following to Executive:

4.1 As severance pay and in lieu of any other compensation for periods subsequent to the date of termination, the Company shall pay Executive, in a single payment within ten days after the date of termination, an amount in cash equal to (a) one year of Executive’s annual base pay at the rate in effect immediately prior to the date of termination plus (b) the annual average of the amount paid to Executive under all annual cash incentive plans during the prior two full years ending prior to the date of termination.

2

4.2 The Company shall pay Executive a lump sum payment in an amount equivalent to the reasonably estimated cost Executive may incur to extend for a period of six months under the COBRA continuation laws Executive’s group health and dental plan coverage in effect at the time of termination. Executive may use this payment for such continuation coverage or for any other purpose.

4.3 The Company shall pay Executive a portion of the benefits under all annual cash incentive plans in effect at the time of termination equal to the estimated amount payable under such plans for the full year (based on performance or results to the date of termination) prorated for the portion of the plan year during which Executive was a participant. For purposes of this Agreement, Executive’s participation in any such plan will be considered to have ended on Executive’s date of termination. In making the proration calculation, the amount of Executive’s award if Executive had been a participant for the full incentive period shall be divided by the total number of days in the incentive period and the result multiplied by the actual number of days Executive participated in the plan. The Company shall pay such amount within 10 days after the date of termination.

4.4 All outstanding stock options held by Executive under all stock option and stock incentive plans of the Company shall become immediately exercisable in full and shall remain exercisable until the earlier of (a) two years after termination of employment or (b) the option expiration date as set forth in the applicable option agreement.

4.5 If it is determined that any payments, distributions or benefits (or the acceleration of the right to receive any payments, distributions or benefits) received or to be received by the Executive from the Company or any affiliate of the Company under this Agreement or under any other agreement, plan or otherwise (“Payments”) are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (the “Excise Tax”), the Executive shall be entitled to receive an additional payment (the “Excise Tax Gross-Up Payment”) at the time such Payments are made to the Executive or, if applicable, upon any later determination. The amount of the Excise Tax Gross-Up Payment shall be the amount necessary to put the Executive in the same after-tax financial position the Executive would have occupied if the Payments were not subject to the Excise Tax, assuming the Executive is subject to federal and state income tax at the highest marginal rates applicable to individuals in the year in which any Excise Tax Gross-Up Payment is made.

4.6 The benefits provided in this Section 4 shall be in lieu of and not in addition to benefits provided in Section 3. Executive shall not receive benefits under both Section 3 and Section 4.

5. Tax Withholding; Subsequent Employment.

5.1 All payments provided for in this Agreement are subject to applicable tax withholding obligations imposed by federal, state and local laws and regulations.

3

5.2 The amount of any payment provided for in this Agreement shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by Executive as the result of employment by another employer after termination.

6. Other Agreements. If severance benefits are payable to Executive under any other agreement with the Company in effect at the time of termination (including but not limited to any employment agreement, but excluding for this purpose any stock option agreement or stock bonus agreement or stock appreciation right agreement that may provide for accelerated vesting or related benefits upon the occurrence of a change in control), the benefits provided in this Agreement shall not be payable to Executive. Executive may, however, elect to receive all of the benefits provided for in this Agreement in lieu of all of the benefits provided in all such other agreements. Any such election shall be made with respect to the agreements as a whole, and Executive cannot select some benefits from one agreement and other benefits from this Agreement.

7. Definitions.

7.1 Termination of Executive’s Employment. Termination of Executive’s Employment means that Executive has ceased to be an employee of the Company by reason of (a) the termination by the Company of Executive’s employment with the Company (including any subsidiary of the Company), (b) death or (c) Disability. For purposes of Section 4, Termination of Executive’s Employment shall also include termination by Executive, within 12 months of a Change of Control, by written notice to the Company referring to the applicable paragraph of Section 7.1, for “Good Reason,” which means any of the following circumstances, provided Executive gives notice to the Company of his intent to terminate employment for Good Reason within 90 days after notice to Executive of such circumstances and such circumstances are not fully corrected by the Company within 30 days after Executive’s notice:

(A) the assignment of Executive a different title or job responsibilities that result in a substantial decrease in the level of responsibility from those in effect immediately prior to the Change of Control;

(B) a reduction by the Company or the surviving company in Executive’s base pay as in effect immediately prior to the Change of Control;

(C) a significant reduction by the Company or the surviving company in total benefits available to Executive under cash incentive, stock incentive and other employee benefit plans after the Change of Control compared to the total package of such benefits as in effect prior to the Change of Control;

(D) the requirement by the Company or the surviving company that Executive be based more than 50 miles from where Executive’s office is located immediately prior to the Change of

4

Control, except for required travel on company business to an extent substantially consistent with the business travel obligations which Executive undertook on behalf of the Company prior to the Change of Control; or

(E) the failure by the Company to obtain from any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company (“Successor”) the assent to this Agreement contemplated by Section 8 hereof.

7.2 Cause. Termination of Executive’s Employment for “Cause” shall mean termination upon (a) the willful and continued failure by Executive to perform substantially Executive’s reasonably assigned duties with the Company (other than any such failure resulting from Executive’s incapacity due to physical or mental illness) after a demand for substantial performance is delivered to Executive by the Board, the Chief Executive Officer or the President of the Company which specifically identifies the manner in which the Board or the Company believes that Executive has not substantially performed Executive’s duties or (b) the willful engaging by Executive in illegal conduct which is materially and demonstrably injurious to the Company.

7.3 Change of Control . A Change of Control shall mean that one of the following events has taken place:

(A) The shareholders of the Company approve one of the following (“Approved Transactions”):

(i) Any merger or statutory plan of exchange involving the Company (“Merger”) in which the Company is not the continuing or surviving corporation or pursuant to which Common Stock would be converted into cash, securities or other property, other than a Merger involving the Company in which the holders of Common Stock immediately prior to the Merger have the same proportionate ownership of Common Stock of the surviving corporation after the Merger; or

(ii) Any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company or the adoption of any plan or proposal for the liquidation or dissolution;

(B) During any period of 12 months or less, individuals who at the beginning of such period constituted a majority of the Board of Directors cease for any reason to constitute a majority thereof unless the nomination or election of such new directors was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

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(C) A tender or exchange offer, other than one made by the Company, is made for Company Common Stock (“Common Stock”) (or securities convertible into Common Stock) and such offer results in a portion of those securities being purchased and the offeror after the consummation of the offer is the beneficial owner (as determined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly, of securities representing at least 20 percent of the voting power of outstanding securities of the Company;

(D) the Company receives a report on Schedule 13D of the Exchange Act reporting the beneficial ownership by any person of securities representing 20 percent or more of the voting power of outstanding securities of the Company, except that if such receipt shall occur during a tender offer or exchange offer described in (B) above, a Change of Control shall not take place until the conclusion of such offer.

Notwithstanding anything in the foregoing to the contrary, no Change of Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in Executive, or a group of persons which includes Executive, acquiring, directly or indirectly, securities representing 20 percent or more of the voting power of outstanding securities of the Company.

7.4 Disability. Termination of Executive’s Employment based on “Disability” shall mean termination due to Executive’s absence from Executive’s full-time duties with the Company for 180 consecutive days as a result of Executive’s incapacity due to physical or mental illness, unless within 30 days after notice of termination by the Company following such absence Executive shall have returned to the full-time performance of Executive’s duties.

8. Successors; Binding Agreement.

8.1 This Agreement shall be binding on and inure to the benefit of the Company and its Successors and assigns. Upon Executive’s written request, the Company will seek to have any Successor by agreement assent to the fulfillment by the Company of its obligations under this Agreement. If such a request is made, failure of the Company to obtain such assent prior to or at the time a company becomes a Successor shall constitute Good Reason for termination by Executive of his or her employment and, if a Change of Control of the Company has occurred, shall entitle Executive to the benefits pursuant to Section 4.

8.2 This Agreement shall inure to the benefit of and be enforceable by Executive and Executive’s legal representatives, executors, administrators and heirs.

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9. Resignation of Corporate Offices. Executive will resign Executive’s office, if any, as a director, officer or trustee of the Company, its subsidiaries or affiliates and of any other corporation or trust of which Executive serves as such at the request of the Company, effective as of the date of termination of employment. Executive agrees to provide the Company such written resignation(s) upon request and that no severance will be paid until after such resignation(s) are provided.

10. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Oregon applicable to contracts made and to be performed in Oregon.

11. Attorneys Fees. The Company shall pay all reasonable attorney’s fees and expenses (including at trial and on appeal) of Executive in enforcing its rights under Section 4 of this Agreement.

12. Amendment. No provision of this Agreement may be modified unless such modification is agreed to in a writing signed by Executive and the Company.

13. Severability. If any of the provisions or terms of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other terms of this Agreement, and this Agreement shall be construed as if such unenforceable term had never been contained in this Agreement.

[Signature Page Follows]

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The Company and the Executive have executed this Amended and Restated Executive Severance Agreement as of the date first set forth above.

McCORMICK & SCHMICK’S SEAFOOD RESTAURANTS, INC.		Executive:
By
Name:	David Pittaway
Title:	Chairman of Compensation Committee of the Board of Directors

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EX-10.5

Exhibit 10.5

McCORMICK & SCHMICK’S SEAFOOD RESTAURANTS, INC.

EMPLOYMENT AGREEMENT

Date:	November 13, 2008
William T. Freeman	Executive
29085 Oak Creek Lane, Apartment 707
Agoura Hills, CA 91301
McCormick & Schmick’s Seafood Restaurants, Inc.	Company
720 SW Washington Street, Suite 550
Portland, OR 97205

In consideration of the mutual covenants contained in this Agreement, and other good and valuable consideration, the Company and Executive agree as follows.

1. Term; Duties. This Agreement governs the terms and conditions of Executive’s employment through December 31, 2011. This Agreement has been approved by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). Executive shall advance the best interest of the Company at all times during his employment and shall diligently perform the duties reasonably assigned to him from time to time. Executive shall devote his full business time and efforts to the performance of his duties for the Company, provided that Executive may serve on the board of directors of other companies so long as such service is in accordance with the Company’s policies governing such activities and does not give rise to potential conflicts of interest as determined by the Board of Directors or the Nominating and Corporate Governance Committee of the Board of Directors. Executive may retain his position on the board of managers of B&B Restaurant Ventures, LLC until December 31, 2009, provided that such position does not affect Executive’s diligent performance of his duties for the Company. Executive will report to the Board of Directors. Executive may be elected to the Board of Directors of the Company. Executive will receive no additional compensation for service as a director. Executive shall, upon his election as a director, execute a resignation as a director of the Company in the form attached as Exhibit A. Upon request, Executive shall provide the Company with additional written evidence of such resignation.

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2. Employment At-Will. As of the date Executive commences full time employment with the Company (the “Effective Date”), the Company shall employ Executive as Chief Executive Officer of the Company on the terms and conditions set forth in this Agreement. Executive will serve as Chief Executive Officer of the Company at the pleasure of the Board of Directors. Executive’s employment is at will and may be terminated at any time, for any reason or no reason, upon notice by either the Company or Executive, subject to the obligations of the Company and Executive as provided in this Agreement.

3. Severance and Noncompetition Agreement. The Company and the Executive have entered into a Severance and Noncompetition Agreement dated as of the date of this Agreement which is attached hereto as Exhibit B (the “Severance Agreement”).

4. Annual Salary and Bonus.

(a) Base Salary. Beginning on the Effective Date, Executive’s base salary (the “Base Salary”) shall be at the annual rate of $450,000. Base Salary shall be payable in installments on regular Company paydays, subject to withholding for taxes and other proper deductions. Base Salary for any partial period of employment shall be prorated. Executive’s performance and the amount of the Base Salary shall be reviewed annually in connection with the Company’s normal compensation review and bonus cycle for executive officers, and the Base Salary may be increased from time to time in the sole discretion of the Compensation Committee.

(b) Annual Performance Bonus for Fiscal Year Ending December 27, 2009. Executive’s target cash bonus for the fiscal year ending December 26, 2009 shall be 50% of the Base Salary. The actual amount of Executive’s bonus for this period shall be determined by the Compensation Committee and may be more or less than the target amount; provided however that for fiscal year 2009, the cash bonus shall be no less than 25% of Base Salary. Bonus payment for performance during fiscal year 2009 will be on the basis of a review and discussion by the Compensation Committee, and will include consideration of a variety of financial and organizational objectives and the overall performance of the Company, as well as the achievement of personal goals agreed with the Compensation Committee. The bonus provided for in this Section 4(b) shall be payable to Executive on a date selected by the Company in the first two quarters of fiscal year 2010, and is subject to withholding for taxes and other proper deductions.

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(c) Annual Performance Bonus for Fiscal Years 2010 and 2011. The Compensation Committee will establish a bonus program for fiscal years 2010 and 2011 for Executive in its sole discretion, but in consultation with Executive.

5. Equity Compensation and Other Benefits.

(a) Option Grants. Executive shall be granted, on the Effective Date, an option under the Company’s 2004 Stock Incentive Plan to purchase 250,000 shares of common stock of the Company. The per share exercise price of the option is the market price on the close of business on the Effective Date. The option shall vest as follows: 83,333 shares on the first and second anniversary of the grant date and 83,334 shares on the third anniversary of the grant date. The terms of the option shall be as otherwise provided in the Incentive Stock Option Agreement attached as Exhibit C. Executive acknowledges that only a portion of the options may qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986, as amended.

(b) Benefits. Executive shall be entitled to participate in the Company’s employee benefit plans, insurance, executive medical coverage, sick leave, holidays, vacation, auto allowance and such other benefits as the Company from time to time generally provides to its most senior officers. In 2009, Executive shall receive three weeks vacation time.

(c) Moving Expenses; Temporary Housing. Executive shall be reimbursed for reasonable moving expenses incurred in relocating to Portland, Oregon, and shall be reimbursed for temporary housing in Portland, Oregon, in an amount not to exceed an aggregate of $35,000 ($15,000 for shipping, $15,000 for interim living expense and rent for Los Angeles apartment and $5,000 in house-hunting trips).

6. Confidentiality. Executive agrees that subsequent to Executive’s period of employment with the Company, Executive will not at any time communicate or disclose to any unauthorized person, without the written consent of the Company, any confidential information of the Company or any subsidiary, including any confidential information concerning their business, affairs, products, suppliers or customers; it being understood, however, that the obligations of this Section 6 shall not apply to the extent that such matters (a) are disclosed in circumstances where Executive is legally required to do so or (b) become generally known to and available for use by the public otherwise than by Executive’s wrongful act or omission. In addition to other remedies that may be available to the Company, the Company shall have no obligation to pay any benefits to Executive pursuant to the Severance Agreement, and Executive shall repay to the Company all benefits paid under the Severance Agreement, if Executive violates this Section 6.

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7. Attorneys’ Fees. Each party shall bear his or its own costs and attorneys’ fees which have been or may be incurred in connection with the negotiation of this Agreement.

8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by Executive and the Chairman of the Compensation Committee. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oregon.

9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

10. Related Agreements. To the extent that any provision of any other agreement between the Company or any of its subsidiaries and Executive shall limit, qualify or be inconsistent with any provision of this Agreement, then for purposes of this Agreement, while the same shall remain in force, the provision of this Agreement shall control and such provision of such other agreement shall be deemed to have been superseded, and to be of no force or effect, as if such other agreement had been formally amended to the extent necessary to accomplish such purpose.

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11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument.

McCORMICK & SCHMICK’S SEAFOOD RESTAURANTS, INC.		Executive:
By:	/s/ DAVID PITTAWAY	/s/ WILLIAM T. FREEMAN
Name:	David Pittaway	William T. Freeman
Title:	Chairman of Compensation Committee of the Board of Directors

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Exhibit B

EXECUTIVE SEVERANCE AND NONCOMPETITION AGREEMENT

William T. Freeman	Executive
29085 Oak Creek Lane, Apartment 707
Agoura Hills, CA 91301
McCormick & Schmick’s Seafood Restaurants, Inc.	Company
720 SW Washington Street, Suite 550
Portland, OR 97205

The Company considers the attraction and retention of highly qualified management personnel to be essential to promoting the best interests of the Company and its shareholders. In this connection, the Company recognizes that, as is the case of many publicly held corporations, the possibility of a change of control exists and this possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. To induce Executive to remain employed by the Company in the face of uncertainties about the long-term strategies of the Company and possible change of control of the Company and their potential impact on Executive’s position with the Company, this Agreement, which has been approved by the Board of Directors of the Company, sets forth the severance benefits that the Company will provide to Executive if Executive’s employment by the Company is terminated in the circumstances described in this Agreement.

1. Employment Relationship. Executive will be employed by the Company as Chief Executive Officer effective upon Executive’s first day of full time employment with the Company. Executive and the Company acknowledge that either party may terminate this employment relationship at any time and for any or no reason, subject to the obligation of the Company to provide the severance benefits specified in this Agreement in accordance with its terms.

2. Release of Claims. In consideration for and as a condition precedent to receiving the severance benefits outlined in this Agreement, Executive shall

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execute a Release of Claims in the form attached as Exhibit A (“Release of Claims”) no later than 30 days after a Termination of Executive’s Employment (as defined in Section 8.1).

3. Compensation Upon Termination.

3.1 In the event of a Termination of Executive’s Employment (as defined in Section 8.1) at any time within the first three months of Executive’s employment other than for Cause (as defined in Section 8.2), and contingent upon Executive’s compliance with Section 10 and execution of the Release of Claims and the expiration of the seven-day revocation period provided by the Age Discrimination in Employment Act of 1967, as amended by the Older Worker Benefit Protection Act of 1990, without revocation of the Release of Claims by Executive, the Company shall pay or provide as severance pay and in lieu of any other compensation for periods subsequent to the date of termination in a single payment within ten days after the date of termination, an amount in cash equal to three months salary at the rate in effect immediately prior to the date of termination. If Executive’s employment with the Company terminates for any reason prior to a Change of Control (as defined in Section 8.3), other than at the direction of a person who has entered into an agreement with the Company the consummation of which will constitute a Change of Control, Executive shall not be entitled to benefits under Section 4.

3.2 In the event of a Termination of Executive’s Employment (as defined in Section 8.1) at any time after the first three months of Executive’s employment other than for Cause (as defined in Section 8.2), and contingent upon Executive’s compliance with Section 10 and execution of the Release of Claims and the expiration of the seven-day revocation period provided by the Age Discrimination in Employment Act of 1967, as amended by the Older Worker Benefit Protection Act of 1990, without revocation of the Release of Claims by Executive, the Company shall pay or provide the following to Executive:

(a) As severance pay and in lieu of any other compensation for periods subsequent to the date of termination, the Company shall pay Executive, in a single payment within ten days after the date of termination, an amount in cash equal to (i) one year of Executive’s annual base pay at the rate in effect immediately prior to the date of termination plus (ii) the annual average of the amount paid to Executive under all annual cash incentive plans during the prior two full years ending prior to the date of termination.

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(b) The Company shall pay Executive a lump sum payment in an amount equivalent to the reasonably estimated cost Executive may incur to extend for a period of six months under the COBRA continuation laws Executive’s group health and dental plan coverage in effect at the time of termination. Executive may use this payment for such continuation coverage or for any other purpose.

(c) If Executive’s employment with the Company terminates for any reason prior to a Change of Control (as defined in Section 8.3), other than at the direction of a person who has entered into an agreement with the Company the consummation of which will constitute a Change of Control, Executive shall not be entitled to benefits under Section 4.

(d) A portion of the outstanding stock options held by Executive under the Incentive Stock Option Agreement of even date shall become exercisable as follows: (i) 6,944 shares multiplied by (ii) the number of full months that have elapsed between the last anniversary of the Vesting Reference Date, as defined in the Incentive Stock Option Agreement, and the termination date.

4. Compensation Upon Termination Following A Change of Control. In the event of a Termination of Executive’s Employment other than for Cause within 12 months following a Change of Control, or prior to a Change of Control at the direction of a person who has entered into an agreement with the Company, the consummation of which will constitute a Change of Control, and contingent upon Executive’s compliance with Section 10 and execution of the Release of Claims and the expiration of the seven-day revocation period provided by the Age Discrimination in Employment Act of 1967, as amended by the Older Worker Benefit Protection Act of 1990, without revocation of the Release of Claims by Executive, the Company shall pay or provide the following to Executive:

4.1 As severance pay and in lieu of any other compensation for periods subsequent to the date of termination, the Company shall pay Executive, in a single payment within ten days after the date of termination, an amount in cash equal to (a) one year of Executive’s annual base pay at the rate in effect immediately prior to the date of termination plus (b) the annual average of the amount paid to Executive under all annual cash incentive plans during the prior two full years ending prior to the date of termination (provided that if Executive is terminated prior to completion of two full fiscal years, the amount paid as severance shall be the amount paid to Executive under all annual cash incentive plans in the prior completed year).

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4.2 The Company shall pay Executive a lump sum payment in an amount equivalent to the reasonably estimated cost Executive may incur to extend for a period of six months under the COBRA continuation laws Executive’s group health and dental plan coverage in effect at the time of termination. Executive may use this payment for such continuation coverage or for any other purpose.

4.3 All outstanding stock options held by Executive under all stock option and stock incentive plans of the Company shall become immediately exercisable in full and shall remain exercisable until the earlier of (a) two years after termination of employment or (b) the option expiration date as set forth in the applicable option agreement.

4.4 If it is determined that any payments, distributions or benefits (or the acceleration of the right to receive any payments, distributions or benefits) received or to be received by the Executive from the Company or any affiliate of the Company under this Agreement or under any other agreement, plan or otherwise (“Payments”) are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (the “Excise Tax”), the Executive shall be entitled to receive an additional payment (the “Excise Tax Gross-Up Payment”) at the time such Payments are made to the Executive or, if applicable, upon any later determination. The amount of the Excise Tax Gross-Up Payment shall be the amount necessary to put the Executive in the same after-tax financial position the Executive would have occupied if the Payments were not subject to the Excise Tax, assuming the Executive is subject to federal and state income tax at the highest marginal rates applicable to individuals in the year in which any Excise Tax Gross-Up Payment is made.

4.5 The benefits provided in this Section 4 shall be in lieu of and not in addition to benefits provided in Section 3. Executive shall not receive benefits under both Section 3 and Section 4.

5. Confidentiality; Noncompetition; Non-Solicitation.

5.1 Executive agrees that, subsequent to Executive’s period of employment with the Company, Executive will not at any time communicate or disclose to any unauthorized person, without the written consent of the Company, any confidential information of the Company or

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any subsidiary, including any confidential information concerning their business, affairs, products, suppliers or customers; it being understood, however, that the obligations of this Section 5.1 shall not apply to the extent that such matters (a) are disclosed in circumstances where Executive is legally required to do so or (b) become generally known to and available for use by the public otherwise than by Executive’s wrongful act or omission.

5.2 For a 12-month period following the termination of the Executive’s employment with the Company, whether the termination is voluntary or involuntary, the Executive will not on behalf of himself or for any entity, business or person other than, the Company or any subsidiary of the Company:

(a) perform services of any nature or in any capacity whatsoever for any business, person, or entity which is engaged in a restaurant business and which is in competition with the Company or any subsidiary of the Company, which includes restaurants that serve predominately seafood entrees and that have an average per person check above $25.00;

(b) compete with the Company, including with respect to concepts developed during Executive’s tenure with the Company, anywhere in the United States, Canada or anywhere else in the world where the Company does business (the “Restricted Area”), or

(c) invest in or otherwise hold any interest in (except for passive ownership of up to 3% of the outstanding capital stock of any publicly traded corporation, so long as the Executive complies with clauses (a) and (b) above), a business, entity (including without limitation any business or entity started by the Executive) or person that competes with any product or service of the Company within the Restricted Area.

5.3 For a 12-month period following the termination of the Executive’s employment with the Company, whether the termination is voluntary or involuntary, the Executive will not on behalf of himself or for any entity, business or person other than, the Company or any subsidiary of the Company:

(a) hire, entice, induce, solicit or attempt to hire, entice, induce or solicit any employee of the Company or any affiliate of the Company to leave the Company’s employ (or the employ of any affiliate of the Company, as applicable) or cause any employee of the Company (or of any affiliate of the Company) to become employed in any business that competes with the Company (or such affiliate) for any reason whatsoever,

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(b) assist or encourage in any manner, including without limitation through the providing of advice or information, any employee of the Company to leave the Company’s employ (or the employ of any affiliate of the Company, as applicable), or

(c) suggest or recommend in any manner, including through the providing of advice or information, that any business, person or entity hire, entice, induce, solicit, cause or attempt to hire, entice, induce or solicit or cause any employee of the Company to leave the Company’s employ (or the employ of any affiliate of the Company, as applicable).

5.4 In addition to other remedies that may be available to the Company, including injunctive relief, the Company shall have no obligation to pay any benefits to Executive pursuant to this Agreement, and Executive shall repay to the Company all benefits paid under this Agreement, if Executive violates Section 5.1, 5.2 or 5.3.

6. Tax Withholding; Subsequent Employment.

6.1 All payments provided for in this Agreement are subject to applicable tax withholding obligations imposed by federal, state and local laws and regulations.

6.2 The amount of any payment provided for in this Agreement shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by Executive as the result of employment by another employer after termination.

7. Other Agreements. If severance benefits are payable to Executive under any other agreement with the Company in effect at the time of termination (including but not limited to any employment agreement, but excluding for this

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purpose any stock option agreement or stock bonus agreement or stock appreciation right agreement that may provide for accelerated vesting or related benefits upon the occurrence of a change in control), the benefits provided in this Agreement shall not be payable to Executive. Executive may, however, elect to receive all of the benefits provided for in this Agreement in lieu of all of the benefits provided in all such other agreements. Any such election shall be made with respect to the agreements as a whole, and Executive cannot select some benefits from one agreement and other benefits from this Agreement.

8. Definitions.

8.1 Termination of Executive’s Employment. Termination of Executive’s Employment means that Executive has ceased to be an employee of the Company by reason of (a) the termination by the Company of Executive’s employment with the Company (including any subsidiary of the Company), (b) death or (c) Disability. For purposes of Section 4, Termination of Executive’s Employment shall also include termination by Executive, within 12 months of a Change of Control, for “Good Reason,” which means any of the following circumstances, provided Executive gives notice to the Company of his intent to terminate employment for Good Reason within 90 days after notice to Executive of such circumstances and such circumstances are not fully corrected by the Company within 30 days after Executive’s notice:

(A) the assignment of Executive a different title or job responsibilities that result in a substantial decrease in the level of responsibility from those in effect immediately prior to the Change of Control;

(B) a reduction by the Company or the surviving company in Executive’s base pay as in effect immediately prior to the Change of Control;

(C) a significant reduction by the Company or the surviving company in total benefits available to Executive under cash incentive, stock incentive and other employee benefit plans after the Change of Control compared to the total package of such benefits as in effect prior to the Change of Control;

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(D) the requirement by the Company or the surviving company that Executive be based more than 50 miles from where Executive’s office is located immediately prior to the Change of Control, except for required travel on company business to an extent substantially consistent with the business travel obligations which Executive undertook on behalf of the Company prior to the Change of Control; or

(E) the failure by the Company to obtain from any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company (“Successor”) the assent to this Agreement contemplated by Section 8 hereof.

8.2 Cause. Termination of Executive’s Employment for “Cause” shall mean termination due to Executive’s (a) fraud (except that a mere allegation of fraud by a third party shall not be sufficient to constitute Cause, without further investigation by the Company); (b) material misrepresentation in connection with the performance of Executive’s job duties; (c) theft or embezzlement; (d) conviction of, or a plea of guilty or no contest to, a felony under the laws of the United States or any state thereof, or any other crime or violation that would tend to impugn Executive’s reputation or the reputation of the Company; (e) material violation of this Agreement; (f) violation of the Company’s Code of Conduct or its anti-harassment or anti-discrimination policy; (g) conduct that constitutes gross neglect or gross misconduct and that, in either case, results in significant economic harm to the Company or material harm to the Company’s reputation; (h) failure to satisfactorily perform any of Executive’s material employment duties inherent in Executive’s position or reasonably assigned to Executive by the Board of Directors, if such failure remains uncured 30 days after receipt of written notice by a representative of the Board of Directors.

8.3 Change of Control. A Change of Control shall mean that one of the following events has taken place:

(A) The shareholders of the Company approve one of the following (“Approved Transactions”):

(i) Any merger or statutory plan of exchange involving the Company (“Merger”) in which the Company is not the continuing or surviving corporation or pursuant to which Common Stock would be converted into cash, securities or other property, other than a Merger involving the Company in which the holders of Common Stock immediately prior to the Merger have the same proportionate ownership of Common Stock of the surviving corporation after the Merger; or

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(ii) Any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company or the adoption of any plan or proposal for the liquidation or dissolution;

(B) During any period of 12 months or less, individuals who at the beginning of such period constituted a majority of the Board of Directors cease for any reason to constitute a majority thereof unless the nomination or election of such new directors was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

(C) A tender or exchange offer, other than one made by the Company, is made for Company Common Stock (“Common Stock”) (or securities convertible into Common Stock) and such offer results in a portion of those securities being purchased and the offeror after the consummation of the offer is the beneficial owner (as determined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly, of securities representing at least 50 percent of the voting power of outstanding securities of the Company;

(D) the Company receives a report on Schedule 13D of the Exchange Act reporting the beneficial

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ownership by any person of securities representing 50 percent or more of the voting power of outstanding securities of the Company, except that if such receipt shall occur during a tender offer or exchange offer described in (B) above, a Change of Control shall not take place until the conclusion of such offer.

Notwithstanding anything in the foregoing to the contrary, no Change of Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in Executive, or a group of persons which includes Executive, acquiring, directly or indirectly, securities representing 50 percent or more of the voting power of outstanding securities of the Company.

8.4 Disability. Termination of Executive’s Employment based on “Disability” shall mean termination due to Executive’s absence from Executive’s full-time duties with the Company for 180 consecutive days as a result of Executive’s incapacity due to physical or mental illness, unless within 30 days after notice of termination by the Company following such absence Executive shall have returned to the full-time performance of Executive’s duties.

9. Successors; Binding Agreement.

9.1 This Agreement shall be binding on and inure to the benefit of the Company and its Successors and assigns. Upon Executive’s written request, the Company will seek to have any Successor by agreement assent to the fulfillment by the Company of its obligations under this Agreement. If such a request is made, failure of the Company to obtain such assent prior to or at the time a company becomes a Successor shall constitute Good Reason for termination by Executive of his or her employment and, if a Change of Control of the Company has occurred, shall entitle Executive to the benefits pursuant to Section 4.

9.2 This Agreement shall inure to the benefit of and be enforceable by Executive and Executive’s legal representatives, executors, administrators and heirs.

10. Resignation of Corporate Offices. Executive will resign Executive’s office, if any, as a director, officer or trustee of the Company, its subsidiaries or affiliates and of any other corporation or trust of which Executive serves as such at the request of the Company, effective as of the date of termination of employment. Executive agrees to provide the Company such written resignation(s) upon request and that no severance will be paid until after such resignation(s) are provided.

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11. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Oregon applicable to contracts made and to be performed in Oregon.

12. Attorneys Fees. The Company shall pay all reasonable attorney’s fees and expenses (including at trial and on appeal) of Executive in enforcing its rights under Section 4 of this Agreement.

13. Amendment. No provision of this Agreement may be modified unless such modification is agreed to in a writing signed by Executive and the Company.

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14. Severability. If any of the provisions or terms of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other terms of this Agreement, and this Agreement shall be construed as if such unenforceable term had never been contained in this Agreement.

By:	/s/ DAVID PITTAWAY	/s/ WILLIAM T. FREEMAN
Name:	David Pittaway	William T. Freeman
Title:	Chairman of Compensation
	Committee of the Board of Directors

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EX-21.1

Exhibit 21.1

Subsidiaries

Name	Jurisdiction of Incorporation
McCormick & Schmick Acquisition Corp. II	Delaware
McCormick & Schmick Acquisition Corp.	Delaware
McCormick & Schmick Restaurant Corp.	Delaware
McCormick & Schmick Maryland Liquor, Inc.	Maryland
McCormick & Schmick Acquisition I Texas, Inc.	Texas
McCormick & Schmick Acquisition II Texas, Inc.	Delaware
McCormick & Schmick Acquisition Texas, LP	Texas
McCormick & Schmick Acquisition III Texas, Inc.	Texas
McCormick & Schmick’s Hackensack, LLC	Delaware
McCormick & Schmick’s Atlanta II, LLC	Delaware
McCormick & Schmick Orlando, LLC	Delaware
McCormick & Schmick Dallas, LP	Texas
McCormick & Schmick Dallas Liquor, Inc.	Texas
McCormick & Schmick Austin, LP	Texas
McCormick & Schmick Austin Liquor, Inc.	Texas
McCormick & Schmick Promotions, LLC	Virginia
McCormick & Schmick Houston Pavilions, LP	Texas
McCormick & Schmick Houston Pavilions Liquor, Inc.	Texas
McCormick & Schmick Austin Domain, LP	Texas
McCormick & Schmick Austin Domain Liquor, Inc.	Texas
The Boathouse Restaurants of Canada, Inc.	British Columbia, Canada
McCormick & Schmick Seafood Markets, Inc.	Virginia
McCormick & Schmick Texas, Inc.	Texas
McCormick & Schmick Annapolis Liquor, Inc	Maryland
McCormick & Schmick National Harbor Liquor, Inc.	Maryland

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-126568) of McCormick & Schmick’s Seafood Restaurants, Inc. of our report dated March 10, 2009 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K .

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Portland, Oregon

March 10, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION

I, William T. Freeman, certify that:

1. I have reviewed this Annual Report on Form 10-K of McCormick & Schmick’s Seafood Restaurants, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 10, 2009

/s/ WILLIAM T. FREEMAN

William T. Freeman

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Emanuel N. Hilario, certify that:

1. I have reviewed this Annual Report on Form 10-K of McCormick & Schmick’s Seafood Restaurants, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 10, 2009

/s/ EMANUEL N. HILARIO

Emanuel N. Hilario

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, William T. Freeman, Chief Executive Officer, in connection with the Annual Report on Form 10-K of McCormick & Schmick’s Seafood Restaurants, Inc. for the annual period ended December 27, 2008 (the “Report”), hereby certify in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of McCormick & Schmick’s Seafood Restaurants, Inc.

/s/ WILLIAM T. FREEMAN

William T. Freeman

Chief Executive Officer

Dated: March 10, 2009

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Emanuel N. Hilario, Chief Financial Officer, in connection with the Annual Report on Form 10-K of McCormick & Schmick’s Seafood Restaurants, Inc. for the annual period ended December 27, 2008 (the “Report”), hereby certify in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of McCormick & Schmick’s Seafood Restaurants, Inc.

/s/ EMANUEL N. HILARIO

Emanuel N. Hilario

Chief Financial Officer

Dated: March 10, 2009