JRECK SUBS GROUP, INC.
2101 West State Road 434, Suite 100
Longwood, Florida 32779
PROXY STATEMENT
Mailing Date: April 16, 2000
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NOTICE OF MEETING
To Be Held
May 16, 2000
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General
This Proxy Statement is furnished to the holders of Common Stock, no
par value per share (the "Common Stock"), of JRECK Subs Group, Inc. (the
"Company") on behalf of the Company in connection with its solicitation of
Appointments of Proxy in the form enclosed herewith for use at a meeting of
shareholders (the "Meeting") to be held on May 16, 2000, and at any adjournments
thereof. The Meeting will be held at 10:00 a.m. Florida time on the above date
at the Hampton Inn, 151 Douglas Avenue, Altamonte Springs, FL 32714, Telephone:
(407) 869-9000. The matters to be acted upon at the Meeting are set forth in the
accompanying Notice of Meeting of Shareholders and are described herein.
The cost of this solicitation of Appointments of Proxy will be borne by
the Company. In addition to the solicitation of Appointments of Proxy by mail,
certain officers, directors and regular employees of the Company, without
additional remuneration, may solicit Appointments of Proxy personally or by
telephone, telegraph or cable. Arrangements will also be made with brokerage
firms and other nominee holders for forwarding proxy materials to the beneficial
owners of shares of the Common Stock, and the Company will reimburse such
persons for reasonable out-of-pocket expenses incurred by them in connection
therewith.
Voting of Appointments of Proxy
The person named in the enclosed Appointment of Proxy as proxies to
represent shareholders at the Meeting is Eric Swartz. An Appointment of Proxy
which is properly executed and returned, and not revoked, will be voted in
accordance with the directions contained therein. If no directions are given,
the Appointment of Proxy will be vote FOR the change in name to Ultimate
Franchise Systems, Inc. as described in Proposal 1 by casting an equal number of
votes herein. On any other matters that may come before the meeting, each
Appointment of Proxy will be voted in accordance with the best judgment of the
proxies.
Revocability of Appointments of Proxy
An Appointment of Proxy may be revoked by the shareholder at any time
before it is exercised by filing, with the Secretary of the Company, a written
revocation or a duly executed Appointment of Proxy bearing a later date, or by
attending the Meeting and announcing his intention to vote in person.
Record Date and Voting Rights
The close of business on April 3, 2000, has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
The Meeting. Only those shareholders of record on that date will be entitled to
vote on the proposals described herein.
<PAGE>
The voting securities of the Company are the shares of its Common
Stock, of which 31,880,899 shares were issued and outstanding as of April 3,
2000. All other outstanding shares are entitled to one vote on each matter
submitted for voting at the Meeting.
PROPOSAL NUMBER 1: APPROVAL OF CORPORATE NAME CHANGE
On March 15, 2000, the Board of Directors adopted, subject to shareholder
approval, of a change in name from JRECK Subs Group, Inc. to Ultimate Franchise
Systems, Inc.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS CHANGE IN
NAME. PROXIES AND VOTING INSTRUCTIONS WILL BE VOTED IN FAVOR OF THE APPROVAL OF
THE NAME CHANGE UNLESS THE STOCKHOLDER SPECIFIES OTHERWISE.
PROPOSALS OF SHAREHOLDERS
It is expected that the next annual meeting of the Company's shareholders will
be held on or about May 1, 2001. Any proposal of a shareholder which is intended
to be presented at that meeting must be received by the Company at its principal
executive offices at 2101 West State Road 434, Suite 100, Longwood, Florida,
32779, no later than 120 days prior to to May 1, 2001, in order to include such
proposal in the porxy solicitation materials to be issued in connection with the
meeting.
OTHER MATTERS
The Board of Directors knows of no other business which will be brought before
the meeting. Should other mattes properly come before the meeting, the proxies
will vote all Appointments of Proxy received according their the best judgement
on such matter.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information relating to the beneficial ownership
of the Company's Common Stock by those persons beneficially holding more than 5%
of the Company's common stock or held by the company's executive officers and
directors, and by all the Company's executive officers and directors as a group
as of September 30, 1999. The address of each person is in care of the Company
unless noted.
As used in the table, The term "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e. the power to dispose of, or to
direct the disposition of, a security). In addition, for purposes of this table,
a person is deemed to have "beneficial ownership" of any security if such person
has the right to acquire such security within sixty days.
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Name and Amount and
Address of Officer Nature of
Number of Beneficial or Beneficial Percent of
Shares Owner Director Owner Class
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Common Stock Christopher M. Yes (a) 5,569,300 18.18 %
Swartz
Common Stock Bradley L. Gordon Yes 1,114,956 3.64 %
Common Stock Michael F. Cronin Yes 500,000 1.63 %
Common Stock Eric Swartz Yes 0 0.00 %
All Officers and Directors as a Group 7,184,256 23.46 %
(a) Includes 3,344,300 shares of the common stock owned by Tri-Emp Enterprises,
Inc. Mr. Swartz is President and sole shareholder of Tri-Emp Enterprises, Inc.
and as such, is deemed to have beneficial ownership of the shares of the Company
owned by Tri-Emp Enterprises, Inc. It also includes 2,000,000 shares subject to
options currently exercisable by Mr. Christopher Swartz and 225,000 shares
subject to options exercisable by Tri-Emp Enterprises, Inc.
Directors, Executive Officers and Control Persons
The following table sets forth certain information with respect to the
executive officers and directors of the Company. Each director holds such
position until the next annual meeting of the Company's shareholders and until
his successor has been duly qualified and elected. Any of the Company's officers
may be removed, with or without cause, by the company's board of directors.
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Director/Date
Name Age Elected Office or Position
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Christopher M. Swartz 29 Yes/10/23/98 Chairman, President and Chief
Executive Officer
Bradley L. Gordon 46 Yes/10/23/98 Chief Operating Officer
Eric T. Swartz 33 Yes/10/23/98 Secretary
Michael F. Cronin 44 No Chief Financial Officer/Treasurer
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Christopher M. Swartz has been Chairman, President and Chief Executive Officer
of the Company since April, 1996 and Chairman, President and Chief Executive
Officer of JRECK Subs, Inc. since September, 1995. From 1992 to 1995, he was
Director of Operations of Lox, Stox & Bagels of Liverpool, Inc. Mr. Swartz is a
graduate of Syracuse University. He is the second generation of his family to be
involved with JRECK. Mr. Swartz is also the President of Tri-Emp Enterprises,
Inc. and the brother of Eric Swartz.
<PAGE>
Bradley L. Gordon has been Chief Operating Officer and Director of the Company
since September, 1997. From September 1993 up to joining the company in 1997, he
was president of Quality Franchise Systems, Inc. (the franchisor of Mountain
Mike's Pizza), Quality Franchise Systems, Inc.'s Chief Executive Officer since
1992 and one of its directors since January, 1993. Before joining Quality
Franchise Systems, Inc., he held various positions at Pace Membership Warehouse,
Inc. in Denver, Co. from 1983 forward as an Executive Vice President-Sales;
Senior Vice President-Operations and Vice President-Human Resources. Eric T.
Swartz has been a Director and Secretary of the Company since April, 1996. He
was awarded his J.D. degree and undergraduate degree from Syracuse University
College of Law and Syracuse University respectively. From October, 1993 to the
present he has been a partner in the Swartz Law Firm, P.C. and was associated
with the law firm of Pease and Willer after graduating from law school in 1992.
Mr. Swartz is the brother of Christopher M. Swartz.
Michael F. Cronin has been Chief Financial Officer of the Company since March 8,
1998 and Treasurer since January 1, 1999. He is a Certified Public Accountant
who has managed his own practice, specializing in S.E.C audits and business and
tax planning, since February, 1985. He has been licensed in New York State for
17 years. Mr. Cronin is a graduate of St. John Fisher College. From 1979 to 1985
Mr. Cronin was employed as a staff accountant and partner in a regional public
accounting firm in Rochester, NY. Mr. Cronin served in the United States Marine
Corps for three years and was honorably discharged in 1976.
Executive Compensation
The following table sets forth the cash compensation of the Company's executive
officers and directors during each of the last three fiscal years. The
remuneration described in the table does not include the cost to the company of
benefits such as health insurance premiums, and other benefits, furnished to the
named executive officers, that are extended in connection with the ordinary
conduct of the Company's business. The value of such benefits cannot be
precisely determined, however no executive officer named below received any such
benefits in excess of the lesser of $25,000 or 10% of such officer's cash
compensation.
<TABLE>
<CAPTION>
Summary Compensation Table
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Annual Compensation Long Term Compensation
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Name & Principal Other Annual Awards Awards Payouts All Other
Position Year Salary Bonus Compensation ------------------------------------------------
Restricted Options LTIP
Stock in $ SARS (#) Payouts($)
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999(c) $ 96,154 $ 0 $ 0 $ 0 0(d) $ 0 $ 0
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Christopher M. Swartz 1998 $ 175,000 $ 0 $ 0 $ 0 1,000,000 $ 0 $ 0
President & CEO
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1997 $ 115,393 $ 0 $ 0 $ 0 1,000,000 $ 0 $ 0
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1999(c) $ 39,000 $ 0 $ 0 $ 0 0 $ 0 $ 0
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Gary E. Rowe 1998 $ 51,000 $ 0 $ 0 $ 0 0 $ 0 $ 0
Controller
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1997 $ 52,600 $ 0 $ 0 $ 0 0 $ 0 $ 0
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1999(c) $ 102,500 $ 0 $ 0 $ 0 0 $ 0 $ 0
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Bradley L. Gordon 1998 $ 150,000 $ 0 $ 60,000(b) $ 0 0 $ 0 $ 0
Chief Operating Officer
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1997(a) $ 37,500 $ 0 $ 0 $ 0 0 $ 0 $ 0
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1999(c) $ 84,615 $ 0 $ 0 $ 0 0 $ 0 $ 0
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Michael F. Cronin 1998 $ 93,750 $ 0 $ 0 $ 0 0 $ 0 $ 0
Chief Financial Officer
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1997 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
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</TABLE>
(a) Does not include compensation earned at Mountain Mike's prior to
acquisition by the company in Oct., 1997.
(b) Relocation expense reimbursement.
(c) Due to a change in fiscal years, 1999 compensation covers only a nine
month period.
(d) Options on 2,000,000 shares granted to Mr. Swartz in 1997 and 1998 were
modified and regranted in 1999.
Employment Contracts:
Only Mr. Gordon and Mr. Cronin have employment contracts with the Company. The
following table summarizes the significant terms of these agreements:
<TABLE>
<CAPTION>
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Termination
Commencement Initial Clause Change in
Name Position Date Term Annual Salary Control
Compensation Continuation Arrangement
Period
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<S> <C> <C> <C> <C> <C> <C>
Bradley L. Gordon Chief Operating Sept 22, 1997 3 Years $ 150,000 12 Months No
Officer/Director
Michael F. Cronin Chief Financial Officer July 31, 1998 3 Years $ 125,000 12 Months No
Chief Financial Officer
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</TABLE>
<PAGE>
Options and Rights Granted to Purchase Common Stock:
The following table summarizes options and rights to purchase common stock that
were granted or issued to executive officers and directors over each of the last
two fiscal years:
<TABLE>
<CAPTION>
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Number Number of Percent of Promissory
of options Shares of Exercise Total Note
Granted Common Date of Price or Options Payable
(in Stock Grant or Expiration Purchase Granted to the
Name Position shares) Purchased Purchase Date Price During Year Company(1)
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christopher M. President & CEO 1,000,000 08/29/99 12/29/00 $0.29
Swartz 1,000,000 08/29/99 08/03/01 $0.29 1999-95%
Bradley L. Gordon Chief Operating 500,000 09/22/97 N/A $3.00 $1,500,000
Officer 500,000 07/30/98 N/A $1.38 $ 687,500
Michael F. Cronin Chief Financial 500,000 07/30/98 N/A $1.38 $687,500
Officer
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</TABLE>
(1) Mr. Gordon and Mr. Cronin each purchased common shares of the Company
and paid for such purchases by a promissory note(s). The notes call for
annual interest at 9.5% with principal and interest due three years
from purchase date. Both Mr. Gordon and Mr. Cronin have the right to
require the Company to repurchase their shares as consideration for the
cancellation of the note.
The following table sets forth information regarding the value of
Options and Stock Appreciation Rights granted to officers of the Company during
1999:
<TABLE>
<CAPTION>
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Number of Securities Underlying Value of In-The-Money
Unexercised Options and SAR's Options and SAR's
at September 30, 1999 at September 30, 1999
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Shares Acquired
Name and Position on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
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<S> <C> <C> <C> <C> <C> <C>
Christopher M. Swartz None None 2,225,000 None None None
President & CEO
Bradley L. Gordon 500,000 None None None None None
Chief Operating Officer
Michael F. Cronin 500,000 None None None None None
Chief Financial Officer
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</TABLE>
Other:
The Company does not carry officers & directors liability insurance or
disability benefits in excess of statutorially mandated amounts. Directors
receive no compensation for their duties.
The Company maintains, and is the beneficiary of, a $3,000,000 key man term life
insurance policy on Mr. Christopher Swartz.
Certain Relationships and Related Transactions
Kalin Enterprises, Inc. is a franchisee of JRECK Subs in Watertown, NY. Mr.
Christopher M. Swartz is a 25% shareholder and officer of Kalin Enterprises,
Inc.
<PAGE>
In April, 1997 Tri-Emp Enterprises, Inc. borrowed $445,000 from 20 investors
secured by 445,000 shares of the Company's common stock owned by Tri-Emp
Enterprises, Inc. Tri-Emp Enterprises, Inc. in turn, loaned the entire proceeds
to the Company. On October 8, 1997 the Company issued 495,000 shares of Common
Stock to the 20 note holders in full satisfaction of the amounts owed by Tri-Emp
Enterprises, Inc.
The Company issued options to purchase 375,000 shares of Common Stock to Gulf
Atlantic Publishing, Inc. on January 6, 1997, exercisable at $0.75 per share. On
November 17, 1997 Gulf Atlantic assigned 225,000 of those options to Tri-Emp
Enterprises, Inc. in exchange for purchasing 225,000 shares of the Company's
common stock directly from Tri-Emp Enterprises, Inc.
In 1997 the Company adjusted the $104,141 carrying value of a note receivable
from Mr. H. Thomas Swartz to $0. Mr. Thomas Swartz is the father of Christopher
Swartz and Eric Swartz.
In February, 1998 the Company issued 112,793 shares of common stock to Sidney
Wertheim and or his designees in satisfaction of $277,404 in debt owed to him by
the Company's Little King, Inc. subsidiary.
Mr. Jeremiah Haley, a former director, received 175,000 shares of JRECK Subs
Group, Inc. Series A Preferred stock in exchange of his JRECK Subs, Inc. Series
A Preferred Stock on May 6, 1996. Mr. Haley was elected to the board of
directors pursuant to the rights of the holders of the series A. Mr. Haley
received $15,750 in cash dividends on his Preferred Stock in 1997. Mr. Haley has
converted all 175,000 shares of Preferred A into 190,000 shares of common stock
during 1998. The shares received upon conversion include 15,000 shares in
consideration of accrued dividends.
<PAGE>
Mr. Christopher M. Swartz, Chairman of the Company and its President and Chief
Executive Officer, received (through his control of Tri-Emp Enterprises, Inc.)
5,000,000 shares of the Company in exchange for all the outstanding common
shares of Jreck Subs, Inc. on May 6, 1996. Mr. Swartz also received 350,000
shares of the Company's Series B Preferred Stock for his 50% interest in Pastry
Product Producers Inc. In June, 1998 Mr. Swartz converted all 350,000 shares of
Series B Preferred into 350,000 shares of the Company's Common Stock.
Mr. Bradley Gordon, the Company's Chief Operating Office and a Director,
purchased 500,000 shares of the Company's Common Stock in each of two separate
transactions to obtain an aggregate of 1,000,000 shares. One transaction
occurred in September, 1997 and the other transaction occurred on July 30, 1998.
The Company received a promissory note from Mr. Gordon on each agreement for the
full amount of each purchase price of $1,500,000 and $687,500 respectively. The
notes each bear interest at 9.5% per annum and are due three years from the date
of issuance. Mr. Gordon has the right to require the Company to repurchase the
shares as consideration for the cancellation of the underlying promissory note.
Mr. Gordon received options to acquire an additional 1,000,000 shares at $0.29
per share on October 15, 1999. These options expire on October 15, 2004. Mr.
Gordon has not exercised his rights to acquire any shares under this agreement.
Mr. Richard Silberman, a shareholder of the Company, purchased 300,000 shares of
the Company's Common Stock in each of two separate transactions to obtain an
aggregate of 600,000 shares. One transaction occurred in September, 1997 and the
other transaction occurred on July 30, 1998. The Company received a promissory
note from Mr. Silberman on each agreement for the full amount of each purchase
price of $900,000 and $412,500 respectively. The notes each bear interest at
9.5% per annum and are due three years from the date of issuance. Mr. Silberman
has the right to require the Company to repurchase the shares as consideration
for the cancellation of the underlying promissory note. Mr. Silberman received
options to acquire an additional 600,000 shares at $0.29 per share on October
15, 1999. These options expire on October 15, 2004. Mr. Silberman has not
exercised his rights to acquire any shares under this agreement.
Mr. Michael F. Cronin, Chief Financial Officer and Treasurer of the Company,
purchased 500,000 shares of the Company's Common Stock. The transaction occurred
on July 30, 1998. The Company received a promissory note from Mr. Cronin on the
agreement for the full amount of the purchase price of $687,500. The note bears
interest at 9.5% per annum and is due three years from the date of issuance. Mr.
Cronin has the right to require the Company to repurchase the shares as
consideration for the cancellation of the underlying promissory note. Mr. Cronin
received options to acquire an additional 1,000,000 shares at $0.29 per share on
October 15, 1999. These options expire on October 15, 2004. Mr. Cronin has not
exercised his rights to acquire any shares under this agreement.
Mr. Christopher M. Swartz, Chairman of the Company and its President and Chief
Executive Officer, was granted options to purchase 2,000,000 shares of the
Company's Common Stock. The options were granted in the amount of 1,000,000
shares each on December 29, 1997 and August 3, 1998. The exercise prices were
$2.75 and $1.55, respectively, and expire three years from the date of grant..
These options to acquire were repriced at $0.29 per share on October 1, 1999.
Mr. Swartz has not exercised his rights to acquire any shares under these
agreements.
On January 5, 1998 the Company concluded its Preferred "D" stock offering. The
Company raised $2,500,000 through the offering. Eighteen investors purchased
2,500 shares for $1,000 each. The holders of the Series "D" Preferred Stock have
no voting rights and are entitled to cumulative dividends of $80 per share, per
year, payable in cash or common stock. Holders of the Series "D" may convert a
portion or all of their holdings into common stock based upon a conversion rate
formula of 65% of the average five day closing bid price five trading days
before conversion. The conversion rate was further adjusted by two five percent
penalty increments for the Company's failure to file and make effective a Form
SB-2 within certain time parameters. As of June 10, 1999 the Company has issued
5,303,574 common shares as conversion shares under this agreement.
On June 10, 1999, the holders of the Preferred "D" converted their entire
holding to the Company's newly created Preferred "F" series. The Series D was
canceled and 197.5 shares of the Series F were issued in its place . The holders
of Series F are each entitled to receive an annual dividend of $1,000. The
dividend is payable quarterly beginning August 1, 1999. The holders may require
the Company to repurchase the outstanding shares at a 25% premium over the face
value of $10,000 no sooner than June 1, 2000 and no later than August 1, 2000.
The Company may also redeem the shares at any time prior to February 1, 2000 at
$12,500 per share. In the event of liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, the Series F holders are
entitled to receive $13,000 per share.
Tri-Emp Enterprises, Inc. received 500,000 shares of the Company's common stock
on August 11, 1999 in a partial payment of $109,400 toward an outstanding debt
obligation of the Company to Tri-Emp of $343,000.
PROPOSALS OF SHAREHOLDERS
It is expected that the next annual meeting of the Company's shareholders will
be held on or about May 1, 2001. Any proposal of a shareholder which is intended
to be presented at that meeting must be received by the Company at its principal
executive offices at 2101 West State Road 434, Suite 100, Longwood, Florida,
32779, no later than 120 days prior to to May 1, 2001, in order to include such
proposal in the porxy solicitation materials to be issued in connection with the
meeting.
OTHER MATTERS
The Board of Directors knows of no other business which will be brought before
the meeting. Should other mattes properly come before the meeting, the proxies
will vote all Appointments of Proxy received according their the best judgement
on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Eric T. Swartz
---------------------
Secretary
