SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ------------ to ------------
Commission file number 0-10213
FAST FOOD OPERATORS, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-2974867
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
42-40 Bell Boulevard, Bayside, New York 11361
(Address of principal executive offices) (zip code)
718-229-1113
(Registrant's telephone number,
including area code)
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 $.01 per share
(Title of Class)
Indicate by (X) 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 / /
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form 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-KSB or any amendment to
this Form 10-KSB. / X /
State issuer's revenues for its most recent fiscal year:
$5,349,978.
Aggregate market value of voting stock held by non-affiliates of
the Registrant as at April 11, 1997: $279,816*
Shares of Common Stock outstanding as at April 11, 1997:
8,914,300
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* For purposes of this Report, shares held by non-affiliates
were determined by aggregating the number of shares held by
officers and directors of Registrant, as reflected on Form
3's and Form 4's filed with the Commission with respect to
Registrant's Common Stock and by others who, to Registrant's
knowledge, own 5% or more of Registrant's Common Stock, and
subtracting those shares from the total number of shares
outstanding. The resulting number of shares was multiplied
by $1/16, the bid price for shares of Registrant's Common
Stock on December 9, 1991, the last day on which any trading
activity in the Common Stock was reported by the National
Association of Securities Dealers Automated Quotation
System.
PART I
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Item 1. BUSINESS
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Background
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Fast Food Operators, Inc. (the "Company") was incorporated
on December 18, 1978, pursuant to the laws of the State of New
York. The Company conducts substantially all of its business
under the trade name "Popeyes Famous Fried Chicken of New York."
On April 9, 1981, the Company's Registration Statement on
Form S-18 was declared effective by the United States Securities
and Exchange Commission. Pursuant to such Registration
Statement, the Company offered and sold to the public 2,200,000
Units (each Unit consisting of one share of Common Stock and one
Common Stock Purchase Warrant to purchase a one-quarter
fractional share of Common Stock) and received net proceeds
therefrom of approximately $1,728,000.
On December 27, 1978, the Company entered into an agreement
(the "Option Agreement") with Popeyes Famous Fried Chicken, Inc.,
a Louisiana corporation ("PFFC"), pursuant to which the Company
paid a total of $170,000 ($10,000 per option) for options to
establish and operate 17 Popeyes Famous Fried Chicken and
Biscuits restaurants in specified geographical areas within the
Counties of New York and Queens, in the City of New York.
As of December 27, 1984, the date of the expiration of the
Option Agreement, the Company had exercised ten of its 17
options. On January 22, 1985, the Company entered into a
Development Agreement (the "Development Agreement") with PFFC
pursuant to which the Company purchased the option to open up to
12 additional stores in specified geographical areas within the
Counties of Kings (Brooklyn) and Queens in the City of New York
and the right to open additional stores in Manhattan on a case-by-
case basis. The Company paid PFFC $50,000 for the five
additional options and PFFC gave the Company credit for $70,000
previously paid under the Option Agreement for the seven options
which the Company did not exercise thereunder. The Company
entered into a separate Development Agreement, dated July 6,
1987, with respect to its Popeyes Famous Fried Chicken and
Biscuits restaurant on 40 Empire Boulevard in Brooklyn, New York.
Subsequently, in 1990, the Company sold two of its options under
the Development Agreement to third party purchasers for $10,000
per option.
On January 26, 1988, the Company entered into a series of
transactions with Integrated Food Systems, Inc., a New Jersey
corporation ("IFS"), pursuant to which, among other things, the
Company agreed to be managed by IFS and borrowed $420,000 from
IFS. See "Transactions with IFS."
In 1992, PFFC, whose parent company had been in bankruptcy,
was acquired by America's Favorite Chicken Company, a Minnesota
corporation ("Franchisor"). See "The Franchisor."
The Development Agreement provided that each time the
Company exercised an option it was required to pay a $15,000 fee
and to enter into a Franchise Agreement calling for the payments
of certain royalties on sales, as more fully described under the
heading "The Franchise" below. Under the Development Agreement,
the Company had, until 60 days after the last store was opened
thereunder, the nonexclusive right to open Popeyes Famous Fried
Chicken and Biscuits restaurants in its specified areas in
Brooklyn, Queens and Manhattan.
The Development Agreement provided that the options granted
thereunder must be exercised and restaurants opened no later than
as set forth therein. On March 9, 1992, the Company entered into
a Fourth Amendment to the Development Agreement to reinstate two
options which expired unexercised in 1986 and to extend the date
by which each of the remaining eight stores under option was
required to be opened. In October 1992, the Company sold the
option due to expire on March 1, 1993 to a third party for
$10,000.
The Company permitted its September 1, 1993 and March 1,
1994 options to expire unexercised; however, management requested
the Franchisor to restore such options with revised expiration
dates of March 1, 1997 and September 1, 1997, respectively.
Management had received verbal assurance that reinstatement of
the expired options with the requested expiration dates would be
granted; however, in 1994, the Company and the Franchisor were
unable to agree upon terms for the reinstatement of such expired
options. The Company's option which was exercisable by September
1, 1994 also expired unexercised. The Company recognized a loss
of $30,000 in fiscal 1994 as a result of the three expired
options. The Company was accordingly in default of the
Development Agreement.
As a result of the defaults described above, the Franchisor
had the right, among others, to terminate the Development
Agreement, or to reduce the number of options. On January 30,
1995, the Franchisor notified the Company that pursuant to its
rights thereunder, it was terminating the Development Agreement
as a result of the Company's noncompliance with the amended
development schedule. As of the date of such termination, the
Company had four unexpired options remaining under the
Development Agreement. The Company recognized the related
$40,000 loss in the first quarter of fiscal 1995.
As of March 31, 1997, the Company was operating six Popeyes
restaurants. Six restaurants were sold and/or closed during the
fourteen-month period from October 1994 to November 1995. The
termination of the Development Agreement had no effect on the
existing Franchise Agreements. In January 1997, the Company
agreed to the sale of the Hillside, Queens Restaurant, which sale
is expected to be consummated in April, 1997. See Item 1."Recent
Restaurant Sales," "Recent Restaurant Closings," "Present
Operations," "Future Locations," "The Franchise" and "The
Franchisor."
Transactions with IFS
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IFS is a wholly-owned subsidiary of Fast Food Systems, Inc.
("Fast Foods Systems"), a publicly-held corporation. Such
entities presently manage two Wendy's franchises in New Jersey,
having disposed of nineteen Wendy's restaurants in the New York
Metropolitan area during the previous two years.
On December 28, 1990, the Company and IFS entered into a
series of transactions (the "1990 Transactions"). The 1990
Transactions, by their terms, were subject to ratification by the
affirmative vote of the holders of a majority of the Company's
outstanding voting common stock at the Company's next occurring
annual meeting of shareholders. In exchange for the cancellation
of $210,000 of the Company's secured debt to IFS representing
one-half of its note payable thereto and $240,000 owing to IFS by
the Company for unpaid management fees and interest charges, the
Company agreed to issue 3,000,000 shares of its Common Stock to
IFS. Absent the 1990 Transactions, the $420,000 note payable to
IFS would have been convertible into 1,400,000 shares of Common
Stock, representing upon such conversion, 19.1% of the issued and
outstanding Common Stock of the Company. The 3,000,000 shares of
Common Stock issued to IFS upon shareholder approval of the 1990
Transactions represent a 33.65% interest in the Company.
As part of the 1990 Transactions, a new $210,000 secured
promissory note due January 26, 1992 was issued by the Company.
The new note was identical to the prior note except that it was
not convertible into Common Stock. The new note bore interest,
payable monthly, at a rate equal to two points above the prime
interest rate. As of January 26, 1992, the new note was amended
as to its principal repayment terms, in contemplation of the 1990
Transactions being approved by the stockholders. The revised
repayment terms were: (i) $30,000 on January 26, 1992, and (ii)
$10,000 per month for eighteen months commencing February 26,
1992. The Company initially failed to meet its payment
obligations to IFS under the new note as they became due;
however, IFS did not declare a default thereon. When the Company
reached its peak season, during the summer of 1992, it was able
to satisfy its past due obligations under the new note, although
as discussed below, other indebtedness to IFS increased. The new
note was paid in full, according to its amended repayment
schedule, on July 26, 1993.
Also in connection with the 1990 Transactions, the Company
and IFS further amended a Management Agreement (the "Management
Agreement") under which IFS provides, among other things,
consultative, supervisory and advisory services to the Company.
Under the terms of the amendment, IFS was to receive $16,000 per
annum for each restaurant managed for the Company and
income-related incentive fees, previously provided for, were
eliminated. By its terms, the December 28, 1990 amendment to the
Management Agreement required (and received) shareholder
ratification at the Company's next occurring annual meeting.
Under the terms of the previous agreement, IFS received $16,000
per month without regard to the number of restaurants under
management, in addition to other income-related incentives
(which, historically were not met). Based on 12 restaurants in
operation, IFS received $190,667 and $192,000 respectively in
1993 and 1992 (the slightly lower amount in 1993 reflects a pro-rata
reduction for the period between the closing of a restaurant
in Raritan, New Jersey and the opening of a new restaurant on
Eastern Parkway in Brooklyn, New York (which subsequently closed
in 1994)). As amended in connection with the 1990 Transactions,
the Management Agreement would have remained in effect until
January 25, 1992; however, by an amendment dated January 26,
1992, the term of the Management Agreement was extended until
January 25, 1993. By its terms, the January 26, 1992 amendment
to the Management Agreement was also subject to (and also
received) ratification by the Company's shareholders at the
Company's 1992 Annual Meeting. Effective as of January 26, 1993,
the Management Agreement was further amended to extend its term
until January 25, 1994. As of January 26, 1994, the Management
Agreement was extended until January 25, 1995 except that the
management fee was reduced to $12,000 per restaurant per year.
As of January 26, 1995, the Management Agreement was extended
until January 25, 1996. Management fees in fiscal 1995 and 1994
totalled $96,500 and $144,500, respectively. Effective as of
January 26, 1996, the management agreement was extended until
January 25, 1997. Per restaurant fees remained at $12,000 per
annum; however annual aggregate fees could not be less than
$108,000. Management fees in fiscal 1996 were $105,000.
Effective as of January 26, 1997, the management agreement was
extended until January 25, 1998. Per restaurant fees remain at
$12,000 per annum; however, the annual aggregate minimum fee was
reduced to $96,000. See Item 6. Management's Discussion and
Analysis of Financial Conditions and Results of Operations.
The Company's 1992 Annual Meeting took place on June 25,
1992, at which time the Company's stockholders ratified and
approved the 1990 Transactions. In accordance therewith,
$450,000 of aggregate indebtedness to IFS, including $210,000 of
note principal, was converted to equity and IFS was issued
3,000,000 shares of the Company's Common Stock. The amended
Management Agreement similarly went into effect, and as both the
stock subscription and amended Management Agreement provided for
their approval to be retroactive to December 28, 1990, an
additional $67,306, representing the difference in management
fees (attributable to the Company operating fewer than twelve
restaurants for portions of the intervening eighteen-month
period) and interest charges on the $210,000 of note principal
retroactively extinguished, was contributed to the paid-in
capital of the Company.
At December 25, 1994, the Company owed IFS $536,385.
However, in February 1995, IFS exercised its termination option
on its Bronx sublease to the Company pursuant to which the
Company received a credit of $51,000 applied as partial payment
to its open-account indebtedness. The balance of such
intercompany indebtedness was retired from the proceeds of two
restaurant sales in May and July of 1995. At December 31, 1995,
IFS owed the Company $153,010 pursuant to an interest-free,
short-term advance, repayment of which was made during the first
quarter of fiscal 1996. At December 29, 1996, the Company owes
IFS $16,683 for the December 1996 management fee and other
miscellaneous items. See Item 1. "Recent Restaurant Sales," and
"Other Restaurant Closings," and Note 5 to the Consolidated
Financial Statements.
Recent Restaurant Sales
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On May 4, 1995, pursuant to a contract of sale dated March
14, 1995, the Company sold its Hillside, New Jersey restaurant to
an unrelated party for an all-cash sales price of $490,000,
subject to certain closing adjustments. The Company
simultaneously retired its related mortgage indebtedness, earning
a $5,000 early payment discount. The Company recorded an overall
gain on the sale, including the prepayment discount, of $274,875.
On July 5, 1995, pursuant to a contract of sale dated June
19, 1995, the Company sold its East Orange, New Jersey restaurant
to an unrelated party for an all-cash sales price of $325,000,
subject to certain closing adjustments. The Company also obtained
an assignment of certain lease rights from the lessor which
rights were also sold to the purchaser at the Company's cost
therefor of $135,000, of which one-half was paid at closing and
the balance in various installments through December 2, 1995.
The Company recorded a gain on the sale of $247,909.
On November 20, 1995, pursuant to a contract of sale dated
October 5, 1995, the Company sold its Teaneck, New Jersey
restaurant to an unrelated party for an all-cash sales price of
$175,000 plus certain closing adjustments and realized a gain on
the sale of $150,409.
The aggregate gain on the sale of all three restaurants was
$673,193. After the last of such sales, the Company's six
remaining restaurants were all located in New York City. See Item
2. Properties and Note 8 to the Consolidated Financial
Statements.
On January 15, 1997, the Company and an unaffiliated party,
who had previously purchased two of the Company's restaurants and
is also managing one Brooklyn restaurant for the Company, agreed
to terms for the sale of the Company's Hillside Avenue, Queens
Restaurant. The purchase price for this restaurant, the lease
for which expires on July 31, 1988, is $30,000 plus the usual
closing adjustments for inventory and prepaid/accrued items. The
price is subject to increase by a minimum of $50,000 if the
purchaser obtains any extension of the lease. For extensions of
the lease term in excess of five years, the price is increased by
an additional $10,000 per year to a maximum of $50,000.
Accordingly, if the lease is extended for ten or more years, the
adjusted purchase price will be $130,000. On April 8, 1997, the
Company received the required approval from the Franchisor for
the sale which is expected to close during the latter part of the
month. See Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Recent Restaurant Closings
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On October 4, 1994, a robbery resulting in a homicide
occurred at the Eastern Parkway location. The Company
immediately closed the store pending a reassessment of its
viability. Sales at this restaurant had declined during 1994
following the restaurant's successful opening in 1993. The
Company subsequently determined it would permanently close this
unprofitable location. On December 7, 1994, the assets and lease
related to the Eastern Parkway restaurant were sold to an
unrelated party. Also, in November 1994, the Company sold the
lease and assets of its restaurant located at 168-30 Hillside
Avenue in Queens to the same third party purchaser, which
restaurant was also unprofitable at the time of closure. The
Company lost approximately $69,000 on these two transactions,
virtually all of which was attributable to the Brooklyn location.
In February 1995, IFS, as sublessor of the Company's Bronx
restaurant, notified the Company it was exercising its
termination option included in the lease and, on February 22,
1995, this location closed. As provided in the lease, the
Company was credited with a pro-rata early termination penalty
payment to compensate it for the store's unamortized leasehold
improvements. Such credit in the amount of $51,000 was applied
to the Company's open account indebtedness due to IFS.
Present Operations
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Since June 1979, the Company exercised 12 of the options
purchased by it pursuant to the Option Agreement and the
Development Agreement, and acquired three existing Popeyes
restaurants in New Jersey and opened three Popeyes restaurants in
New York, pursuant to a separate Development Agreement. During
the same period, the Company closed seven restaurants, one at 172
West 72nd Street in New York, New York, upon the expiration of
the lease; one at 46-05 Northern Boulevard in Queens, New York
and one at 125 West 42nd Street, New York, New York, both of
which were unprofitable restaurants at the time of closure; one
in Raritan, New Jersey, due to condemnation-related construction
activity at the site; one at 168-30 Hillside Avenue, Queens and
one at 1126 Eastern Parkway, Brooklyn, New York (which had opened
in August 1993 and to which the Raritan franchise rights had been
transferred) both of which were unprofitable at the time of
closure; and one at 46-48 161st Street, Bronx, New York, another
location which was unprofitable at the time of closure, and whose
lease was terminated by IFS, the sub-lessor. In 1995, the Company
also sold at a gain three profitable restaurants, located at 1318
Liberty Avenue, Hillside, New Jersey; 372 Central Avenue
in East Orange, New Jersey; and 1307 Teaneck Road in Teaneck, New
Jersey. See "Recent Restaurant Sales." The Company has entered
into agreements ("Franchise Agreements") with PFFC and its
successor in interest with respect to its six continuing Popeyes
restaurant franchises in New York. The Company has one
continuing subleased location. In addition to the recently
terminated Bronx sublease, another subleased location was
discontinued in 1993 when the Company was allowed to terminate
the store lease. The Popeyes restaurants are located at 722
Seventh Avenue in the Times Square area of the Borough of
Manhattan, City of New York; 850 Pennsylvania Avenue, 40 Empire
Boulevard and 2137 Nostrand Avenue (sub-lease) in the Borough of
Brooklyn, City of New York; 144-20 Hillside Avenue, and 122-10
Guy Brewer Boulevard in the Borough of Queens, City of New York.
See Item 2. Properties.
Effective April 1, 1996 the Company entered into a
management agreement with an individual (The "Manager") to manage
the operations of its Popeye's Restaurant on Empire Boulevard in
Brooklyn. The agreement, the initial term of which expired
December 31, 1996 is automatically renewable unless cancelled by
the Company or the Manager, in each case, upon written notice of
30 or 90 days, respectively. If the agreement is terminated by
reason of the Manager's breach or is otherwise terminated by the
Manager for any reason other than a breach by the Company, the
Manager must pay a $10,000 termination fee. The Manager paid a
$15,000 security deposit upon the commencement of the agreement.
The agreement provides for a monthly management fee to the
Manager equal to the restaurant's cash flow less the greater of
$200 or five percent of such monthly cash flow, calculated
monthly and not cumulatively. Stated conversely, the Company
receives the greater of $200 per month or 5% of the restaurant's
monthly cash flow. Any negative cash flow in any month is borne
by the Manager and the Company still receives the $200 minimum
amount for such month. The Company earned the minimum $1,800
amount for the nine months the agreement was in effect in fiscal
1996. The amount retained by the Manager during this period
was $10,686.
At the time of its acquisition, the now-closed Raritan, New
Jersey location was subject to a condemnation proceeding. Such
proceeding was concluded in December 1993 at a significant gain
to the Company. In September 1994, the Raritan landlord
commenced a lawsuit against the Company. In March 1997, the
lawsuit was adjudicated with the substantial and unexpected award
for the plaintiff. In April 1997, the parties verbally agreed to
a settlement of the judgement amount. See Item 3. Legal
Proceedings, Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 10B to the
Consolidated Financial Statements.
For the five fiscal years ended December 29, 1996, December
31, 1995, December 25, 1994, December 26, 1993 and December 27,
1992, the Company recorded sales of $5,349,978, $6,588,338,
$8,062,632, $8,240,781, and $7,929,720, respectively. The
Company had a net loss of $137,412 in 1996, net income of
$518,705 in 1995 and net losses of $228,720, $57,465, and
$273,274, in 1994, 1993 and 1992, respectively. See Item 6.
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Item 7. Financial Statements.
The Company's present restaurants range in size from
approximately 1,000 to 2,500 square feet of space and seat from
approximately 38 to 66 persons. Restaurant hours of operation
vary, depending upon location.
The Company obtains its equipment, supplies, and food
products from sources recommended and approved by the Franchisor.
In order to serve its featured "New Orleans Style" spicy and mild
fried chicken, the Company must purchase its batter mix and
special spices from Franchisor approved distributors.
The Franchisor maintains quality control over the operations
of its franchised restaurants by means of periodic, on-site
inspections and evaluations. All aspects of business operations
are inspected and evaluated, including cleanliness, service, food
recipes and taste, and management. The failure by the Company to
achieve satisfactory inspections and evaluations may be deemed to
be a default under those provisions of the Franchise Agreements
which require the Company to operate in accordance with the
Franchisor's franchising "system," which default, if not cured
within 30 days of written notice of default sent by the
Franchisor to the Company, may result in termination of the
Franchise Agreement.
The Company has sought to find and establish restaurants in
high traffic areas, and advertises in each restaurant's local
area by means of discount coupons which are distributed
throughout the marketing area, electric and electronic sign
advertising and local community promotions. The Company also
uses the nationally known and copyrighted figure of Popeye the
Sailorman and its related family of characters in the Company's
advertising and promotions, as well as throughout the decor of
its restaurants. The Company has in the past undertaken limited
local television and radio advertising promotions. Pursuant to
the Company's Franchise Agreements, 3% of the Company's gross
sales, exclusive of sales taxes, is to be contributed to the
Franchisor for advertising, as more fully described under the
heading "The Franchise."
Food Menu
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Each of the Company's operating restaurants is a "limited
menu" restaurant which utilizes the Popeyes Famous Fried Chicken
and Biscuits fast food system and which specializes in the
preparation and sale of uniquely flavored "New Orleans Style"
spicy and mild fried chicken. The Company depends upon the
distinctive taste of the batter used in the preparation of fried
chicken and other items in order to attract and retain customers.
The recipe for the batter mix is the property and trade secret of
the Franchisor and the precise spices and ingredients and proper
proportions of such spices and ingredients are unknown to the
Company. As a result, the Company is required to purchase the
batter mix and spices from distributors approved by the
Franchisor.
In addition to featuring its "New Orleans Style" fried
chicken, the Company's restaurants offer for sale such
accompanying food items as barbecue chicken sandwiches, onion
rings, cole slaw, french fried potatoes, corn on the cob, cajun
rice, cajun nuggets, cajun popcorn bite-sized shrimp and red
beans, egg fried cajun style french fries and rice. Certain of
these items are also prepared utilizing the Franchisor's
proprietary spice blends. Although the Company possesses the
recipe for preparing the above items, the blend of spices used
therefor are the property of the Franchisor, and the Company must
purchase such spices directly from the Franchisor's authorized
distributors.
Future Locations
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Under the Development Agreement, the Company had options to
open a specified number of additional Popeyes restaurants within
the territories and time periods set forth in the Development
Agreement and the right to submit additional locations in
Manhattan to the Franchisor on a case-by-case basis. During the
sixteen-month period ended December 25, 1994, three of such
options expired unexercised. As a result, the Company was in
default of the Development Agreement. On January 30, 1995,
pursuant to its rights thereunder, the Franchisor terminated the
Development Agreement. Such action did not affect the continuing
franchise agreements nor the Company's right to submit additional
locations as franchise sites to the Franchisor on a case-by-case
basis. See "Background," "The Franchise, and Note 3 to the
Consolidated Financial Statements.
Provided that the Company obtains the additional financing
which would be required, and further provided that the Company
successfully negotiates additional franchise rights, which may or
may not include partial or full credit against new franchise fees
for lapsed options and/or closed locations, the Company may in
the future seek to acquire additional Popeyes Famous Fried
Chicken and Biscuits restaurants in the New York Metropolitan
area. However, the Company has no present plans to do so.
The Franchisor
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The Company originally purchased the right to establish and
operate Popeyes Famous Fried Chicken and Biscuits restaurant
franchises from PFFC, a privately-held company founded in 1972.
In 1992, PFFC, whose parent company had been in bankruptcy, was
acquired by the Franchisor who continues to operate a national
fast food system consisting of company-owned and franchised
restaurants. The Franchisor's executive offices are located in
Atlanta, Georgia.
There are approximately 700 Popeyes Famous Fried Chicken and
Biscuits restaurants currently operating in 40 states, the
District of Columbia, and five countries. Approximately 13% of
all restaurants are owned by the Franchisor, and the balance are
owned by franchisees. To the Company's knowledge, the nearest
Popeyes Famous Fried Chicken and Biscuits restaurant not operated
by the Company is located in Manhattan on 34th Street.
The Franchise
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Historically, when the Company decided upon a site for a
Popeyes restaurant, it submitted such site to the Franchisor for
approval. Under the Development Agreement, the Franchisor had 30
days to approve or disapprove any proposed site. Within 90 days
after site approval, the Company was to submit to the Franchisor
proof that it owned the site or had a lease for such site
containing certain required provisions, including that the term
of the lease, together with renewal options was for at least 20
years (although such requirement had been waived in certain
instances). In addition, the Company was required to submit
plans and specifications for such site to the Franchisor for
approval, which plans and specifications were to be in accordance
with the Franchisor's standards and specifications for franchised
locations. After such approvals were given by the Franchisor,
the Company and the Franchisor entered into a Franchise Agreement
covering the establishment and operation of a Popeyes Famous
Fried Chicken and Biscuits restaurant franchise to be operated at
the chosen location.
Although the Franchisor terminated the Development Agreement
as of January 30, 1995, such action did not irrevocably preclude
the Company from acquiring additional franchises. While the
Company has no present plans to construct new restaurants, should
the Company seek to acquire existing restaurants, it expects it
would follow previously applicable procedures to be approved as
the unit franchisee and would also likely seek to negotiate
credits against the franchise fee from lapsed options and/or
closed locations. See "Future Locations".
PFFC, and as its successor in interest, the Franchisor, and
the Company have entered into Franchise Agreements for each of
the Company's restaurants of which six continue in effect. Such
Franchise Agreements generally provided for the Company to pay a
franchise fee of $25,000 per franchise of which $10,000 was
credited from the applicable option being exercised. The term of
each Franchise Agreement and the franchise granted thereunder is
20 years from the date the Franchise Agreement is executed, and
is thereafter renewable at the Company's option for one
additional ten-year period. In order to renew, the Company must
satisfy certain conditions, including the payment of one-half of
the then current franchise fee; the execution of the then current
Franchise Agreement, which may include a higher royalty rate or
advertising fund contribution than currently; the execution of a
general release in favor of the Franchisor; satisfaction of all
monetary obligations to the Franchisor; and the reasonable
remodeling and/or modernization of the franchised location, in
accordance with the specifications contained in the Franchisor's
then current Franchise Agreement or Operating Manual.
In addition to the payment of the $15,000 balance of the
franchise fee, each Franchise Agreement required, for all periods
through January 9, 1993, the Company to pay a continuing royalty
fee, payable on a weekly basis, in an amount, during the first
five years, equal to 5% of gross sales, exclusive of sales tax,
and, after the first five years, an amount equal to 5-1/2% of
gross sales, exclusive of sales tax. Effective as of January 10,
1993, America's Favorite Chicken Company, as successor in
interest to PFFC, amended the royalty percentage to 5% for all
franchised restaurants, regardless of the number of years they
had been in operation. The Company's previous weighted average
royalty rate had been approximately 5.34%. The Company also has
been and is currently required to pay an additional sum equal to
3% of gross sales, exclusive of sales tax, payable on a weekly
basis, as and for its advertising contribution. However,
commencing during 1993, three-fourths of such amount was required
to be contributed to a regional advertising cooperative which
purchases regional media advertising. Previously, two-thirds of
the advertising contribution was expended for regional
advertising by the Franchisor and its predecessor.
The occurrence of certain events constitutes a default under
the Franchise Agreement. Such events include the failure to make
timely payments to the Franchisor; the failure to abide by the
Franchise Agreement; the filing of a petition in bankruptcy by
the Company, or the Company's consent to the filing of such a
petition by another; the adjudication of the Company as bankrupt;
the unauthorized transfer by the Company of any rights or
obligations under the Franchise Agreement; the Company's repeated
violation of the Franchise Agreement, whether or not cured; or
the cessation by the Company of business activities at the
franchised location. In the event of default, the Franchisor, at
its option, may terminate the Franchise Agreement.
Upon payment of the franchise fee and continuing royalty and
advertising fees, the Franchisor provides and will continue to
provide the Company with the following services: (a) standard
basic plans and specifications for equipment, furnishings, decor,
layouts and signs, together with advice and consultation
concerning the architectural layout of Company stores; (b) lease
review and approval; (c) a pre-opening and continuing training
program; (d) pre-opening and continuing management training at
the school operated by the Franchisor; (e) a Confidential
Operations Manual; (f) special recipe techniques; (g) food
preparation instructions; (h) standardized accounting methods;
(i) cost control methods; (j) portion control systems; and (k)
grand opening advertising and promotion supervision.
The Franchise Agreements, among other things, require the
Company to maintain a high degree of cleanliness and repair, to
operate in conformity with procedures established by the
Franchisor, to use supplies conforming to the Franchisor's
standards purchased from suppliers approved by the Franchisor,
and to sell only items meeting the Franchisor's standards and
which have been expressly approved by the Franchisor.
The Franchise Agreements also provide that during their
term, and for a period of one year thereafter, no officer,
director or 5% shareholder of the Company will divert or attempt
to divert any business of the Company to any competitor, to
employ or seek to employ any employee of the Franchisor or any
other franchisee, or own, operate, or have more than a 5%
beneficial interest in any restaurant which is similar to a
Popeyes restaurant. In addition, no officer, director or 5%
shareholder of the Company may own, maintain, engage in, or have
a controlling interest in any business which is similar to or the
same as the franchised business (except other Popeyes
restaurants), within a five or ten mile radius of the Popeyes
restaurant subject to such Franchise Agreement.
Trademarks and Service Marks
- ----------------------------
In much of its advertising, promotions and interior and
exterior decor, the Company utilizes Popeye the Sailorman and its
related family of characters pursuant to the rights conferred by
the Franchise Agreement with PFFC and the Franchisor, as
successor. PFFC obtained its license from King Features
Syndicate, Inc. and the Company is not a party to such license
and has no control over its perpetuation. The Company uses the
licensed characters in order to promote the public's awareness of
the Company's identity, but does not believe that it would be
materially adversely affected by the loss of the use of such
characters.
Competition
- -----------
The fast food, limited menu restaurant business is highly
competitive. Competition is provided by an increasing number of
franchised units of national and regional fast food chains, as
well as by company-owned and locally-owned restaurants, drive-ins,
and diners. The Company also competes with retail stores
and other restaurants for desirable locations. The Company does
not consider itself to be a significant factor in the fast food
industry and many of the Company's competitors have far greater
financial resources, management expertise, and physical
operations than the Company. Competitive factors in the industry
include price, taste, location, advertising and trademarks.
Employees
- ---------
The Company has approximately 125 employees. Of such
number, approximately 36 are full-time and approximately 89 are
employed on a part-time basis. All of the Company's employees
are trained to serve as food handlers and preparers, cooks,
cashiers, servers and maintenance personnel and are trained in
every phase of the Company's operations. The Franchisor requires
that certain of such employees be trained by the Franchisor. In
addition, all employees rotate between positions, thus providing
each employee with a thorough knowledge of restaurant operations.
Of the 36 full-time employees, 17 are employed in supervisory or
managerial positions. None of the Company's employees are
covered by a collective bargaining agreement.
Item 2. PROPERTIES
- ------ ----------
The Company operates six Popeyes Famous Fried Chicken and
Biscuits restaurants at the locations set forth below:
1. 722 Seventh Avenue, New York, New York
2. 40 Empire Boulevard, Brooklyn, New York
3. 144-20 Hillside Avenue, Queens, New York
4. 122-10 Guy Brewer Boulevard, Queens, New York
5. 850 Pennsylvania Avenue, Brooklyn, New York
6. 2137 Nostrand Avenue, Brooklyn, New York
The leases in effect for the first five locations provide
expiration dates (including options to extend) ranging from July
31, 1998 to June 30, 2013.
The lease for the sixth restaurant, a sub-lease, expired on
February 28, 1997 and the Company is presently in holdover status
at such location. The sub-lessor acquired its lease (as lessee)
and the sub-lease (as sub-lessor) from Integrated Food Systems,
Inc. The sub-lessor is also in holdover status with respect to
its lease as lessee.
The sub-lessor has advised the Company that its negotiations
to renew its lease for ten years should be concluded shortly at
which time the Company's sub-lease will be extended for a ten-year
coterminous period at a rental of 11% of sales for the first
five years and 13% of sales for the second five years. Rent on
the sub-lease is currently 15% of sales.
In July, 1996 the Company amended the Manhattan lease, which
was to expire on December 31, 1996. The amendment extended the
term to December 31, 2002 and effective August 1, 1996 increased
the annual rent from $180,000 to $265,000 through July 31, 1999.
The rent for the remainder of the extended term will be $270,000
annually.
In addition to the foregoing, the Company has subleased to
an unrelated party a location at 1074 Washington Avenue in
Brooklyn, New York which had been used by the Company for a
restaurant which did not operate profitably. A second sublease
for certain premises formerly used as a Popeyes restaurant at 87-26
Roosevelt Avenue in Queens, New York was terminated August 1,
1996 when the Company, with the consent of the lessor, assigned
its lease to the sub-lessee.
For further information concerning lease commitments, see
Note 6B to the Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
At the time of its acquisition by the Company in August,
1991, the Raritan, New Jersey restaurant was subject to a
condemnation suit brought by the New Jersey Department of
Transportation. The Company was one of three tenants at the
site. Work on the related three-year construction project
commenced in October, 1991 and necessitated the closing of the
restaurant in July 1993. A commission hearing was held on August
26, 1992 at which time, the commissioners determined an aggregate
award for all defendants, including the landlord. The State
appealed the award. In December 1993, the Superior Court of New
Jersey awarded the Company an aggregate of $399,302 which was
received in January, 1994. The Company's attorney fees and
expenses totalled $105,909 and from the proceeds the Company also
paid the outstanding balance of the Raritan mortgage debt in the
amount of $131,972 together with accrued interest thereon of
$1,184. The Company realized a net gain on the condemnation of
$143,061.
The Company considered the lease to be terminated and as
of February 1, 1994 ceased paying rent. On September 30, 1994,
Host Marriott Corporation, as sublandlord, instituted litigation
against the Company seeking lost rent from February 1, 1994,
payment for alleged removal of equipment, alleged loss of
percentage rent, recovery of the amount allocated to the Company
as a result of the condemnation proceeding and punitive damages.
On November 23, 1994, the Company filed an answer denying all
liability and asserting various affirmative defenses, among which
was the failure of Marriott to mitigate damages based on
Marriott's refusal to assign the sublease to another tenant.
In March 1996, the Company, as defendant, and Host Marriott
Corporation, as plaintiff, filed cross motions for summary
judgment. The matter proceeded to trial in U.S. District Court
in February 1997. On March 7, 1997, the Court decided in favor
of the plaintiff and awarded $229,893 plus reasonable legal fees.
The result at trial was completely unexpected by the Company and
its counsel. On March 19, 1997 the Company filed a notice of
appeal with the U.S. Circuit Court of Appeals for the Third
Circuit. The Company also sought to negotiate a settlement of
the judgement with the plaintiff. On April 9, 1997, the
settlement negotiations resulted in the plaintiff verbally
agreeing to accept the Company's offer of $143,500 in full
satisfaction of the judgement amount, provided such payment is
made by April 30, 1997. See Item 6. Management's Discussion and
Analysis of Financial Condition and Results of Operations and
Notes 6D and 10B to the Consolidated Financial Statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of security holders
during the fiscal year ended December 29, 1996.
PART II
-------
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
- ------- -----------------------------------------------------
The Company's Common Stock was previously traded in the
over-the-counter market. However, there has been no reported
trading activity in the Company's Common Stock since December 9,
1991. The Company presently has no market maker and no NASDAQ
symbol. The Company is unable to predict whether a trading
market for its Common Stock will resume in the future.
As of April 10, 1997, there were approximately 1,822 holders
of record of the Company's Common Stock.
On November 28, 1995, the Company's Board of Directors
declared a dividend in the nature of a return of capital of $.025
per share on its Common Stock. The dividend, aggregating
$222,858, was paid on December 21, 1995 to holders of record as
of December 11, 1995. On November 15, 1996, the Company declared
a second return of capital distribution of $.01 per share of
common stock. This distribution, aggregating $89,143 was paid on
December 16, 1996 to holders of record as of December 11, 1995.
Prior to these return of capital distributions, the Company had
never paid a cash dividend of any kind and does not anticipate
paying such a dividend in the foreseeable future. See Item 6.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ------- -------------------------------------------------
Results of Operations
- ---------------------
The Company's net sales of $5,349,978 in fiscal 1996
decreased by $1,238,360, or 18.8%, from $6,588,338 in 1995. All
of such decrease is attributable to restaurants that were sold
or closed during 1995. The Company operated six restaurants
throughout 1996. However in January of 1997, the Company and an
unaffiliated party, who had previously purchased two restaurants
from the Company and was managing another, agreed to the sale of
the Hillside Avenue, Queens Restaurant. Such sale has been
approved by the franchisor and is expected to close during the
latter part of April 1997. See Liquidity and Note 10A to the
Consolidated Financial Statements.
Sales at the six continuing restaurants in New York City
increased by 7.0%. However, fiscal 1995 comprised 53 weeks while
fiscal 1996 comprised 52 weeks. Adjusted for the one-week
difference, sales in fiscal 1996 at continuing restaurants grew
by 9.0%. All restaurants except the Brooklyn sub-leased location
recorded year-to-year gains. Sales at such lone exception
decreased by 7.5%, as adjusted for the one-week shorter period.
Such decrease was attributable to competitive factors; the sub-lessor,
who also operates a fast food restaurant on the premises,
offered a discounted chicken nugget promotion at certain times
during the year and another fast food chicken restaurant opened
across the street. This competitor closed in early December 1996
and sales trends at the Company's store immediately turned
positive. Four of the Company's other locations had gains, as
adjusted for the one-week difference, ranging from 5.6% for the
managed Brooklyn location to 8.0%, for the Manhattan location,
believed by the Company to be the world-wide franchise sales
leader. The two Queens locations had adjusted gains of 5.9% and
6.4%. The largest gain occurred at the newly remodeled Pennsylvania
Avenue, Brooklyn location where sales, as adjusted, increased by
23.2%. The interior remodel was completed in the first quarter of
1996. All stores benefitted from improved operations generally, as
well as the discontinuation of the $2.99 "Combo Meal" in January 1996.
Cost of sales decreased by $445,791 or 20.0% to $1,781,065
in 1996 from $2,226,856 in 1995, principally as a result of the
overall sales decline. As a percentage of sales they decreased
by 0.5% to 33.3% in 1996 from 33.8% in 1995. Cost of sales
benefitted from the discontinuation of $2.99 "Combo Meals" in
January 1996. This resulted in a 0.2% decrease in the raw food
cost as a percentage of sales, notwithstanding a 10% increase in
the cost of chicken during 1996. Paper cost decreased by 0.3% of
sales as a result of the discontinued discounted "Combo Meals."
Selling, general and administrative expenses decreased by
$874,881 or 19.3% to $3,652,223 in 1996 from $4,527,104 in 1995,
consistent with the Company's decreased sales. As a percentage of
sales, these expenses decreased by 0.4% to 68.3% in 1996 from
68.7% in 1995. Within this category, labor costs decreased by
2.5% of sales, benefitting from the effective increase in average
menu prices resulting from the discontinuation of discounted
"Combo Meals." Most of such improvement was realized in the
first three quarters of the year. Due to the increase in the
minimum wage effective October 1, 1996, the Company expects labor
costs in 1997 to increase by 0.5% of sales. Occupancy costs
increased by 0.8% including 0.5% attributable to higher base rent
effective August 1, 1996 at the Manhattan location, increased in
connection with the lease amendment and extension agreement
therefor; 0.4% attributable to higher percentage rent charges due
to sales increases at stores subject to percentage rent; 0.6%
attributable to higher per-store insurance costs, increased in
mid-1995 as a result of operating fewer stores; less the 0.6%
effect of reduced real estate taxes and other municipal charges
and a 0.1% reduction in depreciation and amortization expenses,
related principally to the latter. Controllable operating
expenses decreased by 0.5% of sales, principally as a result of
the increase in offered menu prices. General and administrative
expenses increased by 1.1% consisting of a net 0.6% increase in
professional fees, a 0.2% increase in theft losses, a 0.1%
increase in corporate franchise taxes and a net 0.2% increase in
all other items in this category. The increase in professional
fees results from increased charges for managerial accounting and
administrative services, net of reduced legal fees as three
restaurants were sold in 1995 and none were sold in 1996.
Royalties and advertising expenses, both included in the
selling, general and administrative expense category, were
constant at 5.0% and approximately 3.0% of sales, respectively.
Management fees increased by $8,500 to $105,000 in 1996 from
$96,500 in 1995, principally as a result of the provision in the
management agreement effective January 26, 1996 requiring an
annual minimum of $108,000. The renewal effective January 26,
1997 reduced the minimum to $96,000. The Company also incurred
net management fees of $8,886 (after deducting the $1,800 minimum
cash flow requirement payable to the Company) resulting from the
management agreement for the Empire Boulevard Restaurant in
Brooklyn. The combined effect of both management agreements was
an increase in expenses of 0.7% of sales.
Interest expense of $5,714 in 1996 did not recur as the
Company's last interest bearing debt was extinguished in May,
1995.
Sublease income decreased by $20,612 or 30.7% to $46,537 in
1996 from $67,149 in 1995. One of the Company's two subleases
was terminated August 1, 1996 when the Company's lease was
assigned to the sub-lessee. See Note 6B to the Consolidated
Financial Statements.
Neither the gain on restaurant dispositions nor the loss on
expiration of franchise options recurred in 1996.
The Company has accrued at December 29, 1996 the $143,500
litigation settlement amount it has agreed to pay in satisfaction
of the judgement awarded to the plaintiff landlord for the closed
Raritan location. See "Liquidity," Item 3. Legal Proceedings and Notes
6D and 10B to the Consolidated Financial Statements.
Miscellaneous income increased by $15,843 or 58.6% to
$42,861 in 1996 from $27,018 in 1995.
Due to available net operating tax loss carryforwards in
excess of taxable income for fiscal 1996 and 1995, the Company
did not incur any income taxes in either year. At December 29, 1996,
the Company has net operating loss and jobs tax credit carryforwards
of approximately $1,544,000 and $91,000, respectively, which expire
in 2009 and 2002.
Liquidity
- ---------
The Company's working capital deficiency increased by
$215,172 to $226,904 at December 29, 1996 from $11,732 at
December 31, 1995. Operations required $19,733, capital
expenditures required $120,938 and the return of capital
distribution required $89,143. Security deposits provided
$14,642.
From a cash flow standpoint, operating activities provided
$327,602 while investing and financing required $114,424 and
$89,143, respectively, resulting in a $124,035 net increase in
cash, which brought the year-end cash balance to $230,604.
The Company will realize minimum proceeds of $30,000, plus
closing adjustments, from the sale of the Hillside Avenue, Queens
Restaurant subject to a maximum increase thereon of $100,000 if
the purchaser renews the lease therefor. Such additional
proceeds may not be received until 1998 as that location's lease
does not expire until July 31, 1998. The Company will likely
incur an immediate cash shortfall from the sale as it will be
required to retire the Restaurant's trade liabilities.
The Company has obtained a commitment to borrow $125,000 from a
bank, with interest at 10%, repayable over two years, to fund
approximately seven-eighths of the judgement settlement amount it
has agreed to pay the plaintiff Host Marriott Corporation. Such
financing, together with the available cash balance at December 29,
1996 and as augmented by operating cash flow are expected to be
sufficient to meet the Company's cash obligations in fiscal 1997.
Inflation
- ---------
In the Company's recent fiscal years, inflation has not been
an overly significant factor. While certain raw food costs have
fluctuated, such fluctuations have been cyclical rather than
representative of steady inflationary pressure. Also, while unit
labor costs have gone up, such increases have generally been
offset by productivity improvements.
Item 7. FINANCIAL STATEMENTS
- ------- --------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page
----
Independent Auditor's Report F-1
Consolidated Balance Sheet at December 29, 1996 F-2
Consolidated Statement of Operations for the Years
Ended December 29, 1996 and December 31, 1995 F-3
Consolidated Statement of Stockholders' Equity for the
Years Ended December 29, 1996 and December 31, 1995 F-4
Consolidated Statement of Cash Flows for the Years
Ended December 29, 1996 and December 31, 1995 F-5
Notes to Consolidated Financial Statements F-6
to
F-13
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Fast Food Operators, Inc.
Bayside, New York
I have audited the accompanying consolidated balance sheet of
Fast Food Operators, Inc. and Subsidiaries as of December 29,
1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the
two-year period ended December 29, 1996. These financial
statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. I
believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Fast Food Operators, Inc. and Subsidiaries as of
December 29, 1996, and the consolidated results of their
operations and cash flows for each of the years in the two-year
period ended December 29, 1996, in conformity with generally
accepted accounting principles.
/S/ ERIC L. WESTON
Certified Public Accountant
Westbury, New York
January 17, 1997, except for Note 10 as
to which the date is April 11, 1997
F-1
Fast Food Operators, Inc. and Subsidiaries
Consolidated Balance Sheet
December 29, 1996
ASSETS
Current assets:
Cash $ 230,604
Inventory (Note 1B) 35,905
Prepaid expenses and other current assets 60,183
-----------
Total current assets 326,692
-----------
Property and equipment, net of accumulated
depreciation (Notes 1C, 2, 8 and 10A) 484,775
-----------
Other assets:
Franchise fees, net of accumulated amortization
of $122,083 (Notes 1D and 3) 2,917
Deferred lease costs (Note 1D) 11,090
Security deposits 13,500
-----------
Total other assets 27,507
-----------
TOTAL ASSETS $ 838,974
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 81,248
Accrued expenses 257,639
Taxes, other than income taxes 54,526
Litigation settlement payable (Note 10B) 143,500
Due to Integrated Food Systems, Inc. (Note 5) 16,683
-----------
Total current liabilities 553,596
Security deposits payable 18,758
-----------
Total liabilities 572,354
-----------
Commitments and contingencies -
(Notes 5, 6, 9 and 10)
Stockholders' equity - (Notes 4 and 10B):
Common stock, $.01 par value;
authorized: 10,000,000 shares; issued
and outstanding: 8,914,300 shares 89,143
Additional paid-in capital 2,142,862
Accumulated deficit (1,965,385)
-----------
Total stockholders' equity 266,620
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 838,974
===========
See notes to consolidated financial statements.
F-2
Fast Food Operators, Inc. And Subsidiaries
Consolidated Statement of Operations
Years Ended December 29, 1996 and December 31, 1995
1996 1995
----------- -----------
Sales $ 5,349,978 $ 6,588,338
Cost of sales 1,781,065 2,226,856
----------- -----------
Gross profit 3,568,913 4,361,482
----------- -----------
Selling, general and administrative
expenses (Notes 5, 6A and 6B) 3,652,223 4,527,104
Interest expense - 5,714
Sublease income (Note 6B) ( 46,537) ( 67,149)
Gain on restaurant dispositions
(Note 8) - (635,874)
Expiration of franchise options
(Note 3) - 40,000
Loss on litigation settlement
(Notes 6D and 10B) 143,500 -
Miscellaneous income, including
interest income of $161 in 1996
and $2,292 in 1995 ( 42,861) ( 27,018)
----------- -----------
3,706,325 3,842,777
----------- -----------
Net income (loss) (Note 9) $ (137,412) $ 518,705
=========== ===========
Net income (loss) per share
(Note 1G) $ (.02) $ .06
=========== ===========
Weighted average number of
shares outstanding 8,914,300 8,914,300
=========== ===========
See notes to consolidated financial statements.
F-3
Fast Food Operators, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Two Years Ended December 29, 1996
Common Total
Stock Additional Stock-
--------------- Paid-in Accumulated holders'
Shares Amount Capital Deficit Equity
------ ------ ---------- ----------- -------
Balances,
December 26,
1994 8,914,300 $89,143 $ 2,454,863 $(2,346,678) $ 197,328
Return of
capital
distribution
(Note 4) - - ( 222,858) - ( 222,858)
Net income
for 1995 - - - 518,705 518,705
--------- ------- ----------- ------------ -----------
BALANCES,
DECEMBER 31,
1995 8,914,300 89,143 2,232,005 (1,827,973) 493,175
Return of
capital
distribution
(Note 4) - - ( 89,143) - ( 89,143)
Net loss
for 1996 - - - ( 137,412) ( 137,412)
--------- ------- ----------- ----------- -----------
BALANCES,
DECEMBER 29,
1996 8,914,300 $89,143 $ 2,142,862 $(1,965,385) $ 266,620
========= ======= =========== =========== ===========
See notes to consolidated financial statements.
F-4
Fast Food Operators, Inc. And Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 29, 1996 and December 31, 1995
1996 1995
----------- -----------
Cash flows from operating activities:
Net income (loss) $( 137,412) $ 518,705
----------- -----------
Adjustments to reconcile net
income(loss) to net cash provided
(required)by operating activities:
Depreciation and amortization 117,679 151,774
Loss on litigation settlement 143,500 -
Gain on asset sales, net of
write-off of expired options - ( 595,874)
Increase in inventory ( 229) ( 6,108)
Decrease in prepaid expenses and
other current assets 78,393 19,157
Increase (decrease) in accounts
payable 38,721 ( 122,295)
Increase in security deposits
payable 8,128 -
Increase (decrease) in accrued
expenses ( 96,355) 79,793
Increase (decrease) in taxes,
other than income taxes 5,484 ( 3,920)
Increase (decrease) in due to
Integrated Food Systems, Inc. 169,693 ( 638,395)
----------- -----------
Total adjustments 465,014 ( 1,115,868)
----------- -----------
Net cash provided (required) by
operating activities 327,602 ( 597,163)
----------- -----------
Cash flows from investing activities:
Purchase of fixed and other assets ( 120,938) ( 178,841)
Proceeds from sale of restaurant
assets - 1,026,399
Security deposits refunded 6,514 1,861
----------- -----------
Net cash provided (required) by
investing activities ( 114,424) 849,419
----------- -----------
Cash flows from financing activities:
Return of capital distribution ( 89,143) ( 222,858)
Payments of long-term debt - ( 133,221)
----------- -----------
Net cash required by
financing activities ( 89,143) ( 356,079)
----------- -----------
Net increase (decrease) in cash 124,035 ( 103,823)
Cash, beginning of year 106,569 210,392
----------- -----------
Cash, end of year $ 230,604 $ 106,569
=========== ===========
Supplemental cash flow information:
Cash paid during the year
for interest $ - $ 5,714
=========== ===========
Non-cash investing and financing
activities:
Net book value of assets sold,
disposed of or written off $ - $ 435,510
=========== ===========
See notes to consolidated financial statements.
F-5
Fast Food Operators, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
(A) Organization and Principles of Consolidation:
The Company is engaged in the business of operating retail fast
food restaurants under its trade name, Popeye's Famous Fried
Chicken and Biscuits of New York, in accordance with franchise
agreements. The Company is managed by Integrated Food Systems,
Inc. ("IFS") who has made loans both to and from as well as an
investment in the Company. (See Notes 1D, 3, 5 and 6A).
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiaries, New Jersey Pop Corp., Royal
Foods, Inc., Empire Boulevard, Inc. and 1074 Washington Avenue,
Inc. All intercompany accounts and transactions have been
eliminated.
At both December 1996 and 1995 the Company was operating six
restaurants. The Company sold at a gain one restaurant in each
of the second, third and fourth quarters of fiscal 1995. The
Company also closed one restaurant in February 1995. (See Notes
8 and 10A).
(B) Inventory:
Inventory consists of food and paper supplies and is valued at
the lower of cost or market on a first-in, first-out basis.
(C) Depreciation and Amortization:
The cost of property and equipment is depreciated using the
straight-line method at rates adequate to allocate the cost of
applicable assets over their expected useful lives.
Leasehold improvements are amortized over the lesser of the terms
of the related leases or the estimated useful lives of the
assets.
(D) Intangible Assets:
Franchise fees and deferred option costs incurred in connection
with the acquisition of franchises are amortized on a straight-line
basis over 10 years from the date exercised. The cost of
unexpired options was charged to expense when they could no
longer be exercised. (See Notes 3 and 6A).
Deferred lease costs are amortized over the life of the lease.
(E) Income Taxes:
The Company's consolidated federal income tax return includes all
of its subsidiaries. The Company accounts for income taxes
pursuant to Financial Accounting Standard No. 109, ("FAS 109"),
adopted in 1993. The adoption of this standard has had no impact
on the Company's reportable income tax expense or benefit. (See
Note 9).
The Company is also subject to various state and local corporate
franchise taxes. Such taxes, not constituting a tax on income,
are included in general and administrative expenses.
F-6
(F) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles 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 thereof and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(G) Income (loss) per Common Share:
Income (loss) per common share is computed by dividing such
amount by the weighted average number of common shares
outstanding during each year.
(H) Fiscal Year:
The Company's fiscal year ends on the last Sunday in December.
Fiscal 1996 and 1995 comprised 52 weeks and 53 weeks,
respectively.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at December 29, 1996 consist of the following:
Leasehold improvements $1,238,027
Kitchen equipment 934,360
Furniture and fixtures 251,870
Register system 77,103
Automobiles 13,023
----------
2,514,383
Less: Accumulated depreciation
and amortization 2,029,608
----------
Net property and equipment $ 484,775
==========
NOTE 3 - FRANCHISE FEES AND DEVELOPMENT RIGHTS
The Company operates its Popeye's franchises pursuant to
franchise agreements. The Company had also purchased
nonrefundable options, at $10,000 each, pursuant to a development
agreement, to establish and operate additional franchises within
specified geographical areas. The franchisor granted the Company
franchise development rights within specified territories and
time periods as defined in the agreement.
At times, the Company and the franchisor had revised the
expiration schedule of the options. At December 26, 1994, there
were four remaining options, scheduled to expire every six months
from March 1995 through September 1996. However, as a result of
allowing three prior options to expire unexercised, the Company
was in default of the agreement. In January 1995, the franchisor
exercised its right to terminate the development agreement and
the remaining four options lost all value. The Company
accordingly recorded a loss thereon of $40,000 in 1995.
F-7
The agreements pertaining to each existing franchise are for a
20-year term. The Company may, at its option, renew each
expiring franchise for one additional 10-year period for a fee
equal to 50% of the then current franchise fee. Such renewal fee
is presently $12,500.
The franchise agreements also obligate the Company to pay the
franchisor fees for royalties and advertising. (See Note 6A).
NOTE 4 - RETURN OF CAPITAL DISTRIBUTIONS
On November 15, 1996, the Company declared a return of capital
distribution of $.01 per share of common stock. The
distribution, aggregating $89,143, was paid on December 16, 1996
to shareholders of record as of December 2, 1996.
On November 28, 1995, the Company declared a return of capital
distribution of $.025 per share of common stock. The
distribution, aggregating $222,858, was paid on December 21, 1995
to shareholders of record as of December 11, 1995.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company is managed by IFS pursuant to a management and other
related agreements originally entered into in January 1988. In
December 1990, the Company and IFS conditionally amended the
various agreements between them. Adoption of the amended
agreements, including a restructuring of the Company's debt and a
conversion of a part thereof to 3,000,000 shares of common stock,
all on a retroactive basis, required the ratification of the
Company's shareholders, which was obtained on June 25, 1992. The
management agreement was further amended effective January 26,
1994 to reduce the annual management fee by $4,000 per restaurant
to $12,000.
The management agreement was subsequently renewed for additional
one-year terms through January 25, 1996, 1997 and 1998; each
renewal provided for a per restaurant fee of $12,000. However,
the renewal effective January 26, 1996 required a minimum annual
fee of $108,000; the renewal effective January 26, 1997 requires
a minimum annual fee of $96,000.
Management fees were $105,000 in fiscal 1996 and $96,500 in 1995.
At December 26, 1994, the Company owed IFS $536,385. Such non-interest
bearing advance was repaid in full during fiscal 1995
from the proceeds of various asset sales. At December 31, 1995,
IFS owed the Company a non-interest bearing advance of $153,010,
which was repaid during the first quarter of 1996. At December
29, 1996 the Company owes IFS $16,683, for the December
management fee and miscellaneous items.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
(A) Franchise Arrangements:
The Company is obligated to pay the franchisor fees for royalties
and advertising, equal to 5% and 3% of gross sales, respectively.
F-8
Royalty and advertising fees charged to operations were $267,375
and $162,486 for fiscal 1996 and $329,441 and $201,750 for 1995.
(B) Operating Lease Commitments:
The Company has lease agreements for store premises expiring at
various dates through June 2007. Of these, one expires in 1997,
two in 1998, one (amended in 1996) in 2002 and one in 2003. (See
Note 10A). Only the lease expiring in 2003 may be extended - for
one ten-year term. Three of the leases provide for percentage
rent at rates averaging 5% on annual sales in excess of stated
minimums. One lease requires base rent equal to 15% of sales.
In addition to monthly rental charges on all the leases, the
Company must pay certain property taxes, insurance and other
expenses.
The Company's lease for its Manhattan restaurant, previously
requiring an annual rental of $180,000 and due to expire on
December 31, 1996, was amended effective August 1, 1996. The
amendment extended the lease term until December 31, 2002 and
increased the annual rental to $265,000 for the three-year period
ending July 31, 1999 and to $270,000 thereafter.
In February 1995, the Company closed its Bronx location. (See
Note 8B).
In May, July and November of 1995, the Company sold the Hillside,
East Orange and Teaneck restaurants, respectively. (See Note
8A).
The Company earns rental income from certain sublease
arrangements. At December 29, 1996, the Company is a party to
one such lease.
A second sub-lease was terminated on August 1, 1996 when the
Company with the consent of the lessor, assigned its lease for
certain former restaurant premises in Queens, New York to the
sub-lessee. The Company realized neither gain nor loss on the
assignment, but terminated its liability as lessee. The Company
had been realizing net monthly income on the property of $1,000.
Minimum future annual rental and sublease payments under the
remaining operating leases are as follows:
Year Amount Sublease Net
----------- ---------- -------- ----------
1997 $ 413,390 $ 10,800 $ 402,590
1998 398,445 10,800 387,645
1999 359,903 10,800 349,103
2000 362,820 10,800 352,020
2001 362,820 10,800 352,020
2002-2004 498,165 32,400 465,765
2005-2007 139,755 26,100 113,655
---------- -------- ----------
Totals $2,535,298 $112,500 $2,422,798
========== ======== ==========
F-9
Rent expense, including minimum, contingent and sublease rentals
for the last two fiscal years consists of the following:
1996 1995
--------- ---------
Minimum rentals $ 431,238 $ 448,970
Contingent rentals 94,683 143,116
--------- ---------
525,921 592,086
Less: Sublease rentals 46,537 67,149
--------- ---------
$ 479,384 $ 524,937
========= =========
(C) Management Agreement:
Effective April 1, 1996 the Company entered into a management
agreement with an individual (The "Manager") to manage the
operations of its Popeye's Restaurant on Empire Boulevard in
Brooklyn. The agreement, the initial term of which expires
December 31, 1996 is automatically renewable unless cancelled by
the Company or the Manager, in each case, upon written notice of
30 or 90 days, respectively. If the agreement is terminated by
reason of the Manager's breach or is otherwise terminated by the
Manager for any reason other than a breach by the Company, the
Manager must pay a $10,000 termination fee. The Manager paid a
$15,000 security deposit upon the commencement of the agreement.
The agreement provides for a monthly management fee to the
Manager equal to the restaurant's cash flow less the greater of
$200 or five percent of such monthly cash flow, calculated
monthly and not cumulatively. Stated conversely, the Company
receives the greater of $200 per month or 5% of the restaurant's
monthly cash flow. Any negative cash flow in any month is borne
by the Manager and the Company still receives the $200 minimum
amount for such month. The Company earned the minimum $1,800
amount for the nine months the agreement was in effect in fiscal
1996. The amount retained by the Manager during this period
was $10,686.
(D) Litigation:
The Company is the defendant in an action brought in September
1994, by the landlord of the closed Raritan location, which had
been the subject of condemnation proceedings. The plaintiff
alleged various damages to which the Company denied all
liability. Subsequent to year-end, this matter was adjudicated
in U.S. District Court and then settled by the parties. (See
Note 10B).
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 29, 1996, the Company's financial instruments consist
of cash, due to Integrated Food Systems, Inc. and the litigation
settlement payable. (See Note 10B). The fair value of these
accounts approximates their carrying value as of such date.
F-10
NOTE 8 - LOSS (GAIN) ON RESTAURANT DISPOSITIONS
(A) Gain on Sale of Three New Jersey Restaurants;
On May 4, 1995, July 5, 1995 and November 20, 1995, the Company
sold the Hillside, East Orange and Teaneck, New Jersey
restaurants, respectively, for all-cash sales prices of $490,000,
$325,000 and $175,000 plus applicable closing adjustments; the
Company realized respective gains thereon of $274,875, $247,909
and $150,409. The total book value of the assets sold was
$358,206, including $281,562 of property and equipment, $25,629
of intangibles, $21,633 of security deposits and $29,382 of
inventory and prepayments.
As a result of such sales, the Company's remaining restaurant
operations are all within New York City, of which three are in
Brooklyn, two are in Queens and one is in Manhattan.
(B) Closing of Bronx Location:
In February 1995, IFS, the Company's management company and the
sub-lessor of the unprofitable Bronx restaurant, advised the
Company it was exercising its termination option provided in the
lease. Such restaurant closed February 22, 1995. The Company
received a $51,000 credit applied against its indebtedness to
IFS. (See Note 5). The Company lost $37,319 on the closing of
the store attributable to the excess of the unamortized leasehold
improvements over the $51,000 credit.
NOTE 9 - INCOME TAXES
Due to available net operating tax loss carryforwards in excess
of taxable income for fiscal 1996 and 1995, the Company did not
incur any income taxes in either year. At December 29, 1996, the
Company has net operating loss and jobs tax credit carryforwards
of approximately $1,544,000 and $91,000, respectively, which
expire in 2009 and 2002.
Under FAS 109, the loss and tax credit carryforwards referred to
above as well as certain other book-tax differences give rise to
deferred tax assets which at December 29, 1996 aggregated
$600,950, all of which was offset by an equivalent valuation
allowance based on an estimated likelihood of realizability of
less than 50%.
Reconciliation of the tax on (benefit from) income (loss) to the
expected tax (benefit) computed by applying the U.S. federal
income tax rate to income (loss) before income taxes is:
Percent of Pre-Tax Income (Loss)
--------------------------------
1996 1995
---- ----
Computed expected tax (benefit) (34.0) 34.0
Benefit from net operating
tax loss carryforward - (34.0)
Net operating loss, providing
no federal income tax benefit 34.0 -
----- -----
- -
===== =====
F-11
The tax effects of temporary differences that give rise to
deferred tax assets (before valuation allowances) and deferred
tax liabilities at December 29, 1996, none of which gave rise to
any deferred income tax provision or benefit in either fiscal
1996 or 1995, are as follows:
Assets/Liabilities
Assets ------------------
Current:
Litigation settlement payable $ 43,050
--------
Total current deferred tax assets 43,050
--------
Non-current:
Deferred costs and expenses, net of
accumulated amortization 4,000
Net operating loss carryforward 463,300
Jobs tax credit carryforward 90,600
--------
Total non-current deferred tax assets 557,900
--------
Total deferred tax assets $600,950
========
Liabilities
Non-current,
Property and equipment, net of
accumulated depreciation $ 300
========
For the year ended December 29, 1996, the valuation allowance
decreased by $26,950 to $600,650. The net deferred tax asset at
December 29, 1996 was therefore $300, all of which was classified
as non-current and was accordingly offset by the non-current
deferred tax liability in the equivalent amount.
NOTE 10 -SUBSEQUENT EVENTS
(A) Contract for the Sale of the Hillside, Queens Restaurant:
On January 15, 1997, the Company and an unaffiliated party, who
had previously purchased two of the Company's restaurants and is
also managing one Brooklyn restaurant for the Company, agreed to
terms for the sale of the Company's Hillside Avenue, Queens
Restaurant. The purchase price for this restaurant, the lease
for which expires on July 31, 1998, is $30,000 plus the usual
closing adjustments for inventory and prepaid/ accrued items.
The price is subject to increase by a minimum of $50,000 if the
purchaser obtains any extension of the lease. For extensions of
the lease term in excess of five years, the price is increased by
an additional $10,000 per year to a maximum of $50,000.
Therefore, for an extension of ten years or more, the adjusted
purchase price will be $130,000. The contract has been approved
by the Company's franchisor and the sale is expected to be
consummated in April 1997.
F-12
(B) Adjudication of Lawsuit and Subsequent Settlement:
In March 1997, the U.S. District Court reached a decision in the
lawsuit brought against the Company by the Host Marriott
Corporation. Such plaintiff was the landlord for the Raritan,
New Jersey location which the Company had acquired and was
leasing from the plaintiff. The property had been the subject of
a condemnation suit filed by the New Jersey Department of
Transportation. The related construction project necessitated
the closing of the restaurant in July 1993. In January of 1994,
the Company received condemnation proceeds of $399,302 of which
$105,909 comprised attorney fees and related expenses. The
Company considered the lease to be terminated and as of February
1, 1994 ceased paying rent. On September 30, 1994, the landlord
brought a lawsuit seeking lost rent, payment for alleged loss of
percentage rent, recovery of the condemnation award paid to the
Company and punitive damages. In November 1994, the Company
filed an answer denying all liability and asserting various
affirmative defenses, among which was the failure of the
plaintiff to mitigate damages based on their refusal to assign
the lease to another tenant. In March 1996 the Company, as
defendant, and the plaintiff filed cross motions for summary
judgement. The matter subsequently proceeded to trial in U.S.
District Court in February 1997. On March 7, 1997, the Court
decided in favor of the plaintiff and awarded $229,893 plus
reasonable legal fees.
Such result was completely unexpected by the Company and its
counsel. On March 19, 1997, the Company filed a notice of appeal
of the District Court's decision with the U.S. Court of Appeals
for the Third Circuit. The Company also sought to negotiate a
settlement of the judgement amount with the plaintiff. On April
9, 1997, such settlement negotiations resulted in the plaintiff
verbally agreeing to accept the Company's offer of $143,500 in
full satisfaction of the judgement amount, provided such payment
is made by April 30, 1997. The Company has accrued the loss at
December 29, 1996 and for the year then ended in accordance with
Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies."
In order to fund the payment, the Company has obtained a commitment
from a bank to borrow $125,000, with interest at 10%, repayable over
two years.
F-13
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ------- ------------------------------------------------
Not applicable.
PART III
--------
Item 9. DIRECTORS AND EXECUTIVE OFFICERS
- ------- --------------------------------
The following table sets forth information relating to each
of the directors and executive officers of the Company.
NAME AGE POSITION WITH THE COMPANY
Lewis E. Topper 47 Director, Chairman of the
Board, President, Chief
Executive Officer, and
Treasurer
Daniel A. Poganski 36 Director and Secretary
Wayne R. Lehrhaupt 49 Director
Lewis E. Topper has been the President, Treasurer, and a
Director of the Company since January 1988. Mr. Topper became
the Company's Chairman of the Board and Chief Executive Officer
on October 30, 1989. Mr. Topper has been the President of IFS
since December 1985. Mr. Topper is also Chairman of the Board,
Chief Executive Officer, President, Chief Financial Officer,
Chief Accounting Officer, Treasurer and a Director of Fast Food
Systems, Inc. the parent of IFS since November 1990. Since 1989,
Mr. Topper has also been an officer and a minority stockholder of
numerous corporations which operate Wendy's restaurants. Mr.
Topper was a partner with the accounting firm of Manton, Topper &
Gilbert from 1979 until December 1985 when he left to join IFS.
Mr. Topper is a graduate of Baruch College and has been a
Certified Public Accountant since 1977.
Daniel A. Poganski joined the Company in 1988 as its
Controller. He has been the Secretary since October 1989 and
Director since January 22, 1990. From October 1984 to 1986, he
was employed as the Controller of Steve's Ice Cream, Inc. From
1986 to 1988, he was employed as a Divisional Assistant
Controller by Integrated Resources, Inc., a financial services
company and the parent of IFS prior to November 1990, and in such
capacity was responsible for accounting matters. Mr. Poganski
has served as the Secretary and Controller of IFS since April
1989 and the Secretary and Assistant Vice President of Fast Food
Systems, Inc. since November 1990 and a Director of such Company
since December 1991. In January of 1996, Mr. Poganski resigned as
a full-time employee of IFS and Fast Food Systems, Inc. He
retained his positions as officer and director and now provides
virtually all management accounting and administrative services
to those entities and to the Company through his own service
company, A & B Accounting Services. He is a Certified Public
Accountant and a graduate of Moorhead State University.
Wayne R. Lehrhaupt has been a Director of the Company since
January, 1994. Mr. Lehrhaupt is an attorney at law and has been
a member of the New York Bar since 1974. He is a graduate of
Queens College and has a J.D. degree from St. John's University.
Since July 1992, Mr. Lehrhaupt has been counsel to the law firm
of Solovay, Marshall & Edlin in New York, New York. From 1987
until 1992, he was a partner in the law firm of Litman &
Lehrhaupt, New York, New York.
Item 10. EXECUTIVE COMPENSATION
- -------- ----------------------
During each of the fiscal years in the three-year period
ended December 29, 1996, the Company did not pay any executive
officers any compensation. The Company was charged $105,000,
$96,500, and $144,500 by IFS pursuant to the Management Agreement
during fiscal 1996, 1995 and 1994, respectively. The management
agreement has been renewed through January 25, 1998 at an annual
per restaurant fee of $12,000 subject to an annual minimum of
$96,000. In fiscal 1996, the Company paid fees of $60,000 to Mr.
Poganski's service company, A&B Accounting Services.
The Company maintains no employee benefit or stock option
plans, but may in the future adopt pension, profit sharing, stock
option, and other benefit plans.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------- ---------------------------------------------------
The following table sets forth as of April 10, 1997
information regarding the beneficial ownership of Common Stock
(i) by each person known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock; (ii) by
each person who is a director or nominee for director; and (iii)
by all directors and executive officers as a group.
Name of Beneficial Amount and Nature
Owner and Address of of Beneficial Percent
Owner of More Than 5% Ownership of Class
- --------------------- ----------------- --------
Integrated Food
Systems, Inc. 3,000,000 shares (1) 33.7%
42-40 Bell Boulevard
Bayside, New York 11361
Lewis Topper 114,888 shares (1) 1.3%
Lois Schifrin 430,240 shares (2) 4.8%
300 East 56th Street
New York, NY 10022
Toni Wiener 430,240 shares (2) 4.8%
9 Harbor Court East
Roslyn, New York 11576
Bruce Schifrin 430,239 shares (2) 4.8%
16 Rodeo Circle
Syosset, New York 11791
Daniel A. Poganski 31,635 shares (1) 0.3%
Wayne R. Lehrhaupt -- --
All directors and executive
directors as a group
(three persons) 146,523 shares (1) 1.6%
- ------------------------
(Footnotes to table appearing on previous page.)
(1) Represents 3,000,000 shares of Common Stock issued June 25,
1992 upon shareholder approval of the 1990 Transactions.
See Item 1. Business - Transactions with IFS. Lewis
Topper, the President and a Director of IFS, and the
Chairman of the Board, Chief Executive Officer, Treasurer
and a director of Fast Food Systems and Daniel A. Poganski,
the Secretary, Controller and a Director of IFS and Fast Food
Systems, each disclaims beneficial ownership of the shares of
Common Stock owned by IFS.
(2) Lois Schifrin, Toni Wiener and Bruce Schifrin are siblings.
Each has attained his or her majority and disclaims
beneficial ownership as to any of the shares owned by such
other persons.
Except as set forth in the footnotes, none of such shares is
known by the Company to be shares with respect to which the
beneficial owner has the right to acquire beneficial ownership.
Except as set forth in the footnotes, the Company believes the
beneficial holders listed above have sole voting and investment
power regarding the shares shown as being beneficially owned by
them.
Item 12. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The Company is managed by IFS, which has a 33.65% equity
interest in the Company. See Item 1. Business - Transactions
with IFS, and Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 5 to the
Consolidated Financial Statements.
The removal of IFS's designees from the Company's Board of
Directors without IFS's consent and without cause, or the failure
of the stockholders to elect IFS's designees to such position, or
the removal of Lewis Topper or any other designee of IFS without
IFS's consent and without cause from the office of President
constitutes a default under the provisions of the Management
Agreement.
Daniel A. Poganski, Secretary and Director of the Company
provides management accounting and administrative services to the
Company through his own service company, A&B Accounting Services. For
the fiscal year ended December 29, 1996, fees for such service aggregated
$60,000.
Wayne R. Lehrhaupt, a Director of the Company, provides
various legal services to the Company. For the fiscal year ended
December 29, 1996, fees for such services aggregated $5,663.
PART IV
-------
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
- -------- --------------------------------
(a) (3) Exhibits
EXHIBIT INDEX
3.1 Certificate of Incorporation of the Company and all
amendments thereto, except for amendment referred to as
Exhibit 3.2. (1)
3.2 Amendment, dated as of January 30, 1990, to Certificate of
Incorporation. (7)
3.3 By-Laws of the Company. (2)
10.1 Development Agreement, dated as of January 22, 1985,
between the Company and Popeyes Famous Fried Chicken and
Biscuits, Inc., together with form of Franchise Agreement.
(3)
10.2 Amendment to Development Agreement. (5)
10.3 Secured Promissory Note, dated as of January 26, 1990,
from the Company to IFS. (4)
10.4 Loan Agreement, dated as of January 26, 1988, between the
Company and IFS. (4)
10.5 Security Agreement, dated as of January 26, 1988, between
the Company and IFS. (4)
10.6 Management Agreement, dated as of January 26, 1988,
between the Company and IFS. (4)
10.7 Amendment to Management Agreement, dated as of October 30,
1989. (7)
10.8 Amendment to Security Agreement, dated as of October 30,
1989. (7)
10.9 Amendment to Loan Agreement, dated as of October 30, 1989.
(7)
10.10 Secured Promissory Note, dated as of December 28, 1990,
from the Company to IFS. (6)
10.11 Amendment to Loan Agreement, dated as of December 28,
1990, between the Company and IFS. (6)
10.12 Amendment to Security Agreement, dated as of December 28,
1990, between the Company and IFS. (6)
10.13 Stock Subscription Agreement, dated as of December 28,
1990, between the Company and IFS. (6)
10.14 Amendment to Management Agreement, dated as of December
28, 1990, between the Company and IFS. (6)
10.15 Omnibus Agreement, dated as of December 28, 1990, between
the Company and IFS. (6)
10.16 Amended Secured Promissory Note, dated as of January 26,
1990, from the Company to IFS. (6)
10.17 Amendment to Loan Agreement, dated as of January 26, 1990,
between the Company and IFS. (6)
10.18 Amendment to Security Agreement, dated as of January 26,
1990, between the Company and IFS. (6)
10.19 Amendment to Management Agreement, dated as of January 26,
1990, between the Company and IFS. (6)
10.20 Amendment to Loan Agreement, dated as of January 26, 1992,
from the Company to IFS. (8)
10.21 Amended Secured Promissory Note, dated as of December 30,
1991, from the Company to IFS. (8)
10.22 Amendment to Management Agreement, dated as of January 26,
1992, between the Company and IFS. (8)
10.23 Amendment to Development Agreement, dated as of March 9,
1992, between the Company and Popeyes Famous Fried Chicken
and Biscuits, Inc. (8)
10.24 Amendment to Management Agreement, dated as of January 26,
1993, between the Company and IFS. (9)
10.25 Letter notification exercising renewal option for
restaurant premises at 1307 Teaneck Road, Teaneck, New
Jersey. (10)
10.26 Lease addendum extending and amending lease for restaurant
premises at 168-30 Hillside Avenue, Queens, New York. (10)
10.27 Letter notification exercising renewal option for
restaurant premises at 144-20 Hillside Avenue, Queens, New
York. (10)
10.28 Letter notification exercising renewal option for
subleased premises at 87-26 Roosevelt Avenue, Jackson
Heights, New York. (10)
10.29 Agreement to amend and modify lease for restaurant
premises at 372 Central Avenue, East Orange, New Jersey.
(10)
10.30 Lease modification, extension and amendment for restaurant
premises at 722 Seventh Avenue, New York, New York. (10)
10.31 Lease for restaurant premises at 1126 Eastern Parkway,
Brooklyn, New York. (10)
10.32 Lease surrender and termination agreement for subleased
premises at 848 Utica Avenue, Queens, New York. (10)
10.33 Second lease addendum extending and amending lease for
restaurant premises at 168-30 Hillside Avenue, Queens, New
York. (10)
10.34 Amendment to Management Agreement, dated as of January 26,
1994 between the Company and IFS. (10)
10.35 Asset Purchase Agreement, made October 21, 1994 for the
sale by the Company of the assets located at 168-30
Hillside Avenue, Jamaica, New York. (11)
10.36 Assignment and Assumption Agreement, made November 14,
1994 for the Assignment by the Company of the lease for
premises at 168-30 Hillside Avenue, Jamaica, New York.
(11)
10.37 Transfer and Release Agreement, made on or about November
14, 1994 for the transfer of the franchise rights for the
Company's restaurant at 168-30 Hillside Avenue, Jamaica,
New York. (11)
10.38 Asset Purchase Agreement, made on or about November 17,
1994 for the sale by the Company of the assets located at
1126 Eastern Parkway, Brooklyn, New York. (11)
10.39 Assignment and Assumption of lease, dated December 5, 1994
for the Assignment by the Company of the lease for
premises at 1126 Eastern Parkway, Brooklyn, New York.
(11)
10.40 Transfer and Release Agreement made on or about December
5, 1994 for the transfer of the franchise rights for the
Company's restaurant at 1126 Eastern Parkway, Brooklyn,
New York. (11)
10.41 Notice of Termination dated January 30, 1995 from the
Franchisor terminating the Development Agreement. (11)
10.42 Letter dated March 1, 1995 from Fast Food Systems, Inc. to
the Company detailing the credit to be given to the
Company for the termination of the sublease at 46-48 161st
Street, Bronx, New York. (11)
10.43 Asset Purchase Agreement, dated March 10, 1995, for the
sale of the Company's restaurant in Hillside New Jersey.
(11)
10.44 Amendment to Management Agreement dated as of January 26,
1995 between the Company and IFS. (11)
10.45 Asset Purchase Agreement, dated as of June 19, 1995,
between New Jersey Pop Corp. and S&K Chicken, L.L.C. (12)
10.46 Letter from Fast Food Operators, Inc. dated July 5, 1995,
in favor of S&K Chicken, L.L.C. (12)
10.47 Assignment dated July 1995, by and among 372 Central
Operating Co., Inc., Trunz Food Stores, Inc., 372 Holding
Corporation, A&T Management Co., Inc. and Robert Trunz.
(12)
10.48 Agreement dated as of July 5, 1995, by and among Fast Food
Operators, Inc., New Jersey Pop Corp. and S&K Chicken,
L.L.C. (12)
10.49 Asset Agreement Relative to the Sale of the Teaneck
Restaurant. (13)
10.50 Amendment to Management Agreement dated November 22, 1995.
(14)
10.51 Management Agreement for the Company's Restaurant at 40
Empire Boulevard, Brooklyn, New York. (15)
10.52 Modification and Extension Agreement for lease of
restaurant premises at 722 Seventh Avenue, New York, N.Y.
(15)
10.53 Assignment of Lease for premises at 97-26 Roosevelt
Avenue, Queens, New York (15)
10.54 Amendment to Management Agreement dated as of January 26,
1997. (15)
10.55 Asset Purchase Agreement, dated January 15, 1997 for the
sale by the Company of the lease for premises and assets
located at 144-20 Hillside Avenue, Queens, N.Y. (15)
22. List of Subsidiaries. (7)
- -------------------------------
(1) Incorporated by reference to Exhibit "B" of the Company's
Annual Report on Form 10-K for the year ended December 31,
1981.
(2) Incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1986.
(3) Incorporated by reference to Exhibit 10 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1984.
(4) Incorporated by reference to the Exhibits to the Company's
Current Report on Form 8-K, dated February 5, 1988.
(5) Incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987.
(6) Incorporated by reference to the Exhibits to the Company's
Current Report on Form 8-K, dated January 4, 1991.
(7) Incorporated by reference to Exhibit 22 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 30, 1990.
(8) Incorporated by reference to Exhibits 10.20 through 10.23
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 1991.
(9) Incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 27, 1992.
(10) Incorporated by reference to Exhibits 10.25 through 10.34
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 26, 1993.
(11) Incorporated by reference to Exhibits 10.35 through 10.44
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 25, 1994.
(12) Incorporated by reference to the Exhibits to the Company's
Current Report on Form 8-K dated July 5, 1995.
(13) Incorporated by reference to the Exhibits to the Company's
Current Report on Form 8-K dated November 20, 1995.
(14) Incorporated by reference to Exhibit 10.50 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
(15) Filed herewith.
(b) Reports on Form 8-K
-------------------
None.
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.
FAST FOOD OPERATORS, INC.
(Registrant)
By /s/ Lewis E. Topper
----------------------------------
Lewis E. Topper
Chairman of the Board,
President, Chief Executive
Officer, Treasurer and Director
Date: April 14, 1997
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title
/s/ Lewis Topper Chairman of the
----------------
Lewis Topper Board, President,
Date: April 14, 1997 Chief Executive
Officer, Treasurer,
(Principal Financial
Officer and Principal
Accounting Officer),
and Director
/s/ Daniel A. Poganski Director and Secretary
----------------------
Daniel A. Poganski
Date: April 14, 1997
/s/ Wayne R. Lehrhaupt Director
----------------------
Wayne R. Lehrhaupt
Date: April 14, 1997
The foregoing constitute all of the Board of Directors.
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<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 230,604
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 35,905
<CURRENT-ASSETS> 326,692
<PP&E> 484,775
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<TOTAL-ASSETS> 838,974
<CURRENT-LIABILITIES> 553,596
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0
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<COMMON> 2,232,005
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<TOTAL-LIABILITY-AND-EQUITY> 838,974
<SALES> 5,349,978
<TOTAL-REVENUES> 5,349,978
<CGS> 1,781,065
<TOTAL-COSTS> 1,781,065
<OTHER-EXPENSES> 3,562,825
<LOSS-PROVISION> 143,500
<INTEREST-EXPENSE> 0
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</TABLE>
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT made this ____ day of February, 1996 by
and between FAST FOOD OPERATORS, INC., a New York corporation with
offices at 42-40 Bell Boulevard, Suite 200, Bayside, New York 11361
(the "Owner") and __________________, a ______________ with offices
at ____________________________ (the "Manager").
WHEREAS, Owner is the franchisee of one (1) Popeye's Famous
Fried Chicken and Biscuits Restaurant located at 40 Empire
Boulevard, Brooklyn, New York (the "Restaurant"). For purposes of
this Agreement, the term "Business" shall mean all operations now
or hereafter conducted by or on behalf of Owner with respect to the
Restaurant and all personnel associated therewith; and
WHEREAS, Owner desires to contract with Manager for the
management and operation of all aspects of the Business upon the
terms and subject to the conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual agreements of
the parties, it is hereby agreed as follows:
I. SERVICES TO BE PERFORMED
1.01 Engagement. Upon the terms and subject to the
conditions herein set forth, Owner hereby engages Manager at
Manager's sole expense to direct, conduct, manage and supervise the
day to day operation of the Business as further described herein,
and Manager hereby accepts such engagement. Manager agrees to
manage the Business to the best of its ability so as to achieve the
maximum operational results consistent with good business
practices, the management philosophy and policies hereto and
hereafter employed by Manager in its own operations and in other
operations owned and managed by Manager or affiliated entities.
1.02 Scope of Authority
(a) Manager shall at its own expense determine and
implement all policies pertaining to the development,
administration, merchandising, employment of personnel, production,
distribution, operation, promotion and advertising of the Business
and shall have the obligation to contract for, purchase and obtain
operating supplies and other materials and inventory required for
the operation of the Restaurant and shall generally supervise all
operations of the Business. Manager's authority and obligation
hereunder shall specifically include the right to hire, fire and
promote employees at Manager's expense.
(b) Manager agrees not to make any capital expenditure
in excess of $5,000 without the prior consent of Owner.
(c) Without limitation of Section 1.02(a) above,
Manager shall be responsible, at its own expense, for: (i)
supervising employees and independent contractors engaged in the
operation, management and maintenance of the Restaurant; (ii)
assuring the continued operation of the Restaurant, including
without limitation securing adequate stocks of food, beverages,
paper products, utensils and other supplies needed for the
operation of the Restaurant and entering into contracts with local
or national suppliers for the continuing purchase of such items,
and complying with all applicable regulations or requirements of
local health and sanitation authorities and inspectors affecting
the operations of the Restaurant; (iii) supervising the promotion
of the Restaurant's products by advertising through any of the
local media or by other means; (iv) supervising the collection,
depositing and recording of daily receipts, paying suppliers,
employees and independent contractors, and maintaining all records
relating thereto; (v) negotiating or renegotiating supply and
cartage contracts relating to the operation of the Restaurant; (vi)
supervising the repairing or replacing of utensils or items of
machinery; (vii) generally overseeing and managing the day-to-day
operations of the Restaurant; (viii) advising in connection with
the preparation of budgets, operating statements and books of
account insofar as they apply to the operations of the Restaurant
and submitting the same to Owner on a regular basis; (ix) advising
in connection with all other contracts, actions, and arrangements
which must be made or carried out, and all other things which are
necessary or convenient in connection with the continuing operation
of the Restaurant; (x) maintaining the operations of the Restaurant
at a level consistent with that which has been required in the past
of the Owner by America's Favorite Chicken Company ("AFC"); and
(xi) causing to be purchased and maintained in effect (A) such
policies of insurance as Owner may from time to time direct to be
carried against fire and extended coverage (and other hazards
against which Owner may elect to insure), (B) policies of insurance
against liability for injury or death to persons and damage to
property, and (C) policies of insurance or other coverage for
workers compensation and disability in such forms and in such
amounts as may be required under the laws of the State of New York.
All such policies shall name as insureds thereunder the Owner and
the landlord of the premises on which the Restaurant is located.
1.03 Personnel
(a) Manager agrees to provide at its expense all
personnel to be engaged in the management and operation of the
Business as Manager deems necessary or appropriate. The personnel
engaged by Manager shall be employees of the Manager and shall not
be deemed to be the Owner's employees.
(b) Lalmir Sultanzada shall be the sole supervisor
utilized by the Manager at the Restaurant. The Manager shall cause
the supervisor to oversee and direct the operation of the
Restaurant, and the duties of the supervisor shall include, without
limitation, the following: (i) inspecting the Restaurant to
maximize sales and profitability and to insure that quality and
cleanliness standards are maintained; (ii) monitoring food costs
and cash control; (iii) assisting in the establishment of marketing
promotions for the Restaurant; (iv) reviewing the schedules for
management and employees of the Restaurant; (v) interviewing and
recommending the hiring of management personnel for the Restaurant;
(vi) using best efforts to cause compliance with local, state and
federal laws concerning labor, safety and equal employment
opportunity; (vii) auditing bank receipts; (viii) preparing
periodic reports concerning the Restaurant, including without
limitation a weekly plan for the Restaurant, quarterly evaluations
of the management and employees of the Restaurant, and semi-monthly
inspection reports; and (ix) supervising the preparation and
completion of all other daily and weekly reports concerning the
Restaurant.
1.04 Garbage Removal and Parking Lot Maintenance.
Contemporaneously with the execution of this Agreement the Manager
shall enter into a written agreement with Wendnew L.L.C., a New
York limited liability company, pursuant to which Wendnew L.L.C.
will agree to undertake garbage removal and parking lot maintenance
services, either itself or through a third party, at a cost of
$1,500 per month.
II. TERM
2.01 Term. The term of this Agreement shall commence on
March 1, 1996 and, subject to the termination provisions
hereinafter provided, shall continue until December 31, 1996.
2.02 Termination Rights. Notwithstanding any provision of
Section 2.01 to the contrary, this Agreement may be terminated as
set forth below:
(a) Owner shall have the right to terminate this
Agreement, for any reason or for no reason, upon thirty (30) days
prior written notice to Manager delivered to Manager at its address
first set forth above by certified mail, return receipt requested,
or by overnight delivery.
(b) Manager shall have the right to terminate this
Agreement, for any reason or for no reason, upon ninety (90) days
prior written notice to Owner delivered to Owner at its address
first set forth above by certified mail, return receipt requested,
or by overnight delivery.
2.03 Obligations Upon Termination.
(a) In the event that this Agreement shall be
terminated pursuant to Section 2.01 or 2.02, and subject to the
provisions of Section 2.03(b), each party shall be released from
any obligations hereunder first arising from and after the
effective termination date except that Manager shall be entitled to
receive all management fees incurred prior to the effective
termination date.
(b) In the event of (i) a termination of this Agreement
by Owner by reason of a material breach by Manager of any of its
obligations or agreements hereunder, or (ii) a termination of this
Agreement by Manager for any reason other than a material breach by
Owner of any of its obligations or agreements hereunder, then
Manager shall pay to Owner, within ten (10) business days of the
termination of this Agreement, the sum of Ten Thousand ($10,000)
Dollars, such sum determined by the parties to be the reasonable
cost to be incurred by Owner in the replacement of Manager's
services hereunder.
III. EXPENSES AND MANAGEMENT FEES
3.01 Expenses. All expenses incurred in the operation,
management and supervision of the Restaurant, including, but not
limited to, salaries, wages, and other benefits and compensation of
Restaurant personnel employed in the management and operation of
the Business shall be paid by Manager. Such expenses shall be paid
first out of revenues generated by operation of the Restaurant;
provided, however, that to the extent such expenses exceed
Restaurant revenues they shall be the obligation and liability of
the Manager. Manager agrees that it shall not expend more than
$_______ during the term of this Agreement for salaries and wages
of Restaurant personnel without the prior written approval of
Owner.
3.02 Rents, Real Estate Taxes, Royalties and Advertising.
Owner and Manager hereby agree that (i) all rent for the Restaurant
premises payable by Owner, all real estate taxes on the premises
payable by Owner, and all royalties and advertising expenses
payable to AFC by reason of operation of the Restaurant, shall be
paid by Owner check drawn by Owner and forwarded by Owner to the
relevant payee, and (ii) all such sums expended by Owner shall be
reimbursed to Owner in full, prior to the payment of any management
fee due hereunder to Manager. Such reimbursement shall be made
within three (3) business days of the provision by Owner to Manager
of a statement detailing all or any of such payments.
3.03 Management Fees. Owner shall pay to Manager, as its
sole compensation hereunder, a monthly management fee for services
rendered in an amount equal to: Restaurant cash flow less the
greater of (i) Two Hundred ($200) Dollars per month, or (ii) five
(5%) of the Restaurant's monthly cash flow less capital
expenditures. For the purposes of this Section 3.03, the
Restaurant's monthly "cash flow" shall mean gross revenues from
Restaurant operations (including amounts received in payment of
sublease obligations) less operating expenses and depreciation.
The management fee amount shall be retained by Manager only after
payment to Owner by Manager, on the fifth (5th) day following the
end of each calendar month, of the greater of (i) Two Hundred
($200) Dollars per month, or (ii) five (5%) of the Restaurant's
monthly cash flow less capital expenditures. The Owner and Manager
hereby covenant and agree that the sum of Two Hundred ($200)
Dollars per month shall be an absolute minimum payable to Owner
hereunder, regardless of the Restaurant's monthly cash flow, and if
such Restaurant cash flow shall not be sufficient to remit payment
of said Two Hundred ($200) Dollars, the same amount shall be paid
by Manager to Owner from Manager's own funds on the fifth (5th) day
following the end of each calendar month.
3.04 Recordkeeping and Review. Manager covenants and agrees
that it shall keep accurate and complete records of all Restaurant
operations, including, but not limited to, revenues, operating
expenses and capital expenditures. Manager hereby agrees to grant
Owner and/or its officers, accounts, attorneys' employees and
agents (collectively, the "Agents"), access to all of such records
upon three (3) business days prior notice. In the event that a
review by Owner and/or its Agents results in a good faith
determination by Owner and/or such Agents that additional funds are
due to Owner pursuant to the provisions of Section 3.03 herein,
then Owner shall present such results to Manager in writing, and
within ten (10) business days of its receipt of such results
Manager shall either (i) remit to Owner the amounts claimed by
Owner to be due, or (ii) submit to Owner such additional
information as shall justify the discrepancy between the amounts
paid to Owner and the amounts claimed by Owner to be due. In such
event, the determination of the amount due to Owner shall be made
by Owner's certified public accountant, and such determination
shall be binding upon both Owner and Manager.
IV. MISCELLANEOUS
4.01 No Joint Venture, etc. Nothing contained in this
Agreement shall be deemed to constitute a partnership, agency,
joint venture or other similar relationship. Manager shall be
deemed an independent contractor for purposes of this Agreement.
4.02 Indemnification of Owner. Manager agrees to indemnify
and hold harmless Owner against any loss or expense, including
court costs and attorney's fees, sustained or incurred by Owner as
the result of any claim, suit or proceeding made, brought or
threatened against Owner and arising out of operations conducted
with respect to or matters connected with the Restaurant or
Business, except for any claims, suits or proceedings arising
solely from Owner's gross negligence or intentionally wrong acts.
4.03 Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto in respect of the
subject matter contained herein, and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
4.04 Severability. In the event that any provision of this
Agreement shall be adjudged to be void, voidable or invalid for any
reason, this Agreement shall be otherwise valid and enforceable as
if the void, voidable or invalid section had not been a part hereof
in the first instance.
4.05 Assignment. This Agreement may not be assigned or
otherwise transferred by either party hereto without the prior
written consent of the other party.
4.06 Binding Effect. This Agreement shall be binding upon
the parties hereto, their successors and assigns.
4.07 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, we have executed this Agreement as of the
date first set forth above.
________________________
FAST FOOD OPERATORS, INC.
By:_______________________
By:
__________________________ _________________________
Lalmir Sultanzada, President Lewis E. Topper, President
______________________________
Lalmir Sultanzada, Personally
MODIFICATION AND EXTENSION AGREEMENT
1. IT IS MUTUALLY AGREED, as of this 22nd day of July, 1996,
by and between SHERWOOD 1600 ASSOCIATES, having an office at 745
Fifth Avenue, Suite 1707, New York, New York 10151 (hereinafter
referred to as "Landlord"), and FAST FOOD OPERATORS, INC., a
corporation duly organized and existing under the laws of the State
of New York, having an office at 42-40 Bell Boulevard, Bayside, New
York 11361 (hereinafter referred to as "Tenant"), that the lease
dated as of July 25, 1979, which lease was amended by Modification,
Extension and Amendment of Lease dated as of May 28, 1993, (which
lease, as so amended, and as the same may have been otherwise
heretofore modified and/or amended, is hereinafter collectively
referred to as the "Lease"), covering premises located on a portion
of the ground floor, outlined in red on the demising wall plan
attached thereto and made a part thereof as Exhibit "A", in the
building known as No. 1600 Broadway, in the Borough of Manhattan,
City, County and State of New York, for a term which was scheduled
to expire on December 31, 1996, and under which Tenant is now in
possession, is hereby extended for a further term of six (6) years,
commencing January 1, 1997, to and including December 31, 2002,
inclusive (hereinafter referred to as the "Extended Term"), upon
all of the same terms, covenants, conditions, provisions and
agreements contained in the Lease, except that the annual rental
rate reserved and covenanted to be paid by Tenant to Landlord under
the Lease shall be:
A. for the period commencing January 1, 1997, to
and including July 31, 1999, inclusive, the sum of TWO HUNDRED
SIXTY-FIVE THOUSAND AND NO/100 ($265,000.00) DOLLARS per annum,
payable in equal monthly installments of TWENTY TWO THOUSAND
EIGHTY-THREE 33/100 ($22,083.33) DOLLARS each; plus
B. for the period commencing August 1, 1999, to
and including December 31, 2002, inclusive, the annualized sum of
TWO HUNDRED SEVENTY THOUSAND AND NO/100 ($270,000.00) DOLLARS per
annum, payable in equal monthly installments of TWENTY-TWO THOUSAND
FIVE HUNDRED AND NO/100 ($22,500.00) DOLLARS each.
2. A. Tenant shall make no alterations or additions to the
electric equipment or appliances, without first obtaining the prior
written consent from Landlord in each instance.
B. Landlord shall not in any way be liable or
responsible to Tenant for any loss or damage or expense which
Tenant may sustain or incur by reason of any change, failure or
defect in the supply or character of the electric current furnished
to the demised premises or if the quantity or character of the
electrical current supplied by the public utility corporation is no
longer available or suitable for Tenant's requirements, and no such
change failure, defect, unavailability or unsuitability shall
constitute an actual or constructive eviction, in whole or part,
nor shall same entitle Tenant to any abatement or diminution of
rent or additional rent under the Lease nor shall the Lease or any
of Tenant's obligations therefor be affected or reduced by reason
of any of the foregoing. Tenant covenants and agrees that at all
times its use of electric current shall never exceed the capacity
or existing feeders to the Building or the risers or wiring
installations.
3. Tenant hereby covenants and agrees at all times
hereinafter faithfully to abide by, carry out and fully perform all
the terms, covenants, conditions, provisions and agreements
contained in the Lease as hereby extended, and agrees not to cause,
allow or suffer any breach or default thereof to occur. Tenant
hereby affirms that on the date hereof, no breach or default has
occurred and that the Lease, and all of its terms, covenants,
conditions, provisions and agreements are in full force and effect
and that there are no defenses or offsets thereto. Tenant hereby
releases Landlord and Landlord's managing agent of and from any and
all liabilities, claims, controversies and other matters and things
of every nature which, from the date of the Lease through the date
hereof, have or might have arisen out of or in any way connected
with the Lease and/or the premises demised thereunder.
4. If on the commencement date of the Extended Term, Tenant
shall be in default of or delinquent in any way of its obligations
under the Lease, then Landlord, at its option, may, at any time
thereafter, cancel this Agreement upon written notice to Tenant,
whereupon this Agreement shall be null and void and of no further
force nor effect, effective as of the date that Landlord shall give
Tenant such notice, but all sums, whether for rent, additional rent
or other sums or charges under the Lease, as modified hereby, shall
be deemed to be additional rent under the Lease and this Agreement
for the month in which payment is demanded by Landlord or
Landlord's managing agent. Landlord may, and is hereby authorized
to, apply any payment made from time to time by or for the account
of Tenant, regardless of how the same may be allocated or earmarked
by or for the account of Tenant, to the payment of such past due
indebtedness.
5. The submission of this Agreement to Tenant shall not be
construed as an offer, nor shall Tenant have any rights with
respect thereto, unless and until Landlord or Landlord's managing
agent shall execute a copy of this Agreement and unconditionally
deliver the same to Tenant.
6. The parties acknowledge that Landlord is presently
holding security in the amount of $5,000.00.
7. The parties agree that, except as herein expressly
provided, this Agreement and the Lease constitute the entire
understanding between the parties with regard to the premises
demised thereunder. This Agreement may not be changed orally, but
only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is
sought. This Agreement shall not be assignable by Tenant.
8. Inasmuch as Tenant currently occupies the premises
demised by the Lease and is fully aware of the condition thereof,
Tenant agrees to accept said premises in the condition in which it
exists on the commencement date of the Extended Term. Tenant
understands and agrees that no materials whatsoever are to be
furnished by Landlord in connection with the premises or any part
thereof.
9. Tenant warrants and represents to Landlord that Tenant
has not dealt with any broker in connection with this Agreement,
and Tenant covenants and agrees to indemnify and hold Landlord and
Landlord's managing agent harmless from and against any and all
liabilities, costs and expenses (including, without limitation,
attorneys' fees) arising from the claims of any broker regarding
this Agreement and/or the Extended Term hereby granted.
10. The terms, covenants, conditions, provisions and
agreements contained in this Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and,
except as otherwise provided in the Lease, their respective
assigns.
11. Tenant covenants and agrees to furnish Landlord with the
appropriate certificate of insurance as required by the terms of
the Lease not less than thirty (30) days prior to the date that the
current certificate of insurance expires.
12. Tenant acknowledges that Landlord has recently erected
a billboard sign on the exterior of the building near the windows
of the demised premises. No diminution or abatement of rent or
additional rent or other compensation or claim of constructive
eviction shall or will be claimed by Tenant as a result of the
installation of the billboard, nor shall the Lease or any of
Tenant's obligations thereunder be affected or reduced by reason
of the foregoing.
13. Tenant shall within sixty (60) days from the date of this
Agreement, at Tenant's sole cost and expense, cause the awning
attached to the exterior of the demised premises to be removed and
to install a new awning. Tenant must obtain Landlord's prior
written approval with respect to such new awning. The awning, when
and if approved by Landlord, shall be installed and maintained by
Tenant, at Tenant's sole cost and expense, in a first-class manner
and in compliance with all applicable codes, statutes, ordinances,
regulations and other laws with all necessary licenses and permits
first obtained and thereafter maintained.
14. Effective as of the date hereof the following paragraphs
shall be deemed to be added to the Lease as Articles 63 through 66
thereof:
"Services.
Landlord reserves the right to interrupt, curtail or
suspend any of the services which may be furnished by Landlord to
Tenant pursuant to the provisions of this lease, when the necessity
therefor arises by reason of accident, emergency, mechanical
breakdown, or when required by any law, order or regulation of any
federal, state, county or municipal agency or authority, or for any
other cause beyond the reasonable control of Landlord. No
diminution or abatement of rent or additional rent or other
compensation or claim of constructive eviction shall or will be
claimed by Tenant as a result therefrom, nor shall this lease or
any of the obligations of Tenant be affected or reduced by reason
of such interruption, curtailment or suspension."
"Drain, Vent and Waste Lines; Soil Lines and Grease Traps.
As a material inducement to Landlord to enter into this lease:
A. Tenant, at its sole cost and expense, shall keep all
plumbing and all drain, vent and waste lines and sewer connections
serving the demised premises in good repair and free from
obstruction to the satisfaction of Landlord and in accordance with
all governmental and quasi-governmental agencies, authorities,
boards, bodies, bureaus, departments or officials having
jurisdiction thereof.
B. Tenant, at Tenant's sole cost and expense, will
install, operate and maintain all necessary and proper soil lines,
grease traps or other apparatus in compliance with all laws, codes,
resolutions, rules, regulations, requirements and recommendations
of any governmental and quasi-governmental agencies, authorities,
boards, bodies, bureaus, departments or officials and private
insurance company requirements, and such other requirements which
may be deemed necessary or desirable in Landlord's judgment and
will keep the same maintained in good order and repair (including
replacements thereto) for the purpose of preventing any stoppage or
interference with the general plumbing or sewerage system of the
building and for the proper collection and disposal of grease and
fats. Any lines, traps or other apparatus installed by Tenant
shall become the property of Landlord. Tenant shall promptly
remove and repair any stoppage or interference with the general
plumbing and sewerage system of the building."
"Limitation of Landlord's Liability.
Tenant agrees that, notwithstanding any contrary
provision of this lease, Tenant will look solely to the interest
of Landlord or its successor in the land and the building for the
satisfaction of any judgment or other judicial process requiring
the payment of money as a result of any negligence or breach of
this lease by Landlord or such successor, and no other property or
other assets of Landlord or any partner, member, officer or
director thereof, disclosed or undisclosed, or such successor, will
be subject to levy, execution or other enforcement procedure for
the satisfaction of Tenant's remedies under or with respect to this
lease, the relationship of Landlord and Tenant hereunder, or
Tenant's use and occupancy of the demised premises."
"Licenses and Permits.
Tenant covenants and agrees that Tenant will not use or
suffer or permit any person to use the demised premises for any
unlawful purpose and to obtain and maintain, at Tenant's sole cost
and expense, all licenses and permits from any and all governmental
or quasi-governmental agencies, authorities, departments, bureaus,
bodies or official having jurisdiction of the demised premises
which may be necessary for the conduct of Tenant's business
therein. Tenant further covenants and agrees to comply with
applicable laws, resolutions, codes, requirements, decisions,
statutes, ordinances, rules and regulations of any governmental or
quasi-governmental agency, authority, department, bureau, body or
official having jurisdiction over the operation, occupancy,
maintenance and use of the demised premises for the purposes set
forth herein. Tenant will indemnify and hold Landlord and
Landlord's managing agent harmless from and against any claims,
penalties, loss, damage or expense imposed by reason of a violation
of any of the foregoing."
15. Effective as of the Extended Term, Article 57 of the
Lease is hereby deleted in its entirety and the following
substituted in its place:
"Real Estate Taxes.
A. Commencing July 1, 1997, and every July 1st
thereafter during the term, Tenant covenants and agrees to pay to
Landlord, as additional rent, without set-off or deduction, four
(4.0%) percent (hereinafter referred to as "Tenant's Proportionate
Share") of any increase in any of the items included within "Real
Estate Taxes" (as hereinafter defined), over and above the amount
payable by Landlord for any of the same for the fiscal year
commencing July 1, 1996 and ending June 30, 1997 (hereinafter
referred to as "Base Tax Year"), for each and every such fiscal
year or portion thereof thereafter during the term of this lease.
"Real Estate Taxes" shall be defined as including the following
items: (i) real estate taxes; (ii) assessments, special or
otherwise (including, without limitation, any business improvement
district taxes, assessments or the like and assessments for public
improvements or benefits whether or not commenced or completed
during the Term); (iii) any tax assessment levied, assessed or
imposed against or upon such land and/or building or the rents or
profits therefrom which shall be in lieu of all or any portion of
any item hereinabove set forth. If Real Estate Taxes in the Base
Tax Year are affected by any application or proceeding brought by
or on behalf of Landlord for reduction in the amount of Real Estate
Taxes payable by Landlord, and if as a result of such application
or proceeding, Real Estate Taxes in the Base Tax Year shall be
decreased, Landlord may promptly bill Tenant for any additional
rent for any fiscal year reflecting such decrease in Real Estate
Taxes in the Base Tax Year. If by virtue of any application or
proceeding brought by or in behalf of Landlord, there shall be a
reduction of the assessed valuation of the land and/or the building
of which the demised premises are a part, for any fiscal year which
affects the Real Estate Taxes, or part thereof, for which
additional rent has been paid by Tenant pursuant to this Article,
such additional rent payment shall be recomputed on the basis of
any such reduction and Landlord will credit against the next
accruing installments of rent due under this lease after receipt by
Landlord of a tax refund any sums paid by Tenant in excess of the
recomputed amounts, less a sum equal to Tenant's Proportionate
Share of all costs, expenses and fees, including, but not limited
to, appraisers', consultants' and attorneys' fees, incurred by
Landlord in connection with such application or proceeding. If
there shall be a reduction of the assessed valuation of the land
and/or the building of which the demised premises are a part, for
any fiscal year after the Base Tax Year before additional rent has
been paid by Tenant pursuant to this Article, the amount of
Landlord's costs, expenses and fees, including, but not limited to,
appraisers', consultants' and attorneys' fees, incurred by Landlord
to obtain such reduction shall be added to and be deemed part of
the Real Estate Taxes for such fiscal year.
B. Amounts payable under this Article shall be
additional rent and shall be due and payable to Landlord, without
set-off or deduction, within ten (10) days after Landlord renders
a bill therefor to Tenant. Copies of bills for any items included
in Real Estate Taxes shall be sufficient and conclusive evidence of
the amount of Real Estate Taxes and for the purposes of the
calculation of the amounts of additional rent to be paid by Tenant
pursuant to this Article. Any additional rent payable pursuant to
this Article for a partial fiscal year, at the commencement or at
the expiration of the term, shall be adjusted in proportion to the
number of days in such partial fiscal year during which this lease
is in effect. The obligation of Tenant with respect to any
additional rent pursuant to this Article applicable to the last
fiscal year and/or partial fiscal year of the term shall survive
the expiration of the term. Landlord's failure to render bills for
Real Estate Taxes under the provisions of this Article shall not
prejudice its right to thereafter render said bill or bills for
such fiscal year or any subsequent fiscal years. The annual rental
rate reserved and covenanted to be paid herein by Tenant to
Landlord shall in no way be increased or decreased or otherwise
affected or impaired by reason of this Article."
16. Notwithstanding anything to the contrary contained in
Article 1 of this modification and extension agreement, the annual
rental rate reserved and covenanted to be paid by Tenant to
Landlord under the Lease, for the period commencing August 1, 1996
to and including December 31, 1996, inclusive, shall be the sum of
TWO HUNDRED SIXTY-FIVE THOUSAND AND NO/100 ($265,000.00) DOLLARS
per annum, payable in equal monthly installments of TWENTY-TWO
THOUSAND EIGHTY THREE 33/100 ($22,083.33) DOLLARS each.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Extension Agreement, as of the day and year first above written.
SHERWOOD 1600 ASSOCIATES
BY: SHERWOOD 1600 OPERATING COMPANY, its General Partner
By: __________________________
Fred Rosenberg, As Agent
Witness for Landlord:
___________________
FAST FOOD OPERATORS, INC.
By:___________________________
Louis Topper, President
Attest for Tenant:
By: _________________________
Secretary
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this ____ day of __________________, 1996, before me
personally came _____________________, to me known, who, being by
me duly sworn, did depose and say that he resides at ____________
________________________________________________; that he is the
_________ President of __________________________________, the
corporation described in and which executed the foregoing
instrument, as Tenant; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said
corporation; and that he signed his name thereto by like order.
______________________________
Notary Public
ASSIGNMENT OF LEASE AND ASSUMPTION AGREEMENT
ASSIGNMENT AGREEMENT made this 1st day of August, 1996,
by and between FAST FOOD OPERATORS, INC., a New York corporation
having an office at 42-40 Bell Boulevard, Bayside, New York 11361
(the "Assignor") and ERNESTO GONZALEZ c/o Casa Columbia having an
address at 86-23 Roosevelt Avenue, Jackson Heights, New York 11371
(the "Assignee").
W I T N E S S E T H :
WHEREAS, Assignor through mesne assignments, is the
Lessee of Premises 87-26 Roosevelt Avenue, Jackson Heights, New
York (the "Premises"), under and pursuant to the provisions of that
certain Lease Agreement dated September 27, 1983, as it may have
been amended and/or modified, by and between Joseph T. Macari, as
Lessor, and Assignor, as Lessee, relating to the Premises (the
"Lease"), a photocopy of which Lease is annexed hereto and made a
part hereof, as Exhibit 1; and
WHEREAS, Lessor, Assignor and Assignee have agreed to the
assignment of the Lease from the Assignor to the Assignee upon the
terms and conditions hereinafter set forth; and
WHEREAS, Lessor hereby consents to the assignment of the
Lease;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the
sufficiency of which is hereby acknowledged, it is agreed that:
1. Assignor hereby assigns and transfers all of its right,
title and interest in and to the Lease to the Assignee and the
Assignee accepts such assignment effective as of August 1, 1996
(the "Effective Date") upon the terms and conditions set forth
herein.
2. Assignee assumes the payment of rent, additional rent,
and all other charges, taxes and liabilities arising from the
provisions of the Lease and the performance of all terms, covenants
and all conditions of the Lease on the part of Lessee therein to be
performed as of the Effective Date and thereafter until the
termination of the Lease and agrees to perform all of the terms,
covenants and conditions of the Lease, all with full force and
effect as if the Assignee had signed the Lease originally as Lessee
named therein as of the commencement date of the Lease.
3. Assignee agrees that it has read the Lease and is fully
familiar with the terms and provisions thereof.
4. Assignee covenants and agrees that it will defend,
indemnify and hold harmless the Assignor of and from any claim,
liability or loss arising from any default by the Assignee in the
payment of the rent, additional rent, taxes and all of the other
charges and the performance of the terms, covenants and conditions
of the Lease on the part of the Lessee or in connection with the
Premises from the Effective Date.
5. Assignor hereby assigns, transfers and conveys to
Assignee all of its right, title and interest in and to the
Security Deposit referred to in the Lease in the sum of Sixty Five
Hundred Fourteen ($6,514.) Dollars.
6. Assignee has inspected the Premises and agrees to accept
them "as is" and "where is" condition.
7. Lessor hereby releases and forever discharges Assignor
from any and all liabilities arising from its former tenancy at the
Premises and under or pursuant to the provisions of the Lease and
agrees to look solely to the Assignee for any further or future
liabilities and obligations from and after the Effective Date.
8. Assignor and Assignee each covenant, warrant and
represent to the other that there was no broker instrumental in
consummating this Assignment of Lease and Assumption Agreement and
that no conversations or negotiations were had with any broker
concerning the assignment of the Lease of the Premises. Assignor
and Assignee agree to defend and hold the other harmless against
any claims for a brokerage commission arising out of this
Assignment of Lease.
9. All notices pursuant to this Assignment Agreement shall
be sent by certified mail, return receipt requested to the parties
at the addresses set forth hereinabove. Any party may change the
address to which notices are to be sent by giving notice to the
other party pursuant to this paragraph.
10. Assignor covenants and represents to Assignee that the
Lease is valid and existing according to its terms and Assignor has
not received any notice of default from the Landlord.
11. All understandings and agreements between the parties
hereto are merged in the Assignment Agreement which alone fully and
completely expresses their agreement.
12. This Assignment Agreement shall be binding upon and
operate for the benefit of the parties and their successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have signed,
sealed and delivered this Assignment Agreement on the date first
above written.
Dated: New York, New York
August 1, 1996
ASSIGNOR:
FAST FOOD OPERATORS, INC.
By: ___________________________
LEWIS E. TOPPER, President
ASSIGNEE:
_______________________________
ERNESTO GONZALEZ
LESSOR:
_______________________________
JOSEPH T. MACARI
AMENDMENT TO MANAGEMENT AGREEMENT
Reference is made to the Management Agreement, made as of the
26th day of January, 1988 (the "Management Agreement"), the
amendments thereto executed on or about January 26, 1990 (the
"First Amendment"), December 29, 1990 (the "Second Amendment"),
January 26, 1992 (the "Third Amendment"), January 26, 1993 (the
"Fourth Amendment"), January 26, 1994 (the "Fifth Amendment"),
January 26. 1995 (the "Sixth Amendment"), and January 26, 1996 (the
"Seventh Amendment"). (All such amendments being collectively
referred to herein as the Amendments) by and between Integrated
Food Systems, Inc., a New Jersey corporation with offices at 42-40
Bell Boulevard, Suite 200, Bayside, New York 11361 ("IFS"), and
Fast Food Operators, Inc., a New York corporation with offices at
42-40 Bell Boulevard, Suite 200, Bayside, New York 11361 ("FFO").
Terms used in the Management Agreement and the Amendments, is
hereby further amended as follows:
The Management Agreement, as amended by the Amendments, is
hereby further amended as follows:
1. Section 1 of the Seventh Amendment is hereby deleted and
replaced in its entirety by the following:
"For services to be rendered hereunder, beginning as of
January 26, 1997 FFO shall pay to IFS a fee (the "Management
Fee") equalling the greater of (i) Twelve Thousand ($12,000)
Dollars per annum per Restaurant, or (ii) Ninety Six Thousand
($96,000) Dollars per annum; provided, however, that if the
Management Fee payable to IFS hereunder is determined by
reference to subsection (i) above, if a Restaurant is not
operated for an entire 12 month period, the Management Fee
payable to IFS in relation to such Restaurant shall be pro
rated for the period of time such Restaurant is operated. In
addition to the Management Fee, IFS shall be entitled to
reimbursement of expenses incurred with respect to rendering
all of the services contemplated hereunder to the extent
permitted by section IV."
2. Section 2 of the Seventh Amendment is hereby deleted and
replaced in its entirety by the following:
"The agreement shall have an initial term expiring on January
25, 1998."
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the 26th day of January, 1997.
INTEGRATED FOOD SYSTEMS, INC.
By:___________________________
Lewis E. Topper, President
FAST FOOD OPERATORS, INC.
By:___________________________
Lewis E. Topper, President
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is made as of January ___,
1997, by and between FAST FOOD OPERATORS, INC., a New York
corporation with a business office at 42-40 Bell Boulevard,
Bayside, New York 11361 (hereafter "Seller") and
_____________________________, a _______________ corporation with
a business office at ___________________________________
(hereafter "Purchaser").
This Agreement sets forth the terms and conditions
pursuant to which Purchaser will acquire from Seller certain fixed
assets relating to one (1) Popeye's Famous Fried Chicken and
Biscuits Restaurant presently operated by Seller, and located at
144th Street and Hillside Avenue, Queens, New York (the "Store").
In consideration of the representations, warranties,
covenants and agreements contained herein, intending to be legally
bound, the parties hereto agree as follows:
ARTICLE I
TRANSFER OF ASSETS AND LIABILITIES
1.01. Assets to be Conveyed. Subject to the terms and
conditions of this Agreement, Seller will, at the closing provided
for in Section 1.04 hereof (the "Closing"), sell, convey, assign,
lease, transfer or deliver to Purchaser the fixed assets, tangible
and intangible, used in or associated with the Stores, free and
clear of all liens and encumbrances, except those created on behalf
of the Seller, including, but not limited to, the following (the
"Assets"):
(a) the real estate, building and related improvements
used in the operation of the Store (the "Leased Property") which
Leased Property will be leased to Purchaser at Closing on the same
terms and conditions as are presently set forth in the lease
agreement for such Store location (the "Lease Agreement") pursuant
to an assignment of such Lease Agreement;
(b) furniture, trade fixtures and equipment owned by
Seller and used in the operation of and located at the Store as of
the date hereof (the "Equipment");
(c) subject to the approval of America's Favorite
Chicken Company ("AFC"), the assignment of the Franchise Agreement
pertaining to the Store;
(d) Seller's rights, if any, under the contracts,
agreements and commitments of Seller listed in Schedule 1.01(d)
hereto relating to the business conducted at the Store, but only to
the extent provided in Section 2.05;
(e) the prepaid items, deposits, customary cash "bank"
for the Store, and other special items listed on Schedule 1.01(e)
hereto; and
(f) all of Seller's inventory of goods and supplies
which are useable in the ordinary course of business which are
typically characterized as inventory and which are located at the
Store as of the Closing Date (as defined in Section 1.04 below)(the
"Inventory").
1.02. Liabilities to be Assumed. Subject to the terms and
conditions of this Agreement, in partial consideration of the
transfer, conveyance and assignment to Purchaser of the Assets,
Purchaser will assume the following liabilities and obligations of
Seller that arise from and after the Closing Date in respect of and
to the extent related to the business conducted at the Store, and
will assume no other liabilities or obligations of Seller:
(a) all liabilities arising under the Lease Agreement
for the Leased Property; and
(b) all of Seller's obligations and liabilities under
service contracts, licenses and concessions, if any, referred to in
Section 2.05 and listed in Schedule 1.01(d) hereto.
1.03. Consideration.
(a) Subject to the terms and conditions of this
Agreement, in consideration of the transfer, conveyance and
assignment of the Assets, Purchaser will deliver to Seller at the
Closing, by certified or official bank check, or by wire transfer
of immediately available federal funds, cash in the amount of
Thirty Thousand ($30,000.00) Dollars (the "Purchase Price").
(b) The Purchase Price for the Assets set forth herein
shall be allocated in accordance with Schedule 1.03 hereto.
(c) In addition, at Closing, Purchaser will deliver to
Seller a sum equal to the value of the Assets described in Section
1.01(e), plus a sum representing the Inventory for the Store as of
the date of Closing as described in Section 1.01(f).
(d) To the extent that after Closing, either Seller or
Purchaser shall receive any payments from any third parties
relating to the operations at the Store and attributable to the
period prior to (in the case of receipt by Purchaser) or after (in
the case of receipt by Seller) the Closing Date, the party
receiving the same shall promptly make delivery thereof to the
other party hereto who was entitled to such payment from such third
party.
1.04. Closing. The Closing of the transactions contemplated
in this Agreement shall take place at the offices of counsel for
the Seller and Purchaser, by wire transfer, fax and telephone, on
or about January 31, 1996, or on such later date when all
conditions precedent to the Closing shall have been met or waived,
but in no event later than February 28, 1997. (The date on which
the Closing occurs shall be referred to as the "Closing Date.")
Purchaser shall be entitled to possession of the Assets and to
begin operating the Stores as of the beginning of business on the
Closing Date if Closing is consummated by 10:00 a.m., New York City
time, on such date. If Closing is not consummated by such time,
Purchaser shall be entitled to possession of the Assets and to
begin operating the Store as of the beginning of business on the
next business day following the Closing Date.
1.05. Condition Precedent to Closing. The transaction
contemplated in this Agreement is specifically conditioned upon
written approval by AFC of the transactions contemplated by the
parties pursuant to the provisions of this Agreement and of the
assignment of the franchise rights and agreements, which approval
may consist of the forwarding by AFC to the parties of the
documentation necessary to effectuate the transfer of the franchise
rights to the Purchaser; and
1.06. Deliveries by Seller. At the Closing, Seller will
deliver the following to Purchaser:
(a) a duly executed and acknowledged Bill of Sale
substantially in the form of Exhibit A hereto (the "Bill of Sale")
transferring to Purchaser all of the Assets being transferred
hereunder as of the Closing Date;
(b) a duly executed and acknowledged agreement for the
assignment and assumption of the Lease Agreement for the Leased
Property;
(c) the officers' certificate referred to in Section
8.03 hereof; and
(d) such other documents as may be reasonably necessary
to effect the transactions contemplated hereby.
1.07. Deliveries by Purchaser. At the Closing, Purchaser
will deliver the following:
(a) to Seller, cash in the amount of Thirty Thousand
($30,000.00) Dollars by certified or official bank check, or by
wire transfer in immediately available federal funds;
(b) to Seller, cash in an amount equal to the value of
the Assets described in Section 1.01(e), plus a sum representing
the Inventory for the Store as of the date of Closing as described
in Section 1.01(f), by certified or official bank check, or by wire
transfer in immediately available federal funds.
(c) to Seller, the duly executed and acknowledged
agreement for the assignment and assumption of the Lease Agreement
for the Leased Property;
(d) to Seller, the officers' certificate referred to in
Section 7.03 hereof; and
(e) to Seller, such other documents as may be necessary
to effect the transactions contemplated hereby.
1.08. Contingent Increase of Purchase Price. In the
event that Purchaser obtains an extension of the term of the Lease
Agreement (the "Extension"), the Purchaser shall be obligated to
remit to the Seller, upon obtaining such Extension, the additional
funds described herein. An extension in the term of the Lease
Agreement for any period of time, including, but not limited to,
holdover periods and month-to-month tenancies, and in any form,
whether written or verbal, by amendment or addendum of the Lease
Agreement or by the execution of a new lease, shall constitute an
Extension for the purposes of this Section 1.08 and require the
payment of additional funds to the Seller. In the event of any
Extension which is accepted by the Purchaser, the Purchaser shall
be obligated to remit to the Seller the greater of: (i) Fifty
Thousand ($50,000) Dollars, or (ii) the product achieved by
application of the following formula - number of years (including
partial years and option periods granted to Purchaser) constituting
the Extension multiplied by Ten Thousand ($10,000) Dollars, up to
a maximum of One Hundred Thousand ($100,000) Dollars. The
provisions of this Section 1.08 shall be applied to any Extension
received by the Purchaser, whether immediately following the
conclusion of the current term of the Lease Agreement or
thereafter, until such time as the Store is no longer being
operated as an AFC franchised location or the Seller has received
an aggregate of One Hundred Thousand ($100,000) Dollars pursuant to
this Section 1.08; upon the occurrence of either such event, the
liability of Purchaser to make payment to Seller under this Section
1.08 shall cease. The provisions of this Section 1.08 shall be
binding upon any and all successors, assigns or other transferrees
of the Purchaser. It is accepted and agreed by the Seller that the
Purchaser shall have the authority, exercisable in the Purchaser's
sole discretion, to accept or reject any Extension, and if
Purchaser elects to cease operating the Store as an AFC franchised
location at the end of the current term of the Lease Agreement,
Purchaser shall have no obligation to make additional payments to
Seller under this Section 1.08. Furthermore, notwithstanding
anything else herein to the contrary, in the event that the
Purchaser does not extend the current term of the Lease, the
Purchaser shall have no liability to Seller under this Section
1.08.
ARTICLE II
RELATED MATTERS
2.01. Physical Inventories. A physical count shall be taken
of the Inventory at the Store immediately prior to the close of
business on the day preceding the Closing Date.
2.02. Franchise Documents. At the Closing, Seller shall
assign to Purchaser the executed Franchise Agreement for the Store,
including the addenda thereto, if any, all substantially in the
form attached hereto as Exhibit B (collectively, the "Franchise
Documents") following approval of Purchaser's application for a
franchise by AFC.
2.03. Apportionments.
(a) On the Closing Date, Purchaser and Seller shall
apportion the following expenses with regard to the Store:
(i) Seller's pro rata share of ad valorem taxes,
real estate taxes, assessments and fees payable for the Store on
such tax year or fiscal year basis, as the case may be;
(ii) Seller's pro rata share of fees, charges,
parking lot and shopping center expenses or similar expenses, if
any, as prescribed by all operating agreements, easements, leases
or other instruments;
(iii) if arrangements cannot be made for separate
billing, any apportionable utility charges and any other charges
which are properly apportionable in accordance with the terms of
this Agreement; and
(iv) Seller's pro rata share of payments under all
contracts, agreements and concessions assumed by Purchaser pursuant
to the terms of this Agreement.
(b) The foregoing, however, shall not operate to relieve
Seller of its obligations to pay its rightful share of any taxes,
assessments or other fees, utility charges or other charges that
are properly payable by Seller as apportioned as of the Closing
Date. Real estate taxes, personal property and other taxes, and
all other expenses and charges relating to the ownership or
operation of the Store, shall be shared on a pro rata basis in
proportion to the period of occupancy of each party.
(c) The parties agree that any payments due to each
other as a result of the apportionments made on the Closing Date
shall be paid within twenty (20) days after the Closing Date.
(d) The parties agree to make payments to each other on
a timely basis with respect to adjustments not correctly
ascertainable on the Closing Date when the correct amount of any
amounts to be adjusted or apportioned pursuant to this Section are
ascertained.
2.04. Cash and Cash Equivalents. Immediately prior to the
Closing Date, Seller shall remove all cash and cash equivalents
(including scrip and gift certificates) from the Store, other than
the cash constituting the Store's "bank." The Store's bank shall
be ________________ ($_______) Dollars and shall be purchased on
a dollar for dollar basis.
2.05. Contracts and Commitments. Seller has delivered to
Purchaser copies, where available, of all service contracts,
licenses and concessions referred to in Schedule 1.01(d) relating
to the business conducted at the Store. Purchaser shall assume all
of Seller's obligations, arising from and after the Closing Date,
with respect to said service contracts. Each such assignment and
assumption may, if required by Seller, be pursuant to a written
instrument, in form reasonably satisfactory to the parties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents, covenants and warrants to
Purchaser the following:
3.01. Corporate Organization, Etc. Seller is a corporation
duly incorporated and in good standing under the laws of the State
of New York.
3.02. Authority. Seller has full corporate power and
authority, in accordance with its Articles of Incorporation and By-
Laws, to carry on its business in connection with the Store as it
is now being conducted, and to enter into and perform its
obligations under this Agreement and to carry out the transactions
contemplated hereby.
3.03. Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will violate any provision of
the Articles of Incorporation or By-Laws of Seller, or, to the best
knowledge of Seller, violate, or conflict with, or constitute a
default (or constitute an event which, with notice or lapse of time
or both, would constitute a default) under, or give rise to any
right of termination, cancellation or acceleration under, any note,
bond, mortgage, indenture, license, agreement, lease or other
instrument or obligation to which Seller is a party or by which it
or any of the Assets may be bound, or violate any statute or law of
any judgment, decree, order, regulation or rule of any court or
governmental authority applicable to either Seller or any of the
Assets.
3.04. Title to Assets; Encumbrances. With respect to all
Assets, Seller represents that: (i) it has good and marketable
title to all such Assets related to the operation of the Store
which it purports to own; and (ii) all such Assets shall be
conveyed free and clear of title defects, liens, claims, charges,
security interests or other encumbrances.
3.05. Compliance with Applicable Law. To the best of
Seller's knowledge, Seller possesses all permits, consents and
licenses of every kind required by the jurisdiction in which the
Store is located which are necessary to carry on its business at
the Store as presently conducted, to own or lease and operate the
Assets, the failure of which possession would have a material
adverse effect on the operation of the Store. Seller represents
that it has complied with all laws, regulations and orders
applicable to its business at the Store, including, but not limited
to, those relating to zoning, health, safety and employment, and
the present operation of the Store does not violate any such laws,
regulations or orders in any material respects.
3.06. Leased Property. Seller has delivered to Purchaser
copies of the Lease Agreement, with all supplements, amendments and
modifications thereof, if any; such Lease Agreement has not been
further modified or amended nor assigned, and is in full force and
effect; there is no existing default by Seller under such Lease
Agreement and to the best knowledge of Seller no event has occurred
nor does any circumstance exist which (whether with or without
notice, lapse of time or the happening or occurrence of any other
event) would constitute any default thereunder. Seller hereby
agrees that it shall not modify, extend nor amend the Lease
Agreement without the prior written consent of Purchaser in each
instance.
3.07. Contracts. Schedule 1.01(d) contains an accurate and
complete list of all material contracts relating to the Store, the
Assets and/or the equipment located within the Store (the
"Contracts"). Seller has delivered to Purchaser copies of all such
Contracts and any amendments or modifications thereto. The
Contracts are in full force and effect; there is no existing
default by Seller under any of the Contracts and to the best of
Seller's knowledge no default has occurred nor does any
circumstance exist which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would
constitute any default thereunder.
3.08. Litigation. As of the date hereof, Seller has not
received notice that as to the operation of the Store it is or may
be in violation of any material order, writ, injunction, rule,
regulation or decree of any court or of any federal, state,
municipal or other governmental authority or agency having
jurisdiction with respect to the Store. Seller is neither engaged
in nor, to the best knowledge of Seller, threatened with, any legal
action or other proceeding which, if adversely determined, would
have a material adverse effect on the business being conducted at
the Store. Seller has not received any notice of taking or
condemnation, actual or proposed, with respect to the Store.
3.09. Brokers and Finders. Neither Seller nor any of its
respective officers, directors or employees has taken any action
with respect to any broker or finder which would give rise to any
liability on the part of Purchaser or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with
the transactions contemplated by this Agreement which would give
rise to any liability on the part of Purchaser. Seller hereby
indemnifies Purchaser from and against any claim, action or
proceeding by any person or entity in connection with any alleged
fee or commission arising from this transaction.
3.10. Public Utilities . All public utilities necessary for
the operation of the Store presently serve the Store and to the
best of Seller's knowledge no fact or condition exists which would
result in the permanent discontinuance of sewer, electric, gas,
telephone or other utilities presently located at the Store, which
utilities are necessary for the operation of the Store.
3.12. Franchise Rights. Seller is in material compliance
with the terms, conditions and obligations set forth in the
Franchise Agreement for the Store.
3.13 No Omission or Misrepresentation. No representation,
warranty or statement, or information furnished by Seller in
connection with the transactions contemplated by this Agreement,
contains or will contain any untrue statement of fact or will omit
any fact required to make the statements or information so
furnished not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents, covenants and warrants to Seller
the following (if applicable):
4.01. Corporate Organization, Etc. Purchaser is a
corporation duly incorporated and in good standing under the laws
of the State of __________________.
4.02. Authority. Purchaser has full corporate power and
authority, in accordance with its Articles of Incorporation and By-
Laws to, carry out its business as presently conducted, and to
enter into and perform its obligations under this Agreement and to
carry out the transactions contemplated hereby.
4.03. Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will violate any provision of
the Certificate of Incorporation or By-Laws of Purchaser, or, to
the best knowledge of Purchaser, violate, or conflict with, or
constitute a default (or constitute an event which, with notice or
lapse of time or both, would constitute a default) under, or give
rise to any right of termination, cancellation or acceleration
under, any note, bond, mortgage, indenture, license, agreement,
lease or other instrument or obligation to which Purchaser is a
party or by which it or any of the Assets may be bound, or violate
any statute or law of any judgment, decree, order, regulation or
rule of any court or governmental authority applicable to either
Purchaser or any of the Assets.
4.04. Brokers and Finders. Neither Purchaser nor any of its
officers, directors or employees has taken any action with respect
to any broker or finder which would give rise to any liability on
the part of Seller nor has incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the
transactions contemplated by this Agreement which would give rise
to any liability on the part of Seller. Purchaser hereby
indemnifies Seller from and against any claim, action or proceeding
by any person or entity in connection with any alleged fee or
commission arising from this transaction.
4.05. No Further Consents and Approvals Required. No
consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is
required by Purchaser in connection with the execution, delivery
and performance of this Agreement or the consummation of the
transactions contemplated hereby.
4.06. Litigation. As of the date hereof, Purchaser has not
received notice that it is or may be in violation of any material
order, writ, injunction, rule, regulation or decree of any court or
of any federal, state, municipal or other governmental authority or
agency having jurisdiction over Purchaser. There is no decree or
judgment of any kind in existence enjoining or restraining
Purchaser, or any of Purchaser's officers, directors or
stockholders, from taking any action required or contemplated by
this Agreement. Purchaser is not engaged in nor, to the best
knowledge of Purchaser, threatened with, any legal action or other
proceeding nor has Purchaser incurred or been charged with nor, to
the best knowledge of Purchaser, is Purchaser under investigation
with respect to any violation of any federal, state or local law or
administrative regulation with respect to which, if adversely
determined, there is a reasonable probability of a material adverse
effect on Purchaser's ability to acquire any of the Assets or to
conduct the business being conducted at the Store in substantially
the same manner as heretofore conducted.
4.07. Knowledge. Neither Purchaser nor its officers have
knowledge of any present facts or circumstances relating to
Purchaser which would materially adversely affect the ability of
Purchaser to perform its obligations under this Agreement.
4.08 No Omission or Misrepresentation. No representation,
warranty or statement, or information furnished by Purchaser in
connection with the transactions contemplated by this Agreement,
contains or will contain any untrue statement of fact or will omit
any fact required to make the statements or information so
furnished not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
5.01. Purchaser's Rights of Inspection. From and after the
date hereof, Seller shall, from time to time, on business days,
during business hours, make the Store and its assets and business
records available to Purchaser or Purchaser's representatives for
inspection upon not less than five (5) days' notice of Purchaser's
intention to inspect the Store. Seller may have a representative
or employee of Seller accompany Purchaser's representative during
any such inspection. Purchaser shall have the right to inspect the
Store, business records and the Assets at anytime up until the
Closing Date provided herein. Purchaser recognizes and
acknowledges that the Assets are being sold in an "as is"
condition. However, such Assets shall be in good working order at
the time of Closing. In the event that upon Purchaser's inspection
of the Store and/or Assets, Purchaser determines, in good faith
that there is any deficiency with respect to the physical condition
of the Assets and/or Store, Purchaser shall provide written notice
to Seller prior to the Closing Date of the alleged deficiencies.
Upon receipt of such notice, Seller shall (i) agree to correct the
deficiency, in which case Purchaser shall cooperate with Seller in
such correction; or (ii) reduce the Purchase Price to be paid by
Purchaser by such sum or terminate the Agreement without further
obligation on the part of the Seller.
5.02. Sales and Transfer Taxes and Fees. All sales, ad
valorem, and similar taxes and fees (including any penalties or
interest) incurred in connection with this Agreement and the
transactions contemplated hereby will be borne by the Purchaser.
All transfer, recording, filing and similar taxes and fees
(including any penalties or interest) incurred in connection with
this Agreement and the transactions contemplated hereby will be
borne by the Seller. The parties will assist each other in the
filing of all necessary tax returns and other documentation with
respect to all such sales, ad valorem, transfer and recording taxes
and fees, and, if required by applicable law, will join in the
execution of any such tax returns or other documentation. Any and
all fees of any nature imposed on either party by AFC relative to
the assignment or other transfer of the franchise rights in the
Store shall be the responsibility of the Purchaser.
5.03. Expenses. Whether or not the transactions contemplated
hereby are consummated, and except as provided in Section 5.02
above, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby will be borne by
the respective parties. Any and all fees of any nature imposed by
AFC relative to the assignment of the franchise agreement shall be
the responsibility of the Purchaser.
5.04. Notices. The parties hereto shall immediately inform
the other parties hereto in writing of the occurrence of any events
or the existence of any circumstances the effect of which would
constitute a breach of any covenant or warranty in this Agreement,
or which would result in any representation in this Agreement being
or becoming untrue or misleading.
5.05. Utilities. Seller shall use its best efforts (without
obligation to incur any expenses) to make certain that gas and
electrical utilities serving the Store shall not be terminated by
the suppliers thereof on the Closing Date. Seller and Purchaser
shall notify those utility companies which service the Store that
Purchaser shall be responsible for the payment of any and all
obligations incurred therefor after the Closing Date for the
utilities serving the Store, and shall, to the extent practicable,
cause meters to be read on or immediately prior to the Closing
Date.
5.06. Conduct of Business at the Store Pending the Closing
Date. Seller agrees that from the date hereof until the Closing
Date, unless otherwise consented to by Purchaser in writing, Seller
will carry on the business at the Store in substantially the same
manner as heretofore conducted and will not enter into any
agreement or make any commitment relating to the business conducted
in the Store except in the ordinary course of business and
consistent with past practice.
5.07. Computer/Cash Register Systems. Seller agrees to
provide such cooperation to Purchaser as Purchaser may reasonably
request to enable Purchaser to program and operate the
computer/cash register systems at the Store.
ARTICLE VI
EMPLOYEES
6.01. Hiring of Seller's Employees. It is Purchaser's
intention, as of the Closing Date, to offer employment to all
employees of Seller then employed at the Store (collectively, the
"Employees"), all such offers of employment to be pursuant to
Purchaser's standard employment practices and policies.
Purchaser's intent to offer employment to such Employees as of the
Closing Date shall not create any written contractual right of
employment on the part of any such Employee.
6.02. Earned Vacation Pay. At Closing, Purchaser shall
assume the liability and obligation of Seller for the payment of
accrued vacation to all Employees hired by the Purchaser.
6.03 Medical Insurance. Purchaser covenants and agrees that
it shall obtain medical insurance covering all qualified employees
of Seller to whom it offers employment, such medical insurance to
be comparable in scope of coverage and expense to employees as that
which is currently offered by Seller to its Store employees.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER
Each and every obligation of Seller under this Agreement
to be performed at the Closing shall be subject to the
satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived in writing by Seller:
7.01. Representations and Warranties True. The
representations and warranties of Purchaser contained herein shall
be true, complete and accurate in all material respects as of the
date when made and at and as of the Closing Date as though such
representations and warranties were made at and as of such date,
except for changes expressly permitted or contemplated by the terms
of this Agreement.
7.02. Performance. Purchaser shall have performed and
complied with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by it on or
prior to the Closing Date.
7.03. Certificate. Purchaser shall have delivered to Seller
a certificate, dated the Closing Date, executed by a duly
authorized executive officer of the Purchaser, certifying the
fulfillment of the conditions specified in Sections 7.01 and 7.02
hereof.
7.04. No Injunction, Etc. On the Closing Date, (a) there
shall be no effective injunction, writ, preliminary restraining
order or any order of any nature issued or threatened by a court or
other governmental authority of competent jurisdiction directing
that the transactions provided for herein or any of them not be
consummated as so provided or imposing any conditions on the
consummation of the transactions contemplated hereby, and (b) no
action, suit or proceeding shall be pending before any such court
or other governmental authority seeking such relief.
7.05. Franchise Approval. AFC shall have notified Seller and
Purchaser in writing that it will grant approval of the assignment
of Seller's franchise right to operate the Store as a Popeye's
Famous Fried Chicken and Biscuits Restaurant to Purchaser and that
the Seller shall have satisfied all terms, conditions and
requirements pertaining to the granting of said franchise.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF PURCHASER
Each and every obligation of Purchaser under this Agreement to
be performed at the Closing shall be subject to the satisfaction,
on or before the Closing Date, of each of the following conditions,
unless waived in writing by Purchaser:
8.01. Representations and Warranties True. The
representations and warranties of Seller contained herein shall be
true, complete and accurate in all material respects as of the date
when made and at and as of the Closing Date as though such
representations and warranties were made at and as of such date,
except for changes expressly permitted or contemplated by the terms
of this Agreement.
8.02. Performance. Seller shall have performed and complied
with all agreements, obligations and conditions required by this
Agreement to be performed or complied with by it on or prior to the
Closing Date.
8.03. Officers' Certificate. Seller shall have delivered to
Purchaser a certificate, dated the Closing Date, executed by a duly
authorized executive officer of the Seller, certifying the
fulfillment of the conditions specified in Sections 8.01 and 8.02
hereof.
8.04. No Injunction, Etc. On the Closing Date, (a) there
shall be no effective injunction, writ, preliminary restraining
order or any order of any nature issued or threatened by a court or
other governmental authority of competent jurisdiction directing
that the transactions provided for herein or any of them not be
consummated as so provided or imposing any conditions on the
consummation of the transactions contemplated hereby, and (b) no
action, suit or proceeding shall be pending before any such court
or other governmental authority seeking such relief.
8.05. Franchise Approval. AFC shall have notified Seller and
Purchaser in writing that it will grant approval of the assignment
of Seller's franchise right to operate the Store as a Popeye's
Famous Fried Chicken and Biscuits Restaurants to Purchaser and that
the Seller shall have satisfied all terms, conditions and
requirements pertaining to the granting of said franchise.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
9.01. Survival of Representations. The representations and
warranties made by Seller under this Agreement or pursuant hereto
shall survive the Closing only to the extent provided for in this
Article IX. The representations and warranties made by Purchaser
in this Agreement shall survive Closing forever.
9.02. Agreement of Seller to Indemnify Purchaser. Subject to
the terms and conditions of this Article IX, Seller hereby agrees
to indemnify, defend and hold Purchaser harmless, at any time after
consummation of the Closing, from and against all demands, claims,
actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including without limitation,
interest, penalties and attorneys' fees and expenses (collectively,
"Damages") asserted against, resulting to, imposed upon or incurred
by Purchaser, by reason of or resulting from (a) liabilities,
obligations or claims (whether absolute, accrued, contingent or
other) existing as of the Closing Date or arising out of facts or
circumstances existing at or prior thereto, whether or not such
liabilities or obligations were known at the time of the Closing,
relating to or arising out of the ownership, possession or use of
the Assets or the conduct of business at the Store by Seller prior
to the Closing, except those disclosed to Purchaser in connection
herewith; (b) a breach of any representation, warranty or agreement
or any facts or circumstances constituting such a breach; or (c)
the employment or termination of such employment by Seller of any
employees of Seller.
9.03. Agreement of Purchaser to Indemnify Seller. Subject to
the terms and conditions of this Article IX, Purchaser hereby
agrees to indemnify, defend and hold Seller harmless, at any time
after consummation of the Closing, from and against all Damages
asserted against, resulting to, imposed upon or incurred by Seller,
directly or indirectly, by reason of or resulting from (a)
liabilities, obligations or claims (whether absolute, accrued,
contingent or other) arising from and after the Closing Date
relating to or arising out of the ownership, possession or use of
the Assets or the conduct of business at the Store by Purchaser
following the Closing Date, except those expressly assumed or
agreed to by Seller herein; (b) a breach of any representation,
warranty or agreement of Purchaser contained in or made pursuant to
this Agreement or any facts or circumstances constituting such a
breach; or (c) the employment or termination of employment of
Employees by Purchaser.
9.04. Limitation of Liability.
(a) With respect to representations and warranties of
Seller contained in Article III of this Agreement, which
representations and warranties shall survive Closing only to the
extent provided herein, no indemnification by Seller under Section
9.02 shall be required to be made:
(i) with respect to Damages resulting from claims
as to which Seller has not received written notice within one (1)
year following the Closing, (whether or not such Damages have then
actually been sustained);
(ii) unless and to the extent that the aggregate
amount of Damages sustained by Purchaser with respect to claims for
breaches of representations and warranties hereunder exceeds Five
Thousand ($5,000) Dollars in the aggregate, and then only with
respect to the amount in excess of Five Thousand ($5,000) Dollars.
(b) All Damages shall be computed net of any net
recovery under any insurance coverage with respect thereto which
reduces the Damages that would otherwise be sustained.
9.05. Procedures Relating to Indemnification. The
obligations and liabilities of the party making the indemnity
pursuant to Sections 9.02 and 9.03 (the "Indemnitor") with respect
to claims made by third parties against the party or parties being
indemnified pursuant to such Sections (the "Indemnitee") shall be
subject to the following terms and conditions:
(a) the Indemnitee will give the Indemnitor prompt
notice of any such claim, and Indemnitor shall have the right to
undertake (at the Indemnitor's sole cost and expense) the defense
thereof by representatives chosen by it and reasonably acceptable
to the Indemnitee;
(b) if the Indemnitor, within a reasonable time after
notice of any such claim, fails to defend the Indemnitee against
which such claim has been asserted, the Indemnitee will (upon
further notice to the Indemnitor) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and
for the account and risk of the Indemnitor, subject to the right of
the Indemnitor to assume the defense of such claim at any time
prior to settlement, compromise or final determination thereof;
(c) Anything in this Section 9.05 to the contrary
notwithstanding, (i) if there is a reasonable probability that a
claim may materially and adversely affect the Indemnitee other than
as a result of money damages or other money payments, the
Indemnitee shall have the right, at its own cost and expense, to
defend, compromise or settle such claim, and (ii) the Indemnitor
shall not, without the written consent of the Indemnitee, settle or
compromise any claim or consent to the entry of any judgment;
(d) in connection with all claims defended hereunder,
the Indemnitee shall give the Indemnitor prompt written notice of
all material developments in connection with all claims, will
promptly supply the Indemnitor with all papers, documents and
evidence in the Indemnitee's possession and such other information
within the Indemnitee's knowledge pertinent to such claims, and
will produce at the appropriate place or places, at reasonable
times, such witnesses under the Indemnitee's control as may
reasonably be requested by the Indemnitor or its representatives.
ARTICLE X
TERMINATION
10.01. Methods of Termination. Except as otherwise provided,
this Agreement may be terminated prior to the Closing:
(a) by mutual written agreement of Purchaser and Seller;
(b) by Purchaser if the Closing has not occurred by
February 28, 1997, provided that a default by Purchaser hereunder
is not responsible for the Closing not having occurred; or
(c) by Seller if the Closing has not occurred by
February 28, 1997, provided that a default by Seller hereunder is
not responsible for the Closing not have occurred.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01. Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified and supplemented only
by written agreement of the parties at any time prior to the
Closing with respect to any of the terms contained herein.
11.02. Waiver of Compliance. Any failure of Purchaser, on
the one hand, or Seller, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be
expressly waived in writing by the Purchaser or the Seller, but
such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as
a waiver of, or estoppel with respect to, any subsequent or other
failure.
11.03. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given if delivered by hand or
mailed, certified or registered mail with postage prepaid:
(a) if to Purchaser, to:
_______________________
_______________________
_______________________
Attention: ____________________
with a copy to:
________________________
________________________
________________________
or to such other person or address as Purchaser shall furnish to
Seller in writing:
(b) if to Seller, to:
Fast Food Operators, Inc.
42-40 Bell Boulevard, Suite 200
Bayside, New York 11361
Attention: Lewis E. Topper
with a copy to:
Edward F. Duffy, Esq.
330 Madison Avenue, Eleventh Floor
New York, New York 10017-5001
or to such other person or address as Seller shall furnish to
Purchaser in writing.
11.04. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns. The parties hereto agree that neither Purchaser nor
Seller shall have the right to assign its rights and obligations as
set forth herein without prior notice and consent of other party.
11.05. Governing Law. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in
accordance with the laws of the State of New York applicable to
contracts made and to be performed in that state.
11.06. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument.
11.07. Headings. The headings of the Sections and Articles
of this Agreement are inserted for convenience only and shall not
constitute a part hereof or affect in any way the meaning or
interpretation of this Agreement.
11.08. Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, and the other documents and
certificates delivered pursuant to the terms hereof or referred to
herein, set forth the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein,
and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
whether oral or written, by any officer, employee or representative
of any party hereto.
11.09. Third Parties. Except as specifically set forth or
referred to herein, nothing herein expressed or implied is intended
or shall be construed to confer upon or give to any person or
corporation other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate seals
to be affixed hereto, all as of the day and year first above
written.
FAST FOOD OPERATORS, INC.
By:__________________________
Lewis E. Topper, President
[PURCHASER]
By:__________________________
____________________________
Lalmir Sultanzada, Personally
EXHIBIT A
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
FAST FOOD OPERATORS, INC. (the "Seller"), in accordance
with the provisions of the Asset Purchase Agreement dated January
___, 1997 (the "Agreement") between Seller and
______________________ ("Buyer"), pursuant to which Buyer is
purchasing and Seller is selling the fixed assets, tangible and
intangible, used in or associated with the Store as defined in the
Agreement, including, but not limited to, the following: the real
estate, buildings and related improvements used in the operation of
the Store ("Leased Property") which Leased Property will be leased
to Purchaser at Closing on the same terms and conditions as are
presently set forth in the lease agreement for such Store location;
furniture, trade fixtures and equipment owned by Seller and used in
the operation of and located at the Store as of the date hereof;
subject to the approval of America's Favorite Chicken Company, the
assignment of the Franchise Agreement pertaining to the Store;
Seller's rights, if any, under the contracts, agreements and
commitments of Seller listed in Schedule 1.01(d) to the Agreement
relating to the business conducted at the Store but only to the
extent provided in Section 2.05 of the Agreement; the prepaid
items, deposits, customary cash "bank" for the Store, and other
special items listed on Schedule 1.01(e) to the Agreement; and, all
of Seller's inventory of goods and supplies which are useable in
the ordinary course of business and which are typically
characterized as inventory and which are located at the Store as of
the Closing Date (as defined in Section 1.04 of the Agreement)
(collectively, the "Assets"). Such Assets being granted,
bargained, sold, conveyed, assigned, transferred and delivered to
Buyer by Seller in consideration of (i) cash in the amount of
Thirty Thousand ($30,000.00) Dollars; (ii) cash in an amount equal
to the value of the Assets described in Section 1.01(e) of the
Agreement, plus a sum representing the Inventory for the Store as
of the date of Closing as described in Section 1.01(f); (iii)
assumption by Buyer of the following liabilities and obligations of
Seller that arise from and after the Closing Date (as defined in
the Agreement) in respect of and to the extent related to the
business conducted at the Store: (a) all liabilities arising under
the Lease Agreement for the Leased Property; and (b) all of
Seller's obligations and liabilities under service contracts,
licenses and concessions, if any, referred to in Section 2.05 and
listed in Schedule 1.01(d) of the Agreement; (iv) assumption buy
Buyer of the Seller's obligation for earned vacation pay to all
Employees hired by the Buyer pursuant to Section 6.02; and (v)
other good and valuable consideration, the receipt of which is
hereby acknowledged.
TO HAVE AND TO HOLD, all and singular, the foregoing unto
Buyer, its successors and assigns to use for its and their use and
benefit forever.
Except as expressly stated in the Agreement or listed on
the Schedules thereto, assets and property sold hereunder are owned
exclusively, and are sold and conveyed to Buyer by Seller, free and
clear of any lien, mortgage, pledge, encumbrance, or charge of any
kind, or interest or claim of title or right of third parties, and
Seller hereby covenants and agrees with Buyer to warrant and defend
this conveyance, transfer, sale and assignment and the title of
Buyer, its successors and assigns, hereunder against the claims and
demands of any and all persons whomever, SAVE AND EXCEPT for those
liens, encumbrances, charges, mortgages, pledges, interests, claims
or contingency items set out in the Agreement.
This Assignment, Bill of Sale and Conveyance is executed
and delivered pursuant to and subject to the terms and conditions
of the Agreement, and the representations and warranties contained
in the Agreement shall survive the execution and delivery hereof.
Seller agrees that at any time and from time to time on and after
the Closing Date, at Buyer's request and without further
consideration, Seller shall execute and deliver such other
instruments of conveyance and transfer and take such other action
as Buyer reasonably may request more effectively to convey to,
transfer to and vest in Buyer, or to put Buyer, or its successors
and assigns, in possession of, any or all of the assets and
property to be conveyed, transferred, sold, assigned and delivered
hereunder or intended so to be.
Capitalized terms not defined herein shall have the meaning
ascribed to them in the Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed
this instrument the ____ day of January, 1997.
ATTEST: FAST FOOD OPERATORS, INC.
_______________________
By:____________________________
Lewis E. Topper, President
ATTEST: [BUYER]
________________________ By:____________________________
, President
ATTEST:
_______________________
____________________________
Lalmir Sultanzada, Personally
