SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or
240.14a-12
Fast Food Operators, Inc.
-------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Reqistrant)
Payment of Filing Fee (Check Appropriate Box):
[ ] No fee required
[ x ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction
applies: Not applicable.
2) Aggregate number of securities to which transaction
applies: Not applicable.
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined): Registrant is receiving an aggregate of
$970,522 in cash for substantially all of its assets.
4) Proposed maximum aggregate value of transaction: $970,522.
Total fee paid: $200.00 with preliminary.
[ x ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Dated Filed:
FAST FOOD OPERATORS, INC.
42-40 BELL BOULEVARD, SUITE 200
BAYSIDE, NEW YORK 11361
(718) 229-1113
To Our Shareholders:
You are cordially invited to attend a Special Meeting of the
shareholders of Fast Food Operators, Inc., a New York corporation
(the "Company"), to be held on October 26, 1998, at 10:00 a.m.
local time, at the Company's offices at No. 1 Commercial Drive,
Area E, Florida, New York 10921.
At the Special Meeting, the holders of the Company's common
stock, par value $.01 per share (the "Common Stock"), will be
asked to consider and vote upon a proposal to approve the sale by
the Company of substantially all of the assets of the Company
that relate to four (4) Popeye's Famous Fried Chicken and
Biscuits restaurants located in Brooklyn, Queens and New York,
New York (the "Restaurants") to Popyork LLC, a New York limited
liability company (the "Purchaser"), for $900,000 in cash
(subject to certain adjustments at closing) to be effected
pursuant to an Asset Purchase Agreement dated as of July 10, 1998
between the Company and the Purchaser (the "Sale Transaction"),
and a proposed plan of complete liquidation and dissolution of
the Company whereby, provided the transactions contemplated by
the Asset Purchase Agreement are approved and consummated, the
Company will take action to dissolve and wind-up the business and
affairs of the Company (the "Plan of Liquidation"). Details of
the Sale Transaction and Plan of Liquidation (collectively, the
"Proposal") are set forth in the enclosed Proxy Statement, which
you are urged to read carefully.
Your Board of Directors believes that the Proposal is in the
best interests of the Company and its shareholders. In arriving
at its decision to recommend the Proposal, the Board carefully
reviewed and considered the terms and conditions of the Proposal
and the factors described in the enclosed Proxy Statement.
Approval of the Proposal requires the affirmative vote of
the holders of two-thirds of the Company's issued and outstanding
shares of Common Stock. Consummation of the Proposal will result
in the termination of substantially all of the Company's current
operations. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
PROPOSAL AND RECOMMENDS THAT HOLDERS OF COMMON STOCK VOTE FOR
APPROVAL OF THE PROPOSAL.
If you are a holder of the Company's Common Stock, whether
or not you plan to attend the Special Meeting, please fill in the
appropriate blanks, sign and date the enclosed proxy and return
it in the envelope provided for that purpose. If you attend the
Special Meeting and wish to vote in person, you may do so by
withdrawing your proxy prior to the Special Meeting. Under New
York law, if you abstain from voting, your abstention will be
treated as a "no" vote for purposes of determining whether
approval of the Proposal has been obtained.
Sincerely,
LEWIS E. TOPPER
- -------------------------
Lewis E. Topper, Director,
Chairman of the Board,
President, Chief Executive
Officer, and Treasurer
FAST FOOD OPERATORS, INC.
42-40 BELL BOULEVARD, SUITE 200
BAYSIDE, NEW YORK 11361
(718) 229-1113
----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 26, 1998
----------------------
Notice is hereby given that a Special Meeting of the
shareholders (the "Special Meeting") of Fast Food Operators,
Inc., a New York corporation (the "Company"), will be held on
October 26, 1998 at 10:00 a.m. local time, at the Company's
offices at No. 1 Commercial Drive, Area E, Florida, New York
10921, for the purpose of considering and voting upon the
following matters:
1. A proposal to approve the sale by the Company of
substantially all of the assets of the Company that are related
to four (4) Popeye's Famous Fried Chicken and Biscuits
restaurants located in Brooklyn, Queens and New York, New York
(the "Restaurants") to Popyork LLC, a New York limited liability
company (the "Purchaser"), for $900,000 (subject to adjustment at
closing) in cash, to be effected pursuant to an Asset Purchase
Agreement (the "Purchase Agreement") dated as of July 10, 1998
between the Company and the Purchaser (the "Sale Transaction"),
and a proposed plan of complete liquidation and dissolution of
the Company whereby, provided the transactions contemplated by
the Asset Purchase Agreement are approved and consummated, the
Company will take action to dissolve and wind-up the business and
affairs of the Company (the "Plan of Liquidation").
2. Such other business as may properly come before the
Special Meeting and any adjournment thereof.
Holders of record of the Company's common stock, par value
$.01 per share, at the close of business on September 23, 1998,
are entitled to notice of, and to vote at, the Special Meeting
and any adjournment thereof.
Please fill in the appropriate blanks, sign, date and return
the enclosed proxy, whether or not you plan to attend the Special
Meeting. If you attend the meeting and wish to vote in person,
you may do so by withdrawing your proxy prior to the Special
Meeting.
By the order of the Board of Directors,
DANIEL A. POGANSKI
- ------------------
Daniel A. Poganski
Secretary
October 7, 1998
FAST FOOD OPERATORS, INC.
42-40 BELL BOULEVARD
BAYSIDE, NEW YORK 11361
(718) 229-1113
---------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 26, 1998
-------------------------
This Proxy Statement is being furnished to the holders as of
the Record Date (as hereinafter defined) of common stock, par
value $.01 per share (the "Common Stock"), of Fast Food
Operators, Inc., a New York corporation (the "Company"), in
connection with the solicitation of proxies by the Company's
Board of Directors (the "Board" or the "Board of Directors"), for
use at a Special Meeting of shareholders of the Company (the
"Special Meeting") to be held on October 26, 1998, at 10:00 a.m.
local time at the Company's offices at No. 1 Commercial Drive,
Area E, Florida, New York 10921. This Proxy Statement and the
accompanying Proxy are first being mailed to shareholders of the
Company on or about October 7, 1998.
At the Special Meeting, holders of the Common Stock will be
asked to consider and vote upon a proposal to approve the sale by
the Company of substantially all of the assets of the Company and
which relate to four (4) Popeye's Famous Chicken and Biscuits
restaurants located at 722 Seventh Avenue, New York; 122-10 Guy
Brewer Boulevard, Queens; 850 Pennsylvania Avenue, Brooklyn; and
2137 Nostrand Avenue, Brooklyn (the "Restaurants") to Popyork
LLC, a New York limited liability company ("Popyork" or the
"Purchaser"), to be effected pursuant to an Asset Purchase
Agreement (the "Purchase Agreement") dated as of July 10, 1998,
between the Company and the Purchaser (the "Sale Transaction"),
and a proposed plan of complete liquidation and dissolution of
the Company whereby, provided the transactions contemplated by
the Purchase Agreement are approved and consummated, the Company
will take action to dissolve and wind-up the business and affairs
of the Company (the "Plan of Liquidation"). The Sale Transaction
and the Plan of Liquidation (collectively, the "Proposal") and
the effect of their consummation on the operations of the Company
is described more thoroughly in this Proxy Statement and in the
documents attached hereto which shareholders are urged to read
carefully. THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE PROPOSAL AND RECOMMENDS A VOTE FOR THE APPROVAL OF
THE PROPOSAL.
No person has been authorized to give any information or to
make any representation other than those contained in this Proxy
Statement in connection with the solicitation of proxies made
hereby, and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company
or any other person. All information pertaining to the Purchaser
and its affiliates contained in this Proxy Statement has been
supplied by the Purchaser.
TABLE OF CONTENTS
PAGE
----
SUMMARY
THE SPECIAL MEETING
TIME, DATE AND PLACE
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
VOTING AND RECORD DATE
PROXIES
THE PROPOSAL
INTRODUCTION
THE COMPANY
Background
Transactions with Integrated Food Systems, Inc.
Recent Restaurant Sales
Present Operations
Food Menu
The Franchisor
The Franchisee
Trademarks and Service Marks
Competition
Employees
DESCRIPTION OF THE SALE TRANSACTION
The Purchaser
The Sale
Assets
Liabilities
Consideration
The Closing
Representations And Warranties
Certain Covenants
Conditions To Closing
Indemnification
Termination
DESCRIPTION OF THE PLAN OF LIQUIDATION
Distribution to Shareholders
Powers of the Company Following Dissolution
Termination
Judicial Supervision of Liquidation
ESTIMATE AMOUNT AVAILABLE FOR THE LIQUIDATING DISTRIBUTION
NO APPRAISAL RIGHTS
RECOMMENDATION OF THE BOARD OF DIRECTORS
INTERESTS OF CERTAIN PERSONS IN THE PROPOSAL
REGULATORY APPROVALS
CERTAIN INCOME TAX CONSEQUENCES
To the Company
To the Shareholders
EFFECT OF THE PROPOSAL ON THE COMPANY'S SHAREHOLDERS
MARKET PRICE DATA AND RELATED MATTERS
COMMON STOCK INFORMATION
DIVIDENDS AND DISTRIBUTIONS
DELISTING OF THE COMPANY'S COMMON STOCK
POTENTIAL SHAREHOLDER LIABILITY
COMPARATIVE PER SHARE DATA
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 28, 1997 Compared to Year
Ended December 29, 1996
Six Months Ended June 28, 1998 Compared to
Six Months Ended June 29, 1997
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
ADDITIONAL INFORMATION ABOUT THE COMPANY
DESCRIPTION OF BUSINESS
PROPERTIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCKHOLDER PROPOSALS
INDEX TO FINANCIAL STATEMENTS
ASSET PURCHASE AGREEMENT BY AND BETWEEN THE COMPANY
AND POPYORK LLC
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
SUMMARY
The following is a brief summary of information contained
elsewhere in this Proxy Statement. This summary is not a
complete statement of all information, facts or materials to be
voted on at the Special Meeting. This summary should only be
read in conjunction with, and is qualified in its entirety by
reference to, the more detailed information contained in this
Proxy Statement and the Exhibits hereto. Unless otherwise
defined, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in this Proxy
Statement. Shareholders are urged to review carefully this Proxy
Statement and the Exhibits hereto in their entirety.
THE SPECIAL MEETING
Time, Date and Place
- --------------------
The Special Meeting will be held at the Company's offices at No.
1 Commercial Drive, Area E, Florida, New York 10921, on October
26, 1998, commencing at 10:00 a.m. local time.
Matters to be Considered at the Special Meeting
- -----------------------------------------------
At the Special Meeting, shareholders of the Company will be asked
to consider and vote upon the Proposal.
Record Date; Shares Entitled to Vote
- ------------------------------------
Holders of record of shares of Common Stock("Shareholders") at
the close of business on September 23, 1998, are entitled to
notice of and to vote at the Special Meeting.
Vote Required
- -------------
The affirmative vote of the holders of at least two-thirds of the
shares issued and outstanding and entitled to vote on the Record
Date is required to authorize the Proposal. Abstentions will be
treated as "no" votes for purposes of determining whether
approval of the Proposal has been obtained. See "THE SPECIAL
MEETING -- Voting and Record Date."
THE PROPOSAL
Introduction
- ------------
The Company has entered into a Purchase Agreement dated as of
July 10, 1998 with Popyork. The Purchase Agreement provides for
the sale of substantially all of the assets of the Company to the
Purchaser for an aggregate purchase price as determined in
accordance with the Purchase Agreement: (i) cash in the amount of
$900,000, (ii) cash in the amount of the value of Inventory and
the Restaurants' "banks," (iii) certain prepaid/accrued items
and (iv) other standard closing adjustments. The sale will
leave the Company with no restaurant operations; accordingly, the
Company intends to convert all remaining assets to cash and to
implement the Plan of Liquidation, whereby the Company would
retire all of its remaining liabilities and distribute its
remaining cash to shareholders. See "THE PROPOSAL --
INTRODUCTION," "-- DESCRIPTION OF THE SALE TRANSACTION," and "--
DESCRIPTION OF THE PLAN OF LIQUIDATION."
The Company
- -----------
The Company is engaged in the ownership, management and operation
of franchised Popeye's Famous Fried Chicken and Biscuits
restaurants as franchisees of America's Favorite Chicken Company
("Franchisor"). The principal executive office of the Company is
located at 42-40 Bell Boulevard, Suite 200, Bayside, New York
11361. See "THE PROPOSAL -- The Company," "PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION OF THE COMPANY" and "ADDITIONAL INFORMATION
ABOUT THE COMPANY -- DESCRIPTION OF THE Business."
DESCRIPTION OF THE SALE TRANSACTION
The Purchaser
- -------------
Popyork is a New York limited liability company. The principal
executive offices of Popyork are located at 300 Main, Suite 202,
Little Falls, NJ 07424. Popyork's managing member is Gary Monie,
a former Vice-president of the Company. See "THE PROPOSAL --
DESCRIPTION OF THE SALE TRANSACTION -- The Purchaser."
Terms of Sale
- -------------
Upon the terms and subject to the conditions of the Purchase
Agreement, the Company will sell and transfer, and the Purchaser
will purchase and acquire, the Assets (as defined in the Purchase
Agreement), and the Company will transfer to the Purchaser, and
the Purchaser will assume and agree to pay, perform and
discharge, the Assumed Liabilities (as hereinafter defined) set
out in the Purchase Agreement. The Assets include all of the
right, title and interest of the Company in and to: (i) the
Leased Property (as defined in the Purchase Agreement), subject
to the approval of each respective lessor, on the same terms and
conditions as are presently set forth in the Lease Agreements (as
defined in the Purchase Agreement) for the location of each of
the Restaurants or upon an amendment to such Lease Agreements
mutually agreed upon by the lessor and lessee; (ii) the Equipment
(as defined in the Purchase Agreement); (iii) the assignment of
the Franchise Agreements (as defined in the Purchase Agreement)
pertaining to the Restaurants, subject to the approval of
Franchisor; (iv) the Company's rights, if any, under the
contracts, agreements and commitments of the Company relating to
the business conducted at the Restaurants but only to the extent
provided in the Purchase Agreement; (v) the prepaid items,
deposits, customary cash "banks" for the Restaurants, and other
special items provided for in the Purchase Agreement; and (vi)
all of the Inventory (as defined in the Purchase Agreement) of
the Company. "Assumed Liabilities" include (i) all liabilities
arising under the Lease Agreements for the Leased Property and
(ii) all of the Company's obligations and liabilities under
service contracts, licenses and concessions, if any, as more
fully described in the Purchase Agreement. See "THE PROPOSAL --
DESCRIPTION OF THE SALE TRANSACTION -- Assets" and "--
Liabilities."
Consideration
- -------------
In consideration for the purchase of the Assets (subject to
certain adjustments at closing in accordance with the Purchase
Agreement), Popyork will pay to the Company at the Closing as
determined in accordance with the Purchase Agreement: (i) cash in
the amount of $900,000, (ii) cash in the amount of the value of
Inventory and the Restaurants' "banks," (iii) certain
prepaid/accrued items and (iv) other standard closing
adjustments. See "THE PROPOSAL -- DESCRIPTION OF THE SALE
TRANSACTION -- Consideration."
Termination and Certain Other Provisions
- ----------------------------------------
The Purchase Agreement contains certain representations,
warranties, covenants, conditions and indemnification agreements
of the Company and the Purchaser customary for transactions of
the type contemplated by the Purchase Agreement. See "THE
PROPOSAL -- DESCRIPTION OF THE SALE TRANSACTION --
Representations and Warranties," "-- Certain Covenants," "--
Conditions to Closing," "-- Indemnification" and "-- Termination."
The Purchase Agreement may be terminated at any time prior to the
Closing: (i) by mutual written agreement of Purchaser and Seller;
(ii) by Purchaser if the Closing has not occurred by December 30,
1998, provided that Purchaser is not responsible for the Closing
not having occurred; or (iii) by Seller if the Closing has not
occurred by December 30, 1998, provided that Seller is not
responsible for the Closing not having occurred. See "THE
PROPOSAL -- DESCRIPTION OF THE SALE TRANSACTION -- Termination."
DESCRIPTION OF THE PLAN OF LIQUIDATION
The Plan of Liquidation
- -----------------------
The Company will implement a liquidation plan dated as of the
Closing Date entitled "Plan of Complete Liquidation and
Dissolution of Fast Food Operators, Inc." (the "Plan of
Liquidation"). The Company will then file a certificate of
voluntary dissolution with the Secretary of State of the State of
New York, thereby terminating the corporate existence of the
Company. The directors and officers of the Company will wind up
the affairs of the Company, collect and sell its assets for cash
and pay the Company's liabilities and claims. After any
remaining claims against the Company are resolved by the Company,
the Company anticipates that it will make two distributions to
the Shareholders. It is anticipated that the first of such
distributions will occur within thirty (30) days after the
dissolution of the Company (the "Initial Distribution"). The
final distribution in complete liquidation of the Company is
anticipated to occur within twelve months from the date of the
dissolution of the Company (the "Final Distribution") (the
Initial Distribution and the Final Distribution collectively
referred to as, the "Liquidating Distribution"). See "THE
PROPOSAL -- DESCRIPTION OF THE PLAN OF LIQUIDATION."
Estimated Amount Available for the Liquidating Distribution
- -----------------------------------------------------------
The Company estimates that as a result of the consummation of the
Plan of Liquidation, approximately $980,573 or $0.11 per share
should be available for distribution to the Company's
Shareholders. The Initial Distribution will be approximately
$802,287 or $0.09 per share. It is anticipated that the Final
Distribution should be approximately $178,286 or $0.02 per
share.
Background and Reasons for the Proposal
- ---------------------------------------
The Proposal represents an opportunity for the Company to ensure
a sizable return of capital distribution to its Shareholders
through the application of the proceeds of the Sale Transaction.
See "THE PROPOSAL -- Background and Reasons for the Sale
Transaction."
Recommendation of the Board of Directors
- ----------------------------------------
The Board of Directors believes that the Sale Transaction and the
Plan of Liquidation are fair to, and in the best interest of, the
Company and its Shareholders. Accordingly, the Board of
Directors has unanimously approved the Proposal and recommends to
the Company's Shareholders that they vote FOR its approval. The
Board of Directors has determined that the Proposal represents an
opportunity to sell the Restaurants at acceptable valuations.
See "THE PROPOSAL -- Recommendation of the Board of Directors."
Interests of Certain Persons in the Sale Transaction
- ----------------------------------------------------
Popyork is member managed by Gary M. Monie, formerly a Vice
President of both the Company and Integrated Food Systems, Inc.
and a member of their Boards of Directors. Mr. Monie resigned
from these positions in the fall of 1995. Since resigning these
positions, Mr. Monie has continued to provide restaurant
operation supervisory services for the Company as a consultant.
See "THE PROPOSAL -- Interests of Certain Persons in the Sale
Transaction."
Certain Income Tax Consequences
- -------------------------------
The conversion of the Company's assets into cash pursuant to the
Purchase Agreement and the Plan of Liquidation will be taxable
transactions with respect to the Company to the extent that any
gain or loss is realized. Generally, any gain or loss recognized
by a Shareholder of the Company on the liquidation of the Company
will constitute a capital gain or loss. See "THE PROPOSAL --
Certain Income Tax Consequences."
Effect of the Sale Transaction on the Company's Shareholders
- ------------------------------------------------------------
If the Proposal is consummated, trading of Common Stock of the
Company will no longer be possible on the earlier of (i) the date
on which the NASD so directs or (ii) the date assets are
transferred in the Final Distribution. Shareholders shall
surrender their Common Stock to the Company in order to receive
such Shareholders' Final Distribution. Surrendered Shares shall
be canceled by the Company. See "THE PROPOSAL -- Effect of the
Sale Transaction on the Company's Shareholders."
THE SPECIAL MEETING
TIME, DATE AND PLACE
This Proxy Statement is being furnished to the holders as of
the Record Date of the Common Stock in connection with the
solicitation of proxies by the Board of Directors for use at the
Special Meeting to be held on October 26, 1998, at 10:00 a.m.
local time, at the Company's offices at No. 1 Commercial Drive,
Area E, Florida, New York 10921.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the holders of the Common Stock will
be asked to consider and vote upon (i) the Proposal and (ii) such
other business as may properly come before the meeting and any
adjournment thereof.
VOTING AND RECORD DATE
The Board of Directors has fixed September 23, 1998, as the
record date ("Record Date") for determining holders of Common
Stock of record entitled to receive notice of and to vote at the
Special Meeting. Accordingly, only holders of record of Common
Stock who are holders of such securities as of the Record Date
will be entitled to notice of and to vote at the Special Meeting.
As of the Record Date, there were 8,914,300 shares of Common
Stock outstanding and entitled to vote.
Each holder of record of Common Stock on the Record Date is
entitled to cast one vote per share, exercisable in person or by
a properly executed proxy, with respect to the approval of the
Sale Transaction and any other matter to be submitted to a vote
of Shareholders at the Special Meeting.
The presence at the Special Meeting, in person or by a
proxy, of the holders of a majority of the shares of Common Stock
outstanding on the Record Date will constitute a quorum at the
Special Meeting. Votes cast by proxy or in person at the Special
Meeting will be counted by the persons appointed by the Company
to act as the inspectors for the meeting. Shares represented by
proxies that reflect abstentions or include "broker non-votes"
will be treated as shares that are present and entitled to vote
for purposes of determining the presence of a quorum.
For corporations in existence on February 23, 1998, New York
law provides that a sale, lease, exchange or other disposition of
all or substantially all of the assets of a New York corporation,
such as the Company, would require the affirmative vote of the
holders of at least two-thirds of the shares entitled to vote
thereon, unless the corporation's Certificate of Incorporation
has been amended to provide for a simple majority vote. The
Company's Certificate of Incorporation has not been amended as
such; therefore, the affirmative vote of the holders of at least
two-thirds of the shares entitled to vote on the Record Date is
required to authorize the Proposal. Abstentions and "broker non-votes"
will be included in the calculation for purposes of
determining whether the Proposal has been approved and will be
treated as "no" votes.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSAL
AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL. THE
COMPANY IS SEEKING STOCKHOLDER APPROVAL OF THE PROPOSAL. If the
Company fails to obtain approval of the Proposal by the Company's
Shareholders, the Company will not proceed with the Sale
Transaction or the Plan of Liquidation.
PROXIES
All shares of Common Stock that are represented at the
Special Meeting by properly executed proxies received prior to or
at the Special Meeting, and not duly and timely revoked, will be
voted at the Special Meeting in accordance with the choices
marked thereon by the Shareholders. Unless a contrary choice is
marked, the shares will be voted FOR approval of the Proposal.
At the time this Proxy Statement was mailed to Shareholders,
the Board of Directors was not aware that any other matters not
referred to herein would be presented for action at the Special
Meeting. If any other matters properly come before the Special
Meeting, the persons designated in the proxy intend to vote the
shares represented thereby in accordance with their best
judgment.
Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before it is voted. Proxies
may be revoked by (i) filing with the Secretary of the Company at
or before the taking of the vote of the Special Meeting, a
written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later-dated proxy relating to the same
shares and delivering it to the Secretary of the Company before
the taking of the vote at the Special Meeting or (iii) attending
the Special Meeting and voting in person (although attendance at
the Special Meeting will not in and of itself constitute a
revocation of a proxy).
All expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement, will be borne by the
Company. In addition to solicitation by mail, arrangements will
be made with brokers and other custodians, nominees and
fiduciaries to forward proxy solicitation materials to beneficial
owners of shares of Common Stock held of record by such brokers,
custodians, nominees and fiduciaries, and the Company may
reimburse such brokers, custodians, nominees and fiduciaries for
their reasonable expenses incurred in connection therewith.
Directors and employees of the Company may also solicit proxies
in person or by telephone without receiving any compensation in
addition to their regular compensation as directors and
employees.
THE PROPOSAL
INTRODUCTION
The Company has entered into a Purchase Agreement with
Popyork. The Purchase Agreement provides for the sale of
substantially all of the assets of the Company to the Purchaser
for an aggregate purchase price of: (i) cash in the amount of
$900,000, (ii) cash in the amount of the value of Inventory and
the Restaurants' "banks," (iii) certain prepaid/accrued items
and (iv) other standard closing adjustments as determined in
accordance with the Purchase Agreement. On the Closing Date of
the transaction contemplated by the Purchase Agreement, the
Assets would be transferred to the Purchaser and the Purchaser
would assume specified liabilities of the Company. It is a
condition of the sale of the Assets that the Shareholders of the
Company approve the Purchase Agreement. In order to comply with
certain provisions of New York law, the approval by the
Shareholders of the Purchase Agreement will be conditioned upon
the dissolution of the Company and the distribution of
substantially all of its net assets to the Shareholders within
one year after the Closing Date. The Purchase Agreement is
described in more detail herein under "THE PROPOSAL --
DESCRIPTION OF THE SALE TRANSACTION."
On the Closing Date, the proceeds from the sale of assets
under the Purchase Agreement will all be deposited with the
Company pursuant to the Plan of Liquidation, as defined herein.
Such proceeds will be available for satisfying claims which may
be asserted by the Purchaser and others against the Company. On
the date of the Final Distribution, any amounts then held by the
Company which are not the subject of pending claims will be
released to the Shareholders.
On the Closing Date, the Company would implement the Plan of
Liquidation. The Board has already approved the Plan of
Liquidation, subject to the approval of Shareholders of the
Proposal. The Company will then file a certificate of voluntary
dissolution with the Secretary of State of the State of New York,
thereby terminating the corporate existence of the Company, and
shall execute, acknowledge and file such certificates and other
documents as shall be necessary to withdraw as a foreign
corporation in jurisdictions in which it is qualified to do
business. At such point, the business of the Company would be
limited to winding up its affairs.
In accordance with the Plan of Liquidation, on the Closing
Date, the directors and officers of the Company will wind up the
affairs of the Company, collect and sell its assets for cash, pay
or contest its liabilities and claims and allow for the Initial
Distribution and Final Distribution to Shareholders. See "THE
PROPOSAL -- NO APPRAISAL RIGHTS."
The Company will make the Initial Distribution to the
Shareholders within thirty (30) days after the Closing Date.
Thereafter, any remaining claims against the Company whether
under the Purchase Agreement or otherwise will be resolved by the
Company on behalf of the Shareholders. Promptly after such
claims are resolved, the Company anticipates that it will make
the Final Distribution to the Shareholders. It is anticipated
that the Final Distribution will occur within twelve months from
the Closing Date.
Shareholders will vote on approval of the Purchase Agreement
and the Plan of Liquidation as a single proposal.
In connection with the sale of the Assets and the
dissolution and liquidation of the company, Shareholders of the
Company will not have appraisal rights. See "THE PROPOSAL -- NO
APPRAISAL RIGHTS."
THE COMPANY
Background
- ----------
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 December 27, 1978, the Company entered into an option
agreement with Popeyes Famous Fried Chicken, Inc., a Louisiana
corporation ("PFFC"), pursuant to which the Company paid a total
of $170,000 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.
On April 9, 1981, the Company's Registration Statement on
Form S-18 was declared effective by the 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.
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 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 restaurants 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 PROPOSAL -- THE COMPANY --
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 payment
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 must be
exercised and restaurants opened no later than specified. On
March 9, 1992, the development agreement was amended 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. The
termination of the Development Agreement had no effect on the
existing franchise agreements.
As of July 10, 1998, the Company was operating five Popeyes
restaurants of which one was subject to a contract of sale. Six
restaurants were sold and/or closed during the fourteen-month
period from October 1994 to November 1995. On April 15, 1997,
the Company sold the Hillside, Queens restaurant. On July 8,
1998, the Company agreed to sell the Empire Boulevard, Brooklyn
restaurant to 40 Empire Chicken Corp., a New York corporation,
which is affiliated with the Empire restaurant's current manager,
Lalmir Sultanzada, for $70,000 in cash, plus the usual closing
adjustments for the cash "bank," inventory and prepaid/accrued
items. See "THE PROPOSAL -- THE COMPANY -- Recent Restaurant
Sales," "-- Present Operations," "-- The Franchise" and "-- The
Franchisor," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Transactions with Integrated Food Systems, Inc.
- -----------------------------------------------
Integrated Food Systems, Inc. ("IFS"), a New Jersey
corporation, is a 33.65% shareholder of the Company and a wholly-
owned subsidiary of Fast Food Systems, Inc. IFS presently
manages two Wendy's franchises in New Jersey, having disposed of
19 Wendy's restaurants in the New York Metropolitan area during
the fourteen-month period from February 1995 to March 1996.
On December 28, 1990, the Company and IFS entered into a
series of transactions (the "1990 Transactions"), which 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 1991 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 common shares to IFS. Absent the 1990
Transactions, the $420,000 note payable to IFS was convertible
into 1,400,000 common shares, representing upon such conversion,
19.1% of the issued and outstanding Common Stock of the Company.
The 3,000,000 common shares 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 Shareholders. 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. 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 management 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). 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 of Shareholders. 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. 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. Effective as of January 26, 1997, the Management
Agreement was extended until January 25, 1998. Per restaurant
fees remained at $12,000 per annum; however, the annual aggregate
minimum fee was reduced to $96,000. Effective as of January 26,
1998, the Management Agreement was extended until January 25,
1999 at the same per restaurant and minimum fees. Management
fees were $97,000 and $105,000 in fiscal 1997 and 1996,
respectively. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
The Company's 1992 annual meeting of Shareholders took place
on June 25, 1992, at which time the Company's Shareholders
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 31, 1995, pursuant to an interest-free, short-term
advance, repayment of which was made during the first
quarter of fiscal 1996, IFS owed the Company $153,010. At
December 29, 1996 and December 28, 1997, the Company owed IFS
$16,683 and $13,222, respectively for the management fee for the
month then ended and other miscellaneous items.
Recent Restaurant Sales
- -----------------------
The Company entered into an asset purchase agreement, dated
as of July 8, 1998 (the "Agreement"), whereby the Company has
agreed to sell the assets that relate to the restaurant on 40
Empire Boulevard, Brooklyn, New York to 40 Empire Chicken Corp.,
a New York corporation, which is controlled by Lalmir Sultanzada,
the current manager of such restaurant under a separate
management agreement. Pursuant to the Agreement, the Company has
agreed to sell the restaurant for $70,000 in cash, plus the usual
closing adjustments for the cash bank, inventory and
prepaid/accrued items.
On April 15, 1997, the Company and an unaffiliated entity
also controlled by Lalmir Sultanzada (who had previously
purchased two of the Company's restaurants) consummated the sale
of the Company's Hillside Avenue, Queens restaurant. The
purchase price for this restaurant, the lease for which expired
on July 31, 1988, was $30,000 plus closing adjustments of $11,331
for inventory and prepaid/accrued items. The price was subject
to increase by $50,000 to $100,000 if the purchaser obtained any
lease extension which contingency did not occur. The Company
recorded a gain on the sale of $13,908. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Present Operations
- ------------------
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 five 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; 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.
During the same period, the Company sold two restaurants, 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 sale and both of which were sold
to entities controlled by Lalmir Sultanzada. 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. In April 1997, the Company sold at a gain the restaurant
located at 144-20 Hillside Avenue in Queens, New York. The
Company has entered into agreements ("Franchise Agreements") with
PFFC and its successor in interest with respect to its five
continuing Popeyes restaurant franchises in New York. The
Company has one continuing subleased location. 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 and 2137 Nostrand Avenue (sub-lease) in the
Borough of Brooklyn, City of New York; and 122-10 Guy Brewer
Boulevard in the Borough of Queens, City of New York, and 40
Empire Boulevard, Borough of Brooklyn, City of New York which is
subject to a contract of sale. See "ADDITIONAL INFORMATION ABOUT
THE COMPANY -- PROPERTIES."
Effective April 1, 1996 the Company entered into a
management agreement with Lalmir Sultanzada (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
canceled 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 including sub-lease
income less the greater of $200 or five percent of such monthly
cash flow total, calculated monthly and not cumulatively. Stated
conversely, the Company receives the greater of $200 per month or
5% of the restaurant's total 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. In fiscal 1997 the
Company earned the minimum fee of $2,400 but was also reimbursed
by the Manager for $4,084 of net cash flow shortfall for the
year. At the end of fiscal 1997, cognizant of the poor results
and future prospects for this restaurant, management of the
Company determined that this location's carrying value was
unlikely to be recovered through its future cash inflows and
decided to seek the sale of this restaurant. In accordance with
generally accepted accounting principles, the Company wrote down
the tangible and intangible assets of this restaurant to $60,000,
representing their estimated fair value less estimated costs to
sell and recorded an impairment loss of $159,772. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "ADDITIONAL INFORMATION ABOUT THE
COMPANY."
On July 8, 1998, the Company entered into an asset purchase
agreement (the "Agreement"), whereby the Company agreed to sell
the assets that relate to the Restaurant on 40 Empire Boulevard,
Brooklyn, New York to 40 Empire Chicken Corp., a New York
corporation, which is controlled by Lalmir Sultanzada, the
current Manager of such Restaurant. Pursuant to the Agreement,
the Company has agreed to sell the Restaurant for $70,000 in
cash, plus the usual closing adjustments for the cash bank,
inventory and prepaid/accrued items.
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 agreed to a
settlement of the judgment amount pursuant to which the Company
paid the plaintiff a total of $143,500. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
For the five fiscal years ended December 28, 1997, December
29, 1996, December 31, 1995, December 25, 1994 and December 26,
1993, the Company recorded sales of $5,247,779, $5,349,978,
$6,588,338, $8,062,632 and $8,240,781, respectively. The Company
had net income of $32,910 in 1997, a net loss of $137,412 in
1996, net income of $518,705 in 1995 and net losses of $228,720
and $57,465 in 1994 and 1993, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
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
- ---------
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,
biscuits, cajun rice, cajun nuggets, cajun popcorn bite-sized
shrimp and red beans, 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.
The Franchisor
- --------------
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 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 1,229 Popeyes Famous Fried Chicken
and Biscuits restaurants currently operating in 40 states, the
District of Columbia, and nineteen countries. Approximately 15%
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
- -------------
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 equaled 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. However, the
Company has no expansion plans and if the Proposal is approved
the Company will be liquidated.
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 five continue in effect
(including the Empire Boulevard restaurant which is subject to a
sale agreement). 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 paid; 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.
Each Franchise Agreement requires the Company to pay a
continuing royalty fee, payable on a weekly basis, equal to 5% of
gross sales. The Company also 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. Three-fourths of such amount is required to be
contributed to a regional advertising cooperative which purchases
regional media advertising.
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 107 employees. Of such
number, approximately 33 are full-time and approximately 74 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 33 full-time employees, 14 are employed in supervisory or
managerial positions. None of the Company's employees are
covered by a collective bargaining agreement.
The principal executive offices of the Company are located
at 42-40 Bell Boulevard, Suite 200, Bayside, New York 11361.
Their telephone number is (718) 229-1113.
DESCRIPTION OF THE SALE TRANSACTION
The following is a summary of the material provisions of the
Purchase Agreement and is qualified in its entirety by reference
to the complete text of the Purchase Agreement, a copy of which
is attached (including exhibits thereto, but excluding schedules)
as Exhibit A to this Proxy Statement. Terms which are not
otherwise defined in the summary or elsewhere in this Proxy
Statement shall have the meanings set forth in the Purchase
Agreement.
The Purchaser
- -------------
Popyork was formed in June of 1998. The principal executive
offices of Popyork are located at 300 Main Street, Suite 202,
Little Falls New Jersey 07424. Following consummation of the
Sale Transactions, the Purchaser's business will consist of
operating the Restaurants acquired.
The Sale
- --------
Upon the terms and subject to the conditions of the Purchase
Agreement, effective on the Closing Date (as hereinafter
defined), (i) the Company will sell and transfer, and the
Purchaser will purchase and acquire, the Assets (as described
below) and (ii) the Company will transfer and delegate to the
Purchaser, and the Purchaser will assume and agree to pay,
perform and discharge (to the extent not paid, performed or
discharged prior to the Closing Date) the Assumed Liabilities (as
described below).
Assets
- ------
The Assets being transferred pursuant to the Purchase
Agreement include all of the right, title and interest of the
Company in and to: (i) the Leased Property (as defined in the
Purchase Agreement), subject to the approval of each respective
lessor, on the same terms and conditions as are presently set
forth in the Lease Agreements for the location of each of the
Restaurants or upon an amendment to such Lease Agreements
mutually agreed upon by the Lessor and Lessee; (ii) the Equipment
(as defined in the Purchase Agreement); (iii) the assignment of
the Franchise Agreements pertaining to the Restaurants, subject
to the approval of Franchisor; (iv) the Company's rights, if any,
under the contracts, agreements and commitments of the Company
relating to the business conducted at the Restaurants but only to
the extent provided in the Purchase Agreement; (v) the prepaid
items, deposits, customary cash "banks" for the Restaurants, and
other special items provided for in the Purchase Agreement; and
(vi) all of the Inventory of the Company.
Liabilities
- -----------
The Assumed Liabilities includes (i) all liabilities arising
under the Lease agreements for the Leased Property, and (ii) all
of the Company's obligations and liabilities under service
contracts, licenses and concessions, if any, as more fully
described in the Purchase Agreement. The Purchaser will not
assume any liabilities or obligations of the Company other than
the Assumed Liabilities.
Consideration
- -------------
In consideration for the purchase of the Assets, the
Purchaser will pay to the Company at the Closing as determined in
accordance with the Purchase Agreement: (i) cash in the amount of
$900,000, (ii) cash in the amount of the value of Inventory and
the Restaurants' "banks," (iii) certain prepaid/accrued items
and (iv) other standard closing adjustments (collectively the
"Purchase Price"). The Purchaser will also assume all of the
Assumed Liabilities. The Purchase Price was determined by
negotiation between the Company and the Purchaser. The Company
did not utilize an appraisal or other independent determination
of asset value. Nor did the Company obtain a fairness opinion.
Management believes that the Purchase Price is a fair market
value of the assets to be sold.
The Purchase Agreement contemplates that the Purchase Price
will be adjusted at Closing to account for security deposits,
allocations of cost under continuing service contracts and
leases, other prepaid expenses as well as unearned income from
contracts, accrued vacation pay and other accrued expenses.
The Closing
- -----------
It is anticipated that the sale and transfer of the Assets
to, and the assumption of the Assumed Liabilities by, the
Purchaser will take place at such time as the Company and the
Purchaser agree in writing. In any event, the Closing is to
occur on or before December 30, 1998. See "THE PROPOSAL --
DESCRIPTION OF THE SALE TRANSACTION -- Conditions to Closing."
The date of the Closing is referenced to herein as the "Closing
Date."
Representations And Warranties
- ------------------------------
The Purchase Agreement contains certain representations and
warranties of the parties relating to, among other things: (i)
their respective organizations and good standing; (ii) the
execution, delivery and performance of the Purchase Agreement;
(iii) the legality, validity and enforceability thereof against
the parties, and the non-contravention of, and lack of conflict
with, any Articles of Incorporation, By-Laws, Articles of
Organization or Operating Agreement of either party, the terms of
any lien or any contract of agreement to which any of the parties
is bound, or any provision of any statute, law, ordinance or
administrative rule or regulation, license or order of any
governmental authority or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree;
(iv) the receipt of requisite consents and approvals; (v) title
to the Assets; (vi) matters involving the Leased Property and the
Lease Agreements; (vii) the absence of litigation and other legal
proceedings; (viii) operation of the Restaurants in accordance
with applicable laws; and (ix) certain matters involving the
Franchise Agreements.
Certain Covenants
- -----------------
The Purchase Agreement contains certain covenants and
agreements of the Company to and with the Purchaser that are
customary for transactions similar to the Sale Transaction and
include the agreement by the Company, among other things: (i) to
allow the Purchaser reasonable access to its books, records,
facilities, documents and personnel; (ii) to cooperate with the
Purchaser and use reasonable efforts to obtain all requisite
consents and approvals and otherwise to effect the consummation
of the transactions contemplated by the Purchase Agreement; (iii)
to inform the Purchaser in writing of the occurrence of any event
or circumstance the effect of which would constitute a breach of,
or make untrue or misleading, any covenant or warranty in the
Purchase Agreement; (iv) to use best efforts to make certain,
among other things, that gas and electrical utilities serving the
Restaurants are not terminated on the Closing Date; (v) to carry
on the conduct of the Restaurants in the ordinary and regular
course of business, substantially in the manner theretofore
conducted in all material respects, and not to take certain
actions with respect to such operations; and (vi) to provide
cooperation to Purchaser regarding the programming and operation
of the computer cash register systems at the Restaurants.
The Purchaser has agreed, among other things: (i) to pay all
sales, ad valorem and transfer, recording, filing and similar
taxes and fees (including any penalties or interest) incurred in
connection with the Purchase Agreement and the transactions
contemplated thereby; (ii) to be responsible for any and all fees
of any nature imposed by Franchisor relative to the assignment of
the Franchise Agreements; and (iii) to inform the Company in
writing of the occurrence of any event or circumstance the effect
of which would constitute a breach of, or make untrue or
misleading, any covenant or warranty in the Purchase Agreement.
Conditions To Closing
- ---------------------
The obligations of the Purchaser to consummate the Sale
Transaction on the Closing Date shall be subject to the prior
satisfaction (or waiver) of certain conditions including: (i) all
representations and warranties of the Company in the Purchase
Agreement being accurate in all material respects; (ii) the
performance and compliance with all agreements, obligations and
conditions required by the Purchase Agreement to be performed or
complied with by the Company; (iii) the delivery to Purchaser by
the Company of a certificate executed by a duly authorized
executive officer of the Company, certifying the fulfillment of
the certain conditions as specified in the Purchase Agreement;
(iv) the existence of 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 in the
Purchase Agreement not be consummated and so provided or imposing
any conditions on the consummation of the transaction
contemplated therein and no action, suit or proceeding pending
before any such court or other governmental authority seeking
such relief; (v) the delivery to Purchaser of an opinion of the
Company's counsel, dated as of the Closing Date, in form and
substance satisfactory to Purchaser; (vi) the notification from
Franchisor that it will grant approval of the assignment of the
Company's franchise right to the Purchaser ; and (vii) the
receipt of duly executed and acknowledged assignments and
assumptions of the Leased Property from the lessors of such
Leased Property.
The obligations of the Company to consummate the Sale
Transaction are subject to the prior satisfaction (or waiver by
the Company) of certain conditions, including: (i) all
representations and warranties of the Purchaser in the Purchase
Agreement being accurate in all material respects; (ii) the
performance and compliance with all agreements, obligations and
conditions required by the Purchase Agreement to be performed or
complied with by the Purchaser; (iii) the delivery to Company by
Purchaser of a certificate executed by a duly authorized
executive officer of the Purchaser, certifying the fulfillment of
the certain conditions as specified in the Purchase Agreement;
(iv) the existence of 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 in the
Purchase Agreement not be consummated and so provided or imposing
any conditions on the consummation of the transaction
contemplated therein and no action, suit or proceeding pending
before any such court or other governmental authority seeking
such relief; (v) the delivery to Company of an opinion of the
Purchaser's counsel, dated as of the Closing Date, in form and
substance satisfactory to the Company; (vi) the notification from
Franchisor that it will grant approval of the assignment of the
Company's franchise right to the Purchaser; (vii) the receipt of
duly executed and acknowledged assignments and assumptions of the
Leased Property from the lessors of such Leased Property or as
mutually agreed; and (viii) the receipt of two-thirds approval of
the Sale Transaction by all of the shareholders of the Company
entitled to vote thereupon.
In the event that all necessary consents or approvals to the
Sale Transaction are not received, it is anticipated that the
parties will delay Closing until such have been received.
Indemnification
- ---------------
The Company has agreed to indemnify, defend and hold
Purchaser harmless, at any time after consummation of the Sale
Transaction, 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 of the Sale
Transaction 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 Restaurants by the Company and IFS prior to
the closing, except those disclosed to Purchaser or (b) a breach
of any representation, warranty or agreement or any facts or
circumstances constituting such a breach.
Purchaser has agreed to indemnify, defend and hold the
Company harmless, at any time after consummation of the Sale
Transaction, from and against all Damages asserted against,
resulting to, imposed upon or incurred by the Company, 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 of the Sale Transaction
relating to or arising out of the ownership, possession or use of
the Assets or the conduct of business at the Restaurants by
Purchaser following the closing, except those expressly assumed
or agreed to; (b) a breach of any representation, warranty or
agreement of Purchaser contained in or made pursuant to the
Purchase Agreement; or (c) the employment or termination of
employment of Employees by Purchaser.
No indemnification by the Company shall be required to be
made: (i) with respect to Damages resulting from claims as to
which the Company has not received written notice within one (1)
year following the execution of the Asset Purchase Agreement
(whether or not such Damages have then actually been sustained);
and (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
$5,000 in the aggregate, and then only with respect to the amount
in excess of $5,000; or (iii) for any amounts in the aggregate
(including without limitation fees and expenses of counsel) in
excess of the Purchase Price.
Termination
- -----------
The Purchase Agreement may be terminated at any time prior to the
Closing: (i) by mutual written agreement of Purchaser and the
Company; (ii) by Purchaser if the Closing has not occurred by
December 30, 1998, provided that a default by Purchaser hereunder
is not responsible for the Closing not having occurred; or (iii)
by Seller if the Closing has not occurred by December 30, 1998,
provided that a default by Seller hereunder is not responsible
for the Closing not having occurred.
DESCRIPTION OF THE PLAN OF LIQUIDATION
The following description of the Plan of Liquidation is
qualified in its entirety by reference to the Plan of
Liquidation, a copy of which is attached as Exhibit B to this
Proxy Statement. Terms which are not otherwise defined in the
summary or elsewhere in this Proxy Statement shall have the
meanings set forth in the Plan of Liquidation.
The Plan of Liquidation gives the Company broad authority to
sell or otherwise dispose of substantially all of the assets of
the Company in one related transaction, pursuant to the terms of
the Purchase Agreement.
As soon after the Closing Date as is reasonably practicable,
the Company will file a certificate of voluntary dissolution with
the Secretary of State of the State of New York and will
immediately commence the liquidation of the Company by preparing
and distributing the appropriate notices to creditors and
claimants under applicable provisions of New York law (the
"Liquidation Notices").
After the filing of the certificate of dissolution of the
Company with the Secretary of State of the State of New York, the
Company will use its best efforts to convert any remaining non-cash
assets of the Company into cash for the purpose of winding
up its affairs, paying or contesting liabilities and claims and
distributing the remaining assets to the Shareholders.
During the period from the time of the distribution of the
Liquidation Notices until the Final Distribution, assets of the
Company will be applied first to pay (or provide for the payment
of) certain obligations of the Company, including payment of
expenses associated with the proposed transaction and the related
liquidations and dissolutions, as well as the payment of all
remaining claims and liabilities of the Company that are, or
become, known during this period.
Upon the Closing of the Sale Transaction, the Company will
no longer be liable for any fees with respect to the management
agreement with IFS.
Following the Closing of the Sale Transaction, the Company
will file a certificate of voluntary dissolution with the
Secretary of State of the State of New York, the Company will pay
or otherwise dispose of all remaining claims and obligations of
the Company until the later of (i) six months from the date of
the Liquidation Notices, or (ii) the date all known or contingent
liabilities and obligations of the Company are satisfied or
otherwise disposed of (such later date, the "Claim Completion
Date"), which in any event is expected to occur within the
twelve-month period of the Closing Date.
As soon as is reasonably practicable after the Claim
Completion Date, the Company anticipates that it will make two
distributions to the Shareholders. It is anticipated that the
Initial Distribution will occur within thirty (30) days after the
dissolution of the Company. The Final Distribution will occur
within twelve months from the date of the dissolution of the
Company. See "THE PROPOSAL -- Estimated Amount Available for the
Liquidating Distribution."
The Company may, in its discretion or as required by
applicable law, set up a bank account or make other provisions
for the benefit of Shareholders who cannot be located at the time
of the Liquidating Distribution.
Under its terms, the Board may modify, amend or abandon the
Plan of Liquidation at any time without Shareholder approval if
it determines such action to be in the best interest of the
Company or its Shareholders, provided, however, that if the Board
determines that the amendment or modification will materially and
adversely affect the interest of the Shareholders, it will submit
such amendment or modification to the Shareholders for approval.
Under the Plan of Liquidation the Board and officers of the
Company are authorized to approve any changes to the terms of
transactions referred to in the Plan of Liquidation, to interpret
the Plan of Liquidation and to take whatever additional action
that may become necessary in order to carry out the provisions of
the Plan of Liquidation.
A vote to approve the Proposal will be considered a vote to
approve the Plan of Liquidation.
Distribution to Shareholders
- ----------------------------
The Company estimates that as a result of the consummation
of the Plan of Liquidation, approximately $980,573 or $0.11
per share should be available for distribution to the Company's
Shareholders. It is anticipated that the Company will make two
distributions to the Shareholders based upon the number of shares
of the Company owned by such Shareholder. The first of such
distributions will occur within thirty (30) days after the
dissolution of the Company (the "Initial Distribution"). The
Initial Distribution will be approximately $802,287 or $0.09
per share.
The final distribution will occur within twelve months from
the date of the dissolution of the Company (the "Final
Distribution") and will be calculated by the ratio of the number
of issued and outstanding shares of the Common Stock of the
Company held by each Shareholder at the close of business on the
date of the Final Distribution, to the aggregate number of shares
of Common Stock outstanding on the date of the Final
Distribution. It is anticipated that the Final Distribution
should be approximately $178,286 or $0.02 per share.
Powers of the Company Following Dissolution
- -------------------------------------------
The directors and officers of the Company will have broad
discretion in winding up the Company's affairs and may perform
any and all acts necessary or desirable to carry out the Plan of
Liquidation. The Company is to maintain, manage, and control the
distribution of the assets of the Company and, to that end, may
invest such assets in demand and time deposits in one or more
commercial bank and/or savings bank accounts or temporarily
invest and reinvest such cash in certain conservative and prudent
temporary investments such as short-term certificates of deposit
or Treasury bills. The Company will also convert any remaining
non-cash Company assets to cash prior to distribution to the
Shareholders.
The Company is specifically prohibited from entering into or
otherwise engaging in any trade or business and using the assets
of the Company in furtherance thereof. Following the filing of
the Certificate of Dissolution with the Secretary of State of the
State of New York, the Company will be restricted to collecting
and holding the assets of the Company, to the conservation and
protection thereof prior to distribution to the Shareholders, and
to the payment or other disposition or remaining claims against
the Company.
Termination
- -----------
The Company will continue winding up its affairs until the
complete distribution of the assets of the Company to the
Shareholders.
Judicial Supervision of Liquidation
- -----------------------------------
Notwithstanding the adoption of the Plan of Liquidation by
the Company, pursuant to applicable provisions of New York law,
after the certificate of voluntary dissolution has been filed
with the Secretary of State of the State of New York, the Company
or, in certain circumstances, a creditor, claimant, director,
Shareholder and certain others, may petition the court for a
judicially supervised liquidation. In such event, the court
would have the authority to replace the directors and officers of
the Company with court-appointed receivers and would have
authority over all matters affecting the liquidation and winding
up of the affairs of the Company. The timing and amount of any
liquidating distribution to the Company's Shareholders could be
affected if the dissolution of the Company were to become
judicially supervised.
ESTIMATED AMOUNT AVAILABLE FOR THE LIQUIDATING DISTRIBUTION
The Company estimates that as a result of the consummation
of the Plan of Liquidation, approximately $980,573 or $0.11
per share should be available for distribution to the Company's
Shareholders. The Initial Distribution will be approximately
$802,287 or $0.09 per share and the Final Distribution should
be approximately $178,286 or $0.02 per share.
The total of the cash received from the Purchaser, the cash
balances of the Company and cash to be received from the refund
of deposits and sale of other assets, will be used to discharge
obligations including accounts payable, legal and accounting
fees, and other liquidating expenses. Any amounts remaining
after these payments will be distributed to Shareholders.
There can be no assurance that amounts estimated will be
realized since realization is dependent upon a number of factors
beyond the Company's control including the amount of transaction
costs, assertion of unanticipated liabilities and the actual
realization of certain miscellaneous assets and finalization of
obligations to be paid. Any increase in actual obligations or
decrease in realization of assets will reduce the per share
amounts to be distributed to the Shareholders.
Variations from management's assumptions could significantly
reduce amounts available for distribution to the Shareholders.
Under certain circumstances, the Shareholders may be
required to return the amount of any liquidating distribution
previously received by them. See "THE PROPOSAL" and "MARKET PRICE
DATA AND RELATED MATTERS -- Potential Shareholder Liability."
NO APPRAISAL RIGHTS
Shareholders are not entitled to any rights of appraisal or
similar rights of dissenters under New York law in connection
with the approval or consummation of the transactions
contemplated by the Purchase Agreement or the Plan of
Liquidation, since the sale of assets under the Purchase
Agreement is a transaction wholly for cash where the
Shareholders' approval is required for the dissolution of the
Company and the distribution of substantially all of its net
assets to the Shareholders in accordance with their respective
interests within one year after the Closing Date.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the Proposal is fair to
and in the best interests of the Company and its Shareholders.
Accordingly, the Board of Directors has unanimously approved the
Proposal and recommends to the Company's Shareholders that they
vote FOR the approval of the Proposal.
In reaching its conclusions, the Board of Directors
considered alternatives to the Proposal, including among other
things, the following material factors:
(1) A range of alternative strategic options (including sales of
specific assets and elimination or reduction of costs) out
of which options the Proposal presented the best opportunity
to enable the Company to make the greatest capital
distribution to its Shareholders (all as more fully
described under "THE PROPOSAL -- Background and Reasons for
the Proposal"); continually increasing costs of doing
business in the City of New York; and the Company's
projected future value and prospects absent the consummation
of the Proposal (as described more fully under "THE
PROPOSAL -- The Company").
(2) Information concerning the financial performance, condition,
business operations and prospects of the Company. See "THE
PROPOSAL -- Background and Reasons for the Proposal" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
(3) The inability of the Company to expand and operate
additional restaurants due to capital restraints.
(4) The rising of fixed and variable costs resulting in eroded
profit margins.
(5) The relatively small number of potential acquirers, due in
great measure to the necessity of finding a purchaser that
would be both acceptable to Franchisor and assigning
landlords and which would be willing to undertake operations
in the difficult New York City market.
(6) The proposed terms and structure of the Proposal and the
terms and conditions of the Purchase Agreement. In this
regard the Board also considered the ability of the Company
to terminate the Purchase Agreement, upon the occurrence or
non-occurrence of certain events (including upon the failure
of the Company's Shareholders to approve the transaction),
as described more fully under the captions "THE PROPOSAL --
DESCRIPTION OF THE SALE TRANSACTION -- Termination."
(7) The ability to consummate the Proposal without restricting,
limiting or altering the rights of the Shareholders of the
Company. See "THE PROPOSAL -- Interests of Certain Persons
in the Proposal" and "-- Effect of the Proposal on the
Company's Shareholders."
(8) The perceived motivation of the Purchaser and its manager
and the Purchaser's financial condition, which factors
demonstrated the Purchaser's financial ability and
underscored the Purchaser's earnest intent to consummate the
Sale Transaction.
(9) Gary Monie, manager of Popyork, LLC and currently a
consultant to the Company, serves a critical role in the
operations of the restaurants. However, such consulting
role arises from an at-will arrangement and the Company was
becoming increasingly concerned that absent a contractual
obligation it might lose Mr. Monie's consulting services.
In such event, Mr. Monie would be very difficult to replace
and the discontinuance of Mr. Monie's services, for whatever
reason, would damage the Company's operations and further
lower its value.
(10) The recommendation of the Company's management to enter into
the Proposal.
In light of these factors, the consideration to be received
in connection with the Sale Transaction, and the Company's
resultant ability to make certain return of capital distributions
to its shareholders, the Board determined that the Proposal was
in the best interests of the Company and its Shareholders. The
Board took into account the fact that (i) only a relatively small
number of parties expressed interest in acquiring the Restaurants
and such parties were not likely to purchase any of the
restaurants because of (y) financial inability, and (z) the
unlikely receipt of landlord and Franchisor consent, and (ii) it
was reasonably unlikely that the Company would receive, in the
foreseeable future, offers to engage in alternative transactions
on terms more favorable to the Company and its Shareholders than
those offered by the Purchaser.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSAL
In considering the recommendation of the Board with respect
to the Proposal, Shareholders should be aware that a former
executive officer and director of the Company has interests in
the Proposal that are in addition to or different from the
interests of Shareholders of the Company generally. Gary M.
Monie, formerly a Vice President of both the Company and IFS and
a member of the latter's Board of Directors, resigned from these
positions in the fall of 1995. Moreover, since resigning these
positions, Mr. Monie has continued to provide restaurant
operation supervisory services for the Company as a consultant.
As Manager of Purchaser, Mr. Monie will be responsible for the
oversight of the day-to-day operations of the Restaurants for
Purchaser.
The Board of Directors was aware of the foregoing and
considered it, among other matters, in approving the Purchase
Agreements and the Proposal. Other than as described above, the
Board of Directors is not aware of any potential material
conflicts of interest management may have in relation to the
Proposal.
REGULATORY APPROVALS
No state or Federal regulatory approval is required in
connection with the Sale Transactions.
CERTAIN INCOME TAX CONSEQUENCES
The following discussion of certain U.S. Federal income tax
consequences under present law for transactions contemplated by
the Purchase Agreement and the Plan of Liquidation does not
purport to discuss all aspects of U.S. Federal income taxation
which may be relevant to particular Shareholders. In addition,
the discussion does not consider the effect of any applicable
state, local, foreign or other tax laws.
To the Company
- --------------
The conversion of the Company's assets into cash pursuant to
the Purchase Agreement and the Plan of Liquidation will be
taxable transactions with respect to the Company to the extent
that any gain or loss is realized. The Company will realize gain
or loss measured by the difference between the proceeds received
by it on the conversion of its assets into cash and the Company's
tax basis in the assets. It is anticipated that the Company has
sufficient net operating loss carryforwards to offset any gain
for regular Federal income tax purposes. Due to limitations on
the use of net operating loss carryforwards for purposes of the
alternative minimum tax, the Company may be subject to a tax
under the alternative minimum tax system. In general, net
operating losses may only reduce ninety percent of alternative
minimum taxable income. Presently, the alternative minimum tax
rate is twenty percent.
To the Shareholders
- -------------------
Generally, any gain or loss recognized by a Shareholder of
the Company on the liquidation of the Company will constitute a
capital gain or loss so long as such Shareholder holds his Common
Stock as a capital asset. Common Stock should be treated as a
capital asset in the hands of a Shareholder so long as he does
not hold such Common Stock as inventory or primarily for sale to
customers. The amount of gain or loss recognized by a
Shareholder on the liquidating distribution by the Company will
be measured as the amount by which the cash received by such
Shareholder in the liquidating distribution of the Company
exceeds or is less than his tax basis in the shares of Common
Stock redeemed in the liquidation.
Any distribution to Shareholders will first be applied
against the total adjusted basis of each block of Common Stock
and gain will be recognized only after an amount equal to his or
her adjusted basis in such block of Common Stock has been fully
recovered. For the purposes of this discussion, a "block of
Common Stock" means the number of shares of common stock
purchased by a Shareholder at any one time in a given
transaction. Where a Shareholder of the Company owns more than
one block of Common Stock and if he or she were to receive a
series of distributions in complete liquidation of the Company,
each distribution would be allocated ratably among the several
blocks of Common Stock owned by that Shareholder in the
proportion that the number of shares in the particular block
bears to the total number of Common Stock held by that
Shareholder. Gain or loss must be computed separately with
respect to each block of Common Stock, and gain will be
recognized with respect to a block of Common Stock only after the
adjusted basis of that block has been recovered. Once the
adjusted basis of a specific block of Common Stock has been
recovered, any subsequent distributions allocable to that block
would be recognized as gain in their entirety. Any losses
resulting from the liquidation would be recognized only after the
Company has made its final liquidation distribution.
Gain or loss recognized by a Shareholder with respect to
Common Stock constituting capital assets in his or her hands will
be characterized as long-term capital gain or loss, provided such
Shareholder meets the twelve month capital gain holding period
required under the Internal Revenue Code. In the case of a
Shareholder other than a corporation, capital losses must be
offset against capital gains. Any net short-term and long-term
capital losses of Shareholders other than a corporation are also
allowed as a deduction against ordinary income in any one year up
to a maximum of $3,000. Any net capital losses not allowed in
one year can be carried over to subsequent years.
In the case of a corporate Shareholder, capital losses can
be used only to offset capital gains. Corporations may generally
carry back unused capital losses three years and/or carry them
forward five years.
The foregoing is based on current law (which is subject to
change) and is provided for general information only.
BECAUSE THE TAX CONSEQUENCES OF THE LIQUIDATION MAY VARY
DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER
AND OTHER FACTORS, SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR
TAX ADVISERS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM
OF THE LIQUIDATION AND THE APPLICATION AND EFFECT OF STATE,
LOCAL, AND FOREIGN INCOME AND OTHER TAX LAWS.
EFFECT OF THE PROPOSAL ON THE COMPANY'S SHAREHOLDERS
If the Proposal is consummated, trading of Common Stock of
the Company will no longer be possible on the earlier of (i) the
date on which the NASD so directs or (ii) the date of the Final
Distribution. Shareholders shall surrender their Common Stock to
the Company in order to receive such Shareholders' Final
Distribution. Surrendered Shares shall be canceled by the
Company.
MARKET PRICE DATA AND RELATED MATTERS
COMMON STOCK INFORMATION
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 August 31, 1998, there were approximately 3,500
holders of record of the Company's Common Stock.
DIVIDENDS AND DISTRIBUTIONS
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 2, 1996.
Prior to these return of capital distributions, the Company had
never paid a cash dividend of any kind.
Following the consummation of the Sale Transaction,
management of the Company anticipates that approximately
$980,573.00 of the net proceeds of the Sale Transaction will be
utilized to declare and pay two distributions to holders of its
Common Stock, subject to applicable New York law and at the
discretion of the Company's Board of Directors. It is
anticipated that such distributions will total $0.11 per share of
Common Stock outstanding, which has been approved by the Board of
Directors subject to closing of the Sale Transaction on
substantially the terms set forth in the Purchase Agreement, the
existence of funds legally available therefor, and applicable New
York law.
DELISTING OF THE COMPANY'S COMMON STOCK
The Company currently intends to close its stock transfer
books on the date of the Final Distribution and at such time to
cease recording stock transfers and issuing stock certificates.
Shareholders should be aware that on the earlier of (i) the date
on which the NASD so directs or (ii) the date of the Final
Distribution trading in Common Stock will no longer be possible.
POTENTIAL SHAREHOLDER LIABILITY
The Plan of Liquidation contemplates that the Final
Distribution may be made to the Company's Shareholders as early
as the expiration of the six month notice period to all creditors
and claimants under the applicable statutory provisions of New
York law, but only to the extent of the excess of the Company's
distributable assets following the payment of its obligations and
liabilities. While the Board believes that, following the
assumption of certain liabilities by the Purchaser as
contemplated by the Purchase Agreement, there will be sufficient
funds available from the sale of the Company's assets to cover
all remaining known obligations and liabilities of the Company,
and while the Final Distribution will not be made if and to the
extent that the Company has any known contingent liabilities
(other than such as the Board believe have been provided for),
there can be no assurance that unanticipated claims will not
arise against the Company and/or its officers and directors. If
adequate funds or the proceeds of applicable insurance policies,
if any, are not sufficient to discharge such liabilities and to
indemnify the Company's officers and directors, then each
Shareholder of the Company may become liable for any such
undischarged liabilities in an amount not necessarily limited to
his or her pro rata share of such undischarged liabilities, but
rather limited only by the amount received by him or her in the
liquidating distribution. Such Shareholder liability may be
joint and several, so that a creditor of the Company might assert
a claim against one or more, but fewer than all, of the
Shareholders to the extent of the liquidating distribution
received by each Shareholder.
COMPARATIVE PER SHARE DATA
The following table presents selected comparative per share
data of the Company based upon annual audited and interim
unaudited historical financial statements and unaudited pro-forma
financial information contained elsewhere in this Proxy
Statement. The pro-forma financial information gives effect to
the Sale Transaction and certain other transactions described in
the footnotes to the pro-forma consolidated financial statements
appearing elsewhere herein. The pro-forma financial information
reflects certain assumptions and estimated pro-forma adjustments.
Reference is made to the pro-forma consolidated financial
statements and the notes thereto for a description of these
assumptions and adjustments. The pro-forma financial data does
not purport to be indicative of the results which actually would
have been obtained if the Sale Transaction had been effected on
the date indicated or of those results which may be obtained in
the future.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
COMPARATIVE PER SHARE DATA
Book Value Dividends
Per Share Per Share
---------- ---------
Year ended December 29, 1996 $ .03 $ .01 (1)
Year Ended December 28, 1997 $ .03 $ -
Six months ended June 28, 1998 $ .05 $ -
Income (Loss) Per Share
------------------------
Historical Pro-Forma
---------- ---------
Year ended December 29, 1996 $(.02) N/A
Year Ended December 28, 1997 $ - $ - (2)
Six months ended June 28, 1998 $ .02 $ - (2)
(1) The only dividends declared in the history of the Company were return of
capital distributions of $.025 and $.01 per share, paid in fiscal 1995 and
1996, respectively.
(2) Before giving effect to the Sale Transaction and the related liquidation
adjustments, pro-forma net income per share would have been $.02 and $.02
for the annual and six-month periods ended December 28, 1997 and June 28,
1998, respectively. See the pro-forma consolidated statements of
operations and related notes thereto.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
OF THE COMPANY
The following table sets forth certain selected consolidated financial
information with respect to the Company and should be read in conjunction with
the historical annual (audited) and interim (unaudited) consolidated financial
statements and notes thereto.
SELECTED CONSOLIDATED FINANCIAL DATA
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
Statement of Operations Data:
Year Ended December Six Months
----------------------- Ended March
1996 1997 1998
---------- ---------- ------------
Sales $5,349,978 $5,247,779 $2,585,174
Cost of sales 1,781,065 1,697,245 776,606
---------- ---------- ----------
Gross profit $3,568,913 $3,550,534 1,808,568
---------- ---------- ----------
Selling, general and
administrative
expenses 3,652,223 3,390,737 1,675,941
Interest expense - 8,100 211
Sublease income ( 46,537) ( 10,800) ( 5,400)
Miscellaneous income (1) ( 42,861) ( 30,185) ( 13,060)
Other expenses (2) 143,500 159,772 -
---------- ---------- ----------
3,706,325 3,517,624 1,657,692
---------- ---------- ----------
Pre-tax income (loss) (137,412) 32,910 150,876
Provision for income
taxes - - 5,000
---------- ---------- ----------
Net income (loss) $ (137,412) $ 32,910 $ 145,876
========== ========== ==========
Net income (loss)
per share $ (.02) $ - $ .02
========== ========== ==========
(1) Includes gain of $13,908 on the sale of a Queens restaurant in 1997.
Includes income and expense reimbursement related to the management
sub-contract for the Empire Boulevard, Brooklyn Restaurant of $6,484
in 1997 and $13,060 in 1998.
(2) Consists of a litigation loss in 1996 and an impairment loss on the
Empire Boulevard Restaurant in 1997.
SELECTED CONSOLIDATED FINANCIAL DATA
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
Balance Sheet Data:
December 28, June 28,
1997 1998
----------- -----------
Current Assets $ 392,490 $ 442,643
Property and Equipment, Net 320,294 310,657
Other Assets 9,184 8,567
----------- -----------
Total Assets $ 721,968 $ 761,867
=========== ===========
Current Liabilities $ 384,122 $ 310,461
Other Liabilities 38,316 6,000
----------- -----------
Total Liabilities $ 422,438 $ 316,461
=========== ===========
Stockholders' Equity $ 299,530 $ 445,406
=========== ===========
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 28, 1997 Compared to
Year Ended December 29, 1996
Results of Operations
- ---------------------
The Company's net sales of $5,247,779 in fiscal 1997
decreased by $102,199, or 1.9% from $5,349,978 in 1996. All of
such decrease is attributable to the sale of the Hillside Avenue,
Queens Restaurant on April 15, 1997. Sales for the five
restaurants operated throughout both years increased by 6.9%.
All five restaurants recorded individual sales gains led by the
Manhattan location which had a 12.5% increase, due principally to
the continued improvements being made to the Times Square area
and the related increase in traffic. The three Brooklyn
locations had an aggregate sales gain of 5.6% led by the
Pennsylvania Avenue store which increased by 8.5%, benefiting
noticeably from its recent remodeling. The continuing Queens
restaurant gained 1.2%. Both it and the sub-leased Brooklyn
location, which recorded a 1.1% sales gain, will be remodeled
during the first half of fiscal 1998. The managed Brooklyn
location had a sales gain of 2.8%. Management also attributes a
portion of the system-wide sales gains to its continued focus on
improving operations as well as much more temperate weather
throughout much of the year.
Cost of sales decreased by $83,820, or 4.7% to $1,697,245 in
1997 from $1,781,065 in 1996, due to the following reasons: (i)
the decline in total sales; (ii) an average decrease in the price
of chicken of approximately 3% from 1996, and (iii) the effect of
new cash register systems, installed early in fiscal 1997, which
facilitate the tracking of food usage on a weekly basis and
thereby help to reduce inventory, waste, spoilage and shrinkage.
As a percentage of sales, cost of sales decreased by 1.0% to
32.3% in 1997 from 33.3% in 1996, of which decline approximately
three-fourths is attributable to food cost and approximately
one-fourth is attributable to paper cost. The improvement in the
latter category arose from reduced paper prices due to better
contract purchasing arrangements negotiated on behalf of
franchisees by the Franchisor.
Selling, general and administrative expenses decreased by
$261,486, or 7.2%, to $3,390,737 in 1997 from $3,652,223 in 1996,
in part due to the sale of one restaurant and the overall sales
reduction and in part due to various cost-cutting and monitoring
measures. As a percentage of sales, these expenses decreased by
3.7% to 64.6% in 1997 from 68.3% in 1996. Within this category,
labor costs were virtually unchanged at approximately 27.2% of
sales. Such constancy of labor cost is a notable achievement
given the increase in the statutory minimum wage rate effective
October 1, 1996. The Company effected such labor cost savings
generally by utilizing fewer managers and more crew staff.
Advertising and royalty expenses were constant at their franchise
agreement specified levels of 3.0% and 5.0%, respectively.
Costs classified as manager controllable declined by 0.8% of
sales, almost entirely attributable to reduced utility charges,
due to much more moderate temperatures throughout the year.
Occupancy expenses declined by 1.0% of sales. Although rent and
percentage rent charges increased by 0.2%, savings of 0.5%, 0.4%
and 0.3%, respectively were realized in insurance, real estate
tax and related charges and depreciation and amortization
expenses, all attributable to the higher store volumes of the
continuing restaurants. Other operating expenses declined by 0.8%
of sales reflecting savings of 0.6% in repair, maintenance and
security services and 0.2% in theft losses. The former arose
from fewer required repairs as well as the volume gains, while
the latter reflect significantly fewer incidences.
General and administrative expenses decreased by 1.1% of
sales, reflecting savings of 0.2% in each of administrative
accounting services and franchise taxes while stock transfer fees
and certain other miscellaneous expenses declined by 0.1% and
0.2% of sales, respectively. The balance of the savings in this
category, 0.4% of sales, occurred in management fees. Management
fees to IFS declined by $8,000 to $97,000 in fiscal 1997. The
management agreement with IFS has been renewed through January
25, 1999 at its existing terms, $12,000 per restaurant subject to
a $96,000 aggregate annual minimum. Management fees for the
Empire Boulevard Restaurant reflected a savings of $15,370 as the
fee arrangement in 1997 resulted in a net payment to the Company
of $6,484, including a net cash flow shortfall reimbursement of
$4,084 from the Manager, compared to a net payment to the Manager
of $8,886 in 1996. The Company recorded an impairment loss on
this location's assets in 1997. The Company entered into an
asset purchase agreement, dated as of July 8, 1998, whereby the
Company has agreed to sell the assets that relate to the
Restaurant on 40 Empire Boulevard, Brooklyn, New York to 40
Empire Chicken Corp., a New York corporation, which is member
managed by Lalmir Sultanzada, the current Manager of such
Restaurant. Pursuant to the Agreement, the Company has agreed to
sell the Restaurant for $70,000 in cash, plus the usual closing
adjustments for the cash banks, inventory and prepaid/accrued
items.. In accordance with generally accepted accounting
principles, the Company wrote down the tangible and intangible
assets of this restaurant to $60,000, representing their
estimated fair value less estimated costs to sell and recorded an
impairment loss of $159,772.
Interest expense of $8,100 was incurred on the Company's
bank borrowing in fiscal 1997; none was incurred in fiscal 1996.
The $125,000 installment loan, which was used to pay the
settlement of the Marriott litigation was prepaid in January
1998.
Sub-lease income decreased by $35,737, or 76.8%, to $10,800
in 1997 from $46,537 in 1996. One of two sub-leases was
terminated on August 1, 1996. The remaining sub-leased location
produces sub-rental income of $900 per month. Such sub-leased
premises constitute a portion of the entire property leased by a
subsidiary of the Company which also encompasses the Empire
Boulevard location, however, the Empire Boulevard location is
subject to sales agreement in which the sub-lease will be sold as
well.
Miscellaneous income decreased by $12,676, or 29.6%, to
$30,185 in 1997 from $46,537 in 1996. Included in the amount for
1997 is a gain of $13,908 on the sale of the Hillside Avenue,
Queens Restaurant. The Company may realize additional proceeds
on such sale of from $50,000 to $100,000 if the purchaser obtains
an extension of the lease which is due to expire on July 31,
1998. As of March 31, 1998, the Company has been informed that
negotiations to obtain such an extension have been unsuccessful.
As of December 28, 1997, the Company has recorded an
impairment loss of $159,772 attributable to the tangible and
intangible assets of the Empire Boulevard, Brooklyn location and
related sub-leased premises. Such loss recognition was a
consequence of the Company determination that the carrying value
of the restaurant's and the related sub-leased property's assets
would likely not be recovered from the future cash inflows of
restaurant operations and the sub-lease agreement. Since April
1, 1996 all of such operations have been conducted under the
auspices of a management agreement. The fee arrangements
applicable to such agreement effectively result in the Company
receiving a minimum monthly payment of $200 plus reimbursement
for any cash flow shortfall. As such operations have sustained
net divisional losses of $28,809 and $42,641 over the last two
fiscal years, future annual operating cash flows to the Company
from such location would appear to be limited to the $2,400
annual total of such minimum monthly payments. The Company has
accordingly written down the applicable assets to a carrying
value of $60,000 representing their estimated fair value less
estimated costs to sell. Although the restaurant's Manager has
expressed an interest in purchasing this location, no formal
offer has been made. Nevertheless the Company anticipates
selling this store and the related sub-lease by the end of 1998.
At December 29, 1996 the Company had accrued the $143,500
litigation settlement amount in satisfaction of the judgment
awarded to the plaintiff landlord for the closed Raritan
location.
Due to available net operating tax loss carryforwards in
excess of taxable income for fiscal 1997 and 1996, the Company
did not incur any income taxes in either year. At December 28,
1997, the Company has net operating loss and jobs tax credit
carryforwards of approximately $1,489,000 and $91,000, which
expire in 2009 and 2002, respectively.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital improved by $235,272 from a
deficiency of $226,904 at December 29, 1996 to a surplus of
$8,368 at December 28, 1997. Operations provided $279,298. Net
capital expenditures and security deposits required $68,584 and
$1,484, respectively, while long-term borrowings provided
$26,042.
From a cash flow standpoint, operating activities provided
$11,013, investing required $53,203 and financing provided
$88,542 resulting in a $46,352 net increase in cash, which
brought the year-end cash balance to $276,956.
In January 1998, the Company retired its outstanding bank
indebtedness of $88,542. (See Note 11A to the Consolidated
Financial Statements).
The Company believes its existing cash resources and
expected net cash inflows will be adequate for its scope of
operations over the next twelve months. In addition should the
Company consummate a sale of the managed Brooklyn restaurant, net
cash proceeds therefrom are estimated at $60,000. The Company
has recently initiated discussions regarding a new potential
leased site but has not reached any agreement therefor. If a new
site is leased, the development of such location would be funded
from a combination of available cash, current operating cash
flow, and/or the sale proceeds of the Brooklyn restaurant, if
applicable, and/or third party lender financing depending upon
the amounts required.
If the Company's plans to develop a new location do not come
to fruition, the Company may consider a further return-of-capital
distribution by the end of 1998.
Six Months Ended June 28, 1998 Compared to
Six Months Ended June 29, 1997
Results of Operations
- ---------------------
Net sales for the quarter ended June 28, 1998 increased by
$54,007, or 4.1%, to $1,382,718 from $1,328,711 for the quarter
ended June 29, 1997. Excluding the results of the Hillside
Avenue, Queens store sold on April 15, 1997, the increase for the
five continuing locations was 6.1%. All stores except the sub-
leased Brooklyn location reported increased sales, ranging from
6.5% for the Manhattan restaurant, the Company's largest, to 8.3%
for the managed Brooklyn location, which the Company now has
agreed to sell subject to franchisor approval. (See Note 4 to the
Condensed Consolidated Financial Statements and Liquidity).
Despite a decrease in sales of 7.2% for the sub-leased location,
the three Brooklyn stores had an aggregate sales increase of
5.5%. The decrease at the sub-leased store reflects the
lingering effects of a deteriorated physical plant, the remodel
for which was completed in March 1998. Improved sales are now
expected at this store. The one remaining Queens location
reported a sales increase of 7.1%. All of the increases resulted
principally from a 7.0% increase in menu-item sales prices,
effected in the first quarter of 1998. Viewed in this context,
the Queens location maintained its customer counts while the two
larger Brooklyn stores each had increases in customer counts of
approximately 1%. The Manhattan location lost just one-half of
one percent of customer counts, a satisfactory result given the
intense competition in the Times Square area.
Net sales for the six months ended June 28, 1998 decreased
by $65,563 to $2,585,174 from $2,650,737 for the six months ended
June 29, 1997, a decrease of 2.5%. All of such decrease is due
to the sale on April 15, 1997 of the Company's Hillside Avenue,
Queens restaurant. For the five restaurants operated throughout
both six-month periods, sales increased by 4.2% in the aggregate,
with all stores except the sub-leased location recording gains.
The sales gains are principally attributable to the 7% menu-price
increase.
Cost of sales declined by $13,432 to $414,490 for the
quarter and by $92,854 to $776,606 for the six months, decreases
of 3.1% and 10.7%, respectively, consistent with the overall
sales results. As a percentage of sales, cost of sales decreased
by 2.2% to 30.0% for the quarter and by 2.8% to 30.0% for the
year-to-date period reflecting the 7% sales price increase in
menu items.
Store labor expenses increased by $6,052, or 1.7%, to
$359,112 for the quarter while decreasing by $62,337, or 8.4%, to
$676,115 for the six months, consistent with the overall sales
increase and decrease for the quarter and year-to-date periods,
respectively. As a percentage of sales, labor expenses decreased
by 0.6% to 26.0% for the quarter and by 1.7% to 26.2% for the six
months, reflecting principally the 7.0% increase in menu prices
as well as reductions in group health and workers' compensation
expenses attributable to recent marked decreases in claims.
Store operating and occupancy expenses decreased by $6,219,
or 2.1%, to $305,320 for the quarter while decreasing by $39,949,
or 6.2% to $604,554 for the six months, again in keeping with the
change in net sales for such periods. As a percentage of sales,
these expenses declined by 0.4% to 22.1% for the quarter and by
0.9% to 23.4% for the six months, reflecting the menu price
increase generally as well as specific cost savings in utilities,
due to an extremely mild winter and in depreciation charges,
attributable to the write-down at the end of fiscal 1997 of the
physical assets of the managed Brooklyn location in recognition
of its impairment loss. After such write-down, no further
depreciation charges are recorded, in accordance with generally
accepted accounting principles. The sales price for this
restaurant approximates its carrying value after such write-down.
(See Note 4 to the Condensed Consolidated Financial Statements
and Liquidity).
Advertising and royalty expenses were constant at 8.0% of
sales for all periods, reflecting the Company's contractual
obligations as franchisee under the franchise agreements.
General and administrative expenses, including management
fees, increased by $8,916, or 10.0%, to $98,053 for the quarter
and by $32,613, or 20.9%, to $188,602 for the six months.
Management fees to IFS were constant at $8,000 for the quarter
but decreased by $1,000 to $48,000 for the six months in
accordance with the contractual agreement therefor.
As a percentage of sales, general and administrative
expenses increased by 0.4% to 7.1% for the quarter and 1.4% to
7.3% for the six months. Virtually all of the increase as a
percentage of sales for the six month period is attributable to
increased legal and professional fees incurred to prepare
agreements for the sale of substantially all of the Company's
assets and a related preliminary proxy statement.
The Company had no interest expense for the quarter ended
June 28, 1998 having prepaid its bank loan in January of 1998.
Interest incurred on such loan, which was borrowed to fund the
Marriott litigation settlement was $2,832 for the 1997 periods
and $211 for the first quarter of the current year.
Rental income was unchanged at $2,700 for the quarter and
$5,400 for the six months in both years. The Company presently
has one sub-lease, yielding $900 per month.
For the quarter ended June 28, 1998, the Company realized
$2,776 of income and related expense reimbursement arising from
the Empire Boulevard management sub-contract. For the year-to-date
periods such income and expense reimbursement amounts
totalled $13,060 and $15,977 for 1998 and 1997, respectively.
Pre-tax income increased $33,746 to $100,611 for the quarter
and by $88,166 to $150,876 for the six months. Due to available
net operating loss carryforwards, only minor provisions, $5,000
in 1998 and $3,000 in 1997, were required for the six month
periods.
Comprehensive income equalled net income for each quarterly
and year-to-date period presented.
Liquidity and Capital Resources
- -------------------------------
During the first six months of 1998, the Company's working
capital increased by $123,814 to $132,182. The improvement arose
from operations, which provided $178,909, less capital
expenditures of $22,779, retirement of long-term debt of $26,042
and reduction in security deposits payable of $6,274.
The Company's intercompany balance with IFS decreased by
$947 from $13,222 to $12,275. Significant fluctuations in this
balance are not expected in the future.
The Company's cash balance increased by $91,242 from
$276,956 to $368,198. Operating activities provided $208,837,
inclusive of changes in current assets and liabilities which
provided $29,928.
Investing activities required $29,053 of which $22,779 was
used for fixed asset purchases. Financing activities required
$88,542, all of which was for the retirement, at par, of the
Company's bank debt.
The Company has agreed to two separate offers to purchase in
the aggregate all five of its restaurants. Such offers, one for
the managed location and the other for the other four, are in the
amounts of $70,000 and $900,000, respectively, plus the usual
closing adjustments for the cash banks, inventory and
prepaid/accrued items. (See Notes 3 and 4 to the Condensed
Consolidated Financial Statements). Management has negotiated
purchase and sale contracts with each of the offerors. Both
sales require franchisor approval, which is expected, and the
latter requires shareholder approval as well. If consummated,
these sales will leave the Company with no restaurant operations.
The Company would then retire all of its liabilities and
distribute its remaining cash to shareholders in a return of
capital and liquidating dividend. In connection therewith, the
Company has filed both, a preliminary and definitive proxy
statement with the Securities and Exchange Commission.
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.
PRO-FORMA CONSOLIDATED
FINANCIAL INFORMATION OF THE COMPANY
The following pro-forma consolidated financial information
of the Company is based on and should be read in conjunction with
the selected consolidated financial information and the annual
and interim consolidated financial statements of the Company
included elsewhere in this Proxy Statement. The pro-forma
balance sheet as of June 28, 1998 gives effect to (i) the sale of
the Empire Boulevard, Brooklyn Restaurant, which is anticipated
to close in September 1998 and (ii) both of the transactions
contemplated by the Proposal, specifically: (a) the sale of the
remaining four restaurants to Popyork, LLC for $900,000 in cash
plus closing adjustments and (b) the liquidation of the Company
including liquidating distributions to shareholders of $.11 per
share or $980,573 in the aggregate. The pro-forma consolidated
statements of operations for the year ended December 28, 1997 and
the six months ended June 28, 1998 give effect to the (i) sale of
the Empire Boulevard Restaurant and (ii) the Sale Transaction as
if both sales had occurred on the first day of the respective
period.
The pro-forma adjustments are based upon available
information and certain assumptions that management believes are
reasonable in the circumstances. Cost and expenses during the
liquidation period have been estimated. The aggregate amount
estimated to be available as liquidating distributions to
shareholders may vary from the $980,573 ($.11 per share)
reflected on the accompanying pro-forma balance sheet and such
variation may be material.
The pro-forma financial statements of the Company should be
read in conjunction with the notes thereto. The pro-forma
statements of operations do not purport to be indicative of the
results of operations which may be expected to occur in the
future.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
June 28,
1998
June 28, Sale of Pro-Forma
1998 Empire (Pre-Sale
Historical Restaurant Transaction)
---------- ---------- -----------
Assets
Current assets:
$ 74,850 (1)
Cash $ 368,198 ( 5,000)(2) $ 408,279
( 29,769)(3)
Inventory 26,872 ( 3,850)(1) 23,022
Other current assets 47,573 ( 1,000)(1) 46,573
----------- ----------- -----------
Total current assets 442,643 35,231 477,874
Property and equipment,
net 310,657 ( 60,000)(4) 250,657
Other assets 8,567 - 8,567
----------- ----------- -----------
Total assets $ 761,867 $( 24,769) $ 737,098
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and
other $ 298,186 $( 29,769)(3) $ 268,417
Due to Integrated Food
Systems, Inc. 12,275 - 12,275
----------- ----------- -----------
Total current
liabilities: 310,461 ( 29,769) 280,692
Security deposits
payable 6,000 - 6,000
----------- ----------- -----------
Total liabilities: 316,461 ( 29,769) 286,692
----------- ----------- -----------
Shareholders' equity:
Common stock/paid-in
capital 2,232,005 - 2,232,005
Retained earnings
(deficit) (1,786,599) 5,000 (5) (1,781,599)
----------- ----------- -----------
Total shareholders'
equity 445,406 5,000 450,406
----------- ----------- -----------
Total liabilities
and equity $ 761,867 $( 24,769) $ 737,098
=========== =========== ===========
(Continued on following page)
See accompanying notes to pro-forma consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
(Continued from previous page)
June 28, June 28,
1998 Pro-Forma 1998
Pro-Forma Adjustments Pro-Forma
(Pre-Sale Re: Sale (Before
Transaction) Transaction Liquidation)
----------- ----------- -----------
Assets
Current assets:
$ 970,522 (6)
Cash $ 408,279 ( 39,000)(7) $ 1,114,801
( 225,000)(8)
Inventory 23,022 ( 23,022)(6) -
Other current assets 46,573 ( 45,000)(6) 1,573
----------- ----------- -----------
Total current assets 477,874 638,500 1,116,374
Property and equipment,
net 250,657 ( 250,657)(9) -
Other assets 8,567 ( 8,500)(6) 67
----------- ----------- -----------
Total assets $ 737,098 $ 379,343 $ 1,116,441
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and
other $ 268,417 $( 225,000)(8) $ 43,417
Due to Integrated
Food Systems, Inc. 12,275 - 12,275
----------- ----------- -----------
Total current
liabilities: 280,692 ( 225,000) 55,692
Security deposits
payable 6,000 ( 6,000)(6) -
----------- ----------- -----------
Total liabilities: 286,692 ( 231,000) 55,692
----------- ----------- -----------
Shareholders' equity:
Common stock/
paid-in capital 2,232,005 - 2,232,005
Retained earnings
(deficit) (1,781,599) 610,343 (10) (1,171,256)
----------- ----------- -----------
Total shareholders'
equity 450,406 610,343 1,060,749
----------- ----------- -----------
Total liabilities
and equity $ 737,098 $ 379,343 $ 1,116,441
=========== =========== ===========
(Continued on following page)
See accompanying notes to pro-forma consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
(Continued from previous page)
June 28, June 28,
1998 Pro-Forma 1998
Pro-Forma Adjustments Pro-Forma
(Before to Reflect (After
Liquidation) Liquidation Liquidation)
----------- ----------- -----------
Assets
Current assets:
$( 55,692)(11)
Cash $ 1,114,801 ( 980,573)(12) $ -
( 78,536)(13)
Inventory - - -
Other current assets 1,573 ( 1,573)(14) -
----------- ----------- -----------
Total current assets 1,116,374 (1,116,374) -
Property and equipment, net - - -
Other assets 67 ( 67) -
----------- ----------- -----------
Total assets $ 1,116,441 $(1,116,441) $ -
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and
other $ 43,417 $( 43,417)(11) $ -
Due to Integrated Food
Systems, Inc. 12,275 ( 12,275)(11) -
----------- ----------- -----------
Total current liabilities: 55,692 ( 55,692)(11) -
Security deposits payable - - -
----------- ----------- -----------
Total liabilities: 55,692 ( 55,692) -
----------- ----------- -----------
Shareholders' equity:
Common stock/
paid-in capital 2,232,005 ( 980,573)(12) 1,251,432
Retained earnings
(deficit) (1,171,256) ( 80,176)(15) (1,251,432)
----------- ----------- -----------
Total shareholders' equity 1,060,749 (1,060,749) -
----------- ----------- -----------
Total liabilities and
equity $ 1,116,441 $(1,116,441) $ -
=========== =========== ===========
See accompanying notes to pro-forma consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
December 28,
Year Ended 1997
December 28, Pro-Forma Adjustments(1) Pro-Forma
1997 --------------------------- (Pre-Sale
Historical Hillside Empire Transaction)
------------ ----------- ----------- ------------
Sales $ 5,247,779 $( 170,061) $( 629,974) $ 4,447,744
Cost of sales 1,697,245 ( 55,836) ( 238,334) 1,403,075
------------ ----------- ----------- -----------
Gross profit 3,550,534 ( 114,225) ( 391,640) 3,044,669
------------ ----------- ----------- -----------
Selling, general
and admin-
istrative
expenses 3,380,944 ( 116,936) ( 441,717) 2,822,291
Interest expense 8,100 - - 8,100
Rental income ( 10,800) - 10,800(2) -
Gain on sale of
restaurant ( 13,908) 13,908 (a) - (b) - (c)
Income and expense
reimbursement
arising from
management
sub-contract ( 6,484) - 6,484 (3) -
Loss on asset
impairment 159,772 - ( 159,772)(4) -
------------ ----------- ----------- -----------
3,517,624 ( 103,028) ( 584,205) 2,830,391
------------ ----------- ----------- -----------
Net income $ 32,910 $( 11,197)(a) $ 192,565(b) $ 214,278(c)
============ =========== =========== ===========
Weighted average
number of shares
outstanding 8,914,300 8,914,300
============ ===========
Net income
per share $ - $ .02
============ ===========
(Continued on following page)
(a) Excludes gain of $13,908 on the sale of the Hillside
Restaurant, sold April 15, 1997.
(b) Excludes gain of $5,000 on the sale of the Empire
Restaurant.
(c) Excludes aggregate gain of $18,908 on the sale of the
Hillside and Empire Restaurants.
See accompanying notes to pro-forma consolidated financial
statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued from previous page)
Year Ended
December 28, Year Ended
1997 Pro-Forma December 28,
Pro-Forma Adjustments 1997
(Pre-Sale Re: Sale (After Sale
Transaction) Transaction Transaction)
------------ ------------ --------------
Sales $ 4,447,744 $(4,447,744) $ -
Cost of Sales 1,403,075 (1,403,075) -
------------ ----------- ------------
Gross profit 3,044,669 (3,044,669) -
------------ ----------- ------------
Selling, general and
administrative
expenses 2,822,291 (2,822,291) -
Interest expense 8,100 ( 8,100)(5) -
Rental income - - -
Gain on sale of
restaurant - (c) - (d) - (e)
Income and expense
reimbursement
arising from
management
sub-contract - - -
Loss on asset
impairment - - -
------------ ----------- ------------
2,830,391 (2,830,391) -
------------ ----------- ------------
Net income $ 214,278(c) $( 214,278)(d)(f) $ - (e)(f)
============ =========== ============
Weighted average
number of shares
outstanding 8,914,300 8,914,300
============ ============
Net income
per share $ .02 $ -
============ ============
(c) Excludes aggregate gain of $18,908 on the sale of the Hillside and
Empire Restaurants.
(d) Excludes gain of $610,343, attributable to the Sale Transaction, net of
estimated income taxes thereon of $29,000.
(e) Excludes aggregate net gain of $629,251 on the sale of all six restaurants.
(f) Also excludes estimated liquidation period loss of $80,176. See Note 15
to the pro-forma consolidated Balance Sheet.
See accompanying notes to pro-forma ocnsolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months
Ended
Six Months June 28, 1998
Ended Sale of Pro-Forma
June 28, 1998 Empire (Pre-Sale
Historical Restaurant Transaction)
-------------- ------------ -------------
Sales $ 2,585,174 $( 317,966) $ 2,267,208
Cost of sales 776,606 ( 120,605) 656,001
------------ ----------- ------------
Gross profit 1,808,568 ( 197,361) 1,611,207
------------ ----------- ------------
Selling, general and
administrative
expenses 1,675,941 ( 219,019) 1,456,922
Interest expense 211 - 211
Rental income ( 5,400) 5,400(2) -
Income and expense
reimbursement arising
from management
sub-contract ( 13,060) 13,060(3) -
------------ ----------- ------------
1,657,692 ( 200,559) 1,457,133
------------ ----------- ------------
Pre-tax income 150,876 3,198 154,074
Provision for income
taxes 5,000 - 5,000
------------ ----------- ------------
Net income $ 145,876 $ 3,198(a) $ 149,074(a)
============ =========== ============
Weighted average number
of shares outstanding 8,914,300 8,914,300
============ ============
Net income per share $ .02 $ .02
============ ============
(Continued on following page)
(a) Excludes gain of $5,000 on the sale of the Empire Boulevard Restaurant.
See accompanying notes to pro-forma consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued from previous page)
Six Months Six Months
Ended Ended
June 28, 1998 Pro-Forma June 28, 1998
Pro-Forma Adjustments Pro-Forma
(Pre-Sale Re: Sale (After Sale
Transaction) Transaction Transaction)
-------------- ------------ --------------
Sales $ 2,267,208 $(2,267,208) $ -
Cost of sales 656,001 ( 656,001) -
------------ ----------- ------------
Gross profit 1,611,207 (1,611,207) -
------------ ----------- ------------
Selling, general and
administrative expenses 1,456,922 (1,456,922) -
Interest expense 211 ( 211)(5) -
Rental income - - -
Income and expense
reimbursement arising
from management
sub-contract - - -
------------ ----------- ------------
1,457,133 (1,457,133) -
------------ ----------- ------------
Pre-tax income 154,074 ( 154,074)
Provision for income taxes 5,000 ( 5,000)
------------ -----------
Net income $ 149,074(a) $( 149,074)(b) $ -(a)(b)
============ =========== ============
Weighted average number of
shares outstanding 8,914,300 8,914,300
============ ============
Net income per share $ .02 $ -
============ ============
(a) Excludes gain of $5,000 on the sale of the Empire Boulevard Restaurant.
(b) Excludes net gain of $610,343 attributable to the Sale Transaction.
Also excludes estimated liquidation period loss of $80,176. See Note
15 to the pro-forma consolidated Balance Sheet.
See accompanying notes to pro-forma consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
NOTES TO PRO-FORMA CONSOLIDATED BALANCE SHEET
1. Represents the receipt of the all-cash consideration for the
sale of the Empire Boulevard, Brooklyn Restaurant. The
agreement of sale was signed on July 2, 1998; it is now
awaiting the approval of the Franchisor. The proceeds are
estimated to consist of the following:
Purchase Price $ 70,000
Closing adjustments:
Inventory (estimated) 3,850
Other (estimated) 1,000
--------
Total proceeds of sale $ 74,850
========
2. Represents estimated closing costs for legal fees in
connection with the sale of the Empire Restaurant.
3. Represents the payment of trade and other liabilities
directly attributable to the Empire Restaurant paid from the
sale proceeds thereof.
4. Represents the net carrying value of the property and
equipment of the Empire Restaurant, which had been written
down to its estimated net realizable value at December 28,
1997.
5. Represents the estimated gain on the sale of the Empire
Restaurant measured by the sales price of $70,000 (excluding
dollar for dollar closing adjustments) less estimated
closing costs for legal fees of $5,000 over the $60,000
carrying value of the restaurant assets sold. Due to
available net operating tax loss carryforwards, income taxes
on such gain are expected to be immaterial and have been
ignored.
6. Represents the receipt of the all-cash consideration for the
four restaurants comprising the Sale Transaction as follows:
Purchase price $900,000
Closing adjustments
Inventory 23,022
Prepayments and other 45,000
Security deposits, net 2,500
--------
Total proceeds of sale $970,522
========
7. Represents estimated closing costs for legal fees in
connection with the Sale Transaction as well as estimated
income taxes attributable to the gain on the sale (after the
benefits of net operating tax loss carryforwards) as
follows:
Legal fees $ 10,000
--------
New York State income taxes 16,000
Federal income taxes 13,000
--------
Total income taxes 29,000
--------
Total closing costs and
income taxes $ 39,000
========
8. Represents the payment of trade and other liabilities
directly attributable to the four restaurants comprising the
Sale Transaction paid from the sale proceeds thereof.
9. Represents the net carrying value of the property and
equipment of the four restaurants comprising the Sale
Transaction.
10. Represents the estimated gain on the Sale Transaction
measured by the sales price of $900,000 (excluding dollar
for dollar closing adjustments) over the $250,657 net
carrying value of the restaurant assets sold, less estimated
closing costs for legal fees of $10,000 and estimated income
taxes of $29,000 (net of tax loss carryforward benefits)
directly attributable to the gain.
11. Represents payment of the remaining $55,692 of liabilities
of the Company, consisting of $12,275 owed to Integrated
Food Systems and $43,417 of trade payables and other
liabilities.
12. Represents the payment of two liquidating distributions to
shareholders in the amounts of $.09 and $.02 per share,
respectively. While no assurance can be given in this
regard, the Company believes it will have adequate funds to
pay the aggregate distribution of $980,573. The Company
expects that operations subsequent to June 28, 1998 until
the date of sale will be cash-flow positive.
13. Represents estimated costs and expenses during the
liquidation period.
14. Represents estimated losses of $1,640 on the non-realization
of certain prepayments ($1,573) and other assets ($67).
15. Represents the estimated net loss during the liquidation
period as follows:
Liquidation costs and expenses $78,536
Loss on realization of certain assets 1,640
-------
Net loss during the liquidation period $80,176
=======
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
NOTES TO PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
1. The pro-forma adjustments applicable to the sale of the
Hillside and Empire Restaurants and the four restaurants
comprising the Sale Transaction, other than where indicated
by a specific footnote, generally consist of subtracting the
restaurant sales, cost of sales and direct operating
expenses attributable thereto for each period presented.
Certain items are specifically footnoted below. (See Notes
2 thru 5). In accordance with the requirements for the
presentation of pro-forma financial information, the pro-forma
statements of operations exclude the gain from the sales of the
various restaurants.
2. Rental income is earned exclusively from a sub-lease of a
portion of the Empire Boulevard premises. The sub-lease
will be sold together with the restaurant.
3. The income and expense reimbursement relates to the
management sub-contract for the Empire Boulevard restaurant.
4. The loss on asset impairment in 1997 was incurred on the
property and equipment of the Empire Boulevard Restaurant.
For pro-forma presentation purposes, such loss is
eliminated. Absent such elimination, the effect of the
impairment write-down would have been recognized in the loss
on sale, which would then be eliminated as a non-recurring
loss related to such sale.
5. Interest expense is eliminated since receipt of the proceeds
from the Sale Transaction would have been sufficient to
retire the interest bearing indebtedness at the beginning of
each period.
ADDITIONAL INFORMATION ABOUT THE COMPANY
DESCRIPTION OF BUSINESS
Fast Food Operators, Inc. (the "Company") was incorporated
in New York on December 18, 1978. The Company is a fast food
restaurant company engaged in the ownership, management and
operation of the Restaurants. Each Restaurant is operated under
a franchise agreement granted to the Company by Franchisor.
The Restaurants are located in the boroughs of Brooklyn,
Queens and Manhattan, all of which are located in the New York
Metropolitan Area. The New York Metropolitan Area is one of the
most highly populated areas in the United States.
PROPERTIES
The Company currently operates five Popeyes Famous Fried
Chicken and Biscuits restaurants at the locations and with the
lease expiration dates set forth below:
1. 722 Seventh Avenue, New York, New York 12/31/02
2. 122-10 Guy Brewer Boulevard, Queens, New York 6/30/03
3. 850 Pennsylvania Avenue, Brooklyn, New York 9/30/06
4. 2137 Nostrand Avenue, Brooklyn, New York 2/28/07
5. 40 Empire Boulevard, Brooklyn, New York 6/30/13
On July 8, 1998, the Company agreed to sell the Empire
Boulevard restaurant pursuant to an asset purchase agreement that
provides such sale will not be completed until the approval of
Franchisor; such approval is expected.
The lease for the fourth restaurant, a sub-lease has been
renewed through February 28, 2007 at a percentage rental of 11%
of sales for the first five years and 12% of sales for the second
five years. Rent on such sub-lease had previously been 15% of
sales.
In July 1996 the Manhattan lease, due to expire December 31,
1996, was amended to extend the term to December 31, 2002 and
effective August 1, 1996 to increase 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 portion of the greater premises leased at
its Empire Boulevard, Brooklyn location. Such sub-leased
premises front on the cross-street to Empire Boulevard at 1074
Washington Avenue. These premises had originally been used by
the Company for a pizza restaurant which did not operate
profitably. On July 8, 1998, the Company agreed to sell the
Empire Boulevard location and the related sub-lease as well.
A sublease for certain premises formerly used as a Popeye's
Restaurant at 87-26 Roosevelt Avenue in Queens, New York was
terminated August 1, 1996 when the Company, with the lessor's
consent, assigned its lease to the sub-lessee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 30, 1998
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
Owner
or Name and Address
of Owner Amount and Nature of
of More Than 5% Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
Integrated Food 3,000,000 shares (1) 33.65%
Systems, Inc.
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 146,523 shares (1) 1.6%
executive
directors as a
group
(three 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.
_____________________________________________
(1) Represents 3,000,000 shares of Common Stock issued June
25, 1992 upon shareholder approval of the 1990
Transactions. See The Company - Transactions with IFS.
Lewis Topper is 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 is the Secretary, Controller and a Director
of IFS and Fast Food Systems. Mr. Topper owns 42.3% of
the outstanding shares of Fast Food Systems, Inc. and may
be deemed to have a proportional beneficial ownership
interest in the 3,000,000 shares owned by IFS, Fast Food
System, Inc.'s wholly-owned subsidiary. Mr. Topper has
informed the Board that pursuant to his direction IFS
will vote its 3,000,000 shares in favor of the Proposal.
Such shares together with the shares owned by Messrs.
Topper and Poganski constitute 35.3% of the outstanding
shares of the Company.
(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.
STOCKHOLDER PROPOSALS
Shareholders are advised that any proposals regarding
matters which any stockholder desires to present at the next
annual meeting of the Shareholders are to be received by the
Company at the Company's principal executive offices for
inclusion in the Company's proxy statement and form of proxy
relating to such annual meeting by October 9, 1998.
By the order of the Board of Directors,
LEWIS E. TOPPER
- -----------------------------------
Lewis E. Topper, Director, Chairman
of the Board, President, Chief
Executive Officer, and Treasurer
October 7, 1998
INDEX TO FINANCIAL STATEMENTS
Annual Consolidated Financial Statements Page
- ---------------------------------------- ----
Independent Auditor's Report F-1
Consolidated Balance Sheet as of December 28, 1997 F-2
Consolidated Statement of Operations for the
Years Ended December 28, 1997
and December 29, 1996 F-3
Consolidated Statement of Stockholders'
Equity for the Years Ended December 28, 1997
and December 29, 1996 F-4
Consolidated Statement of Cash Flows for the
Years Ended December 28, 1997
and December 29, 1996 F-5
Notes to Consolidated Financial Statements F-6
to
F-13
Quarterly Financial Information
- -------------------------------
Condensed Consolidated Balance Sheet
as of June 28, 1998 F-14
Condensed Consolidated Statement of Operations
for the Six Months Ended June 28, 1998
and June 29, 1997 F-15
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended June 28, 1998
and June 29, 1997 F-16
Notes to Condensed Consolidated
Financial Statements F-17
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 28,
1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the
two-year period ended December 28, 1997. 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 28, 1997, and the consolidated results of their
operations and cash flows for each of the years in the two-year
period ended December 28, 1997, in conformity with generally
accepted accounting principles.
/S/ ERIC L. WESTON
Certified Public Accountant
Westbury, New York
January 15, 1998, except for Note 11 as
to which the date is January 26, 1998
F-1
Fast Food Operators, Inc. and Subsidiaries
Consolidated Balance Sheet
December 28, 1997
ASSETS
Current assets:
Cash $ 276,956
Inventory (Note 1B) 28,202
Prepaid expenses and other current assets 87,332
Total current assets 392,490
-----------
Property and equipment, net of accumulated
depreciation (Notes 1C, 1D, 2, and 9) 320,294
-----------
Other assets:
Security deposits 8,500
Intangible assets, net of accumulated
amortization (Notes 1E and 3) 684
-----------
Total other assets 9,184
-----------
TOTAL ASSETS $ 721,968
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of note payable bank
(Notes 4 and 11A) $ 62,500
Accounts payable and accrued expenses 259,241
Taxes, other than income taxes 49,159
Due to Integrated Food Systems, Inc. (Note 6) 13,222
-----------
Total current liabilities 384,122
Note payable bank, less current maturities
(Notes 4 and 11A) 26,042
Security deposits payable 12,274
-----------
Total liabilities 422,438
-----------
Commitments and contingencies -
(Notes 6, 7, 9, 10 and 11)
Stockholders' equity - (Notes 5 and 6):
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 (1,932,475)
-----------
Total stockholders' equity 299,530
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 721,968
===========
See notes to consolidated financial statements.
F-2
Fast Food Operators, Inc. And Subsidiaries
Consolidated Statement of Operations
Years Ended December 28, 1997 and December 29, 1996
1997 1996
----------- -----------
Sales $ 5,247,779 $ 5,349,978
Cost of sales 1,697,245 1,781,065
----------- -----------
Gross profit 3,550,534 3,568,913
----------- -----------
Selling, general and
administrative expenses
(Notes 6, 7A, 7B, 7C and 11B) 3,390,737 3,652,223
Interest expense -
(Notes 4 and 11A) 8,100 -
Sublease income (Note 7B) ( 10,800) ( 46,537)
Miscellaneous income, including gain
of $13,908 on sale of restaurant
in 1997 (Note 9B) ( 30,185) ( 42,861)
Loss on asset impairment in 1997 and
litigation settlement in 1996
(Notes 9A and 7D) 159,772 143,500
----------- -----------
3,517,624 3,706,325
----------- -----------
Net income (loss) (Note 10) $ 32,910 $ (137,412)
=========== ===========
Earnings (loss) per common share
(Note 1H) $ - $ (.02)
=========== ===========
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 28, 1997
Total
Additional Accumu- Stock-
Common Stock Paid-In lated holders'
Shares Amount Capital Deficit Equity
------ ------ ---------- ------- -------
Balances,
January
1, 1996 8,914,300 $89,143 $ 2,232,005 $(1,827,973) $ 493,175
Return of
capital
distri-
bution
(Note 5) - - ( 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
Net income
for 1997 - - - 32,910 32,910
--------- ------- ----------- ------------ ----------
BALANCES,
DECEMBER
28, 1997 8,914,300 $89,143 $ 2,142,862 $(1,932,475) $ 299,530
========= ======= =========== =========== ==========
See notes to consolidated financial statements.
F-4
Fast Food Operators, Inc. And Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 28, 1997 and December 29, 1996
1997 1996
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 32,910 $( 137,412)
----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 100,524 117,679
Loss on asset impairment (1997)
and litigation settlement
(1996) 159,772 143,500
Gain on sale of restaurant ( 13,908) -
Decrease (increase) in inventory 3,972 ( 229)
Decrease (increase) in prepaid
expenses and other current
assets ( 33,799) 78,393
Decrease in accounts payable
and accrued expenses ( 222,221) ( 57,634)
Increase (decrease) in security
deposits ( 6,484) 8,128
Increase (decrease) in taxes, other
than income taxes ( 6,292) 5,484
Increase (decrease) in due to
Integrated Food Systems, Inc. ( 3,461) 169,693
----------- -----------
Total adjustments ( 21,897) 465,014
----------- -----------
Net cash provided by operating
activities 11,013 327,602
----------- -----------
Cash flows from investing activities:
Purchase of fixed and other assets ( 98,584) ( 120,938)
Proceeds from sale of restaurant
assets 41,331 -
Security deposits refunded 5,000 6,514
Other ( 950) -
----------- -----------
Net cash required by investing
activities ( 53,203) ( 114,424)
----------- -----------
Cash flows from financing activities:
Proceeds of note payable 125,000 -
Return of capital distribution - ( 89,143)
Payments of long-term debt ( 36,458) -
----------- -----------
Net cash provided (required) by
financing activities 88,542 ( 89,143)
----------- -----------
Net increase in cash 46,352 124,035
Cash, beginning of year 230,604 106,569
----------- -----------
Cash, end of year $ 276,956 $ 230,604
=========== ===========
Supplemental cash flow information:
Cash paid during the year for
interest $ 6,341 $ -
=========== ===========
Non-cash investing and financing
activities:
Reclassification of deferred
lease costs $ 9,283 $ -
=========== ===========
Net book value of property and
equipment sold $ 16,092 $ -
=========== ===========
Other restaurant assets sold:
Inventory $ 3,731 $ -
=========== ===========
Prepayments $ 6,650 $ -
=========== ===========
See notes to consolidated financial statements.
F-5
Fast Food Operators, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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 with as well as an investment in
the Company. (See Notes 1E, 3, 6 and 7A). At December 1997 the
Company was operating five restaurants, having sold one
restaurant at a gain in April 1997. (See Note 9).
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.
(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) Asset Impairments:
The Company records impairment losses when events and/or changes
in circumstances indicate that the carrying value of an asset
will not be recovered through future cash inflows. Assets deemed
to be impaired are written down to their fair values. For
impaired assets to be sold or otherwise disposed of, reported
asset values are reduced for estimated costs of sale of disposal,
as applicable. Impaired assets to be sold or disposed of are
neither depreciated nor amortized; though they may still be
utilized in revenue-producing capacities. (See Notes 2, 3 and
9A).
(E) Intangible Assets:
The Company operates its Popeye's franchises pursuant to
franchise agreements. Initial franchise fees incurred in
connection with the acquisition of franchises are amortized on a
straight-line basis over 10 years. 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 7A).
Deferred lease costs are amortized over the life of the lease.
(F) 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 10).
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.
(G) 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.
(H) Earnings (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. The Company has no outstanding
stock options, purchase warrants or other potentially dilutive
securities. Accordingly, adoption of Financial Accounting
Standard No. 128, "Earnings Per Share," effective for periods
ended after December 15, 1997, had no effect on such per share
data.
(I) Fiscal Year:
The Company's fiscal year ends on the last Sunday in December.
Fiscal 1997 and 1996 each comprised 52 weeks.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at December 28, 1997 consist of the
following:
Leasehold improvements $ 798,498
Kitchen equipment 626,032
Furniture and fixtures 197,129
Register systems 54,495
Automobiles 13,023
Impaired restaurant assets to be sold,
including deferred leasehold costs
of $9,283 (See Notes 3, 7C and 9A) 60,000
----------
1,749,177
Less: Accumulated depreciation and
amortization 1,428,883
----------
Net property and equipment $ 320,294
==========
F-7
Fast Food Operators, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 3 - INTANGIBLE ASSETS:
Intangible assets at December 28, 1997 consist of the following:
Franchise fees, net of accumulated
amortization of $99,583 $ 417
Deferred lease costs, net of
accumulated amortization of $3,733 267
----------
Total: $ 684
==========
At December 28, 1997, unamortized deferred lease costs of $9,283
were reclassified to "Impaired Assets to be Sold." (See Notes 2,
7C and 9A).
NOTE 4 - NOTE PAYABLE, BANK
On April 10, 1997 the Company borrowed $125,000 from the BSB Bank
& Trust Company in order to fund the payment of the litigation
settlement with the Host Marriott Corporation. (See Note 7D).
The note, secured by the Company's inventory, equipment and
intangibles, was due in 24 monthly principal payments of $5,208
plus interest at 10%. Subsequent to December 28, 1997, the
balance of the note was prepaid. (See Note 11A).
NOTE 5 - RETURN OF CAPITAL DISTRIBUTION
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.
NOTE 6 - 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 has been renewed annually for additional
one-year terms through January 25, 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 required a
minimum annual fee of $96,000. Subsequent to December 28, 1997
the agreement was again renewed. (See Note 11B).
Management fees were $97,000 in fiscal 1997 and $105,000 in 1996.
At January 1, 1996, IFS owed the Company $153,010, which was
repaid during the first quarter of 1996. At December 28, 1997
and December 29, 1996 the Company owed IFS $13,222 and $16,683,
respectively, representing the management fee for the respective
month then ended and miscellaneous items.
F-8
Fast Food Operators, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 7 - 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.
Royalty and advertising fees charged to operations were $262,289
and $156,997 for fiscal 1997 and $267,375 and $162,486 for 1996.
(B) Operating Lease Commitments:
The Company has lease agreements for all five of its store
premises expiring at various dates through June 2007. Of these,
one expires in September 1998, one in 2002, one in 2003 and two
in 2007. 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 11% of sales
through February 28, 2002 and 12% of sales through February 28,
2007. In addition to monthly rental charges on all the leases,
the Company must pay certain property taxes, insurance and other
expenses.
Effective August 1, 1996 the Company's lease for its Manhattan
restaurant was amended to extend the lease term by six years
until December 31, 2002 and increase the annual rental from
$180,000 to $265,000 for the three-year period ending July 31,
1999 and to $270,000 thereafter.
During 1997 the Company sold one Queens restaurant. (See Note
9B). At December 28, 1997 the Company earns rental income from
one sublease. (See Note 9A). Another sub-lease was terminated on
August 1, 1996.
Minimum future annual rental and sublease payments under the
remaining operating leases are as follows:
Year Amount Sublease Net
----------- ---------- -------- ----------
1998 $ 384,445 $ 10,800 $ 373,645
1999 359,903 10,800 349,103
2000 362,820 10,800 352,020
2001 362,820 10,800 352,020
2002 365,361 10,800 354,561
2003-2007 272,559 47,700 224,859
---------- -------- ----------
Totals $2,107,908 $101,700 $2,006,208
========== ======== ==========
The components of rent expense for the last two fiscal years are as follows:
1997 1996
--------- ---------
Minimum rentals $ 424,122 $ 431,238
Contingent rentals 102,532 94,683
--------- ---------
526,654 525,921
Less: Sublease rentals 10,800 46,537
--------- ---------
$ 515,854 $ 479,384
========= =========
F-9
Fast Food Operators, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 7 -COMMITMENTS AND CONTINGENCIES - (continued)
(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, which had an initial term of nine
months, continues in effect indefinitely 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 including sub-lease
income less the greater of $200 or five percent of such monthly
cash flow total, calculated monthly and not cumulatively. Stated
conversely, the Company receives the greater of $200 per month or
5% of the restaurant's total 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. In fiscal
1997, the Company earned the minimum fee of $2,400 and was also
reimbursed by the manager for $4,084 of net cash flow shortfall
for the year. In fiscal 1996, the Company earned the minimum
$1,800 amount for the nine months the agreement was in effect.
The amount retained by the Manager during 1996 was $10,686.
The Company is seeking to sell this restaurant. (See Notes 2, 3
and 9A).
(D) Adjudication and Settlement of Lawsuit:
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 a prior
location which the Company had acquired and leased 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.
In September 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.
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.
F-10
Fast Food Operators, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 7 -COMMITMENTS AND CONTINGENCIES - (continued)
(D) Adjudication and Settlement of Lawsuit: (continued)
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
agreeing to accept the Company's offer of $143,500 in full
satisfaction of the judgement amount. Payment thereof was made
on April 10, 1997. The Company 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."
NOTE 8 -FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 28 1997, the Company's financial instruments consist
of cash, note payable, bank and due to Integrated Food Systems,
Inc. The fair value of these accounts approximates their carrying
value at such date.
NOTE 9 -IMPAIRMENT/SALE OF RESTAURANT ASSETS
(A) Asset Impairment, Brooklyn Restaurant:
As of December 28, 1997, cognizant of the results of and the
future prospects for its managed Empire Boulevard Restaurant in
Brooklyn, the Company determined that the historical cost-basis
carrying value thereof would not be recovered by the future cash
inflows attributable to its restaurant operations and sub-lease
arrangement. The Company further determined that it would seek
to sell this restaurant property including the related sub-lease.
In accordance with Financial Accounting Standard No. 121, the
Company has written down this restaurant's tangible and
intangible assets to $60,000, representing the estimated fair
value thereof less estimated costs to sell. Such write-down
results in a loss of $159,772. Although there presently exists
no written agreement for such sale, the Company expects that the
sale of this restaurant will be consummated by the end of 1998.
Prior to such anticipated consummation, the Company expects to
continue the operation of this restaurant, subject to the
existing management agreement. (See Note 7C). For the years
ended December 28, 1997 and December 29, 1996, the Empire
Boulevard Restaurant had net divisional losses of $28,809 and
$42,641, respectively.
(B) Gain on Sale of Queens Restaurant:
On April 15, 1997, the Company consummated the sale of its
Hillside Avenue, Queens Restaurant to an unaffiliated party, who
had previously purchased two of the Company's restaurants and
also manages the Company's Empire Boulevard Restaurant in
Brooklyn. The purchase price for this restaurant, the lease for
which expires on July 31, 1998, was $30,000 plus closing
adjustments of $11,331 for inventory and prepaid/ accrued items.
The price is subject to increase by a minimum of $50,000, in the
event 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.
F-11
Fast Food Operators, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 10- INCOME TAXES
Due to available net operating tax loss carryforwards in excess
of taxable income for fiscal 1997 and 1996, the Company did not
incur any income taxes in either year. At December 28, 1997, the
Company has net operating loss and jobs tax credit carryforwards
of approximately $1,489,000 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 28, 1997 aggregated
$586,200, all of which were 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)
--------------------------------
1997 1996
----- -----
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
----- -----
- -
===== =====
The tax effects of temporary differences that give rise to
deferred tax assets (before valuation allowances) and deferred
tax liabilities at December 28, 1997, none of which gave rise to
any deferred income tax provision or benefit in either fiscal
1997 or 1996, are as follows:
Assets/Liabilities
------------------
Asset
-----
Non-current:
Property and equipment, net of
accumulated depreciation $ 48,800
Deferred costs and expenses, net of
accumulated amortization 100
Net operating loss carryforward 446,700
Jobs tax credit carryforward 90,600
--------
Total deferred tax assets $586,200
========
For the year ended December 28, 1997, the valuation allowance
decreased by $14,450 to $586,200. The net deferred tax asset at
December 28, 1997 was therefore zero.
F-12
Fast Food Operators, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 11 -SUBSEQUENT EVENTS
(A) Prepayment of Note Payable, Bank:
In January 1998, the Company retired its outstanding indebtedness
of $88,542 to the BSB Bank & Trust Company, without prepayment
penalty. The Company also paid interest charges totalling
$1,970, accrued through the January 20, 1998 prepayment date.
(B) Renewal of Management Agreement:
On January 26, 1998, the management agreement pursuant to which
IFS manages the Company was renewed for an additional year at its
existing terms of $12,000 per restaurant subject to an annual
minimum of $96,000.
F-13
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 28, December 28,
1998 1997
---------- ------------
(Unaudited) *
Assets
------
Current assets:
Cash $ 368,198 $ 276,956
Inventory 26,872 28,202
Prepaid expenses and other
current assets 47,573 87,332
---------- ----------
Total current assets 442,643 392,490
Property, plant and equipment, net 310,657 320,294
Other assets:
Franchise fees, net 67 684
Deferred costs - -
Security deposits 8,500 8,500
---------- ----------
Total assets $ 761,867 $ 721,968
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current maturities of note
payable, bank $ - $ 62,500
Due to Integrated Food
Systems, Inc. 12,275 13,222
Accounts payable, accrued expenses
and other current liabilities 241,512 259,241
Taxes payable 56,674 49,159
---------- ----------
Total current liabilities: 310,461 384,122
Note payable bank, less current
maturities - 26,042
Security deposits payable 6,000 12,274
---------- ----------
Total liabilities: 316,461 422,438
---------- ----------
Shareholders' equity -
Common stock - $.01 par value;
authorized 10,000,000 shares;
issued and outstanding
8,914,300 shares 89,143 89,143
Additional paid-in capital 2,142,862 2,142,862
Retained earnings (deficit) (1,786,599) (1,932,475)
---------- ----------
445,406 299,530
---------- ----------
Total liabilities and
shareholders' equity $ 761,867 $ 721,968
========== ==========
See accompanying notes to condensed consolidated financial statements.
*Condensed from audited financial statements.
F-14
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 28, June 29,
1998 1997
---------- ----------
Sales $2,585,174 $2,650,737
Cost of sales 776,606 869,460
---------- ----------
Gross profit 1,808,568 1,781,277
---------- ----------
Store labor expenses 676,115 738,452
Store operating and occupancy expenses 604,554 644,503
Advertising and royalty expenses 206,670 212,076
General and administrative expenses 188,602 155,989
Interest expense 211 2,832
Rental income ( 5,400) ( 5,400)
Gain of sale of restaurant - ( 13,908)
Income and expense reimbursement
arising from management sub-contract ( 13,060) ( 15,977)
---------- ----------
1,657,692 1,718,567
---------- ----------
Income before income taxes 150,876 62,710
Provision for income taxes 5,000 3,000
---------- ----------
Net income $ 145,876 $ 59,710
========== ==========
Weighted average number of shares
outstanding 8,914,300 8,914,300
========== ==========
Net income per share $ .02 $ .01
========== ==========
See accompanying notes to condensed consolidated financial statements.
F-15
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 28, June 29,
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 145,876 $ 59,710
--------- ---------
Adjustments to reconcile to net
cash provided (used) by operating
activities
Depreciation and amortization 33,033 49,647
Gain on sale of restaurant - ( 13,908)
Change in assets and liabilities:
Inventory 1,330 3,836
Prepaid expenses and other
current assets 39,759 17,361
Due from/to Integrated Food
Systems, Inc. ( 947) 5,530
Accounts payable, accrued
expenses and other current
liabilities ( 17,729) (116,582)
Taxes payable 7,515 ( 126)
Litigation settlement payable - (143,500)
Security deposits - ( 7,758)
--------- ---------
Total adjustments 62,961 (205,500)
--------- ---------
Net cash provided (used) by
operating activities 208,837 (145,790)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ( 22,779) ( 70,497)
Proceeds from sale of restaurant - 41,331
Other ( 6,274) ( 950)
--------- ---------
Net cash used by investing
activities ( 29,053) ( 30,116)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loan proceeds - 125,000
Bank loan repayments ( 88,542) ( 10,417)
--------- ---------
Net cash provided (used) by
financing activities ( 88,542) 114,583
--------- ---------
Net increase (decrease) in cash 91,242 ( 61,323)
CASH, beginning of period 276,956 230,604
--------- ---------
CASH, end of period $ 368,198 $ 169,281
========= =========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 28, June 29,
1998 1997
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 211 $ 2,120
========= =========
Income taxes $ - $ -
========= =========
Non-cash investing and financing
activities:
Net book value of property and
equipment sold $ - $ 16,092
========= =========
Other restaurant assets sold:
Inventory $ - $ 3,731
========= =========
Prepayments $ - $ 6,650
========= =========
See accompanying notes to condensed consolidated financial statements.
F-16
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position at June
28, 1998, and the results of operations and cash flows for
the three and six month periods ended June 28, 1998 and June
29, 1997.
2. The condensed consolidated results of operations for the
three and six month periods ended June 28, 1998, are not
necessarily indicative of the results to be expected for the
full year.
3. On April 16, 1998, the Company received a verbal offer to
purchase four of its restaurants (excluding only the managed
Empire Boulevard restaurant) for $900,000. The offer was
made by Gary Monie, formerly the Company's Vice President of
Operations. Since resigning this position in the Fall of
1995, Mr. Monie has continued to provide restaurant
operation supervisory services for the Company, as a
consultant. The purchase offer was made by Mr. Monie on
behalf of a limited liability company to be formed.
The parties have signed a definitive contract for the sale
of these four restaurants, which in the aggregate constitute
substantially all of the Company's assets. Such sale
requires the approval of the Company's franchisor as well as
the shareholders of the Company. In connection therewith,
the Company has filed a preliminary proxy statement with the
Securities and Exchange Commission.
4. The Company's Empire Boulevard Restaurant in Brooklyn is
managed by an unrelated party pursuant to a management
agreement. The agreement provides for the manager to
receive the restaurant's net cash flow and for the Company
to receive a monthly fee equal to the greater of $200 per
month or five percent of such cash flow. If monthly cash
flow is negative, the manager must pay the Company the
amount of negative cash flow in addition to the monthly
minimum fee. Negative cash flow for the six month periods
ended June 28, 1998 and June 29, 1997 was $11,860 and
$14,777, respectively. The net fee for such periods was
accordingly $13,060 in 1998 and $15,977 in 1997.
On July 8, 1998, the Company entered into an asset purchase
agreement for the sale of this restaurant to the
Restaurant's Manager. Pursuant thereto, the Company has
agreed to sell the Restaurant for $70,000 in cash, plus the
usual closing adjustments for the cash bank, inventory and
prepaid/accrued items. The sale, which will result in
neither significant gain nor loss to the Company, is
awaiting approval by the Company's franchisor, expected by
the latter part of August.
5. Due to available net operating tax loss carryforwards, only
a minor provision for income taxes has been provided for the
three and six months periods ended June 28, 1998 and June
29, 1997.
6. Earnings per share is based upon the earnings or loss for
the period divided by the weighted average number of common
shares outstanding during the period. The Company has no
potentially dilutive securities outstanding. Accordingly,
the Company's per share data has not been affected by
adoption of Statement of Financial Accounting Standards No.
128, "Earnings Per Share," issued in February 1997 and
effective for annual and interim periods ending after
December 15, 1997.
7. For the three and six month periods ended June 28, 1998 and
June 29, 1997, the Company had no components of
comprehensive income other than net income. Accordingly,
comprehensive income equaled net income for such periods.
F-17
EXHIBIT A
ASSET PURCHASE AGREEMENT DATED AS OF JULY 10, 1998
BY AND BETWEEN FAST FOOD Operators, INC.
AND
POPYORK LLC
EXHIBIT B
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
OF
FAST FOOD OPERATORS, INC.
FAST FOOD OPERATORS, INC.
42-40 BELL BOULEVARD, SUITE 200
BAYSIDE, NEW YORK 11361
(718) 229-1113
PROXY SOLICITED BY MANAGEMENT OF THE COMPANY
The undersigned hereby constitutes and appoints Lewis E. Topper
and Daniel A. Poganski, or either of them acting in the absence
of the other, with full power of substitution, to be the true and
lawful attorneys and proxies for the undersigned to vote at the
Special Meeting of Shareholders of Fast Food Operators, Inc.,
(the "Company") to be held at the Company's offices at No. 1
Commercial Drive, Area E, Florida, New York 10921 on October 26,
1998, at 10:00 a.m., local time, or at any adjournment thereof,
notice of which meeting together with a Proxy Statement has been
received.
Said proxies are directed to vote the shares the undersigned
would be entitled to vote if personally present upon the
following matters, all more fully described in the Proxy
Statement.
The Board of Directors favors a vote FOR the following proposal:
1. That the Company approve and adopt the following proposal:
The sale by the Company of substantially all of the assets of the
Company that are related to four (4) Popeye's Famous Fried
Chicken and Biscuits restaurants located in Brooklyn, Queens and
New York, New York (the "Restaurants") to Popyork LLC, a New York
limited liability company (the "Purchaser"), for $900,000
(subject to adjustment at closing) in cash, to be effected
pursuant to an Asset Purchase Agreement (the "Purchase
Agreement") dated as of July 10, 1998 between the Company and the
Purchaser (the "Sale Transaction"), and a proposed plan of
complete liquidation and dissolution of the Company whereby,
provided the transactions contemplated by the Asset Purchase
Agreement are approved and consummated, the Company will take
action to dissolve and wind-up the business and affairs of the
Company (the "Plan of Liquidation").
_______ FOR _______ AGAINST _______ ABSTAIN
2. In accordance with their best judgment with respect to any
other business that may properly come before the meeting.
The shares represented by this Proxy will be voted and in the
event instructions are given in the space provided, they will be
voted in accordance therewith; if instructions are not given,
they will be voted as recommended by the Directors with regard to
the proposals.
The undersigned hereby acknowledges receipt of a copy of the
accompanying Notice of Meeting and Proxy Statement.
Number of Shares:_______________ Dated:_____________________
- ----------------------------------------
Signature (must correspond with the name
as printed in the space beside)
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is made as of July 10,
1998, 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 POPYORK LLC, a
New York limited liability company with a business office at c/o
Gary Monie, 300 Main Street, Suite 202, Little Falls, New Jersey
07424 (hereafter "Purchaser").
This Agreement sets forth the terms and conditions
pursuant to which Purchaser will acquire from Seller certain
fixed assets relating to four (4) Popeye's Famous Fried Chicken
and Biscuits Restaurants presently operated by Seller, and set
forth on Schedule 1.01 (the "Stores").
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 any and
all fixed assets, tangible and intangible, used in or associated
with the Stores free and clear of all liens and encumbrances,
including, but not limited to, the following (the "Assets"):
(a) subject to the approval of each respective lessor,
the real estate, buildings and related improvements used in the
operation of the Stores listed on Schedule 1.01(a) ("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 agreements or any lease amendments acceptable
to the Purchaser, for the location of each of the Stores (the
"Lease Agreements");
(b) furniture, trade fixtures and equipment owned by
Seller and used in the operation of and located at the Stores as
of the date hereof (the "Equipment");
(c) subject to the approval of America's Favorite
Chicken Company ("AFC"), the assignment of the Franchise
Agreements 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 Stores but only to the extent
provided in Section 2.05;
(e) the prepaid items, deposits, customary cash "bank"
for the Stores, and other special items listed on Schedule
1.01(e) hereto; and
(f) all of Seller's inventory of goods and supplies
that are useable in the ordinary course of business, which are
typically characterized as inventory, and that are located at the
Stores 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
Stores and will assume no other liabilities or obligations of
Seller:
(a) all liabilities arising under the Lease Agreements
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 shall deliver to Seller:
(i) at the Closing, cash in the amount of Nine
Hundred Thousand ($900,000) Dollars (the "Purchase Price") by
certified or official bank check or by wire transfer in
immediately available federal funds;
(ii) at the Closing, with respect to the
Inventory and the Stores' "bank," cash in the amount of the
value of such Inventory and such Stores "bank" as determined in
accordance with this Agreement;
(b) The Purchase Price for the Assets set forth herein
shall be allocated in accordance with Schedule 1.03 hereto; and
(c) To the extent that after Closing either Seller or
Purchaser shall receive any payments from any third parties
relating to the operations at the Stores 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 Seller by wire transfer, fax and telephone on or
about July 31, 1998, or on such later date when all conditions
precedent to the Closing shall have been met or waived, but in no
event later than December 30, 1998. (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 Stores as of the beginning of business on
the next business day following the Closing Date.
1.05. Condition Precedent to Closing. The transactions
contemplated in this Agreement are specifically conditioned upon:
(a) written approval by AFC for the transactions
contemplated by the parties pursuant to the provisions of this
Agreement and for the assignments 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 Purchaser;
(b) approval by the stockholders of Seller of the
transactions contemplated by the parties pursuant to the
provisions of this Agreement, which approval is to be requested
by Seller at a duly called and convened special meeting of the
stockholders of Seller;
(c) the parties' full and timely compliance with the
notice provisions of Articles 6 and 9 of the Uniform Commercial
Code; and
(d) written approval by each lessor of the Leased
Property of the assignments to Purchaser, and assumption by
Purchaser of the Lease Agreements in a form which is reasonably
acceptable to counsel for each of Seller and Purchaser.
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) duly executed and acknowledged agreements for the
assignment and assumption of the Lease Agreements for the Leased
Property;
(c) the officer's certificate referred to in Section
8.03 hereof;
(d) the opinion of counsel referred to in Section 8.05
hereof; and
(e) 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 to Seller:
(a) cash in the amount of Nine Hundred Thousand
($900,000) Dollars by certified or official bank check or by wire
transfer in immediately available federal funds;
(b) cash in an amount equal to the value of the
Assets, as described in Section 1.01(e), plus a sum representing
the Inventory for the Stores as of the Closing Date, as described
in Section 1.01(f), by certified or official bank check or by
wire transfer in immediately available federal funds.
(c) duly executed and acknowledged agreements for the
assignment and assumption of the Lease Agreements for the Leased
Property;
(d) the officer's certificate referred to in Section
7.03 hereof;
(e) the opinion of counsel referred to in Section 7.05
hereof; and
(f) such other documents as may be necessary to effect
the transactions contemplated hereby.
ARTICLE II
RELATED MATTERS
2.01. Physical Inventories. A physical count shall be
taken of the Inventories at the Stores immediately prior to the
close of business on the day preceding the Closing Date; a
closing adjustment will be made pursuant to Sections 2.03(c) and
(d) based upon such count.
2.02. Franchise Documents. At the Closing, Seller shall
assign to Purchaser executed Restaurant Franchise Agreements for
the Stores, including the addenda thereto if any, (collectively,
the "Franchise Documents").
2.03. Apportionments.
(a) On the Closing Date, Purchaser and Seller shall
apportion the following expenses with regard to the Stores:
(i) Seller's pro rata share of ad valorem taxes,
real estate taxes, assessments and fees payable for the Stores 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
that 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 Stores, 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 as soon as the correct amount
of any amounts to be adjusted or apportioned pursuant to this
Section 2.03 are ascertained.
2.04. Cash and Cash Equivalents. Immediately prior to
the Closing Date, Seller shall remove all cash and cash
equivalents (excluding the cash constituting the Stores' "banks")
from the Stores.
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 Stores. 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 Stores as
it is now being conducted, 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 and By-laws of Seller; or, to
the best knowledge of Seller, violate, conflict with, 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 Stores that 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
Stores are located that are necessary to carry on its business at
the Stores as presently conducted, and which are required to own
or lease and operate the Assets, the failure of which possession
would have a material adverse effect on the operation of the
Stores. Seller represents that it has complied with all laws,
regulations and orders applicable to its business at the Stores,
including, but not limited to, those relating to zoning, health,
safety and employment; and the present operation of the Stores
does not violate any such laws, regulations or orders in any
material respects.
3.06. Leased Property.
(a) Schedule 1.01(a) contains an accurate and complete
description of the Leased Property. Seller has delivered to
Purchaser copies of the Lease Agreements, with all supplements,
amendments and modifications thereof, if any, (collectively, the
"Lease Agreements"); the Lease Agreements have not been further
modified, amended or assigned (unless such modification,
amendment or assignment was agreed to by the Purchaser), and they
are in full force and effect; there is no existing default by
Seller under the Lease Agreements, and to the best knowledge of
Seller, no event has occurred nor do any circumstances exist
which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute any
default thereunder.
(b) Seller hereby agrees that it shall not modify,
extend or amend any Lease Agreements 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
Stores, the Assets and/or the equipment located within the Stores
(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 Stores 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 Stores. Seller is neither
engaged in, nor to the best knowledge of Seller is Seller
threatened with, any legal action or other proceeding that, if
adversely determined, would have a material adverse effect on the
business being conducted at the Stores. Seller has not received
any notice of taking or condemnation, actual or proposed, with
respect to the Stores.
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 that 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 Stores presently serve the Stores 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 Stores.
3.11. Franchise Rights. Seller is in material
compliance with the terms, conditions and obligations set forth
in the Franchise Agreements for the Stores.
3.12. Financial Reports, Statements of Operations.
Seller hereby represents that the Statements of Operations for
the years ended December 29, 1996 and December 28, 1997 and the
Statement of Operations for the quarter ended March 29, 1998 are,
to the best of Seller's knowledge, materially correct and fairly
represent the business operations conducted at the Stores by
Seller.
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 limited
liability company duly formed and in good standing under the laws
of the State of New York.
4.02. Authority. Purchaser has full corporate power and
authority, in accordance with its Articles of Organization and
Operating Agreement, 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 Organization and Operating Agreement of
Purchaser; or, to the best knowledge of Purchaser, violate,
conflict with, 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 that would give rise to any
liability on the part of Seller, or has incurred any liability
for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement
that 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 is Purchaser threatened with, any legal
action or other proceeding. Purchaser has not 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 Stores in substantially the same manner as
heretofore conducted.
4.07. Knowledge. Neither Purchaser nor its officers or
directors have knowledge of any present facts or circumstances
relating to Purchaser that 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 and during business hours, make the Stores and their assets
and business records available to Purchaser or Purchaser's
representatives for inspection upon not less than three (3) days'
notice of Purchaser's intention to inspect the Stores. 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 Stores, 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 Stores and/or Assets,
Purchaser determines in good faith that there is any deficiency
with respect to the physical condition of the Assets and/or the
Stores, 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; (ii) reduce the Purchase Price to be paid by
Purchaser by such sum; or (iii) terminate the Agreement without
further obligation on the part of Seller.
5.02. Consents. Seller will use its best efforts to
obtain at the earliest practicable date and prior to the Closing
all consents of lessors of the Assigned Properties required for
the consummation of the transactions contemplated hereby.
Purchaser agrees to assist Seller in securing the release and
discharge of Seller from any and all obligations arising under
the Lease Agreements after the Closing Date.
5.03. Sales and Transfer Taxes and Fees.
(a) All sales, ad valorem and 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 Purchaser. In
addition, Purchaser will be responsible for taxes due in
connection with Bulk Sales as defined by the Uniform Commercial
Code; 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 any franchise right in the Stores
shall be the responsibility of Purchaser.
(b) In connection with the Bulk Sales notice to
Seller's creditors under the Uniform Commercial Code, the parties
agree that they shall cooperate in preparing such notices as may
be required.
5.04. Expenses. Whether or not the transactions
contemplated hereby are consummated, and except as provided in
Section 5.03 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
Agreements shall be the responsibility of Purchaser.
5.05. 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.
5.06. Utilities. Seller shall use its best efforts
(without obligation to incur any expenses) to make certain that
gas and electrical utilities serving the Stores shall not be
terminated by the suppliers thereof on the Closing Date. Seller
and Purchaser shall notify those utility companies which service
the Stores that Purchaser shall be responsible for the payment of
any and all obligations incurred therefor after the Closing Date
for the utilities serving the Stores, and shall, to the extent
practicable, cause meters to be read on or immediately prior to
the Closing Date. Telephone service for the Stores shall be
transferred to Purchaser's account by Purchaser, with Seller's
assistance, as of the Closing Date.
5.07. Conduct of Business at the Stores 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 Stores 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 Stores except in the ordinary
course of business and consistent with past practice.
5.08. 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 Stores.
5.09 Approval by Seller's Stockholders. Seller shall use
its best efforts to (i) hold a duly called meeting of its
stockholders for the purpose, among other things, of obtaining
the requisite approval of the stockholders in accordance with the
Business Corporation Law of the State of New York, of the
transactions embodied by this Agreement, and (ii) request and
solicit from its stockholders proxies voting in favor of the
transactions embodied by this Agreement, in accordance with the
requirements of the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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 Stores (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 of all Employees hired by 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
employees of the Stores.
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 on or prior to
the Closing Date.
7.03. Officer's Certificate. Purchaser shall have
delivered to Seller a certificate, dated the Closing Date,
executed by a duly authorized executive officer of 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, (i) 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
(ii) no action, suit or proceeding shall be pending before any
such court or other governmental authority seeking such relief.
7.05. Opinion of Purchaser's Counsel. Purchaser shall have
delivered to Seller an opinion of Purchaser's counsel, dated as
of the Closing Date, in form and substance satisfaction to
Seller, to the effect that:
(a) Purchaser is a limited liability company duly
formed and in good standing under the laws of the State of New
York and is duly qualified and authorized to do business in the
State of New York;
(b) Purchaser has the requisite power and authority to
carry on the business conducted at the Stores and to own the
properties and assets used in such business;
(c) this Agreement has been duly executed and
delivered by Purchaser and is the valid and binding obligation of
Purchaser, enforceable in accordance with its terms except that
(i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights in the event of future
bankruptcy, insolvency or reorganization of Purchaser, and (ii)
the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor
may be brought;
(d) neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will violate any provision of Purchaser's Articles of
Organization or Operating Agreement; or violate, conflict with,
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or give rise to
any termination, cancellation or acceleration under, any note,
bond, mortgage, indenture, license, agreement, lease or other
instrument to which Purchaser is bound.
7.06. Franchise and Other Consents and Approvals. AFC
shall have notified Seller and Purchaser in writing that it will
grant approval of the assignment of Seller's franchise rights to
operate the Stores as Popeye's Famous Fried Chicken and Biscuits
Restaurants to Purchaser and that Seller has satisfied all terms,
conditions and requirements pertaining to the granting of said
franchises. Seller shall have received, at a duly called and
convened meeting of its stockholders, the requisite vote in favor
of this Agreement in accordance with the Business Corporation Law
of the State of New York.
7.07 Lessor Approval. The lessors of the Leased Property
shall have provided to Seller and Purchaser duly executed and
acknowledged assignments and assumptions of the Leased Property,
in a form that is reasonably acceptable to counsel for Seller,
each assignment and assumption to be contingent upon the closing
of the transactions contemplated herein.
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 on or prior to
the Closing Date.
8.03. Officer's Certificate. Seller shall have delivered
to Purchaser a certificate, dated the Closing Date, executed by a
duly authorized executive officer of 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, (i) 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
(ii) no action, suit or proceeding shall be pending before any
such court or other governmental authority seeking such relief.
8.05. Opinion of Seller's Counsel. Seller shall have
delivered to Purchaser an opinion of its counsel, dated as of the
Closing Date, in form and substance satisfactory to Purchaser, to
the effect that:
(a) Seller is a corporation duly incorporated and in
good standing under the laws of the State of New York;
(b) Seller has corporate power and authority to carry
on the business conducted at the Stores as it is now being
conducted and to own the properties and assets used in such
business;
(c) this Agreement has been duly executed and
delivered by Seller and is the valid and binding obligation of
Seller, enforceable in accordance with its terms except that (i)
such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights in the event of the
future bankruptcy, insolvency or reorganization of Seller, and
(ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding
therefor may be brought; and
(d) neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will violate any provision of the respective Articles of
Incorporation or By-Laws of Seller; or violate, conflict with,
constitute a default (or 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 (other
than the Lease Agreements) or other instrument known to Seller to
which Seller is a party or by which it or any of the Assets may
be bound.
8.06. 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 Stores as
Popeye's Famous Fried Chicken and Biscuits Restaurants to
Purchaser and that Seller has satisfied all terms, conditions and
requirements pertaining to the granting of said franchises.
8.07 Lessor Approval. The lessors of the Leased Property
shall have provided to Seller and Purchaser duly executed and
acknowledged assignments and assumptions of the Leased Property,
in a form that is reasonably acceptable to counsel for Purchaser,
each assignment and assumption to be contingent upon the closing
of the transactions contemplated herein.
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 Stores 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 Stores 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; and
(iii) for any amounts in the aggregate (including
without limitation fees and expenses of counsel) in excess of the
Purchase Price.
(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;
and
(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
December 30, 1998, provided that a default by Purchaser
hereunder is not responsible for the Closing not having occurred;
(c) by Seller if the Closing has not occurred by
December 30, 1998, provided that a default by Seller hereunder
is not responsible for the Closing not have occurred; or
(d) by Seller if it has not, by December 30, 1998,
received approval by the stockholders of Seller of this
transaction in accordance with the Business Corporation Law of
the State of New York.
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 Purchaser or 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:
POPYORK LLC
300 Main Street, Suite 202
Little Falls, New Jersey 07424
Attention: Mr. Gary Monie
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:
Stephen J. Czarnik, Esq.
Brown Raysman Millstein Felder & Steiner LLP
120 West 45th Street
New York, New York 10036
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: ________________________
Name: Lewis E. Topper
Title: President
POPYORK LLC
By: ________________________
Name: Gary Monie
Title: Manager
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 July
10, 1998 (the "Agreement") between Seller and POPYORK LLC
("Purchaser"), pursuant to which Purchaser 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
Stores ("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 the location of
the Stores; furniture, trade fixtures and equipment owned by
Seller and used in the operation of and located at the Stores as
of the date hereof; subject to the approval of America's Favorite
Chicken Company, the assignment of the Franchise Agreements
pertaining to the Stores; 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 Stores but only to the extent provided in
Section 2.05 of the Agreement; the prepaid items, deposits,
customary cash "bank" for the Stores, 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 Stores 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 Purchaser by
Seller in consideration of (i) cash in the amount of Nine Hundred
Thousand ($900,000.00) 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 Stores
as of the date of Closing as described in Section 1.01(f); (iii)
assumption by Purchaser 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 Stores: (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 Purchaser of Seller's obligation
for earned vacation pay to all Employees hired by Purchaser
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 Purchaser, 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 Purchaser 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 Purchaser to warrant and defend this conveyance, transfer,
sale and assignment and the title of Purchaser, 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 Purchaser's request and
without further consideration, Seller shall execute and deliver
such other instruments of conveyance and transfer and take such
other action as Purchaser reasonably may request more effectively
to convey to, transfer to and vest in Purchaser, or to put
Purchaser, 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 10th day of July, 1998.
FAST FOOD OPERATORS, INC.
By: __________________________
Name: Lewis E. Topper
Title: President
POPYORK LLC
By: __________________________
Name: Gary Monie
Title: Manager
Schedule 1.01
The Stores
- ----------
1. 722 Seventh Avenue
New York, New York
2. 122-10 Guy Brewer Boulevard
Queens, New York
3. 850 Pennsylvania Avenue
Brooklyn, New York
4. 2137 Nostrand Avenue
Brooklyn, New York
Schedule 1.01(a)
Property
- --------
[TO BE PROVIDED]
Schedule 1.01(d)
Material Contracts
- ------------------
1. Lease Agreements for the Leased Property
2. Franchise Agreements with America's Favorite Chicken Company
for the Stores
[ADDITIONAL INFORMATION TO BE PROVIDED]
Schedule 1.01(e)
Special Items
- -------------
[TO BE PROVIDED]
Schedule 1.03
Allocation of Purchase Price
- ----------------------------
[TO BE PROVIDED]
Schedule 3.08
Creditors
- ---------
[TO BE PROVIDED]
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
OF
FAST FOOD OPERATORS, INC.
This Plan of Complete Liquidation and Dissolution (the "Plan
of Liquidation") of Fast Food Operators, Inc., a New York
corporation (the "Company"), has been approved by the Board of
Directors of the Company (the "Board") as being in the best
interest of the Company and their respective shareholders.
ADOPTION OF PLAN OF LIQUIDATION
The effective date of the Plan of Liquidation (the "Effective
Date") shall be the Closing Date of the Purchase Agreement as
defined below. The Company and Subsidiary shall complete their
liquidation and dissolution within the twelve-month period
beginning on the Effective Date (the "Liquidation Period").
LIQUIDATION AND DISSOLUTION OF FAST FOOD OPERATORS, INC.
Upon the adoption of the Plan of Liquidation the Company's
shareholders, the Company shall voluntarily dissolve and
completely liquidate in accordance with Article 10, entitled
"Non-Judicial Dissolution," and other applicable sections of the
Business Corporation Law of the State of New York (the "New York
Law"), as follows:
1. Sale or Disposition of Assets. The Company will hold a
closing on the Closing Date as defined in the Purchase Agreement
and transfer the scheduled assets to the Purchaser pursuant to
the terms thereof. The Company will then file a certificate of
voluntary dissolution with the Secretary of State of New York,
thereby terminating the corporate existence of the Company, and
shall execute, acknowledge and file such certificates and other
documents as shall be necessary to withdraw as a foreign
corporation in jurisdictions in which it is qualified to do
business. It shall then immediately commence the liquidation
process by providing notice to creditors as required under
Section 1007 of the New York Law. During the Liquidation Period,
the Company shall have the authority to engage in such
transactions as may be appropriate to its liquidation including,
but not limited to, the sale, exchange or other disposition of
all or any part of its remaining non-cash assets. During the
Liquidation Period, the Company shall keep the funds in an
interest bearing account or in United States Government
obligations as the Company, in its sole discretion, deems
appropriate.
2. Provisions for Liabilities. Within the Liquidation
Period, the Company shall pay or discharge, or otherwise provide
for the payment or discharge of, all claims against the Company,
including unascertained or contingent liabilities or expenses in
an amount reasonable in relation to the items involved.
The Company believes that all assets of any kind will be
effectively reduced to cash and distributed to the shareholders
of the Company within the Liquidation Period.
3. Distribution of Assets to Shareholders. It is the
Company's intention to make two cash distribution of assets of
the Company to the shareholders of the Company with the first of
such distributions as early in the Liquidation Period as
possible, consistent with the requirements of applicable law.
The first opportunity for a distribution will occur within one
month following the filing of the Certificate of Dissolution with
the State of New York. The final distribution will occur
following the expiration of the six (6) month notice periods
established under Section 1007 of the New York Law (the "Creditor
Notices"). The final distribution will distribute to the
Shareholders all of the remaining assets of the Company on the
earliest practicable date following the expiration of the
Creditor Notices and when all of the following conditions have
been met:
A. There are no remaining unsettled claims under the
Creditor Notices;
B. There are no remaining unsettled claims against
the Company; and,
C. There are no remaining actions that need to be
undertaken prior to a distribution to
shareholders.
The Company anticipates that the distributions to shareholders
will be made within the Liquidation Period.
4. Transfer of Assets to a Missing Shareholder Account.
The Company may, in its discretion, distribute any liquidating
distributions and/or other payments due any of the Company's
shareholders who have not been located at the time of such
distribution or other payment to a bank account, designated by
the Company for the benefit of such shareholders or make such
other provision with respect thereto as may be permitted or
required by applicable law.
5. Amendment or Abandonment of Plan of Liquidation. The
Board may modify or amend this Plan of Liquidation at any time
without stockholder approval if it determines that such action
would be in the best interests of the Company or its
shareholders. If any amendment or modification appears necessary
and in the judgment of the Board will materially and adversely
affect the interest of the shareholders, such amendment or
modification will be submitted to the shareholders for approval.
The Board may abandon this Plan of Liquidation without
shareholder approval at any time within the Liquidation Period,
if it determines on the basis of unforeseen subsequent events
that abandonment would be in the best interest of the Company or
its shareholders.
6. Authorization to Board and Officers. The Board and the
officers of the Company are authorized to approve such changes to
the terms of any of the transactions referred to herein, to
interpret any of the provisions of this Plan of Liquidation, and
to make, execute and deliver such other agreements, conveyances,
assignments, transfers, certificates and other documents and take
such other action as such Board and officers deem necessary or
desirable in order to carry out the provisions of this Plan of
Liquidation and effect the complete liquidation and dissolution
of the Company in accordance with applicable sections of the New
York Law as described in this Plan of Liquidation.
