MIAMI SUBS CORP, DEFM14A, 1999-08-18

MIAMI SUBS CORP
DEFM14A, 1999-08-18
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<PAGE> 1
PRELIMINARY COPIES CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY

SCHEDULE 14A INFORMATION
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 Section 240.14a-11(c) or Section
240.14a-12

MIAMI SUBS CORPORATION
(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the 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: common stock

(2) Aggregate number of securities to which transaction
applies: 4,637,085

(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): Based on
the average of the bid and asked prices of Miami Subs
common stock of $1.625 on the OTC Bulletin Board on
August 13, 1999.

(4) Proposed maximum aggregate value of transaction:
$7,535,264

(5) Total fee paid: $1,507

/ / Fee paid previously with preliminary materials.

/x/ 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: $2,095

(2) Form, Schedule or Registration Statement No.:
Form S-4

(3) Filing Party: Nathan's Famous, Inc.

(4) Date Filed: August 17, 1999

Notes:
<PAGE> 2

[MIAMI SUBS LETTERHEAD]

August 19, 1999

Dear Miami Subs Shareholder:

As you may be aware, Miami Subs has entered into an agreement and plan of
merger with Nathan's Famous, Inc., which provides for Nathans to acquire from
you and the other Miami Subs shareholders the approximately 70% of Miami Subs'
common stock that it does not already own. If the merger is completed, Miami
Subs will become a wholly-owned subsidiary of Nathans.

Miami Subs has scheduled a special meeting of the Miami Subs shareholders
to consider and vote upon a proposal to approve and adopt the merger agreement.
The merger cannot be completed unless the merger agreement is approved by Miami
Subs shareholders holding a majority of the outstanding shares of Miami Subs
common stock and by Nathans stockholders holding a majority of the outstanding
shares of Nathans common stock.

The board of directors has approved the merger agreement and recommends
that you approve the merger agreement. YOUR VOTE IS VERY IMPORTANT. If the
merger is completed and you did not vote in favor of the merger agreement, you
will have the right under Florida law to dissent to the merger and obtain the
fair value in cash of your shares of Miami Subs common stock instead of
accepting the merger consideration of Nathans common stock and warrants.

If you are entitled to vote at the special meeting, a proxy card is
enclosed for your signature. Whether or not you plan to attend the special
meeting, please take the time to vote by completing, signing and promptly
mailing this proxy card to us in the enclosed postage paid envelope. You may
revoke your proxy at any time before it has been voted, and if you attend the
special meeting you may vote in person even if you have already returned your
proxy card.

On behalf of the Miami Subs board of directors, I thank you for your
support and urge you to vote in favor of the merger agreement.

Sincerely,
Donald L. Perlyn
President
<PAGE> 3

MIAMI SUBS CORPORATION

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

A Special Meeting of Shareholders of Miami Subs Corporation, a Florida
corporation, will be held at The Westin Fort Lauderdale Hotel, 400 Corporate
Drive, Fort Lauderdale, Florida, on Thursday, September 30, 1999 at 10:00 a.m.,
local time, to consider and act on the following matters:

1. The approval and adoption of the Agreement and Plan of Merger,
dated as of January 15, 1999, as amended, by and among Miami Subs, Nathans
Famous, Inc. and Miami Acquisition Corp., a wholly-owned subsidiary of
Nathans, under which:

(A) Miami Acquisition Corp. will merge with and into Miami Subs, as
a result of which Miami Subs will become a wholly-owned subsidiary of
Nathans,

(B) each outstanding share of Miami Subs common stock will be
converted into the right to receive a fraction of a share of Nathans
common stock having a value of $2.068, but no more than one share of
Nathans common stock for each two shares of Miami Subs, except that
shares held by Nathans or in the treasury of Miami Subs and shares with
respect to which dissenters' rights are properly exercised will not be
converted, and

(C) one warrant to purchase one share of Nathans common stock at an
exercise price of $6.00 will be granted to a Miami Subs shareholder for
each four shares of Nathans common stock the shareholder is entitled to
receive.

2. Any other matters that properly come before the meeting or any
adjournment or postponement of the meeting.

Shareholders of record of Miami Subs common stock at the close of business
on August 16, 1999, are entitled to notice of, and to vote at the meeting or at
any adjournment or postponement of the meeting with respect to approval of the
merger agreement. A list of these shareholders will be available for inspection
for ten days preceding the meeting at the office of the Secretary of Miami Subs,
6300 NW 31st Avenue, Fort Lauderdale, Florida, and will be available for
inspection at the meeting itself. Approval of the merger agreement will require
the affirmative vote of the holders of a majority of the shares of Miami Subs
common stock outstanding as of the record date.

Any shareholder who does not vote in favor of the merger agreement will
have the right under Florida law to dissent to the merger and obtain the fair
value in cash of its shares of Miami Subs common stock instead of accepting the
merger consideration of Nathans common stock and warrants.
<PAGE> 4

The board of directors of Miami Subs recommends that you vote in favor of
the merger agreement, which is described in detail in the attached joint proxy
statement/prospectus. Please sign, date and promptly return the enclosed proxy
card in the enclosed postage paid envelope, whether or not you expect to attend
the meeting.

By Order of the Board of Directors,
Jerry Woda
Secretary
Fort Lauderdale, Florida
August 19, 1999

WHETHER OR NOT YOU EXPECT TO ATTEND THE MIAMI SUBS MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE
AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE> 5

JOINT PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS OF NATHAN'S FAMOUS, INC.
AND SPECIAL MEETING OF SHAREHOLDERS OF

MIAMI SUBS CORPORATION
PROSPECTUS OF

NATHAN'S FAMOUS, INC.
2,898,179 SHARES OF COMMON STOCK
AND 579,636 COMMON STOCK WARRANTS

The boards of directors of Nathan's Famous, Inc. and Miami Subs Corporation
have approved a merger agreement that would result in Miami Subs becoming a
wholly owned subsidiary of Nathans. Nathans common stock is listed on The Nasdaq
National Market System under the symbol NATH and we expect the warrants will be
listed under the symbol NATHW.

The shares of Nathans common stock that will be owned by Miami Subs
shareholders will represent no more than approximately 32.9% of the outstanding
Nathans common stock after the merger and, assuming the exercise of the warrants
issued to Miami Subs shareholders, but no exercise of outstanding options or
other warrants, will represent no more than approximately 38.0% of the
outstanding Nathans common stock after the merger. The shares of Nathans common
stock owned by Nathans stockholders will represent approximately 67.1% of the
outstanding Nathans common stock after the merger and, assuming the exercise of
the warrants issued to Miami Subs shareholders, will represent approximately
62.0% of the outstanding Nathans common stock after the merger.

Stockholders of Nathans are being asked, at the Nathans special meeting of
stockholders being held on September 28, 1999, to approve the merger agreement
and the merger. Shareholders of Miami Subs are being asked, at the Miami Subs
special meeting of shareholders being held on September 30, 1999, to approve the
merger agreement and the merger.

The merger cannot be completed unless the merger agreement is approved by
the Nathans stockholders holding a majority of Nathans common stock outstanding
prior to the merger and by the Miami Subs shareholders holding a majority of
Miami Subs common stock outstanding prior to the merger.

This document gives you detailed information about the Nathans and Miami
Subs meetings and the proposed merger. Please read this entire document
carefully. You can also obtain additional information about Nathans and Miami
Subs from documents we have filed with the Securities and Exchange Commission.

SEE "RISK FACTORS" AT PAGE 19 FOR INFORMATION THAT YOU SHOULD CONSIDER IN
EVALUATING THE PROPOSALS TO BE VOTED ON AT THE NATHANS MEETING AND AT THE MIAMI
SUBS MEETING AND THE ACQUISITION OF THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/ PROSPECTUS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS JOINT PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Joint proxy statement/prospectus dated August 17, 1999 and first mailed to
stockholders approximately August 19, 1999.
<PAGE> 6

TABLE OF CONTENTS

<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 5
The Companies............................................. 5
The Nathans Special Meeting............................... 6
The Miami Subs Special Meeting............................ 7
The Merger and the Merger Agreement....................... 8
Dissenters' Appraisal Rights.............................. 10
Fairness Opinions......................................... 10
Federal Income Tax Treatment.............................. 11
Legal Proceedings......................................... 11
Regulatory Matters........................................ 11
Comparative Market Value Information...................... 12
Selected Historical Financial Information................. 13
GENERAL INFORMATION......................................... 19
RISK FACTORS................................................ 19
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS.......... 26
NATHAN'S FAMOUS, INC. SPECIAL MEETING....................... 27
Date, Time and Place of Nathans Meeting................... 27
Purposes.................................................. 27
Record Date and Outstanding Shares........................ 27
Vote Required............................................. 27
Proxies................................................... 28
Solicitation of Proxies; Expenses of Proxies.............. 28
Recommendations of Nathans Board of Directors............. 28
MIAMI SUBS CORPORATION SPECIAL MEETING...................... 30
Date, Time and Place of Miami Subs Meeting................ 30
Purpose................................................... 30
Record Date and Outstanding Shares........................ 30
Vote Required............................................. 30
Proxies................................................... 30
Solicitation of Proxies; Expenses of Proxies.............. 31
Dissenters' Appraisal Rights.............................. 31
Recommendation of Miami Subs Board of Directors........... 31
THE MERGER.................................................. 32
Background of the Merger.................................. 32
Miami Subs Reasons for the Merger......................... 36
</TABLE>

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<PAGE> 7

<TABLE>
<S> <C>
Nathans Reasons For the Merger................................................................ 38
Opinion of Cruttenden Roth Incorporated....................................................... 39
Opinion of Raymond James...................................................................... 44
Interests of Certain Persons.................................................................. 50
Stock Ownership Following the Merger.......................................................... 51
Dissenters' Appraisal Rights.................................................................. 52
Certain U.S. Federal Income Tax Consequences of the Merger.................................... 53
Accounting Treatment.......................................................................... 57
Legal Proceedings............................................................................. 57
Governmental and Regulatory Approvals......................................................... 57
CERTAIN PROVISIONS OF THE MERGER AGREEMENT...................................................... 58
Effective Time................................................................................ 58
Conversion of Shares and Options.............................................................. 58
Nasdaq Listing................................................................................ 59
Representations and Warranties................................................................ 59
Conduct of Miami Subs' and Nathans' Businesses Prior to Merger................................ 60
No Solicitation by Miami Subs................................................................. 62
Fees and Expenses............................................................................. 62
Conditions to The Merger...................................................................... 63
Termination................................................................................... 65
Indemnification............................................................................... 65
MATERIAL CONTACTS BETWEEN NATHANS AND MIAMI SUBS................................................ 65
PRICE RANGE OF COMMON STOCK AND DIVIDENDS....................................................... 66
Nathans....................................................................................... 66
Miami Subs.................................................................................... 66
COMPARATIVE PER SHARE DATA...................................................................... 68
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS............................................... 69
NATHANS......................................................................................... 75
General....................................................................................... 75
Recent Developments........................................................................... 75
Restaurant Operations......................................................................... 76
Provisions and Supplies....................................................................... 82
Marketing, Promotion and Advertising.......................................................... 82
Government Regulation......................................................................... 83
Employees..................................................................................... 84
Trademarks.................................................................................... 84
Competition................................................................................... 84
Properties.................................................................................... 85
</TABLE>

ii
<PAGE> 8
<TABLE>
<S> <C>
Legal Proceedings......................................... 86
Seasonality............................................... 88
NATHANS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 89
NATHANS' MANAGEMENT AND EXECUTIVE COMPENSATION.............. 98
Officers and Directors of Nathans......................... 98
Directors' Compensation................................... 99
Executive Compensation.................................... 100
Option/SAR Grants in Last Fiscal Year..................... 101
Employment Contracts...................................... 101
Indemnification Agreements................................ 102
Stock Options............................................. 102
Certain Relationships and Related Transactions............ 106
NATHANS SECURITY OWNERSHIP.................................. 106
MIAMI SUBS.................................................. 108
General................................................... 108
The Miami Subs Concept.................................... 109
Non-Traditional Restaurants............................... 110
Co-Branding............................................... 110
Company-operated Restaurants.............................. 110
Franchise Operations...................................... 111
Restaurant Locations...................................... 113
Marketing................................................. 114
Employees................................................. 114
Trademarks................................................ 114
Competition............................................... 114
Regulation................................................ 115
Properties................................................ 116
Legal Proceedings......................................... 116
MIAMI SUBS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 117
MIAMI SUBS MANAGEMENT AND EXECUTIVE COMPENSATION............ 130
Officers and Directors of Miami Subs...................... 130
Compensation of Directors................................. 131
Executive Compensation.................................... 132
Stock Option Grants in Last Fiscal Year................... 133
Option Repricings......................................... 134
Board of Directors Report on Option Repricing............. 134
Option Exercises and Year End Option Values............... 135
</TABLE>

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<PAGE> 9

<TABLE>
<S> <C>
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values.................... 135
Certain Relationships and Related Transactions................................................ 135
Miami Subs Security Ownership................................................................. 136
DESCRIPTION OF NATHANS SECURITIES............................................................... 137
Capital Stock................................................................................. 137
Common Stock.................................................................................. 137
Warrants...................................................................................... 138
Certain Provisions Of Certificate Of Incorporation and Shareholder Rights Plan................ 139
PROPOSAL TO AMEND NATHANS' CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK........................................................................ 141
COMPARISON OF RIGHTS OF HOLDERS OF MIAMI SUBS COMMON STOCK AND NATHANS COMMON STOCK............. 142
LEGAL MATTERS................................................................................... 153
EXPERTS......................................................................................... 153
WHERE YOU CAN FIND MORE INFORMATION............................................................. 154
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................................... F-1
ANNEX A -- AGREEMENT AND PLAN OF MERGER, AS AMENDED............................................. A-1
ANNEX B -- FAIRNESS OPINION OF CRUTTENDEN ROTH.................................................. B-1
ANNEX C -- FAIRNESS OPINION OF RAYMOND JAMES & ASSOCIATES....................................... C-1
ANNEX D -- SECTIONS 607.1301, 607.1302 AND 607.1320 OF THE FLORIDA BUSINESS CORPORATION ACT..... D-1
ANNEX E -- AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF NATHANS............................. E-1
</TABLE>

iv
<PAGE> 10

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: WHAT WILL I RECEIVE IN THE MERGER?

A: If you are a Miami Subs shareholder, each share of your Miami Subs common
stock will be converted into the right to receive a fraction of a share of
Nathans common stock having a value of $2.068, except that you will not be
entitled to receive more than one share of Nathans common stock for each two
shares of your Miami Subs common stock. As a result of this exchange ratio,
based on the recent prices of Nathans and Miami Subs common stock, you will
receive one share of Nathans common stock for each two shares of Miami Subs
common stock you own. This means that Nathans common stock is being valued
at $4.136 per share even though the recent market price has often been lower
than $4.136. This exchange ratio also means that if the stock price of
Nathans is more than $4.136, you will receive fewer shares of Nathans common
stock. For more information regarding the effect of the exchange ratio on
the value of the merger consideration you will receive, see "Risk
Factors -- The limitation on the number of shares of Nathans common stock
issuable by Nathans may reduce the value of your merger consideration" on
page 19.

For each four shares of Nathans common stock that you receive, you will also
receive one warrant to purchase one share of Nathans common stock for a
period of five years at an exercise price of $6.00. Nathans will not issue
fractional shares or fractional warrants in the merger. As a result, the
total number of shares of Nathans common stock you will receive in the
merger will be rounded down to the nearest whole share. You will be entitled
to receive a cash payment, without interest, for the value of the remaining
fraction of a share of Nathans common stock that you would otherwise be
entitled to receive based on the market value of a share of Nathans common
stock at the time of the merger. Under the terms of Nathans' shareholder
rights plan, you will also receive an associated common stock purchase right
for each share of Nathans common stock you receive. For a more detailed
description of Nathans common stock and the warrants, please see generally
"Description of Nathans Securities" on page 137.

Shares of Miami Subs common stock owned by holders who have exercised
dissenters' appraisal rights under Florida law and shares held in the
treasury of Miami Subs or owned by Nathans will not be converted in the
merger.

Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER
AGREEMENT?

A: In the opinion of the board of directors of Nathans, the merger is in the
best interests of Nathans and its stockholders, and based upon an opinion
from Nathans' financial advisor, Cruttenden Roth Incorporated, the merger
consideration of Nathans common stock and warrants to be received by Miami
Subs shareholders in exchange for their shares of Miami Subs common stock is
fair from a financial point of view to Nathans stockholders.

In the opinion of the board of directors of Miami Subs, the merger is in the
best interests of Miami Subs and its shareholders, and based upon an opinion
from Miami Subs' financial advisor, Raymond James & Associates, Inc., the
merger consideration of Nathans common stock and warrants to be received by
Miami Subs shareholders in

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<PAGE> 11

exchange for their shares of Miami Subs common stock is fair from a financial
point of view to Miami Subs shareholders.

Nathans and Miami Subs believe the resulting combination will create a
stronger, more competitive company capable of achieving greater financial
strength, operational efficiencies, earning power and growth potential than
either company would have on its own.

For the merger to occur, stockholders holding a majority of the outstanding
shares of Nathans common stock and shareholders holding a majority of the
outstanding shares of Miami Subs common stock must both approve the merger
agreement. To review the background and the reasons for the merger in
greater detail, see pages 32 through 39.

Q: WHAT DO I NEED TO DO NOW?

A: If you are a stockholder of Nathans or a shareholder of Miami Subs, please
indicate on your proxy card how you want to vote, and sign and mail your
proxy card in the enclosed return envelope as soon as possible so that your
shares may be represented at the Nathans or Miami Subs special meeting. If
you sign and send in your proxy card and do not indicate how you want to
vote, unless your shares are held in a brokerage account, your proxy will be
counted as a vote for the merger agreement, and if you are a Nathans
stockholder it will also be counted as a vote for the amendment to Nathans'
certificate of incorporation increasing the number of shares to 30,000,000
from 20,000,000. If you fail to return your proxy card or to vote in person
at your respective special meeting, the effect will be a vote against the
merger agreement and, if you are a Nathans stockholder, a vote against the
amendment to Nathans' certificate of incorporation.

Q: SHOULD I SEND IN MY SHARE CERTIFICATES NOW?

A: No. After the merger is completed, if you are a holder of Miami Subs common
stock you will receive written instructions for exchanging your share
certificates.

Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?

A: Your broker will not vote your shares for you unless you provide
instructions on how to vote. Therefore, it is important that you follow the
directions provided by your broker regarding how to instruct your broker to
vote your shares.

Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A: Yes. You may change your vote at any time before your proxy is voted at your
respective special meeting. You may do this in one of three ways. First, you
may send a written notice stating that you would like to revoke your proxy.
Second, you may complete and submit a new proxy card. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy card to Nathans at the address on page 28 if you are a Nathans
stockholder, or to Miami Subs at the address on page 31 if you are a Miami
Subs shareholder. Third, you may attend your respective special meeting and
vote in person. Simply attending your respective special

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meeting, without voting in person, will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow instructions
received from your broker to change your vote or to vote at your respective
special meeting.

Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?

A: We are working toward completing the merger as quickly as possible. We
expect to complete the merger by October 5, 1999.

Q: WILL I RECOGNIZE GAIN OR LOSS ON THE TRANSACTION?

A: Yes, if you are a Miami Subs shareholder; if the merger is completed you
will recognize gain or loss for federal income tax purposes. You are urged
to consult your own tax advisor to determine your particular tax
consequences.

Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE NATHANS MEETING?

A: Nathans is also asking the Nathans stockholders to vote for an amendment to
the Nathans certificate of incorporation to increase the number of
authorized shares of common stock to 30,000,000 from 20,000,000. If the
amendment to the Nathans certificate of incorporation is approved by Nathans
stockholders it will not take effect unless the merger is also approved.
Nathans does not expect to ask you to vote on any other matters at the
Nathans meeting.

Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE MIAMI SUBS MEETING?

A: Miami Subs does not expect to ask you to vote on any other matters at the
Miami Subs meeting.

Q: WHOM SHOULD I CALL WITH QUESTIONS?

A: If you are a Nathans stockholder with questions about the merger and/or the
amendment to the Nathans certificate of incorporation, including how to
complete and return your proxy card, you should contact:

Nathan's Famous, Inc.
1400 Old Country Road
Westbury, New York 11590
Attention: Ronald DeVos, Secretary
Telephone: (516) 338-8500

American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone: (718) 921-8200

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<PAGE> 13

If you are a Miami Subs shareholder with questions about the merger,
including how to complete and return your proxy card, you should contact:

Miami Subs Corporation
6300 NW 31st Avenue
Fort Lauderdale, Florida 33309
Attention: Jerry Woda, Secretary
Telephone: (954) 973-0000

American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone: (718) 921-8200

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<PAGE> 14

SUMMARY

This summary highlights information from this joint proxy
statement/prospectus, but may not contain all of the information that is
important to you. To understand the merger agreement, as amended, and the merger
fully, you should carefully read this entire joint proxy statement/prospectus
and the documents attached to it. In this document, the merger agreement, as
amended, is referred to collectively as the "merger agreement." We have included
page references parenthetically to direct you to a more complete description of
the topics in this summary.

THE COMPANIES

NATHAN'S FAMOUS, INC. (PAGE 75)
1400 Old Country Road
Westbury, New York 11590
(516) 338-8500

Nathans currently operates and franchises or licenses 188 fast food units
featuring its famous all beef frankfurters, fresh crinkle-cut french fried
potatoes, and a variety of other menu offerings. Company-owned and franchised
units operate under the name "Nathan's Famous," the name first used at Nathans'
original Coney Island restaurant opened in 1916. Since fiscal 1997, Nathans has
supplemented its franchise program with its branded product program which
enables foodservice retailers to sell selected Nathans proprietary products
outside of the realm of a traditional franchise relationship.

At June 27, 1999, the Nathans' Famous system included 25 company-owned
units concentrated in the New York metropolitan area, New Jersey, Pennsylvania
and Connecticut, 163 franchised or licensed units, including 28 carts, kiosks,
and counter units and over 800 branded outlets under the branded product
program, operating in 39 states, the District of Columbia, Israel and the
islands of Jamaica and Aruba. As used in this joint proxy statement/prospectus,
the term "Nathans" refers to Nathans and its wholly-owned subsidiaries, unless
the context otherwise requires.

RECENT DEVELOPMENTS

MIAMI SUBS CORPORATION (PAGE 108)
6300 NW 31st Avenue
Fort Lauderdale, Florida 33309
(954) 973-0000

At February 28, 1999, Miami Subs operated and franchised 192 fast food
restaurants featuring hot and cold submarine sandwiches, various ethnic foods
such as gyros, pita sandwiches and Greek salads, flame grilled hamburgers and
chicken breasts, and a variety of other menu offerings through co-branding
arrangements with Baskin-Robbins USA, Co., Arthur Treacher's, Inc. and BAB
Holdings, Inc. Company-owned and franchised
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<PAGE> 15

restaurants operate under the name "Miami Subs" and "Miami Subs Grill." Since
fiscal 1997, Miami Subs has expanded its franchise program, which initially
focused on the development of traditional restaurants at free-standing
locations, to include the development of non-traditional restaurants located on
tollroads, at airports, in convenience stores, in retail and office buildings,
and at other non-traditional locations.

At February 28, 1999, the Miami Subs system consisted of 15
company-operated and 177 franchised units of which 130 were located in Florida,
52 were located in 15 other states and 10 were located in Ecuador, Puerto Rico,
Peru and the Dominican Republic. As used in this joint proxy
statement/prospectus, the term "Miami Subs" refers to Miami Subs and its
wholly-owned subsidiaries, unless the context requires otherwise.

RECENT DEVELOPMENTS

On August 10, 1999, Miami Subs announced its results for the fiscal year
ended May 31, 1999. Revenues for fiscal 1999 were $23,859,000 compared to
revenues of $23,434,000 for fiscal 1998. Net income for fiscal 1999 was $574,000
compared to $525,000 for fiscal 1998.

Miami Subs common stock was delisted from The Nasdaq SmallCap Market
effective as of March 2, 1999 and began trading on the OTC Bulletin Board under
the symbol "SUBS" on March 3, 1999. Miami Subs is appealing the delisting.

THE NATHANS SPECIAL MEETING (PAGE 27-29)

TIME, DATE, PLACE AND PURPOSE (PAGE 27)

The Nathans special meeting of stockholders will be held at the deSeversky
Conference Center, Northern Boulevard, Old Westbury, New York on Tuesday,
September 28, 1999 at 10:00 a.m., local time. The purpose of the Nathans meeting
is to consider and vote on the following matters:

- approval and adoption of the merger agreement,

- approval of an amendment to the Nathans certificate of incorporation to
increase the number of authorized shares of common stock to 30,000,000
from 20,000,000, subject to and upon consummation of the merger, and

- any other matters that may properly come before the Nathans meeting or
any postponements or adjournments of the Nathans meeting.

RECORD DATE AND VOTE REQUIRED (PAGE 27)

The record date for the Nathans meeting is July 30, 1999. Only Nathans
stockholders of record at the close of business on that date are entitled to
notice of, and to vote at, the Nathans meeting. Under the Delaware General
Corporation Law, the affirmative vote of the holders of a majority of the
Nathans common stock outstanding as of the Nathans record date is required to
approve and adopt the merger agreement and the amendment to the Nathans
certificate of incorporation.

As of July 30, 1999, there were 312 stockholders of record of Nathans
common stock and 4,722,216 shares of Nathans common stock outstanding. Nathans
stockholders of
6
<PAGE> 16

record will be entitled to cast one vote per share on each matter to be acted
upon at the Nathans meeting.

The directors and executive officers of Nathans, as a group, may be deemed
to beneficially own, as of the record date, approximately 1,251,728 shares of
Nathans common stock or 22.2% of the outstanding voting power of Nathans.
Nathans currently expects that all of these holders will vote their outstanding
shares in favor of the merger agreement and the amendment to the Nathans
certificate of incorporation.

RECOMMENDATIONS OF NATHANS BOARD OF DIRECTORS (PAGE 28-29)

Nathans board of directors has unanimously approved the merger agreement
and the transactions contemplated by the merger agreement and has determined
that the merger is fair to and in the best interests of Nathans and its
stockholders. After careful consideration, the Nathans board recommends that you
vote in favor of the merger agreement.

In connection with the merger, Nathans will be issuing approximately
2,318,543 shares of Nathans common stock and will have reserved approximately
12,529,973 shares of Nathans common stock for issuance upon the exercise of
stock options issued or issuable under its stock option plans and warrants which
are now outstanding, which are required to be issued in connection with its
stockholder rights plan and which are required to be issued in connection with
the merger. As a result, after the merger Nathans will have only 429,268 shares
of common stock authorized but not reserved for any particular purpose. After
careful consideration, the Nathans board of directors recommends that you vote
in favor of the amendment to the Nathans certificate of incorporation to
increase the number of authorized shares of Nathans common stock to 30,000,000
from 20,000,000.

Nathans stockholders should read this joint proxy statement/prospectus
carefully prior to voting.

THE MIAMI SUBS SPECIAL MEETING (PAGE 30-31)

TIME, DATE, PLACE AND PURPOSE (PAGE 30)

The Miami Subs special meeting of shareholders will be held at The Westin
Fort Lauderdale Hotel, 400 Corporate Drive, Fort Lauderdale, Florida on
Thursday, September 30, 1999 at 10:00 a.m., local time. The purpose of the Miami
Subs meeting is to consider and vote upon the following matters:

- approval and adoption of the merger agreement, and

- any other matters that properly come before the Miami Subs meeting or any
postponements or adjournments of the Miami Subs meeting.

RECORD DATE AND VOTE REQUIRED (PAGE 30)

The record date for the Miami Subs meeting is August 16, 1999. Only Miami
Subs shareholders of record at the close of business on that date are entitled
to notice of, and to vote at, the Miami Subs meeting. Under the Florida Business
Corporation Act, the affirmative vote of the holders of a majority of the Miami
Subs common stock outstanding as of the Miami Subs record date is required to
approve and adopt the merger agreement.
7
<PAGE> 17

As of August 16, 1999, there were 1,607 shareholders of record of Miami
Subs common stock and 6,667,335 shares of Miami Subs common stock outstanding.
Miami Subs shareholders of record will be entitled to cast one vote per share on
each matter to be acted upon at the Miami Subs meeting.

The directors and executive officers of Miami Subs, together with Nathans,
may be deemed to beneficially own, as of the record date, approximately
2,674,354 shares of Miami Subs common stock or 36.6% of the outstanding voting
power of Miami Subs. Miami Subs currently expects that all of these holders will
vote their outstanding shares in favor of the proposal to approve the merger
agreement.

RECOMMENDATION OF MIAMI SUBS BOARD OF DIRECTORS (PAGE 31)

Miami Subs' board of directors, other than the Nathans' designees, none of
whom participated in the decision, has unanimously approved the merger agreement
and the transactions contemplated by the merger agreement and has determined
that the merger is fair to and in the best interests of Miami Subs and its
shareholders. After careful consideration, the Miami Subs board of directors
recommends that you vote in favor of the merger agreement.

Miami Subs shareholders should read this joint proxy statement/prospectus
carefully prior to voting.

THE MERGER AND THE MERGER AGREEMENT (PAGES 32-65)

The merger agreement is attached as Annex A to this joint proxy
statement/prospectus and is incorporated in this joint proxy
statement/prospectus by reference. We encourage you to read the merger agreement
as it is the legal document that governs the merger.

TERMS OF THE MERGER AGREEMENT (PAGES 58-65)

If the stockholders of Nathans and the shareholders of Miami Subs approve
the merger agreement and the other closing conditions are met, the merger will
be effective at the time the articles of merger are filed with the Department of
State of the State of Florida or any later time specified in the articles of
merger. The merger is expected to close and the effective time of the merger is
expected to be on or about October 5, 1999, assuming all of the conditions to
the merger are met or waived prior to that date. Following the merger, Miami
Subs will continue as a wholly-owned subsidiary of Nathans.

STOCK OWNERSHIP FOLLOWING THE MERGER (PAGE 51)

Based on the number of shares of Miami Subs common stock outstanding on
August 16, 1999 and the number of shares of Nathans common stock outstanding on
July 30, 1999, assuming no exercise of the warrants issued to Miami Subs
shareholders in the merger or any other outstanding options or warrants and that
no Miami Subs shareholders exercise dissenters' appraisal rights:

- the shares of Nathans common stock that will be owned by Miami Subs
shareholders will represent approximately 32.9% of the outstanding
Nathans common stock after the merger; and
8
<PAGE> 18

- the shares of Nathans common stock owned by Nathans stockholders will
represent approximately 67.1% of the outstanding Nathans common stock
after the merger.

TERMINATION (PAGE 65)

The merger agreement may be terminated as specified in the merger
agreement, including:

- by mutual written consent of Nathans and Miami Subs authorized by their
respective boards of directors;

- by either Miami Subs or Nathans if it is not in breach and the conditions
contained in the merger agreement are not satisfied within the time
contemplated by the merger agreement; or

- by either Nathans or Miami Subs if the other party breaches its
representations, warranties or covenants contained in the merger
agreement.

Miami Subs is required to pay Nathans a termination fee

- of $500,000

- if the merger agreement is terminated by Miami Subs or Nathans if
Miami Subs accepts a superior proposal, or

- by Nathans if the Miami Subs board withdraws, withholds or modifies
its recommendation to the Miami Subs shareholders to approve the
merger agreement, other than as a result of Raymond James'
withdrawal of its opinion dated March 19, 1999 to the effect that
the merger consideration to be received by the Miami Subs
shareholders, other than Nathans and its affiliates, in the merger
is fair to Miami Subs shareholders from a financial point of view,
and

- of $250,000 if the merger agreement is terminated by Nathans upon the
breach by Miami Subs of any representation, warranty, covenant or
agreement in the merger agreement.

Nathans is required to pay Miami Subs a termination fee

- of $250,000 if the Nathans board withdraws, withholds or modifies its
recommendation to the Nathans stockholders to approve the merger
agreement and

- of $125,000 if the merger agreement is terminated by Miami Subs upon the
breach by Nathans of any representation, warranty, covenant or agreement
in the merger agreement.

INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 50)

The executive officers and directors of Miami Subs have interests in the
merger that are different from or in addition to your interests. For example:

- some of the directors of Miami Subs, namely Howard M. Lorber, Wayne
Norbitz and Robert J. Eide, currently serve as directors of Nathans.
Messrs. Lorber, Norbitz and Eide were designated as directors by Nathans
in connection with Nathans' acquisition of an approximately 30% interest
in Miami Subs,
9
<PAGE> 19

- The executive officers and directors of Miami Subs other than Nathans'
designees have stock options previously granted under the terms of the
Miami Subs stock option plans that will be assumed by Nathans, and

- Miami Subs has agreed to enter into amended and restated employment
agreements with Donald L. Perlyn, President of Miami Subs, Jerry Woda,
Chief Financial Officer of Miami Subs and Frank Baran, Vice
President -- Operations of Miami Subs, which will become effective upon
consummation of the merger. Under these agreements

- Mr. Perlyn will receive a base salary of $200,000 and at the
effective time of the merger Nathans will, in effect, reprice his
assumed Miami Subs options to purchase 385,116, shares of Miami Subs
common stock at a weighted exercise price of $2.46 by cancelling his
Miami Subs options and issuing him new options to purchase 192,558
shares of Nathans common stock at an exercise price equal to the
fair market value per share of Nathans common stock.

- Mr. Woda will receive a base salary of $150,000 and at the effective
time of the merger Nathans will, in effect, reprice his assumed
Miami Subs options to purchase 196,488 shares of Miami Subs common
stock at a weighted exercise price of $2.45 by cancelling his Miami
Subs options and issuing him new options to purchase 125,000 shares
of Nathans common stock at an exercise price equal to the fair
market value per share of Nathans common stock.

- Mr. Baran will receive a base salary of $110,000 and at the
effective time of the merger Nathans will, in effect, reprice his
assumed Miami Subs options to purchase 9,500 shares of Miami Subs
common stock at a weighted exercise price of $2.39 by cancelling his
Miami Subs options and issuing him new options to purchase 25,000
shares of Nathans common stock at an exercise price equal to the
fair market value per share of Nathans common stock.

All of the Miami Subs options, including those of Messrs. Perlyn, Woda and
Baran, are currently out-of-the-money. The aggregate dollar amount of the
difference between Messrs. Perlyn, Woda and Baran's out-of-the-money options and
the new options, assuming an exercise price of $3.625 per share, the market
price on August 16, 1999, is $210,834. Therefore, it is more likely that the
options of Messrs. Perlyn, Woda and Baran will be exercised, which would result
in an increased number of shares of Nathans common stock outstanding.

DISSENTERS' APPRAISAL RIGHTS (PAGES 52)

Miami Subs shareholders who do not vote to approve the merger agreement
will be entitled under the Florida Business Corporation Act to dissent to the
merger and request an appraisal of, and to be paid the fair value of their
shares. The provision of Sections 607.1301, 607.1302 and 607.1320 of the Florida
Business Corporation Act, which govern the rights of shareholders of Miami Subs
who wish to seek appraisal of their shares, are attached to this document as
Annex D.

FAIRNESS OPINIONS (PAGES 39-50)

Cruttenden Roth Incorporated, Nathans' financial advisor, has delivered to
Nathans board of directors its written opinion, dated December 30, 1998, to the
effect that, as of
10
<PAGE> 20

December 30, 1998 and based on the assumptions and subject to the qualifications
and limitations set forth their opinion, the merger consideration of Nathans
common stock and warrants to be issued by Nathans to Miami Subs shareholders, as
later embodied by the merger agreement, was fair to Nathans stockholders from a
financial point of view. The full text of Cruttenden's opinion is attached as
Annex B to this joint proxy statement/ prospectus. HOLDERS OF NATHANS COMMON
STOCK ARE URGED TO, AND SHOULD, READ THE FULL TEXT OF CRUTTENDEN'S OPINION IN
ITS ENTIRETY.

Raymond James & Associates, Inc., Miami Subs financial advisor, has
delivered to Miami Subs board of directors its written opinion, dated March 19,
1999, to the effect that, as of March 19, 1999 and based on the assumptions and
subject to the qualifications and limitations set forth in their opinion, the
merger consideration of Nathans common stock and warrants to be received by the
holders of Miami Subs common stock, other than Nathans and its affiliates, under
the merger agreement was fair from a financial point of view. The full text of
Raymond James' opinion, which sets forth assumptions made and matters
considered, is attached as Annex C to this joint proxy statement/prospectus.
HOLDERS OF MIAMI SUBS COMMON STOCK ARE URGED TO, AND SHOULD, READ RAYMOND JAMES'
OPINION IN ITS ENTIRETY.

FEDERAL INCOME TAX TREATMENT (PAGE 53)

Assuming that a holder of Miami Subs common stock holds his or her shares
as a capital asset, the holder will recognize capital gain or loss equal to the
difference between

- the fair market value of the Nathans common stock, including cash
received in lieu of fractional shares, and warrant(s) received and

- the holder's basis in the Miami Subs common stock given up in the
exchange.

Under the federal income tax backup withholding rules, American Stock Transfer &
Trust Company will generally be required to withhold 31% of all payments to a
payee, unless the payee provides a tax identification number and certifies that
the tax identification number is correct. Any amounts withheld will be allowed
as a credit against the holder's Federal income tax liability. ALL MIAMI SUBS
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.

LEGAL PROCEEDINGS (PAGE 57)

In December 1998, a shareholder of Miami Subs filed a class action lawsuit
in a Florida state court against Miami Subs, its directors and Nathans for
alleged breaches of fiduciary duties relating to the merger based on the price
that Nathans is paying to the Miami Subs' shareholders. The suit seeks, among
other things, class action status, and preliminary and permanent injunctive
relief against the merger.

Miami Subs and Nathans intend to defend against the suit vigorously and
pursue the merger.

REGULATORY MATTERS (PAGE 57)

Nathans and Miami Subs are not aware of any material governmental or
regulatory approvals which are required for consummation of the merger, other
than governmental or regulatory approvals under the federal securities laws and
applicable state securities and "blue sky" laws and the Florida Business
Corporation Act.
11
<PAGE> 21

COMPARATIVE MARKET VALUE INFORMATION

Nathans common stock is traded on The Nasdaq National Market under the
symbol "NATH." Miami Subs common stock was traded on The Nasdaq SmallCap Market
until March 2, 1999 and currently trades on the OTC Bulletin Board under the
symbol "SUBS."

All share information relating to Miami Subs has been adjusted to give
effect to Miami Subs one-for-four reverse stock split in January 1999. The
equivalent market values were determined based on 4,722,216 shares of Nathans
common stock and 6,667,335 shares of Miami Subs common stock outstanding as of
January 29, 1999 and 4,722,216 shares of Nathans common stock outstanding as of
July 30, 1999 and 6,667,335 shares of Miami Subs common stock outstanding as of
August 16, 1999, excluding, in each case, shares held in treasury.

The following table sets forth:

- the closing prices per share and aggregate market values of Nathans
common shares and Miami Subs common shares on The Nasdaq National Market
and The Nasdaq SmallCap Market, respectively, on January 29, 1999, the
last trading day prior to the public announcement of the proposed merger,
and on The Nasdaq National Market and the OTC Bulletin Board,
respectively, on August 16, 1999, the most recent date for which prices
were available for Nathans common shares and Miami Subs common shares
prior to the printing of this document; and

- the equivalent price per share and equivalent market values of Miami Subs
common stock, based on an exchange ratio of two shares of Nathans common
stock for every one share of Miami Subs common stock.

<TABLE>
<CAPTION>
NATHAN'S MIAMI SUBS MIAMI SUBS
HISTORICAL HISTORICAL EQUIVALENT
----------- ----------- -----------
<S> <C> <C> <C>
On January 29, 1999
Closing price per common share...... $ 3.90625 $ 1.5625 $ 1.953
Market value of common shares....... $18,446,156 $10,417,711 $13,021,305
On August 16, 1999
Closing price per common share...... $ 3.625 $ 1.625 $ 1.8125
Market value of common shares....... $17,118,033 $10,834,419 $12,084,545
</TABLE>

12
<PAGE> 22

SELECTED HISTORICAL FINANCIAL INFORMATION

The following selected financial information for each of Nathans and Miami
Subs should be read in conjunction with the consolidated financial statements of
Nathans and the notes to the consolidated financial statements, the consolidated
financial statements of Miami Subs and the notes to the consolidated financial
statements, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for each of Nathans and Miami Subs contained elsewhere in
this joint proxy statement/prospectus.

Nathans' fiscal year ends on the last Sunday in March which results in a 52
or 53 week year. Fiscal 1996 was a 53 week year. The selected consolidated
statement of income data of Nathans for the years ended March 28, 1999, March
29, 1998 and March 30, 1997 and the selected consolidated balance sheet data as
of March 28, 1999 and March 29, 1998 are derived from Nathans audited
consolidated financial statements which are included elsewhere in this document.
The selected consolidated statement of operations data of Nathans for the years
ended March 31, 1996 and March 26, 1995 and the selected balance sheet data as
of March 30, 1997, March 31, 1996 and March 26, 1995 are derived from Nathans'
audited consolidated financial statements not included in this document. The
selected consolidated statement of income data of Nathans for the thirteen weeks
ended June 27, 1999 and June 28, 1998, and selected consolidated balance sheet
data as of June 27, 1999 included elsewhere in this document, and June 28, 1998,
not included in this document, are derived from Nathans unaudited consolidated
financial statements which, in the opinion of Nathans management, include all
normal recurring adjustments necessary for a fair presentation of the
consolidated financial position and results of operations of Nathans. In fiscal
1996, provisions of $6.4 million or $1.35 per share were recorded associated
with adopting FASB No. 121, restaurant closures and other corporate expenses. In
fiscal 1999 and 1998, Nathans reduced its tax provision by $1,443,000 and
$523,000, or $0.31 and $0.11 per share, respectively, as a result of reducing
the deferred tax valuation allowance.

The selected consolidated statement of income data of Miami Subs for the
years ended May 31, 1998, 1997 and 1996 and the selected consolidated balance
sheet data as of May 31, 1998 and 1997 are derived from Miami Subs audited
consolidated financial statements, which are included elsewhere in this
document. The selected consolidated statement of income data of Miami Subs for
the years ended May 31, 1995 and 1994 and the selected consolidated balance
sheet data as of May 31, 1996, 1995 and 1994 are derived from Miami Subs'
audited consolidated financial statements not included in this document. The
selected consolidated statement of income data of Miami Subs for the nine months
ended February 28, 1999 and 1998, and the selected consolidated balance sheet
data as of February 28, 1999 included elsewhere in this document, and February
28, 1998, not included in this document, are derived from Miami Subs unaudited
consolidated financial statements which, in the opinion of Miami Subs
management, include all normal recurring adjustments necessary for a fair
presentation of the consolidated financial position and results of operations of
Miami Subs. Earnings per share amounts have been adjusted, for all years
presented, to reflect the one-for-four reverse stock split of the Miami Subs
common stock effective January 7, 1999. The results of operations of Miami Subs
for the nine months ended February 28, 1999 are not necessarily indicative of
the results of the full fiscal year.

No cash dividends have been declared or paid on Nathans common stock or
Miami Subs common stock for the past five years.
13
<PAGE> 23

NATHANS SELECTED HISTORICAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED FISCAL YEAR ENDED
------------------- ---------------------------------------------------------
JUNE 27, JUNE 28, MARCH 28, MARCH 29, MARCH 30, MARCH 31, MARCH 26,
1999 1998 1999 1998 1997 1996 1995
-------- -------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales....................... $ 6,608 $ 6,568 $24,511 $23,530 $21,718 $21,167 $20,927
Franchise fees and
royalties................. 963 738 3,230 3,062 3,238 3,249 3,448
License royalties and other
income.................... 503 515 1,841 2,285 1,619 2,025 1,826
------- ------- ------- ------- ------- ------- -------
Total revenues............ 8,074 7,821 29,582 28,877 26,575 26,441 26,201
------- ------- ------- ------- ------- ------- -------
Costs and Expenses:
Cost of sales............... 4,080 4,008 15,367 14,468 13,031 12,833 12,270
Restaurant operating
expenses.................. 1,529 1,451 5,780 6,411 6,602 6,730 6,396
Depreciation and
amortization.............. 259 254 1,065 1,035 1,013 1,724 1,588
Amortization of
intangibles............... 113 96 384 384 406 665 581
General and administrative
expenses.................. 1,283 1,248 4,722 4,755 4,097 5,457 5,859
Interest expense............ -- 1 1 6 16 28 16
Impairment of long-lived
assets.................... -- -- -- -- -- 3,907 --
Other (income) and
expense................... -- -- (47) -- -- 1,570 500
------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............... 7,264 7,058 27,272 27,059 25,165 32,914 27,210
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes and extraordinary
item........................ 810 763 2,310 1,818 1,410 (6,473) (1,009)
Income tax provision
(benefit)................... 341 189 (418) 290 622 (94) (492)
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)........... $ 469 $ 574 $ 2,728 $ 1,528 $ 788 ($6,379) ($ 517)
======= ======= ======= ======= ======= ======= =======
Per Share Data:
Net earnings (loss) per
share
Basic..................... $ 0.10 $ 0.12 $ 0.58 $ 0.32 $ 0.17 ($ 1.35) ($ 0.11)
Diluted................... $ 0.10 $ 0.12 $ 0.57 $ 0.32 $ 0.17 ($ 1.35) ($ 0.11)
Dividends per share......... -- -- -- -- -- -- --
Weighted average number of
common shares outstanding
Basic..................... 4,722 4,722 4,722 4,722 4,722 4,722 4,728
======= ======= ======= ======= ======= ======= =======
Diluted................... 4,744 4,762 4,753 4,749 4,729 4,722 4,728
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA AT END OF
PERIOD:
Working capital............. $ 2,668 $ 6,731 $ 3,708 $ 6,105 $ 4,802 $ 3,937 $ 7,133
Total assets................ $32,358 $29,497 31,250 29,539 27,794 27,765 32,430
Long term debt, net of
current maturities........ -- 6 -- 9 21 35 63
Stockholders' equity........ $26,817 $24,171 $26,348 $23,586 $21,976 $21,142 $27,474
======= ======= ======= ======= ======= ======= =======
</TABLE>

14
<PAGE> 24

15
<PAGE> 25

MIAMI SUBS SELECTED HISTORICAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28, FISCAL YEAR ENDED MAY 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA
Restaurant sales........... $ 13,716 $ 13,341 $ 18,088 $ 28,180 $ 32,398 $ 27,148 $ 22,190
Franchise revenues......... 3,276 3,262 4,293 4,514 4,720 3,920 3,207
Net gain from sales of
restaurants/other........ 63 17 25 868 117 112 332
Interest income and other
revenues................. 738 824 1,028 871 677 716 513
-------- -------- -------- -------- -------- -------- --------
Total.................. 17,793 17,444 23,434 34,433 37,912 31,896 26,242
-------- -------- -------- -------- -------- -------- --------
Restaurant operating
costs.................... 12,880 12,749 17,138 26,042 28,573 23,942 19,925
General, administrative and
franchise costs.......... 2,450 2,406 3,336 5,667 6,351 6,390 5,936
Depreciation and
amortization............. 1,093 1,086 1,444 1,837 1,942 1,544 1,318
Interest expense -- net.... 479 600 780 903 741 581 381
Merger costs............... 144 -- -- -- -- -- --
Loss on impairment of
restaurants.............. -- -- -- 375 -- -- 2,452
-------- -------- -------- -------- -------- -------- --------
Total.................. 17,046 16,841 22,698 34,824 37,607 32,457 30,012
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes.................... 747 603 736 (391) 305 (561) (3,770)
Provision for income
taxes.................... 142 214 211 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ 605 $ 389 $ 525 $ (391) $ 305 $ (561) $ (3,770)
======== ======== ======== ======== ======== ======== ========
Basic and diluted net
income (loss) per
share.................... $ .09 $ .06 $ .08 $ (.06) $ .04 $ (.09) $ (.62)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA
Total assets............... $ 30,052 $ 31,112 $ 30,326 $ 32,106 $ 36,361 $ 33,042 $ 26,102
Current assets............. 6,196 5,198 5,456 5,209 6,066 5,180 6,832
Notes receivable -- long
term..................... 5,915 7,665 6,076 8,073 3,778 3,530 2,197
Current liabilities........ 5,684 5,496 5,368 6,443 7,645 6,785 5,964
Long-term portion of notes
payable and capitalized
leases................... 4,962 5,776 5,613 6,288 7,955 6,249 2,832
Deferred franchise fees and
other deferred income.... 1,301 1,733 1,577 2,088 1,712 2,241 2,185
Shareholders' equity....... 16,638 15,897 16,033 15,508 16,943 15,053 13,403
OTHER DATA
Restaurants opened during
the period............... 9 14 19 18 24 21 29
-------- -------- -------- -------- -------- -------- --------
Restaurants at period end:
Company operated......... 15 15 17 17 37 30 19
Franchised............... 177 177 174 170 140 130 129
-------- -------- -------- -------- -------- -------- --------
Total.................. 192 192 191 187 177 160 148
======== ======== ======== ======== ======== ======== ========
System-wide sales.......... $110,896 $109,740 $148,637 $151,201 $145,517 $138,963 $125,706
======== ======== ======== ======== ======== ======== ========
</TABLE>

16
<PAGE> 26

NATHANS SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION

The selected pro forma financial information is derived from the unaudited
pro forma combined financial statements, which give effect to the merger as a
purchase, and should be read in conjunction with the unaudited pro forma
combined financial statements and the notes to the pro forma combined financial
statements, included elsewhere in this joint proxy statement/prospectus. For
purposes of the pro forma operating data, (1) Nathans consolidated financial
statements for the 52 weeks ended March 28, 1999 have been combined with the
Miami Subs consolidated financial statements for the nine month period ended
February 28, 1999 and the three month period ended May 31, 1998; and (2) Nathans
consolidated financial statements for the thirteen weeks ended June 27, 1999
have been combined with the Miami Subs consolidated financial statements for the
quarter ended February 28, 1999; for the purposes of the pro forma balance sheet
data, Nathans' balance sheet data as of June 27, 1999 have been combined with
Miami Subs' balance sheet data as of February 28, 1999. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the merger had been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of future operating results or
financial position.

<TABLE>
<CAPTION>
13 WEEKS 52 WEEKS
------------- --------------
JUNE 27, 1999 MARCH 28, 1999
------------- --------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARES AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales..................................................... $10,995 $ 42,974
Franchise fees and royalties.............................. 1,997 7,537
License royalties and other income........................ 787 2,688
------- --------
Total revenues......................................... 13,779 53,199
------- --------
Costs and Expenses:
Cost of sales............................................. 7,027 27,764
Restaurant operating expenses............................. 2,748 10.652
Depreciation and amortization............................. 528 2,080
Amortization of intangibles............................... 208 767
General and administrative expenses....................... 2,070 8,169
Interest expense.......................................... 146 660
Other (income), net....................................... -- (47)
------- --------
Total costs and expenses............................... 12,727 50,045
------- --------
Income before income taxes and extraordinary item........... 1,052 3,154
Income tax provision (benefit).............................. 361 (279)
------- --------
Net earnings................................................ $ 691 $ 3,433
======= ========
</TABLE>

17
<PAGE> 27

<TABLE>
<CAPTION>
13 WEEKS 52 WEEKS
------------- --------------
JUNE 27, 1999 MARCH 28, 1999
------------- --------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARES AMOUNTS)
<S> <C> <C>
Per Share Data:
Net earnings per share
Basic.................................................. $ 0.10 $ 0.49
======= ========
Diluted................................................ $ 0.10 $ 0.49
======= ========
Dividends per share....................................... -- --
Weighted average number of common shares outstanding
Basic.................................................. 7,041 7,041
======= ========
Diluted................................................ 7,063 7,072
======= ========
BALANCE SHEET DATA AT END OF PERIOD:
Working Capital........................................... $ 2,464
=======
Total assets.............................................. 56,205
=======
Long term debt, net of current maturities................. 4,962
=======
Stockholders' equity...................................... $37,250
=======
SELECTED RESTAURANT OPERATING DATA:
Systemwide Restaurant Sales:
Company-owned............................................. $10,131 $ 40,444
Franchises................................................ 52,138 213,978
------- --------
Total.................................................. $62,269 $254,422
======= ========
NUMBER OF UNITS OPEN AT END OF PERIOD:
Company-owned............................................. 40 40
Franchised................................................ 340 340
------- --------
Total.................................................. 380 380
======= ========
</TABLE>

18
<PAGE> 28

GENERAL INFORMATION

Nathans has provided the information concerning Nathans and Miami
Acquisition Corp. and the pro forma financial information regarding the combined
company, and Miami Subs has provided the information concerning Miami Subs. As
used in this joint proxy statement/prospectus, the term "combined company" means
Nathans and Miami Subs and their respective subsidiaries as a consolidated
entity following the merger, and references to the products, business, results
of operations or financial condition of the combined company should be
considered to refer to Nathans and Miami Subs, unless the context otherwise
requires.

RISK FACTORS

In evaluating whether to approve the merger agreement, the Nathans
stockholders and Miami Subs shareholders should consider carefully, in addition
to the other information in this joint proxy statement/prospectus, the following
factors, as applicable:

IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE NATHANS' AND MIAMI SUBS' OPERATIONS,
WE MAY NOT ACHIEVE THE ANTICIPATED BENEFITS OF THE MERGER.

Nathans and Miami Subs each entered into the merger agreement expecting
that the proposed merger will result in long-term strategic benefits to both
companies through the integration of their operations. There can be no assurance
that this will occur. Integrating the companies' operations will require, among
other things, that Nathans integrate the companies' respective product offerings
and coordinate their sales, marketing and research and development efforts. The
difficulties of this integration may be increased by the geographic separation
of the companies and their employees, as well as the companies' ability to
retain key personnel after the merger. Nathans cannot assure you that this
integration will be achieved quickly and efficiently.

THE LIMITATION ON THE NUMBER OF SHARES OF NATHANS COMMON STOCK ISSUABLE BY
NATHANS MAY REDUCE THE VALUE OF YOUR MERGER CONSIDERATION.

The number of shares of Nathans common stock issuable by Nathans in the
merger is limited as described below, which may decrease the value of the merger
consideration received by Miami Subs shareholders. Under the merger agreement,
each share of Miami Subs common stock will be converted into a fraction of a
share of Nathans having a value of $2.068, but Nathans will not be required to
issue more than one share of Nathans common stock for each two shares of Miami
Subs common stock. Therefore, without giving effect to the value of the warrants
to be issued, a share of Nathans common stock is effectively being valued at no
less than $4.136 per share. This limitation may reduce the value of your merger
consideration. For example, if Nathans actual average stock price is $3.50 and
you hold 100 shares of Miami Subs common stock, you would, but for the
limitation, receive the number of shares obtained by dividing $2.068 by $3.50
and multiplying the result by 100, or 59 shares having an aggregate value of
$206.50. However, as a result of the limitation, you will only receive 50 shares
having an aggregate value of $175.00. In addition, if Nathans actual average
stock price exceeds $4.136, you would receive fewer shares of Nathans common
stock as set forth below, although the market value of the shares received will
be the same as if the average stock price were $4.136.

19
<PAGE> 29

CONSIDERATION PER 100 SHARES OF MIAMI SUBS COMMON STOCK
(WITHOUT GIVING EFFECT TO THE ELIMINATION OF FRACTIONAL SHARES
AND FRACTIONAL WARRANTS)

<TABLE>
<CAPTION>
NATHANS VALUE SHARES WARRANTS
- ------------- ------ --------
<S> <C> <C>
$4.136 or less 50 12.5
$5.000 41.4 10.3
$7.500 27.6 6.9
$10.00 20.7 5.2
</TABLE>

THE METHOD OF ACCOUNTING FOR THE MERGER MAY ADVERSELY AFFECT THE COMBINED
COMPANY'S PROFITABILITY.

The merger will be accounted for under the purchase method of accounting,
meaning that the purchase price for Miami Subs must be allocated to the acquired
assets and assumed liabilities of Miami Subs. The use of purchase method
accounting may effect the profitability of the combined company. On a pro forma
combined basis intangible assets were reduced by $1,028,000. The final purchase
price allocation may differ from the pro forma estimates based upon appraisals
and estimates of fair market value. Furthermore, Nathans plans to evaluate
continuing the strategy of providing financing to Miami Subs franchisees and may
offer financial incentives to motivate franchisees to repay their notes before
maturity. In this regard, any changes in Nathans' business strategy going
forward may result in some asset amounts being revalued at amounts that may be
materially less than the carrying amounts already reflected in the accompanying
Miami Subs balance sheet. Any additional amount allocated to goodwill will have
to be amortized and the amount amortized in a particular period will constitute
a non-cash expense that will reduce the net income, if any, of the combined
company in that particular period. It is also possible that a portion of the
incentives given to franchisees may be charged as an expense on the income
statement.

IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE NATHANS' AND KENNY ROGERS'
OPERATIONS, WE MAY NOT ACHIEVE THE ANTICIPATED BENEFITS OF THE ACQUISITION.

On April 1, 1999, Nathans acquired the intellectual property rights,
including trademarks, recipes and franchise agreements of Roasters Corp. and
Roasters Franchise Corp., operators of Kenny Rogers Roasters Restaurants.
Roasters Corp. and Roasters Franchise Corp. were operating under bankruptcy
court protection. Nathans anticipates that this acquisition will enable it to
further the market penetration it has achieved to date. There can be no
assurance that this will occur. Integrating these assets and operations will
require, among other things, that Nathans integrate Kenny Rogers product
offerings. Nathans cannot assure you that this integration will be achieved
quickly and efficiently.

ANY INCREASES IN THE MINIMUM WAGE MAY ADVERSELY AFFECT OUR OPERATIONS.

Nathans and Miami Subs depend, to a large degree, on employees who work at
the minimum wage. Substantial increases in the minimum wage could adversely
affect the operations of the combined company. In addition, changes in other
laws and regulations which govern Nathans and Miami Subs relationships with
their respective employees, such

20
<PAGE> 30

as minimum wage requirements, overtime and working conditions and citizenship
requirements may also adversely affect the combined companys' operations.

INTEGRATING THE KENNY ROGERS AND MIAMI SUBS ACQUISITIONS, AS WELL AS ANY FUTURE
ACQUISITIONS, MAY DISRUPT OUR BUSINESS.

Nathans recent acquisition of Kenny Rogers and the proposed merger with
Miami Subs will require the dedication of management resources, which may
temporarily distract attention from day-to-day operations. In addition, in the
normal course of business, the combined company may evaluate potential
acquisitions of businesses that could complement or expand its business. In
connection with any acquisition the combined company does not know whether it
will be able to

- successfully negotiate the terms of the acquisition;

- successfully finance the acquisition;

- successfully integrate an acquired business into our existing business to
fully benefit from an acquisition; or

- retain key personnel previously associated with the acquired businesses.

Negotiating potential acquisitions and integrating acquired businesses
could divert management's time and resources. In addition, in completing future
mergers or acquisitions, the combined company may issue a significant number of
shares of common stock or incur significant additional indebtedness, which could
dilute its earnings or the book value per share of its common stock.

NATHANS COMMON STOCK MAY BE SUSCEPTIBLE TO STOCK PRICE FLUCTUATIONS.

The trading price of shares of Nathans common stock could be susceptible to
wide fluctuations after the merger in response to variations in the combined
company's operating results, announcements by the combined company or others,
developments affecting the combined company or its competitors, suppliers or
customers and other events or factors during the periods following the effective
time of the merger. Furthermore, all of the shares of Nathans common stock to be
issued to Miami Subs shareholders in exchange for their shares of Miami Subs
common stock in the merger will be freely tradeable except for shares received
by holders who may be deemed to be "affiliates" of the combined company under
applicable federal securities laws. Sales of a substantial number of shares of
Nathans common stock after consummation of the merger, or the perception that
such sales could occur, could adversely affect the market prices for Nathans
common stock after the merger.

WE CANNOT GUARANTEE MARKET ACCEPTANCE OF NEW PRODUCTS.

We cannot assure you that the combined company will be able to achieve the
necessary market acceptance, or compete effectively, in its product markets. The
combined company can be expected to introduce new products and expand its
product offerings in the existing markets of Nathans and Miami Subs. Broad
market acceptance of the combined company's new products is critical to the
combined company's future success.

21
<PAGE> 31

Nathans believes that factors affecting the ability of the combined company's
products to achieve broad market acceptance include:

- brand recognition,

- quality,

- broad variety, and

- price.

THE PRICE OF NATHANS COMMON STOCK MAY DECREASE IF WE DO NOT ACCURATELY PREDICT
OUR FUTURE REVENUES AND OPERATING RESULTS.

Nathans' and Miami Subs' quarterly operating results have in the past, and
the combined company's results may in the future, fluctuate significantly
depending on factors such as:

- demand for its products,

- the level of product and price competition,

- changes in operating expenses,

- any increases in the minimum wage,

- changes in average selling prices and product mix, and

- general economic factors.

As a result, revenues for any future quarter may not be predictable with
any significant degree of accuracy. If revenue levels are below expectations,
operating results are likely to be adversely affected and may be below the
expectations of public market analysts and investors. In such event, the price
of the Nathans common stock would likely decrease.

GEOGRAPHIC CONCENTRATION OF MIAMI SUBS AND NATHANS RESTAURANTS MAY ADVERSELY
AFFECT OPERATIONS.

Approximately 68% of Miami Subs company-owned and franchised restaurants
are concentrated in Florida. Approximately 42.6% of Nathans company-owned and
franchised restaurants are concentrated in New York. Unless and until Miami
Subs' or Nathans' operations become more geographically diversified, whether due
to the consummation of the merger or otherwise, adverse economic, regulatory or
other developments in Florida or New York could have a material adverse effect
on the combined company's results of operations, business and financial
condition.

IF WE OR OUR THIRD PARTY SERVICE PROVIDERS EXPERIENCE YEAR 2000 PROBLEMS, IT
COULD DISRUPT OUR BUSINESS.

The Year 2000 bug relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19",
but may not properly recognize the year 2000. Nathans has not yet determined
whether all of its third party service providers are Year 2000 compliant,
although it expects to contact those third party service providers to ascertain
their Year 2000 compliance by the end of September 1999.
22
<PAGE> 32

Nathans cannot predict the effect of the Year 2000 problem on the vendors and
others with which Nathans transacts business and there can be no assurance that
the effect of the Year 2000 problem on the entities Nathans does business with
will not have a material adverse effect on Nathans business, operating results
and financial position. In addition, although Nathans believes all of its major
financial systems should be Year 2000 complaint, no assurance can be given in
this regard. Nathans has not yet developed contingency plans to address any
failure of its service providers to be Year 2000 compliant. Nathans estimates
that the total cost associated with making its computer systems Year 2000
compliant will be approximately $375,000, and doesn't expect the final cost to
vary materially; however, there can be no assurance to this effect.

Miami Subs is continuing its evaluation and assessment of its various
information technology and non-information technology systems, including
software, hardware and equipment that may be potentially affected by the year
2000 issue. Miami Subs estimates that its evaluation and assessment of these
various systems will be completed shortly. Based on its preliminary assessment
of these systems and discussions with its third-party providers, Miami Subs
currently believes that such internal systems are or will be Year 2000 compliant
with minimum modifications, which should be completed by October 31, 1999.
Following initial testing, additional remedial action may be necessary and
further testing will be performed. To date, Miami Subs has incurred
approximately $12,000 in addressing its Year 2000 plan and estimates the entire
cost not to exceed approximately $50,000. Potential sources of risk include the
inability of suppliers to be Year 2000 compliant, which could result in delays
in product deliveries from suppliers and disruption of the distribution channel.

The effect, if any, on the combined company's results of operations from
the failure of third parties to be Year 2000 compliant cannot be reasonably
estimated.

SHARES ISSUED IN THE MERGER MAY REDUCE NATHANS' EARNINGS PER SHARE AND MARKET
PRICE.

The issuance of Nathans common stock in the merger and the future issuance
of Nathans common stock upon exercise of the warrants and/or upon the exercise
of the Miami Subs options or warrants assumed by Nathans in the merger may
reduce Nathans' earnings per share, if any. Dilution could reduce the market
price of Nathans common stock unless and until the combined company achieves
revenue growth or cost efficiencies or other business economies sufficient to
offset the effect of these issuances. Nathans cannot guarantee that the combined
company will achieve revenue growth, cost efficiencies or other business
economies or that you will experience greater returns than you experienced prior
to the merger. Stockholders of the combined company could be susceptible to
additional dilution if Nathans stockholders approve the amendment to Nathans
certificate of incorporation. If the proposed amendment is approved, Nathans
would have approximately 10,429,268 shares of common stock authorized but
unissued and not reserved for specific purposes. All or any portion of these
shares could be issued without any action or approval of stockholders of the
combined company.

In addition, Miami Subs will enter into amended and restated employment
agreements with Donald L. Perlyn, President of Miami Subs, Jerry Woda, Chief
Financial Officer of Miami Subs and Frank Baran, Vice President -- Operations of
Miami Subs upon consummation of the merger. Under these employment agreements,
at the effective time of the merger, Nathans will grant stock options for
192,558, 125,000 and 25,000

23
<PAGE> 33

shares of Nathans common stock, to Messrs. Perlyn, Woda and Baran, respectively,
at exercise prices equal to the fair market value per share of Nathans common
stock at the effective time, in exchange for the cancellation of their Miami
Subs stock options assumed by Nathans in the merger, which would have been at a
higher exercise price. As a result of the cancellation of the existing options
and the issuance of new options at fair market value, the options of Messrs.
Perlyn, Woda and Baran are more likely to be exercised, which would result in an
increased number of Nathans common stock outstanding.

WARRANTS MAY BE SUSCEPTIBLE TO PRICE FLUCTUATIONS.

The trading price of the warrants, just as the trading price of the Nathans
common stock, could be subject to wide fluctuations in response to variations in
the combined company's operating results, announcements by the combined company
or others, developments affecting the combined company or its competitors,
suppliers or customers and other events or factors.

THE MIAMI SUBS DIRECTORS HAVE SEPARATE INTERESTS IN THE MERGER THAT MAY DIFFER
FROM THOSE OF MIAMI SUBS SHAREHOLDERS AS A GROUP AND WHICH MAY HAVE AFFECTED
THEIR DECISION TO APPROVE THE MERGER.

The Miami Subs board of directors is comprised of seven directors, three of
whom were appointed in November 1998 in connection with Nathans acquisition of
an approximately 30% interest in Miami Subs. None of Nathans' designees voted or
participated in the meeting at which the merger agreement was considered or
approved, or in any way influenced the Miami Subs board's decision regarding the
merger or the merger agreement. However, those Miami Subs directors who voted
and unanimously approved the merger and merger agreement have separate interests
in the merger that may differ from those of Miami Subs shareholders as a group.
These separate interests may have affected the Miami Subs' directors decision to
approve the merger. First, the Miami Subs directors, other than Nathans'
designees, hold Miami Subs stock options that will be assumed by Nathans.
Second, Donald L. Perlyn, a director and an executive officer of Miami Subs,
will enter into an amended and restated employment agreement with Miami Subs,
which will be guaranteed by Nathans. Under this amended and restated employment
agreement, Mr. Perlyn will become a director of Nathans, and Nathans will grant
Mr. Perlyn stock options for 192,558 shares of Nathans common stock at fair
market value in exchange for the cancellation of his 385,116 Miami Subs stock
options assumed by Nathans in the merger. Currently, all of Mr. Perlyn's Miami
Subs stock options are out-of-the-money. As a result, Nathans will be
effectively repricing Mr. Perlyn's out-of-the-money options by granting him new
options at fair market value.

THE PAYMENT OF A TERMINATION FEE BY MIAMI SUBS OR NATHANS WILL REDUCE THE CASH
IT HAS AVAILABLE AND COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL
CONDITION.

We cannot assure you that the merger will be completed. The merger
agreement provides for the payment of termination fees by Nathans and Miami Subs
under certain circumstances specified below. The payment of a termination fee by
Nathans or Miami Subs will reduce the cash it has available and could have a
material adverse effect on its financial condition.

24
<PAGE> 34

The merger agreement provides for the payment by Miami Subs of a
termination fee of:

- $500,000 if the merger agreement is terminated if Miami Subs accepts a
superior proposal or because the Miami Subs board of directors withdraws
or modifies its recommendation to the Miami Subs shareholders to approve
the merger agreement, other than as a result of Raymond James' withdrawal
of its opinion dated March 19, 1999 to the effect that the merger
consideration to be received by the Miami Subs shareholders, other than
Nathans and its affiliates, in the merger is fair to Miami Subs
shareholders from a financial point of view, or

- $250,000 if the merger agreement is terminated as a result of Miami Subs'
breach of a representation, warranty or covenant contained in the merger
agreement.

The merger agreement provides for the payment by Nathans of a termination
fee of:

- $250,000 if the merger agreement is terminated because the Nathans board
of directors withdraws or modifies its recommendation to the Nathans
stockholders to approve the merger agreement, or

- $125,000 if the merger agreement is terminated as a result of Nathans
breach of a representation, warranty or covenant contained in the merger
agreement.

THE FAILURE OF MIAMI SUBS FRANCHISEES TO PERFORM THEIR OBLIGATIONS COULD
ADVERSELY AFFECT THE COMBINED COMPANY'S OPERATIONS.

Miami Subs has from time-to-time sold company-owned restaurants to
franchisees and has financed a significant portion of the purchase price and has
subleased to them real property for which Miami Subs is the primary lessee. The
non-performance by franchisees of their obligations to Miami Subs could have a
material affect on the collectability of the amounts due to Miami Subs and the
profitability of the combined company. As of May 31, 1998, the principle amount
of notes receivable from franchisees were $7,112,000. At that date Miami Subs
had future minimum rental commitments for all company-operated and
franchisee-operated restaurants of $49,068,000 and expected sublease rental
income from franchisee-operated restaurants of $39,622,000. Miami Subs
franchisees are also obligated to pay royalties to Miami Subs. Miami Subs
royalty income was $3,687,000 for the fiscal year ended May 31, 1998. The future
collectability of the notes receivable from franchisees and receipt of sublease
rental income is dependent upon the franchised restaurant economics and
financial condition of Miami Subs franchisees. There can be no assurance that
the franchisees will perform their obligations to Miami Subs. As of February 28,
1999, approximately twenty-one percent of Miami Subs franchisees had been
granted waivers or were delinquent in their financial obligations to Miami Subs.

THE COMBINED COMPANY COULD BE REQUIRED TO PAY SIGNIFICANT AMOUNTS OF ADDITIONAL
TAXES, INTEREST AND PENALTIES. PAYMENT OF THESE AMOUNTS MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR FINANCIAL CONDITION.

Miami Subs' federal income tax returns for fiscal years 1991 through 1996,
inclusive, have been examined by the Internal Revenue Service. The reports of
the examining agent issued in connection with these examinations indicate that
additional taxes and penalties totaling approximately $2.4 million are due for
such years. Miami Subs is appealing substantially all of the proposed
adjustments. If Miami Subs is not successful in its appeal,

25
<PAGE> 35

Miami Subs' net operating loss carryforwards would be absorbed by the proposed
adjustments and the combined company could be required to pay significant
amounts of additional taxes, interest and penalties. In addition, additional
taxes, interest and penalties may become due to various states. Miami Subs has
been notified that its federal income tax return for fiscal year 1997 will also
be examined by the Internal Revenue Service.

STATUTORY LAW AND NATHANS CHARTER PROVISIONS MAY INHIBIT CHANGES IN CONTROL OF
THE COMBINED COMPANY.

The following provisions of Delaware law and Nathans' certificate of
incorporation, bylaws and its shareholder rights plan could make it more
difficult for a third party to acquire control of Nathans, even if the change in
control could be beneficial to the interests of the stockholders. These
provisions could limit the price that investors might be willing to pay in the
future for shares of Nathans common stock and the warrants. For example:

- Section 203 of the Delaware General Corporation Law, which restricts the
ability of a company to engage in business combinations with interested
stockholders,

- Nathans' certificate of incorporation and bylaws prohibit removal of any
director other than for cause,

- Nathans' certificate of incorporation prohibits stockholders from calling
a special meeting and requires the board of directors to do so, and

- Nathans' shareholder rights plan, as amended, provides for a dividend
distribution of the right to acquire one share of common stock for each
share held to holders of record of Nathans common stock on June 20, 1995
and the issuance of one right for each share of Nathans common stock
issued between June 20, 1995 and the date on which the rights are
triggered. The rights become exerciseable at a price of $4.00 per share
if any person or group acquires 20% or more of the Nathans common stock,
or any person or group announces an offer which would result in owning
more than 20% of the Nathans common stock and management of Nathans does
not approve of the ownership.

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus contains forward-looking statements.
We generally identify forward-looking statements in this prospectus using words
like "believes", "intends", "expects," "may," "will," "should," "plan,"
"projected," "contemplates," "anticipates," or similar statements. These
statements are based on our beliefs as well as assumptions we made using
information currently available to us. Because these statements reflect our
current views concerning future events, these statements involve risks,
uncertainties and assumptions. Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those set forth under "Risk Factors" beginning on page 19.

26
<PAGE> 36

NATHAN'S FAMOUS, INC. SPECIAL MEETING

DATE, TIME AND PLACE OF NATHANS MEETING

The Nathans meeting will be held at the deSeversky Conference Center,
Northern Boulevard, Old Westbury, New York on Tuesday, September 28, 1999 at
10:00 a.m. local time.

PURPOSES

The purposes of the Nathans meeting are to

1. approve and adopt the merger agreement,

2. approve an amendment to the Nathans certificate of incorporation to
increase the number of authorized shares of common stock to 30,000,000 from
20,000,000, subject to and upon consummation of the merger, and

3. transact any other matters that properly come before the Nathans
meeting or any postponements or adjournments of the Nathans meeting.

RECORD DATE AND OUTSTANDING SHARES

The record date for the Nathans meeting is July 30, 1999. Only stockholders
of record of Nathans common stock at the close of business on that date are
entitled to notice of, and to vote at, the Nathans meeting. As of the Nathans
record date, there were 312 stockholders of record holding an aggregate of
approximately 4,722,216 shares of Nathans common stock.

On or about August 19, 1999, a notice meeting the requirements of the
Delaware General Corporation Law is being mailed to all stockholders of record
as of the Nathans record date.

VOTE REQUIRED

Under the Delaware General Corporation Law, the Nathans certificate of
incorporation, and the rules of The Nasdaq National Market System, the
affirmative vote of the holders of a majority of the Nathans common stock
outstanding as of the Nathans record date is required to approve the merger
agreement and the amendment to the Nathans certificate of incorporation. Each
stockholder of record of Nathans common stock on the Nathans record date will be
entitled to cast one vote per share on each matter to be acted upon at the
Nathans meeting.

The representation, in person or by proxy, of at least a majority of the
outstanding shares of Nathans common stock entitled to vote at the Nathans
meeting is necessary to constitute a quorum for the transaction of business. For
the purpose of determining whether a proposal has received a majority vote,
neither abstentions nor broker non-votes will be included in vote totals. Broker
non-votes are instances where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not returned a proxy. As
a result, the effect of an abstention and of a broker non-vote is the same as
that of a vote "against" the proposals with respect to the merger and amendment
to the

27
<PAGE> 37

Nathans certificate of incorporation. Abstentions and broker non-votes will,
however, be counted in determining whether there is a quorum.

As of the Nathans record date, directors, executive officers and affiliates
of Nathans may be deemed to be beneficial owners of approximately 1,251,728
shares of Nathans common stock or 22.2% of the votes represented by the shares
of Nathans common stock then outstanding. These holders have expressed their
intent to vote their outstanding shares in favor of approval and adoption of the
merger agreement and the amendment to the Nathans certificate of incorporation.

PROXIES

Each of the persons named as proxies for the Nathans meeting is an officer
of Nathans. All shares of Nathans common stock that are entitled to vote and are
represented at the Nathans meeting either in person or by properly executed
proxies received prior to or at the Nathans meeting and not duly and timely
revoked will be voted at the Nathans meeting in accordance with the instructions
indicated on the executed proxies. If no instructions are indicated, proxies
will be voted for the approval of the merger agreement and the amendment to the
Nathans certificate of incorporation.

The Nathans board of directors knows of no other matter to be presented at
the Nathans meeting. If any other matter upon which a vote may properly be taken
should be presented at the Nathans meeting, shares represented by all proxies
received by the Nathans board of directors will be voted with respect to that
matter in accordance with the judgment of the persons named as proxies in the
proxies.

Execution of a proxy does not in any way affect a stockholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a stockholder
at any time before it is exercised by delivering a written revocation or a
later-dated proxy to the Secretary of Nathans, or by attending the meeting and
voting in person. Any written notice of revocation or subsequent proxy should be
sent to Nathan's Famous, Inc. at 1400 Old Country Road, Westbury, New York,
11590, Attention: Secretary, or hand-delivered to the Secretary of Nathans, in
each case at or before the taking of the vote at the Nathans meeting.

SOLICITATION OF PROXIES; EXPENSES OF PROXIES

All costs of solicitation of proxies for the Nathans meeting will be borne
by Nathans. Brokers, custodians and fiduciaries will be requested to forward
proxy soliciting material to the owners of stock held in their names, and
Nathans will reimburse them for their reasonable out-of-pocket costs. In
addition, proxies may also be solicited by some directors, officers and
employees of Nathans personally or by mail, telephone or telegraph following the
original solicitation. These persons will not receive additional compensation
for soliciting proxies.

RECOMMENDATIONS OF NATHANS BOARD OF DIRECTORS

The Nathans board of directors has unanimously approved the merger
agreement and the transactions contemplated by the merger agreement and has
determined that the

28
<PAGE> 38

merger is fair to, and in the best interests of, Nathans and its stockholders.
After careful consideration, the Nathans board of directors recommends a vote in
favor of:

- approving and adopting the merger agreement, and

- approving the amendment to the Nathans certificate of incorporation to
increase the number of authorized shares of common stock to 30,000,000
from 20,000,000, subject to and upon consummation of the merger.

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MIAMI SUBS CORPORATION SPECIAL MEETING

DATE, TIME AND PLACE OF MIAMI SUBS MEETING

The Miami Subs meeting will be held at The Westin Fort Lauderdale Hotel,
400 Corporate Drive, Fort Lauderdale, Florida on Thursday, September 30, 1999 at
10:00 a.m. local time.

PURPOSE

The purposes of the Miami Subs meeting are to approve and adopt the merger
agreement and to transact any other matters that properly come before the Miami
Subs meeting or any postponements or adjournments thereof.

RECORD DATE AND OUTSTANDING SHARES

The record date for the Miami Subs meeting is August 16, 1999. Only
shareholders of record of Miami Subs common stock at the close of business on
that date are entitled to notice of, and to vote at, the Miami Subs meeting. As
of the Miami Subs record date, there were 1,607 shareholders of record holding
an aggregate of approximately 6,667,335 shares of Miami Subs common stock.

On or about August 19, 1999, a notice meeting the requirements of Florida
law is being mailed to all shareholders of record as of the Miami Subs record
date.

VOTE REQUIRED

Under the Florida Business Corporation Act and the Miami Subs articles of
incorporation, as amended, the affirmative vote of the holders of a majority of
the Miami Subs common stock outstanding as of the Miami Subs record date is
required to approve and adopt the merger agreement. Each shareholder of record
of Miami Subs common stock on the Miami Subs record date will be entitled to
cast one vote per share on each matter to be acted upon at the Miami Subs
meeting.

The representation, in person or by proxy, of at least a majority of the
outstanding shares of Miami Subs common stock entitled to vote at the Miami Subs
meeting is necessary to constitute a quorum for the transaction of business. For
the purpose of determining whether the merger proposal has received a majority
vote, neither abstentions or broker non-votes will be included in vote totals.
As a result, the effect of an abstention and of a broker non-vote is the same as
that of a vote "against" the merger proposal. Abstentions and broker non-votes
will, however, be counted in determining whether there is a quorum.

As of the Miami Subs record date, the directors and executive officers of
Miami Subs, together with Nathans, may be deemed to be beneficial owners of
approximately 2,674,354 shares of Miami Subs common stock or 36.6% of the votes
represented by the shares of Miami Subs common stock then outstanding. These
holders have expressed their intent to vote their outstanding shares in favor of
the approval and adoption of the merger agreement.

PROXIES

Each of the persons named as proxies for the Miami Subs meeting is an
officer of Miami Subs. All shares of Miami Subs common stock that are entitled
to vote and are

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represented at the Miami Subs meeting either in person or by properly executed
proxies received prior to or at the Miami Subs meeting and not duly and timely
revoked will be voted at the Miami Subs meeting in accordance with the
instructions indicated on the executed proxies. If no instructions are
indicated, proxies will be voted for the approval of the merger agreement.

The Miami Subs board of directors knows of no other matter to be presented
at the Miami Subs meeting. If any other matter upon which a vote may properly be
taken should be presented at the Miami Subs meeting, shares represented by all
proxies received by the Miami Subs board of directors will be voted with respect
to that matter in accordance with the judgment of the persons named as proxies
in the proxies.

Execution of a proxy does not in any way affect a shareholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a shareholder
at any time before it is exercised by delivering a written revocation or a
later-dated proxy to the Secretary of Miami Subs, or by attending the meeting
and voting in person. Any written notice of revocation or subsequent proxy
should be sent to Miami Subs Corporation at 6300 NW 31st Avenue, Fort
Lauderdale, Florida 33309, Attention: Secretary, or hand-delivered to the
Secretary of Miami Subs, in each case at or before the taking of the vote at the
Miami Subs meeting.

SOLICITATION OF PROXIES; EXPENSES OF PROXIES

All costs of solicitation of proxies for the Miami Subs meeting will be
borne by Miami Subs. Brokers, custodians and fiduciaries will be requested to
forward proxy soliciting material to the owners of stock held in their names,
and Miami Subs will reimburse them for their reasonable out-of-pocket costs. In
addition, proxies may also be solicited by some directors, officers and
employees of Miami Subs personally or by mail, telephone or telegraph following
the original solicitation. These persons will not receive additional
compensation for soliciting proxies. Miami Subs may also engage an independent
firm to assist in the solicitation of proxies by Miami Subs in exchange for
customary fees for transactions of this type plus reasonable out-of-pocket
expenses.

DISSENTERS' APPRAISAL RIGHTS

Under the Florida Business Corporation Act, holders of Miami Subs common
stock who do not vote for the merger agreement and merger will be entitled to
dissent to the merger and request an appraisal of, and to be paid the fair value
of, their shares. The provisions of Sections 607.1301, 607.1302 and 607.1320 of
the Florida Business Corporation Act, which govern the rights of shareholders of
Miami Subs who wish to seek appraisal of their shares, are summarized under "The
Merger -- Dissenters' Appraisal Rights" beginning on page 52, and a copy is
attached as Annex D hereto.

RECOMMENDATION OF MIAMI SUBS BOARD OF DIRECTORS

The Miami Subs board of directors has approved the merger agreement and the
transactions contemplated by the merger agreement and has determined that the
merger is fair to, and in the best interests of, Miami Subs and its
shareholders. After careful consideration, the Miami Subs board of directors
recommends a vote in favor of approval and adoption of the merger agreement.

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THE MERGER

The following discussion summarizes the proposed merger and related
transactions. The following is not, however, a complete statement of all
provisions of the merger agreement and related transactions. Detailed terms of
and conditions to the merger and related transactions are contained in the
merger agreement. A copy of the merger agreement is attached to this joint proxy
statement/prospectus as Annex A, and is incorporated in this joint proxy
statement/prospectus by reference. Reference is also made to the other annexes
to this joint proxy statement prospectus. Statements made in this joint proxy
statement/prospectus with respect to the terms of the merger and such related
transactions are qualified in their respective entireties by reference to the
more detailed information set forth in the merger agreement and the other
annexes to this joint proxy statement prospectus.

BACKGROUND OF THE MERGER

The terms of the merger agreement are the result of arm's-length
negotiations between representatives and legal advisors of Nathans and Miami
Subs. The following is a brief discussion of the background of those
negotiations.

During the last several years, Miami Subs has held discussions with a
number of other parties concerning a possible sale of the company or other
business combination and had engaged an investment banker in March 1997 for the
purpose of seeking offers to acquire all of Miami Subs' outstanding capital
stock. Certain of Miami Subs' discussions with other parties were held even
after it and Nathans had entered into a non-binding letter of intent
contemplating the acquisition of Miami Subs by Nathans on substantially the same
terms as the merger agreement, but those discussions did not produce the offer
of a transaction with Miami Subs on any terms at all, let alone on terms more
favorable than those of the merger agreement. Except for merger discussions
commenced in March 1998 with Arthur Treacher's, Inc., none of the possibilities
discussed with other parties were considered by Miami Subs' board to be in the
best interests of the company's shareholders. In fact, the efforts of the
investment banker referred to above were completely unavailing, and its
engagement was terminated in March 1998 with the advent of Miami Subs'
discussions with Arthur Treacher's.

In July 1998, following Miami Subs' announcement of the termination of its
merger agreement with Arthur Treacher's, Howard M. Lorber, Nathans' Chairman and
Chief Executive Officer, telephoned Gus Boulis, Miami Subs' then Chairman and
Chief Executive Officer, to ask if Miami Subs might be interested in
establishing a relationship with Nathans such as co-branding their products. The
matter was referred to Donald L. Perlyn, Miami Subs' President and Chief
Operating Officer, who returned Mr. Lorber's call. Mr. Perlyn told Mr. Lorber of
Miami Subs' desire to associate with a company that would help Miami Subs move
forward, as well as add another brand and dimension to the company. Mr. Lorber
and Mr. Perlyn agreed to talk again after Mr. Lorber had an opportunity to
confer with Wayne Norbitz, Nathans' President and Chief Operating Officer. In
late July 1998, Messrs. Lorber and Perlyn met on an informal basis to further
discuss the possibility of the companies establishing some sort of relationship.
Messrs. Lorber and Perlyn discussed a possible co-branding relationship between
the companies as well as a possible investment by Nathans in Miami Subs,
although no specific structure was considered. The meeting did not result in any
agreement among the companies.

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On July 24, 1998, at a meeting of Miami Subs' board of directors, Mr.
Perlyn introduced the notion of a possible relationship with Nathans and
reviewed with the board the substance of his telephone conversation and meeting
with Mr. Lorber. Subsequently, Mr. Perlyn telephoned Mr. Lorber indicating a
desire to further their discussions. On the following day, Mr. Norbitz
telephoned Mr. Perlyn, and they agreed to meet in person and begin exploring the
possibility of the companies establishing a relationship. Mr. Perlyn then sent
Mr. Norbitz a package of financial, marketing and franchise information
regarding Miami Subs.

On August 6, 1998, Mr. Norbitz met with Mr. Perlyn and Jerry Woda, Miami
Subs' Chief Financial Officer, at Miami Subs' executive offices in Fort
Lauderdale, Florida, to discuss the possibility of establishing a relationship.
The meeting did not result in any agreement between the companies.

Following the meeting, the companies exchanged additional financial,
marketing and other information and continued to explore the possibility of a
relationship.

In the latter part of August 1998, Mr. Lorber advised Mr. Perlyn by
telephone that Nathans, in addition to establishing a relationship with Miami
Subs, would be interested in purchasing Mr. Boulis' approximately 30% interest
in Miami Subs, and Mr. Perlyn so advised Mr. Boulis.

While negotiations between Mr. Lorber and Mr. Boulis continued over the
next several months, representatives of Nathans and Miami Subs performed initial
due diligence on their respective companies and continued to explore the
possibility of a relationship.

On October 30, 1998, Messrs. Norbitz, Lorber and Eide, all of whom are
members of Nathans board, and Ronald DeVos, Nathan's Chief Financial Officer,
met at Mr. Lorber's office to discuss, among other things, the potential
purchase by Nathans of Miami Subs. After discussion, they reached a consensus
that Nathans' officers should proceed to determine whether Nathans could reach
an agreement to buy all of Miami Subs, including the shares owned by Mr. Boulis.

In early November 1998, Mr. Lorber advised Mr. Perlyn by telephone that if
Nathans was able to negotiate the purchase of Mr. Boulis' shares then it would
be interested in acquiring the rest of the shares of Miami Subs in a merger.
During the next several weeks, extensive negotiations ensued between Nathans and
Mr. Boulis regarding the structure, pricing and other aspects of the purchase by
Nathans of Mr. Boulis' shares and between Nathans and Miami Subs regarding the
structure, pricing and other aspects of the merger transaction. The negotiations
included

- the structure of the boards of directors of the companies following the
purchase of Mr. Boulis' shares and following the merger,

- the purchase price to be paid to Mr. Boulis, which was based upon
arm's-length negotiations and represented an approximate 38% premium
above the then market price,

- the exchange ratio applicable to the conversion of the Miami Subs common
stock in the merger, which was based on the purchase price paid to Mr.
Boulis and

- the terms of the additional consideration, in the form of common stock
purchase warrants, to be paid to the Miami Subs shareholders.

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It was agreed that Messrs. Lorber, Norbitz and Eide would be designated as
directors of Miami Subs upon the consummation of the purchase of Mr. Boulis'
shares and Mr. Perlyn would be designated as a director of Nathans upon the
consummation of the merger. The terms agreed to by Nathans and Miami Subs were
embodied in a non-binding letter of intent with regard to a merger, primarily on
terms proposed by Nathans and accepted by Miami Subs.

On November 23, 1998, the board of directors of Miami Subs held a meeting
at which the board approved Nathans' purchase of Mr. Boulis' shares and a draft
of a non-binding letter of intent with regard to a merger of the companies.

On November 24, 1998, the Nathans board held a meeting at which the
Nathan's board approved the purchase of all of the shares of Miami Subs' owned
by Mr. Gus Boulis for $4.2 million, or $2.068 per share after giving effect to
Miami Subs reverse stock split, and approved entering into a non-binding letter
of intent to acquire the remaining outstanding shares of Miami Subs.

On November 25, 1998, Nathans concluded the purchase of Mr. Boulis' shares.
In connection with Nathans' purchase of those shares, with the concurrence of
the Miami Subs board, Messrs. Lorber, Norbitz and Eide were appointed to, and
Mr. Boulis and Mr. Greg Karan resigned from, the Miami Subs board of directors.
At the same time, Nathans and Miami Subs entered into a non-binding letter of
intent which contemplated the acquisition of Miami Subs by Nathans on
substantially the same terms as the merger agreement. The Nathans designees did
not vote, participate in any meeting of the Miami Subs' board in which the
non-binding letter of intent or the merger agreement were considered or
approved, or in any way influence the Miami Subs board to approve the non-
binding letter of intent or the merger.

Later that day, Miami Subs retained Raymond James & Associates, Inc. to
render its opinion as to the fairness of the merger, from a financial point of
view, to the shareholders of Miami Subs. The Nathans designees were not involved
in, and did not influence, the Miami Subs board's decision to retain Raymond
James & Associates, Inc. to render a fairness opinion regarding the merger.

On December 15, 1998, Nathans retained Cruttenden Roth Incorporated to
review the proposed transaction, from a financial point of view, to the
stockholders of Nathans, based on the terms and conditions set forth in the
non-binding letter of intent.

On December 17, 1998, Nathans delivered a draft merger agreement to Miami
Subs which contemplated the merger of a newly-formed subsidiary of Nathans into
Miami Subs on substantially the terms set forth in the letter of intent.
Thereafter, negotiations ensued regarding the merger consideration, and the
scope and terms of the non-solicitation and termination provisions of the merger
agreement. After careful consideration, management of both companies determined
that based on the proposed terms of the transaction and the perceived strategic
advantages of such a combination, the companies should proceed with the merger.

On December 30, 1998, after being informed of the final terms of the
merger, Cruttenden Roth Incorporated issued its written opinion to the Nathans
board, to the effect that, as of December 30, 1998 and based on the assumptions
and subject to the qualifications and limitations set forth therein, the merger
is fair, from a financial point of view, to Nathans and its stockholders.

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<PAGE> 44

On January 14, 1999, the board of directors of Miami Subs held a meeting by
telephone to discuss the terms and conditions of the proposed merger and to
review, discuss and vote on the merger agreement. After discussion, the board of
directors of Miami Subs, other than the Nathans designees, none of whom voted or
participated in the meeting, or in any way influenced the Miami Subs board's
decision regarding the merger or the merger agreement, voted unanimously to
adopt and approve the merger agreement and the transactions contemplated by the
merger agreement, including the merger, and to recommend that the Miami Subs
shareholders vote to approve the merger agreement and the transactions
contemplated by the merger agreement. On January 14, 1999, the Nathans board of
directors also held a meeting at which the board unanimously approved entering
into the merger agreement.

On January 15, 1999, Miami Subs and Nathans entered into the merger
agreement. In connection with their entry into the merger agreement, they also
agreed that Miami Subs would sell selected Nathans products at one test location
in New York City.

On February 26, 1999, Nathans and Miami Subs amended the merger agreement
extending the due diligence period to March 24, 1999.

On March 23, 1999, the board of directors of Miami Subs held a meeting by
telephone during which a representative of Raymond James & Associates, Inc. made
a presentation to the Miami Subs board of directors, other than the Nathans
designees, none of whom participated in the meeting. The Raymond James
presentation included an analysis of the historical market prices and trading
activity of each of the Miami Subs common stock and Nathans common stock, a
comparison of the operating results of each of Miami Subs and Nathans with those
of other comparable publicly traded companies, and valuations of each of Miami
Subs and Nathans on a stand-alone basis. Miami Subs and Nathans were valued
using various methodologies. Raymond James delivered its opinion dated March 19,
1999, to the effect that, as of March 19, 1999 and based on the assumptions and
subject to the qualifications and limitations set forth in its opinion, the
merger consideration to be received by the Miami Subs shareholders, other than
Nathans and its affiliates, in the merger is fair, from a financial point of
view, to such shareholders. Following discussion of and questions by the Miami
Subs board to the Raymond James representative, the Miami Subs board, other than
the Nathans' designees, unanimously reaffirmed its prior approval and adoption
of the merger agreement.

On March 24, 1999, Nathans and Miami Subs amended the merger agreement to
further extend the date by which their respective due diligence investigations
must be completed to April 26, 1999 and to extend the termination date of the
merger agreement to July 31, 1999.

On March 25, 1999, Nathans and Miami Subs amended the merger agreement to
provide that Miami Subs will not be required to pay to Nathans a $500,000
break-up fee in the event that the Miami Subs board of directors withholds,
withdraws or modifies its recommendation to the Miami Subs shareholders to
approve the merger agreement solely due to the withdrawal by Raymond James of
its opinion dated March 19, 1999, excluding any withdrawal of such opinion at
the request of Miami Subs. This amendment was necessary because the break-up fee
provision as then in effect did not take into account that the Miami Subs board
of directors had conditioned its recommendation to the shareholders of Miami
Subs to approve the merger agreement upon the receipt of a fairness opinion from
Raymond James. Thus, the break-up fee would have been payable by Miami Subs even
though the Miami Subs board had to automatically withdraw its

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recommendation in the event that Raymond James withdrew its fairness opinion.
Nathans agreed that it had not intended for the break-up fee to be payable by
Miami Subs in such a case.

On April 26, 1999, Nathans and Miami Subs amended the merger agreement to
further extend the date by which their respective due diligence investigations
must be completed to May 28, 1999.

On May 25, 1999, Nathans and Miami Subs amended the merger agreement to
further extend the date by which their respective due diligence investigations
must be completed to June 30, 1999.

On June 23, 1999, Nathan's and Miami Subs amended the merger agreement to
extend the termination date of the merger agreement to October 29, 1999.

MIAMI SUBS REASONS FOR THE MERGER

In reaching its decision to approve the merger agreement and to recommend
that Miami Subs' shareholders vote to approve and adopt the merger agreement,
the Miami Subs board considered a number of factors, including the following:

- Although Miami Subs has achieved profitability on a stand-alone basis,
the Miami Subs board believes that Miami Subs will have a better
opportunity to sustain and improve profitability by merging with Nathans,
a company with greater financial resources and market presence in 37
states, the District of Columbia, Israel and the islands of Jamaica and
Aruba. The Miami Subs board believes that the merger will afford Miami
Subs the opportunity to enter these new markets and therefore reduce its
reliance on the Florida market where substantially all of its restaurants
are located;

- The opinion of Raymond James & Associates, Inc., dated March 19, 1999 to
the Miami Subs board that, as of March 19, 1999 and based on the
assumptions and subject to the qualifications and limitations set forth
their opinion, the merger consideration was fair to Miami Subs
shareholders from a financial point of view. When it considered the
Raymond James opinion, the Miami Subs board relied on the analyses taken
as a whole which are referenced in the Raymond James opinion, rather than
any individual analysis referenced in the opinion, including the
comparable public companies analysis. That analysis, considered alone,
rather than taken as a whole with the other analyses, suggested that the
price being paid for Miami Subs shares was below the implied Miami Subs
price based on the ratios of the comparable firms referred to in that
analysis. The Miami Subs board selected Raymond James based on its
qualifications and expertise;

- The lack of other merger or similar business combination opportunities
for Miami Subs. During the last several years Miami Subs had held
discussions with a number of other parties concerning a possible sale of
the company or other business combination and had engaged an investment
banker in March 1997 for the purpose of seeking offers to acquire all of
Miami Subs' outstanding capital stock. The efforts of the investment
banker were completely unavailing, and its engagement was terminated in
March 1998 with the advent of Miami Subs' discussions with Arthur
Treacher's regarding a merger. The discussions between Miami Subs and
Arthur Treacher's resulted in the parties entering into a merger
agreement, but their agreement was terminated in July 1998. Since then,
in addition to Nathans, Miami

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Subs has had discussions with other parties but those other discussions
did not produce the offer of a transaction with Miami Subs on any terms
at all, let alone on terms more favorable than those of the merger
agreement with Nathans;

- The terms and conditions of the merger agreement, including the merger
consideration, in particular that the stock portion alone of the merger
consideration represented a 32.4% premium based on the closing price of
Miami Subs common stock on January 29, 1999, the last trading day prior
to the public announcement of entering into the merger agreement;

- The good strategic fit between the two companies in view of their
respective product lines and markets. The Miami Subs board believes that
by combining Miami Subs' cheese steaks, submarine sandwiches, pita
sandwiches and salads and other product offerings, such as Arthur
Treacher's fish and chips and Baskin & Robbins ice cream, with Nathans'
all beef frankfurters and fresh crinkle cut french fried potatoes, the
combined company should be able to expand its customer base in existing
markets as well as enter new markets. The Miami Subs board further
believes that the combined company will be able to leverage Nathans'
existing infrastructure, which has enabled Nathans to maintain market
presence in 39 states, the District of Columbia, Israel and the islands
of Jamaica and Aruba, to successfully integrate the combined company
because of Miami Sub's and Nathan's similar business operations, support
the development and introduction of new products and enhance the combined
company's purchasing power with suppliers;

- The opportunity for all Miami Subs shareholders to maintain an ownership
stake in the combined company and realize the potential long-term
benefits of the merger; and

- The terms and conditions of the merger agreement, including Miami Subs'
ability to approve a superior acquisition proposal upon the payment of a
termination fee and the fact that either party could terminate the merger
agreement if the merger is not consummated by October 29, 1999.

In evaluating the fairness of the merger and determining whether to
recommend approval of the merger to Miami Subs shareholders, the board
specifically considered that Raymond James determined that the merger is fair
from a financial point of view to Miami Subs shareholders and that the terms of
the merger provide that the Miami Subs shareholders will not receive more than
one share of Nathans common stock for each two shares of Miami Subs common
stock, which effectively values a share of Nathans common stock at no less than
$4.136 per share. Although the value of Nathans common stock on the date of the
merger agreement was $3.875 per share, or approximately 6.0% less than the
merger agreement value of $4.136 per share, the Miami Subs board approved the
merger consideration of stock and warrants because it believed, based upon the
fairness opinion of Raymond James, that this 6% disparity in value had been
sufficiently offset by the value of the warrants. The aggregate value of the
merger consideration represented a premium of 32.4% over the value of Miami
Subs' common stock on the date of the merger agreement. The value of a share of
Nathans common stock, determined in accordance with the merger agreement and
based on the closing price of the Nathans common stock for the ten trading days
preceding the date of this joint proxy statement/prospectus, was $3.469.

The Miami Subs board also considered the potential risk that the merger
would not be consummated, with resulting distraction in the interim to Miami
Subs' normal business

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operations. Other than this risk, the Miami Subs board did not consider any
other risks. The Miami Subs board believed, however, that this risk was
outweighed by the potential benefits to be realized from the merger.

Based on this analysis, the Miami Subs board determined that the merger is
fair to, and in the best interests of, Miami Subs shareholders. The above
discussion of the information and factors considered by the Miami Subs board is
not intended to be exhaustive, and such information and factors were considered
collectively by the Miami Subs board in connection with its review of the merger
agreement and the transactions contemplated by the merger agreement. In view of
the variety of factors considered in connection with its evaluation of the
merger, the Miami Subs board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Miami Subs
board may have given different weights to different factors.

The Miami Subs board recommends that Miami Subs shareholders vote FOR the
approval and adoption of the merger agreement.

NATHANS REASONS FOR THE MERGER

In reaching its decision to approve the merger agreement and to recommend
that Nathans stockholders vote to approve and adopt the merger agreement, the
Nathans board considered a number of factors, including the following:

- Continuing the Nathans business in its present configuration on a
stand-alone basis without significant changes, which the Nathans board
did not believe to be as favorable to the holders of the shares of
Nathans common stock as the merger. The Nathans board noted that although
Nathans had improved its revenue growth, implemented a profitable
business strategy and increased earnings, Nathans' stock price had
continued to trade within a relatively narrow range and determined that
an increase in the size of the company through a strategic acquisition,
which would enable Nathans to achieve co-branding and economies of scale,
might enable Nathans to increase stockholder value;

- The opinion of Cruttenden Roth Incorporated to the Nathans board on
December 30, 1998 that, as of December 30, 1998 and based on the
assumptions and subject to the qualifications and limitations set forth
in their opinion, the merger consideration to be received by Miami Subs
shareholders was fair to Nathans and its stockholders from a financial
point of view;

- The ability of Nathans to further expand the market penetration of
Nathans and Miami Subs products by selling additional products through
the sale of Nathans products in Miami Subs locations and Miami Subs
products in Nathans locations, which would also enable Nathans to
decrease its geographic concentration in the northeast and Miami Subs'
geographic concentration in Florida;

- The good strategic fit between the two companies in view of their
respective product lines and markets, particularly the fact that since
the majority of Nathans' sales are for lunch and a greater percentage of
Miami Subs' sales are for dinner, the combined company should be able to
expand its customer base in existing markets as well as enter new
markets;

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- The potential for system-wide co-branding of Nathans and Miami Subs,
including through the development of new prototype restaurant concepts
which combine Nathans and Miami Subs brands and respective products;

- The potential of capitalizing on Nathans' strategy of introducing limited
menus to captive markets by applying that strategy to the Miami Subs
concept. This strategy is based on introducing Nathans' signature
products, such as hot dogs and french fries, to high traffic areas such
as airports or large retailers in order to maximize Nathans' return on
its investment by minimizing its capital investment and reducing its
advertising costs while simplifying the unit's operation;

- The reduction in overhead expenses that may be achieved through a
combination of the companies' management, as well as their
administration, purchasing, distribution, sales and development,
marketing and human resources departments; and

- The terms and conditions of the merger agreement, including the
limitations on the amount of merger consideration that Miami Subs
shareholders are entitled to receive.

The Nathans board also considered potential risks relating to the merger,
including but not limited to the risk that the merger would not be consummated,
with resulting distraction in the interim to Nathans' normal business
operations. The Nathans board believed, however, that these risks were
outweighed by the potential benefits to be realized from the merger.

Based on this analysis, the Nathans board determined that the merger is
fair to, and in the best interests of, Nathans stockholders. The above
discussion of the information and factors considered by the Nathans board is not
intended to be exhaustive, and such information and factors were considered
collectively by the Nathans board in connection with its review of the merger
agreement and the transactions contemplated by the merger agreement. In view of
the variety of factors considered in connection with its evaluation of the
merger, the Nathans board did not find it practicable to, and did not, quantify
or otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Nathans board
may have given different weights to different factors.

OPINION OF CRUTTENDEN ROTH INCORPORATED

Nathans engaged Cruttenden Roth Incorporated to render an opinion as to the
fairness from a financial point of view to Nathans stockholders of the merger
consideration to be paid by Nathans to Miami Subs shareholders. Cruttenden was
selected by the Nathans board based on Cruttenden's qualifications and
expertise. Cruttenden rendered its written opinion on December 30, 1998 to the
Nathans board that, as of December 30, 1998, based on the qualifications and
limitations set forth in their opinion, the merger consideration to be paid by
Nathans to Miami Subs shareholders in the merger is fair to the Nathans
stockholders from a financial point of view. No limitations were placed on
Cruttenden by the Nathans board with respect to the investigation made or the
procedures followed in preparing and rendering its opinion.

THE FULL TEXT OF THE OPINION OF CRUTTENDEN IS ATTACHED AS ANNEX B TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS BY REFERENCE. NATHANS STOCKHOLDERS ARE URGED TO READ THE
OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER
MATTERS CONSIDERED AND LIMITS OF THE REVIEW

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<PAGE> 49

BY CRUTTENDEN. THE SUMMARY OF THE OPINION OF CRUTTENDEN SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO THE
FULL TEXT OF CRUTTENDEN'S OPINION. CRUTTENDEN'S OPINION WAS PREPARED FOR THE
NATHANS BOARD OF DIRECTORS AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, TO NATHANS STOCKHOLDERS OF THE MERGER CONSIDERATION TO
BE RECEIVED BY MIAMI SUBS SHAREHOLDERS UNDER THE MERGER AGREEMENT AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY NATHANS STOCKHOLDER AS TO HOW TO VOTE AT THE
NATHANS MEETING.

In its review of the merger, and in arriving at its opinion, Cruttenden,
among other things, reviewed and analyzed:

- the specific terms of the merger, as later embodied by the merger
agreement;

- publicly available information relating to Nathans and Miami Subs which
it believed to be relevant to its analysis;

- financial and operating information with respect to the business,
operations and prospects of Nathans furnished to Cruttenden by Nathans;

- financial and operating information with respect to the business,
operations and prospects of Miami Subs furnished to Cruttenden by Miami
Subs;

- trading history of Nathans common stock from its initial public offering
date to the present and a comparison of that trading history with those
of other companies that Cruttenden deemed relevant;

- a comparison of the historical financial results and the present
financial condition of Nathans and Miami Subs with other companies that
Cruttenden deemed relevant;

- a comparison of the quarterly and annual earnings estimates of
Cruttenden's research analyst for Nathans and Nathans actual results;

- the potential pro forma financial effects of the merger;

- a comparison of the financial terms of the merger with the financial
terms of other transactions that Cruttenden deemed relevant; and

- the projections of the combined business and their relative contribution
to projected operating results in relation to the relative exchange
ratios. In addition, Cruttenden had discussions with the management of
Nathans and Miami Subs concerning their respective businesses,
operations, assets, financial condition and prospects and the potential
strategic benefits of the merger and have undertaken other studies,
analyses, and investigations as Cruttenden deemed appropriate.

Cruttenden did not assume responsibility for independent verification of
any of the information concerning Nathans considered in connection with its
review of the merger and, for purposes of its opinion, Cruttenden assumed and
relied upon the accuracy and completeness of all such information. Cruttenden
assumed that there has been no material change in Nathans' assets, financial
condition, results of operations, business or prospects since the date of its
last financial statements. Cruttenden relied on advice of counsel to Nathans as
to all legal and financial reporting matters with respect to Nathans, the merger
and the merger agreement, including the legal status and financial reporting of
litigation involving Nathans. Cruttenden assumed that the merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, the Securities Exchange Act of 1934,
and all other applicable federal and state statutes, rules and regulations. In
connection with its opinion, Cruttenden did not prepare or obtain any
independent evaluation or appraisal of any of the assets or liabilities of
Nathans, nor did it conduct a physical inspection of the properties and
facilities of Nathans. With

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<PAGE> 50

respect to the financial forecasts and projections used in its analysis,
Cruttenden assumed that they reflected the best currently available estimates
and judgments of the expected future financial performance of Nathans. For the
purposes of its opinion, Cruttenden also assumed that Nathans was not a party to
any pending transactions, including external financings, recapitalizations or
merger discussions, other than the merger and those in the ordinary course of
conducting its business. Cruttenden's opinion is necessarily based upon market,
economic, financial and other conditions as they existed and can be evaluated as
of the date of the opinion and any subsequent change in those conditions would
require a reevaluation of its opinion.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Cruttenden analyses set forth below does not purport to be a complete
description of the presentation by Cruttenden to the Nathans board. In arriving
at its opinion, Cruttenden did not attribute any particular weight to any
analysis or factor considered by it but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly,
Cruttenden believes that its analyses and the summary set forth below must be
considered as a whole and that selecting portions of its analyses without
considering all analyses or of the following summary, without considering all
factors and analyses, could create an incomplete view of the processes
underlying the analyses set forth in the Cruttenden presentation to the Nathans
board and its opinion. In performing its analyses, Cruttenden made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Nathans.
The analyses performed by Cruttenden and summarized below are not necessarily
indicative of actual values or actual future results which may be significantly
more or less favorable than suggested by those analyses. Additionally, analyses
relating to the values of businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be acquired.

The following is a brief summary of selected financial analyses performed
by Cruttenden in connection with providing its written opinion to the Nathans
board on December 30, 1998.

Discounted Cash Flow Analysis: Cruttenden performed a discounted cash flow
analysis for Nathans and Miami Subs using projected financial performance for
fiscal 1999 through fiscal 2003 derived from fiscal 1999 projections prepared by
Nathans management. The analysis aggregated

(1) the present value of the projected free cash flow through 2003 and

(2) the present value of a range of terminal values the for the fiscal
year 2003.

A terminal value is the hypothetical value of selling the enterprise in its
entirety at some future date. The terminal values for Nathans and Miami Subs
were determined by applying multiples ranging from four to seven times Nathans'
and Miami Subs' estimated EBITDA in fiscal 2003. Nathans' and Miami Subs' free
cash flow streams and terminal values were discounted to present values using
discount rates ranging from 11.0% to 15.0%. The range of values derived for the
two companies from the discounted cash flow analysis using the same assumptions
regarding terminal values and discount rates are $3.64 to $6.19 for Nathans and
$.51 to $1.03 for Miami Subs. The broad range of these values reflects the
assumptions involved. Since the merger is expected to be consummated on the
basis of

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<PAGE> 51

the share values before closing but no more than a two-to-one ratio, the range
of values derived from this discounted cash flow analysis is consistent with the
merger terms.

Analysis of Publicly Traded Comparable Companies: Cruttenden compared
selected historical financial information of Nathans and Miami Subs to publicly
traded companies Cruttenden deemed to be comparable to Nathans and Miami Subs.
Cruttenden examined eight companies. These companies consisted of

- Blimpie International, Inc.,
- Casa Ole Restaurants, Inc.,
- Einstein/Noah Bagel Corp.,
- Pizza Inn, Inc.,
- Quizno's Corporation,
- Schlotzsky's, Inc.
- Taco Cabana, Inc., and
- Wall Street Deli, Inc.,

each of which is a publicly traded owner, operator or franchisor of restaurants
or sandwich shops shops and is comparable due to its market capitalization,
revenue, operating performance, asset value and future growth prospects.
Comparing the value of Miami Subs share price as of December 30, 1998 with the
share price of the eight companies, using several standard comparative measures,
reveals that Miami Subs' measures are at or below the mean or median of the
eight companies. The ratios highlighted include several using the companies'
market capitalization which is the value of the total shares outstanding times
the recent share price and several ratios using the companies' enterprise value
which is the market capitalization plus the companies' debt outstanding less
cash on the balance sheet. The ratios measured each companies' market
capitalization and enterprise value to the companies' revenues, operating income
and EBITDA for the twelve months period ended just prior to the date of the
analysis. In the market capitalization comparisons, Cruttenden noted mean and
median ratio of latest twelve months revenue of 0.75 and 0.66, respectively,
compared to Miami Subs 0.53; mean and median ratio of latest twelve months
operating income of 14.18 and 8.58, respectively, compared to Miami Subs 7.40;
and mean and median ratio of latest twelve months EBITDA of 8.29 and 5.75,
respectively, compared to Miami Subs 3.98. In the enterprise value comparisons,
Cruttenden noted mean and median ratio of latest twelve months revenue of 0.78
and 0.72, respectively, compared to Miami Subs 0.62; mean and median ratio of
latest twelve months operating income of 11.94 and 6.78, respectively, compared
to Miami Subs 8.77; and mean and median ratio of latest twelve months EBITDA of
9.32 and 6.89, respectively, compared to Miami Subs 4.72. As a whole, this
analysis suggests that Miami Subs is valued at a discount to the comparables and
so the exchange ratio, which is based on market value, is relatively favorable
to Nathans as of December 30, 1998.

Precedent Transaction Analysis: Cruttenden compared the merger with
selected merger and acquisition transactions in the restaurant industry for the
past four years with equity values of $10 million or more and focused on sixteen
transactions. These transactions involved the acquisition of

- Bertucci's Inc.,
- Bugaboo Creek Steak House Inc.,
- DAKA International Inc.,
- DF&R Restaurants Inc.,
- El Chico Restaurants Inc.,

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<PAGE> 52

- Ground Round Restaurants,
- Home Town Buffet Inc.
- International Dairy Queen Inc.,
- Krystal Co.,
- On The Border Cafes Inc.,
- Pollo Tropical Inc.,
- Sagebrush Inc.,
- Skyline Chili Inc.,
- Summit Family Restaurants Inc.,
- Timber Lodge Steakhouse Inc., and
- TPI Enterprises Inc.

Comparing the value of Miami Subs as of December 30, 1998 with the values of the
companies in the sixteen transactions, using several standard comparative
measures, reveals that Miami Subs' measures are at or below the mean or median
of the sixteen companies. The ratios highlighted include several using the
companies' market capitalization which is the value of the total shares
outstanding times the recent share price and several ratios using the companies'
enterprise value which is the market capitalization plus the companies' debt
outstanding less cash on the balance sheet. The ratios measured the market
capitalization and enterprise value in relation to the companies' revenues,
operating income and EBITDA for the twelve months period ended just prior to the
date of the analysis. In the market capitalization comparisons, Cruttenden noted
mean and median ratio of latest twelve months revenue of 0.92 and 0.80,
respectively, compared to Miami Subs 0.62; mean and median ratio of latest
twelve months operating income of 8.71 and 9.44, respectively, compared to Miami
Subs 8.77; and mean and median ratio of latest twelve months EBITDA of 7.72 and
8.04, respectively, compared to Miami Subs 4.72. In the enterprise value
comparisons, Cruttenden noted mean and median ratio of latest twelve months
revenue of 0.87 and 0.71, respectively, compared to Miami Subs 0.53; mean and
median ratio of latest twelve months operating income of 8.88 and 9.41,
respectively, compared to Miami Subs 7.40; and mean and median ratio of latest
twelve months EBITDA of 6.98 and 8.20, respectively, compared to Miami Subs
3.98. As a whole, this analysis suggested that the exchange ratio as of December
30, 1998 is relatively favorable to Nathans in comparison with the sixteen
transactions.

Accretion/Dilution Analysis: Cruttenden analyzed the estimated results of
Nathans and Miami Subs and the Cruttenden pro forma combined company resulting
from the merger to determine whether the merger would be accretive to the
earnings of the Cruttenden pro forma combined company. The analysis indicated
that the merger will be accretive to Nathans earnings, yielding an increase in
earnings per share of $0.01 for fiscal 1999.

Contribution Analysis: Cruttenden analyzed selected historical and
estimated financial information for Nathans and Miami Subs and the Cruttenden
pro forma combined company resulting from the merger. This analysis indicated
that Nathans stockholders and Miami Subs shareholders would receive 66.7% and
33.3%, respectively, of the outstanding common equity of the combined company
based on the numbers of shares then outstanding. The analysis further indicated
that Nathans and Miami Subs would contribute: 55.5% and 44.5%, respectively, to
the pro forma combined revenues; 50.6% and 49.4%, respectively, to the pro forma
combined EBITDA and 65.4% and 34.6%, respectively, to the pro forma combined
estimated net income. This analysis indicated that as of December 30, 1998,
stockholders of Nathans and Miami Subs would hold a

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<PAGE> 53

proportion of the combined shares which reflects the relative contribution from
the two companies to revenues and earnings.

No company or transaction used in the above analyses is identical to
Nathans or the merger. Accordingly, an analysis of the results of the foregoing
is not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics between
Nathans and the company or companies to which it is being compared.

The foregoing description of Cruttenden's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Annex B to this joint proxy statement/prospectus.

Cruttenden, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, negotiated underwritings,
private placements and valuations for corporate and other purposes.

Nathans has agreed to pay Cruttenden a fairness opinion fee of $100,000 in
connection with the delivery of its fairness opinion. Nathans also has agreed to
reimburse Cruttenden for its reasonable out-of-pocket expenses and to indemnify
Cruttenden, including against liabilities under the federal securities laws or
relating to or arising out of Cruttenden's engagement.

OPINION OF RAYMOND JAMES

Miami Subs engaged Raymond James & Associates, Inc. to render an opinion as
to the fairness from a financial point of view to the holders of the outstanding
shares of Miami Subs common stock other than Nathans and its affiliates of the
merger consideration to be received by Miami Subs shareholders in the merger.
Raymond James was selected by the Miami Subs board based on Raymond James'
qualifications and expertise. Raymond James rendered its written opinion on
March 19, 1999 to the Miami Subs board that, as of March 19, 1999 and subject to
the qualifications and limitations set forth therein, the consideration to be
received by the holders of the Miami Subs common stock, other than Nathans and
its affiliates, in the merger is fair to Miami Subs shareholders from a
financial point of view. No limitations were placed on Raymond James by the
Miami Subs board with respect to the investigation made or the procedures
followed in preparing and rendering its opinion.

THE FULL TEXT OF THE OPINION OF RAYMOND JAMES IS ATTACHED AS ANNEX C TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS BY REFERENCE. MIAMI SUBS SHAREHOLDERS ARE URGED TO READ THE
OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER
MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY RAYMOND JAMES. THE SUMMARY OF THE
OPINION OF RAYMOND JAMES SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF RAYMOND JAMES'
OPINION. RAYMOND JAMES' OPINION WAS PREPARED FOR THE MIAMI SUBS BOARD OF
DIRECTORS AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW,
OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF SHARES OF MIAMI SUBS COMMON
STOCK, OTHER THAN NATHANS AND ITS AFFILIATES, PURSUANT TO THE MERGER AGREEMENT
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY MIAMI SUBS SHAREHOLDER AS TO HOW
TO VOTE AT THE MIAMI SUBS MEETING.

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<PAGE> 54

The Raymond James opinion does not constitute an opinion as to the price at
which Miami Subs or Nathans common stock will actually trade at any time. The
type and amount of consideration was determined in arm's length negotiations
between Miami Subs and Nathans. No restrictions or limitations were imposed upon
Raymond James with respect to the investigations made or procedures followed by
Raymond James in rendering its opinion. Raymond James rendered its written
opinion that, as of March 19, 1999, the consideration to be paid to the holders
of Miami Subs common stock, other than Nathans and its affiliates, in the merger
is fair, from a financial point of view, to such Miami Subs shareholders. In its
analysis, Raymond James considered, but did not opine on the fairness of, the
purchase by Nathans of 30% of the common stock of Miami Subs for $2.068 cash per
share, on a post-split basis.

In arriving at the Raymond James opinion, Raymond James reviewed the merger
agreement, including the exhibits to the merger agreement, as well as financial
and other information that was publicly available and furnished to it by Miami
Subs and Nathans, including information provided during discussions with their
respective managements. Included in the information provided during discussions
with their respective managements were financial projections for Miami Subs and
Nathans prepared by each of the respective managements. In addition, Raymond
James compared financial and securities data of Miami Subs and Nathans with that
of various other companies whose securities are traded in public markets,
reviewed the historical stock prices and trading volumes of Miami Subs common
stock and Nathans common stock, reviewed prices and premiums paid in other
business combinations and conducted other financial studies, analyses and
investigations as Raymond James deemed appropriate for purposes of rendering its
opinion.

In rendering its opinion, Raymond James relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
available to it from public sources or that was provided to it by Miami Subs and
Nathans or their respective representatives. Raymond James relied upon the
estimates of the operating synergies available as a result of the merger
provided by the management of Miami Subs and based upon discussions of the
merger synergies with the management of Nathans. Raymond James also assumed that
the financial projections regarding Miami Subs and Nathans supplied by their
respective managements to Raymond James were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
managements of Miami Subs and Nathans as to the future operating and financial
performance of Miami Subs and Nathans, respectively. Raymond James assumed no
responsibility for making an independent evaluation of any assets or
liabilities.

The Raymond James opinion is necessarily based on economic, market,
financial and other conditions as they existed on, and on information made
available to Raymond James as of the date of its opinion. Raymond James does
have not any obligations to update, revise or reaffirm the Raymond James
opinion.

The following is a summary of the analyses presented by Raymond James to the
Miami Subs board at its March 23, 1999 meeting.

Valuation of Warrants. Using the Black Scholes valuation methodology,
Raymond James valued the warrant consideration in the range of $.12 to $.20 per
Miami Subs Share.

Comparable Public Companies Analysis. Using publicly available
information, Raymond James compared the financial and operating information and
ratios, described

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<PAGE> 55

below, for Miami Subs with corresponding financial and operating information and
ratios for a group of seven publicly traded companies of similar size, operating
structure and type of business. The Raymond James comparable companies consisted
of:

- AuBon Pain Company
- Blimpie International, Inc.
- Checkers Drive-In Restaurants, Inc.
- Jerry's Famous, Deli, Inc.
- Rally's Hamburgers, Inc.
- The Quizno's Corporation
- Wall Street Deli, Inc.

The historical financial information used in connection with the ratios
provided below with respect to Miami Subs and the Raymond James comparable
companies is as of the most recent financial statements publicly available for
each company as of March 17, 1999.

-- the ratio of enterprise value to revenues for the latest twelve
months. Enterprise value was defined as the stock market equity value
plus both value of debt and preferred stock minus cash and marketable
securities. This enterprise value to revenue ratio is a measurement
of the firm's performance before the effects of leverage and shows
the enterprise value of the firm for each dollar generated in
revenues. The ratios ranged from .2x to 1.3x for the Raymond James
comparable companies, compared to .6x for Miami Subs. The average
multiple of .6x times Miami Subs latest twelve months revenues
generates an implied Miami Subs value of $1.92 per share and an
exchange ratio of 1.9 Nathans share to 1.0 Miami Subs share.

-- the ratio of enterprise value as a multiple of latest twelve months
EBITDA. EBITDA represents net earnings (loss) before the cumulative
effect of change in accounting plus provisions for income taxes,
interest expense, depreciation and amortization, equity in net
earnings (loss) of affiliates, restructuring costs, and unusual or
non-recurring items. EBITDA is commonly used to analyze a company's
operating performance and cashflows. The EBITDA ratios ranged from
4.7x to 12.5x for the Raymond James comparable companies, compared to
4.9x for Miami Subs. The average multiple of 7.6x times Miami Subs
EBITDA generates an implied Miami Subs value of $3.20 per share and
an exchange ratio of 1.1 Nathan's share to 1.0 Miami Subs share.

When Raymond James compared the implied Miami Subs ratios based upon the
merger price to the average ratios of comparable companies, Raymond James found
that all of the ratios it analyzed indicated that the price being paid for Miami
Subs shares in the merger was below the implied Miami Subs price based on the
ratios of the comparable firms. As a whole, this analysis suggested that the
price being paid for Miami Subs in the merger may be relatively less than the
valuations derived for its public market peers, but when taken as a whole with
the other analyses, Raymond James concluded that the transaction was fair from a
financial point of view to the shareholders, other than Nathans, of Miami Subs.

Relative Contribution Analysis. Raymond James analyzed the relative
contributions of Miami Subs and Nathan's to the revenues, EBITDA, EBIT and
pre-tax income of the

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pro forma combined entity for the historical fiscal year 1998 and projected
fiscal years 1999 and 2000, excluding merger synergies and transaction
adjustments. The table below shows the percentage contribution of Miami Subs to
the combined pro forma entity in each of these categories, assuming Nathan's did
not own 30% of Miami Subs common stock and was acquiring 100% of Miami Subs
revenues, EBITDA, EBIT and pre-tax income:

<TABLE>
<CAPTION>
1998 1999 2000
(HISTORICAL) (PROJECTED) (PROJECTED)
------------ ----------- -----------
<S> <C> <C> <C>
Revenues................................... 46.7% 43.2% 37.2%
EBITDA..................................... 47.5% 47.6% 48.1%
EBIT....................................... 43.6% 44.1% 48.8%
Pre-Tax Income............................. 23.2% 33.7% 43.6%
</TABLE>

The shares of Nathans common stock to be issued to the holders of Miami Subs
common stock would represent approximately 45.3% of the outstanding shares of
Nathans common stock after giving effect to the merger and exchange ratio and
the assumption that persons other than Nathans owned the 30% of Miami Subs owned
by Nathans. This ownership percentage is higher than or approximately comparable
to the various measures of financial contribution included in the table.

Raymond James also analyzed the relative contributions of Miami Subs and
Nathans giving effect to Nathans 30% ownership of Miami Subs common and its
claim on Miami Subs revenues, EBITDA, EBIT and pre-tax income. The table below
shows the percentage contribution of Miami Subs to the combined pro forma entity
in each of these categories, and reflects the fact that Nathans already owns 30%
of Miami Subs and has an equivalent 30% claim on Miami Subs revenues, EBITDA,
EBIT and pre-tax income.

<TABLE>
<CAPTION>
1998 1999 2000
(HISTORICAL) (PROJECTED) (PROJECTED)
------------ ----------- -----------
<S> <C> <C> <C>
Revenues................................... 32.7% 30.2% 26.1%
EBITDA..................................... 33.3% 33.3% 33.7%
EBIT....................................... 30.5% 30.9% 34.1%
Pre-Tax Income............................. 16.2% 23.6% 30.5%
</TABLE>

The shares of Nathans common stock to be issued to the holders of Miami Subs
common stock will represent approximately 38.0% of the outstanding shares of
Nathans common stock after giving effect to the merger and exchange ratio and
the cancellation of the 30% owned by Nathans. This ownership percentage is
higher than the various measures of financial contribution included in the
table.

Discounted Cash Flow Analysis. In addition, Raymond James performed a
discounted cash flow analysis for the three-year period ending in 2001 based on
the stand-alone unlevered free cash flows of Miami Subs, as projected by its
management. Unlevered free cash flows were calculated as the after-tax operating
earnings of Miami Subs, plus depreciation and amortization and other non-cash
items, plus or minus net changes in working capital minus projected capital
expenditures. Raymond James calculated terminal values by applying a range of
estimated EBITDA multiples of 4.0x to 6.0x to the projected EBITDA of Miami Subs
in 2001. The unlevered free cash flows and terminal values were

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<PAGE> 57

then discounted to the present using a range of discount rates of 15.0% to 20.0%
representing an estimated range of the weighted average cost of capital of Miami
Subs. Based on this analysis, Raymond James calculated per share equity values
of Miami Subs ranging from $1.65 to $2.74; the transaction value falls within
this range. Raymond James also performed a discounted cash flow analysis of
Nathans projected unlevered free cash flow to the year 2001 using the above
assumptions. Based on this analysis, Raymond James calculated the equity values
of Nathans ranging from $4.02 to $5.66 per share.

Stock Premium Analysis. Raymond James also reviewed the acquisition
premiums paid for two groups of selected public companies for certain periods
prior to announcing a transaction. For the first group, consisting of 73
purchase transactions in which common stock was the consideration and having a
transaction value less than $50 million, the median announced stock price in the
transaction as compared to the acquired company's stock price was 27.3% one week
prior to the announcement and was 23.6% four weeks prior to the announcement.
The second group, consisting of 14 transactions involving restaurant companies,
the median announced stock price in the transaction as compared to the acquired
company's stock price was 24.0% one week prior to the announcement of the
transaction and was 37.5% four weeks prior to the announcement. Raymond James
noted that the $2.068 per share transaction value of the merger implied premiums
to the stock prior of Miami Subs of 50.5% one week prior to the announcement and
65.3% four weeks prior to the announcement. Thus the transaction premiums in the
merger are higher than the median premiums paid in the two groups cited above.

Comparable Transaction Analysis. Raymond James also performed an analysis
of 15 selected merger and acquisition transactions in the restaurant industry.
Referred to below as The Raymond James comparable transactions consisted of:

- Krystal Co.
- Rudy's Restaurant Group
- Ground Round Restaurants
- El Chico Restaurants, Inc.
- Sagebrush Inc.
- Koo Koo Roo, Inc.
- Bertucci's Inc.
- Morrison Restaurants
- Pollo Tropical Inc.
- Au Bon Pain Division
- Back Bay Restaurants
- Logans Roadhouse
- Quizno's Corp.
- Rally's Hamburgers Inc.
- Wall Street Deli, Inc.

Multiples reviewed in the Raymond James comparable transactions consisted of
implied enterprise value to latest twelve months revenues and latest twelve
months EBITDA as of the time of the announcement of the acquisition, where
available. For the purpose of this analysis, implied enterprise value was
defined as the equity value of the offer plus book value of total debt and
preferred stock minus cash. Raymond James noted that the multiple range of
revenues was .2x to 2.2x and the multiple range of EBITDA was 3.6x to 19.8x. The
multiples derived from the comparable transaction analysis imply a Miami Subs
price per share of $.48 to $8.84; the transaction value falls within this
admittedly broad

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range. Raymond James believes that, although the transaction falls within an
admittedly broad range, this analysis supports a Raymond James determination
that the transaction is fair from a financial point of view.

No company or transaction utilized in the above analysis is identical to
Miami Subs or the merger. Accordingly, an analysis of the results of the
foregoing necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value or transaction value of
the Raymond James comparable companies and transactions.

The summary set forth above does not purport to be a complete description
of the analyses performed by Raymond James, but describes, in summary form, the
principal elements of the analyses contained in the materials presented by
Raymond James to the Miami Subs board in connection with Raymond James rendering
its opinion. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and therefore, such an opinion is not readily susceptible to summary
description. Each of the analyses conducted by Raymond James was carried out in
order to provide a different perspective on the merger and add to the total mix
of information available. Raymond James did not form a conclusion as to whether
any individual analysis, considered in isolation, supported or failed to support
an opinion as to fairness from a financial point of view. Rather, in reaching
its conclusion, Raymond James considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of the
analyses taken as a whole. Raymond James did not place particular reliance or
weight on any individual factor, but instead concluded that its analyses, taken
as a whole, supported its determination. Accordingly, notwithstanding the
separate facts summarized above, Raymond James believes that its analyses must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinion. The analyses performed by Raymond James are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.

Raymond James was selected by the Miami Subs board to render an opinion in
connection with the merger based upon Raymond James's qualifications, expertise
and reputation, including the fact that Raymond James, as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, underwritings, sales and
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.

Under a letter agreement between Miami Subs and Raymond James dated
November 26, 1998, Raymond James has received a fee of $60,000 from Miami Subs
for its work to date and will receive a further fee of $100,000 from Miami Subs
upon the closing of the merger. In addition, Miami Subs has agreed to reimburse
Raymond James for all out-of-pocket expenses ,including the reasonable fees and
expenses of its counsel, incurred by Raymond James in connection with its
engagement thereunder, whether or not the merger is consummated, and to
indemnify Raymond James for liabilities and expenses arising out of the merger
or the transactions in connection therewith, including liabilities under federal
securities laws. The terms of the fee arrangement with Raymond James, which
Raymond James and Miami Subs believe are customary in transactions of this
nature, were negotiated at arm's length between Miami Subs and Raymond James and
the Miami Subs board was aware of the fee arrangement.

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Raymond James provides a full range of financial advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on the
securities of Nathans and/or Miami Subs for its own account and for the accounts
of customers.

INTERESTS OF CERTAIN PERSONS

In considering the merger, Miami Subs shareholders should be aware that the
executive officers and directors of Miami Subs have interests in the merger that
are different from or in addition to your interests. Some of the directors of
Miami Subs, namely Howard M. Lorber, Wayne Norbitz and Robert J. Eide, serve as
directors of Nathans. Messrs. Lorber, Norbitz and Eide were designated by
Nathans and elected as directors by the Miami Subs board of directors in
connection with Nathans' acquisition, in November 1998, of an approximately 30%
interest in Miami Subs. None of these Nathans' designees voted or participated
in the meeting at which the merger agreement was considered or approved or in
any way influenced the Miami Subs board's decision regarding the merger or the
merger agreement. The merger agreement was unanimously approved by the Miami
Subs board of directors other than the Nathans' designees. For a description of
the acquisition and the relationships between Miami Subs and Nathans, please see
"Material Contacts between Nathans and Miami Subs" on page 65.

The executive officers and directors of Miami Subs other than Nathans'
designees have stock options previously granted under the terms of the Miami
Subs stock option plans that will be assumed by Nathans. Miami Subs has agreed
to enter into amended and restated employment agreements with Donald L. Perlyn,
President of Miami Subs, Jerry Woda, Chief Financial Officer of Miami Subs and
Frank Baran, Vice President -- Operations of Miami Subs. Under these agreements

- Mr. Perlyn will receive a base salary of $200,000 and at the effective
time of the merger Nathans will, in effect, reprice his assumed Miami
Subs options to purchase 385,116, shares of Miami Subs common stock at a
weighted exercise price of $2.46 by cancelling his Miami Subs options and
issuing him new options to purchase 192,558 shares of Nathans common
stock at an exercise price equal to the fair market value per share of
Nathans common stock.

- Mr. Woda will receive a base salary of $150,000 and at the effective time
of the merger Nathans will, in effect, reprice his assumed Miami Subs
options to purchase 196,488 shares of Miami Subs common stock at a
weighted exercise price of $2.45 by cancelling his Miami Subs options and
issuing him new options to purchase 125,000 shares of Nathans common
stock at an exercise price equal to the fair market value per share of
Nathans common stock.

- Mr. Baran will receive a base salary of $110,000 and at the effective
time of the merger Nathans will, in effect, reprice his assumed Miami
Subs options to purchase 9,500 shares of Miami Subs common stock at a
weighted exercise price of $2.39 by cancelling his Miami Subs options and
issuing him new options to purchase 25,000 shares of Nathans common stock
at an exercise price equal to the fair market value per share of Nathans
common stock.

All of the Miami Subs options, including those of Messrs. Perlyn, Woda and
Baran, are currently out-of-the-money.

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The aggregate dollar amount of the difference between Messrs. Perlyn, Woda
and Baran's out-of-the-money options and the new options, assuming an exercise
price of $3.625 per share, the market price on August 16, 1999 is $210,834.
Therefore, it is more likely that the options of Messrs. Perlyn, Woda and Baran
will be exercised, which would result in an increased number of shares of
Nathans common stock outstanding. The employment agreements provide for a term
of three years for Mr. Perlyn, two years for Mr. Woda and one year for Mr.
Baran, will be automatically renewable for successive one-year periods unless
180 days' prior written notice is delivered and will be guaranteed by Nathans.
Mr. Perlyn's employment agreement provides that he will become a director of
Nathans at the effective time of the merger. In addition, Nathans and Ronald
DeVos, its Chief Financial Officer, intend to enter into an employment agreement
which will become effective upon consummation of the merger on terms yet to be
determined.

For a period of three years after the effective time of the merger, Miami
Subs, as the surviving corporation, will provide with respect to each present or
former director and executive officer of Miami Subs and its subsidiaries, the
indemnification rights which such person had before the effective time, whether
under the articles of incorporation or bylaws of Miami Subs or any such
subsidiary, or under the Florida Business Corporation Act. Miami Subs, as the
surviving corporation, will also assume the obligations of Miami Subs or any of
its subsidiaries under any indemnification agreement with any present or former
director or officer as in effect on or prior to the effective time. Immediately
following the effective time, Nathans shall cause to remain in effect for a
period of three years thereafter the current directors' and officers' liability
insurance maintained by Miami Subs or any of its subsidiaries, or to provide
with respect to claims arising from facts or events which occurred on or before
the effective time substitute coverage in an amount and scope at least as
favorable to such persons as Miami Subs and its subsidiaries existing coverage.
Nathans has also agreed to indemnify officers and directors of Miami Subs
against liabilities or expenses incurred in connection with claims arising out
of or pertaining the transactions contemplated by the merger agreement for a
period of three years after the date of the merger agreement.

STOCK OWNERSHIP FOLLOWING THE MERGER

At the effective time of the merger, Miami Acquisition Corp. will cease to
exist and all shares of Miami Subs common stock will be converted into the right
to receive Nathans common stock, together with associated common stock purchase
rights, and warrants under the terms of the merger. Shares of Miami Subs common
stock which are held in the treasury of Miami Subs, owned by Nathans or with
respect to which dissenters' rights are properly exercised under Section
607.1320 of the Florida Business Corporation Act will not be so converted. If
all shares of Miami Subs common stock are exchanged under the terms of the
merger, other than treasury shares and shares owned by Nathans, holders of
shares of Miami Subs common stock will hold 2,318,543 shares of Nathans common
stock and warrants entitling them, in the aggregate, to acquire 579,636 shares
of Nathans common stock. As of July 30, 1999, there were 4,722,216 shares of
Nathans common stock issued and outstanding, 350,000 shares of Nathans common
stock reserved for issuance under outstanding warrants, 1,225,000 shares of
Nathans common stock reserved for issuance under various stock option plans and
6,297,216 shares of Nathans common stock reserved for issuance under Nathans'
shareholder rights plan.

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DISSENTERS' APPRAISAL RIGHTS

Section 607.1302 of the Florida Business Corporation Act provides that any
holder of Miami Subs common stock as of the Miami Subs record date who has not
voted in favor of the merger agreement has the right, as an alternative to
receiving the merger consideration, to receive payment of the "fair value" of
his or her shares as of the close of business on the day prior to the Miami Subs
meeting, as well as some other rights and benefits, subject to Section 607.1320
of the Florida Business Corporation Act. For the purposes of determining the
"fair value," appreciation or depreciation in anticipation of the merger is
excluded unless exclusion would be inequitable. If a Miami Subs shareholder has
a beneficial interest in shares of Miami Subs common stock that are held of
record in the name of another person, and the shareholder desires to perfect
whatever dissenters' rights the beneficial shareholder may have, the beneficial
shareholder must act promptly to cause the shareholder of record timely and
properly to follow the steps summarized below.

1. A Miami Subs shareholder who wishes to assert his or her legal
right to dissent must:

- file a written notice of his or her intent to demand payment for his
or her shares if the merger is completed with Miami Subs either prior
to the Miami Subs meeting or at the Miami Subs meeting prior to the
vote with respect to the approval of the merger agreement; and

- not vote in favor of the merger agreement.

2. Within ten days of shareholder approval of the merger, Miami Subs
must give each shareholder who filed a notice of intent to demand payment
for his or her shares written notice by registered mail of such approval.

3. Within 20 days of Miami Subs giving the notice described above to
any such Miami Subs shareholder, any shareholder who elects to dissent must
file with Miami Subs a notice of his or her election, stating the
shareholder's name and address, the number of shares as to which he or she
dissents, and a demand for payment of the fair value of his or her shares.
Any dissenting Miami Subs shareholder may dissent as to less than all the
shares registered in his or her name. Any dissenting shareholder must also
deposit his or her certificates for certificated shares with Miami Subs
simultaneously with the filing of his or her election to dissent. Any such
shareholder who fails to take the above actions within the specified time
period shall be deemed to have waived his or her dissenters' appraisal
rights. After filing of such notice of election, the shareholder will only
be entitled to payment of the fair value of his or her shares and will not
be entitled to vote or exercise any other right as a shareholder.

4. A Miami Subs shareholder may withdraw in writing his or her notice
of election to dissent at any time before an offer is made by Miami Subs to
pay for his or her shares. After an offer by Miami Subs, no notice of
election to dissent may be withdrawn by a shareholder unless Miami Subs
consents to such withdrawal.

5. Within 10 days after the expiration of the period in which a Miami
Subs shareholder was entitled to file his or her notice of election to
dissent, or within 10 days after the merger is completed, whichever is
later, Miami Subs shall make a written offer to each dissenting shareholder
to pay an amount that Miami Subs estimates to be the fair value for his or
her shares. Miami Subs must make its written offer no later than 90 days
from the Miami Subs shareholders' approval of the merger.

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6. If a Miami Subs shareholder accepts the Miami Subs offer within 30
days after the making of such offer, Miami Subs must make payment for the
shares within 90 days after the making of its offer. Upon payment of the
agreed value, the Miami Subs dissenting shareholders shall cease to have
any interest in such shares.

7. If Miami Subs fails to make an offer within the period specified
above in item 5 or if it makes the offer and a dissenting shareholder
rejects the offer within 30 days of its making, then Miami Subs, within 30
days after receipt of written demand from a dissenting shareholder given
within 60 days after the date on which the merger was completed, shall, or
at its election at any time within such 60 days may, file an action in any
court of competent jurisdiction in the county of Florida where its
registered office is located requesting that the fair value of the
dissenting shares be determined. If Miami Subs fails to institute such
proceeding, any Miami Subs dissenting shareholder may do so in the name of
Miami Subs.

8. The costs and expenses of any proceeding determining the value of
dissenting shares shall be determined by the court and shall be assessed
against Miami Subs. However, all or any portion of those costs and expenses
may be apportioned and assessed as the court deems equitable against any or
all Miami Subs dissenting shareholders who are parties to the proceeding,
to whom Miami Subs has made an offer to pay for the shares, if the court
finds that the action of the dissenting shareholders in failing to accept
Miami Subs' offer was arbitrary, vexatious, or not in good faith.

The above summary is not a complete statement of the Florida Business
Corporation Act, relating to dissenters' appraisal rights, and is qualified in
its entirety by reference to the provisions of Sections 607.1301, 607.1302 and
607.1320 of the Florida Business Corporation Act attached to this joint proxy
statement/prospectus as Annex D and incorporated in this joint proxy
statement/prospectus by reference. This summary and the provisions of Sections
607.1301, 607.1302 and 607.1320 of the Florida Business Corporation Act should
be reviewed carefully by any Miami Subs shareholder who wishes to exercise
statutory dissenters' appraisal rights or wishes to preserve the right to do so,
since failure to comply with the required procedures will result in the loss of
such rights. Any Miami Subs shareholder who is considering dissenting should
consult his or her legal advisor.

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following describes the principal federal income tax consequences of
the merger, assuming that the merger is consummated as contemplated, and of the
ownership of the Nathans common stock and warrants. The discussion assumes that
a Miami Subs shareholder holds its Miami Subs common stock and will hold its
Nathans stock and warrants as capital assets. To hold an asset as a capital
asset is generally to hold it for investment. This discussion is based on
current laws and interpretations thereof, and there can be no assurance that
future legislation, regulations, administrative rulings, or court decisions will
not adversely affect the accuracy of the statements contained in this document.
The discussion does not take account of rules that may apply to stockholders
that are subject to special treatment under federal income tax laws such as,
trusts, S corporations, taxpayers subject to alternative minimum tax, insurance
companies, dealers in securities, some retirement plans, financial institutions,
tax exempt organizations, holders who are not United States citizens or
residents, Miami Subs shareholders who acquired

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Miami Subs common stock under the exercise of employee stock options or rights
or otherwise as compensation, and persons in special situations, including
persons who hold shares of Miami Subs common stock as part of a straddle. No
rulings have been requested or received from the IRS as to the matters discussed
in this document and there is no intent to seek any rulings from the IRS.
Accordingly, we cannot assure you that the IRS will not challenge the tax
treatment of any or all of the matters discussed in this summary or, if it does
challenge the tax treatment, that it will not be successful.

THE DISCUSSION BELOW DOES NOT ADDRESS STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE MERGER OR THE OWNERSHIP OF NATHANS COMMON STOCK AND
WARRANTS, AND THE SPECIFIC TAX CONSEQUENCES TO EACH MIAMI SUBS SHAREHOLDER MAY
DIFFER. CONSEQUENTLY, EACH MIAMI SUBS SHAREHOLDER SHOULD CONSULT HIS, HER OR ITS
OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THE SHAREHOLDER, OF THE
MERGER AND THE OWNERSHIP OF NATHANS COMMON STOCK AND WARRANTS.

TAX CONSEQUENCES TO MIAMI SUBS' SHAREHOLDERS

Effect of Merger

For each holder of Miami Subs common stock, the merger will be a taxable
transaction for federal income tax purposes and the holder will be treated as
if, at the effective time of the merger, it had sold each of its shares for
Nathans common stock and warrants. A holder of Miami Subs common stock will
recognize capital gain or loss equal to the difference between

- its tax basis in the Miami Subs common stock surrendered and

- the sum of

- the fair market value of the Nathans common stock received, plus

- the fair market value of the warrants received, determined as of the
effective time of the merger.

The gain or loss recognized as a result of the merger will be treated as a
capital gain or loss, provided that Miami Subs is not treated for federal income
tax purposes as a "collapsible corporation." Miami Subs' management believes
that Miami Subs is not a collapsible corporation for federal income tax
purposes. For federal income tax purposes capital losses are generally
deductible only against capital gains and not against ordinary income.

Holding of Nathans Common Stock and Warrants

Nathans common stock and warrants received by a holder of Miami Subs common
stock in exchange for Miami Subs common stock will have a tax basis equal to the
fair market value of the Nathans common stock and warrants received and the
effective time will commence a new holding period for the Nathans stock and
warrants.

Exercise of Warrants

Generally, no gain or loss will be recognized for federal income tax
purposes upon exercise of a warrant. The tax basis of shares of Nathans common
stock acquired upon exercise of a warrant will be equal to the sum of

- the holder's tax basis in the warrant and

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- the exercise price.

The holding period of the Nathans common stock acquired upon exercise of a
warrant will begin following the date of exercise of the warrant.

Disposition of Nathans Stock and Warrants

In general, the sale, exchange or other taxable disposition of Nathans
common stock and warrants will result in gain or loss to the holder in an amount
equal to the difference between the amount realized on the sale, exchange or
other disposition and the holder's tax basis in the Nathans common stock and
warrants. The gain or loss generally will be long-term capital gain or loss if
the Nathans common stock or warrants, as the case may be, are held by the holder
for more than one year at the time of the disposition and, in the case of the
warrants, the Nathans common stock issuable upon exercise of the warrants would
have been a capital asset if acquired by the holder.

Expiration of Warrants

The expiration of a warrant should generally result in a long-term capital
loss to the holder equal to the holder's tax basis in the warrant if the warrant
is held by the holder for more than one year at the time of the expiration and
the Nathans common stock issuable upon exercise of the warrant would have been a
capital asset if acquired by the stockholder.

Backup Withholding

Under the federal income tax backup withholding rules, unless an exemption
applies, American Stock Transfer & Trust Company, as paying agent, will be
required to withhold, and will withhold, 31% of all payments to which a payee is
entitled under the merger, unless the payee provides a tax identification number
and certifies under penalties of perjury, that the number is correct. A tax
identification number is a social security number, in the case of an individual,
or employer identification number in the case of other Miami Subs shareholders.
Each holder of Miami Subs common stock, and, if applicable, each other payee,
should complete and sign the substitute Form W-9 which will be included as part
of the letter of transmittal to be returned to American Stock Transfer in order
to provide the information and certification necessary to avoid backup
withholding, unless an applicable exception exists and is proved in a manner
satisfactory to American Stock Transfer. The exceptions provide that some
holders are not subject to these backup withholding and reporting requirements.
These holders include all corporations and some foreign individuals. Any amounts
withheld will be allowed as a credit against the holder's federal income tax
liability for such year.

TAX CONSEQUENCES TO NATHANS, MIAMI ACQUISITION CORP. AND MIAMI SUBS

Effect of Merger

The merger of Miami Acquisition Corp. into Miami Subs, with Miami Subs
surviving and with Miami Subs shareholders receiving the merger consideration in
the transaction, constitutes a taxable reverse subsidiary merger which will be
treated for federal income tax purposes as a direct purchase by Nathans of the
Miami Subs common stock from the Miami Subs shareholders in exchange for the
merger consideration, and as such the transitory existence of Miami Acquisition
Corp. as the wholly-owned subsidiary of Nathans

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will be disregarded for federal income tax purposes. Because Nathans will be
treated as purchasing the Miami Subs common stock directly from the Miami Subs
shareholders, unless an Internal Revenue Code Section 338 election is made, or
is deemed to have been made under the Code, to treat the purchase by Nathans of
the Miami Subs common stock as a purchase of the assets of Miami Subs resulting
in a stepped up basis in the Miami Subs assets, no gain or loss will be
recognized by Miami Subs as a result of the merger. Further, no gain or loss
will be recognized by Nathans upon the receipt of the shares of Miami Subs
common stock from the Miami Subs shareholders in exchange for the merger
consideration. Nathans's adjusted tax basis in the Miami Subs common stock
acquired in the merger will generally be equal to the value of the merger
consideration paid by Nathans to the Miami Subs shareholders in exchange for
their Miami Subs common stock.

Net Operating Losses

Miami Subs had net operating loss and general business credit carryforwards
of approximately $6.4 million and $274,000, respectively, as of May 31, 1998.
The amount and timing of the carryforwards may change as a result of the
adjustment proposed by the IRS for the fiscal years 1991 through 1996,
inclusive, as well as any adjustment which may result with respect to fiscal
year 1997. Under Section 382 of the Code, the ability of Miami Subs to utilize
its net operating losses and credits will be limited if Miami Subs experiences
an "ownership change" as a consequence of the merger. Section 382 defines an
"ownership change" as an increase of more than 50 percentage points in ownership
of stock owned by one or more 5% stockholders over the lowest percentage of
stock owned by such stockholders during the preceding three year period. It is
anticipated that the merger will result in an "ownership change" within the
meaning of Section 382 of the Code, and thus, will result in the utilization of
any remaining carryforwards of Miami Subs being limited under Section 382. The
Section 382 limitation is determined as follows: first, the value of Miami Subs
is determined; and second, a percentage equal to the long-term tax-exempt rate
determined by the Treasury Department, which is currently approximately 5%, is
multiplied by the value of Miami Subs to determine the amount of the net
operating loss carryforwards of Miami Subs which may be used in any given year
to offset taxable income of Miami Subs, subject to exception for some built-in
gain items. For the purposes of calculating the Section 382 limitation, the
value of Miami Subs is equal to the fair market value of all outstanding equity
of Miami Subs immediately prior to the ownership change, subject to adjustment
in some cases. Previous "ownership changes" have resulted in a Section 382
limitation of approximately $340,000, which may be applied in addition to any
Section 382 limitation resulting from the merger. To the extent that Miami Subs
uses less than the Section 382 limitation in any taxable year, the unused
portion of the Section 382 limitation will be added to the Section 382
limitation for the next taxable year.

MIAMI SUBS SHAREHOLDERS SHOULD NOTE THAT THE PARTIES HAVE NOT OBTAINED, AND
WILL NOT OBTAIN, A RULING FROM THE IRS OR AN OPINION OF COUNSEL REGARDING THE
MATTERS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. EACH MIAMI SUBS
SHAREHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR WITH RESPECT TO THE
TAX CONSEQUENCES OF THE PROPOSED TRANSACTIONS, INCLUDING FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES.

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ACCOUNTING TREATMENT

The merger will be accounted for as a "purchase," as such term is used
under generally accepted accounting principles. Accordingly, from and after the
effective time of the merger, Miami Subs' consolidated results of operations
will be included in Nathans' consolidated results of operations. For purposes of
preparing Nathans' consolidated financial statements, Nathans will establish a
new accounting basis for Miami Subs' assets and liabilities based upon the
estimated fair market values thereof and Nathans' purchase price, including the
costs of the acquisition. Accordingly, the purchase accounting adjustments made
in connection with the development of the unaudited pro forma combined financial
information appearing elsewhere in this joint proxy statement/prospectus are
preliminary and have been made solely for purposes of developing such pro forma
combined financial information to comply with disclosure requirements of the
Commission. Although the final purchase price allocation may differ, the pro
forma combined financial information reflects Nathans management's best estimate
based upon currently available information. For more information regarding the
pro forma allocation of the purchase price, see "Unaudited Pro Forma Combined
Financial Information."

LEGAL PROCEEDINGS

On January 5, 1999, Miami Subs was served with a class action lawsuit
entitled Robert J. Feeny, on behalf of himself and all others similarly situated
vs. Miami Subs Corporation, et al., which was filed against Miami Subs, its
directors and Nathans in a Circuit Court in Broward County, Florida, by a
shareholder of Miami Subs. Since that time, Nathans and its designees to the
Miami Subs board have also been served. The suit alleges that the proposed
merger between Miami Subs and Nathans, as contemplated by the companies
non-binding letter of intent, is unfair to Miami Subs' shareholders based on the
price that Nathans is paying to the Miami Subs' shareholders and constitutes a
breach by the defendants of their fiduciary duties to the shareholders of Miami
Subs. The plaintiff seeks among other things:

- class action status;

- preliminary and permanent injunctive relief against consummation of the
proposed merger; and

- unspecified damages to be awarded to the shareholders of Miami Subs.

On March 19, 1999, the court granted the plaintiff leave to amend the
complaint. On April 18, 1999, the plaintiff filed an amended complaint. Miami
Subs filed a motion to dismiss the complaint on April 13, 1999. Nathans and its
designees to the Miami Subs board filed a motion to dismiss on April 29, 1999.
On May 21, 1999, the court considered these motions to dismiss, but has yet to
make a ruling. Miami Subs and Nathans intend to defend against the suit
vigorously and pursue the merger.

GOVERNMENTAL AND REGULATORY APPROVALS

Nathans and Miami Subs are aware of no governmental or regulatory approvals
required for consummation of the merger, other than compliance with the federal
securities laws and applicable state securities and "blue sky" laws.

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CERTAIN PROVISIONS OF THE MERGER AGREEMENT

The following is a summary of the material provisions of the merger
agreement not summarized elsewhere in this joint proxy statement/prospectus. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the merger agreement, a copy of which is attached as
Annex A to this joint proxy statement/prospectus and is incorporated in this
joint proxy statement/prospectus by reference.

EFFECTIVE TIME

The effective time of the merger will be at the time the articles of merger
are filed with the Department of State of the State of Florida or at such later
time as may be specified in such articles of merger. The closing date will occur
as soon as practicable following the approval of the merger by Nathans'
stockholders and Miami Subs' shareholders, but no later than three business days
after the merger is approved, except that the closing date may be adjourned in
the event that a condition of closing has not been satisfied or waived. In the
event a closing condition is not satisfied or waived, the closing date shall be
no later than three business days following the satisfaction or waiver of any
such condition or at such other time as Miami Subs and Nathans may agree. We
expect that the closing date and effective time of the merger will be on or
about October 5, 1999, assuming all conditions to the merger are met or waived
prior to that date.

CONVERSION OF SHARES AND OPTIONS

At the effective time of the merger each outstanding share of Miami Subs
common stock will be converted into the right to receive a fraction of a share
of Nathans common stock having a value of $2.068, but no more than one share of
Nathans common stock for each two shares of Miami Subs.

A Miami Subs shareholder will also be granted one warrant to purchase one
share of Nathans common stock at an exercise price of $6.00 for each four shares
of Nathans common stock that such shareholder is entitled to receive.

Shares of Miami Subs common stock which are held by Nathans or its
affiliates or in the treasury of Miami Subs and shares with respect to which
dissenters appraisal rights have been properly exercised will not be converted
in the merger.

Furthermore, at the effective time of the merger, each outstanding option
and warrant to purchase Miami Subs common stock, whether or not exercisable,
will be assumed by Nathans, on the same terms and conditions as were applicable
under the original Miami Subs option or warrant, subject to adjustment in
accordance with the merger agreement as follows:

1. the number of shares purchasable under each assumed option or
warrant will be the number of whole shares of Nathans common stock equal to
the product of the number of shares of Miami Subs common stock that were
issuable upon exercise of the Miami Subs option or warrant immediately
prior to the effective time multiplied by the number of shares, or
fractions of a share, of Nathans common stock issued at the effective time
in exchange for one share of Miami Subs common stock, rounded down to the
nearest whole number of shares of Nathans common stock, and

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2. the per share exercise price for the shares of Nathans common stock
issuable upon exercise of the assumed Miami Subs option or warrant will be
equal to the amount determined by multiplying the exercise price per share
of Miami Subs common stock at which the option or warrant was exercisable
immediately prior to the effective time by $2.068, rounded up to the
nearest whole cent. After the effective time of the merger, Nathans will
issue to each holder of an outstanding Miami Subs option or warrant a
notice describing the assumption of the option or warrant by Nathans. There
are outstanding options and warrants to acquire, in the aggregate,
1,084,679 shares of Miami Subs common stock.

At or before the effective time of the merger, Nathans shall make available
to American Stock Transfer & Trust Company sufficient shares of Nathans common
stock and warrants to satisfy the obligations to holders of shares of Miami Subs
common stock. Promptly after the effective time, American Stock Transfer shall
mail to each record holder of shares of Miami Subs common stock and each option
and warrant holder previously identified by Miami Subs a letter of transmittal
and instructions for use in surrendering certificates representing shares of
Miami Subs common stock and presenting claims with respect to options and
warrants to purchase outstanding shares.

NASDAQ LISTING

The shares of common stock, the warrants and the shares of common stock
underlying such warrants to be issued in connection with the merger are required
to be listed on The Nasdaq National Market. The shares of Nathans common stock
underlying the options and warrants to be assumed are also required to be listed
on The Nasdaq National Market. The approval of Nasdaq for listing of these
securities is expected to be obtained prior to the effective time, subject to
official notice of issuance. For a description of the terms of the warrants, see
"Description of Nathans Securities -- Warrants" on page 137.

REPRESENTATIONS AND WARRANTIES

The merger agreement contains various customary representations and
warranties by Miami Subs, Nathans and Miami Acquisition Corp., as the case may
be, concerning:

- organization, good standing and corporate power;

- capitalization;

- subsidiaries;

- obligations with respect to capital stock;

- authorization of the merger agreement and related transactions;

- Securities and Exchange Commission filings;

- financial statements;

- the absence of certain changes and events;

- tax matters;

- intellectual property;

- governmental authorization and compliance with applicable laws;

- litigation;

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<PAGE> 69

- brokers' and finders' fees;

- employee benefit plans;

- absence of liens and encumbrances;

- environmental matters;

- labor matters;

- change of control payments;

- the absence of material misstatements or omissions in the proxy statement
and registration statement;

- board approval;

- minute books;

- political contributions; and

- the accuracy of representations and warranties in the agreement.

CONDUCT OF MIAMI SUBS' AND NATHANS' BUSINESSES PRIOR TO MERGER

Under the merger agreement, Miami Subs and Nathans have each agreed, on
behalf of itself and its subsidiaries, that during the period from the date of
the merger agreement and continuing until the earlier of the termination of the
merger agreement under its terms or the effective time of the merger, except as
set forth in the disclosure schedules or to the extent that the other party
shall otherwise consent in writing:

- to carry on its business diligently and in accordance with good
commercial practice and to carry on its business in the usual, regular
and ordinary course, in substantially the same manner as previously
conducted;

- to pay its debts and taxes when due subject to good faith disputes over
such debts or taxes, to pay or perform other material obligations when
due;

- use its commercially reasonable efforts consistent with past practices
and policies to preserve intact its present business organization;

- keep available the services of its present officers and employees; and

- preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings.

In addition, Miami Subs and Nathans have each agreed, on behalf of itself
and its subsidiaries except as set forth in the disclosure schedules, without
the prior written consent of the other party, not to:

- Waive any stock repurchase rights, accelerate, amend or change the period
of exerciseability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or
authorize cash payments in exchange for any options granted under the
plans;

- Enter into any material partnership arrangements, joint development
agreements or strategic alliances;

- Grant any severance or termination pay to any officer or employee except
payments in amounts consistent with policies and past practices or under
written agreements outstanding, or policies existing, on the merger
agreement date and as previously disclosed in writing to the other, or
adopt any new severance plan;

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<PAGE> 70

- Transfer or license to any person or entity or otherwise extend, amend or
modify in any material respect any rights to its intellectual property
rights, other than in the ordinary course of business;

- Declare or pay any dividends on or make any other distributions, whether
in cash, stock or property, in respect of any capital stock or split,
combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;

- Repurchase or otherwise acquire, directly or indirectly, any shares of
capital stock except under rights of repurchase of shares under any
employee, consultant or director stock plan;

- Issue, deliver, sell, authorize or propose the issuance, delivery or sale
of, any shares of capital stock or any securities convertible into shares
of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue shares or convertible securities,
other than

- options to purchase shares of Miami Subs common stock or Nathans
common stock, as the case may be, to be granted at fair market value
in the ordinary course of business, consistent with past practice and
in accordance with existing stock option plans, or

- shares of Miami Subs common stock or Nathans common stock, as the case
may be, issuable upon the exercise of the options referred to in the
preceding clause or outstanding as of the merger agreement date;

- Cause, permit or propose any amendments to any charter document or bylaw
or similar governing instruments of any subsidiaries;

- Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of,
or by any other manner, any

- business
- corporation,
- partnership interest,
- association or
- other business organization or division,

or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of Miami Subs or
Nathans, as the case may be. The parties also agree not to enter into
any

- joint ventures,
- strategic partnerships or
- alliances,

other than in the ordinary course of business consistent with past
practice. However, Nathans may enter into any of the above transactions
if (1) Nathans is the surviving entity, or (2) if Nathans is not the
surviving entity, the surviving entity specifically assumes the
obligations of Nathans under the merger agreement;

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<PAGE> 71

- Sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to the
business of Miami Subs or Nathans, as the case may be;

- Incur any indebtedness for borrowed money or guarantee any indebtedness
or issue or sell any debt securities or warrants or rights to acquire
debt securities of Miami Subs or Nathans, as the case may be, or
guarantee any debt securities of others except that

- they can incur indebtedness for ordinary course trade payables or
pursuant to existing credit facilities in the ordinary course of
business and

- Miami Subs can guarantee third-party debt securities in connection
with the Arthur Treacher's/Miami Subs development project;

- Adopt or amend any employee benefit or stock purchase or option plan, or
enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or
wage rates of its officers or employees other than in the ordinary course
of business, consistent with past practice;

- Pay, discharge or satisfy any claim, liability or obligation, whether
absolute, accrued, asserted or unasserted, contingent or otherwise, other
than the payment, discharge or satisfaction in the ordinary course of
business;

- Make any grant of exclusive rights to any third party; or

- Agree in writing or otherwise to take any of the actions described above.

NO SOLICITATION BY MIAMI SUBS

Under the merger agreement, Miami Subs agreed that prior to the earlier of
the closing of the merger or the termination of the merger agreement, Miami Subs
shall not, subject to limitations set forth in the merger agreement, directly or
indirectly solicit, initiate or encourage inquiries or proposals with respect
to, furnish any information relating to, or participate in, continue or enter
into any negotiations or discussions concerning, any

- merger,
- consolidation or
- other business combination with, or
- the purchase of all or a portion of the assets of or any equity interest
in, Miami Subs or any of its subsidiaries.

Miami Subs agreed to instruct each officer, director, affiliate and advisor
of Miami Subs and its subsidiaries to refrain from doing any of the above. Miami
Subs has agreed to notify Nathans immediately in writing of, and to communicate
in the notice the terms of, any inquiry or proposal which it may receive.

FEES AND EXPENSES

All fees and expenses incurred in connection with the merger agreement and
the transactions contemplated by the merger agreement will be paid by the party
incurring the expenses, except that the parties will equally share printing and
filing fees associated with the registration statement of which this joint proxy
statement/prospectus forms a part.

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<PAGE> 72

Miami Subs is required to pay Nathans a termination fee of:

1. $500,000 if the merger agreement is terminated because the Miami
Subs board of directors withdraws or modifies its recommendation to the
Miami Subs shareholders to approve the merger agreement, other than as a
result of Raymond James' withdrawal of its opinion dated March 19, 1999 to
the effect that the merger consideration to be received by the Miami Subs
shareholders, other than Nathans and its affiliates, in the merger is fair
to Miami Subs shareholders from a financial point of view, or

2. $250,000 if the merger agreement is terminated as a result of Miami
Subs' breach of a representation, warranty or covenant in the merger
agreement.

Nathans is required to pay Miami Subs a termination fee of:

1. $250,000 if the merger agreement is terminated because the Nathans
board of directors withdraws or modifies its recommendation to the Nathans
stockholders; or

2. $125,000 if the merger agreement is terminated as a result of
Nathans' breach of a representation, warranty or covenant in the merger
agreement.

CONDITIONS TO THE MERGER

The respective obligations of Nathans and Miami Subs to effect the merger
are subject to the satisfaction at or prior to the effective time of the
following conditions:

- the merger agreement shall have been approved and adopted by the
requisite vote under applicable law by the shareholders of Miami Subs and
the stockholders of Nathans;

- the Commission shall have declared the registration statement effective
and no stop order suspending the effectiveness of the registration
statement or any part thereof shall have been issued and no proceeding
for that purpose, and no similar proceeding in respect of the proxy
statement, shall have been initiated or threatened in writing by the
Commission; and

- no court, administrative agency or commission or other governmental
authority or instrumentality shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other temporary, preliminary or permanent order
which is in effect and which has the effect of making the merger illegal
or otherwise prohibiting consummation of the merger.

The obligations of Nathans to consummate the merger are expressly
conditioned upon the waiver or satisfaction of the following conditions:

- that all of Miami Subs' representations and warranties contained in the
merger agreement be true and correct in all material respects as if made
on the closing date;

- that all of Miami Subs' covenants and agreements contained in the merger
agreement shall have been performed at or prior to the closing date and
such compliance shall be certified by Miami Subs' President and Chief
Financial Officer;

- Nathans shall have received an opinion of Greenberg Traurig, P.A.,
counsel for Miami Subs, in form reasonably acceptable to Nathans;

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<PAGE> 73

- there shall have been no material adverse change in the financial or
other condition of the business or prospects of Miami Subs or any of its
subsidiaries or their respective assets;

- Miami Subs shall have received a fairness opinion which states
unequivocally that the merger consideration to be received by the Miami
Subs shareholders is fair from a financial point of view to Miami Subs
shareholders;

- that the employment agreements between Miami Subs and each of Messrs.
Perlyn, Woda and Baran shall have been executed and delivered;

- that Nathans shall have completed its due diligence with respect to Miami
Subs and determined that Miami Subs' representations, warranties and
covenants contained in the merger agreement are true and correct in all
material respects; and

- that the merger is completed on or before October 29, 1999.

Miami Subs' obligations under the merger agreement are dependent upon the
waiver or satisfaction, of the following conditions:

- that all of Nathans' representations and warranties contained in the
merger agreement be true and correct in all material respects as if made
on the closing date;

- that all of Nathans' covenants and agreements contained in the merger
agreement shall have been performed at or prior to the closing date and
such compliance shall be certified by Nathans' President and Chief
Financial Officer;

- Miami Subs shall have received an opinion of Blau, Kramer, Wactlar &
Lieberman, P.C., counsel to Nathans, in form reasonably acceptable to
Miami Subs;

- there shall have been no material adverse change in the financial or
other condition of the business or prospects of Nathans or any of its
subsidiaries or their respective assets;

- Nathans shall have received a fairness opinion which states unequivocally
that the merger consideration to be received by Miami Subs shareholders
from Nathans is fair from a financial point of view to Nathans
stockholders;

- Nathans shall have deposited sufficient shares of Nathans common stock
and warrants with the American Stock Transfer to consummate the merger;

- that Miami Subs shall have completed its due diligence with respect to
Nathans and determined that Nathans' representations, warranties and
covenants contained in the merger agreement are true and correct in all
material respects; and

- that the merger is completed on or before October 29, 1999.

Neither Nathans nor Miami Subs is presently aware of any closing condition
that is unlikely to be fulfilled or waived.

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<PAGE> 74

TERMINATION

The merger may be terminated at any time prior to the filing of the
articles of merger with the Department of State of the State of Florida:

- by any party not in material breach of the merger agreement in the event
that a material condition of closing has not been satisfied or waived
within the time allowed;

- by Nathans, if not in material breach under the merger agreement, if any
of the conditions to be satisfied by Miami Subs have not been satisfied
within the time allowed; and

- by Miami Subs, if not in material breach under the merger agreement, if
any of the conditions to be satisfied by Nathans have not been satisfied
within the time allowed.

INDEMNIFICATION

Miami Subs, as the surviving corporation, shall assume all of the
obligations of Miami Subs and any of its subsidiaries under indemnification
agreements to provide indemnification to present or former officers, directors,
employees and agents. In addition, for a period of three years from the
effective time of the merger, Nathans shall indemnify the present and former
officers, directors, employees and agents of Miami Subs to the extent required
under the Florida Business Corporation Act, the articles of incorporation or
bylaws of Miami Subs. Nathans has also agreed to maintain Miami Subs' existing
officers and directors liability insurance, or comparable insurance, for a
three-year period after the effective time of the merger.

MATERIAL CONTACTS BETWEEN NATHANS AND MIAMI SUBS

On November 25, 1998, Nathans acquired approximately 30% of the outstanding
common stock of Miami Subs from Miami Subs' then chairman and chief executive
officer for $4.2 million or $.517 per share. After giving effect to Miami Subs
reverse stock split, the per share price was $2.068. In connection with that
purchase, Nathans designated and the Miami Subs board of directors elected three
members to the Miami Subs board of directors, namely Howard M. Lorber, Wayne
Norbitz and Robert J. Eide. Messrs. Lorber, Norbitz and Eide are executive
officers and/or directors of Nathans. For more information about Messrs. Lorber,
Norbitz and Eide, please see "Nathans Management and Executive
Compensation -- Officers and Directors of Nathans" beginning on page 98.

The merger agreement provides that at the effective time of the merger,
Miami Subs and Donald Perlyn will enter into an employment agreement under which
Mr. Perlyn will become a director of Nathans.

In January 1999, Miami Subs began selling "Nathan's Famous" all beef
frankfurters and fresh, crinkle-cut french fries at one of its company-owned
restaurants on a test basis. A franchise agreement was executed in February
1999.

Other than the foregoing, there are no past, present or proposed material
contracts, arrangements, understandings, relationships, negotiations or
transactions between Miami Subs and Nathans, including their respective
affiliates.

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<PAGE> 75

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

NATHANS

Nathans common stock has been trading on The Nasdaq National Market System
under the symbol NATH since February 26, 1993. As of July 30, 1999, there were
312 holders of record of Nathans common stock. Nathans has never declared or
paid cash dividends on the Nathans common stock and does not anticipate paying
any cash dividends in the foreseeable future. Nathans currently intends to
retain future earnings, if any, to fund the development of its business. The
following table set forth for the fiscal quarter indicated the high and low
closing share prices per share as reported by The Nasdaq National Market System.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 29, 1998
First quarter........................................ $3.88 $2.97
Second quarter....................................... 4.25 3.19
Third quarter........................................ 4.88 3.56
Fourth quarter....................................... 4.75 3.50
FISCAL YEAR ENDED MARCH 28, 1999
First quarter........................................ $4.44 $3.69
Second quarter....................................... 4.63 3.44
Third quarter........................................ 4.44 3.34
Fourth quarter....................................... 4.28 3.56
FISCAL YEAR ENDING MARCH 26, 2000
First quarter........................................ $4.19 $3.50
Second quarter (through August 16, 1999)............. $3.69 $3.34
</TABLE>

On November 24, 1998, the last trading day prior to public announcement of
the non-binding letter of intent relating to the merger, the closing price of
Nathans common stock, as reported by The Nasdaq National Market System, was
$4.0625 per share. On January 29, 1999, the last trading day prior to the public
announcement of the signing of the merger agreement, the closing price of
Nathans common stock, as reported by The Nasdaq National Market System, was
$3.906 per share. On August 16, 1999, the last trading day before the date of
this joint proxy statement/prospectus, the closing price of Nathans common
stock, as reported by The Nasdaq National Market System, was $3.625 per share.

MIAMI SUBS

The Miami Subs common stock has been trading on the OTC Bulletin Board
under the symbol "SUBS" since March 3, 1999. Prior to March 3, 1999, the Miami
Subs common stock had been conditionally trading on The Nasdaq SmallCap Market
after being removed from The Nasdaq National Market on November 8, 1998. From
November 9, 1998 until March 2, 1999, the Miami Subs common stock was traded on
the SmallCap Market pending Miami Subs' satisfaction of various conditions
imposed by Nasdaq during that period, including Miami Subs having to effect by
January 7, 1999 a

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<PAGE> 76

reverse stock split sufficient to satisfy the SmallCap Market's minimum bid
price requirement and hold by March 1, 1999 a special shareholders' meeting to
approve the merger. On January 7, 1999, Miami Subs effected a 1-for-4 reverse
stock split of the common stock bringing the common stock in compliance with
such minimum bid price requirement. However, Miami Subs was not able to hold the
special meeting by March 1, 1999 because the negotiation and execution of the
merger agreement took longer than anticipated. Consequently, on March 2, 1999,
the Miami Subs common stock was delisted from the SmallCap Market. Miami Subs is
appealing the delisting. As of August 16, 1999, there were 1,607 holders of
record of Miami Subs common stock. Miami Subs has never declared or paid cash
dividends on the Miami Subs common stock and does not anticipate paying any cash
dividends in the foreseeable future. Miami Subs currently intends to retain
future earnings, if any, to fund the development of its business. The following
table sets forth for the fiscal quarter indicating the high and low closing
prices per share reported by The Nasdaq National Market, The Nasdaq SmallCap
Market and OTC Bulletin Board, as applicable and as adjusted for Miami Subs'
1-for-4 reverse stock split in January 1999.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED MAY 31, 1998
First quarter............................................. $4.625 $2.56
Second quarter............................................ 4.125 2.50
Third quarter............................................. 2.50 1.50
Fourth quarter............................................ 3.00 2.25
FISCAL YEAR ENDED MAY 31, 1999
First quarter............................................. $2.75 $1.375
Second quarter............................................ 1.75 1.00
Third quarter 1.78 1.375
Fourth quarter 1.75 1.06
FISCAL YEAR ENDING MAY 31, 2000
First quarter (through August 16, 1999)................... $1.78 $1.50
</TABLE>

On November 24, 1998, the last trading day prior to the public announcement
of the non-binding letter of intent relating to the merger, the closing price of
Miami Subs common stock, as reported by the SmallCap Market, was $1.25 per
share. On January 29, 1999, the last trading day prior to the public
announcement of the signing of the merger agreement, the closing price of Miami
Subs common stock, as reported by the SmallCap Market, was $1.56 per share. On
August 16, 1999, the last trading day before the date of this joint proxy
statement/prospectus, the closing price of Miami Subs common stock, as reported
by OTC Bulletin Board, was $1.625 per share.

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<PAGE> 77

COMPARATIVE PER SHARE DATA

The following table sets forth certain historical per share data of Nathans
and Miami Subs, and combined per share data on an unaudited pro forma basis
after giving effect to the merger based on the purchase method of accounting,
assuming that eight shares of Miami Subs common stock is exchanged for four
shares of Nathans common stock and one warrant. The historical book value per
share was calculated by dividing stockholders' or shareholders' equity by the
number of shares of common stock outstanding at the end of each period. The pro
forma combined book value per share was calculated by dividing pro forma
combined stockholders' equity by the number of Nathans common shares outstanding
at the end of the period, and does not assume the exercise of any currently
outstanding options or warrants or any options or warrants to be issued to Miami
Subs shareholders in the merger. This data should be read in conjunction with
the selected historical financial data, the unaudited pro forma combined
condensed financial information and the separate historical financial statements
of Nathans and Miami Subs, and notes to those financial statements, included
elsewhere in this joint proxy statement/prospectus. The pro forma combined per
share data is not necessarily indicative of the operating results that would
have been achieved had the merger been consummated as of the beginning of the
periods presented and should not be construed as representative of future
operations.

<TABLE>
<CAPTION>
NATHANS NATHANS MIAMI SUBS MIAMI SUBS
52 WEEKS 13 WEEKS YEAR NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 28 JUNE 27, MAY 31, FEBRUARY 28,
1999 1999 1998 1999
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Earnings from continuing
operations per common share
Basic........................ $0.58 $0.10 $0.08 $0.09
Diluted...................... $0.57 $0.10 $0.08 $0.09
Book value per share........... $5.58 $5.68 $2.36 $2.50
</TABLE>

<TABLE>
<CAPTION>
NATHANS PRO FORMA COMBINED
52 WEEKS 13 WEEKS
ENDED ENDED
MARCH 28, JUNE 27,
1999 1999
----------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Earnings from continuing
operations per common share
Basic.......................................... $0.49 $0.10
Diluted........................................ $0.49 $0.10
Book value per share............................. $5.22 $5.29
</TABLE>

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<PAGE> 78

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

On November 25, 1998, Nathans acquired 8,121,000 shares of Miami Subs in a
private purchase transaction from Gus Boulis in consideration of the sum of $4.2
million in cash. After giving effect to the 1-for-4 reverse stock split Nathans
owns 2,030,250 shares. These shares represent approximately 30% of the issued
and outstanding shares of Miami Subs. This transaction was accounted for under
the equity method of accounting for investments. On January 15, 1999, Nathans
entered into the merger agreement with Miami Subs pursuant to which Nathans will
acquire the remaining outstanding shares of Miami Subs in exchange for
approximately 2,319,000 shares of Nathans common stock and approximately 580,000
warrants.

The unaudited pro forma balance sheet combines the unaudited consolidated
balance sheet of Miami Subs as of February 28, 1999 with the unaudited
consolidated balance sheet of Nathans as of June 27, 1999 as if the purchase had
occurred on June 27, 1999. The unaudited pro forma income statement for the year
ended March 28, 1999 combines Nathans' results of operations for the year ended
March 28, 1999 with Miami Subs' results of operations for the nine months ended
February 28, 1999 and for the three months ended May 31, 1998, assuming that the
transaction occurred at the beginning of Nathans' fiscal period. The unaudited
pro forma income statement for the thirteen weeks ended June 27, 1999 combines
Nathan's results of operations for the thirteen weeks ended June 27, 1999 with
Miami Subs' results of operations for the quarter ended February 28, 1999
assuming that the transaction occurred at the beginning of Nathans' fiscal
period.

Separate pro forma statements of operations have been presented for the
following circumstances: (1) Nathans 30% acquisition of the then outstanding
Miami Subs common stock and (2) the proposed acquisition of the remaining 70%
outstanding shares of Miami Subs.

Following the approval and consummation of the merger, Nathans will
evaluate continuing the strategy of providing financing to Miami Subs
franchisees and may offer financial incentives to motivate franchisees to repay
their notes before maturity. In this regard, any changes in Nathans' business
strategy going forward may result in some asset amounts being realized at
amounts that may be materially less than the carrying amounts already reflected
in the accompanying Miami Subs balance sheet and a portion may be a
non-recurring charge to the income statement.

The unaudited pro forma financial statements should be read in conjunction
with Nathans' consolidated financial statements and related notes, and the
financial statements and related notes of Miami Subs. The pro forma adjustments
are based upon the historical financial position and results of operations for
the periods presented. The pro forma financial data does not purport to
represent what Nathans' consolidated financial position or results of operations
would actually have been if the investment in Miami Subs had occurred at the
dates indicated, or to project Nathans financial position or results of
operations for any future period. The pro forma combined results may not be
comparable to or indicative of future performance. The pro forma adjustments are
based upon available information and upon assumptions that Nathans' believes are
reasonable under the circumstances; however, the actual recording of the merger
will be based on ultimate appraisals, evaluations and estimates of fair market
values. Nathans does not expect the actual recording of the merger to vary
materially from the pro forma financial statements.

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<PAGE> 79

On February 19, 1999, the U.S. Bankruptcy Court for the Middle District of
North Carolina, Durham Division, confirmed the Joint Plan of Reorganization of
the Official Committee of Franchisees of Roasters Corp. and Roasters Franchise
Corp., operators of Kenny Rogers Roasters Restaurants. Under the joint plan of
reorganization, on April 1, 1999, Nathans acquired the intellectual property
rights, including trademarks, recipes and franchise agreements of Roasters Corp.
and Roasters Franchise Corp. for $1,250,000 in cash plus related expenses, which
was paid for out of Nathans' working capital. Nathans' estimates revenues
ranging from $600,000 to $800,000 and pre-tax income of up to $100,000 during
the first fiscal year of operations following this acquisition, although there
can be no assurance in this regard. The acquisition of these rights and related
income and expenses have not been included in the accompanying pro forma
financial statements.

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<PAGE> 80

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 27, 1999

<TABLE>
<CAPTION>
PRO FORMA
NATHANS MIAMI SUBS ADJUSTMENTS PRO FORMA
------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $1,600 $ 4,206 $ (716)(a) $ 5,090
Marketable investment securities.................... 3,296 3,296
Franchise and other receivables, net................ 1,808 1,766 3,574
Inventory........................................... 422 164 586
Prepaid expenses and other current assets........... 267 60 327
Deferred income taxes............................... 622 622
------- ------- --------- -------
Total current assets.............................. 8,015 6,196 (716) 13,495
------- ------- --------- -------
Notes receivable...................................... 5,915 5,915
Property and equipment, net........................... 6,166 10,998 17,164
Intangible assets, net................................ 12,634 6,405 (1,028)(d) 18,011
Investment in affiliate............................... 4,461 (4,461)(e) --
Deferred income taxes................................. 892 892
Other assets, net..................................... 190 538 728
------- ------- --------- -------
24,343 23,856 (5,489) 42,710
------- ------- --------- -------
$32,358 $30,052 $ (6,205) $56,205
======= ======= ========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $5,211 $ 4,770 $ 9,981
Deferred franchise fees............................. 136 136
Current maturities of notes payable and obligations
under capital leases.............................. -- 914 914
------- ------- --------- -------
Total current liabilities......................... 5,347 5,684 -- 11,031
Obligations under notes payable and capital leases,
net of current maturities........................... -- 4,962 4,962
Deferred franchise fees and other deferred revenue.... -- 1,301 1,301
Other liabilities..................................... 194 1,467 1,661
------- ------- --------- -------
Total liabilities................................. 5,541 13,414 -- 18,955
Stockholders' equity:
Common stock........................................ 47 71 23(b) 70
(71)(c)
Additional paid-in capital.......................... 32,423 24,777 9,735(b) 42,833
(24,777)(c)
675(d)
Accumulated deficit................................. (5,653) (6,603) 6,603(c) (5,653)
Treasury stock...................................... (1,607) 1,607(c) --
------- ------- --------- -------
Total stockholders' equity........................ 26,817 16,638 (6,205) 37,250
------- ------- --------- -------
$32,358 $30,052 $ (6,205) $56,205
======= ======= ========= =======
</TABLE>

The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.

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<PAGE> 81

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THIRTEEN WEEKS ENDED JUNE 27, 1999

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NATHANS ADJUSTMENTS NATHANS MIAMI SUBS ADJUSTMENTS PRO FORMA
------- ----------- ------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Sales........................ $6,608 $6,608 $4,387 $10,995
Franchise fees and
royalties.................. 963 963 1,034 1,997
License royalties............ 406 406 -- 406
Investment and other
income..................... 97 97 284 381
------ ------ ------ ------ ---- -------
Total revenues.......... 8,074 -- 8,074 5,705 -- 13,779
Costs and expenses
Cost of sales.............. 4,080 4,080 2,947 7,027
Restaurant operating
expenses................ 1,529 1,529 1,219 2,748
Depreciation and
amortization............ 259 259 269 528
Amortization of
intangibles............. 113 113 108 (13)(d) 208
General and
administrative.......... 1,283 1,283 770 17(e) 2,070
Interest expense........... -- -- 146 -- 146
Merger costs............... -- -- 144 (144)(f) --
------ ------ ------ ------ ---- -------
Total costs and
expenses.............. 7,264 -- 7,264 5,603 (140) 12,727
------ ------ ------ ------ ---- -------
Earnings before tax.......... 810 -- 810 102 140 1,052
Income taxes................. 341 -- 341 20 -- 361
------ ------ ------ ------ ---- -------
Net income................... $ 469 -- $ 469 $ 82 $140 $ 691
====== ====== ====== ====== ==== =======

PER SHARE INFORMATION
Net earnings per share
Basic...................... $ 0.10 $ 0.10
====== =======
Diluted.................... $ 0.10 $ 0.10
====== =======
Shares used in computing net
income
Basic...................... 4,722 7,041
====== =======
Diluted.................... 4,744 7,063
====== =======
</TABLE>

The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.

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<PAGE> 82

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FIFTY-TWO WEEKS ENDED MARCH 28, 1999

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NATHANS ADJUSTMENTS NATHANS MIAMI SUBS ADJUSTMENTS PRO FORMA
------- ----------- ------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Sales....................... $24,511 $24,511 $18,463 $42,974
Franchise fees and
royalties................. 3,230 3,230 4,307 7,537
License royalties........... 1,415 1,415 0 1,415
Equity in income of
affiliate................. 26 238(a) 264 0 (264)(c) 0
Investment and other
income.................... 400 (140)(b) 260 1,013 1,273
------- ----- ------- ------- ----- -------
Total revenues......... 29,582 98 29,680 23,783 (264) 53,199
Costs and expenses
Cost of sales............. 15,367 15,367 12,397 27,764
Restaurant operating
expenses............... 5,780 5,780 4,872 10,652
Depreciation and
amortization........... 1,065 1,065 1,015 2,080
Amortization of
intangibles............ 384 384 436 (53)(d) 767
General and
administrative......... 4,722 4,722 3,380 67(e) 8,169
Interest expense.......... 1 1 659 660
Other income and expense,
net.................... (47) (47) 0 (47)
Merger Costs.............. 144 (144)(f) 0
------- ----- ------- ------- ----- -------
Total costs and
expenses............. 27,272 0 27,272 22,903 (130) 50,045
------- ----- ------- ------- ----- -------
Earnings before tax......... 2,310 98 2,408 880 (134) 3,154
Income tax provision
(benefit)................. (418) 0 (418) 139 0 (279)
------- ----- ------- ------- ----- -------
Net income.................. $ 2,728 $ 98 $ 2,826 $ 741 $(134) $ 3,433
======= ===== ======= ======= ===== =======

PER SHARE INFORMATION
Net earnings per share
Basic..................... $ 0.58 $ 0.49
======= =======
Diluted................... $ 0.57 $ 0.49
======= =======
Shares used in computing net
income
Basic..................... 4,722 7,041
======= =======
Diluted................... 4,753 7,072
======= =======
</TABLE>

The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.

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<PAGE> 83

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS:

The following pro forma adjustments have been made to the Nathans pro forma
combining balance sheet to:

(a) Reflect the estimate of total expenses to be incurred in
connection with the merger.

(b) Reflect the issuance of approximately 2,319,000 shares of Nathans
common stock and approximately 580,000 of Nathans common stock purchase
warrants. The issuance of common stock assumes a $4.136 per share price and
the warrants are valued at $.29 each.

(c) Reflect the elimination of Miami Subs common stock, additional
paid-in capital, accumulated deficit, and treasury stock.

(d) Represent the difference of the purchase price, including related
costs, and the fair value of the net assets acquired. Included in the
purchase price is the fair value of Nathans stock options issued in
exchange for the vested Miami Subs stock options of approximately $675,000.
The fair value of net assets acquired exceeded the purchase price and was
recorded as a reduction to Miami Subs' intangible assets.

(e) Represent the elimination of Nathans 30% investment in Miami Subs.

2. UNAUDITED PRO FORMA STATEMENTS OF INCOME ADJUSTMENTS:

The following pro forma adjustments have been made to Nathans pro forma
combining statements of income:

ACQUISITION OF 30% INTEREST IN MIAMI SUBS

(a) Reflects Nathans 30% equity in Miami Subs' net income.

(b) Reflects adjustment to reduce the tax exempt interest income earned on
the marketable investment securities used to purchase 30% of Miami Subs common
stock.

ACQUISITION OF REMAINING 70% OF MIAMI SUBS

(d) Reflects amortization adjustment arising from the difference between
the purchase price, including related costs, and the fair value of net assets
acquired.

(e) Reflects the additional costs of employment contracts entered into in
connection with the merger over historical compensation costs of those
individuals.

(f) Represents the reversal of merger costs incurred by Miami Subs.

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<PAGE> 84

NATHANS

GENERAL

Nathans currently operates and franchises or licenses 188 fast food units
featuring its famous all beef frankfurters, fresh crinkle-cut french fried
potatoes, and a variety of other menu offerings. Company-owned and franchised
units operate under the name "Nathan's Famous," the name first used at Nathans'
original Coney Island restaurant opened in 1916. Since fiscal 1997, Nathans
supplemented its franchise program with its branded product program which
enables foodservice retailers to sell selected Nathans proprietary products
outside of the realm of a traditional franchise relationship.

Over the past five years, Nathans has been focused on developing its
restaurant system by operating company-owned restaurants and opening franchised
or licensed restaurants while developing complementary lines of business, such
as expanding its supermarket licensing program, implementing its branded product
program and developing an international master franchising program.

At June 27,1999, the Nathans Famous system included 25 company-owned units
concentrated in the New York metropolitan area, New Jersey, Pennsylvania and
Connecticut, 163 franchised or licensed units, including 28 carts, kiosks, and
counter units and over 800 branded product outlets under its branded product
program, operating in 39 states, the District of Columbia, Israel and the
islands of Jamaica and Aruba.

Nathans plans to further expand its market penetration by growing its
branded product program, opening new company-owned, franchised or licensed
outlets emphasizing continued introduction into non-traditional captive markets
such as airports, highway travel plazas, universities, convenience stores, large
retail stores and other high traffic areas. These types of locations allow
Nathans to maximize its return on investment by minimizing its capital
investment and reducing its advertising costs while simplifying the unit's
operation. Nathans also plans to develop an international presence through the
use of master franchising arrangements.

Nathans was incorporated in Delaware on July 10, 1992 under the name
"Nathan's Famous Holding Corporation" to act as the parent of a Delaware
corporation then-known as Nathan's Famous, Inc. On December 15, 1992, Nathans
changed its name to Nathan's Famous, Inc. and its Delaware subsidiary changed
its name to Nathan's Famous Operating Corporation. The Delaware subsidiary was
organized in October 1989 in connection with its reincorporation in Delaware
from that of a New York corporation named "Nathan's Famous, Inc." The New York
Nathans was incorporated on July 10, 1925 as a successor to the sole
proprietorship that opened the first Nathans restaurant in Coney Island in 1916.
On July 23, 1987, Equicor Group, Ltd. was merged with and into the New York
Nathans in a "going private" transaction. The New York Nathans, the Delaware
subsidiary and Equicor may all be deemed to be predecessors of Nathans.

RECENT DEVELOPMENTS

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<PAGE> 85

franchise agreements of Roasters Corp. and Roasters Franchise Corp. for
$1,250,000 in cash plus related expenses, which was paid out of Nathans' working
capital. Nathans anticipates that this acquisition will enable it to further the
market penetration it has achieved to date, although there is no assurance in
this regard.

RESTAURANT OPERATIONS

CONCEPT AND MENUS

The Nathans concept offers a wide range of facility designs and sizes,
suitable to a vast variety of locations and features a core menu, consisting of
the "Nathan's Famous" all-beef frankfurters, fresh crinkle-cut french fries and
beverages. Nathans' menu is designed to be tailored to take advantage of
site-specific market opportunities by adding complementary food items to the
core menu. The Nathans concept is suitable to stand alone or be co-branded with
other nationally recognized brands.

Nathans' hot dogs are all-beef and are free from all fillers and starches.
Hot dogs are flavored with the original secret blend of spices created by Ida
Handwerker in 1916, which historically have distinguished Nathans' hot dogs. Hot
dogs are prepared and served in accordance with procedures which have not varied
significantly in more than 80 years. Fresh crinkle-cut french fried potatoes are
prepared daily at each Nathans restaurant. Nathans' french fried potatoes are
cooked to order in 100% cholesterol-free corn oil. Nathans estimates that
approximately 65% to 70% of sales in its company-owned units consist of its
famous hot dogs, fresh crinkle-cut french fried potatoes and beverages.

Individual Nathans restaurants supplement their core menu of hot dogs,
french fries and beverages with a variety of other quality menu choices: a
chargrilled hamburger menu, a chargrilled chicken sandwich menu, a seafood menu,
a fried chicken menu, a specialty sandwich menu, a breakfast menu and dessert,
salad and snack menus. While the number of supplemental menus carried varies
with the size of the unit, the specific supplemental menus chosen are tailored
to local food preferences and market conditions. Foods such as a chargrilled
chicken breast, fresh-squeezed lemonade and an assortment of salads, fresh
fruits and frozen yogurts have been added to appeal to customers interested in
lighter cuisine. Each of these supplemental menus consists of a number of
individual items; for example, the hamburger menu may include chargrilled
hamburgers, cheeseburgers, chiliburgers, superburgers and "BLT" burgers. Nathans
maintains the same quality standard with each supplemental menu as it does with
its core hot dog and french fried potato menu. Thus, for example, hamburgers and
sandwiches are prepared to order and not pre-wrapped or kept warm under lights.
Nathans also has a "Kids Meal" program in which various menu alternatives are
combined with toys to appeal to the children's market.

Nathans' prototype restaurant units are available in a range of sizes as
follows: Type A -- 300 to 1,200 sq. ft., Type B -- approximately 2,200 sq. ft.
and Type C -- approximately 4,000 sq. ft. Nathans has also developed prototype
carts, kiosks, and modular merchandising units, all designated as Type D. Type A
units may not have customer seating areas, although they may often share seating
areas with other fast food outlets in food court settings. Type B and Type C
units generally provide seating for 45 to 50 and 75 to 125 customers,
respectively. Type A and D units generally carry only the core menu. This menu
is supplemented by a number of other menu selections in Type B units and even
greater menu selection in Type C units. The standardization of Nathans'
prototype unit designs and menus has enabled Nathans to reduce the cost of
constructing conforming restaurant units and the operating costs of these units.

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<PAGE> 86

Nathans believes its carts, kiosks and modular units are particularly
well-suited for placement in non-traditional sites, such as airports, travel
plazas, stadiums, schools, convenience stores, entertainment facilities,
military facilities, business and industry food service, within larger retail
operations and other captive markets. All prototypes utilize a uniform,
contemporary design.

FRANCHISE PROGRAM

Nathans' franchise operations included 163 units at June 27, 1999,
operating in 18 states, the island of Aruba and the State of Israel. During the
current fiscal year, Nathans' franchising program has expanded internationally
by executing master development agreements for the State of Israel and Egypt.
Two restaurants are currently operating in Israel and 3 units are under various
stages of development in Egypt. Another Nathans franchisee has executed a master
development agreement for the development of Nathans Kosher restaurants within
the United States. The first Kosher Nathans restaurant opened in December 1998.

Today, Nathans counts among its 84 franchisees and licensees such well
known companies as Marriott Corporation, ARAMARK Leisure Services, Inc., CA1
Services, Inc., Service America Corp., Ogden Services Corp. and Sodexho USA.
Nathans continues to seek to market the franchising program to larger,
experienced and successful operators with the financial and business capability
to develop multiple franchise units.

As of June 27,1999, Host Marriott operated 29 franchised outlets included
14 units at airports and 15 within highway travel plazas.

Franchisees who desire to open multiple units in a specific territory
generally enter into a standard area development agreement under which Nathans
receives an advance fee based upon the number of proposed units which the
franchisee is authorized to open. This advance is credited against the franchise
fee payable to Nathans as provided in its standard franchise agreement. Nathans
may grant exclusive territorial rights, including foreign countries, for the
development of Nathans units based upon compliance with a predetermined
development schedule. Nathans may require that an exclusivity fee be conveyed
for these rights. Additionally, Nathans may pay fees associated with the
development of some geographic areas.

Franchisees are required to execute a standard franchise agreement or
license agreement prior to opening each "Nathan's Famous" unit. Nathans' current
standard franchise agreement provides for, among other things, a one-time
$30,000 franchise fee payable upon execution of the agreement, monthly royalty
payment based on 4.5% of restaurant sales and the expenditure of 2.5% of sales
on advertising. Nathans also offers a modified franchise agreement tailored to
meet the needs of franchisees who desire to operate a Nathans in a smaller area
offering a reduced menu. The modified franchise agreement provides for the
initial franchise fee of $15,000, which is payable upon execution of the
agreement, monthly royalties of 4.5% and the expenditure of 2.5% of sales on
advertising. Nathans may offer alternatives to the standard franchise agreement.
Marriott and National Restaurant Management, Inc., are among those who are not
subject to the requirement to spend a percentage of sales on advertising. The
initial term of the typical franchise agreement is 20 years, with a 15-year
renewal option by the franchisee, subject to conditions contained in the
franchise agreement.

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<PAGE> 87

The standard license agreement provides for, among other things, a monthly
royalty payment based on 10% of restaurant sales up to $250,000, 8% of
restaurant sales between $250,000 and $500,000 and 6% of restaurant sales in
excess of $500,000 per annum. There is no one-time license fee upon execution of
the agreement or requirement to spend a percentage of restaurant sales on
advertising.

Franchisees are approved on the basis of their business background,
evidence of restaurant management experience, net worth and capital available
for investment in relation to the proposed scope of the development agreement.
Nathans does not offer any financing arrangements to its franchisees.

Nathans provides numerous support services to its franchisees. Nathans
assists in and approves all site selections. Thereafter, Nathans provides
architectural prototype plans suitable for restaurants of varying sizes and
configurations, for use in food-court, in-line and free-standing locations.
Nathans also assists in establishing building design specifications, reviewing
construction compliance, equipping the restaurant and providing appropriate
menus to coordinate with the prototype restaurant design and location selected
by the franchisee. Nathans typically does not sell food, equipment or supplies
to its franchisees.

Nathans offers various management training courses for management personnel
of company-owned and franchised restaurants. At least one restaurant manager
from each restaurant must successfully complete Nathans' mandated management
training program. Nathans also offers additional operations and general
management training courses for all restaurant managers and other managers with
supervisory responsibilities. Nathans provides standard manuals to each
franchisee regarding training and operations, products and equipment and local
marketing programs. Nathans provides ongoing advice and assistance to
franchisees.

Franchised restaurants are required to be operated in accordance with
uniform operating standards and specifications relating to the selection,
quality and preparation of menu items, signage, decor, equipment, uniforms,
suppliers, maintenance and cleanliness of premises and customer service. All
standards and specifications are developed by Nathans and applied on a
system-wide basis. Nathans continuously monitors franchisee operations and
inspects restaurants. Franchisees are required to furnish Nathans with detailed
monthly sales or operating reports which assist Nathans in monitoring the
franchisee's compliance with its franchise or license agreement. Nathans makes
both announced and unannounced inspections of restaurants to ensure that company
practices and procedures are being followed. Nathans has the right to terminate
a franchise if a franchisee does not operate and maintain a restaurant in
accordance with the requirements of its franchise or license agreement. Nathans
also has the right to terminate a franchise for non-compliance with certain
other terms and conditions of the franchise or license agreement such as non-
payment of royalties, sale of unauthorized products, bankruptcy or conviction of
a felony. During the fiscal year ended March 28, 1999, Nathans terminated 2
franchise agreements.

COMPANY-OWNED OPERATIONS

As of June 27, 1999, Nathans operated 25 company-owned units, including two
kiosks, in New York, New Jersey, Connecticut and Pennsylvania. Some of Nathans'
restaurants are older and significantly larger units which do not conform to
current prototype designs. These units carry a broader selection of menu items
than current franchise prototype units. The items offered at company-owned
restaurants, other than the

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<PAGE> 88

core menu, tend to have lower margins than the core menu. The older units
required significantly higher levels of initial investment than current
franchise prototypes and tend to operate at a lower sales/investment ratio. For
this reason, Nathans does not intend to replicate these units in its planned
expansion of company-owned units.

Nathans has entered into a food service lease agreement with Home Depot
U.S.A., Inc. under which Nathans leases space within some Home Depot Improvement
Centers to operate its restaurants. The term of each Home Depot agreement is
five years from the date on which the restaurant opens, with two five year
renewal options. Nathans currently operates 11 units within Home Depot
Improvement Centers, including 2 kioks. Nathans is currently developing a new
prototype unit which is expected to open in the winter of 2000. Nathans believes
that this new unit may provide further development opportunities with The Home
Depot.

Since Nathans' initial public offering in February 1993, Nathans has
acquired seven company-owned restaurants from franchisees, opened 18 new
company-owned units, commenced operating two carts, sold one unit and closed
nine units. Nathans may close other units in the future.

Company-owned units currently range in size from approximately 440 square
feet to 10,000 square feet and are located principally in retail shopping
environments or are free-standing buildings. Some restaurant designs do not
include seating and others include seating for 100 to 300 customers. The
restaurants are designed to appeal to all ages and generally are open seven days
a week. Nathans has established high standards with respect to food quality,
cleanliness and service at its restaurants and regularly monitors the operations
of its restaurants to ensure adherence to these standards. Restaurant service
areas, seating, signage and general decor are contemporary. The average check at
the comparable company-owned restaurants was approximately $5.28 for fiscal
1999.

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<PAGE> 89

The following table shows the number of company-owned and franchised or
licensed units in operation at June 27, 1999 and their geographical
distribution:

<TABLE>
<CAPTION>
LOCATION COMPANY FRANCHISE TOTAL
-------- ------- --------- -----
<S> <C> <C> <C>
Arizona................................... -- 3 3
California................................ -- 1 1
Colorado.................................. -- 1 1
Connecticut............................... 1 4 5
Florida................................... -- 17 17
Indiana................................... -- 1 1
Maine..................................... -- 1 1
Maryland.................................. -- 1 1
Massachusetts............................. -- 2 2
Minnesota................................. -- 1 1
Mississippi............................... -- 1 1
Nevada.................................... -- 6 6
New Hampshire............................. -- 1 1
New Jersey................................ 6 45 51
New York.................................. 16 65 81
North Carolina............................ -- 3 3
Pennsylvania.............................. 2 6 8
Rhode Island.............................. -- 1 1
-- --- ---
Domestic Subtotal......................... 25 160 185
-- --- ---
International Locations
Aruba..................................... -- 1 1
Israel.................................... -- 2 2
-- --- ---
International Subtotal.................... -- 3 3
-- --- ---
Grand Total............................... 25 163 188
== === ===
</TABLE>

BRANDED PRODUCT PROGRAM

During fiscal 1998, Nathans launched its new "branded product program" in
which approved foodservice operators may offer Nathans' hot dogs and other
proprietary items for sale within their facilities. In conjunction with this
program, foodservice operators are granted a limited use of the Nathans'
trademark with respect to the sale of hot dogs, condiments and paper goods.
Nathans sells the products directly to various distributors who are permitted to
resell these proprietary products to retailers. Currently, there are over 700
branded outlets operating under this program. The flexibility of this program
has allowed Nathans to execute exclusive distribution agreements with The
Compass Group and Pierre Foods for the sale of pre-packaged Nathans branded hot
dogs through, vending machines, convenience stores and club stores. Nathans has
also executed an exclusive

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<PAGE> 90

agreement with Best Express Foods, Inc. for the sale of Nathans branded hot dogs
to school systems nationwide.

EXPANSION PROGRAM

Nathans' expansion plans focus on opening company-owned and franchised
units primarily in non-traditional captive markets by utilizing smaller facility
types with limited menus and increasing the market penetration of its branded
product program. Smaller designs have been developed specifically to encourage
co-branding by our business partners. Many of Nathans' franchisees currently
operate units that are co-branded with various nationally recognized brands. New
company-owned units are expected to be opened primarily in the Northeastern
United States, concentrated within the New York metropolitan area. Existing
company-owned units are principally located in the New York metropolitan area
and Nathans has extensive experience in operating restaurants in this market.
Nathans intends to continue to focus on opportunities for locating units in non-
traditional or other special captive market settings. Nathans believes that a
significant opportunity exists to convert existing sales of non-branded hot dogs
into "Nathan's" hot dogs throughout the foodservice industry, by franchisees,
licensees or perhaps with retailers by utilizing branded modular merchandising
units, carts or kiosks in addition to restaurants.

For the year ended March 28, 1999, franchisees have opened 21 new
franchised units including 2 units in the State of Israel and the first Kosher
Nathans restaurant. The branded product program has also added over 400 branded
outlets, exclusive of the points of distribution added under the Pierre Foods,
The Compass Group and Best Express Foods contracts.

Nathans expects that its franchisees and licensees will open approximately
20-25 new units and that it will seek continued growth of the branded product
program in fiscal 2000. Nathans plans to continue opening company-owned units
within Home Depot Improvement Centers as new opportunities arise.

During fiscal 1999, Nathans has continued its international development
initiative recognizing that opportunities exist for franchising "Nathan's
Famous" restaurants in various foreign countries. Nathans believes that in
addition to restaurant franchising it has the opportunity to offer master
development agreements to qualified persons or entities allowing for the
operation of franchised restaurants, as well as the ability to subfranchise
restaurants to others, license the manufacture and sale of Nathans' products
through supermarkets and develop a branded product program. Qualified persons or
entities must have satisfactory foodservice experience managing multiple units,
a solid infrastructure and the necessary financial resources to support the
business development. During fiscal 1999, a Nathans franchisee has opened 2
units in the State of Israel under a master development agreement and another
franchisee has 3 units under development under a master development agreement
for Egypt. Nathans has retained a consultant to assist in the development and
marketing efforts of the international program. Nathans has registered some of
its service marks and trademarks in more than 20 foreign jurisdictions.

LICENSING PROGRAM

Nathans licenses SMG, Inc. to produce packaged hot dogs and other meat
products according to Nathans' proprietary recipes and spice formulations, and
to use "Nathan's Famous" and related trademarks to sell these products on an
exclusive basis in the United

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<PAGE> 91

States to supermarkets, groceries and other outlets, thereby providing foods for
off-premises consumption. The SMG agreement expires in 2014 and provides for
royalties ranging between 3% to 5% of sales. The percentage varies based on
sales volume, with escalating minimum royalties. Earned royalties of $1,236,000
in fiscal 1999 exceeded the contractual minimum established under the agreement.
Nathans believes that the overall exposure of the brand and opportunity for
consumers to enjoy the "Nathan's Famous" hot dog in their homes helps promote
"Nathan's Famous" restaurant patronage. Hot dog sales are concentrated in the
New York metropolitan area, New England, Florida and California. Royalties from
SMG provided the majority of Nathans' fiscal 1999 retail license revenues.

In November 1997, Nathans executed a license agreement with J.J. Mathews &
Co, Inc. to produce and market packaged Home Meal Replacement menu items for
sale within supermarkets. The agreement calls for Nathans to receive royalties
based upon sales, subject to minimum annual royalties, as specified in the
agreement. During fiscal 1999, Nathans received the minimum royalties of
$100,000 payable for calendar 1998.

Nathans products are also distributed under licensing agreements with Gold
Pure Food Product's Co., Inc. and United Pickle Packers, Inc. Both companies
license the "Nathan's Famous" name for the manufacture and sale of various
condiments including mustard, salsa, sauerkraut and pickles. These products have
been distributed on a limited basis. Fees and royalties earned during fiscal
1999 have not been significant.

PROVISIONS AND SUPPLIES

Nathans' proprietary hot dogs are produced by SMG and Russer Foods, a
division of IBP, Inc., in accordance with Nathans' recipes, quality standards
and proprietary spice formulations. John Morrell & Company, Nathans' licensee
prior to SMG, has retained the right to produce Nathans' proprietary spice
formulations. All other company provisions are purchased and obtained from
multiple sources to prevent disruption in supply and to obtain competitive
prices. Nathans negotiates directly with its suppliers for all primary food
ingredients and beverage products sold at its restaurants to ensure adequate
supply and to obtain competitive prices. Franchised operators are free to obtain
frankfurters and other proprietary products from any approved supplier and can
obtain non-proprietary products from any source whose products meet Nathans'
specifications.

MARKETING, PROMOTION AND ADVERTISING

Nathans maintains advertising funds for local, regional and national
advertising under the Nathan's Famous Systems, Inc. franchise agreement.
Franchisees are generally required to spend or contribute to the advertising
funds up to 2.5% of restaurant sales for advertising and promotion. Marriott and
National Restaurant Management, Inc. are among the current franchisees who are
not subject to this requirement. If a cooperative advertising program exists in
the franchised area, the applicable percentage can be contributed to that
program. Where no cooperative advertising program is available, up to 1% of the
franchisees' advertising budget must be contributed to the advertising funds for
national marketing support. The balance must be expended on programs approved by
Nathans as to form, content and method of dissemination. Through March 28, 1999,
Nathans' gross spending for marketing activities was approximately 2.4% of its
own restaurant sales.

Through June 27, 1999, Nathans continued its primary marketing emphasis on
local store marketing campaigns featuring a value oriented strategy complimented
with

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<PAGE> 92

promotional "Limited Time Offers." Nathans anticipates that near term marketing
efforts will continue to emphasize local store marketing activities. These
activities were complimented by a regional newsprint campaign during the summer
of 1999. As the concentration of "Nathan's Famous" restaurants in particular
geographic areas increases, Nathans believes the opportunity for effective
regional media advertising may exist.

In addition, SMG promotes and advertises the "Nathan's Famous" packaged
retail brand, particularly in the New York metropolitan area, California, the
greater Boston area, Phoenix, Arizona and throughout Florida. Nathans believes
that the advertising by SMG increases brand recognition and thereby indirectly
benefits company-owned and franchised restaurants in the areas in which SMG
conducts its campaigns. From time to time, Nathans also participates with SMG in
joint promotional activities.

GOVERNMENT REGULATION

Nathans is subject to Federal Trade Commission regulation and several state
laws which regulate the offer and sale of franchises. Nathans is also subject to
a number of state laws which regulate substantive aspects of the
franchisor-franchisee relationship.

The FTC's "Trade Regulation Rule Concerning Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures" requires
Nathans to provide disclosure of specified information to prospective
franchisees. Fifteen states, including New York, also require similar
disclosure. While the FTC rule does not require registration or filing of the
disclosure document, fourteen states require franchisers to register the
disclosure document (or obtain exemptions from that requirement) before offering
or selling a franchise. The laws of seventeen other states require some form of
registration under "business opportunity" laws, which sometimes apply to
franchisors such as Nathans.

Laws which regulate one or another aspect of the franchisor-franchisee
relationship presently exist in twenty-one states and the District of Columbia.
These laws regulate the franchise relationship by, for example, requiring the
franchisor to deal with its franchisees in good faith, prohibiting interference
with the right of free association among franchisees, limiting the imposition of
standards of performance on a franchisee, and regulating discrimination among
franchisees in charges, royalties or fees. These laws have not precluded Nathans
from seeking franchisees in any given area. Although these laws may also
restrict a franchisor in the termination of a franchise agreement by, for
example, requiring "good cause" to exist as a basis for the termination, advance
notice to the franchisee of the termination, an opportunity to cure a default
and repurchase of inventory or other compensation, these provisions have not had
a significant effect on Nathans' operations.

Nathans is not aware of any pending franchise legislation which in its view
is likely to significantly affect the operations of Nathans. Nathans believes
that its operations comply substantially with the FTC rule and state franchise
laws.

Each company-owned and franchised restaurant is subject to regulation by
federal agencies and to licensing and regulation by state and local health,
sanitation, safety, fire and other departments. Difficulties or failures in
obtaining the required licenses or approvals could delay or prevent the opening
of a new restaurant.

Nathans is subject to federal and state environmental regulations, which
have not had a material effect on Nathans' operations. More stringent and varied
requirements of local

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governmental bodies with respect to zoning, land use and environmental factors
could delay or prevent development of new restaurants in particular locations.
In addition, the Federal Americans with Disabilities Act applies with respect to
the design, construction and renovation of all restaurants in the United States.
Compliance with the Disability Act's requirements could delay or prevent the
development of, or renovation to restaurants in certain locations, as well as
add to the cost of such development.

Each of the companies which manufactures, supplies or sells Nathans'
products is subject to regulation by federal agencies and to licensing and
regulation by state and local health, sanitation, safety and other departments.
Difficulties or failures by these companies in obtaining the required licenses
or approvals could adversely effect the revenues of Nathans which are generated
from these companies. Nathans believes that it operates in substantial
compliance with applicable laws and regulations governing its operations.

EMPLOYEES

Nathans regularly employed an average of approximately 590 persons during
fiscal 1999, of whom 35 were corporate management and administrative employees,
110 were restaurant managers or assistant managers and 476 were hourly full-time
and part-time food-service employees. The number of hourly food-service
employees ranged from a low of 411 to a high of 500. Food-service employees at
five locations are represented by 1115 Culinary Employees Union, a division of
1115 Joint Board, under various agreements which are expected to be renegotiated
by August 1999. Nathans considers its employee relations to be good and for more
than 27 years has not suffered any strike or work stoppage.

Nathans provides a training program for managers and assistant managers of
its new company-owned and franchised restaurants. Hourly food workers are
trained, on site, by managers and assistant managers following Company practices
and procedures outlined in its operating manuals.

TRADEMARKS

Nathans holds trademark and service mark registrations for NATHAN'S FAMOUS,
NATHAN'S and Design, NATHAN'S FAMOUS SINCE 1916 and SINCE 1916 NATHAN'S FAMOUS
within the United States with some of these marks holding corresponding foreign
trademark and service mark registrations in more than 20 jurisdictions. Nathans
also holds various related marks for restaurant services and some food items.
Nathans believes that its trademarks and service marks provide significant value
to Nathans and are an important factor in the marketing of its products and
services. Nathans believes that it does not infringe on the trademarks or other
intellectual property rights of any third parties.

COMPETITION

The restaurant business is highly competitive and "Nathan's Famous"
restaurants compete with numerous restaurants and drive-in units operating on
both a national and local basis, including major national chains with greater
financial and other resources than Nathans. Nathans also competes with local
restaurants and diners on the basis of food quality, price, size, site location
and name recognition. There is also active competition for management personnel
as well as suitable commercial sites for restaurants.

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Nathans believes that its emphasis on its proprietary all beef frankfurters
and fresh crinkle-cut french fried potatoes and the reputation of these products
for taste and quality set it apart from its major competitors. Additionally,
Nathans believes that it and its franchisees compete effectively with other
restaurants for patronage on the basis of the reputation achieved by "Nathan's
Famous" restaurants. As fast food companies have experienced flattening growth
rates and declining average sales per restaurant, some of them have adopted
"value pricing" and/or deep discount strategies. These strategies could have the
effect of drawing customers away from companies which do not engage in discount
pricing and could also negatively impact the operating margins of competitors
which attempt to match their competitors' price reductions. Nathans has
introduced its own form of "value pricing," selling combinations of different
menu items for a total price lower than the usual sale price of the individual
items and other forms of price sensitive promotions. Extensive price discounting
in the fast food industry could have an adverse effect on Nathans.

Nathans also competes with numerous companies in the sale and distribution
of its licensed hot dogs and other packaged foods, primarily on the basis of
reputation, flavor, quality and price.

PROPERTIES

Nathans' principal executive offices consist of approximately 12,000 sq.
ft. of leased space in a modern, high-rise office building in Westbury, New
York. One company-owned, 2,650 sq. ft. restaurant, at 86th Street in Brooklyn,
New York, is located on a 25,000 sq. ft. lot owned by Nathans. At June 27, 1999,
other company-owned restaurants then operating were located in leased space with
terms expiring as shown in the following table:

<TABLE>
<CAPTION>
LEASE APPROXIMATE
LOCATION EXPIRATION DATE SQUARE FOOTAGE
- -------- ---------------- --------------
<S> <C> <C> <C>
Coney Island Brooklyn, NY December 2008 10,000
Coney Island Boardwalk Brooklyn, NY October 2006 440
Kings Plaza Shopping
Center Brooklyn, NY September 2010 4,200
Long Beach Road Oceanside, NY May 2001 7,300
Central Park Avenue Yonkers, NY April 2000 10,000
Livingston Mall Livingston, NJ December 2000 2,650
Paramus Park Shopping
Center Paramus, NJ August 1999 1,300
Jericho Turnpike Commack, NY March 2003 3,200
Hempstead Turnpike Levittown, NY September 2004 4,100
Connecticut Post Mall Milford, CT March 2002 1,000
Broadhollow Road Farmingdale, NY April 2003 2,200
Woodbridge Center Woodbridge, NJ May 2000 3,000
Galleria Mall White Plains, NY June 1999 1,000
Jericho Home Depot Jericho, NY September 2004 1,500
S. Plainfield Home Depot S. Plainfield, NJ October 2004 1,500
</TABLE>

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<TABLE>
<CAPTION>
LEASE APPROXIMATE
LOCATION EXPIRATION DATE SQUARE FOOTAGE
- -------- ---------------- --------------
<S> <C> <C> <C>
Copaigue Home Depot Copaigue, NY April 2005 1,200
Flushing Home Depot Flushing, NY June 2005 1,500
Elmont Home Depot Elmont, NY October 2005 1,500
Philadelphia Home Depot Philadelphia, PA November 2005 1,530
Upper Darby Home Depot Upper Darby, PA July 2006 1,560
Union Home Depot Union, NJ January 2008 960
Jersey City Home Depot Jersey City, NJ January 2008 830
Staten Island Home Depot Staten Island, NY July 2007 1,680
Brooklyn Home Depot Brooklyn, NY March 2008 950
</TABLE>

Nathans' leases typically provide for a base rental plus real estate taxes,
insurance and other expenses and, in some cases, provide for an additional
percentage rent based on the restaurants' revenues. Many of Nathans' leases also
provide for renewal options ranging between five and 25 years upon expiration of
the prime lease. Nathans is currently renegotiating its lease in the Galleria
Mall which expired in March 1999 while the restaurant continues to operate and
is also renegotiating the lease within the Paramus Park Shopping Center.
Aggregate rental expense, net of sublease income, under Nathans' current leases
amounted to $2,093,000 in fiscal 1999.

LEGAL PROCEEDINGS

Nathans is from time to time involved in ordinary and routine litigation.
Nathans is also involved in the following litigation:

On February 28, 1995, an action entitled Textron Financial Corporation v.
1045 Rush Street Associates, Stephen Anfang, and Nathans Famous, Inc. was
instituted in the Circuit Court of Cook County, Illinois County Department,
Chancery Division. The complaint alleges that Nathans conspired to perpetrate a
fraud upon the plaintiff and alleges that Nathans breached its lease with 1045
Rush Street Associates and the estoppel agreement delivered to the plaintiff in
connection therewith by subleasing these premises and thereafter assigning the
lease with respect to the premises to a third party franchisee, and further by
failing to pay rent under this lease on and after July 1990. This complaint
seeks damages in the amount of at least $1,500,000. Nathans has filed its answer
to this complaint denying the material allegations of the complaint and
asserting several affirmative defenses to liability including, but not limited
to, the absence initially or subsequent failure of consideration for the
estoppel agreement, equitable estoppel, release, failure to mitigate and other
equitable and legal defenses. The plaintiff has added as additional parties
defendant, the attorney who represented the landlord in the financing
transaction in connection with which the Estoppel Agreement was required.
Nathans and some of the named defendants entered into a Settlement with Textron
whereby all of the plaintiff's claims against Nathans and the other defendants
were resolved under a Settlement Agreement and Mutual Release that provided for
payments to be made jointly by all of the defendants on or before December 30,
1998 and January 15, 1999, which payments were made.

In or about December, 1996, Nathans Famous Systems, Inc. instituted an
action in the Supreme Court of New York, Nassau County, against Phylli Foods,
Inc. a franchisee,

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and Calvin Danzig as a guarantor of Foods' payment and performance obligations,
to recover royalty fees and advertising contributions due to Systems in the
aggregate amount of $35,567.20 under a franchise agreement between Systems and
Phylli Foods dated June 1, 1994. In their answer, the defendants essentially
denied the material allegations of the complaint and interposed counterclaims
against Systems in which they alleged essentially that Systems fraudulently
induced the defendants to purchase the franchise from Systems or did so by means
of negligent misrepresentations. Defendants also alleged that by reason of
Systems' allegedly fraudulent and deceitful conduct, Systems violated the
General Business Law of New York. As a consequence of the foregoing, the
defendants are seeking damages in excess of five million dollars, as well as
statutory relief under the General Business Law. Systems has moved to dismiss
the counterclaims on the grounds that they are insufficiently pleaded and
otherwise fail to state a sustainable claim against Systems upon which relief
may be granted. During fiscal 1998, Systems' motion was granted except for the
claim seeking statutory relief under the General Business Law.

Nathans was named as one of three defendants in an action commenced in June
1997, in the Supreme Court of New York, Queens County. According to the
complaint, the plaintiff, a dentist, is seeking injunctive relief and damages in
an amount exceeding $5 million against the landlord, one of Nathans franchisees
and Nathans claiming that the operation of a restaurant in a building in Long
Island City created noxious and offensive fumes and odors that allegedly were
injurious to the health of the plaintiff and his employees and patients, and
interfered with, and irreparably damaged his practice. Plaintiff also claims
that the landlord fraudulently induced him to enter a lease extension by
representing that the first floor of the building would be occupied by a non-
food establishment. Nathans believes that there is no merit to the plaintiff's
claims against it inasmuch as it never was a party to the lease, and the
restaurant, which closed in or about August 1995, was operated by a franchisee
exclusively. Nathans intends to defend the action vigorously.

On January 5, 1999, Miami Subs was served with a class action lawsuit
entitled Robert J. Feeney, on behalf of himself and all others similarly
situated vs. Miami Subs Corporation, et al., in Circuit Court, in Broward
County, Florida, which was filed against Miami Subs, its directors and Nathans
in a Florida state court by a shareholder of Miami Subs. Since that time,
Nathans and its designees to the Miami Subs board have also been served. The
suit alleges that the proposed merger between Miami Subs and Nathans, as
contemplated by the companies' non-binding letter of intent, is unfair to Miami
Subs' shareholders based on the price that Nathans is paying to the Miami Subs'
shareholders for their shares and constitutes a breach by the defendants of
their fiduciary duties to the shareholders of Miami Subs. The plaintiff seeks
among other things:

1. class action status;

2. preliminary and permanent injunctive relief against consummation of
the proposed merger; and

3. unspecified damages to be awarded to the shareholders of Miami
Subs.

On March 19, 1999, the court granted the plaintiff leave to amend his
complaint. The plaintiff then filed an amended complaint. Miami Subs moved to
dismiss the complaint on April 13, 1999. Nathans and its designees on the Miami
Subs' board moved to dismiss the complaint on April 29, 1999. The court
considered the motions, but has not yet ruled on

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them. In the event the court denies the pending motions, Nathans intends to
defend against this suit vigorously.

SEASONALITY

Nathans' business is affected by seasonal fluctuations, the effects of
weather and economic conditions. Historically, sales and earnings have been
highest during the first two fiscal quarters with the fourth fiscal quarter
representing the slowest period. This seasonality is primarily attributable to
weather conditions in Nathans' marketplace for its company-owned stores, which
is principally the New York metropolitan area.

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NATHANS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the historical
financial statements of Nathans, related notes and other financial information
included elsewhere in this joint proxy statement/prospectus.

THIRTEEN WEEKS ENDED JUNE 27, 1999 COMPARED TO JUNE 28, 1998

REVENUES

Total sales increased $40,000 to $6,608,000 for the thirteen weeks ended
June 27, 1999 from $6,568,000 for the thirteen weeks ended June 28, 1998. The
thirteen weeks ended June 27, 1999 is referred to as "first quarter fiscal 2000"
and the thirteen weeks ended June 28, 1999 is referred to as "first quarter
fiscal 1999." Company-owned restaurant sales decreased 4.1% or $248,000 to
$5,744,000 from $5,992,000. Restaurant sales declined because two company-owned
restaurants were closed during fiscal 1999 due to the expiration of the leases
for the locations. These two stores generated sales and profits of $460,000 and
$105,000, respectively, during the first quarter of fiscal 1999. At June 27,
1999 there were 25 company-owned units as compared to 27 units at June 28, 1998.
Comparable unit sales increased 3.6% in the first quarter fiscal 2000 versus the
first quarter fiscal 1999. Comparable unit sales are based on units operating
for 18 months or longer as of the beginning of the fiscal year. Nathans
continues to emphasize local store marketing activities, new product
introductions and value pricing strategies. These activities are being
complimented by a regional newsprint campaign during the summer of 1999. Sales
from the branded product program increased by 50.0% to $864,000 for the first
quarter fiscal 2000 as compared to sales of $576,000 in the first quarter fiscal
1999.

Franchise fees and royalties increased by $225,000 or 30.5% to $963,000 in
the first quarter fiscal 2000 compared to $738,000 in the first quarter fiscal
1999. Franchise royalties increased by $148,000 to $786,000 in the first quarter
fiscal 2000 as compared to $638,000 in the first quarter fiscal 1999. Royalties
earned from the recently acquired Kenny Rogers Roasters restaurant system were
approximately $144,000 in the first quarter fiscal 2000. Franchise restaurant
sales of the Nathans' brand, were $15,538,000 in the first quarter fiscal 2000
as compared to $15,598,000 in the first quarter fiscal 1999. At June 27, 1999
there were 163 franchised or licensed restaurants within the Nathans franchise
system as compared to 158 at June 28, 1998. Franchise fee income was $177,000 in
the first quarter fiscal 2000 as compared to $100,000 in the first quarter
fiscal 1999. This increase was primarily attributable to the difference between
expired franchise fees recognized between the two years. During the first
quarter fiscal 2000, five new Nathans franchised or licensed units opened.

License royalties were $406,000 in the first quarter fiscal 2000 as
compared to $381,000 in the first quarter fiscal 1999.

Investment and other income was $97,000 in the first quarter fiscal 2000
versus $134,000 in the first quarter fiscal 1999. Approximately $50,000 of the
decrease resulted from lower earnings from the reduced face value of marketable
investment securities and the difference in performance of the financial markets
between the two years.

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COSTS AND EXPENSES

Cost of sales increased by $72,000 from $4,008,000 in the first quarter
fiscal 1999 to $4,080,000 in the first quarter fiscal 2000. Higher costs were
incurred due to the growth of the branded product program and the increase in
comparable store sales which were offset by the closure of two company-owned
restaurants. The cost of restaurant sales was 58.1% of restaurant sales in the
first quarter fiscal 2000 as compared to 59.6% of restaurant sales in the first
quarter fiscal 1999. The decrease, as a percentage of restaurant sales, is due
primarily to increases in Nathans' average check over the prior year without
proportionate percentage increases in direct costs resulting from Nathans'
promotional activities. Nathans continues to seek to operate more efficiently as
a means to minimize the margin pressures which have become an integral part of
competing in the current value conscious marketplace.

Restaurant operating expenses increased by $78,000 from $1,451,000 in the
first quarter fiscal 1999 to $1,529,000 in the first quarter fiscal 2000. This
increase is primarily attributed to higher store marketing expenses of $64,000,
higher occupancy costs of $41,000 at a restaurant that was renovated last year
and a fiscal 1999 property tax recovery of $30,000. Restaurant operating costs
for the two closed restaurants were $78,000 for the first quarter of fiscal
1999.

Depreciation and amortization increased by $5,000 or 2.0% from $254,000 in
the first quarter fiscal 1999 to $259,000 in the first quarter fiscal 2000.
Amortization of intangibles increased by $17,000 or 17.7% from $96,000 in the
first quarter fiscal 1999 to $113,000 in the first quarter fiscal 2000. This
increase is due to the amortization, based upon the preliminary purchase price
allocation, of the Kenny Rogers Roasters intellectual property acquired on April
1, 1999.

General and administrative expenses increased by $35,000 or 2.8% to
$1,283,000 in the first quarter fiscal 2000 as compared to $1,248,000 in the
first quarter fiscal 1999. Approximately $98,000 of incremental expenses were
incurred in the first quarter fiscal 2000 associated with Kenny Rogers Roasters.
Nathans plans to increase quarterly spending throughout the balance of the year
in connection with research & development of the Kenny Rogers Brand, although no
assurances can be given to this effect. General and administrative expenses,
excluding Kenny Rogers Roasters, decreased by $63,000 or 5.1% primarily due to
lower spending in connection with international development of approximately
$25,000, reduced additional compensation of approximately $22,000 and lower
corporate insurance of approximately $9,000.

INCOME TAX PROVISION

In the first quarter fiscal 2000, the income tax provision was $341,000 or
42.1% of earnings before income taxes as compared to $189,000 or 24.8% of
earnings before income taxes in the first quarter fiscal 1999. The income tax
provision in the first quarter fiscal 1999 included a reduction to Nathans
deferred tax valuation allowance of $136,000. The first quarter fiscal 1999
provision before adjustment for the valuation allowance was $325,000 or 42.5%.

Management of Nathans had determined that, more likely than not, a portion
of its previously-reserved deferred tax assets would be realized and,
accordingly, initially reduced the related valuation allowance in fiscal 1998.
Throughout fiscal 1999, management continued to monitor the likelihood of the
realizability of its deferred tax asset, and in the

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fourth quarter fiscal 1999, fully recognized, based upon the current facts and
circumstances, adjustment to its deferred tax valuation allowance in accordance
with Financial Accounting Standards Board Statement No. 109 "Accounting for
Income Taxes".

FISCAL YEAR ENDED MARCH 28, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 29,1998

REVENUES

Total sales increased 4.2% or $981,000 to $24,511,000 for the fifty-two
weeks ended March 28, 1999 from $23,530,000 for the fifty-two weeks ended March
29, 1998. Sales from the branded product program, which was first introduced in
fiscal 1998, increased by $1,331,000 or 111% to $2,529,000 for fiscal 1999 as
compared to $1,198,000 for fiscal 1998. Company-owned restaurant sales decreased
1.6% or $350,000 to $21,982,000 from $22,332,000. During fiscal 1999, Nathans
was forced to close two of its restaurants which had previously been operating
under month-to-month leases and resulted in a sales decline of approximately
$734,000 versus the prior year. Comparable unit sales increased by approximately
1.3% in fiscal 1999 versus fiscal 1998. Comparable unit sales are based on units
operating for 18 months or longer as of the beginning of the fiscal year.
Nathans continues to emphasize local store marketing activities, new product
introductions and value pricing strategies. These activities were supplemented
with a radio and billboard campaign during the summer 1998. During fiscal 1999,
Nathans completed the renovation of the 86th Street restaurant in Brooklyn, NY,
which included a drive-thru operation, and its restaurant in the Kings Plaza
Shopping Center. Plans are currently being considered to renovate and modernize
the appearance and design of certain other company-owned units. At March 28,
1999 and March 29, 1998, there were 25 and 27 company-owned units, respectively.

Franchise fees and royalties increased by $168,000 or 5.5% to $3,230,000 in
fiscal 1999 compared to $3,062,000 in fiscal 1998. Franchise royalties increased
by $209,000 or 8.4% to $2,698,000 in fiscal 1999 as compared to $2,489,000 in
fiscal 1998. Franchise restaurant sales, upon which royalties are based,
increased by 9.1% or $5,376,000, to $64,178,000 in fiscal 1999, compared to
$58,802,000 in fiscal 1998. The majority of the sales increase can be attributed
to the additional franchised and licensed units operating during fiscal 1999.
Franchise fee income was $532,000 in fiscal 1999, compared to $573,000 in fiscal
1998 due primarily to the difference in the amount of forfeitures and
expirations recognized into income between the two years. During fiscal 1999, 21
new franchised or licensed units opened, including the second restaurant in
Israel, and the first Kosher Nathans restaurant in Brooklyn, New York. Nathans
also executed an agreement for international development within Egypt. At March
28, 1999, there were 163 franchised or licensed restaurants as compared to 156
at March 29, 1998.

License royalties decreased by $80,000 or 5.4% to $1,415,000 in fiscal
1999, compared to $1,495,000 in fiscal 1998. During fiscal 1999, Nathans earned
royalties of approximately $137,000 under a new license agreement for the sale
of Nathans' home meal replacements in supermarkets. Fiscal 1998 results included
$240,000 of income recognized from amortization of a deferred fee received from
SMG, Inc., which was fully amortized in March 1998.

Investment and other income was $400,000 in fiscal 1999 versus $790,000 in
fiscal 1998. Approximately $263,000 of the decrease is the result of lower
earnings on Nathans' marketable investment securities resulting from the
difference in the performance of the

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financial markets between the two years, the impact of the fiscal 1998 shift
into tax exempt securities and lower investment earnings from the reduced
principle amount of marketable investment securities after Nathans made its
equity investment in Miami Subs Corp. During fiscal 1998, Nathans also
recognized a gain of approximately $130,000 from the sale of an underperforming
restaurant.

COSTS AND EXPENSES

Cost of sales increased by $899,000 from $14,468,000 in fiscal 1998 to
$15,367,000 in fiscal 1999. Higher costs were incurred in conjunction with the
growth of the branded product program, the new restaurants opened in the fourth
quarter fiscal 1998 that operated during fiscal 1999 and the higher costs of
restaurant sales. The cost of restaurant sales was 61.0% of restaurant sales in
fiscal 1999 as compared to 60.5% of restaurant sales in fiscal 1998. This
increase is due primarily to higher food costs associated with Nathans ongoing
promotional activities and an increase in labor costs of 0.6% of restaurant
sales due primarily to the impact of the minimum wage increase which took effect
in September 1997. Nathans continues to seek to operate more efficiently and
expects to seek selective price adjustments wherever available to minimize the
margin pressures which have become an integral part of competing in the current
value conscious marketplace.

Restaurant operating expenses decreased by $631,000 from $6,411,000 in
fiscal 1998 to $5,780,000 in fiscal 1999. This decrease can be primarily
attributed to a four month cost hiatus during the renovation of the Kings Plaza
restaurant of approximately $72,000, reduced costs of property taxes arising
from successful tax certiorari proceedings of approximately $100,000, lower
insurance costs of approximately $106,000, lower utility costs of approximately
$128,000 due primarily to reduced electric rates on Long Island and the impact
of restaurants closed and other lower expenses resulting from the different
restaurants operated between the two periods. As a percentage of restaurant
sales, restaurant operating expenses were 26.3% in fiscal 1999 as compared to
28.7% in fiscal 1998.

Depreciation and amortization increased by $30,000 or 2.9% from $1,035,000
in fiscal 1998 to $1,065,000 in fiscal 1999. Amortization of intangibles was
$384,000 in fiscal 1999 as compared to $384,000 in fiscal 1998.

General and administrative expenses decreased by $33,000 to $4,722,000 in
fiscal 1999, compared to $4,755,000 in fiscal 1998. Nathans incurred lower
general & administrative expenses for professional fees of $236,000 and lower
bad debts of approximately $36,000. Offsetting these savings were increases of
approximately $133,000 relating to salaries for additional personnel primarily
to support new growth initiatives, $42,000 relating to international development
efforts and $82,000 associated with management incentive plans based upon the
achievement of predetermined financial targets.

Other income, net reflects the reversal of previous litigation accruals in
the amount of $349,000 resulting from the conclusion of the associated
litigation and an impairment charge of $302,000 associated with four
under-performing stores pursuant to Statement of Financial Standard No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of".

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INCOME TAXES

In fiscal 1999, the income tax benefit was ($418,000) or (18.1%) of income
before taxes as compared to a provision of $290,000 in fiscal 1998. For each
fiscal year Nathans reduced its valuation allowance because management
determined that, based upon the facts and circumstances at the time, it was more
likely than not that a portion of its deferred tax assets would be realized.
Accordingly, Nathans reduced its valuation allowance by $1,443,000 in fiscal
1999 as compared to $523,000 in fiscal 1998. The fiscal 1999 provision before
adjustment for the valuation allowance was $1,025,000 or 44.4% of income before
taxes as compared to the fiscal 1998 provision before adjustment for the
valuation allowance of $814,000 or 44.8% of income before taxes. Management will
continue to monitor the likelihood of continued realizability of its deferred
tax asset and may, if deemed appropriate under the facts and circumstances at
that time, recognize further adjustments to its deferred tax valuation allowance
in accordance with Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes".

FISCAL YEAR ENDED MARCH 29, 1998 COMPARED TO FISCAL YEAR ENDED
MARCH 30, 1997

REVENUES

Total sales increased 8.3% or $1,812,000 to $23,530,000 for the fiscal year
ended March 29, 1998 from $21,718,000 for the fiscal year ended March 30, 1997.
Company-owned restaurant sales increased 2.8% or $614,000 to $22,332,000 from
$21,718,000. Comparable company-owned unit sales, increased by 3.8% in fiscal
1998 versus fiscal 1997. Comparable unit sales are based on units operating for
18 months or longer as of the beginning of the fiscal year. Nathans has
continued to expand its local store marketing activities and value pricing
strategies that were implemented last year. During the year, Nathans opened four
company-owned units within Home Depot Improvement Centers in Staten Island, NY,
Brooklyn, NY, Union, NJ and Jersey City, NJ. Additionally, in June 1997, Nathans
completed the renovation of its Yonkers, NY restaurant which is now operated as
a co-branded Nathans/Pizza Hut/TCBY. Construction is currently underway for the
renovation of Nathans' 86th Street location in Brooklyn, NY and its restaurant
in the Kings Plaza Shopping Center. Additionally, plans are being considered to
renovate and modernize the appearance and design of other units. Sales from the
branded product program that was implemented in April 1997 were $1,198,000 for
fiscal 1998.

Franchise fees and royalties decreased by $176,000 or 5.4% to $3,062,000 in
fiscal 1998 compared to $3,238,000 in fiscal 1997. Franchise royalties decreased
by $71,000 or 2.8% to $2,489,000 in fiscal 1998 as compared to $2,560,000 in
fiscal 1997. Franchise restaurant sales, upon which royalties are based, were
$58,802,000 in fiscal 1998 as compared to $63,564,000 in fiscal 1997. The
reductions in systemwide sales and franchise royalties are primarily attributed
to the 53 Caldor units that were closed between November 1996 and February 1997.
In fiscal 1997, these units generated sales and royalties of approximately
$6,075,000 and $243,000, respectively. During fiscal 1998, franchisees and
licensees opened 28 new units. At March 29, 1998, there were 156 franchised or
licensed restaurants as compared to 147 at March 30, 1997. Franchise fee income
was $573,000 in fiscal 1998 as compared to $678,000 in fiscal 1997. The majority
of this difference is due to higher franchise fees being earned in fiscal 1997
associated with expired development agreements.

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License royalties increased by $318,000 or 27.0% to $1,495,000 in fiscal
1998 as compared to $1,177,000 in fiscal 1997. The majority of this increase is
a result of Nathans' license arrangement with SMG, Inc., for the sale of
Nathans' frankfurters in supermarkets. Of the total $318,000 increase, $180,000
represents higher amortization of the deferred fee received from SMG, Inc. in
conjunction with the renegotiation of their contract which took effect January
1, 1997. As of March 29, 1998, this fee was fully amortized. The remainder of
the difference is primarily attributed to royalties earned from higher sales to
supermarkets by the licensee.

Investment and other income was $790,000 in fiscal 1998 as compared to
$442,000 in fiscal 1997. Nathans' investment income in fiscal 1998 was higher
than in fiscal 1997 by $238,000 due in part to the increased amount of
marketable investment securities and the disparity in the performance of the
financial markets. In fiscal 1998, Nathans also recognized net gains of
approximately $170,000 from the disposal of three underperforming restaurants
and other real estate transactions.

COSTS AND EXPENSES

Cost of sales increased by $1,437,000 from $13,031,000 in fiscal 1997 to
$14,468,000 in fiscal 1998. The majority of this increase is attributable to the
cost of product associated with the new branded product program. As a percentage
of restaurant sales, cost of restaurant sales were 60.5% in fiscal 1998 as
compared to 60.0% in fiscal 1997. Nathans continues to take steps to reverse the
margin erosion which has become essential to remain competitive in the current
value conscious marketplace and to offset the impact of the recent minimum wage
increase.

Restaurant operating expenses decreased by $191,000 from $6,602,000 in
fiscal 1997 to $6,411,000 in fiscal 1998. This decrease can be attributed to the
closure of two of the three underperforming restaurants which were unprofitable,
partially offset by $66,000 of pre-opening costs, expensed as incurred, in
accordance with the adoption of a new accounting standard. As a percentage of
restaurant sales, restaurant operating expenses were 28.8% in fiscal 1998 as
compared to 30.4% in fiscal 1997.

Depreciation and amortization was $1,035,000 in fiscal 1998 as compared to
$1,013,000 in fiscal 1997. Amortization of intangibles was $384,000 in fiscal
1998 as compared to $406,000 in fiscal 1997.

General and administrative expenses were $4,755,000 in fiscal 1998 as
compared to $4,097,000 in fiscal 1997. Approximately $183,000 of the increase
relates to costs associated with company-owned and franchised restaurant
supervision and marketing efforts for the branded product program. Legal and
other professional fees and international development expenses represent
approximately $172,000 of the increase. Nathans also increased its provision for
doubtful accounts by $50,000 more than in fiscal 1997. Finally, approximately
$145,000 of the increase relates to the effect of certain one-time benefits
recognized in fiscal 1997.

INCOME TAXES

In fiscal 1998, the income tax provision was $290,000 or 16.0% of income
before taxes. Management of Nathans determined that, it was more likely than not
that, a portion of its deferred tax assets would be realized and, accordingly,
reduced its valuation allowance by $523,000. The fiscal 1998 provision before
adjustment for the valuation

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<PAGE> 104

allowance was $814,000 or 44.8% of income before taxes. Management will continue
to monitor the likelihood of continued realizability of its deferred tax asset
and may, if deemed appropriate under the facts and circumstances at that time,
recognize further adjustments to its deferred tax valuation allowance in
accordance with Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes". In fiscal 1997, the income tax provision was
$622,000 or 44.1% of income before income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at June 27, 1999 aggregated $1,600,000,
decreasing by $565,000 during the fiscal 2000 period, from $2,165,000 at March
28, 1999. At June 27, 1999, marketable investment securities totalled $3,296,000
and net working capital decreased to $2,668,000 from $3,708,000 at March 28,
1999 and from $6,105,000 at March 29, 1998.

Cash provided by operations of $1,452,000 in the fiscal 2000 period is
primarily attributable to net income of $469,000, non-cash charges of $390,000,
including depreciation and amortization of $372,000, decreases in prepaid and
other current assets of $144,000, a decrease in other assets of $135,000,
increases in accounts payable and accrued expenses of $724,000, an increase in
franchise and other receivables of $248,000 and a decrease in deferred franchise
fees of $86,000.

Cash provided by operations of $6,780,000 in fiscal 1999 is primarily
attributable to net income of $2,728,000, non-cash charges of $1,829,000,
including depreciation and amortization of $1,449,000, impairment of long-lived
assets of $302,000, a decrease in marketable investment securities of
$5,247,000, an increase in deferred franchise fees of $97,000, increases in
deferred income taxes of $1,036,000, franchise and other receivables of $646,000
and prepaid expenses and other assets of $268,000 and a decrease in accounts
payable and accrued expenses of $1,177,000.

Cash used in investing activities of $2,017,000 in the fiscal 2000 period
includes $1,849,000 for the acquisition of the intellectual property of the
Kenny Rogers Roasters restaurant system and $168,000 primarily relating to
capital improvements of company-owned restaurants and other fixed asset
additions.

Cash used in investing activities of $5,900,000 in fiscal 1999 represents
$1,485,000 for capital acquisitions relating primarily to the renovation of two
company-owned restaurants and other fixed asset additions. Additionally, on
November 25, 1998, Nathans acquired 8,121,000 shares, or approximately 29.9% of
the outstanding common stock, of Miami Subs for $4,200,000, excluding
transaction costs, and entered into a non-binding letter of intent which
contemplated the acquisition of the remaining outstanding shares of Miami Subs.
After giving effect to Miami Subs one-for-four reverse stock split in January
1999, Nathans now owns 2,030,250 shares of Miami Subs common stock. On January
15, 1999, Nathans and Miami Subs entered into the merger agreement under which
Nathans is expected to acquire the remaining outstanding shares of Miami Subs in
exchange for approximately 2,319,000 shares of Nathans common stock and warrants
to acquire approximately 580,000 shares of Nathans common stock at a price of
$6.00 per share. The merger is subject to certain conditions, including
completion of due diligence, receipt of fairness opinions and approval by a
majority of the stockholders of Nathans and Miami Subs. The conditions regarding
due diligence and fairness opinions have been satisfied.

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<PAGE> 105

On February 19, 1999, the U. S. Bankruptcy Court for the Middle District of
North Carolina, Durham Division, confirmed the Joint Plan of Reorganization of
the Official Committee of Franchisees of Roasters Corp. and Roasters Franchise
Corp., operators of Kenny Rogers Roasters Restaurants. Under the joint plan of
reorganization, on April 1, 1999, Nathans acquired the intellectual property
rights, including trademarks, recipes and franchise agreements of Roasters Corp.
and Roasters Franchise Corp. for $1,250,000 in cash plus related expenses, which
was paid out of Nathans' working capital. As of March 28, 1999, Nathans had
deposited $100,000 of the purchase price in escrow.

Nathans expects that it will reinvest in certain existing restaurants in
the future and that it will fund those investments from its operating cash flow.
Nathans does not currently expect to incur significant capital expenditures to
develop new company-owned restaurants, which would require debt or equity
financing.

Management believes that available cash, marketable investment securities,
and internally generated funds should provide sufficient capital for its planned
operations and expansion program through fiscal 2000. Nathans maintains a
$5,000,000 uncommitted bank line of credit. Nathans has not borrowed any funds
to date under its line of credit.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 27, 1999, Nathans held an investment in the common stock of
Miami Subs, which as a public company is exposed to price risk, with a cost
basis of $4,200,000 and a fair market value basis of $3,108,820.

IMPACT OF INFLATION

During the past several years Nathans' commodity costs have remained
relatively stable. As such, management believes that inflation has not
materially impacted earnings. Substantial increases in labor, food and other
operating expenses could adversely affect the operations of Nathans and the
restaurant industry. In 1996, legislation was enacted which increased the
Federal minimum wage, from $4.25 per hour to $4.75 on October 1, 1996 with
another increase to $5.15 on September 1, 1997. Nathans experienced higher labor
costs on a relatively small proportion of its workforce as a result of the
September 1997 increase. Currently, various legislators are re-examining
additional changes to the minimum wage requirements. At this time, no
legislative action has been taken. Management believes that any further
increases in the minimum wage could have a significant financial impact and that
Nathans might have to reconsider its pricing strategy as a means to offset any
legislated increase to avoid reducing operating margins.

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In April 1998, the Financial Accounting Standards Board issued Statement of
Position (SOP 98-5) "Reporting on the Costs of Start-Up Activities". SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred and is effective for financial statements for fiscal years beginning
after December 15, 1998. Earlier application is encouraged in fiscal years for
which annual financial statements previously have not been issued. Nathans early
adopted SOP 98-5 and the impact was not material to operations.

In the first quarter of fiscal 1999, Nathans adopted SFAS No. 130,
"Reporting Comprehensive Income", which requires companies to report all changes
in equity during a period, except those resulting from investment by owners and
distribution to owners, in a

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financial statement for the period in which they are recognized. Comprehensive
income is the total of net income and all nonowner changes in equity or other
comprehensive income such as unrealized gains/losses on securities
available-for-sale, foreign currency translation adjustments and minimum pension
liability adjustments. Comprehensive and other comprehensive income must be
reported on the face of the annual financial statements or in the case of
interim reporting, in the footnotes to the financial statements. For the fiscal
years ended March 28, 1999 and March 29, 1998, Nathans' operations did not give
rise to items includible in comprehensive income which were not already included
in net income. Therefore, Nathans' comprehensive income is the same as its net
income for all periods presented.

YEAR 2000

Nathans performed an internal evaluation of its computer systems and
determined that its existing computer systems would require a significant amount
of effort and cost in order to make them Year 2000 compliant. Accordingly, in
order to meet its growing business requirements and assure Year 2000 compliance,
Nathans decided to replace its existing accounting systems and modify its other
technology systems, other than its point of sale system as discussed below. In
July 1998, Nathans entered into a contract to license Lawson Accounting software
which has been certified to be Year 2000 compliant. Nathans successfully
completed the conversion of its financial systems in January 1999 and the
remaining aspects of the complete Lawson implementation were completed in June
1999. With the implementation of this new system, all of Nathans major financial
systems have been certified to be Year 2000 complaint; however, since Nathans
has not conducted its own testing, no assurance can be given in this regard.
Nathans has spent approximately $349,000 to date and estimates that the total
cost associated with ensuring compliance of its internal systems to be
approximately $375,000. Nathans doesn't expect the final cost to vary
materially; however, there can be no assurance to this effect.

Nathans has addressed the Year 2000 issue with its point of sale provider
and has received assurance that their hardware is Year 2000 compliant and that
the software corrections already installed will make the point of sale systems
Year 2000 compliant; however, since Nathans has not conducted its own testing,
no assurance can be given in this regard. Nathans has notified its franchisees,
in the most recent monthly franchise mailing, that they should contact their
point of sale provider to be sure that they have received and installed the
correction software mentioned above.

Nathans has received assurance from its financial institutions that their
systems are or will be Year 2000 compliant before the end of the year. Nathans
has begun to contact key suppliers and distributors about their state of
readiness and is seeking their assurances with respect to their Year 2000
compliance and contingency plans. No assurances can be given that such suppliers
and distributors will in fact be Year 2000 compliant. Nathans believes that its
primary Year 2000 risk relating to its operations is centered upon the ability
of its suppliers and distributors to continue to receive Nathans orders by
telephone and have the product delivered by truck. Nathans expects to conclude
evaluating this Year 2000 risk by the end of September 1999 and thereafter will
develop any necessary contingency plans to assure continued supply of products
to its restaurants. Nathans cannot predict the effect of the Year 2000 problem
on the vendors and others with which Nathans transacts business and there can be
no assurance that the effect of the Year 2000 problem on the entities Nathans
does business with will not have a material adverse effect on Nathans business,
operating results and financial position.

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NATHANS' MANAGEMENT AND EXECUTIVE COMPENSATION

OFFICERS AND DIRECTORS OF NATHANS

The current directors and executive officers of Nathans are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH NATHANS
- ---- --- ------------------------
<S> <C> <C>
Howard M. Lorber..................... 50 Chairman of the Board and Chief Executive
Officer
Wayne Norbitz........................ 51 President, Chief Operating Officer and
Director
Carl Paley........................... 62 Senior Vice President-Franchise and Real
Estate Development
Ronald DeVos......................... 44 Vice President-Finance, Chief Financial
Officer and Secretary
Donald P. Schedler................... 46 Vice President-Architecture and Construction
Robert J. Eide....................... 46 Director
Barry Leistner....................... 48 Director
Jeffrey Lichtenberg.................. 46 Director
Attilio Petrocelli................... 55 Director
</TABLE>

HOWARD M. LORBER has been Chairman of Nathans since 1990, Chief Executive
Officer since 1993 and a director since 1987. Mr. Lorber was elected President
and Chief Operating Officer of New Valley Corporation, a company engaged in the
ownership and management of commercial real estate in the United States and,
through its subsidiaries, in investment banking, brokerage and real estate
development in the United States and Russia since November 1994 and has served
as a director since 1991. He is also the Chairman and Chief Executive Officer of
Hallman & Lorber Associates, Inc., an employee benefit and pension consulting
firm. Mr. Lorber has been a director of Miami Subs since November 25, 1998. He
also serves as a director of United Capital Corp., a manufacturing and real
estate company, Prime Hospitality Corporation, an owner and operator of hotel
properties and PLM International, Inc., a diversified leasing company. He is
also a trustee of Long Island University and Babson College.

WAYNE NORBITZ has been employed by Nathans since 1975 and was elected
President in October 1989. He previously held the positions of Director of
Operations, Vice President of Operations, Senior Vice President of Operations
and Executive Vice President. Prior to joining Nathans, Mr. Norbitz held the
position of Director of Operations of Wetson's Corporation. Mr. Norbitz has been
a director of Miami Subs since November 25, 1998. Mr. Norbitz also serves as a
member of the Advisory Board of the Penton Foodservice Branding Institute and is
a member of the board of directors of Long Island Philharmonic Orchestra.

CARL PALEY joined Nathans as Director of Franchise Development in May 1989
and was promoted to Vice President -- Franchise Development in September 1989
and Senior Vice President in April 1993. From November 1985 to May 1989 he
provided consulting services to franchise companies through Carl Paley
Enterprises. Mr. Paley served as Vice President of Franchising of The
Haagen-Dazs Shoppe Co., Inc. from June 1978 to November 1985. Prior to November
1985, Mr. Paley was a Vice President of Carvel

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Corporation and was responsible for marketing, public relations, advertising,
promotions and training.

RONALD G. DeVOS joined Nathans as Vice President -- Finance and Chief
Financial Officer in January 1995 and became Secretary in April 1995. Prior to
January 1995, he was Controller of a large Wendy's franchisee, from June 1993 to
December 1994. Mr. DeVos was Vice President -- Controller of Paragon Steakhouse
Restaurants, Inc., a wholly owned subsidiary of Kyotaru Company Ltd., from May
1989 to October 1992, and Controller of Paragon Restaurant Group, Inc. and its
predecessors, from October 1984 to May 1989. Mr. DeVos holds an M.B.A. from St.
John's University and a B.A. from Queens College.

DONALD P. SCHEDLER joined Nathans in March 1989 as Director of Architecture
and Construction and was made Vice President -- Architecture and Construction in
February 1991. Prior to March 1989, he was a Director of Construction for The
Riese Organization, restauranteurs, from January 1988 to February 1989 and an
Associate and Project Architect with Frank Guillot Architects, Ltd. from June
1985 to January 1988. Mr. Schedler is a registered architect in the states of
Vermont and New York, and holds a B.A. degree in economics from Susquehanna
University and a M.A. degree in architecture from Syracuse University.

ROBERT J. EIDE, a director of Nathans since 1987, has been Chairman,
Treasurer and a principal shareholder in Aegis Capital Corp., a broker dealer
and a member firm of the NASD, since 1984. He has been a director of Brooke
Group Ltd., a company engaged through its subsidiaries in the manufacture and
sale of cigarettes in the United States and Russia since November 1993, and a
director of each of its subsidiaries BGLS Inc. since November 1993 and New
Valley Holdings, Inc. since September 1994. Mr. Eide has been a director of
Miami Subs since November 25, 1998.

BARRY LEISTNER, a director of Nathans since 1989, has been President and
Chief Executive Officer of Koenig Iron Works, Inc. since 1979. Mr. Leistner is
also a partner in Weinstock Brothers Hardware and is engaged in real estate
development in Maine and New York.

JEFFREY A. LICHTENBERG, a director of Nathans since 1987, has been the
President and founder of Fountainhead Enterprises, Inc., real estate brokers,
for more than five years. Mr. Lichtenberg has been Vice Chairman of Newmark &
Company Real Estate, Inc. since May 1999. Previously, Mr. Lichtenberg was
associated with Edward S. Gordon, real estate brokers, since April 1995, and
with Peter R. Friedman, real estate brokers, for more than five years prior to
April 1995.

A.F. PETROCELLI, a director of Nathans since 1993, has been the Chairman of
the Board and President of United Capital Corp. for more than the last five
years. Mr. Petrocelli is also a director of Prime Hospitality Corp. since 1992
and Chairman, Chief Executive Officer and President since 1998. He is a director
of Philips International Realty Corp., a real estate investment trust, since
1997 and a director of the Boyar Value Fund, Inc., a public mutual fund, since
1997.

DIRECTORS' COMPENSATION

Directors who are not Nathans' employees receive an annual fee of $7,500
and a fee of $750 for each board of directors or committee meeting attended. In
addition, members of committees of the board of directors also receive an annual
fee of $1,000 for each committee on which they serve.

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EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by Nathans to its
Chief Executive Officer and each of the its four other highest paid executive
officers for the three fiscal years ended March 28, 1999, March 29, 1998 and
March 30, 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- ---------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND FISCAL COMPENSATION STOCK AWARDS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS (1) (5) (#) (2)
- ------------------ ------ -------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard M. Lorber................ 1999 $ 1 $121,586 $12,000(3) $-- 40,000 $ 599
Chairman of the Board 1998 1 95,684 12,000(3) -- 150,000(4) 252
and Chief Executive Officer 1997 1 74,211 12,000(3) -- 25,000 252

Wayne Norbitz................... 1999 $250,000 $ 60,289 $ -- $-- 30,000 $11,787
President and Chief 1998 250,000 35,275 -- -- -- 10,447
Operating Officer 1997 250,000 30,217 -- -- 15,000 9,995

Ronald G. DeVos................. 1999 $140,000 $ 33,762 $ -- $-- 12,500 $ 1,691
Vice President-Finance 1998 109,923 2,954 -- -- -- 1,099
and Chief Financial Officer 1997 106,000 12,452 -- -- 5,000 1,140

Carl Paley...................... 1999 $120,000 $ 25,021 $ -- $-- 5,000 $ 1,530
Senior Vice President -- 1998 120,000 10,032 -- -- -- 1,263
Franchise and Real Estate 1997 120,000 14,804 -- -- 5,000 1,152
Development

Donald P. Schedler.............. 1999 $120,000 $ 10,000 $ -- $-- 5,000 $ 1,536
Vice President -- Architecture 1998 120,000 8,532 -- -- -- 1,252
and Development 1997 120,000 13,304 -- -- 5,000 1,152
</TABLE>

- -------------------------
(1) Except where otherwise indicated, no other annual compensation is shown
because the amounts of perquisites and other non-cash benefits provided by
Nathans do not exceed the lesser of $50,000 or 10% of the total annual base
salary and bonus disclosed in this table for the respective officer.

(2) The amounts disclosed in this column include Nathans' contributions on
behalf of the named executive officer to Nathans' 401(k) retirement plan and
premiums for life and/or disability insurance, respectively, for fiscal 1998
for Mr. Lorber in the sums of $0 and $599, for Mr. Norbitz in the sums of
$1,230 and $10,557, for Mr. DeVos in the sum of $1,092 and $599, for Mr.
Paley in the sum of $931 and $599 and for Mr. Schedler in the sums of $937
and $599.

(3) Represents automobile allowance.

(4) Common stock purchase warrant exercisable for an aggregate of 150,000 shares
of Nathans common stock at an exercise price equal to $3.25 per share issued
in connection with the extension of Mr. Lorber's employment agreement.

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<PAGE> 110

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information with respect to stock
options granted to the officers named in the summary compensation table during
the fiscal year ended March 28, 1999.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT
ASSUMED ANNUAL
RATES
INDIVIDUAL GRANTS OF STOCK PRICE
----------------------------------------- APPRECIATION
% OF TOTAL FOR TEN-YEAR OPTION
NUMBER OF OPTIONS GRANTED EXERCISE TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ----------- --------------- --------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Howard M. Lorber......... 40,000 33% $3.9375 April 2, 2008 $98,900 $250,900
Wayne Norbitz............ 30,000 25% $3.9375 April 2, 2008 74,175 188,175
Ronald G. DeVos.......... 12,500 10% $3.9375 April 2, 2008 30,906 78,406
Carl Paley............... 5,000 4% $3.9375 April 2, 2008 12,363 31,363
Donald P. Schedler....... 5,000 4% $3.9375 April 2, 2008 12,363 31,363
</TABLE>

<TABLE>
<S> <C> <C>
Increase in market value of Nathan's stock for all
stockholders 5% 10%
at assumed annual rates of stock price appreciation over
ten-year (to $6.41/sh) (to $10.21/sh)
period used in the table above(3) $11,693,000 $29,634,000
</TABLE>

- -------------------------
(1) These options are exercisable for ten years. Each grant of these options is
exercisable for 50% of the shares covered thereby as of the first
anniversary from the date of grant and for the remaining 50% of the shares
covered on the second anniversary from the date of grant.

(2) Potential Realizable Value is based on the assumed annual growth rates for
the ten-year option term. Annual growth of 5% results in a stock price of
$6.41 per share and 10% results in a price of $10.21 per share. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the stock. There can be no assurance that the amounts
reflected in this table will be achieved.

(3) These amounts represent the increase in the market value of Nathan's
outstanding shares (4.7 million) as of March 28, 1999, that would result
from the same stock price assumptions used to show the Potential Realizable
Value for the named executive.

EMPLOYMENT CONTRACTS

In November 1993, Nathans entered into an employment agreement with Howard
M. Lorber, for a term expiring on October 31, 1997, providing for an annual base
salary of $1, incentive compensation in an amount equal to five percent (5%) of
the consolidated pre-tax earnings of Nathans and various benefits. The
agreement, as amended, also provides, among other things, that Mr. Lorber shall
have the right, exercisable for a six-month period, to terminate this agreement
and receive an amount equal to three times his compensation during the most
recent fiscal year, less $100, in the event of a change in control of Nathans.
For the purposes of the agreement, in no event shall the average compensation be
deemed to be less than $200,000. The employment agreement was extended through
November 2001 on the original terms and in connection with such

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extension, Mr. Lorber was granted warrants to purchase 150,000 shares of Nathans
common stock at a price of $3.25 per share vesting over the term of the four
year extension.

In December 1992, Nathans entered into an employment agreement with Wayne
Norbitz, for a term expiring on December 31, 1996, providing for an annual base
salary of $250,000 and various benefits, including participation in Nathans'
executive bonus program. The agreement, as amended, also provides, among other
things, that if Mr. Norbitz is terminated without cause, Nathans will pay to Mr.
Norbitz his annual salary and benefits for a six-month period following the
delivery of the notice of termination plus a severance benefit of one year's
annual compensation. The agreement, as amended, also provides, among other
things, that Mr. Norbitz shall have the right, exercisable for a six-month
period, to terminate this agreement and receive an amount equal to three times
his compensation during the most recent fiscal year, less $100, in the event of
a change in control of Nathans. The employment agreement was extended through
December 31, 1999, on the original terms and automatically renews for successive
one year periods unless 180 days' prior written notice is delivered to Mr.
Norbitz. No non-extension notice has been delivered to date.

Each of Messrs. Lorber's and Norbitz's agreements define a change in
control as:

- a change in control as defined in Rule 12b-2 under the Securities
Exchange Act of 1934;

- a person other than a current director or officer of Nathans becoming the
beneficial owner, directly or indirectly, of 20% of the voting power of
Nathans' outstanding securities; or

- the members of the board of directors at the beginning of any two-year
period ceasing to constitute at least a majority of the board of
directors.

Nathans and Ronald DeVos intend to enter into an employment agreement which
will become effective upon consummation of the merger on terms yet to be
determined.

INDEMNIFICATION AGREEMENTS

Nathans has entered into separate indemnification agreements with the
officers and directors of Nathans. Nathans has agreed to provide indemnification
with regard to specified legal proceedings so long as the indemnified officer or
director has acted in good faith and in a manner he or she reasonably believed
to be in, or not opposed to, the best interests of Nathans and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. Nathans only provides indemnification for expenses, judgments,
fines and amounts paid in settlement actually incurred by the relevant officer
or director, or on his or her behalf, arising out of proceedings brought against
the officer or director by reason of his or her corporate status.

STOCK OPTIONS

1992 STOCK OPTION PLAN.

In December 1992, in order to attract and retain persons necessary for
Nathans' success, Nathans adopted the 1992 Stock Option Plan, as amended,
covering up to 525,000 shares of Nathans common stock, under which Nathans'
officers, directors and key

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employees are eligible to receive incentive and/or non-qualified stock options.
The 1992 plan, which expires on December 2, 2002, provides that it will be
administered by the board of directors or a committee designated by the board of
directors, currently the Compensation Committee. The selection of participants,
allotments of shares, determination of price and other conditions relating to
options are determined by the board of directors, or a committee thereof, in its
sole discretion. Incentive stock options granted under the 1992 plan are
exercisable for a period of up to ten years from the date of grant at an
exercise price which is not less than the fair market value of the common stock
on the date of the grant, except that the term of an incentive stock option
granted under the 1992 plan to a stockholder owning more than 10% of the
outstanding common stock may not exceed five years and its exercise price may
not be less than 110% of the fair market value of the common stock on the date
of grant. At February 28, 1999, options for the following shares, exercisable
during a ten-year period, had been granted and were outstanding under the 1992
plan:

<TABLE>
<C> <S>
96,167 shares exercisable at $7.00 per share as follows: 23,334
shares to Howard M. Lorber; 23,333 shares to Jeffrey A.
Lichtenberg; 25,000 shares to Wayne Norbitz; 6,000 shares to
Carl Paley; 6,000 shares to Donald Schedler and 12,500
shares in the aggregate to eight other employees.
25,000 shares exercisable at $6.00 per share to Wayne Norbitz.
34,000 shares exercisable at $8.00 per share as follows: 26,000
shares to Wayne Norbitz; 4,000 shares to Carl Paley; and
4,000 shares to Donald Schedler.
25,000 shares exercisable at $6.60 per share to Howard M. Lorber.
25,000 shares exercisable at $9.25 per share to Wayne Norbitz.
100,000 shares exercisable at $4.375 per share to Howard M. Lorber.
10,000 shares exercisable at $4.81 per share to Ronald DeVos.
55,000 shares exercisable at $4.00 per share as follows: 25,000
shares to Howard M. Lorber, 15,000 shares to Wayne Norbitz,
and 5,000 shares to each of Carl Paley, Donald P. Schedler
and Ronald DeVos.
</TABLE>

Each of the above options is exercisable for 20% of the shares covered by
these options as of the date of grant and for an additional 20% of the shares
covered by the options each year thereafter.

107,500 Shares exercisable at $3.9375 per share as follows; 40,000 shares
to Howard M. Lorber, 30,000 shares to Wayne Norbitz, 12,500 shares to Ronald
DeVos, 5,000 shares to Carl Paley 5,000 shares to Donald Schedler and 15,000
shares in the aggregate to six other employees.

Each of the above options is exerciseable 50% on the first anniversary of
grant and 100% on the second anniversary of grant.

Through March 28, 1999, 30,000 options were cancelled under the 1992 plan.
Through March 28, 1999, 2,000 options granted under the 1992 plan have been
exercised, 137,833 options have been cancelled and no options have lapsed since
the inception of the 1992 plan.

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<PAGE> 113

OUTSIDE DIRECTOR PLAN

Nathans adopted the Nathan's Outside Director Stock Option Plan as of June
1, 1994 which covers up to 200,000 shares of Nathans common stock. The primary
purposes of the director plan are to attract and retain well-qualified persons
for service as directors of Nathans and to provide its outside directors with
the opportunity to increase their proprietary interest in Nathans, and thereby
to increase their personal interest in Nathans' success and further align their
interests with the interests of the stockholders of Nathans through the grant of
options to purchase shares of Nathans common stock. All directors of Nathans who
are not employees of Nathans, of which there are presently four, are eligible to
participate in the director plan. Options to purchase up to 200,000 shares of
common stock, representing all of the shares available, have been issued under
the director plan.

Under the director plan, each non-employee director received:

- on September 8, 1994, the date on which the director plan was approved by
stockholders, options to purchase 25,000 shares of common stock at a
price of $6.25 per share, which was the average of the mean between the
last reported "bid" and "asked" prices of shares of common stock on the
five trading days preceding June 1, 1994;

- on June 1, 1995 options to purchase 12,500 shares of common stock at a
price of $4.50 per share, which was the average of the mean between the
last reported "bid" and "asked" prices of shares of common stock on the
five trading days preceding June 1, 1995; and

- on June 1, 1996 options to purchase 12,500 shares of common stock at a
price of $3.40 per share, which was the average of the mean between the
last reported "bid" and "asked" prices if the common stock on the five
trading days immediately preceding June 1, 1996.

Options awarded to each non-employee director vest over a period of two
years, subject to forfeiture under conditions specified in the option
agreements, and are exercisable by the non-employee director upon vesting.

The board of directors has the responsibility and authority to administer
and interpret the provisions of the director plan. The board shall appropriately
adjust the number of shares for which awards may be granted under the director
plan in the event of reorganization, recapitalization, stock split, reverse
stock split, stock dividend, exchange or combination of shares, merger,
consolidation, rights offering, or any change in capitalization. The board of
directors of Nathans may at any time amend, rescind or terminate the director
plan, as it shall deem advisable; provided, however that:

1. no change may be made in awards previously granted under the
director plan which would impair participants' rights without their
consent; and

2. no amendment to the director plan shall be made without approval of
Nathans stockholders if the effect of the amendment would be to:

A. increase the number of shares reserved for issuance under the
director plan;

B. change the requirements for eligibility under the director plan;
or

C. materially modify the method of determining the number of
options awarded under the director plan.

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<PAGE> 114

1998 STOCK OPTION PLAN

In April 1998, the board of directors adopted the Nathan's Famous, Inc.
1998 Stock Option Plan, under which any director, officer, employee or
consultant of Nathans, a subsidiary or an affiliate may be granted options to
purchase an aggregate 500,000 shares of Nathans common stock. The 1998 option
plan is to be administered by the board of directors of Nathans; provided,
however, that the board may, in the exercise of its discretion, designate from
among its members a compensation committee or a stock option committee
consisting of no fewer than two "non-employee directors", as defined in the
Securities Exchange Act of 1934. The board intends that its compensation
committee will administer the 1998 option plan. Subject to the terms of the 1998
option plan, the board of directors or the committee may determine and designate
those directors, officers, employees and consultants who are to be granted stock
options under the 1998 option plan and the number of shares to be subject to
options and the term of the options to be granted, which term may not exceed ten
years. The board of directors or the committee shall also, subject to the
express provisions of the 1998 option plan, have authority to interpret the 1998
option plan and to prescribe, amend and rescind the rules and regulations
relating to the 1998 option plan. Only non-qualified stock options may be
granted under the terms of the 1998 option plan. The exercise price for the
options granted under the 1998 option plan will be not less than the fair market
value on the date of grant. The option price, as well as the number of shares
subject to the option, shall be appropriately adjusted by the committee in the
event of stock splits, stock dividends, recapitalizations, and other specified
events involving a change in Nathans capital.

Under the 1998 option plan, each non-employee director received on April 6,
1998 options to purchase 7,500 shares of common stock at a price of $3.9375 per
share, which was the closing price of the common stock on April 3, 1998.

RESTRICTED STOCK GRANTS

In December 1992, under a restricted stock agreement, Nathans issued 40,000
shares of common stock to Wayne Norbitz. Under the terms of the agreement, the
shares were subject to restrictions which expired on December 21, 1998.

401(k) SAVINGS PLAN

Nathans sponsors a retirement plan intended to be qualified under Section
401(k) of the Internal Revenue Code of 1986. All non-union employees over age 21
who have been employed by Nathans for at least one year are eligible to
participate in the plan. Employees may contribute to the plan on a tax deferred
basis up to 15% of their total annual salary, but in no event more than the
maximum permitted by the Internal Revenue Code ($10,000 in calendar 1998).
Company contributions are discretionary. For the plan year ended December 31,
1998, Nathans has elected to make matching contributions at the rate of $.25 per
dollar contributed by each employee vesting at the cumulative rate of 20% per
year of service starting one year after commencement of service and,
accordingly, after five years of an employee's service with Nathans, matching
contributions by Nathans are fully vested. As of March 28, 1999, approximately
53 employees had elected to participate in the plan. For the fiscal year ended
March 28, 1999, Nathans contributed approximately $13,000 to the 401(k) plan, of
which $1,230 was a matching contribution for Mr. Norbitz, $1,092 was a matching
contribution for Mr. DeVos, $931 was a matching contribution for Mr. Paley and
$937 was a matching contribution for Mr. Schedler.

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<PAGE> 115

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For a description of the transactions between Nathans and Miami Subs,
please see "Material Contacts between Nathans and Miami Subs" on page 65.

NATHANS SECURITY OWNERSHIP

The following table sets forth as of July 30, 1999 information with regard
to ownership of Nathan's common stock by (1) each beneficial owner of 5% or more
of Nathans common stock, based on filings with the Commission; (2) each
executive officer named in Nathans summary compensation table; (3) each director
of Nathans; and (4) all executive officers and directors of Nathan's as a group:

<TABLE>
<CAPTION>
COMMON STOCK PERCENT
NAME AND ADDRESS (1) BENEFICIALLY OWNED OF CLASS
- -------------------- ------------------ --------
<S> <C> <C>
Howard M. Lorber(2)................................. 655,834 12.6%
Kenneth S. Hackel(3)................................ 475,500 10.1%
Quest Equities Corp(4).............................. 360,000 7.6%
Wayne Norbitz(5).................................... 165,000 3.4%
Jeffrey A. Lichtenberg(6)........................... 141,491 2.9%
A. F. Petrocelli(7)................................. 106,000 2.2%
Robert J. Eide(7) 73,653 1.5%
Barry Leistner(7)................................... 57,500 1.2%
Ronald G. DeVos(8).................................. 19,250 *
Donald P. Schedler(9)............................... 17,500 *
Carl Paley(9)....................................... 15,500 *
Directors and officers as a group (9 persons)(10)... 1,251,728 22.2%
</TABLE>

- -------------------------

* Less than 1%

(1) The addresses of the individuals and entities in this table are: Kenneth S.
Hackel, P.O. Box 726 Alpine New Jersey 07620; Robert J. Eide and Howard M.
Lorber, 70 East Sunrise Highway, Valley Stream, New York 11581; Jeffrey A.
Lichtenberg, 125 Park Avenue, New York, New York 10017; Quest Equities
Corp., 8 Old Canal Crossing, Farmington, Connecticut 06032; Barry Leistner,
8-14 37th Avenue, Long Island City, New York 11101; A. F. Petrocelli, 9
Park Place, Suite 401, Great Neck, New York 11021; and Wayne Norbitz,
Ronald G. DeVos, Carl Paley and Donald Schedler, 1400 Old Country Road,
Suite 400, Westbury, New York 11590.

(2) Includes options exercisable within 60 days to purchase an aggregate of
183,334 shares granted under Nathans' 1992 stock option plan and warrants
exercisable within 60 days to purchase 300,000 shares of common stock.

(3) According to Schedule 13-D as filed with the Securities and Exchange
Commission.

(4) According to Schedule 13-D filed with the Securities and Exchange
Commission.

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<PAGE> 116

(5) Includes options exercisable within 60 days to purchase 125,000 shares of
common stock granted under Nathans' 1992 stock option plan.

(6) Includes 25,000 shares owned by Fountainhead Enterprises, Inc., and an
aggregate of 3,500 shares owned by Mr. Lichtenberg's wife and children, as
to which Mr. Lichtenberg may be deemed the beneficial owner, options
exercisable within 60 days to purchase 23,333 shares of common stock
granted under Nathans' 1992 stock option plan, options exercisable within
60 days to purchase 50,000 shares of common stock granted under Nathans'
1998 stock option plan and options exercisable within 60 days to purchase
7,500 shares of common stock granted under Nathans' 1998 stock option plan.

(7) Includes options exercisable within 60 days to purchase 50,000 shares of
common stock granted under Nathans' 1998 stock option plan and options
exercisable within 60 days to purchase 7,500 shares of common stock granted
under Nathans' 1998 stock option plan.

(8) Includes options exercisable within 60 days to purchase 19,250 shares of
common stock granted under Nathans' 1992 stock option plan.

(9) Includes options exercisable within 60 days to purchase 15,500 shares of
common stock granted under Nathans' 1992 stock option plan.

(10) Includes 271,811 shares beneficially owned by Messrs. Eide, Lorber,
Lichtenberg, Petrocelli, Leistner, Norbitz, Paley and Schedler (see note 6
and notes 8 through 11 above), 361,917 shares subject to stock options
exercisable within 60 days granted under Nathans' 1992 stock option plan,
200,000 shares subject to stock options exercisable within 60 days granted
under Nathans' 1998 stock option plan, 15,000 shares subject to stock
options exercisable within 60 days granted under Nathans' 1998 stock option
plan, and warrants exercisable within 60 days by Mr. Lorber for 300,000
shares.

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<PAGE> 117

MIAMI SUBS

GENERAL

Miami Subs develops, owns, operates and franchises restaurants under the
name "Miami Subs" and "Miami Subs Grill." The restaurants are designed to offer
fresh quality food delivered in a fast-food environment similar to other fast
food restaurants, and the quality, freshness and variety found at casual dining
restaurants.

Miami Subs historically expanded principally through a strategy of leasing
existing free-standing fast food restaurants and other properties, and
converting them to Miami Subs restaurants. Although Miami Subs still believes
that the strategy of converting existing properties will continue, competition
for closed and under-performing properties has increased significantly in recent
years, and fewer sites suitable for conversion are available. In order to
supplement its traditional free-standing unit growth, Miami Subs has developed
various programs for franchisees involving smaller, non-traditional restaurants.
In addition to focusing its growth principally in non-traditional franchise
development, Miami Subs intends to continue to pursue co-branding opportunities
in the future.

Competition in the quick service restaurant industry has been and continues
to be intense and is expected to remain so in the future. In response to intense
industry competition, aggressive pricing and marketing by larger national
chains, and in an attempt to mitigate same-store-sales declines and lower
average unit volumes that the Miami Subs Grill system has been experiencing, in
1998 Miami Subs implemented strategic changes to its marketing programs, began
offering alternative, lower-priced menu items in the restaurants, and focused on
improving customer service. Although these programs resulted in a lower check
average and higher food costs as a percentage of sales during 1998, overall
guest counts increased significantly and same-store-sales trends improved
throughout the year. Miami Subs intends to continue to pursue this strategic
operating direction, however, there can be no assurance that these strategies,
or other marketing and operating strategies that Miami Subs may take, will be
successful.

As of February 28, 1999, Miami Subs' restaurant system consisted of 192
restaurants, of which 130 of the restaurants were located in Florida, 52
restaurants were located in 15 other states, and 10 restaurants were located in
Ecuador, Puerto Rico, Peru and the Dominican Republic. Of the total restaurants
in the system, 15 were company-operated and 177 were operated by franchisees.
Miami Subs intends to focus its future growth on franchise development, with the
objective of expanding the franchise system principally in existing markets, as
well as nationally and internationally. In part due to the limited number of
restaurants located in other states and the impact that this has on the ability
to advertise, the restaurants operating outside of Florida have generally not
been as successful as the restaurants operating in Florida. Additionally, as a
result of the current concentration of restaurants in Florida, Miami Subs and
its Florida franchisees could be more severely affected by any adverse economic
conditions in Florida than would a more geographically diversified restaurant
company.

At February 28, 1999, franchisees operated 177 of the 192 restaurants in
the system. Miami Subs receives royalty and advertising fees from its franchised
restaurants, and also receives lease/sub-lease rental income from some of the
franchised restaurants. In addition, Miami Subs has guaranteed third party
equipment and property leases for some franchisees and has financed the sale of
restaurants to franchisees. Accordingly, Miami Subs' success and future
profitability will be substantially dependent on the management

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<PAGE> 118

skills and success of its existing franchisees. In addition, expansion of the
chain will be dependent on Miami Subs' ability to attract qualified franchisees
who will be able to successfully develop and operate restaurants.

Miami Subs Corporation was incorporated in the State of Florida by Mr. Gus
Boulis during August 1990, and, through a series of transactions, Miami Subs
acquired the worldwide rights to develop, own, operate, and franchise Miami Subs
restaurants from Mr. Boulis, the founder of the concept, and from
privately-owned companies owned by or affiliated with him. The remaining rights
were acquired during 1991 through a merger with QSR, Inc. In November 1998, Mr.
Boulis sold all of the shares of Miami Subs common stock beneficially owned by
him to Nathans.

THE MIAMI SUBS CONCEPT

Miami Subs restaurants feature moderately priced lunch, dinner and snack
foods, including hot and cold submarine sandwiches, various ethnic foods such as
gyros, pita sandwiches and Greek salads, flame grilled hamburgers and chicken
breasts, chicken wings, fresh salads, ice cream and other desserts. Soft drinks,
iced tea, coffee, beer and wine are also offered. Menu items are generally
priced between $1.49 and $5.29.

Freshness and quality of breads, produce and other ingredients are strongly
emphasized. The menu includes low-fat selections such as salads, grilled chicken
breasts, vegetarian items and non-fat frozen yogurt which Miami Subs believes
are perceived as nutritious and appealing to health conscious consumers. Miami
Subs believes it has become known for "signature" foods, such as grilled chicken
on pita bread, cheese steak subs, and gyros on pita bread.

Under an agreement with Baskin-Robbins, Baskin-Robbins ice cream products
may be sold in approved restaurants under a separate franchise agreement with
Baskin-Robbins. Under the agreement, Miami Subs performs training, operational
monitoring and guidance over the Baskin-Robbins products being sold in the
restaurants. As of February 28, 1999, six company-operated restaurants and 25
franchised restaurants sell Baskin-Robbins ice cream products. Branded ice cream
products, including Edy's, McArthur's, Hershey's, Blue Bunny, Colombo,
Bressler's, Haagen-Dazs, and other local brands, are also sold in over 50 other
restaurants.

The restaurants feature a distinctive decor unique to the Miami Subs
concept. The exterior of free-standing restaurants feature an unusual roof
design and neon pastel highlights for easy recognition. Interiors have a
tropical motif in a neon pink and blue color scheme with murals of fish,
mermaids, flamingos and tropical foliage. Exteriors and interiors are brightly
lit to create an inviting, active ambience to distinguish the restaurants from
its competitors. At February 28, 1999, 150 of the existing Miami Subs
restaurants are located in freestanding buildings, consisting of approximately
2,000 to 5,000 square feet.

Miami Subs restaurants are typically open seven days a week, generally open
at 10:30 am, and many of the restaurants have extended late-night hours. Indoor
service is provided at a walk-up counter where the customer places an order and
is given an order number and a drink cup. The customer then proceeds to a self
service soda bar while the food is prepared to order. Typical time from order to
pick-up is approximately five minutes.

Drive-thru service is provided at principally all free-standing
restaurants. All standard menu items are generally available at the drive-thru,
but the drive-thru menu board is

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<PAGE> 119

simplified to speed ordering. After ordering via intercom, the customer proceeds
to the first of two windows. At the first window, drinks are served and payments
taken. This allows the customer to enjoy a soft drink while proceeding to the
next window for the completion of the order. Miami Subs estimates that
drive-thru sales account for approximately 35% - 45% of sales.

NON-TRADITIONAL RESTAURANTS

Miami Subs has developed and initiated various programs for franchisees
involving non-traditional restaurant development, consisting of smaller
restaurants that could be located on tollroads, at airports, in convenience
stores, retail and office buildings, and other non-traditional locations.
Typically, these restaurants are smaller and less costly to develop and operate
than the traditional Miami Subs Grill restaurants. With the exception of many of
the airport locations, the sales in the non-traditional restaurants are
typically significantly lower than the standard free-standing restaurant. In
addition, where appropriate, modifications have been made to food preparation
and delivery procedures and the standard menu has been revised.

At February 28, 1999, there were 33 non-traditional restaurants in the
system, including five restaurants located in convenience store/gas stations, 11
restaurants located in airport facilities, seven restaurants located in retail
locations, two located in turnpike facilities, three located in strip shopping
centers, and five restaurants in other locations.

CO-BRANDING

Since 1994, Miami Subs has been involved in a co-branding agreement with
Baskin-Robbins USA, Co. under which certain Baskin-Robbins ice cream products
are sold in approved restaurants pursuant to a separate franchise agreement with
Baskin-Robbins. As of February 28, 1999, 31 Miami Subs and franchised
restaurants sold Baskin-Robbins ice cream products.

In August 1998, Miami Subs entered into a co-branding licensing agreement
with Arthur Treacher's, Inc., the third largest quick service seafood chain in
the United States. In April 1999, the development program master agreement was
amended to grant Miami Subs the exclusive right to co-brand the Arthur
Treacher's concept and products in the United States and to include future
developed Miami Subs restaurants and other fast food restaurants. Currently over
50 existing restaurants are selling Arthur Treacher's signature products.

Also in August 1998, Miami Subs entered into a co-branding licensing
agreement with BAB Holdings, Inc. which will provide for Miami Subs to sell Big
Apple Bagels, My Favorite Muffins and Brewster's Coffee in the restaurants.
Miami Subs began a test of the sale of these products in a Miami Subs restaurant
in November 1998.

In January 1999, Miami Subs began selling "Nathan's Famous" all-beef
frankfurters and fresh, crinkle-cut french fries on a test basis in a
company-owned restaurant located in New York.

COMPANY-OPERATED RESTAURANTS

During the past two years, Miami Subs has focused its growth and operating
strategy on franchising, and as part of this strategy, Miami Subs
sold/franchised many of its

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<PAGE> 120

company-operated restaurants to franchisees. At February 28, 1999, Miami Subs
operated 15 restaurants, of which 10 are located in Florida, four are located in
Texas, and one is located in New York. Miami Subs plans on franchising up to six
of the restaurants that it operated at February 28, 1999.

Miami Subs' restaurants are utilized for many purposes which are integral
to the entire system. New menu items are tested and restaurant management and
operating personnel are trained in Miami Subs' procedures. In addition, Miami
Subs' operating standards are further refined, and Miami Subs acquires a better
understanding of day-to-day management and operating concerns of its
franchisees. In an effort to maximize operating profits and to enhance product
quality for company-operated and franchised restaurants, Miami Subs maintains a
purchasing department that works with suppliers on behalf of the entire system
to obtain high quality products and services at competitive prices. The
purchasing department approves all products and product specifications, and has
also private labeled some products. Miami Subs utilizes Multifoods Distribution
Group, Inc., a subsidiary of International Multifoods Corporation, a national
food distributor which enables Miami Subs and its franchisees to order and
receive deliveries of most of its food and paper products directly through the
distributor. Miami Subs believes that this arrangement is efficient and cost
effective and facilitates quality control. Miami Subs believes that a majority
of its franchisees use Miami Subs' suppliers; however, a franchisee may use an
alternate source for its supply needs that complies with specifications upon
approval by Miami Subs.

Miami Subs utilizes kitchen equipment in its restaurants which is designed
to be versatile, improve product consistency, and facilitate menu modifications.
In conjunction with a major supplier, Miami Subs assisted in the development of
a four-chain broiler intended to replace chargrills and convection ovens. Miami
Subs also utilizes computerized fryers with automatic lift-arms. The equipment
is programmed to follow instructions for cooking temperatures and times. Fresh
meats and other products, which are purchased in pre-weighed individual
servings, can be consistently cooked-to-order automatically. Miami Subs requires
that its franchisees also utilize this kitchen equipment to maximize consistency
and speed of food preparation.

FRANCHISE OPERATIONS

STRATEGY

Miami Subs' future growth will be focused on increasing the number of
franchised restaurants, through both traditional and non-traditional
restaurants.

The primary criteria considered by Miami Subs in the review and approval of
franchisees are prior experience in operating restaurants or other comparable
business experience, and capital available for investment. Miami Subs believes
that it has attracted a number of franchisees with significant experience in the
restaurant industry as a result of the unique aspects of the concept.

FRANCHISEE SUPPORT SERVICES

Miami Subs maintains a staff of operations personnel to train and assist
franchisees in opening new restaurants and to monitor the operations of existing
restaurants. These services are provided as part of Miami Subs' franchise
program. New franchisees are required to complete a six-week training program.
Upon the opening of a new franchised

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restaurant, company representatives are typically sent to the restaurant to
assist the franchisee during the opening period. These company representatives
work in the restaurant to monitor compliance with Miami Subs' standards and
provide additional on-site training of the franchisee's restaurant personnel.

Miami Subs also provides development and construction support services to
its franchisees. Plans and specifications for the restaurants are reviewed and
approved by Miami Subs before improvements begin. Miami Subs' personnel
typically visit the facility during construction to meet with the franchisee's
site contractor and to verify that construction standards are met.

In connection with Miami Subs' sale of restaurants, Miami Subs usually
provides financing for the purchase by the franchisee. These loans, which range
in amounts up to $500,000, are generally guaranteed by the purchaser and
collateralized by the restaurant business and assets. Loans are generally due in
monthly installments of principal and interest, amortized over a period of up to
20 years, with loans having maturity dates within 10 years of the origination of
the loan. Interest rates range principally between 8% and 12%.

TRAINING

New franchisees are required to complete a six-week program that features
various aspects of day-to-day operations and certification in all functioning
positions. The program consists of formal classroom training and in-restaurant
training, including human resources, accounting, purchasing and labor and food
handling laws. Generally, a team of company employed personnel is provided for
new restaurants to conduct hands-on training and to ensure compliance with
company standards. Standard operating manuals are provided to each franchisee.
Classroom training is performed in Miami Subs' executive headquarters located in
Fort Lauderdale, Florida.

QUALITY ASSURANCE

To maintain uniformly high standards of appearance, service, food and
beverage quality, Miami Subs has adopted policies and implemented a monitoring
program. Franchisees are expected to adhere to Miami Subs' specifications and
standards in connection with the selection and purchase of products used in the
operation of the restaurant. Detailed specifications are provided for the
products used, and franchisees must request Miami Subs' approval for any
deviations. Miami Subs does not generally sell equipment, supplies or products
to its franchisees. The franchise agreement requires franchisees to operate
their restaurants in accordance with Miami Subs' requirements. Ongoing advice
and assistance is provided to franchisees in connection with the operation and
management of each restaurant. Miami Subs' area consultants are responsible for
oversight of franchisees and periodically visit each restaurant.

During these visits, the area consultant completes a report which contains
evaluations on speed of preparation for menu items, quality of delivered
product, cleanliness of restaurant facilities as well as evaluations of managers
and other personnel. The area consultants also make unannounced follow-up visits
to ensure adherence to Miami Subs' operational specifications.

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Miami Subs also utilizes information about the restaurants which is
received from customers on Miami Subs' standardized "comment card" and maintains
a toll-free telephone number to receive customer comments.

FRANCHISE AGREEMENTS

Each franchisee is required to execute a standard franchise agreement with
Miami Subs relating to the operation of each restaurant. Currently, the term of
the franchise agreement is between five and 20 years, and the initial franchise
fee is $25,000 for traditional restaurants and $15,000 for some non-traditional
restaurants. The franchise agreement provides for the payment of a monthly
royalty fee based on gross sales for the term of the franchise agreement, and
additional charges based on a percentage of sales to support various system-wide
and local advertising funds.

DEVELOPMENT AGREEMENTS

In addition to individual franchise agreements, Miami Subs from time to
time has entered into development agreements with some franchisees. The
development agreement establishes a minimum number of restaurants that the
franchisee is committed to open in an agreed upon exclusive area during the term
of the agreement. In addition to receiving a franchise fee for each restaurant
opened, Miami Subs also receives a non-refundable fee based upon the number of
restaurants committed to be opened under the agreement.

RESTAURANT LOCATIONS

At February 28, 1999, there were 192 Miami Subs restaurants operating in
the system, of which 15 were operated by Miami Subs and 177 were operated by
franchisees. The following table sets forth the locations of these restaurants.

<TABLE>
<CAPTION>
MIAMI SUBS
OPERATED FRANCHISED
---------- ----------
<S> <C> <C>
Florida................................................ 10 120
North Carolina......................................... -- 14
South Carolina......................................... -- 4
Georgia................................................ -- 3
Tennessee.............................................. -- 2
Virginia............................................... -- 1
Kentucky............................................... -- 2
Texas.................................................. 4 6
New Jersey............................................. -- 4
New York............................................... 1 1
Pennsylvania........................................... -- 5
Indiana................................................ -- 1
Connecticut............................................ -- 1
Kansas................................................. -- 1
Minnesota.............................................. -- 1
Nebraska............................................... -- 1
</TABLE>

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<TABLE>
<CAPTION>
MIAMI SUBS
OPERATED FRANCHISED
---------- ----------
<S> <C> <C>
Ecuador................................................ -- 5
Puerto Rico............................................ -- 2
Peru................................................... -- 2
Dominican Republic..................................... -- 1
-- ---
Total.................................................. 15 177
== ===
</TABLE>

MARKETING

The physical facility of each Miami Subs restaurant represents a key
component of Miami Subs' marketing strategy. The restaurants have well-lit
exteriors featuring a distinctive roof design, an abundance of pastel neon
lights and a lively interior featuring a tropical motif which Miami Subs
believes creates strong appeal during the day and night.

Miami Subs' advertising programs principally utilize radio and print, and
carries the theme that Miami Subs offers a variety of menu selections at
competitive, fast food prices. Miami Subs' radio advertisements are broadcast
principally in markets where there are sufficient restaurants to benefit from
these advertisements.

EMPLOYEES

At February 28, 1999, Miami Subs employed 194 full-time and 236 part-time
employees. 400 of the employees work in Miami Subs restaurants and the remaining
30 are administrative, supervision, and support personnel. None of the employees
belong to a labor union, and Miami Subs believes its employee relations to be
good.

As the operation and expansion of the Miami Subs' restaurant business is
dependent upon attracting, training and keeping competent employees, restaurant
management applicants receive screening and training. Miami Subs emphasizes
continuing restaurant management and crew training and holds various meetings
stressing communications and skill development for managers. Benefit programs
for eligible employees include group life, health, hospitalization, paid
vacations and a bonus plan for restaurant managers.

TRADEMARKS

Miami Subs believes its trademarks and service marks are of significant
value and an important marketing tool. Miami Subs has registered the marks
"Miami Subs and Design" and "Miami Subs Grill and Design" with the United States
Patent and Trademark Office. In addition, the marks have been registered in the
states of Florida, Georgia, South Carolina, and Louisiana, and various foreign
countries.

COMPETITION

The fast food restaurant industry is highly competitive and can be
significantly affected by many factors, including changes in local, regional or
national economic conditions, changes in consumer tastes, consumer concerns
about the nutritional quality of quick-service food and increases in the number
of, and particular locations of, competing restaurants. Factors such as
inflation, increases in food, labor and energy costs, the

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availability and cost of suitable sites, fluctuating interest and insurance
rates, state and local regulations and licensing requirements and the
availability of an adequate number of hourly paid employees can also adversely
affect the fast food restaurant industry. Multi-unit restaurant chains like
Miami Subs can also be substantially adversely affected by publicity resulting
from food quality, illness, injury, or other health concerns. Major chains,
which have substantially greater financial resources and longer operating
histories than Miami Subs, dominate the fast food restaurant industry. Miami
Subs competes primarily on the basis of location, food quality, price and menu
diversity. Changes in pricing or other marketing strategies by these competitors
can have an adverse impact on Miami Subs' sales, earnings and growth. In
response to intense industry competition and aggressive pricing and marketing by
larger national chains and in an attempt to mitigate same-store-sales declines
that the Miami Subs Grill system has been experiencing, in 1998 Miami Subs
introduced lower-priced items on its menu and competitively priced new products.
There can be no assurance that these strategies will be successful or that Miami
Subs will be able to compete effectively against its competitors. In addition,
with respect to the sale of franchises, Miami Subs competes with many
franchisers of restaurants and other business concepts for qualified and
financially capable franchisees.

REGULATION

Miami Subs is subject to a variety of federal, state, and local laws
affecting the conduct of its business. Operating restaurants are subject to
various sanitation, health, fire and safety standards and restaurants under, or
proposed for construction, are subject to state and local building codes, zoning
restrictions and alcoholic beverage regulations. Difficulties in obtaining or
failure to obtain required licenses or approvals could delay or prevent the
development or opening of a new restaurant in a particular area. Miami Subs is
also subject to the Federal Fair Labor Standards Act, which governs minimum
wages, overtime, working conditions and other matters, and the Americans with
Disabilities Act, which became effective in January 1992. Miami Subs believes
that it is in compliance with these laws, and that its restaurants have all
applicable licenses as required by governmental authorities.

Alcoholic beverage control regulations require each of the restaurants that
sell these products to apply to a state authority and, in some locations, county
and municipal authorities for a license or permit to sell alcoholic beverages on
the premises. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Miami Subs has never had an alcoholic beverage
license revoked. Alcoholic beverage control regulations relate to numerous
aspects of the daily operations of the restaurants, including minimum age of
customers and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, storage and dispensing of alcoholic beverages.
At February 28, 1999, Miami Subs offered for sale beer and wine in 12 of its
existing company operated restaurants. Each of these restaurants have current
alcoholic beverage licenses permitting the sale of these beverages.

Miami Subs may be subject in some states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment which wrongfully served alcoholic beverages to
him. Miami Subs carries liquor liability coverage as part of its existing
comprehensive general liability insurance and has never been named as a
defendant in a lawsuit involving "dram-shop" statutes.

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Miami Subs believes that it is in compliance with the applicable federal
and state laws concerning designated non-smoking and smoking areas in its
company-operated restaurants.

Miami Subs is subject to regulations of the Federal Trade Commission and
various states relating to disclosure and other requirements in the sale of
franchises and franchise operations. The FTC's regulations require Miami Subs to
timely furnish prospective franchisees a franchise offering circular containing
prescribed information. Some state laws also require registration of the
franchise offering with state authorities. Other states regulate the franchise
relationship, particularly concerning termination and renewal of the franchise
agreement. Miami Subs believes that it is in compliance with the applicable
franchise disclosure and registration regulations of the FTC and the various
states that it operates in.

PROPERTIES

At February 28, 1999, Miami Subs owned or leased the following number of
restaurant properties which are used in its operations. The numbers for Miami
Subs include one restaurant which was temporarily closed at February 28, 1999:

<TABLE>
<CAPTION>
RESTAURANTS
MIAMI SUBS LEASED/SUB-LEASED TO
RESTAURANTS FRANCHISEES OR OTHERS
----------- ---------------------
<S> <C> <C>
Lease land and building........................ 12 59
Lease land and own building.................... 3 3
Own land and building.......................... 1 2
-- --
Total.......................................... 16 64
== ==
</TABLE>

Properties leased by Miami Subs generally provide for an initial term of up
to 20 years and renewal terms of five to 20 years. The leases generally provide
for fixed rentals plus adjustments based on changes in the consumer price index
or percentage rentals on gross sales. Restaurants and other facilities are
leased/sub-leased to franchisees or others on terms which are generally similar
to the terms in Miami Subs' lease with the third-party landlord, except that in
some cases the rent has been increased. Miami Subs remains liable for all lease
costs when properties are sub-leased to franchisees or others. Five of Miami
Subs Company restaurants and 15 of the restaurants leased/subleased to
franchisees are located outside of Florida.

Miami Subs owns its executive headquarters, an approximate 8,500 square
foot facility located in Fort Lauderdale, Florida, and believes that this
facility is adequate and suitable for its current needs.

LEGAL PROCEEDINGS

In January, 1992, Miami Subs filed a Petition for Declaratory Judgment
against the Murray Family Trust/Kenneth Dash Partnership ("F/D"), case number
91-E1077 filed in the Superior Court Northern District of Hillsborough County,
New Hampshire. Miami Subs sought to dissolve an alleged joint venture between
Miami Subs and F/D to develop Miami Subs restaurants in New England. F/D opposed
the dissolution, counterclaimed, and sought damages arising from amounts
expended in developing new locations and lost

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profits from the termination of the joint venture. A bench trial was completed
in April 1995, and although the court issued its ruling in favor of Miami Subs
on virtually all of F/D's counterclaims, it awarded F/D damages in the amount of
$241,000 plus costs and attorney fees. The case was appealed by both Miami Subs
and F/D, and in November 1996, the appeal was argued before the Supreme Court of
New Hampshire. In December 1997, the Supreme Court ruled in favor of Miami Subs,
vacated the damage award, reversed the award of attorney fees, and remanded to a
trial court for a determination of damages for the alleged breach of fiduciary
duty to F/D. In May 1998, the trial court awarded F/D compensatory damages in
the amount of $200,000, which is being appealed by Miami Subs.

On January 5, 1999, Miami Subs was served with a class action lawsuit
entitled Robert J. Feeney, on behalf of himself and all others similarly
situated vs. Miami Subs Corporation, et al., in Circuit Court in Broward County,
Florida, which was filed against Miami Subs, its directors and Nathans in a
Florida state court by a shareholder of Miami Subs. The suit alleges that the
proposed merger between Miami Subs and Nathans, as contemplated by the companies
non-binding letter of intent, is unfair to Miami Subs' shareholders based on the
price that Nathans is paying to the Miami Subs' shareholders for their shares
and constitutes a breach by the defendants of their fiduciary duties to the
shareholders of Miami Subs. The plaintiff seeks among other things :

1. class action status;

2. preliminary and permanent injunctive relief against consummation of
the proposed merger; and

3. unspecified damages to be awarded to the shareholders of Miami
Subs.

On March 19, 1999, the court granted the plaintiff leave to amend his
complaint. On April 18, 1999, the plaintiff filed an amended complaint. Miami
Subs filed a motion to dismiss the complaint on April 13, 1999. Nathans and its
designees to the Miami Subs board filed a motion to dismiss on April 29, 1999.
On May 21, 1999, the court considered the motions but has not yet ruled on them.
In the event the court denies the pending motions Miami Subs intends to defend
against this suit vigorously.

Miami Subs and its subsidiaries are parties to various other legal actions
arising in the ordinary course of business. Miami Subs is vigorously contesting
these actions, and currently believes that the outcome of these cases will not
have a material adverse effect on Miami Subs.

MIAMI SUBS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the historical
financial statements of Miami Subs, related notes and other financial
information included elsewhere in this joint proxy statement/prospectus.

INTRODUCTION

Miami Subs' revenues are derived principally from operating, franchising,
and financing Miami Subs restaurants. Franchise revenues consist principally of
initial franchise fees, area development fees, monthly royalty fees, and net
sublease rental income. In the

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normal course of its business, Miami Subs also derives revenues from the sale of
restaurants to franchisees, and interest income from financing the sale of
restaurants to franchisees.

Restaurant operating costs include food and paper costs, direct restaurant
labor and benefits, marketing fees and costs, and all other direct costs
associated with operating the restaurants. General, administrative and franchise
costs relate both to company-owned restaurants and Miami Subs' franchising
operations.

Miami Subs' revenues and expenses are directly affected by the number,
sales volumes, and profitability of its company-operated restaurants. Revenues,
and to a lesser extent expenses, are also affected by the number and sales
volumes of franchised restaurants. Initial franchise fees and the net gain on
sales of restaurants are directly affected by the number of restaurants opened
by franchisees and the number of restaurants sold to franchisees during the
period.

In connection with Miami Subs' strategy of focusing growth and operations
in franchising, Miami Subs restructured and reduced its corporate infrastructure
and sold or transferred 24 company-operated restaurants to franchisees during
fiscal years 1998 and 1997. As a result of the reduction in the number of
company-operated restaurants, Miami Subs' revenues declined by 31.9% and 9.2% in
1998 and 1997, respectively, and as a result of the corporate restructuring,
Miami Subs reduced its general and administrative costs by 41.1% in 1998. Miami
Subs currently plans on franchising additional restaurants that it operates at
February 28, 1999. Upon the consummation of the sale of these restaurants, Miami
Subs' future revenues would also decline.

Miami Subs' ability to sustain profitability will, among other factors, be
dependent on improvement of sales and operating margins in existing company and
franchised restaurants, successful expansion of its franchise base, its ability
to control future operating costs, and the successful opening and operation of
new restaurants by franchisees.

NINE MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO FEBRUARY 28, 1998

TOTAL REVENUES

Miami Subs' total revenues increased by 2.0% to approximately $17.8 million
in the current nine month period, as compared to $17.4 million in the prior year
period. The increase in total revenues resulted principally from an increase in
restaurant sales and gain on sales of restaurants, which was partially offset by
a reduction in interest income.

RESTAURANT SALES

Miami Subs' total restaurant sales increased 2.8% to approximately $13.7
million in the current nine month period, as compared to $13.3 million in the
prior year period. The increase in sales resulted principally from a change in
the restaurants operated by the company as a result of sales/transfers and
acquisitions of restaurants between the periods.

Same-store-sales for all comparable company-operated restaurants increased
by approximately 0.5% in the current nine month period, computed for 13
restaurants operated by Miami Subs in both the current and prior year nine month
period. Same-store-sales for Miami Subs restaurants in the year earlier period
were down approximately 4.0%. Miami Subs' attributes the change in
same-store-sales trends principally to the changes which were implemented during
the prior fiscal year relating to pricing, marketing, and operations and to
sales from co-branding with Arthur Treacher's, which, as of February 28, 1999,
had been added to six of the company's restaurants.

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During the current nine month period, Miami Subs reacquired four
restaurants from franchisees in exchange for notes payable to Miami Subs,
purchased one restaurant from a franchisee, and sold/transferred seven
restaurants to franchisees. At February 28, 1999, Miami Subs operated
restaurants that were located in Florida (10); Texas (4), and New York (1).
Miami Subs currently plans to sell or transfer to franchisees up to six of the
restaurants that it operated at February 28, 1999. However, there can be no
assurance that sales of these restaurants will be consummated on terms
acceptable to Miami Subs.

REVENUES FROM FRANCHISED RESTAURANTS

Revenues from franchised restaurants amounted to $3,276,000 in the current
nine month period, as compared to $3,262,000 in the prior year period.

During the current nine month period, nine franchised restaurants opened,
Miami Subs sold/transferred seven restaurants to franchisees and
acquired/reacquired five restaurants from franchisees, and eight franchised
restaurants closed. At February 28, 1999 and 1998, there were 177 franchised
restaurants in the system.

Royalty income in the current nine month period increased by 9.9% to
$3,009,000, as compared to $2,738,000 in the prior year period, principally from
the opening of new restaurants since the prior year period and collections of
delinquent royalty fees. At February 28, 1999, approximately 23% of franchised
restaurants have been granted a temporary waiver from paying royalty fees or
were delinquent and not paying royalty fees to Miami Subs, which Miami Subs does
not accrue for.

Same-store-sales for all comparable franchised restaurants declined by
approximately 1.1% in the current nine month period, as compared to a decline of
approximately 8.3% in the prior year nine month period. Miami Subs attributes
the change in same-store-sales trends principally to the changes which were
implemented during the prior fiscal year to pricing, marketing, and operations
and to sales from co-branding with Arthur Treacher's, which, as of February 28,
1999, had been added to 28 franchised restaurants.

During the current nine month period, Miami Subs recognized $47,000 in
revenues from the cancellation of certain area development agreements with
franchisees which were not in compliance with the terms of the development
agreements. In the prior year nine month period, Miami Subs recognized $190,000
in revenues from such terminations.

Miami Subs leases/subleases principally Miami Subs restaurant facilities to
franchisees and revenues have been adversely affected from the delinquency and
non-payment of certain of these leases/subleases. Revenues are presented net of
related lease costs in the accompanying financial statements. For the nine
months ended February 28, 1999, Miami Subs had approximately $294,000 in
delinquent lease payments, which were not accrued for and at February 28, 1999,
nine restaurant facilities which are leased/subleased to franchisees were two or
more months delinquent in monthly payments to Miami Subs. During the current
nine month period, Miami Subs reacquired four restaurants from franchisees as a
result of the default of the leases and notes payable to Miami Subs, and
subsequent to February 28, 1999, Miami Subs reacquired two additional
restaurants.

SYSTEM-WIDE SALES

System-wide sales, which includes sales from all Miami Subs operated and
franchised restaurants, increased to approximately $110.9 million in the current
nine month period, as

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compared to $109.7 million in the year earlier nine month period. The increase
in system wide sales principally reflects sales from new franchised restaurants
which have opened since the prior year period, and to sales from co-branding
with Arthur Treacher's which, as of February 28, 1999, had been added to 34
Miami Subs restaurants. Same-store-sales for all comparable restaurants in the
system declined by approximately 0.9% in the current nine month period.
Same-store-sales for the system in the prior year nine month period were down
approximately 7.8%. Miami Subs attributes the change in same-store-sales trends
principally to the changes which were implemented during the prior fiscal year
relating to pricing, marketing, and operations and to the sale of Arthur
Treacher's products in 34 restaurants.

NET GAIN FROM SALES OF RESTAURANTS

As a part of Miami Subs' strategy to focus future growth and operations in
franchising, Miami Subs sold/transferred seven restaurants to franchisees during
the current nine month period, as compared to three restaurants that were
sold/transferred in the year earlier period. Gains on the sale of restaurants
are dependent on Miami Subs' basis in and the overall performance of such units.
Gains realized are recorded as income when the sales are consummated and other
conditions are met, including the adequacy of the down payment and the
completion by Miami Subs of its obligations under the contracts. Although Miami
Subs intends to sell/transfer other existing restaurants in the future, there
can be no assurance that any such sales will be consummated on terms acceptable
to Miami Subs. In addition, it is not anticipated that significant gains will be
realized from such sales.

INTEREST INCOME

In connection with its strategy of focusing growth in franchising, Miami
Subs has sold restaurants to franchisees and has provided financing for such
sales. During the current nine month period, loans in the amount of $1,015,000
were made to franchisees in connection with the sale of restaurants to
franchisees. Total notes receivable amounted to approximately $6.9 million at
February 28, 1999, as compared to $8.7 million at February 28, 1998. At February
28, 1999, six individual secured notes receivable which are due from franchisees
with outstanding balances totaling approximately $1.2 million, net of deferred
fees and credits, were delinquent in monthly payments due to Miami Subs, and
unpaid interest income of approximately $149,000 for the nine months ended
February 28, 1999 had not been accrued on delinquent notes. As a result of these
delinquencies and the lower average balance of notes receivable outstanding
during the current period, interest income declined to $455,000 in the current
nine month period, as compared to $546,000 in the year earlier period.
Subsequent to February 28, 1999, Miami Subs reacquired two restaurants in lieu
of payment of the notes.

RESTAURANT OPERATING COSTS

Restaurant operating costs in Miami Subs operated restaurants amounted to
approximately $12.9 million or 93.9% of sales in the current nine month period,
as compared to 95.6% of sales in the prior year period. The reduction in
restaurant operating costs as a percent of sales was principally due to improved
supervision and controls over food, paper, and labor costs in the first six
months of the current period, which was in part offset by an increase in such
costs during the last three months of the period.

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GENERAL, ADMINISTRATIVE AND FRANCHISE COSTS

General, administrative and franchise costs amounted to $2,450,000 or 13.8%
of total revenue in the current nine month period, as compared to $2,406,000 or
13.8% of total revenue in the prior year period. Costs in the prior year period
included certain non-recurring reductions to expenses totaling approximately
$284,000. Recurring general and administrative costs were lower than the prior
year period, excluding the impact of the non-recurring reductions to expenses,
principally due to the elimination of certain corporate office positions since
the year earlier period and to strict cost controls in all areas of Miami Subs'
business.

INTEREST EXPENSE

Principally as a result of the repayment of outstanding debt from
approximately $7.0 million at February 28, 1998 to $5.9 million at February 28,
1999, interest expense decreased to $479,000 in the current nine month period,
as compared to $600,000 in the prior year period.

MERGER COSTS

Expenses in the nine month period ended February 28, 1999 include costs
incurred to date of $144,000 in connection with the proposed merger with
Nathan's Famous, Inc.

PROVISION FOR INCOME TAXES

Miami Subs' effective tax rate for the nine months ended February 28, 1999
is lower than the rate in the prior year period due to a decrease in Miami Subs'
valuation allowance.

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

TOTAL REVENUES

Total Miami Subs revenues declined 31.9% to $23.4 million in fiscal year
1998, as compared to $34.4 million in fiscal year 1997. The decrease in total
revenues was primarily due to the conversion from company to franchise
operations and the resulting sales of company-operated restaurants to
franchisees, which in large part occurred during the second half of fiscal year
1997.

RESTAURANT SALES

Miami Subs' total restaurant sales decreased approximately 35.8% to $18.1
million in 1998, as compared to $28.2 million in 1997. The decrease in sales
resulted principally from franchising during the second half of 1997 many of the
restaurants previously operated by

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Miami Subs. During 1997, Miami Subs sold/transferred 19 restaurants to
franchisees, and during 1998, Miami Subs sold/transferred five restaurants to
franchisees.

In order to address declining unit level sales and customer counts in its
restaurants, in 1998 Miami Subs implemented strategic changes to its marketing
programs, added alternative, lower-priced items to its menu, and focused on
improving customer service. As a result of these strategic changes, Miami Subs
experienced overall higher guest counts in many of its core restaurants during
the year and a lower per customer check average. Throughout the year,
same-store-sales in company-operated restaurants improved each quarter during
1998, from negative 6.4% in the first quarter of the year to positive 2.6% in
the fourth quarter. For the year, same store sales for company-operated
restaurants, were negative 2.6% computed for restaurants operated by Miami Subs
since December 1995 . There can be no assurance that these strategic changes
will continue to result in an improvement in same store sales.

At May 31, 1998, Miami Subs operated eight restaurants in Florida, six in
Texas, two in Georgia, and one in New York. Miami Subs currently plans to sell
to franchisees the restaurants located in Texas and Georgia, and three of these
restaurants are under contract for sale to franchisees. There can be no
assurance that the remaining restaurants will be sold on terms acceptable to
Miami Subs.

REVENUES FROM FRANCHISED RESTAURANTS

Revenues from franchised restaurants declined approximately 4.9% to $4.3
million in 1998, as compared to $4.5 million in 1997. Franchise revenues in 1997
included $400,000 in franchise fees from the sale of company restaurants to
franchisees, and franchise revenues in 1998 included $190,000 resulting from the
expiration and termination of an area development agreement with a former
franchisee.

In 1998, 19 franchised restaurants opened, 12 of which were
non-traditional, Miami Subs sold/transferred five restaurants to franchisees and
reacquired seven restaurants from franchisees, and 13 franchised restaurants
closed. At May 31, 1998, there were 174 franchised restaurants in the system, as
compared to 170 at May 31, 1997.

In August 1997, Miami Subs began to initiate throughout the system
strategic changes to marketing programs, additions to the standard menu to add
certain lower-priced items, and implemented programs to improve customer
service. Miami Subs believes that these programs were largely responsible for an
improvement in same-store-sale trends at franchised restaurants experienced each
quarter during the year, from negative 10.4% in the first quarter of the year to
negative 5.1% in the fourth quarter. For the year, same-store-sales at
franchised restaurants, were negative 7.5% computed for restaurants operated by
franchisees since December 1995.

Royalty revenues have been adversely affected in 1998 and 1997 due to the
non-payment and non-accrual of royalty fees from a number of franchised
restaurants. At May 31, 1998, 24% of the franchised units in operation have been
granted a temporary waiver from paying royalty fees or were delinquent and not
paying royalty fees to Miami Subs.

Miami Subs leases/subleases principally Miami Subs restaurant facilities to
franchisees and revenues have been adversely affected in 1998 from the
delinquency and default of certain of these leases/subleases. During 1998, Miami
Subs defaulted and terminated seven delinquent leases and acquired possession of
the restaurants. Six of these

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restaurants were subsequently sold/transferred and released to new franchisees
and one restaurant closed as a result of an eminent domain proceeding. At May
31, 1998, 10 restaurants which are leased/subleased to franchisees are in
various stages of delinquency. Although Miami Subs currently expects that these
delinquencies will be satisfactorily resolved by the franchisees, there can be
no assurance that it will not be necessary for Miami Subs to acquire possession
of these or other restaurants in the future.

SYSTEM-WIDE SALES

System-wide sales, which includes sales from company-operated and
franchised restaurants, decreased approximately 1.7% to $148.6 million in 1998,
as compared to $151.2 million in 1997. "Same store sales" for all units in the
system improved each quarter during the year, from negative 10.1% in the first
quarter, to negative 4.5% in the fourth quarter. For the year, same-store-sales
for all restaurants declined by approximately 7.0%, computed for restaurants
open since December 1995.

NET GAIN FROM SALES OF RESTAURANTS

In connection with Miami Subs' strategy to focus growth and operations in
franchising, Miami Subs sold/transferred five restaurants to franchisees during
1998, as compared to 19 restaurants in 1997. Gains on the sales of restaurants
are dependent on Miami Subs' basis in and the overall performance of the units
sold. Gains realized are recorded as income when the sales are consummated and
other conditions are met, including the adequacy of the down payment and the
completion by Miami Subs of its obligations under the contracts. Losses on the
sale of restaurants are recognized at the time of sale. As a result of sales of
restaurants, Miami Subs recognized net gains of $25,000 in 1998, as compared to
$868,000 in 1997. Total deferred gains on the sales of restaurants amounted to
$757,000 at May 31, 1998 and total notes receivable, principally resulting from
sales of restaurants, amounted to $7.1 million at May 31, 1998. Nine individual
notes receivable which are due from four franchisees and totaling approximately
$1.8 million, net of deferred fees and credits, were delinquent in monthly
payments due to Miami Subs at May 31, 1998. Although Miami Subs intends to sell
other existing restaurants in the future, there can be no assurance that any
sales will be consummated or that gains will be realized.

RESTAURANT OPERATING COSTS

Restaurant operating costs amounted to $17.1 million or 94.7% of company
restaurant sales in 1998, as compared to $26.0 million or 92.4% of sales in
1997. The increase in restaurant operating costs as a percent of sales was
principally due to the higher food cost percentage incurred at Miami Subs'
restaurants as a result of certain lower priced menu items that Miami Subs began
offering in the restaurants in connection with Miami Subs' efforts during the
year to increase guest counts and stimulate sales.

GENERAL, ADMINISTRATIVE AND FRANCHISE COSTS

General, administrative and franchise costs amounted to approximately $3.3
million or 14.2% of total revenue in 1998, as compared to $5.7 million or 16.5%
of total revenue in 1997. General, administrative and franchise costs in 1998
reflect a reduction in accruals for certain legal matters which were resolved
during the year and other non-recurring reductions totaling approximately
$284,000. Included in general, administrative and

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franchise costs in 1997 are accrued severance costs payable to Miami Subs'
former president, an accounting charge associated with the resolution of an
outstanding note receivable, and costs associated with relocating and
consolidating an administrative facility. These costs and other charges amounted
to approximately $601,000 in 1997.

In connection with Miami Subs' strategy of focusing growth and operations
in franchising and as a result of the sale of company restaurants to
franchisees, Miami Subs has been able to restructure and reduce its corporate
infrastructure and the number of non-restaurant employees, and has taken other
cost control measures resulting in a decrease in recurring administrative costs
in 1998 as compared to 1997. Miami Subs is maintaining strict cost controls in
all areas of its business, and does not currently expect any significant
increase to current operating levels.

DEPRECIATION EXPENSE

Depreciation expense, which principally relates to company-operated
restaurants, declined by 21.4% to 1.4 million in 1998 as a result of sales of
company restaurants to franchisees.

INTEREST EXPENSE

Interest expense decreased 13.6% to $780,000 in 1998, as compared to
$903,000 in 1997, principally reflecting lower average debt levels outstanding
in 1998.

LOSS ON IMPAIRMENT OF RESTAURANTS

During 1997 and in conjunction with Miami Subs' franchise strategy, several
company-operated restaurants were identified for sale to franchisees. At May 31,
1997, Miami Subs provided a reserve of $375,000 to provide for the intended sale
of certain of these restaurants which have not yet been sold.

PROVISION FOR INCOME TAXES

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

TOTAL REVENUES

Total company revenues declined 9.2% to $34.4 million in fiscal year 1997,
as compared to $37.9 million in fiscal year 1996. The decrease in total revenues
was primarily due to fewer company-operated restaurants which was in part offset
by a significant increase in net gains from the sale of restaurants to
franchisees, and to lower average sales in company-operated restaurants.

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RESTAURANT SALES

Miami Subs' total restaurant sales decreased approximately 13.0% to $28.2
million in 1997, as compared to $32.4 million in 1996. The decrease in sales
resulted principally from a reduction in the number of company-operated
restaurants, from 37 at the end of 1996, to 17 at the end of 1997. During 1997,
Miami Subs sold 19 restaurants to franchisees and closed one restaurant.

"Same-store-sales" in company-operated restaurants declined by
approximately 3.1% in 1997, computed for restaurants open since December 1994.
Miami Subs attributes the decline in same-store-sales in large part to intense
industry competition and aggressive price discounting and marketing by larger
national chains. In response to these conditions, Miami Subs introduced lower
priced "combo meals" and utilized extensive discounting and couponing programs
in an effort to increase customer traffic and sales. In the fourth quarter of
the current year, Miami Subs ceased the couponing programs, lowered prices of
certain products on its menu, introduced a selection of lower priced products,
and commenced direct local store marketing efforts.

At May 31, 1997, Miami Subs operated nine restaurants in Florida , six in
Texas, one in South Carolina, and one in New York.

REVENUES FROM FRANCHISED RESTAURANTS

Revenues from franchised restaurants declined approximately 4.4% to $4.5
million in 1997, as compared to $4.7 million in 1996. Franchise revenues in 1997
included $400,000 in franchise fees from the sale of company restaurants to
franchisees, and franchise revenues in 1996 included $324,000 resulting from the
termination of nine area development agreements with franchisees.

In 1997, 18 franchised restaurants opened (of which 11 were non-traditional
restaurants), Miami Subs sold 19 of its restaurants to franchisees, and seven
franchised restaurants closed. Royalty income in 1997 amounted to $3,680,000, as
compared to $3,752,000 in 1996. Although the number of franchised restaurants
increased during 1997, a decrease of approximately 5.6% in "same-store-sales" at
franchised restaurants, lower average unit sales at franchised restaurants, and
the non-payment and non-accrual of royalty fees from an increased number of
franchisees adversely affected royalty income in the current year. At May 31,
1997, 19% of the franchised units in operation had been granted a temporary
waiver from paying royalty fees or were delinquent and not paying royalty fees
to Miami Subs.

SYSTEM-WIDE SALES

System-wide sales, which includes sales from Miami Subs operated and
franchised restaurants, increased by approximately 3.9% to $151.2 million in
1997, as compared to $145.5 million in 1996. "Same store sales" for all units in
the system, which is computed for restaurants open since December 1994, declined
by approximately 5.5% in 1997 reflecting continuation of intense industry-wide
competition and aggressive price discounting and marketing by large national
chains, and extensive price discounting and couponing by Miami Subs and its
franchisees.

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NET GAIN FROM SALES OF RESTAURANTS

As a part of its strategy to focus future growth and operations in
franchising restaurants, Miami Subs sold/transferred 19 restaurants to
franchisees during 1997. Gains on the sale of restaurants are dependent on Miami
Subs' basis in and the overall performance of these units. Gains realized are
recorded as income when the sales are consummated and other conditions are met,
including the adequacy of the down payment and the completion by Miami Subs of
its obligations under the contracts. Losses on the sale of restaurants are
recognized at the time of sale. As a result of these sales, Miami Subs
recognized net gains of $868,000 in 1997, as compared to $117,000 in 1996. Total
deferred gains on the sales of restaurants amounted to $839,000 at May 31, 1997.
Although Miami Subs intends to sell other existing restaurants in the future,
there can be no assurance that any sales will be consummated or that gains will
be realized.

RESTAURANT OPERATING COSTS

Restaurant operating costs amounted to $26.0 million or 92.4% of sales in
1997, as compared to $28.6 million or 88.2% of sales in 1996. The increase in
restaurant operating costs as a percent of sales was a result of lower average
unit sales, the impact of price discounting and couponing promotions, and higher
direct operating costs, including cost of sales and labor.

GENERAL, ADMINISTRATIVE AND FRANCHISE COSTS

General, administrative and franchise costs amounted to approximately $5.7
million or 16.5% of total revenue in 1997, as compared to $6.4 million or 16.8%
of total revenue in 1996. Included in general, administrative and franchise
costs in 1997 are accrued severance costs payable to Miami Subs' former
president, an accounting charge associated with the resolution of an outstanding
note receivable, and costs associated with relocating and consolidating an
administrative facility. These costs and other charges amounted to $601,000 in
1997.

During the second half of 1997, Miami Subs eliminated certain
administrative and support positions, implemented a reduction in
office/administration facilities, and took other cost control measures resulting
in a significant decrease in these costs over the year earlier levels.

INTEREST EXPENSE

Interest expense increased to $903,000 in 1997, as compared to $741,000 in
the prior year, principally reflecting higher average debt levels outstanding in
1997.

LOSS ON IMPAIRMENT OF RESTAURANTS

During 1997 and in conjunction with Miami Subs' franchise strategy, several
company operated restaurants were identified for sale to franchisees. At May 31,
1997, Miami Subs provided a reserve of $375,000 to provide for the intended sale
of certain restaurants.

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LIQUIDITY AND CAPITAL RESOURCES

During the nine month period ended February 28, 1999, Miami Subs' principal
sources of cash were from operating activities totaling approximately $1.9
million and principal payments received on notes receivable of $356,000. Miami
Subs' principal uses of cash in the current nine month period were for scheduled
debt repayments of $829,000 and the acquisition of a franchised restaurant and
property renovations and improvements totaling $757,000. Cash and cash
equivalents at February 28, 1999, amounted to $4.2 million, including unexpended
marketing fund contributions of $1.6 million, as compared to $3,457,000,
including $970,000 in unexpended marketing fund contributions, at May 31, 1998.
At February 28, 1999, Miami Subs' working capital position was $512,000, as
compared to $88,000 at May 31, 1998, and a deficit of $298,000 one year ago.
Miami Subs' working capital position has improved principally as a result of
improved cash flow from operations over the past year. Miami Subs is able to
operate with a low working capital position or deficiency because restaurant
operations are conducted primarily on a cash basis, rapid turnover and frequent
deliveries allow a limited investment in inventories, and accounts payable for
food, beverages and supplies usually become due after the receipt of cash from
the related sales.

In addition to scheduled debt maturities/repayments for the remainder of
fiscal year 1999 of $253,000, Miami Subs' projected capital requirements for the
balance of the current fiscal year relate primarily to planned capital
expenditures to Miami Subs' operated restaurants in connection with co-branding
with Arthur Treacher's, Inc., other renovations or planned capital improvements
to existing restaurants and certain enhancements to corporate and restaurant
management information systems. The estimated cost of these planned capital
expenditures is not expected to exceed approximately $150,000.

Miami Subs' principal expected source of funds over the remainder of fiscal
year 1999 will be from operations and scheduled repayments of notes receivable
of approximately $188,000.

For fiscal year 2000, Miami Subs' primary sources of liquidity are expected
to be cash flows from operations, principal payments on notes receivable, and
cash from the possible sale of existing restaurants to franchisees. Miami Subs
does not currently intend to acquire or develop new Miami Subs operated
restaurants. Therefore, Miami Subs' expected principal use of funds in fiscal
year 2000 will be to maintain, improve and refurbish existing restaurants,
repayment of debt, and for general operating purposes. Nevertheless, Miami Subs
may be required to reacquire certain franchised restaurants as a result of
defaults on the notes payable to Miami Subs or the leases/sub-leases with Miami
Subs, which may adversely affect Miami Subs' expected sources of liquidity.
Based upon the current and expected level of operations and expected sources of
funds, together with the current level of liquidity and cash on hand, Miami Subs
expects that it will have sufficient liquidity to fund its expected operating
cash needs through the year 2000. Miami Subs currently does not anticipate any
events which would materially affect its long term liquidity position.

During fiscal 1998, Miami Subs' principal sources of cash were from net
cash provided by operating activities of $1,205,000, principal payments received
on notes receivable of $845,000, and borrowings of $425,000. Miami Subs'
principal uses of cash in 1998 were for scheduled debt repayments and maturities
of $1,714,000 and property renovations and improvements of $264,000. Cash and
cash equivalents at May 31, 1998, amounted to $3,457,000 (which includes
unexpended marketing fund contributions of

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<PAGE> 137

$970,000), as compared to $2,940,000 (including $683,000 in unexpended marketing
fund contributions) at May 31, 1997. At May 31, 1998, Miami Subs' working
capital improved to $88,000, as compared to a deficiency of $1,234,000 at May
31, 1997.

The principal sources of funds for fiscal year 1999 are expected to be
derived from operating activities and principal payments due on notes
receivable. Miami Subs' ability to achieve or increase its projected sources of
funds in 1999 will be dependent on a number of factors, including improvement of
sales and restaurant operating margins in both company and franchised
restaurants, improved collections of royalty fees, the timely payment of
lease/sublease obligations of certain franchisees, and the timely repayment of
principal and interest on notes payable to Miami Subs. There can be no assurance
that Miami Subs will be able to achieve or increase its projected sources of
funds in 1999.

Although Miami Subs does not currently plan to develop any new company
restaurants in fiscal year 1999, it does intend to make certain capital
expenditures to certain company operated restaurants in connection with a
co-branding agreement with Arthur Treacher's, Inc. and BAB Holdings, Inc. The
estimated cost of these improvements, other planned capital improvements and
funds required for the acquisition of a restaurant from a franchisee are not
expected to exceed approximately $650,000. In addition to these planned capital
expenditures, Miami Subs' scheduled debt maturities/repayments are approximately
$1.1 million in 1999.

Principally as a result of the sale of company-operated restaurants over
the past two years, Miami Subs' total revenues declined by 31.9% in 1998 and
9.2% in 1997. Miami Subs currently plans to sell to franchisees certain of the
restaurants that it operated at February 28, 1999. If Miami Subs consummates the
sale of additional planned restaurants, Miami Subs' future total revenues would
decline.

Miami Subs expects that competition in the quick-service restaurant
industry will continue to be intense and will remain so in the foreseeable
future, resulting in continued pressure on sales and operating profit, and
slower development of traditional restaurants by franchisees. Miami Subs intends
to pursue a co-branding licensing agreement with Arthur Treacher's, Inc. which
would enable both Miami Subs and franchised restaurants to sell certain Arthur
Treacher's signature products in Miami Subs restaurants.

Miami Subs also intends to pursue other co-branding opportunities. In
addition to pursing these opportunities, continued emphasis will be placed on
franchising non-traditional restaurants and certain of Miami Subs' existing
restaurants, improving the performance of company and franchised restaurants,
developing new products, enhancing the effectiveness of marketing programs, and
overall improvement and possible refinements to the entire system. Miami Subs'
ability to significantly expand and develop additional company restaurants will
ultimately depend on a number of factors, including unit level profitability and
Miami Subs' overall profitability and cash flow, the availability and cost of
suitable locations, and the availability of adequate equity or debt financing.
There can be no assurance that Miami Subs will be successful in achieving these
objectives.

IMPACT OF INFLATION

Miami Subs does not believe that inflationary factors have had a
significant effect on company operations in the past three years. Any
significant increase in inflation could affect company operations as a result of
increased costs for food and labor, as well as increased occupancy and equipment
costs.

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<PAGE> 138

During 1998, Miami Subs introduced certain new, lower-priced products and
lowered the price of certain existing products on its menu. Principally as a
result of these changes, Miami Subs experienced lower profit margins in its
restaurants in 1998. Miami Subs expects that greater volume purchase discounts
on food and supplies may be available in the future as the restaurant chain
grows, which could partially offset the impact of these changes and any future
cost increases.

SEASONALITY

Miami Subs does not expect seasonality to affect its operations in a
materially adverse manner. However, Miami Subs' restaurant sales during its
first and fourth fiscal quarters are generally higher than its second and third
quarters due to the location of the majority of its restaurants in Florida.

NEW ACCOUNTING PRONOUNCEMENTS

In April 1998, the Financial Accounting Standards Board issued Statement of
Position (SOP 98-5) "Reporting on the Costs of Start-Up Activities." SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred and is effective for financial statements for fiscal years beginning
after December 15, 1998. Under these new requirements, pre-opening costs
associated with the opening of new restaurants would be required to be expensed
as incurred. Although no pre-opening costs were incurred in 1998, Miami Subs
previously capitalized and amortized pre-opening costs over a one year period.
Since Miami Subs does not currently intend to open new company-operated
restaurants, the adoption of this statement is not expected to have a
significant impact on Miami Subs' operations.

YEAR 2000

Miami Subs is continuing its evaluation and assessment of its various
information technology and non-information technology systems, including
software, hardware and equipment that may be potentially affected by the Year
2000 issue. Miami Subs estimates that its evaluation and assessment of these
various systems will be completed shortly. Based on its preliminary assessment
of these systems and discussions with its third-party providers, Miami Subs
currently believes that such internal systems are or will be Year 2000 compliant
with minimum modifications, which should be completed by October 31, 1999.
Following initial testing, additional remedial action may be necessary and
further testing will be performed. To date, Miami Subs has incurred
approximately $12,000 in addressing its Year 2000 plan and estimates the entire
cost not to exceed approximately $50,000.

Miami Subs has recently contacted and is waiting for replies from its
critical suppliers of products and services to determine the extent to which
Miami Subs may be vulnerable to these parties' failure to resolve their own Year
2000 issues. Miami Subs will assess and attempt to mitigate its risks with
respect to the failure of these third parties to be Year 2000 compliant. The
effect, if any, on Miami Subs' results of operations from the failure of third
parties to be Year 2000 compliant can not be reasonably estimated.

Miami Subs will also be working with and assisting its independent
franchisees to ensure that their point-of-sale and other equipment is capable of
handling the Year 2000 issue. In the event that these systems are not adequately
modified as necessary, it may

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adversely affect the franchisees' operations which would adversely affect Miami
Subs' results of operations.

Based on Miami Subs' current assessment to date, no matters have been
identified and Miami Subs does not currently believe that the Year 2000 issue
will have a material adverse effect on Miami Subs' financial condition or
results of operations. Miami Subs' beliefs and expectations, however, are based
on certain assumptions and expectations that may ultimately prove to be
inaccurate. Potential sources of risk include the inability of suppliers to be
Year 2000 compliant, which could result in delays in product deliveries from
suppliers and disruption of the distribution channel.

Miami Subs has not yet established a contingency plan, but intends to
develop a plan to mitigate the effects of problems experienced by vendors or
service providers in regard to the timely implementation of Year 2000 programs.
This contingency plan is expected to be developed and in place by October 31,
1999.

MIAMI SUBS MANAGEMENT AND EXECUTIVE COMPENSATION

OFFICERS AND DIRECTORS OF MIAMI SUBS

The current directors and executive officers of Miami Subs are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH MIAMI SUBS
- ---- --- ---------------------------
<S> <C> <C>
Donald L. Perlyn..................... 55 President, Chief Operating Officer and
Director
Jerry W. Woda........................ 49 Senior Vice President of Finance, Chief
Financial Officer and Treasurer
Frank Baran.......................... 44 Vice President -- Operations
Bruce R. Galloway.................... 41 Director
Peter Nasca.......................... 50 Director
Joseph Zappala....................... 64 Director
Howard M. Lorber..................... 50 Director
Robert J. Eide....................... 46 Director
Wayne Norbitz........................ 51 Director
</TABLE>

For a description of the business experience of Messrs. Lorber, Eide and
Norbitz, please see "Nathans Management and Executive Compensation -- Officers
and Directors of Nathans" beginning on page 98.

DONALD L. PERLYN has been a member of Miami Subs' board of directors since
March 1997. In July 1998, Mr. Perlyn was appointed President and Chief Operating
Officer of Miami Subs. Prior to July 1998, Mr. Perlyn had been Miami Subs'
Executive Vice President of Franchise Development since March 1992. From
September 1990 to February 1992, Mr. Perlyn served as Miami Subs' Senior Vice
President of Franchising and Development. Between August 1990 and December 1991,
he was Senior Vice President of Franchising and Development for QSR, Inc., one
of Miami Subs' predecessors and an affiliate. Mr. Perlyn is also an officer,
director and a principal of DEMAC Restaurant Corp., a former franchisee of Miami
Subs.

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JERRY W. WODA has been Senior Vice President of Finance, Chief Financial
Officer, and Treasurer of Miami Subs since September 1992. From 1989 until
joining Miami Subs, Mr. Woda was the Chief Financial Officer of Kavala, Inc., a
private company owned by Gus Boulis, Miami Subs' former chairman and chief
executive officer.

FRANK BARAN has been Vice President -- Operations of Miami Subs since
December 1998. Between 1991 and 1998, Mr. Baran held various positions with
Miami Subs, including area manager for company operations, area consultant,
director of franchise operations, director of non-traditional operations, and
vice president of non-traditional operations.

BRUCE R. GALLOWAY has been a member of Miami Subs' board of directors since
March 1997. He has been Chairman of the Board of Arthur Treacher's, Inc. since
June 1996, and a managing director at Burnham Securities, Inc. since 1993. From
1991 to 1993 Mr. Galloway was Senior Vice President at Oppenheimer & Co.

PETER NASCA has been a member of Miami Subs' board of directors since March
1997. Since 1984, Mr. Nasca has been president of Peter Nasca Associates, Inc.,
a corporate communications firm, and a principal and director of Paradigm
Marketing, a private marketing company.

JOSEPH ZAPPALA has been a member of Miami Subs' board of directors since
July 1994. From 1989 until 1992, Mr. Zappala served as U.S. Ambassador to Spain.
Since 1992, Mr. Zappala has been a private businessman and investor.

COMPENSATION OF DIRECTORS

Directors who are not employees of Miami Subs are paid a fee of $4,000 per
year, and are reimbursed for expenses of attending meetings. In addition, under
Miami Subs' 1990 Executive Option Plan, each director who is not an employee of
Miami Subs receives an option to purchase 30,000 shares of common stock when he
or she is first elected a director, and an option to purchase 2,000 shares of
common stock as of the date of each annual meeting of shareholders at which the
director is reelected. These options are immediately exercisable at a price
equal to the fair market value per share of Miami Subs' common stock on the date
of grant, are nonqualified stock options, and have a ten-year term.

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EXECUTIVE COMPENSATION

The following table sets forth information concerning total compensation
earned by or paid during each of the last three fiscal years to the
President-Chief Executive Officer of Miami Subs, and the three most highly
compensated executive officers of Miami Subs who served in these capacities for
the fiscal year ended May 31, 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------- ---------------------------------
OTHER ANNUAL SECURITIES
NAME AND FISCAL COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (A) OPTIONS/SARS(#)(B) COMPENSATION
- ------------------ ------ -------- ------ ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gus Boulis.............. 1998 -- -- -- -- --
Chairman of the Board 1997 -- -- -- -- $3,000
and Chief Executive 1996 -- -- -- -- $4,000
Officer(c)

Donald L. Perlyn........ 1998 $149,520 $7,500 -- 162,500(e) --
President and Chief 1997 $142,400 -- -- -- --
Operating Officer(d) 1996 $142,400 -- -- 12,500 --

Gus Bartsocas........... 1998 $126,000 $7,500 -- 140,000(f) --
Senior Vice President
of International and 1997 $123,577 -- -- -- --
Non-Traditional 1996 $100,000 -- -- 50,000 --
Development

Jerry W. Woda........... 1998 $ 96,000 $7,500 -- 81,250(g) --
Senior Vice President 1997 $ 96,000 -- -- -- --
and Chief Financial 1996 $ 96,000 -- -- 25,000 --
Officer
</TABLE>

- -------------------------
(a) Does not include the value of personal benefits since the aggregate value of
these benefits for each of these officers in the periods for which amounts
are not shown was less than 10% of the officer's salary and bonus.

(b) All options have been adjusted to reflect the one-for-four reverse stock
split of Miami Subs' common stock effective January 7, 1999.

(c) Gus Boulis became Chairman of the Board and Chief Executive Officer in March
1997. Mr. Boulis was paid standard director fees in fiscal year 1997 and
1996 during periods that he was not an officer of Miami Subs, of $3,000 and
$4,000, respectively, which amounts are included in "All Other
Compensation." Mr. Boulis resigned as an officer and director in November
1998 in connection with Nathans' purchase of the Miami Subs common stock
owned by Mr. Boulis.

(d) Donald L. Perlyn was appointed President and Chief Operating Officer in July
1998. During fiscal year 1996, 1997, and 1998, Mr. Perlyn served as
Executive Vice President of Franchise Development.

(e) On June 25, 1997, (1) 25,000 options were granted to Mr. Perlyn under Miami
Subs' 1990 executive option plan and (2) 137,500 options previously issued
to Mr. Perlyn under the 1990 executive option plan were amended to change
the exercise prices and other terms thereof. For more details regarding the
option repricing, see "-- Executive Compensation -- Option Repricing."

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(f) On June 25, 1997, (1) 25,000 options were granted to Mr. Bartsocas under
Miami Subs' 1990 executive option plan and (2) 115,000 options previously
issued to Mr. Bartsocas under the 1990 executive option plan were amended to
change the exercise prices and other terms thereof. For more details
regarding the option repricing, see "-- Executive Compensation -- Option
Repricing." In November 1998, Mr. Bartsocas resigned from the company.

(g) On June 25, 1997, (1) 25,000 options were granted to Mr. Woda under Miami
Subs' 1990 executive option plan and (2) 56,250 options previously issued to
Mr. Woda under the 1990 executive option plan were amended to change the
exercise prices and other terms thereof. For more details regarding the
option repricing, see "-- Executive Compensation -- Option Repricing."

STOCK OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information on stock options granted during
fiscal year 1998 under Miami Subs' 1990 executive option plan to each of the
executive officers named in the Miami Subs summary compensation table.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS (1) VALUE AT ASSUMED
--------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
- ---- ---------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald L. Perlyn..... 162,500(3) 33.3% $3.00 (3) $157,340 $375,572
Gus Bartsocas........ 140,000(4) 28.7% $3.00 (4) $155,825 $379,940
Jerry W. Woda........ 81,250(5) 16.7% $3.00 (5) $118,075 $282,825
</TABLE>

- -------------------------

(1) The number of securities underlying options granted and the exercise price
have been adjusted to reflect the one-for-four reverse stock split of Miami
Subs common stock effective January 7, 1999. All options were granted at the
closing price for Miami Subs common stock at the date of grant. All options
granted are currently exerciseable and expire on various dates through 2007.

(2) The dollar amounts in these columns are the result of calculations at the
five percent and ten percent rates required by the regulations of the
Securities and Exchange Commission and are not intended to forecast future
appreciation of Miami Subs' stock price.

(3) On June 25, 1997, (a) 25,000 options were granted to Mr. Perlyn under Miami
Subs' 1990 executive option plan and (b) 137,500 options previously issued
to Mr. Perlyn under the 1990 executive option plan were amended to change
the exercise prices and other terms thereof. For more details regarding the
option repricing, see "-- Executive Compensation -- Option Repricing." All
options granted are currently exercisable, and expire on various dates
through 2007.

(4) On June 25, 1997, (a) 25,000 options were granted to Mr. Bartsocas under
Miami Subs' 1990 executive option plan and (b) 115,000 options previously
issued to Mr. Bartsocas under the 1990 executive option plan were amended to
change the

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<PAGE> 143

exercise prices and other terms thereof. For more details regarding the
option repricing, see "-- Executive Compensation -- Option Repricing." All
options granted are currently exercisable and expire on various dates
through 2007.

(5) On June 25, 1997, (a) 25,000 options were granted to Mr. Woda under Miami
Subs' 1990 executive option plan and (b) 56,250 options previously issued to
Mr. Woda under the 1990 executive option plan were amended to change the
exercise prices and other terms thereof. For more details regarding the
option repricing, see "-- Executive Compensation -- Option Repricing." All
options granted are currently exercisable and expire on various dates
through 2007.

OPTION REPRICINGS

The following table sets forth information with respect to the repricing
during fiscal year 1998 of stock options previously granted to each of the
executive officers named in the Miami Subs summary compensation table. All
amounts have been adjusted to reflect the one-for-four reverse stock split of
the Miami Subs common stock effective January 7, 1999.

<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET PRICE WEIGHTED AVERAGE ORIGINAL OPTION
SECURITIES OF STOCK AT EXERCISE PRICE AT NEW TERM REMAINING
UNDERLYING TIME OF TIME OF EXERCISE ON DATE OF
NAME DATE OPTIONS REPRICED REPRICING REPRICING PRICE REPRICING
- ---- ------- ---------------- ------------ ----------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald L. Perlyn, 6/25/97 82,000 $3.00 $ 9.00 $3.00 3.4 years
President and Chief 6/25/97 43,000 $3.00 $10.76 $3.00 6.4 years
Operating Officer 6/25/97 12,500 $3.00 $ 7.24 $3.00 8.2 years

Gus Bartsocas, 6/25/97 65,000 $3.00 $ 9.00 $3.00 3.4 years
Senior Vice President 6/25/97 50,000 $3.00 $ 7.24 $3.00 8.2 years
International and
Non-Traditional
Development

Jerry W. Woda, 6/25/97 31,250 $3.00 $10.76 $3.00 6.4 years
Senior Vice President 6/25/97 25,000 $3.00 $ 7.24 $3.00 8.2 years
and Chief Financial
Officer
</TABLE>

BOARD OF DIRECTORS REPORT ON OPTION REPRICING

On June 25, 1997, Miami Subs' board of directors authorized the repricing
of all outstanding options previously granted to employees including executive
officers under Miami Subs' 1990 executive option plan. Of the total number of
options repriced, approximately 90.4% were options held by executive officers of
Miami Subs. Prior to the repricing, the exercise prices under outstanding
options ranged from $3.50 to $12.00. Under the repricing, these options were
amended to change the per share exercise prices thereunder to $3.00, the closing
price of Miami Subs common stock on June 25, 1997, as reported by the Nasdaq
National Market, adjusted for the one-for-four reverse stock split in January
1999. At the time the repricing was authorized by the board of directors, the
majority of the outstanding options had been "under water" for a period of over
one year. The board therefore believed that the stock options no longer served
as an effective means to promote long-term retention of its employees and to
motivate their performance. During the months prior to the board's authorization
of the repricing, Miami Subs had lost a significant number of its management
personnel. In light of this, the board felt it was absolutely critical in
fostering the best interests of Miami Subs to reprice outstanding

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<PAGE> 144

options to provide an incentive for the remaining employees to continue in the
employ of Miami Subs.

Donald L. Perlyn
Bruce R. Galloway
Peter Nasca
Joseph Zappala
Gus Boulis
Greg Karan

OPTION EXERCISES AND YEAR END OPTION VALUES

The following table sets forth information regarding unexercised stock
options to purchase Miami Subs common stock granted under Miami Subs' 1990
executive option plan to each of the executive officers named in the Miami Subs
summary compensation table. None of the individuals named in the Miami Subs
summary compensation table exercised any options to purchase Miami Subs common
stock during the fiscal year ended May 31, 1998. None of the options listed in
this table were "in-the-money" as of May 31, 1998 because the exercise prices of
all of the options listed in this table were the same as the closing price of
Miami Subs common stock on May 31, 1998 as reported by Nasdaq. All amounts have
been adjusted for the one-for-four reverse stock split in January 1999.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT MAY 31, 1998 (#) AT MAY 31, 1998 ($)
------------------------------ ------------------------------
NAME EXERCISEABLE UNEXERCISEABLE EXERCISEABLE UNEXERCISEABLE
---- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Donald L. Perlyn........ 162,500 0 0 0
Gus Bartsocas........... 140,000 0 0 0
Jerry W. Woda........... 81,250 0 0 0
</TABLE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Donald L. Perlyn, who has been an officer of Miami Subs since 1990 and
a director since 1997, was appointed president and chief operating officer of
Miami Subs in July 1998. Mr. Perlyn is also an officer and principal of DEMAC
Restaurant Corp. which owned and operated a Miami Subs Grill restaurant in
Florida. In connection with his appointment, Mr. Perlyn sold to Miami Subs the
Miami Subs restaurant owned by DEMAC for existing indebtedness totaling
approximately $270,000.

Effective December 1, 1998 pursuant to Mr. Perlyn's employment agreement
with Miami Subs, Miami Subs cancelled a loan in the principal amount of $85,000
owed by Mr. Perlyn to Miami Subs. The loan had accrued interest at a rate of
prime plus 1.5%, and was due in full in June 1999. Miami Subs will indemnify Mr.
Perlyn for any tax liability incurred by him as a result of such cancellation.

Mr. Bruce Galloway, a member of the board of directors of Miami Subs, is
the chairman of the board of Arthur Treacher's Inc. In July 1998, Miami Subs and
Arthur Treacher's entered into a co-branding test agreement which provided for a
test of the sale

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<PAGE> 145

of Arthur Treacher's products in certain existing Miami Subs restaurants. In
August 1998, Miami Subs and Arthur Treacher's entered into a development program
master agreement which provides for the sale of Arthur Treacher's products in
all existing Miami Subs restaurants pursuant to the terms of the agreement. In
April 1999, the development program master agreement was amended to grant Miami
Subs the exclusive right to co-brand the Arthur Treacher's concept and products
in the United States and to include future developed Miami Subs restaurants and
other fast food restaurants. Currently, there are 44 Miami Subs restaurants
which have co-branded with Arthur Treacher's.

For a description of the transactions between Miami Subs and Nathans,
please see "Material Contacts between Nathans and Miami Subs" on page 65.

MIAMI SUBS SECURITY OWNERSHIP

The following table sets forth information regarding the ownership of Miami
Subs common stock as of August 16 1999 (1) by persons known by Miami Subs to own
of record or beneficially more than five percent of its outstanding common
stock, (2) each director of Miami Subs, (3) each of Miami Subs' named executive
officers and (4) by all directors and executive officers of Miami Subs as a
group.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(2)
------------------------ ----------------------- -------------------
<S> <C> <C>
Nathans Famous, Inc..................... 2,030,250 30.4%
Donald L. Perlyn........................ 385,116(3) 5.5%
Bruce R. Galloway....................... 12,500(3) *
Howard M. Lorber........................ -- *
Robert J. Eide.......................... -- *
Wayne Norbitz........................... -- *
Peter Nasca............................. 12,500(3) *
Joseph Zappala.......................... 37,500(3) *
Jerry W. Woda........................... 196,488(3) 2.9%
All current directors and executive
officers of the Company, including
those named above, as a group (9
persons).............................. 644,104(3) 8.8%
</TABLE>

- -------------------------

* Represents less than one percent of shares outstanding.

(1) Unless otherwise indicated, each person has sole voting and investment power
with respect to such shares.

(2) As of August 16, 1999, 6,667,335 shares of common stock were outstanding.

(3) Consists of currently exercisable options to acquire shares of common stock
issued under Miami Subs' 1990 executive option plan.

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<PAGE> 146

DESCRIPTION OF NATHANS SECURITIES

CAPITAL STOCK

Nathans' authorized capital stock consists of 20,000,000 shares of common
stock, $.01 par value per share. In the event that Nathans' stockholders vote
for the proposed amendment to Nathans certificate of incorporation, the number
of authorized shares of Nathans common stock will be increased to 30,000,000.

COMMON STOCK

General. Nathans has 20,000,000 authorized shares of common stock,
4,722,216 of which were issued and outstanding on July 30, 1999. All shares of
Nathans common stock currently outstanding are validly issued, fully paid and
non-assessable, and all shares which are the subject of this joint proxy
statement/prospectus, when issued under the merger, and all shares underlying
the warrants to be issued under the merger, when issued and paid for upon the
exercise of the warrants, will be validly issued, fully paid and non-assessable.

Voting Rights. Each share of Nathans common stock entitles the holder
thereof to one vote, either in person or by proxy, at meetings of the
stockholders. Nathans' board of directors consists of one class which is
re-elected every year at the annual meeting of the stockholders. The holders are
not permitted to vote their shares cumulatively. Accordingly, the holders of
more than 50% of the outstanding shares of Nathans common stock can elect all of
the directors of Nathans standing for election at a stockholders' meeting.

Dividend Policy. All shares of Nathans common stock are entitled to
participate ratably in dividends when and as declared by the Nathans board of
directors out of the funds legally available therefor. Any dividends may be paid
in cash, property or additional shares of Nathans common stock. Nathans has not
paid any cash dividends in the past two fiscal years or the current fiscal year
and does not anticipate that cash dividends will be declared in the foreseeable
future. Payment of future dividends is subject to the discretion of Nathans'
board of directors and will depend upon, among other things, future earnings,
the operating and financial condition of Nathans, its capital requirements,
general business conditions and other pertinent facts. Therefore there can be no
assurance that any dividends on the Nathans common stock will be paid in the
future.

Miscellaneous Rights and Provisions. Holders of Nathans common stock have
no preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of the liquidation or dissolution, whether
voluntary or involuntary, of Nathans, each share of common stock is entitled to
share ratably in any assets available for distribution to holders of the equity
of Nathans after satisfaction of all liabilities.

Shares Eligible for Future Sale. As of the date of this joint proxy
statement/prospectus, Nathans has 4,722,216 shares of Nathans common stock
outstanding, all of which are freely tradeable without restriction or further
registration under the Securities Act, except for any shares owned by an
"affiliate" of Nathans, which will be subject to the limitations of Rule 144
adopted under the Securities Act. In general, an affiliate of Nathans is a
person who has a control relationship with Nathans.

Upon completion of the merger, Nathans will have approximately 7,041,000
shares of Nathans common stock outstanding and 580,000 Warrants to purchase an
equal number of

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<PAGE> 147

shares of Nathans common stock, assuming that no Miami Subs shareholders
exercise dissenters' rights. These amounts assume no exercise of stock options
or warrants outstanding prior to the merger or stock options and warrants
assumed by Nathans under the merger.

In general, under Rule 144 as currently in effect, subject to the
satisfaction of other conditions set forth in the rule, a person who owns
restricted securities for at least one year is entitled to sell, within any
three-month period, a number of such securities that does not exceed the greater
of 1% of the total number of securities outstanding of the same class or the
average weekly trading volume of the securities on all exchanges and/or reported
through the automated quotation system of a registered securities association
during the four calendar weeks preceding the date on which notice of the
proposed sale is filed with the Commission. Sales under Rule 144 are also
subject to manner-of-sale provisions, notice requirements and the availability
of current public information about the issuer. In addition, an affiliate of the
issuer is subject to these volume limitations when selling both restricted and
unrestricted securities. A person who has not been an affiliate of Nathans for
at least the three months immediately preceding the sale and who has
beneficially owned the securities for at least two years, however, is entitled
to sell securities under Rule 144 without regard to any of the limitations
described above.

No predictions can be made as to the effect, if any, that sales of shares
of Nathans common stock under Rule 144 or otherwise or the availability of
shares for sale will have on the market, if any, prevailing from time to time.
Sales of a substantial number of shares of Nathans common stock under Rule 144
or otherwise may adversely affect the market price of the Nathans common stock
or the warrants.

WARRANTS

The following is a brief summary of the material provisions of the warrants
to be issued under the merger. This summary does not purport to be complete and
is qualified in all respects by reference to the warrant agreement between
Nathans and American Stock Transfer & Trust Company as warrant agent. A copy of
the warrant agreement has been filed as an exhibit to the registration statement
of which this joint proxy statement/prospectus is a part.

EXERCISE PRICE AND TERMS.

Each warrant entitles the registered holder thereof to purchase one share
of Nathans common stock at an exercise price of $6.00 per share, subject to
adjustment in accordance with the anti-dilution and other provisions referred to
below. The holder of any warrant may exercise the warrant by surrendering the
certificate representing the warrant to American Stock Transfer, with the
subscription form thereon properly completed and executed, together with payment
of the exercise price. The warrants may be exercised at any time in whole or in
part at the exercise price then in effect until expiration of the warrants. The
warrants expire five years from their date of issuance. No fractional shares
will be issued upon the exercise of the warrants.

The exercise price of the warrants to be issued in the merger bears no
relationship to any objective criteria of future value. Accordingly, the
exercise price should in no event be regarded as an indication of any future
trading price of the warrants or underlying shares of Nathans common stock.

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<PAGE> 148

ADJUSTMENTS.

The exercise price and the number of shares of Nathans common stock
purchasable upon the exercise of the warrants are subject to adjustment upon the
occurrence of events specified in the warrants, including stock dividends, stock
splits, combinations or reclassifications of the Nathans common stock.
Additionally, an adjustment would be made in the case of a reclassification or
exchange of Nathans common stock, consolidation or merger of Nathans with or
into another corporation or sale of all or substantially all of the assets of
Nathans in order to enable warrant holders to acquire the kind and number of
shares of stock or other securities or property receivable in the event by a
holder of the number of shares of Nathans common stock that might otherwise have
been purchased upon the exercise of the warrant. No adjustment would be made for
a consolidation or merger in which Nathans is the continuing corporation.

TRANSFER, EXCHANGE AND EXERCISE.

The warrants will be in registered form and may be presented to American
Stock Transfer for transfer, exchange or exercise, subject to limitations
described in the next sentence, at any time on or prior to their expiration date
five years from the date of issuance, at which time the warrants become wholly
void and of no value. The warrants can only be exercised where there is a
current effective registration statement covering the shares of Nathans common
stock underlying the warrants. If Nathans does not or is unable to maintain a
current effective registration statement, the warrantholders will be unable to
exercise the warrants and the warrants may become worthless. Moreover, if the
shares of Nathans common stock underlying the warrants are not registered or
qualified for sale in the state in which a warrantholder resides, the holder
might not be permitted to exercise the warrants. Although Nathans has applied
for listing of the warrants on The Nasdaq National Market under the symbol
"NATHW", there can be no assurance that the warrants will be quoted on The
Nasdaq National Market. There is currently no established market for the
warrants, and there is no assurance that a market will develop or continue. If a
market for the warrants develops, the holder may sell the warrants instead of
exercising them.

WARRANT HOLDER NOT A STOCKHOLDER.

The warrants do not confer upon holders any voting, dividend or other
rights as stockholders of Nathans.

TRANSFER AGENT AND REGISTRAR.

The transfer agent and registrar for the shares of Nathans common stock and
warrants is American Stock Transfer & Trust Company located at 40 Wall Street,
New York, New York 10005.

CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND SHAREHOLDER RIGHTS PLAN

Nathans' certificate of incorporation and by-laws contain provisions,
including a prohibition against removal of directors other than for cause, that
are intended to enhance the continuity and stability of management by making it
more difficult for stockholders to remove or change the incumbent members of the
board of directors. In 1995, Nathans adopted a shareholder rights plan, which,
as amended, provides for a dividend distribution

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<PAGE> 149

of the right to purchase one share of common stock for each share to holders of
record of Nathans common stock on June 20, 1995 and the issuance of one right
for each share of Nathans common stock issued between June 20, 1995 and the date
on which the rights are triggered. The right becomes exercisable at a price of
$4.00 per share if any person or group acquires 20% or more of the Nathans
common stock, or any person or group announces an offer which would result in it
owning more than 20% of the Nathans common stock and Nathans does not approve
such ownership.

Nathans' certificate of incorporation further provides that Nathans
stockholders are not permitted to call a special meeting of stockholders or to
require the board of directors to call a special meeting. Thus, a stockholder
could not force stockholder consideration of a proposal over the opposition of
the board of directors by calling a special meeting of the stockholders.

The Nathans shareholder rights plan and the foregoing provisions of the
Nathans certificate of incorporation may adversely affect the ability of
potential acquirors to obtain control of Nathans in any transaction that is not
approved by Nathans' board of directors. The shareholder rights plan and the use
of these provisions as anti-takeover devices might preclude stockholders from
taking advantage of some situations that they believe could be favorable to
their interests.

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<PAGE> 150

PROPOSAL TO AMEND NATHANS' CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

The Nathans board of directors has proposed an amendment to Article
"FOURTH" of Nathans' certificate of incorporation increasing the total number of
shares which Nathans has the authority to issue to 30,000,000 from 20,000,000.
The Nathans board recommends that Nathans stockholders approve this amendment.
This proposed amendment to Nathans certificate of incorporation is indicated on
Annex E to this joint proxy statement/prospectus.

The increase in authorized shares is conditioned upon consummation of the
merger. The merger is not conditioned on approval of the amendment to Nathans'
certificate of incorporation and Nathans has enough authorized but unissued
shares for delivery in connection with the merger, and upon exercise of the
warrants issued in the merger, even if the amendment to Nathans' certificate of
incorporation is not approved.

The proposed amendment to Nathans' certificate of incorporation is intended
to provide additional flexibility to Nathans. The Nathans board believes that,
as a result of the issuance of the large number of shares to be issued in the
merger and upon the exercise of the warrants, it is desirable to have available
additional authorized Nathans shares for future stock dividends, employee
benefit plans, acquisitions, refinancings, exchanges of securities, public
offerings and other corporate purposes. The Nathans board would have the
discretion to issue the additional shares of Nathans common stock from time to
time for any corporate purpose without further action by stockholders, except as
may be required by Nasdaq Stock Market rules, and without first offering the
shares to stockholders. Nathans has no present plans to issue the new shares to
be authorized.

Stockholders should note that an issuance of common stock by Nathans other
than on a pro rata basis may dilute their ownership position and that the
issuance of large number of shares of common stock may reduce Nathans earnings
per share, if any.

The board of directors, which recommends approval of this amendment,
believes it would be advantageous to Nathans to be in a position to issue
additional common stock without the necessary delay of calling a stockholders'
meeting if one or more suitable opportunities to Nathans is presented.

In connection with the merger, Nathans will be issuing approximately
2,318,543 shares of Nathans common stock and will have reserved approximately
12,529,973 shares of Nathans common stock for issuance upon the exercise of
stock options issued or issuable under its stock option plans and warrants which
are now outstanding, which are required to be issued in connection with its
stockholder rights plan and which are required to be issued upon the exercise of
warrants to be issued in the merger. After the merger, Nathans will have only
429,268 shares of common stock authorized but not reserved for any particular
purpose.

The following table sets forth as of July 30, 1999, the approximate number
of shares of Nathans common stock authorized, outstanding, to be issued in
connection with the merger and upon the exercise of the warrants issued in the
merger, reserved for issuance under Nathans stock option plans and other stock
options and warrants, and available for

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<PAGE> 151

issuance, as well as the approximate number of shares of which will be available
for issuance if this amendment is approved.

<TABLE>
<CAPTION>
AVAILABLE FOR
ISSUANCE
AVAILABLE UPON
ISSUABLE IN FOR APPROVAL OF
AUTHORIZED OUTSTANDING MERGER RESERVED ISSUANCE AMENDMENT
---------- ----------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock............ 20,000,000 4,722,216 2,318,543 12,529,973 429,268 10,429,268
</TABLE>

The proposed amendment to Nathans' certificate of incorporation must be
approved by a majority of Nathans' outstanding common stock entitled to vote on
this matter at the meeting.

THE NATHANS BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSED
AMENDMENT.

COMPARISON OF RIGHTS OF HOLDERS OF MIAMI SUBS
COMMON STOCK AND NATHANS COMMON STOCK

Upon consummation of the merger, and to the extent they receive shares of
Nathans common stock, the shareholders of Miami Subs, a Florida corporation,
will become stockholders of Nathans, a Delaware corporation. The rights of Miami
Subs shareholders will thereafter be governed by applicable Delaware law,
including the Delaware General Corporation Law, and by Nathans' certificate of
incorporation and bylaws. The following is a summary of the material differences
between the rights of Miami Subs shareholders and the Nathans stockholders due
to the differences in Delaware law and applicable Florida law, and between the
Nathans certificate of incorporation and bylaws, on the one hand, and the Miami
Subs articles of incorporation and bylaws, on the other hand. The following
summary does not purport to be a complete statement of the difference in the
rights of Miami Subs shareholders and Nathans stockholders. This summary is
qualified in its entirety by reference to the full text of the Nathans
certificate of incorporation and the Nathans bylaws, the Miami Subs articles of
incorporation and Miami Subs bylaws, and Delaware law and Florida law.

AUTHORIZED CAPITAL STOCK

The authorized capital stock of Miami Subs consists of 12,500,000 shares of
common stock, par value $.01 per share, and 2,500,000 shares of preferred stock,
par value $.01 per share. The authorized capital stock of Nathans consists of
20,000,000 shares of common stock, par value $.01 per share. In the event that
Nathans' stockholders vote for the proposed amendment to Nathans certificate of
incorporation, the number of authorized shares of common stock will be increased
to 30,000,000.

DIVIDENDS AND OTHER DISTRIBUTIONS

Delaware law permits a corporation to pay dividends to stockholders either
out of its surplus or out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. The Nathans certificate
of incorporation contains no restrictions on the payment of dividends.

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<PAGE> 152

Florida law permits a corporation to pay dividends to shareholders as long
as, after giving effect to the distribution, the corporation will be able to pay
its debts as they become due in the usual course of business and the
corporation's total assets will not be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy upon dissolution the
preferential rights of shareholders whose preferential rights are superior to
those receiving the distribution, unless the articles of incorporation permit
otherwise. The Miami Subs articles of incorporation contain no restrictions on
the payment of dividends except that it requires that dividends on any
outstanding preferred stock be paid before any dividends are paid on its common
stock.

SPECIAL MEETING OF STOCKHOLDERS

Under Delaware law, a special meeting of stockholders can be called by the
corporation's board of directors or by any person or persons as may be
authorized by the corporation's certificate of incorporation or bylaws. Under
the Nathans bylaws, a special meeting of the stockholders of Nathans may be
called only by the Nathans board or by an officer instructed by the board to
call a special meeting. Under Florida law, a special meeting of shareholders can
be called by a corporation's board of directors, the persons authorized by the
articles of incorporation or bylaws, or the holders of not less than ten percent
of all votes entitled to be cast on any issue to be considered at the proposed
special meeting, unless a different percentage, not to exceed fifty percent, is
provided in the articles of incorporation. Under the Miami Subs bylaws, a
special meeting may be called only by the Miami Subs board, or the holders of
not less than ten percent of all shares entitled to vote at the meeting.

VOTING REQUIREMENTS GENERALLY

Under Delaware law, the affirmative vote of the majority of shares present
in person or represented by proxy at a duly held meeting at which a quorum is
present and entitled to vote on the subject matter is deemed to be the act of
the stockholders, unless the Delaware General Corporation Law, the certificate
of incorporation or the bylaws of the corporation specify a different voting
requirement. Under Florida law, the affirmative vote of the majority of votes
entitled to be cast on the matter at a meeting where a quorum exists is required
for shareholder action unless the Florida Business Corporation Act, the articles
of incorporation or the bylaws state otherwise.

The Nathans bylaws state that each Nathans stockholder is entitled to one
vote for every share of common stock held by the stockholder. The vote of a
majority of the combined voting power of the shares present in person or
represented by proxy at a duly held meeting at which a quorum is present is
deemed to be the act of the Nathans stockholders. The Miami Subs bylaws provide
that the affirmative vote of the majority of shares present in person or
represented by proxy at a duly held meeting at which a quorum is present and
entitled to vote is deemed the act of the Miami Subs shareholders.

AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION

Under Delaware law, an amendment to a corporation's certificate of
incorporation requires the approval of the board of directors and the approval
of a majority of the outstanding shares entitled to vote on the amendment. The
holders of the outstanding shares of a class are entitled to vote as a separate
class on a proposed amendment that

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<PAGE> 153

would increase or decrease the aggregate number of authorized shares of that
class, increase or decrease the par value of the shares of that class or alter
or change the powers, preferences or special rights of the shares of that class
so as to affect them adversely. If any proposed amendment would alter or change
the powers, preferences or special rights of one or more series of any class in
a way that would adversely affect them, but would not adversely affect the
entire class, then only the shares of the series which are adversely affected by
the amendment will be considered a separate class for purposes of voting by
classes.

Under Florida law, a corporation's articles of incorporation may be amended
if the board of directors recommends the amendment and the holders of a majority
of the outstanding shares entitled to vote on the amendment, and a majority of
the outstanding stock of each class entitled to vote as a class, approve the
amendment, unless the Florida Business Corporation Act, the articles of
incorporation or the bylaws require a greater vote.

The Nathans certificate of incorporation does not state how the Nathans
certificate of incorporation may be amended. The Miami Subs articles of
incorporation state that the Miami Subs articles of incorporation may be amended
in the manner provided for by Florida law.

AMENDMENT OF BYLAWS

Under Delaware law, the stockholders may amend the bylaws. The certificate
of incorporation may also confer the power to amend the bylaws upon the board of
directors; however, the fact that this power has been conferred on the board of
directors will not eliminate the stockholders' power to amend the bylaws. Under
Florida law, a corporation's bylaws may be amended by the board of directors or
the shareholders, provided that the board of directors may not amend or repeal
any bylaw adopted by shareholders if the shareholders specifically provide that
the bylaw is not subject to amendment or repeal by the board of directors.

The Nathans certificate of incorporation gives the Nathans board the power
to adopt or amend the bylaws without any stockholder action. The Nathans bylaws
empower both the Nathans board and the Nathans stockholders to amend the bylaws
unless the Nathans certificate of incorporation or Delaware law reserves the
amendment power to the stockholders in whole or in part, or if the stockholders
in adopting, amending or repealing a particular bylaw expressly provide that the
board of directors may not amend or repeal that bylaw.

The Miami Subs bylaws empower both the Miami Subs board, subject to
limitations of the Florida Business Corporation Act, and Miami Subs'
shareholders to amend or repeal the Miami Subs bylaws.

ACTION BY WRITTEN CONSENT

Under Delaware law, unless otherwise provided in a corporation's
certificate of incorporation, any action that may be taken at any annual or
special meeting of stockholders may be taken without a meeting and without prior
notice, if a consent in writing which sets forth the action taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize the action at a meeting at which all
shares entitled to vote thereon were present and voted. Under Florida law, the
shareholders may take action without a meeting if a consent in

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<PAGE> 154

writing to the action is signed by the shareholders having a minimum number of
votes that would be necessary to take the action at a meeting.

The Nathans bylaws do not restrict the ability of the Nathans stockholders
to take action by written consent. The Miami Subs bylaws permit the Miami Subs
shareholders to take action by written consent.

VOTING FOR THE ELECTION OF DIRECTORS

Under Delaware and Florida law, the directors of a corporation shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election of directors at a meeting of shareholders at which a quorum
is present, unless the articles or certificate or incorporation provides for
cumulative voting. Neither the Nathans certificate of incorporation nor the
Miami Subs articles of incorporation provide for cumulative voting.

Under Delaware law, vacancies and newly created directorships may be filled
by a majority of the directors then in office, although less than a quorum,
unless otherwise provided in the certificate of incorporation or bylaws. If, at
the time of filling any vacancy or newly created directorship, the directors
then in office constitute less than a majority of the whole board of directors
as constituted immediately prior to the increase, the Delaware Court of Chancery
may, upon application of stockholders holding at least ten percent of the total
number of shares outstanding having the right to vote for directors, order an
election to be held to fill any vacancies or newly created directorships or to
replace the directors chosen by the directors then in office. Under Florida law,
vacancies may be filled by the affirmative vote of a majority of the remaining
directors or by the shareholders, unless the articles of incorporation or bylaws
provide otherwise.

Under the Nathans bylaws, any vacancy occurring in the Nathans board may be
filled by the vote of a majority of the directors then in office, although less
than a quorum, or the sole remaining director. Under Miami Subs bylaws, a
vacancy in the Miami Subs board occurring for any reason shall be filled by the
affirmative vote of at least a majority of the directors then in office, or by
the shareholders.

NUMBER AND QUALIFICATION OF DIRECTORS

Under Delaware law, the minimum number of directors a corporation may have
is one. Delaware law permits the board of directors alone to change the
authorized number, or the range, of directors by amendment to the bylaws, unless
the directors are not authorized in the certificate of incorporation to amend
the bylaws or the number of directors is fixed in the certificate of
incorporation, in which case a change in the number of directors may be made
only upon amendment of the certificate of incorporation.

Under Florida law, the board of directors of a corporation must consist of
at least one director, with the number specified in or fixed in accordance with
the articles of incorporation. The number of directors may be increased or
decreased in the manner provided in the articles of incorporation or bylaws.

The Nathans bylaws provide for no less than five nor more than nine
directors, as shall be fixed from time to time by the stockholders or the
Nathans board. The Miami Subs' bylaws provide that the number of directors shall
be no less than one nor more than 25, and may be increased or decreased by
action of the board or shareholders.

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REMOVAL OF DIRECTORS

Under Delaware law, a director of a corporation without a classified board
of directors may be removed with or without cause. Nathans does not have a
classified board of directors. The Nathans bylaws provide that any director or
all the directors may be removed with or without cause, by the holders of the
majority of the shares then entitled to vote at an election of the Nathans
board.

Under Florida law, the shareholders may remove one or more directors with
or without cause unless the articles of incorporation provide that directors can
only be removed for cause. The Miami Subs bylaws provide that any director or
the entire Miami Subs board may be removed with or without cause by the voting
group that elected the director(s). There is no voting group which elected the
Miami Subs directors. The Miami Subs bylaws also provide that any director may
be removed for cause by the board.

DISSENTERS' APPRAISAL RIGHTS

Under Delaware law, a stockholder has a right to dissent from specified
corporate actions and to be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholder's shares of stock. These corporate actions
include

- a merger or consolidation under specified sections of the Delaware
General Corporation Law, and

- specified corporate actions that a corporation includes in its
certificate of incorporation to provide for appraisal rights.

However, no appraisal rights are available for the shares of any class or series
of stock which at the record date were either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by more than 2,000 holders. Notwithstanding the previous sentence,
appraisal rights are available for these shares if the holders are required by
the terms of the merger to accept for those shares anything except

- shares of the surviving corporation,

- shares of any other corporation which shares of stock at the effective
date of the merger will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the NASD or held of record by more than
2,000 holders,

- cash in lieu of fractional shares, or

- any combination of the above.

Under Florida law, any shareholder of a corporation has the right to
dissent from, and obtain payment of the fair value of his or her shares in the
event of, the following corporate actions:

- consummation of a plan of merger if the shareholder is entitled to vote
on the merger;

- consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, if the shareholder is entitled to vote on
the sale or exchange;

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<PAGE> 156

- the occurrence of a control-share acquisition;

- consummation of a plan of share exchange if the shareholder is entitled
to vote on the share exchange;

- any amendment to the articles of incorporation if the shareholder is
entitled to vote on the amendment and if the amendment would adversely
affect the shareholder by altering or abolishing specified shareholder
rights; and

- any corporate action taken, to the extent the articles of incorporation
provides for a right to dissent.

Unless the articles of incorporation provide otherwise, with respect to a
plan of merger, a proposed sale or exchange of property or a share exchange, no
shareholder shall have a right to dissent if on the record date the shares were
either registered on a national securities exchange or designated as a national
market security on an interdealer system by the National Association of
Securities Dealers, Inc. or held of record by not fewer than 2,000 shareholders.

LIQUIDATION RIGHTS

Generally under both Delaware and Florida law, shareholders are entitled to
share ratably in the distribution of assets upon the dissolution of their
corporation. Preferred shareholders typically do not participate in the
distribution of assets of a dissolved corporation beyond their established
contractual preferences. Once the rights of preferred shareholders have been
fully satisfied, common shareholders are entitled to the distribution of any
remaining assets. Nathans does not have any authorized class of preferred stock.
Miami Subs has an authorized series of preferred stock; however, no shares are
presently issued and outstanding.

STATUTORY ANTI-TAKEOVER PROVISIONS

Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person becomes an interested stockholder, unless

- prior to the date at which the stockholder became an interested
stockholder, the board of directors approved either the business
combination or the transaction in which the person became an interested
stockholder;

- upon consummation of the transaction which results in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding shares held by directors who are
officers or held in some employee stock plans; or

- the business combination is approved by the board of directors and by at
least 66 2/3% of the outstanding voting stock of the corporation,
excluding shares held by the interested stockholder, at a meeting of
stockholders held on or subsequent to the date the stockholder became an
interested stockholder. For the purposes of this provision, action cannot
be taken by written consent.

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<PAGE> 157

An "interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's voting stock or who owned 15%
or more of the voting stock at any time within the prior three years. A
"business combination" includes, without limitation, mergers, consolidations,
stock sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.

Section 607.0901 of the Florida Business Corporation Act, informally known
as the "fair price statute," provides that the approval of the holders of
two-thirds of the voting shares of a company, other than the shares owned by an
"interested shareholder" would be required in order to effectuate transactions
specified by the statute, including without limitation a merger, sale of assets,
sale of shares and reclassification of securities involving a corporation and an
interested shareholder. These transaction are referred to as "affiliated
transactions." An "interested shareholder" is defined under the Florida Business
Corporation Act as the beneficial owner of more than 10% of the voting shares
outstanding. The foregoing special voting requirement is in addition to the vote
required by any other provision of the Florida Business Corporation Act or a
corporation's articles of incorporation.

The special voting requirement does not apply in any of the following
circumstances:

- the affiliated transaction is approved by a majority of the corporation's
disinterested directors;

- the corporation has not had more than 300 shareholders of record at any
time during the three years proceeding the announcement of the affiliated
transaction;

- the interested shareholder has beneficially owned 80% of the
corporation's voting shares for five years;

- the interested shareholder beneficially owns 90% of the corporation's
voting shares; or

- all of the following conditions are met:

-- the cash and fair value of other consideration to be paid per share
to all holders of voting shares equals the highest per share price
calculated under various methods set forth in Section 607.0901 of the
Florida Business Corporation Act;

-- the consideration paid by the interested shareholder in the
affiliated transaction is cash or in the same form of consideration
the interested shareholder has previously paid for the shares;

-- during the portion of the three year period preceding the
announcement date that the interested shareholder has been an
interested shareholder, except as approved by a majority of the
disinterested directors, there shall have been no failure to declare
and pay at the regular dates therefor any periodic dividends, no
reductions in the annual rate of dividends, no increase in the voting
shares owned by the interested shareholder, no benefit to the
interested shareholder from loans, guaranties or other financial
assistance or tax advantages provided by the corporation; and

-- the corporation must mail a proxy statement to the voting
shareholders of the corporation.

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<PAGE> 158

A corporation may "opt out" of the fair price statute by electing to do so
in its original articles of incorporation or by adopting an amendment to its
articles of incorporation or bylaws opting out and having the amendment approved
by the holders of a majority of the voting shares not held by the interested
shareholder, its affiliates or associates. The amendment will not be effective
until 18 months after the vote, and will not apply to any affiliated transaction
with someone who is an interested shareholder on or prior to the effective date
of the amendment. Miami Subs has not opted out of the provisions of the fair
price statute.

Section 607.0902 of the Florida Business Corporation Act, informally known
as the "control share acquisition statute," provides that the voting rights to
be accorded "control shares" of a Florida corporation that has

- 100 or more shareholders,

- its principal place of business, its principal office, or substantial
assets in Florida and

- either

-- more than 10% of its shareholders residing in Florida,

-- more than 10% of its shares owned by Florida residents, or

-- 1,000 shareholders residing in Florida,

must be approved by a majority of each class of voting securities of the
corporation, excluding those shares held by interested persons, before the
control shares will be granted any voting rights.

The Florida Business Corporation Act defines "control shares" as shares
acquired in a "control share acquisition" that, when added to all other shares
of the issuing corporation owned by the person, would entitle the person to
exercise, either directly or indirectly, voting power within any of the
following ranges:

- 20% or more but less than 33% of all voting power of the corporation's
voting securities,

- 33% or more but less than a majority of all voting power of the
corporation's voting securities, or

- a majority or more of all of the voting power of the corporation's voting
securities.

A "control share acquisition" is defined in the Florida Business
Corporation Act as an acquisition, either directly or indirectly, by any person
of ownership of, or the power to direct the exercise of voting power with
respect to, outstanding control shares. The Control Acquisition Statute also
states that, if provided in the articles of incorporation or bylaws of a
corporation prior to their acquisition, control shares may be redeemed by the
corporation for fair value in some circumstances. Finally, unless otherwise
provided in a corporation's articles of incorporation or bylaws prior to a
control share acquisition, in the event control shares are accorded full voting
rights and the acquiring person has acquired control shares with a majority or
more of all voting power, all shareholders will have dissenters' rights.

The control share acquisition statute further provides that, under some
circumstances, including those specified below, an acquisition of shares that
otherwise would be governed by its provisions does not constitute a control
share acquisition. Among the circumstances are acquisitions of shares approved
by the corporation's board of directors and mergers

149
<PAGE> 159

effected in compliance with the applicable provisions of the Florida Business
Corporation Act, if the corporation is a party to the agreement of merger.
Nathans' recent acquisition of approximately 30% of the outstanding common stock
of Miami Subs from Miami Subs' then chairman and chief executive officer was
approved in advance by Miami Subs board of directors.

A corporation may "opt out" of the control share acquisition statute by
electing to do so in its original articles of incorporation or by adopting an
amendment to its articles of incorporation or bylaws opting out. Miami Subs has
opted out of the provisions of the control share acquisition statute.

NATHANS' SHAREHOLDER RIGHTS PLAN

In 1995, Nathans adopted a shareholder rights plan, as amended, which
provides for a dividend distribution of the right to purchase one share of
common stock for each share held to holders of record of Nathans common stock on
June 20, 1995 and the issuance of one right for each share of Nathans common
stock issued between June 20, 1995 and the date on which the rights are
triggered. The rights become exercisable at a price of $4.00 per share if any
person or group acquires 20% or more of the Nathans common stock, or any person
or group announces an offer which would result in it owning more than 20% of the
Nathans common stock and Nathans does not approve the ownership.

TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS

Under Delaware law, no contract or transaction between a corporation and
one or more of its directors or officers, or between a corporation and any other
entity in which one or more of its directors or officers are directors or
officers, or have a financial interest, is void or voidable if

- the material facts as to the director's or officer's relationship or
interest and as to the contract or transaction are disclosed or known to
the board of directors or committee which authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors;

- the material facts as to the director's or officer's relationship or
interest and as to the contract or transaction are disclosed or known to
the stockholders entitled to a vote thereon, and the contract or
transaction is specifically approved by the stockholders; or

- the contract or transaction is fair as to the corporation as of the time
it is authorized, approved or ratified by the board of directors, a
committee thereof, or the stockholders.

A corporation may make loans to, guarantee the obligations of or otherwise
assist its officers or other employees and those of its subsidiaries, including
directors who are also officers or employees, when the action, in the judgment
of the directors, may reasonably be expected to benefit the corporation.

Under Florida law, no contract or other transaction between a corporation
and one or more of its directors in which one or more of its of its directors
are directors or officers or are financially interested shall be either voidable
or void because of the relationship if

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<PAGE> 160

- the relationship or interest is disclosed or known to the board of
directors which authorizes the transaction without counting the votes of
the interested directors;

- the relationship or interest is disclosed or known to the shareholders
and they authorize the transaction; or

- the contract or transaction is fair and reasonable as to the corporation
at the time it is authorized by the board of directors or shareholders.

The Miami Subs' bylaws also state that an interested director transaction
is not void or voidable under the above three circumstances.

INDEMNIFICATION

Under Delaware law, a corporation has the power to indemnify any agent
against expenses, judgments, fines and settlements incurred in a proceeding,
other than an action by or in the right of the corporation, if the person acted
in good faith and in a manner that the person reasonably believed to be in the
best interests of the corporation or not opposed to the best interests of the
corporation, and, in the case of a criminal proceeding, had no reason to believe
that their conduct was unlawful. In the case of an action by or in the right of
the corporation, the corporation has the power to indemnify any agent against
expenses incurred in defending or settling the action if the person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation; provided, however, that no
indemnification may be made when a person is adjudged liable to the corporation,
unless a court determines the person is entitled to indemnification for
expenses, and then indemnification may be made only to the extent that the court
shall determine. Delaware law requires that to the extent an officer, director,
employee or agent of a corporation is successful on the merits or otherwise in
defense of any third-party or derivative proceeding, or in defense of any claim,
issue or matter in any third-party or derivative proceeding, the corporation
must indemnify the person against expenses incurred in connection with that
proceeding.

The Nathans bylaws permit indemnification in circumstances described under
the Delaware law. Also, the Nathans bylaws state that the rights to
indemnification provided thereunder are not exclusive of any other
indemnification rights the directors might be entitled to under law.

Under Florida law, the directors and officers of a corporation may be
indemnified against specified liabilities which they may incur in their capacity
as officers and directors. Indemnification is generally available if the
executive acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation, and with
respect to any criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. In the case of an action by or in the right of the
corporation, the corporation has the power to indemnify any person who was a
party to a proceeding by or in the right of the corporation if the person acted
in good faith and in a manner he or she reasonably believed to be in the best
interests of the corporation. Indemnification may also be available unless a
court of competent jurisdiction establishes by final adjudication that the
actions or omissions of the executive are material to the cause of action so
adjudicated and constituted:

- a violation of the criminal law, unless the executive had reasonable
cause to believe his or her conduct was lawful;

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<PAGE> 161

- a transaction from which the executive derived an improper personal
benefit; or

- willful misconduct or conscious disregard for the best interests of the
corporation in a proceeding by or in the right of the corporation to
procure a judgment in its favor or in a proceeding by or in the right of
a shareholder.

The Miami Subs bylaws provide that Miami Subs shall indemnify each and
every one of its present and former directors and officers to the fullest extent
permitted by law. The Miami Subs bylaws empower Miami Subs to purchase and
maintain directors' and officers' liability insurance.

DIRECTORS' LIABILITY

Under Delaware law, a corporation may adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that the provision may not eliminate or
limit director monetary liability for

- breaches of the director's duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or involving intentional misconduct
or knowing violations of law;

- the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or

- transactions in which the director received an improper personal benefit.

Florida law provides that a director will not be personally liable for
monetary damages to the corporation or any other person for any statement, vote,
decision or failure to act, regarding corporate management or policy, by a
director unless:

- the director breached or failed to perform his duties as a director, and

- the director's breach of or failure to perform those duties constitutes:

-- a violation of the criminal law, unless the director had reasonable
cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful;

-- a transaction in which the director derived an improper personal
benefit;

-- a payment of unlawful dividends and distributions as specified under
Florida law;

-- in a proceeding by or in the right of the corporation to procure
judgment in its favor or by or in the right of a shareholder,
conscious disregard for the best interests of the corporation, or
willful misconduct; or

-- in a proceeding by or in the right of someone other than the
corporation or a shareholder, recklessness or an act or omission
which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights,
safety or property.

This provision would absolve directors of the corporation of personal
liability for negligence in the performance of their duties, including gross
negligence. It would not permit a director to be exculpated, however, from
liability for actions involving conflicts of

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<PAGE> 162

interest or breaches of the traditional "duty of loyalty" to Miami Subs and its
shareholders, and it would not affect the availability of injunctive and other
equitable relief as a remedy.

SHAREHOLDER APPROVAL OF MERGER

Under Delaware law, the principal terms of a merger generally require the
approval of the stockholders of each of the merging corporations. Unless
otherwise required in a corporation's certificate of incorporation, Delaware law
does not require the vote of stockholders of a constituent corporation surviving
the merger if

- the merger agreement does not amend the existing certificate of
incorporation,

- each share of the surviving corporation outstanding before the merger is
identical to each outstanding or treasury share after the merger, and

- either no shares of the surviving corporation and no securities
convertible into shares of the surviving corporation are to be issued in
the merger or the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to the merger.

Under Florida law, the principal terms of a merger generally require the
approval of the shareholders of each corporation party to a merger. Unless
required by the corporation's articles of incorporation, action by the
shareholders of the surviving corporation is not required if

- the articles of incorporation will not differ from its articles before
the merger; and

- each shareholder of the surviving corporation whose shares were
outstanding prior to the effective date of the merger will hold the same
number of shares immediately after the merger.

LEGAL MATTERS

The validity of the Nathans common stock and warrants issuable under the
merger and the Nathans common stock issuable upon exercise of the warrants being
registered under the registration statement of which this joint proxy
statement/prospectus forms a part will be passed upon by Blau, Kramer, Wactlar &
Lieberman, P.C., Jericho, New York. Certain legal matters in connection with the
merger will be passed upon for Miami Subs Corporation by Greenberg Traurig,
P.A., Miami, Florida.

EXPERTS

The consolidated financial statements of Nathan's Famous, Inc. and
subsidiaries as of March 28, 1999 and March 29, 1998 and for each of the three
years in the period ended March 28, 1999 included elsewhere in this joint proxy
statement/prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect to the
consolidated financial statements, and are included herein in reliance upon the
authority of said firm as experts in giving said reports

The consolidated financial statements of Miami Subs Corporation and
subsidiaries as of May 31, 1998 and 1997, and for each of the years in the
three-year period ended May 31, 1998, have been included in this joint proxy
statement/prospectus and in the

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registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

Nathans and Miami Subs are subject to the information reporting
requirements of the Securities Exchange Act of 1934, and in accordance with the
Securities Exchange Act, file annual, quarterly and special reports, proxy
statements and other information. You may read and copy any reports, statements
or other information we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov." The
Nathans common stock is traded on The Nasdaq National Market and the Miami Subs
common stock is traded on the OTC Bulletin Board.

Nathans filed a registration statement on Form S-4 to register with the SEC
the Nathans common stock and warrants to be issued to Miami Subs shareholders in
the merger. This joint proxy statement/prospectus is a part of that registration
statement and constitutes a prospectus of Nathans in addition to being a proxy
statement of Nathans and Miami Subs for the special meetings. As allowed by SEC
rules, this joint proxy statement/prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement. The registration statement and schedules and exhibits
thereto can be inspected at the public reference facilities of the SEC.

You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF NATHAN'S FAMOUS, INC.
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets at March 28, 1999 and March 29,
1998...................................................... F-3
Consolidated Statements of Operations for the 52 weeks
ended March 29, 1998, March 28, 1999 and March 30,
1997................................................... F-4
Consolidated Statements of Stockholders' Equity for the 52
weeks ended March 28, 1999, March 29, 1998, and March
30, 1997............................................... F-5
Consolidated Statements of Cash Flows for the 52 weeks
ended March 28, 1999, March 29, 1998, and March 30,
1997................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF NATHAN'S
FAMOUS, INC.
Consolidated Balance Sheets at June 27, 1999 and March 28,
1999................................................... F-27
Consolidated Statements of Earnings for the 13 weeks ended
June 27, 1998 and June 28, 1999........................ F-28
Consolidated Statements of Stockholders' Equity for the 13
weeks ended June 27, 1998.............................. F-29
Consolidated Statements of Cash Flows for the 13 weeks
ended June 27, 1999, and June 28, 1998................. F-30
Notes to Consolidated Financial Statements.................. F-31
CONSOLIDATED FINANCIAL STATEMENTS OF MIAMI SUBS CORPORATION
Report of Independent Auditors............................ F-37
Consolidated Balance Sheets at May 31, 1998 and 1997...... F-38
Consolidated Statements of Operations for the years ended
May 31, 1998, 1997 and 1996............................ F-39
Consolidated Statements of Shareholders' Equity for the
years ended May 31, 1998, 1997 and 1996................ F-40
Consolidated Statements of Cash Flows for the years ended
May 31, 1998, 1997 and 1996............................ F-41
Notes to Consolidated Financial Statements.................. F-42
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF MIAMI SUBS
CORPORATION
Consolidated Balance Sheets at February 28, 1999
Unaudited) and May 31, 1998............................ F-55
Consolidated Statements of Income for the three months
ended February 28, 1999 and 1998 (Unaudited)........... F-56
Consolidated Statements of Income for the nine months
ended February 28, 1999 and 1998 (Unaudited)........... F-57
Consolidated Statements of Cash Flows for the nine months
ended February 28, 1999 and 1998 (Unaudited)........... F-58
Notes to Consolidated Financial Statements (Unaudited)...... F-59
</TABLE>

F-1
<PAGE> 165

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Nathan's Famous, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Nathan's
Famous, Inc., (a Delaware Corporation) and subsidiaries as of March 28, 1999 and
March 29, 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nathan's
Famous, Inc. and subsidiaries as of March 28, 1999 and March 29, 1998, and the
results of their operations and their cash flows for each of the three years in
the period then ended in conformity with generally accepted accounting
principles.

Roseland, New Jersey
June 15, 1999

F-2
<PAGE> 166

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 2,165 $ 1,306
Marketable investment securities....................... 3,267 8,514
Franchise and other receivables, net................... 1,578 976
Inventories............................................ 374 356
Prepaid expenses and other current assets.............. 411 276
Deferred income taxes.................................. 622 478
------- -------
Total current assets................................ 8,417 11,906
Investment in unconsolidated affiliate (Note 3)........ 4,441 --
Property and equipment, net............................ 6,293 6,171
Intangible assets, net................................. 10,882 11,270
Deferred income taxes.................................. 892 --
Other assets, net...................................... 325 192
------- -------
$31,250 $29,539
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 1,053 $ 956
Accrued expenses and other current liabilities......... 3,434 4,708
Deferred franchise fees................................ 222 125
Current installments of obligations under capital
leases.............................................. -- 12
------- -------
Total current liabilities........................... 4,709 5,801
Obligations under capital leases, net of current
installments........................................ -- 9
Other liabilities...................................... 193 143
------- -------
Total liabilities................................... 4,902 5,953
------- -------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000 shares
authorized, 4,722,216 issued and outstanding at
March 28, 1999 and March 29, 1998................... 47 47
Additional paid-in capital 32,423 32,389
Accumulated deficit (6,122) (8,850)
------- -------
Total stockholders' equity 26,348 23,586
------- -------
$31,250 $29,539
======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE> 167

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------------
MARCH 28, MARCH 29, MARCH 30,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Sales...................................... $24,511 $23,530 $21,718
Franchise fees and royalties............... 3,230 3,062 3,238
License royalties.......................... 1,415 1,495 1,177
Equity in unconsolidated affiliate......... 26 -- --
Investment and other income................ 400 790 442
------- ------- -------
Total revenues.......................... 29,582 28,877 26,575
------- ------- -------
COSTS AND EXPENSES:
Cost of sales.............................. 15,367 14,468 13,031
Restaurant operating expenses.............. 5,780 6,411 6,602
Depreciation and amortization.............. 1,065 1,035 1,013
Amortization of intangible assets.......... 384 384 406
General and administrative expenses........ 4,722 4,755 4,097
Interest expense........................... 1 6 16
Other income, net (Note 10)................ (47) -- --
------- ------- -------
Total costs and expenses................ 27,272 27,059 25,165
------- ------- -------
Income before (benefit) provision for income
taxes...................................... 2,310 1,818 1,410
(Benefit) provision for income taxes (Note
11)........................................ (418) 290 622
------- ------- -------
Net income.............................. $ 2,728 $ 1,528 $ 788
======= ======= =======
PER SHARE INFORMATION (Note 3):
Net income per share:
Basic................................... $ .58 $ .32 $ .17
======= ======= =======
Diluted................................. $ .57 $ .32 $ .17
======= ======= =======
Shares used in computing net income:
Basic................................... 4,722 4,722 4,722
======= ======= =======
Diluted................................. 4,753 4,749 4,729
======= ======= =======
</TABLE>

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

F-4
<PAGE> 168

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON COMMON PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES STOCK CAPITAL COMPENSATION DEFICIT EQUITY
--------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1996.................. 4,722,216 $47 $32,388 $(127) $(11,166) $21,142
Amortization of deferred compensation
relating to restricted stock........ -- -- -- 46 -- 46
Net income............................. -- -- -- -- 788 788
--------- --- ------- ----- -------- -------
BALANCE, March 30, 1997.................. 4,722,216 47 32,388 (81) (10,378) 21,976
Amortization of deferred compensation
relating to restricted stock........ -- -- -- 47 -- 47
Fair value of stock warrants granted to
non-employees....................... -- -- 35 -- -- 35
Net income............................. -- -- -- -- 1,528 1,528
--------- --- ------- ----- -------- -------
BALANCE, March 29, 1998.................. 4,722,216 47 32,423 (34) (8,850) 23,586
Amortization of deferred compensation
relating to restricted stock........ -- -- -- 34 -- 34
Net income............................. -- -- -- -- 2,728 2,728
--------- --- ------- ----- -------- -------
BALANCE, March 28, 1999.................. 4,722,216 $47 $32,423 $ -- $ (6,122) $26,348
========= === ======= ===== ======== =======
</TABLE>

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

F-5
<PAGE> 169

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------------
MARCH 28, MARCH 29, MARCH 30,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $2,728 $1,528 $ 788
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 1,065 1,035 1,013
Impairment of long-lived assets................... 302 -- --
Amortization of intangible assets................. 384 384 406
Issuance of stock warrants for services
received........................................ -- 35 --
Provision for doubtful accounts................... 44 80 30
Amortization of deferred compensation............. 34 47 46
Gain on sale of restaurant........................ -- (130) --
Equity in unconsolidated affiliate................ (26) -- --
Deferred income taxes............................. (1,036) (63) 156
Changes in operating assets and liabilities:
Marketable investment securities.................. 5,247 (874) (1,512)
Franchise and other receivables................... (646) (17) 39
Inventories....................................... (18) (143) 13
Prepaid expenses and other assets................. (268) 252 (178)
Prepaid income taxes.............................. -- -- 746
Accounts payable and accrued expenses............. (1,177) 296 (306)
Deferred franchise fees........................... 97 (144) (8)
Deferred area development fees.................... -- -- (200)
Other non-current liabilities..................... 50 -- (271)
Net cash provided by operating activities....... 6,780 2,286 762
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (1,485) (1,740) (896)
Investment in unconsolidated affiliate............... (4,415) -- --
Proceeds from sale of property and equipment......... -- 130 --
Net cash used in investing activities........... (5,900) (1,610) (896)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of obligations under capital
leases............................................ (21) (17) (20)
Net cash used in financing activities........... (21) (17) (20)
Net change in cash and cash equivalents................ 859 659 (154)
CASH AND CASH EQUIVALENTS, beginning of year........... 1,306 647 801
------ ------ -------
CASH AND CASH EQUIVALENTS, end of year................. $2,165 $1,306 $ 647
====== ====== =======
CASH PAID DURING THE YEAR FOR:
Interest............................................. $ 1 $ 6 $ 16
====== ====== =======
Income taxes......................................... $ 218 $ 421 $ 182
====== ====== =======
NONCASH FINANCING ACTIVITIES:
Issuance of stock warrants for services received..... $ $ 35 $ --
====== ====== =======
</TABLE>

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

F-6
<PAGE> 170

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. DESCRIPTION, DEVELOPMENT AND ORGANIZATION OF BUSINESS:

DESCRIPTION OF BUSINESS

Nathan's Famous, Inc. and Subsidiaries (collectively the "Company")
develops and operates a chain of retail fast food style restaurants which
prepare and serve quality food products to the public. Nathan's Famous
Restaurants feature a specialized menu which includes, among other things, hot
dogs, manufactured with a proprietary spice formula, hamburgers, crinkle-cut
french fries, assorted sandwiches and platters. The Company primarily operates
in the eastern region of the United States, with 25 Company-owned stores and 163
franchised units operating as of March 28, 1999. Since fiscal 1997, Nathan's
supplemented its franchise program with its "Branded Product Program" which
enables foodservice retailers to sell certain Nathan's proprietary products
outside of the realm of a traditional franchise relationship.

DEVELOPMENT OF BUSINESS

On November 25, 1998, the Company acquired 8,121,000 (2,030,250 after
giving effect to a 4 for 1 reverse stock split) shares or approximately 30% of
the then outstanding common stock of Miami Subs Corporation ("MSC") for $4,200,
excluding transaction costs (Note 3). On January 15, 1999, the Company and MSC
entered into a definitive merger agreement pursuant to which Nathan's
anticipates acquiring the remaining outstanding shares of MSC in exchange for
shares of Nathan's common stock and warrants.

On April 1, 1999, the Company completed an acquisition of all of Roasters
Corp. and Roasters Franchise Corp.'s intellectual property rights, including
trademarks, recipes and franchise agreements. The Company purchased the assets
for $1,250 according to the terms of a Plan of Reorganization which was approved
during the Roasters Corp. and Roasters Franchise Corp. proceedings in the U.S.
Bankruptcy Court. The Company will own and operate Kenny Rogers Roasters in the
U.S. and internationally under the management of NF Roasters Corp., a
wholly-owned subsidiary of Nathan's Famous, Inc.

ORGANIZATION OF BUSINESS

In July 1987, all of the outstanding shares, options and warrants of
Nathan's Famous, Inc. (the "Predecessor Company"), a then publicly held New York
corporation, were acquired through a cash transaction, accounted for by the
purchase method of accounting (the "Acquisition"). In connection with the
Acquisition, a privately-held New York corporation (the "Acquiring Corporation")
was merged into the Predecessor Company. The purchase price exceeded the fair
value of the acquired assets of the Predecessor Company by $15,374, and such
amount is recorded net of accumulated amortization in the accompanying
consolidated balance sheets. In November 1989, the surviving corporation was
merged with Nathan's Newco, Inc., a Delaware corporation which, upon the
effectiveness of the merger, changed its name to Nathan's Famous, Inc. ("NFI").

F-7
<PAGE> 171
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

FISCAL YEAR

The Company's fiscal year ends on the last Sunday in March, which results
in a 52 or 53 week reporting period. The results of operations for all periods
presented are on the basis of a 52-week reporting period.

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 of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash
restricted for untendered shares associated with the Acquisition amounted to $83
and $273 at March 28, 1999 and March 29, 1998, respectively, and is included in
cash and cash equivalents.

INVENTORIES

Inventories consist primarily of restaurant food items, supplies, marketing
items and equipment for sale under the Branded Product Program which are stated
at the lower of cost or market value. Cost is determined using the first-in,
first-out method.

MARKETABLE INVESTMENT SECURITIES

The Company classifies its investments in marketable investment securities
as "trading" in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Such securities are reported at fair value, with unrealized gains
and losses included in earnings. Gains and losses on the disposition of
securities are recognized on the specific identification method in the period in
which they occur.

F-8
<PAGE> 172
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is calculated primarily on the
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
lease term of the related asset. The estimated useful lives are as follows:

<TABLE>
<S> <C>
Building and improvements................................... 5-25 years
Machinery, equipment, furniture and fixtures................ 5-15 years
Leasehold improvements...................................... 5-20 years
</TABLE>

INTANGIBLE ASSETS

Intangible assets consist principally of the excess of cost over the fair
value of the assets acquired relating to the Acquisition and are being amortized
over a period of 40 years. Accumulated amortization at March 28, 1999 and March
29, 1998, was $4,503 and $4,118, respectively. Amortization expense for goodwill
was $384 for each of the three years in the period ended March 28, 1999.
Amortization expense for store pre-opening costs and other intangibles was $0
and $0 and $22 for the fiscal years ended March 28, 1999, March 29, 1998 and
March 30, 1997, respectively.

The Company assesses the recoverability of the excess of cost over the fair
value of assets acquired by determining whether the amortization of the balance
over its estimated remaining life can be recovered through, among other things,
undiscounted future operating cash flows of the acquired operations, franchise
fees earned from franchising operations and license fees earned from the
licensing of Company products. The amount of impairment, if any, is measured
based on projected undiscounted future operating cash flows.

LONG-LIVED ASSETS

The Company complies with the provisions of SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". The Company considers a history of store operating losses to be its primary
indicator of potential impairment. The Company has identified four units which
have been impaired, and recorded a charge to the statement of operations for the
fiscal year ended March 28, 1999 (Note 10).

INVESTMENT IN UNCONSOLIDATED AFFILIATE

The Company accounts for its investment in MSC under the equity method of
accounting. Accordingly, the carrying value of the investment is equal to the
Company's initial cash investment in MSC plus its share of the accumulated
income of MSC through February 28, 1999 (Note 3).

F-9
<PAGE> 173
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company accounts for the fair value of its financial instruments in
accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments". The carrying value of all financial instruments reflected in the
accompanying balance sheets approximated fair value at March 28, 1999 and March
29, 1998, respectively, with the exception of the investment in unconsolidated
affiliate which had a fair value of $3,109 at March 28, 1999.

STOCK-BASED COMPENSATION

The Company complies with the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
The provisions of SFAS No. 123 encourage entities to adopt a fair value based
method of accounting for stock compensation plans; however, these provisions
also permit the Company to continue to measure compensation costs under
pre-existing accounting pronouncements. If the fair value based method of
accounting is not adopted, SFAS No. 123 requires pro forma disclosures of net
income and net income per share in the notes to the financial statements (Note
12).

COMPREHENSIVE INCOME

During fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distributions to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other nonowner changes
in equity (or other comprehensive income) such as unrealized gains or losses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive income must
be reported on the face of the consolidated statements of operations or the
consolidated statements of stockholders' equity. The Company's operations did
not give rise to items includable in comprehensive income, which were not
already in net income for the three years in the period ended March 28, 1999.
Accordingly, the Company's comprehensive income is the same as its net income
for all years presented.

RECENTLY ISSUED ACCOUNTING STANDARDS

In April 1998, the Financial Accounting Standards Board issued Statement of
Position ("SOP") 98-5 "Reporting on the Costs of Start-Up Activities". SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred and is effective for financial statements for fiscal years beginning
after December 15, 1998. Earlier application is encouraged in fiscal years for
which annual financial statements previously have not been issued. The Company
early adopted this SOP during fiscal 1998 and the impact was not material to the
results of operations.

F-10
<PAGE> 174
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

FRANCHISE AND AREA DEVELOPMENT FEE REVENUE RECOGNITION

Franchisees are required to execute a separate franchise or license
agreement for each restaurant. Under an area development agreement, the number
of restaurants and the area designated for development are established and the
franchisee is required to construct and open such restaurants within a defined
timetable. For each restaurant under an area development agreement, a separate
franchise or license agreement is executed.

Franchisees under a franchise agreement are generally required to pay an
initial franchise fee and a monthly royalty of 4%-4.5% of restaurant sales.
Franchisees under a license agreement do not pay an initial fee and remit
monthly royalty payments based on 10% of restaurant sales up to $250, 8% of
restaurant sales between $250 and $500 and 6% of restaurant sales in excess of
$500 per annum. Franchise fees are recognized as revenue when the Company
performs substantially all initial services required by the franchise agreement,
which is generally upon restaurant opening. Revenue under area development
agreements is recognized ratably over the number of restaurants opened, as
provided for in the respective agreements. Franchise royalties are accrued as
earned. Franchise and area development fees received prior to completion of the
revenue recognition process are recorded as deferred revenue. At March 28, 1999
and March 29, 1998, $222 and $125, respectively, of deferred franchise fees are
included in the accompanying consolidated balance sheets.

CONCENTRATIONS OF CREDIT RISK

The Company's receivables consist principally of receivables from
franchisees for royalties and advertising contributions and from sales under the
Branded Product Program. At March 28, 1999 and March 29, 1998, two and one
franchisees, respectively, represented an aggregate of approximately 12%, and
19%, respectively, of franchise royalties receivable.

ADVERTISING

The Company administers the Nathan's Famous Systems, Inc. Advertising Fund,
a separate legal entity, to coordinate the marketing efforts for the Nathan's
Famous System. Under this arrangement, the Company collects and disburses fees
paid by franchisees and Company-owned stores for the national and regional
advertising, promotional and public relations programs. Contributions are based
on specified percentages of net sales, generally ranging up to 3%. Advertising
contributions from Company-owned stores are included in restaurant operating
expenses in the accompanying consolidated statements of operations. Net
Company-owned store advertising expense was $436, $424 and $570 for the fiscal
years ended March 28, 1999, March 29, 1998 and March 30, 1997, respectively.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying

F-11
<PAGE> 175
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
year in which those temporary differences are expected to be recovered or
settled.

3. INVESTMENT IN UNCONSOLIDATED AFFILIATE:

On November 25, 1998, Nathan's acquired 8,121,000 (2,030,250 after giving
effect to a 4 for 1 reverse stock split) shares of MSC in a private purchase
transaction from the former Chairman and CEO of MSC in consideration of the sum
of $4,200. The 2,030,250 shares represent approximately 30% of the then issued
and outstanding shares of MSC.

Condensed summarized financial data for MSC as of and for the three months
ended February 28, 1999, is as follows:

<TABLE>
<S> <C>
CONDENSED BALANCE SHEET DATA
Current assets.............................................. $ 6,196
Non-current assets.......................................... 23,856
Current liabilities......................................... 5,684
Non-current liabilities..................................... $ 7,730
CONDENSED STATEMENTS OF INCOME DATA
Revenue..................................................... $ 5,707
Net income.................................................. $ 83
</TABLE>

The Company does not record in its investment balance the results of
operations of MSC for the month ended March 31, 1999, and accordingly a
one-month reporting lag exists in the investment in unconsolidated affiliate
balance in the accompanying balance sheet at March 28, 1999.

4. NET INCOME PER SHARE:

The Company complies with the provisions of SFAS No. 128, "Earnings Per
Share". Under SFAS No. 128, Basic EPS is computed based on weighted average
shares outstanding and excludes any potential dilution; Diluted EPS reflects
potential dilution from the exercise or conversion of securities into common
stock or from other contracts to issue common stock.

F-12
<PAGE> 176
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The following chart provides a reconciliation of information used in
calculating the per share amounts for the periods ended March 28, 1999, March
29, 1998 and March 30, 1997, respectively:

<TABLE>
<CAPTION>
NET INCOME
NET INCOME SHARES PER SHARE
---------------------- ----------------------- -------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------ ------ ---- ----- ------ ------ ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Basic calculation........... $2,728 $1,528 $788 4,722 4,722 $4,722 $ .58 $.32 $.17
Effect of dilutive employee
stock options and
warrants.................. -- -- -- 31 27 7 (.01) -- --
------ ------ ---- ----- ----- ------ ----- ---- ----
DILUTED EPS
Diluted calculation......... $2,728 $1,528 $788 4,753 4,749 $4,729 $ .57 $.32 $.17
====== ====== ==== ===== ===== ====== ===== ==== ====
</TABLE>

5. FRANCHISE AND OTHER RECEIVABLES, NET:

Franchise and other receivables, net, consists of the following:

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Franchise and license royalties...................... $1,192 $1,166
Branded product sales................................ 460 --
Other................................................ 393 353
------ ------
2,045 1,519
Less: allowance for doubtful accounts................ 467 543
------ ------
$1,578 $ 976
====== ======
</TABLE>

6. MARKETABLE INVESTMENT SECURITIES:

Marketable investment securities at March 28, 1999 and March 29, 1998
consisted of trading securities with aggregate fair values of $3,267 and $8,514,
respectively. Fair values of corporate and municipal bonds are based upon quoted
market prices. The investment in trading limited partnerships is based upon the
proportionate share of the underlying net assets of the partnerships.

F-13
<PAGE> 177
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The gross unrealized holding gains and fair values of trading securities by
major security type at March 28, 1999, March 29, 1998 and March 30, 1997 were as
follows:

<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ -------------------------
GROSS GROSS GROSS
UNREALIZED FAIR UNREALIZED FAIR UNREALIZED FAIR
HOLDING VALUE OF HOLDING VALUE OF HOLDING VALUE OF
GAIN INVESTMENTS GAIN INVESTMENTS GAIN/(LOSS) INVESTMENTS
---------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial paper.......... $-- $ -- $ -- $ -- $ -- $2,275
Corporate bonds........... 1 219 6 563 (2) 2,451
Municipal bonds........... 63 2,011 29 6,936 54 2,111
Investment in trading
limited partnerships*... 23 1,037 212 1,015 303 803
--- ------ ---- ------ ---- ------
$87 $3,267 $247 $8,514 $355 $7,640
=== ====== ==== ====== ==== ======
</TABLE>

- -------------------------

* The Company can sell its investment in the trading limited partnerships
without penalty at any time.

7. PROPERTY AND EQUIPMENT, NET:

Property and equipment, net, consists of the following:

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Construction in progress........................... $ 94 $ 526
Land............................................... 896 896
Building and improvements.......................... 1,630 1,647
Machinery, equipment, furniture and fixtures....... 4,703 4,566
Leasehold improvements............................. 6,659 6,146
------- -------
13,982 13,781
Less: accumulated depreciation and amortization.... 7,689 7,610
------- -------
$ 6,293 $ 6,171
======= =======
</TABLE>

Related depreciation and amortization expense totalled $1,065, $1,035 and
$1,013 for the fiscal years ended March 28, 1999, March 29, 1998 and March 30,
1997, respectively.

F-14
<PAGE> 178
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

Accrued expenses and other current liabilities consist of the following:

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Accrued professional fees............................ $ 492 $ 495
Accrued legal costs.................................. 41 1,027
Accrued vacation..................................... 376 362
Accrued store closure costs.......................... -- 90
Accrued insurance.................................... 719 675
Accrual for untendered shares........................ 83 273
Sales and payroll taxes payable...................... 291 272
Deferred revenue..................................... 222 409
Other................................................ 1,210 1,105
------ ------
$3,434 $4,708
====== ======
</TABLE>

9. FINANCING ARRANGEMENTS:

The Company has a $5,000 line of credit with its primary banking
institution. Borrowings under the line of credit are intended to be used to meet
the normal short-term working capital needs of the Company. The line of credit
is not a commitment and, therefore, credit availability is subject to ongoing
approval. The line of credit expires on October 1, 1999, and bears interest at
the prime rate. There were no borrowings outstanding under this line of credit
at March 28, 1999 and March 29, 1998, respectively.

10. OTHER INCOME, NET:

Included in other income, net, in the accompanying consolidated statements
of operations is; (i) the reversal of a previous litigation accrual of $349,000
(Note 13), and (ii) a $302,000 impairment charge for four under-performing
stores pursuant to the provisions of SFAS No. 121 (Note 2).

F-15
<PAGE> 179
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

11. INCOME TAXES:

Income tax (benefit) expense consists of the following for the years ended
March 28, 1999, March 29, 1998 and March 30, 1997:

<TABLE>
<CAPTION>
1999 1998 1997
------- ----- ----
<S> <C> <C> <C>
Federal:
Current............................................ $ 453 $ 255 $399
Deferred........................................... 297 331 134
------- ----- ----
750 586 533
------- ----- ----
State and local:
Current............................................ 165 98 67
Deferred........................................... 110 129 22
------- ----- ----
275 227 89
------- ----- ----
Adjustment to valuation allowance relating to opening
net deferred tax asset............................. (1,443) (523) --
------- ----- ----
$ (418) $ 290 $622
======= ===== ====
</TABLE>

Total income tax (benefit) expense for fiscal years ended March 28, 1999,
March 29, 1998 and March 30, 1997 differed from the amounts computed by applying
the United States Federal income tax rate of 34% to income before income taxes
as a result of the following:

<TABLE>
<CAPTION>
1999 1998 1997
------- ----- ----
<S> <C> <C> <C>
Computed "expected" tax expense...................... $ 785 $ 618 $482
Nondeductible amortization........................... 131 131 144
State and local income taxes, net of Federal income
tax benefit........................................ 181 149 49
Tax-exempt investment earnings....................... (112) (55) (50)
Change in the valuation allowance for net deferred
tax assets......................................... (1,443) (523) --
Other................................................ 40 (30) (3)
------- ----- ----
$ (418) $ 290 $622
======= ===== ====
</TABLE>

F-16
<PAGE> 180
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:

<TABLE>
<CAPTION>
1999 1998
------ -------
<S> <C> <C>
Deferred tax assets:
Accrued expenses.......................................... $ 591 $ 564
Allowance for doubtful accounts........................... 196 209
Deferred revenue.......................................... 43 118
Depreciation expense and impairment of long-lived
assets................................................. 1,292 1,532
Expenses not deductible until paid........................ -- 639
Other..................................................... 11 --
------ -------
Total gross deferred tax assets........................ 2,133 3,062
------ -------
Deferred tax liabilities:
Involuntary conversion.................................... -- 504
Unrealized gain on marketable investment securities....... 219 211
Other..................................................... -- 26
------ -------
Total gross deferred tax liabilities................... 219 741
------ -------
Net deferred tax asset................................. 1,914 2,321
Less: Valuation allowance................................... (400) (1,843)
------ -------
$1,514 $ 478
====== =======
</TABLE>

In both fiscal 1999 and 1998, management of the Company determined that,
more likely than not, a significant portion of its previously-reserved deferred
tax assets would be realized and, accordingly, reduced the related valuation
allowance. The reduction in the valuation allowance is included in the income
tax (benefit) provision in the accompanying consolidated statement of operations
for fiscal 1999 and 1998. The determination that the net deferred tax asset of
$1,514 at March 28, 1999 is realizable is based on the Company's profitability
during the past three fiscal years , and the continued positive impact of the
sales performance of its products.

12. STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS:

STOCK OPTION PLANS

On December 15, 1992, the Company adopted the 1992 Stock Option Plan (the
"Plan") which provides for the issuance of incentive stock options (ISO's) to
officers and key employees and non-qualified stock options to directors,
officers and key employees. Up to 525,000 shares of common stock have been
reserved for issuance under the Plan. The terms of the options are generally ten
years, except for ISO's granted to any employee, whom prior to the granting of
the option, owns stock representing more than 10% of the

F-17
<PAGE> 181
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

voting rights, for which the option term will be five years. The exercise price
for non-qualified stock options outstanding under the Plan can be no less than
the fair market value, as defined, of the Company's common stock at the date of
grant. For ISO's, the exercise price can generally be no less than the fair
market value of the Company's common stock at the date of grant, with the
exception of any employee who prior to the granting of the option, owns stock
representing more than 10% of the voting rights, for which the exercise price
can be no less than 110% of fair market value of the Company's common stock at
the date of grant.

On May 24, 1994, the Company adopted the Outside Director Stock Option Plan
(the "Directors' Plan") which provides for the issuance of non-qualified stock
options to non-employee directors, as defined, of the Company. Under the
Directors' Plan, 200,000 shares of common stock have been authorized and issued
pursuant to the Directors' Plan. Options awarded to each non-employee director
are fully vested, subject to forfeiture under certain conditions and shall be
exercisable upon vesting. There were 0, 0 and 50,000 options granted under the
provisions of the Directors Plan during the years ended March 28, 1999, March
29, 1998 and March 30, 1997, respectively.

In April 1998, the Company adopted the Nathan's Famous Inc. 1998 Stock
Option Plan (the "New Plan"), which provides for the issuance of non-qualified
stock options to directors, officers and key employees. Up to 500,000 shares of
common stock have been reserved for issuance under the New Plan. In April 1998,
the Company granted 120,000 ISO's under the 1992 Stock Option Plan and the
Company also issued 30,000 stock options to its non-employee directors under the
New Plan.

The Plan, the New Plan and the Directors' Plan expire on December 2, 2002,
April 5, 2008 and December 31, 2004, respectively, unless terminated earlier by
the Board of Directors under conditions specified in the Plan.

WARRANTS

In November 1996, the Company granted to a non-employee consultant a
warrant to purchase 50,000 shares of its common stock at an exercise price of
$3.94 per share, which represented the market price of the Company's common
stock on the date of grant. Upon the date of grant, one-third of the shares
vested immediately, one-third on the first anniversary thereof, and the
remaining one-third on the second anniversary thereof. The warrant expires on
November 24, 2001.

On July 17, 1997, the Company also granted an additional warrant to
purchase 150,000 shares of its common stock at an exercise price of $3.25 per
share, the actual market price of the Company's common stock on the date of
grant, to its Chairman and Chief Executive Officer. Commencing on July 17, 1998,
37,500 shares vest annually and the warrant expires in July 2007.

F-18
<PAGE> 182
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

A summary of the status of the Company's stock option plans and warrants at
March 28, 1999, March 29, 1998 and March 30, 1997 and changes during the years
then ended is presented in the tables and narrative below:

<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding --
beginning of year... 600,167 $5.03 601,167 $5.54 511,167 $5.99
Granted............. 150,000 4.83 -- -- 110,000 3.75
Exercised........... -- -- -- -- -- --
Canceled............ (42,500) 5.08 (1,000) -- (20,000) 7.40
------- ------- -------
Options outstanding --
end of year......... 707,667 5.08 600,167 5.03 601,167 5.54
======= ======= =======
Options exercisable --
end of year......... 528,167 485,503 398,371
======= ======= =======
Weighted average fair
value of options
granted............. $1.77 -- $1.99
===== =====
Warrants outstanding--
beginning of year... 350,000 $3.88 200,000 $4.36 150,000 $4.50
Granted............. -- -- 150,000 3.25 50,000 3.94
------- ------- -------
Warrants outstanding--
end of year......... 350,000 3.88 350,000 3.88 200,000 4.36
======= ======= =======
Warrants exercisable--
end of year......... 237,500 145,834 91,667
======= ======= =======
Weighted average fair
value of warrants
granted............. $1.68 $1.56 $1.78
===== ===== =====
</TABLE>

At March 28, 1999, 517,333 common shares were reserved for future stock
option issuance.

F-19
<PAGE> 183
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The following table summarizes information about stock options and warrants
outstanding at March 28, 1999:

<TABLE>
<CAPTION>
OPTIONS AND
OPTIONS AND WARRANTS OUTSTANDING WARRANTS EXERCISABLE
----------------------------------------- ----------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF AT REMAINING EXERCISE AT EXERCISE
EXERCISE PRICES 3/28/99 CONTRACTUAL LIFE PRICE 3/28/99 PRICE
- --------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.25 to $4.88 752,500 8.50 $3.99 460,500 $4.17
4.89 to 7.34 246,167 6.80 6.55 246,167 6.55
7.35 to 9.25 59,000 6.25 8.53 59,000 8.53
--------- ---- ----- ------- -----
$3.25 to $9.25 1,057,667 7.98 $4.84 765,667 $5.16
========= ==== ===== ======= =====
</TABLE>

The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:

<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Expected life (years).................................. 6.5 6.7
Interest rate.......................................... 5.58% 6.20%
Volatility............................................. 32.77% 33.99%
Dividend yield......................................... 0% 0%
</TABLE>

F-20
<PAGE> 184
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The Company has adopted the pro forma disclosure provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation". Accordingly, no compensation cost has been recognized
in the accompanying financial statements for the stock option plans. Had
compensation cost for the Company's stock option plans been determined under
SFAS No. 123, the Company's net income and earnings per share would approximate
the pro forma amounts below:

<TABLE>
<CAPTION>
1999 1998
------ ------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income: As reported.................... $2,728 $1,528
Pro forma...................... 2,247 1,208
Net income per
share: Basic
As reported.................... $ .58 $ .32
Pro forma...................... .48 .26

Diluted
As reported.................... $ .57 $ .32
Pro forma...................... .47 .25
</TABLE>

Because the SFAS No. 123 method of accounting is not applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.

COMMON STOCK PURCHASE RIGHTS

On June 20, 1995, the Board of Directors declared a dividend distribution
of one common stock purchase right (the "Rights") for each outstanding share of
Common Stock of the Company. The distribution was paid on June 20, 1995 to the
shareholders of record on June 20, 1995. The terms of the Rights were amended on
April 6, 1998. Each Right, as amended, entitles the registered holder thereof to
purchase from the Company one share of the Common Stock at a price of $4.00 per
share (the "Purchase Price"), subject to adjustment for anti-dilution. New
Common Stock certificates issued after June 20, 1995 upon transfer or new
issuance of the Common Stock will contain a notation incorporating the Rights
Agreement by reference.

The Rights are not exercisable until the Distribution Date. The
Distribution Date is the earlier to occur of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of the Common Stock, as
amended, or (ii) ten business days (or such later date as may be determined by
action of the Board of Directors prior to such time as any person becomes an
Acquiring Person) following the commencement, or announcement of an intention to
make a tender offer or exchange offer by a person (other than the Company, any
wholly-owned subsidiary

F-21
<PAGE> 185
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

of the Company or certain employee benefit plans) which, if consummated, would
result in such person becoming an Acquiring Person. The Rights will expire on
June 19, 2005, unless earlier redeemed by the Company.

At any time prior to the time at which a person or group or affiliated or
associated persons has acquired beneficial ownership of 20% or more of the
outstanding shares of the Common Stock of the Company, the Board of Directors of
the Company may redeem the Rights in whole, but not in part, at a price of $.001
per Right. In addition, the Rights Agreement, as amended, permits the Board of
Directors, following the acquisition by a person or group of beneficial
ownership of 20% or more of the Common Stock (but before an acquisition of 50%
or more of Common Stock), to exchange the Rights (other than Rights owned by
such 20% person or group), in whole or in part, for Common Stock, at an exchange
ratio of one share of Common Stock per Right.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. The Company has reserved, 6,297,216 shares of
Common Stock for issuance upon exercise of the Rights.

RESTRICTED STOCK GRANTS

In December 1992, the Company awarded an aggregate of 50,016 shares of
common stock to two executive officers. Pursuant to the terms of the agreement,
the shares were subject to certain restrictions.

Compensation expense, based upon the fair market value of the stock on the
date of grant, was determined by the Company to be $7 per share. Aggregate
compensation expense of $280 has been recognized ratably over the six year
period in which the restrictions lapse and has been included as deferred
compensation as a component of stockholders' equity in the accompanying
consolidated statement of stockholders' equity. Compensation expense was
approximately $34, $47 and $46 for the fiscal years ended March 28, 1999, March
29, 1998 and March 30, 1997, respectively. The restrictions lapsed for all
shares in December 1998.

EMPLOYMENT AGREEMENTS

The Company and its Chairman and Chief Executive Officer entered into an
employment agreement in November 1993 for a period commencing on November 1,
1993 and ending on October 31, 1997. In July 1997 the employment agreement was
extended through July 17, 2000 based on the original terms. This agreement
provides for annual incentive compensation equal to 5% of the consolidated
pre-tax earnings of the Company, as defined, and specified benefits. Pursuant to
an amendment on January 26, 1996, the agreement also provides that upon a change
in control, as defined, the officer shall have the right to terminate the
agreement and receive a payment equal to approximately three times the average
compensation received by him from the Company over the previous five years, and
in no event shall such average compensation be deemed to be less than $200.

F-22
<PAGE> 186
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The Company and its President and Chief Operating Officer entered into an
employment agreement on December 28, 1992 for a period commencing on January 1,
1993 and ending on December 31, 1996. The employment agreement has been extended
annually through December 31, 1999, based on the original terms, and no
non-renewal notice has been given as of June 11, 1999. The agreement provides
for annual compensation of $250 plus certain other benefits. In November 1993,
the Company amended this agreement to include a provision under which the
officer shall have the right to terminate the agreement and receive payment
equal to approximately three times annual compensation upon a change in control,
as defined.

Each employment agreement terminates upon death or voluntary termination by
the respective employee or may be terminated by the Company upon 30 days prior
written notice by the Company in the event of disability or "cause", as defined
in each agreement.

401(K) PLAN

In March 1992, the Company adopted a defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code covering all non-union
employees over age 21 who have been employed by the Company for at least one
year. Employees may contribute to the plan, on a tax-deferred basis, up to 15%
of their total annual salary. Company contributions are discretionary. Beginning
with the plan year ending February 28, 1994, the Company elected to match
contributions at a rate of $.25 per dollar contributed by the employee on up to
a maximum of 3% of the employee's total annual salary. Employer contributions
for the fiscal years ended March 28, 1999, March 29, 1998 and March 30, 1997
were $13, $12 and $5, respectively.

OTHER BENEFITS

The Company provides, on a contributory basis, medical benefits to active
employees. The Company does not provide medical benefits to retirees.

13. COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

The Company's operations are principally conducted in leased premises.
Remaining lease terms range from 1 to 18 years. Certain leases contain
contingent rental provisions based upon a percentage of gross sales and/or
provide rent deferral during the initial term

F-23
<PAGE> 187
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

of the lease. As of March 28, 1999, the Company has non-cancellable operating
lease commitments, net of certain sublease rental income, as follows:

<TABLE>
<CAPTION>
LEASE SUBLEASE NET LEASE
COMMITMENTS INCOME COMMITMENTS
----------- -------- -----------
<S> <C> <C> <C>
2000........................... 2,139 171 1,968
2001........................... 1,925 167 1,758
2002........................... 1,782 101 1,681
2003........................... 1,716 61 1,655
2004........................... 1,703 36 1,667
Thereafter..................... 5,445 125 5,320
</TABLE>

Contingent rental payments on building leases are typically made based on
the percentage of gross sales on the individual restaurants that exceed
predetermined levels. The percentage of gross sales to be paid and related gross
sales level vary by unit. Contingent rental expense was approximately $113, $124
and $163 for the fiscal years ended March 28, 1999, March 29, 1998 and March 30,
1997, respectively.

Rent expense, including contingent rental payments, net of sublease income,
was $2,093, $2,151 and $2,186 for the fiscal years ended March 28, 1999, March
29, 1998 and March 30, 1997, respectively.

CONTINGENCIES

On February 28, 1995, an action entitled Textron Financial Corporation v.
1045 Rush Street Associates, Stephen Anfang, and Nathan's Famous, Inc. was
instituted in the Circuit Court of Cook County, Illinois County Department,
Chancery Division. The compliant alleges that the Company conspired to
perpetrate a fraud upon the plaintiff and alleges that the Company breached its
lease with 1045 Rush Street associates and the estoppel agreement delivered to
the plaintiff in connection therewith by subleasing these premises and
thereafter assigning the lease with respect to the premises to a third party
franchisee, and further by failing to pay rent under this lease on and after
July 1990. This compliant seeks damages in the amount of at least $1,500. The
Company has filed its answer to this compliant denying the material allegations
of the complaint and asserting several affirmative defenses to liability
including, but not limited to, the absence initially or subsequent failure of
consideration for the estoppel agreement, equitable estoppel, release, failure
to mitigate and other equitable and legal defenses. The plaintiff has added as
additional parties defendant, the attorney who represented the landlord in the
financing transaction in connection with which the Estoppel Agreement was
required. The Company and some of the named defendants entered into a Settlement
with Textron whereby all of the plaintiff's claims against the Company and the
other defendants were resolved under a Settlement Agreement and Mutual Release
that provide for payments to be made jointly by all of the defendants on or
before December 30, 1998 and January 15, 1999, which payments were made.

F-24
<PAGE> 188
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

In or about December 1996, Nathan's Famous Systems, Inc. ("Systems")
instituted an action in the Supreme Court of New York, Nassau County, against
Phylli Foods, Inc. a franchisee, and Calvin Danzig as a guarantor of Foods'
payment and performance obligations, to recover royalty fees and advertising
contributions due to Systems in the aggregate amount of $35 under a franchise
agreement between Systems and Phylli Foods dated June 1, 1994. In their answer,
the defendants essentially denied the material allegations of the complaint and
interposed counterclaims against Systems in which they alleged essentially that
Systems fraudulently induced the defendants to purchase the franchise from
Systems or did so by means of negligent misrepresentation. Defendants also
alleged that by reason of Systems' allegedly fraudulent and deceitful conduct,
Systems violated the General Business Law of New York. As a consequence of the
foregoing, the defendants are seeking damages in excess of five million dollars,
as well as statutory relief under the General Business Law. Systems has moved to
dismiss the counterclaims on the grounds that they are insufficiently pleaded
and otherwise fail to state a sustainable claim against Systems upon which
relief may be granted. During fiscal 1998, Systems' motion was granted except
for the claim seeking statutory relief under the General Business Law.

The Company was named as one of three defendants in an action commenced in
June 1997, in the Supreme Court of New York, Queens County. According to the
compliant, the plaintiff, a dentist, is seeking injunctive relief and damages in
an amount exceeding $5,000 against the landlord, one of the Company's
franchisees and the Company claiming that the operation of a restaurant in a
building in Long Island City created noxious and offensive fumes and odors that
allegedly were injurious to the health of the plaintiff and his employees and
patients, and interfered with, and irreparably damaged his practice. Plaintiff
also claims that the landlord fraudulently induced him to enter a lease
extension by representing that the first floor of the building would be occupied
by a non-food establishment. The Company believes that there is no merit to the
plaintiff's claims against it inasmuch as it never was a party to the lease, and
the restaurant, which closed in or about August 1995, was operated by a
franchisee exclusively. The Company intends to defend the action vigorously.

On January 5, 1999, Miami Subs was served with a class action lawsuit
entitled Robert J. Feeney, on behalf of himself and all other similarly situated
vs. Miami Subs Corporation, et al., in Broward County Circuit Court, which was
filed against Miami Subs, its directors and Nathan's in a Florida state court by
a shareholder of Miami Subs. Since that time, the Company and its designees to
the Miami Subs board have also been served. The suit alleges that the proposed
merger between Miami Subs and the Company, as contemplated by the companies'
non-binding letter of intent, is unfair to Miami Subs' shareholders and
constitutes a breach by the defendants of their fiduciary duties to the
shareholders of Miami Subs. The plaintiff seeks among other things: (i) class
action status; (ii) preliminary and permanent injunctive relief against
consummation of the proposed merger; and (iii) unspecified damages to be awarded
to the shareholders of Miami Subs. On March 19, 1999, the Court granted the
plaintiff leave to amend his compliant. The Company intends to defend against
this suit vigorously.

On March 19, 1999, the Court granted the plaintiff leave to amend his
complaint. Therefore, Plaintiff filed a First Amended Complaint Nathan's and its
designees on the

F-25
<PAGE> 189
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Miami Subs' Board moved to dismiss the First Amended Complaint. The Court held a
hearing on the motion, but has not yet ruled on it. In the event, the Court
denies the pending motion, Nathan's intends to defend against this suit
vigorously.

The Company is involved in various other litigation in the normal course of
business, none of which, in the opinion of management, will have a significant
adverse impact on its financial position or results of operations.

14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL YEAR 1999
Revenues.................................. $7,821 $8,166 $7,215 $6,380
Gross profit (a).......................... 2,560 2,650 2,181 1,753
Net income................................ 574 751 412 991
====== ====== ====== ======
Per share information:
Net income per share:
Basic................................... $ .12 $ .16 $ .09 $ .21
====== ====== ====== ======
Diluted................................. $ .12 $ .16 $ .09 $ .21
====== ====== ====== ======
Shares used in computation of net income
per share:
Basic................................... 4,722 4,722 4,722 4,722
====== ====== ====== ======
Diluted................................. 4,762 4,754 4,750 4,753
====== ====== ====== ======
FISCAL YEAR 1998
Revenues.................................. $7,362 $8,098 $6,825 $6,592
Gross profit (a).......................... 2,404 2,699 2,123 1,836
Net income................................ 474 609 242 203
====== ====== ====== ======
Per share information:
Net income per share:
Basic................................... $ .10 $ .13 $ .05 $ .04
====== ====== ====== ======
Diluted................................. $ .10 $ .13 $ .05 $ .04
====== ====== ====== ======
Shares used in computation of net income
per share:
Basic................................... 4,722 4,722 4,722 4,722
====== ====== ====== ======
Diluted................................. 4,766 4,782 4,771 4,749
====== ====== ====== ======
</TABLE>

- -------------------------

(a) Gross profit represents the difference between restaurant sales and the cost
of food and paper products.

F-26
<PAGE> 190

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 27, MARCH 28,
1999 1999
----------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents including restricted cash
of $83 and $83, respectively...................... $ 1,600 $ 2,165
Marketable investment securities..................... 3,296 3,267
Franchise and other receivables, net................. 1,808 1,578
Inventory............................................ 422 374
Prepaid expenses and other current assets............ 267 411
Deferred income taxes................................ 622 622
------- -------
Total current assets.............................. 8,015 8,417
Investment in unconsolidated affiliate................. 4,461 4,441
Property and equipment, net............................ 6,166 6,293
Intangible assets, net................................. 12,634 10,882
Deferred income taxes.................................. 892 892
Other assets, net...................................... 190 325
------- -------
$32,358 $31,250
======= =======
Current liabilities:
Accounts payable..................................... $ 1,157 $ 1,053
Accrued expenses and other current liabilities....... 4,054 3,434
Deferred franchise fees.............................. 136 222
------- -------
Total current liabilities......................... 5,347 4,709
Other liabilities.................................... 194 193
------- -------
Total liabilities................................. 5,541 4,902
------- -------
Stockholders' equity:
Common stock, $.01 par value -- 20,000,000 shares
authorized, 4,722,216 issued and outstanding...... 47 47
Additional paid-in-capital........................... 32,423 32,423
Accumulated deficit.................................. (5,653) (6,122)
------- -------
Total stockholders' equity........................ 26,817 26,348
------- -------
$32,358 $31,250
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-27
<PAGE> 191

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
THIRTEEN WEEKS ENDED JUNE 27, 1999 AND JUNE 28, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Sales....................................................... $6,608 $6,568
Franchise fees and royalties................................ 963 738
License royalties........................................... 406 381
Investment and other income................................. 97 134
------ ------
Total revenues......................................... 8,074 7,821
------ ------
Costs and expenses:
Cost of sales............................................. 4,080 4,008
Restaurant operating expenses............................. 1,529 1,451
Depreciation and amortization............................. 259 254
Amortization of intangible assets......................... 113 96
General and administrative................................ 1,283 1,248
Interest expense.......................................... -- 1
------ ------
Total costs and expenses............................... 7,264 7,058
------ ------
Earnings before income taxes................................ 810 763
Provision for income taxes.................................. 341 189
------ ------
Net earnings................................................ $ 469 $ 574
====== ======
PER SHARE INFORMATION
Net earnings per share
Basic..................................................... $ 0.10 $ 0.12
====== ======
Diluted................................................... $ 0.10 $ 0.12
====== ======
Shares used in computing net income
Basic..................................................... 4,722 4,722
====== ======
Diluted................................................... 4,744 4,762
====== ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-28
<PAGE> 192

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTEEN WEEKS ENDED JUNE 27, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL ACCUM- STOCK-
COMMON COMMON PAID IN- ULATED HOLDERS'
SHARES STOCK CAPITAL DEFICIT EQUITY
--------- ------ ---------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance, March 28, 1999...... 4,722,216 $47 $32,423 $(6,122) $26,348
Net earnings................. 469 469
------- -------
Balance, June 27, 1999....... 4,722,216 $47 $32,423 $(5,653) $26,817
========= === ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-29
<PAGE> 193

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED JUNE 27, 1999 AND JUNE 28, 1998
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 469 $ 574
Adjustments to reconcile net earnings to net cash provided
by/ (used in) operating activities:
Depreciation........................................... 259 254
Amortization of intangible assets...................... 113 96
Provision for doubtful accounts........................ 18 15
Amortization of deferred compensation.................. -- 12
Deferred income taxes.................................. -- (44)
Changes in assets and liabilities:
Marketable investment securities....................... (29) 286
Franchise and other receivables........................ (248) (666)
Inventory.............................................. (48) 4
Prepaid and other current assets....................... 144 232
Accounts payable and accrued expenses.................. 724 (714)
Deferred franchise fees................................ (86) 60
Other assets........................................... 135 (2)
Other non current liabilities.......................... 1 30
------- ------
Net cash provided by operating activities................... 1,452 137
------- ------
Cash flows from investing activities:
Purchase of property and equipment........................ (148) (336)
Investment in wholly owned subsidiary..................... (1,849) --
Investment in unconsolidated affiliate.................... (20) --
------- ------
Net cash used in investing activities................ (2,017) --
------- ------
Cash flows from financing activities:
Principal repayment of obligations under capital leases... -- (2)
Net cash used in financing activities................ -- (2)
Net decrease in cash and cash equivalents................... (565) (201)
Cash and cash equivalents, beginning of period.............. 2,165 1306
------- ------
Cash and cash equivalents, end of period.................... $ 1,600 $1,105
======= ======
Cash paid during the period for:
Interest.................................................. $ -- $ 1
Income taxes.............................................. 102 263
</TABLE>

See accompanying notes to consolidated financial statements.

F-30
<PAGE> 194

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 27, 1999

NOTE A -- BASIS OF PRESENTATION

The accompanying consolidated financial statements of Nathan's Famous, Inc.
and subsidiaries (the "Company") for the thirteen week periods ended June 27,
1999 and June 28, 1998 have been prepared in accordance with generally accepted
accounting principles. The unaudited financial statements include all
adjustments (consisting of normal recurring adjustments) which, in the opinion
of management, were necessary for a fair presentation of financial condition,
results of operations and cash flows for such periods presented. However, these
results are not necessarily indicative of results for any other interim period
or the full year.

Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to the requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended March 28, 1999.

NOTE B -- NF ROASTERS CORP. ACQUISITION

On February 19, 1999, the U. S. Bankruptcy Court for the Middle District of
North Carolina, Durham Division, confirmed the Joint Plan of Reorganization of
the Official Committee of Franchisees of Roasters Corp. and Roasters Franchise
Corp., operators of Kenny Rogers Roasters Restaurants. Under the joint plan of
reorganization, on April 1, 1999, Nathan's acquired the intellectual property
rights, including trademarks, recipes and franchise agreements of Roasters Corp.
and Roasters Franchise Corp. for $1,250,000 in cash plus related expenses, which
was paid out of Nathans' working capital. NF Roasters Corp., a wholly owned
subsidiary, was created for the purpose of acquiring these assets. Results of
operations are included in these consolidated financial statements as of the
date of acquisition. No Company-owned restaurants were acquired in this
transaction.

F-31
<PAGE> 195
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- EARNINGS PER SHARE

The following chart provides a reconciliation of information used in
calculating the per share amounts for the thirteen week periods ended June 27,
1999 and June 28, 1998, respectively.

<TABLE>
<CAPTION>
NUMBER OF NET INCOME
NET INCOME SHARES PER SHARE
------------ -------------- ------------
1999 1998 1999 1998 1999 1998
---- ---- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Basic calculation............. $469 $574 4,722 4,722 $.10 $.12
Effect of dilutive employee
stock options and
warrants................... -- -- 22 40 -- --
---- ---- ----- ----- ---- ----
DILUTED EPS
Diluted calculation........... $469 $574 4,744 4,762 $.10 $.12
==== ==== ===== ===== ==== ====
</TABLE>

F-32
<PAGE> 196

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Miami Subs Corporation:

We have audited the accompanying consolidated balance sheets of Miami Subs
Corporation and subsidiaries as of May 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended May 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Miami Subs
Corporation and subsidiaries as of May 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended May 31, 1998, in conformity with generally accepted accounting
principles.

KPMG LLP

Fort Lauderdale, Florida
July 31, 1998, except as to note 13, which
is as of January 15, 1999

F-33
<PAGE> 197

MIAMI SUBS CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 31, MAY 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 3,457,000 $ 2,940,000
Notes and accounts receivable -- net................ 1,743,000 2,000,000
Food and supplies inventories....................... 179,000 192,000
Other............................................... 77,000 77,000
----------- -----------
Total Current Assets................................ 5,456,000 5,209,000
Notes receivable.................................... 6,076,000 8,073,000
Property and equipment -- net....................... 11,612,000 11,125,000
Intangible assets -- net............................ 6,718,000 7,128,000
Other............................................... 464,000 571,000
----------- -----------
TOTAL.......................................... $30,326,000 $32,106,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities............ $ 4,276,000 $ 4,737,000
Current portion of notes payable and capitalized
lease obligations................................. 1,092,000 1,706,000
----------- -----------
Total Current Liabilities........................... 5,368,000 6,443,000
Long-term portion of notes payable and capitalized
lease obligations................................. 5,613,000 6,288,000
Deferred franchise fees and other deferred income... 1,577,000 2,088,000
Accrued liabilities and other....................... 1,735,000 1,779,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 12,500,000
shares............................................ 71,000 71,000
Additional paid-in capital.......................... 24,777,000 24,777,000
Accumulated deficit................................. (7,208,000) (7,733,000)
----------- -----------
17,640,000 17,115,000
Note receivable from sale of stock.................. (563,000) (563,000)
Treasury Stock...................................... (1,044,000) (1,044,000)
----------- -----------
Total Shareholders' Equity.......................... 16,033,000 15,508,000
----------- -----------
TOTAL.......................................... $30,326,000 $32,106,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-34
<PAGE> 198

MIAMI SUBS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Restaurant sales...................... $18,088,000 $28,180,000 $32,398,000
Revenues from franchised
restaurants......................... 4,293,000 4,514,000 4,720,000
Net gain from sales of restaurants.... 25,000 868,000 117,000
Interest income....................... 678,000 612,000 469,000
Other revenues........................ 350,000 259,000 208,000
----------- ----------- -----------
Total............................ 23,434,000 34,433,000 37,912,000
----------- ----------- -----------
EXPENSES
Restaurant operating costs (including
lease costs paid to Kavala, Inc. of
$175,000, $108,000 and $130,000,
respectively)....................... 17,138,000 26,042,000 28,573,000
General, administrative and franchise
costs............................... 3,336,000 5,667,000 6,351,000
Depreciation and amortization......... 1,444,000 1,837,000 1,942,000
Interest expense...................... 780,000 903,000 741,000
Loss on impairment of restaurants..... -- 375,000 --
----------- ----------- -----------
Total............................ 22,698,000 34,824,000 37,607,000
----------- ----------- -----------
Income (loss) before income taxes..... 736,000 (391,000) 305,000
Provision for income tax.............. (211,000) -- --
----------- ----------- -----------
Net income (loss)..................... $ 525,000 $ (391,000) $ 305,000
=========== =========== ===========
Net income (loss) per share:
Basic............................... $ .08 $ (.06) $ .04
=========== =========== ===========
Diluted............................. $ .08 $ (.06) $ .04
=========== =========== ===========
Shares used in computing net income
(loss) per share:
Basic............................... 6,780,000 7,061,000 6,809,000
=========== =========== ===========
Diluted............................. 6,780,000 7,061,000 6,809,000
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-35
<PAGE> 199

MIAMI SUBS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED PREFERRED COMMON COMMON ADDITIONAL NOTE
STOCK STOCK STOCK STOCK PAID-IN ACCUMULATED RECEIVABLE TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK SALE STOCK
--------- --------- --------- ------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1995........ 307,524 $ 3,000 6,416,061 $65,000 $23,195,000 $(7,647,000) $(563,000)
Preferred stock conversions.... (56,149) (1,000) 56,149 1,000
Exercise of options and
warrants..................... 6,250 13,000
Stock issued to acquire
restaurants.................. 331,250 3,000 1,919,000
MG III, Inc. purchase
accounting adjustment........ (350,000)
Net income..................... 305,000
-------- ------- --------- ------- ----------- ----------- ---------
BALANCE AT MAY 31, 1996........ 251,375 2,000 6,809,710 69,000 24,777,000 (7,342,000) (563,000)
Preferred stock conversions.... (251,375) (2,000) 251,375 2,000
Acquisition of treasury
stock -- at cost............. $(1,044,000)
Net loss....................... (391,000)
-------- ------- --------- ------- ----------- ----------- --------- -----------
BALANCE AT MAY 31, 1997........ -- -- 7,061,085 71,000 24,777,000 (7,733,000) (563,000) (1,044,000)
Net income..................... 525,000
-------- ------- --------- ------- ----------- ----------- --------- -----------
BALANCE AT MAY 31, 1998........ -- -- 7,061,085 $71,000 $24,777,000 $(7,208,000) $(563,000) $(1,044,000)
======== ======= ========= ======= =========== =========== ========= ===========

TOTAL
-----------
<S> <C>
BALANCE AT MAY 31, 1995........ $15,053,000
Preferred stock conversions....
Exercise of options and
warrants..................... 13,000
Stock issued to acquire
restaurants.................. 1,922,000
MG III, Inc. purchase
accounting adjustment........ (350,000)
Net income..................... 305,000
-----------
BALANCE AT MAY 31, 1996........ 16,943,000
Preferred stock conversions....
Acquisition of treasury
stock -- at cost............. (1,044,000)
Net loss....................... (391,000)
-----------
BALANCE AT MAY 31, 1997........ 15,508,000
Net income..................... 525,000
-----------
BALANCE AT MAY 31, 1998........ $16,033,000
===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-36
<PAGE> 200

MIAMI SUBS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997 MAY 31, 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $ 525,000 $ (391,000) $ 305,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization..................... 1,010,000 1,382,000 1,438,000
Amortization of intangible assets................. 434,000 455,000 504,000
Net gain and franchise fees on sales of
restaurants..................................... (25,000) (1,268,000) (117,000)
Charge associated with note receivable............ -- 257,000 --
Loss on impairment of restaurants and other
charges......................................... -- 525,000 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable........ 21,000 (284,000) 330,000
Decrease (increase) in food and supplies
inventories..................................... 13,000 189,000 (43,000)
Decrease (increase) in other current assets....... -- 141,000 (7,000)
Decrease (increase) in other assets............... 83,000 101,000 (39,000)
(Decrease) increase in accounts payable and
accrued liabilities............................. (415,000) (1,425,000) 288,000
(Decrease) in deferred franchise fees and other
deferred income................................. (441,000) (44,000) (442,000)
----------- ----------- -----------
Net Cash Provided By (Used In) Operating
Activities...................................... 1,205,000 (362,000) 2,217,000
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment................ (264,000) (794,000) (3,718,000)
Proceeds from sales of restaurants................ 20,000 1,487,000 296,000
Payments received on notes receivable............. 845,000 997,000 888,000
Loans to franchisees and other.................... -- -- (29,000)
----------- ----------- -----------
Net Cash Provided By (Used In) Investing
Activities...................................... 601,000 1,690,000 (2,563,000)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings.......................... 425,000 -- 1,803,000
Repayment of debt................................. (1,714,000) (1,491,000) (1,512,000)
Proceeds from exercise of stock options and
warrants -- net................................. -- -- 13,000
----------- ----------- -----------
Net Cash (Used In) Provided By Financing
Activities...................................... (1,289,000) (1,491,000) 304,000
----------- ----------- -----------
INCREASE (DECREASE) IN CASH....................... 517,000 (163,000) (42,000)
CASH AT BEGINNING OF PERIOD....................... 2,940,000 3,103,000 3,145,000
----------- ----------- -----------
CASH AT END OF PERIOD............................. $ 3,457,000 $ 2,940,000 $ 3,103,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 784,000 $ 904,000 $ 806,000
Loans to franchisees in connection with sales of
restaurants..................................... $ 345,000 $ 6,207,000 $ 818,000
Debt assumed in acquisition of restaurant......... -- $ 184,000 --
Acquisition of restaurants in exchange for notes
receivable...................................... $ 1,814,000 $ 180,000 --
Acquisition of treasury stock in exchange for note
receivable...................................... -- $ 1,044,000 --
</TABLE>

See accompanying notes to consolidated financial statements.

F-37
<PAGE> 201

MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

MIAMI SUBS CORPORATION (the "Company") operates and franchises quick
service restaurants under the names "Miami Subs" and "Miami Subs Grill". At May
31, 1998, there were 191 restaurants operating in the Miami Subs system, of
which 17 were operated by the Company and 174 were operated by franchisees.
Eight of the Company operated restaurants and 122 of the franchised restaurants
are located in Florida.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

FINANCIAL STATEMENT 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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash on hand and on deposit, highly
liquid instruments with maturities of three months or less, and unexpended
marketing fund contributions of $970,000 and $683,000 at May 31, 1998 and 1997,
respectively.

FRANCHISE OPERATIONS

In connection with its franchising operations, the Company receives initial
franchise fees, development fees, royalties, contributions to marketing funds,
and in certain cases, revenue from sub-leasing restaurant properties to
franchisees. Initial franchise fees are recognized as income when substantially
all services and conditions relating to the sale of the franchise have been
performed or satisfied, which generally occurs when the franchised restaurant
commences operations. Development fees are non-refundable and the related
agreements require the franchisee to open a specified number of restaurants in
the development area within a specified time period or the agreements may be
canceled by the Company. Revenue from development agreements is deferred and
recognized as restaurants in the development area commence operations on a pro
rata basis to the minimum number of restaurants required to be open, or at the
time the development agreement is effectively cancelled. Royalties, which are
based upon a percentage of the franchisee's gross sales, are recognized as
income when the fees are earned and become receivable and collectible. Revenue
from sub-leasing properties to franchisees is recognized as income as the
revenue is earned and becomes receivable and collectible. Sub-lease

F-38
<PAGE> 202
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

rental income is presented net of associated lease costs in the accompanying
consolidated financial statements.

Marketing contributions are offset against the related costs incurred.
Contributions received in excess of expenditures are classified as current
liabilities in the accompanying consolidated financial statements.

Revenues from franchised restaurants consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997 MAY 31, 1996
------------ ------------ ------------
<S> <C> <C> <C>
Royalties..................... $3,687,000 $3,680,000 $3,752,000
Franchise and development
fees........................ 598,000 707,000 936,000
Sublease rental income
(net)....................... 8,000 127,000 32,000
Total.................... $4,293,000 $4,514,000 $4,720,000
</TABLE>

SALES OF RESTAURANTS

Gains on the sale of restaurants are recorded as income when the sales are
consummated and other conditions are met, including adequacy of down payment and
the completion by the Company of its obligations under the contracts. Until such
conditions are met, such gains are included in deferred income. Losses on the
sale of restaurants are recognized at the time of sale.

FOOD AND SUPPLIES INVENTORIES

Food and supplies inventories are stated at the lower of cost (first-in,
first-out method) or market.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Additions and renewals are charged to the property accounts and
expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation and amortization are expensed on the straight-line method over the
lesser of the lease term (including option periods) or the estimated useful
lives of the assets.

INTANGIBLE ASSETS

Costs incurred to acquire the trademark and franchise rights to the Miami
Subs concept and other intangibles, consisting principally of royalty rights
acquired, are amortized over a twenty year period on a straight line basis.

Restaurants acquired are accounted for under the purchase method and
recorded at the estimated fair value of the equipment and building improvements
acquired. The excess of cost over the fair value of the assets acquired,
including goodwill if any, is amortized

F-39
<PAGE> 203
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

using the straight-line method over the remaining term of the underlying
property leases, but not in excess of 20 years. At each balance sheet date, the
Company evaluates the realizability of goodwill based upon expectations of
operating income for each restaurant having a material goodwill balance. Should
the Company determine it probable that future estimated undiscounted related
operating income from any of its acquired restaurants will be less than the
carrying amount of the associated goodwill, an impairment of goodwill would be
recognized, and goodwill would be reduced to the amount estimated to be
recoverable. The Company believes that no material impairment of goodwill exists
at May 31, 1998 and 1997.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

The Company accounts for the possible impairment of long-lived assets under
the provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting For the Impairment of Long-Lived Assets and For Long-Lived Assets to
be Disposed Of." Under SFAS No. 121, the Company evaluates whether events and
circumstances have occurred that indicate revision to the remaining useful life
or the remaining balances of long-lived assets, including intangible assets and
goodwill, may be appropriate. When factors indicate that the carrying amount of
an asset may not be recoverable, the Company estimates the future cash flows
expected to result from the use of such asset and its eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, the Company will
recognize an impairment loss equal to the excess of the carrying amount over the
fair value of the asset. The Company provided a reserve of $375,000 in 1997 to
provide for the planned future sale of certain restaurants which are currently
operated by the Company.

INCOME TAXES

Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("Statement
109"). Under Statement 109, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on deferred taxes of a change in
tax rates is recognized in income in the year that includes the enactment date.

EMPLOYEE STOCK OPTIONS

As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company accounts for employee stock-based transactions under Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees," and accordingly, no compensation cost has been recognized for stock
options issued to employees in the consolidated financial statements.

F-40
<PAGE> 204
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

NET INCOME (LOSS) PER SHARE

In February 1998, the Company adopted the provisions of SFAS No. 128,
Earnings per Share, which establishes new guidelines for the calculation of
earnings per share. Under SFAS 128, basic earnings per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised. Basic earnings per share under SFAS 128 for 1997 and 1996 was
the same as the previously reported amounts. Diluted earnings per share was the
same as basic earnings per share for all periods presented since the exercise
price of outstanding options and warrants to purchase common shares was greater
than the average market price of the common shares.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments has been determined based
on available information and appropriate valuation methodologies. The carrying
amounts of accounts receivable, accounts payable and accrued liabilities
approximate fair value due to the short-term nature of the accounts. The fair
value of long-term notes receivable and notes payable approximate the carrying
value of such assets and liabilities as of May 31, 1998.

RECLASSIFICATION

Certain 1997 and 1996 balances have been reclassified to conform to the
1998 presentation.

2. ACQUISITION

On March 1, 1996, the Company acquired from a franchisee five existing
Miami Subs Grill restaurants located in the Dallas, Texas metropolitan area,
along with the development rights for the Dallas and Fort Worth Texas markets.
The acquisition was accounted for as a purchase and the accompanying
Consolidated Statements of Operations includes the results of these operations
from the date of the acquisition. The purchase price was allocated principally
to property and equipment of the restaurants acquired. As consideration for the
acquisition, the Company issued 331,250 shares of its common stock and assumed
existing indebtedness on the restaurants of $1,467,000. In addition, the Company
received a non-interest bearing and non-recourse promissory note secured by the
common stock in the original amount of $1,500,000, which was reduced by cash and
equivalents (principally transferable inventories, supplies, and deposits) in
the amount of $200,000 at closing. In lieu of payment of this note and
settlement of other matters, the Company released 50,000 shares of the common
stock to the former franchisee and the Company retained the remaining 281,250
shares of stock as treasury stock, recorded at cost. A charge of $257,000 which
is included in General, Administrative, and Franchise expenses in the
accompanying 1997 Consolidated Statement of Operations, was taken as a result of
this settlement.

F-41
<PAGE> 205
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

3. NOTES AND ACCOUNTS RECEIVABLE

Notes and accounts receivable consist of the following:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Notes receivable............................ $ 7,112,000 $ 9,437,000
Royalties and other receivables due from
franchisees............................... 666,000 867,000
Other....................................... 229,000 58,000
----------- -----------
Total....................................... 8,007,000 10,362,000
Less allowance for doubtful accounts........ (188,000) (289,000)
----------- -----------
7,819,000 10,073,000
Less notes receivable due after one year.... (6,076,000) (8,073,000)
----------- -----------
Notes and accounts receivable-current
portion................................... $ 1,743,000 $ 2,000,000
=========== ===========
</TABLE>

Notes receivable at May 31, 1998 and 1997, principally result from sales of
restaurant businesses to franchisees and are generally guaranteed by the
purchaser and collateralized by the restaurant businesses and assets sold. The
notes are generally due in monthly installments of principal and interest, with
interest rates ranging principally between 8% and 12%.

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land........................................ $ 2,231,000 $ 2,231,000
Buildings and leasehold improvements........ 7,919,000 7,300,000
Furniture and equipment..................... 5,154,000 4,487,000
Property held under capitalized leases...... 632,000 632,000
Construction in progress.................... -- 50,000
----------- -----------
Property and equipment at cost.............. 15,936,000 14,700,000
Less accumulated depreciation and
amortization.............................. (4,324,000) (3,575,000)
----------- -----------
Property and equipment -- net............... $11,612,000 $11,125,000
=========== ===========
</TABLE>

F-42
<PAGE> 206
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

5. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Trademark and franchise rights.............. $ 2,774,000 $ 2,750,000
Excess of costs over fair value of net
assets acquired........................... 5,903,000 5,903,000
----------- -----------
8,677,000 8,653,000
Less accumulated amortization............... (1,959,000) (1,525,000)
----------- -----------
Intangible assets -- net.................... $ 6,718,000 $ 7,128,000
=========== ===========
</TABLE>

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accounts payable.............................. $1,113,000 $1,036,000
Accrued wages and related liabilities......... 459,000 658,000
Accrued real estate and sales taxes........... 564,000 643,000
Legal and related............................. 211,000 470,000
Marketing fund contributions.................. 970,000 683,000
Other......................................... 959,000 1,247,000
---------- ----------
Total......................................... $4,276,000 $4,737,000
========== ==========
</TABLE>

7. NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS

A summary of notes payable and capitalized lease obligations is as follows:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Various notes payable to banks at prime plus
1.5% (10.0% at May 31, 1998), secured by
accounts and notes receivable, land,
restaurant property and equipment and due
in monthly payments through 2003.......... $ 4,420,000 $ 5,141,000
Note payable at 11.5%, secured by five
restaurants and equipment, payable in
equal monthly installments through 2001... 744,000 961,000
</TABLE>

F-43
<PAGE> 207
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
8.75%-11.5% mortgages and notes payable,
secured by various restaurant properties
and equipment and due in varying monthly
installments through 2003................. 743,000 876,000
10 3/8% mortgage note payable, secured by
corporate office building, due in monthly
payments through 2007..................... 451,000 481,000
Note payable at prime plus 2.0% (10.5% at
May 31, 1998), secured by leased
restaurant properties and equipment, due
in monthly payments through 2001.......... 160,000 205,000
Capitalized lease obligations............... 187,000 330,000
----------- -----------
Total....................................... 6,705,000 7,994,000
Less current portion........................ (1,092,000) (1,706,000)
----------- -----------
Long-term portion........................... $ 5,613,000 $ 6,288,000
=========== ===========
</TABLE>

The above notes are secured by property and equipment with a book value of
approximately $6,700,000 at May 31, 1998, and notes and accounts receivable of
approximately $2,000,000.

At May 31, 1998, the approximate annual maturities of notes payable and
capitalized lease obligations for each of the five years ending May 31, 2003,
are $1,092,000, $857,000, $3,076,000, $151,000 and $530,000, respectively, and
$999,000 thereafter.

Total interest costs incurred for the years ended May 31, 1998, 1997 and
1996 was $780,000, $903,000, and $798,000, respectively. Capitalized interest
cost with respect to qualifying new restaurant construction was $57,000 in 1996.

8. DEFERRED FRANCHISE FEES AND OTHER DEFERRED INCOME

Deferred franchise fees and other deferred income consist of the following:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Development fees.............................. $ 390,000 $ 661,000
Franchise fees................................ 135,000 110,000
Deferred gains and vendor rebates............. 1,052,000 1,317,000
---------- ----------
Total......................................... $1,577,000 $2,088,000
========== ==========
</TABLE>

F-44
<PAGE> 208
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

9. INCOME TAXES

The primary components that comprise the deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts and notes receivable............. $ 68,000 $ 154,000
Other liabilities and reserves............ 796,000 1,069,000
Deferred income and franchise deposits.... 142,000 241,000
Other..................................... 75,000 13,000
Net operating loss and other
carry-forwards......................... 2,604,000 2,500,000
----------- -----------
Total deferred tax assets................... 3,685,000 3,977,000
----------- -----------
Deferred tax liabilities:
Property and equipment.................... 466,000 446,000
Intangible assets......................... 217,000 185,000
Other..................................... 241,000 91,000
----------- -----------
Total deferred tax liabilities.............. 924,000 722,000
----------- -----------
Subtotal.................................... 2,761,000 3,255,000
Less valuation allowance.................... (2,761,000) (3,255,000)
----------- -----------
Net deferred tax assets..................... $ -- $ --
=========== ===========
</TABLE>

The net change in the valuation allowance for the year ended May 31, 1998
was a decrease of $494,000.

At May 31, 1998 and 1997, the Company had no deferred tax assets or
liabilities reflected on its consolidated financial statements since net
deferred tax assets are offset by a valuation allowance. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the level of historical
operating results, scheduled reversal of deferred tax liabilities, and projected
future taxable income in making this assessment.

F-45
<PAGE> 209
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

The difference between the actual tax provision and the tax provision by
applying the statutory federal income tax rate is attributable to the following:

<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate.............. 34.0% (34.0)% 34.0%
Intangible costs amortized..................... 4.9 12.5 21.3
Charge associated with note receivable......... -- 22.3 --
Other.......................................... 1.8 3.8 2.4
Operating losses utilized...................... (14.8) (4.6) (57.7)
----- ----- -----
Effective income tax rate...................... 25.9% --% --%
===== ===== =====
</TABLE>

At May 31, 1998, the Company's tax returns reflect net operating loss
carry-forwards of approximately $6.4 million which are available to reduce
future taxable income through 2012 (subject to limitations imposed under the
Internal Revenue Code regarding changes in ownership which limits utilization of
$2.8 million of the carry-forwards on an annual basis to approximately
$340,000). The Company also has general business credit carry-forwards of
approximately $274,000 which can be used to offset tax liabilities through 2010.
The Company's federal income tax returns for fiscal years 1991 through 1996,
inclusive, have been examined by the Internal Revenue Service. The reports of
the examining agent issued in connection with these examinations indicate that
additional taxes and penalties totaling approximately $2.4 million are due for
such years. The Company is appealing substantially all of the proposed
adjustments. Due to net operating losses anticipated to be lost in connection
with the examination, the Company has accrued approximately $211,000 for this
matter and believes that such accruals are adequate.

10. COMMITMENTS AND CONTINGENCIES

The Company is the prime lessee under various land and building leases for
restaurants operated by the Company and its franchisees. The leases generally
have initial terms ranging from five to 20 years and usually provide for renewal
options ranging from five to 20 years. Most of the leases contain escalation
clauses and common area maintenance charges (including taxes and insurance).
Certain of the leases require additional (contingent) rental payments if sales
volumes at the related restaurants exceed specified limits. Base rent expense
for Company operated restaurants for the years ended May 31, 1998, 1997, and
1996 was approximately $1,561,000, $2,214,000, and $2,455,000, respectively.
Additional (contingent) rental payments were approximately $44,000, $54,000, and
$100,000, respectively, in 1998, 1997, and 1996.

The Company also owns or leases sites which it leases or subleases to
franchisees. The Company remains liable for all lease costs when properties are
subleased to franchisees. In addition, the Company guarantees the lease payments
of certain franchised locations, aggregating approximately $173,000 for each of
the next two years, and approximately $60,000 per year thereafter through 2014.

F-46
<PAGE> 210
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

The Company also subleases non-Miami Subs locations to third parties. Such
sub-leases provide for minimum annual rental payments by the Company aggregating
approximately $205,000 and expire on various dates through 2004 exclusive of
renewal options.

The Company's future minimum rental commitments and sublease rental income
as of May 31, 1998 for all noncancellable capital and operating leases are as
follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING SUBLEASE
FISCAL YEAR LEASES LEASES RENTAL INCOME
- ----------- -------- ----------- -------------
<S> <C> <C> <C>
1999.......................... $113,000 $ 5,276,000 $ 3,808,000
2000.......................... 12,000 5,164,000 3,674,000
2001.......................... 12,000 4,999,000 3,485,000
2002.......................... 12,000 4,774,000 3,319,000
2003.......................... 12,000 4,232,000 2,944,000
Thereafter...................... 81,000 24,623,000 22,392,000
-------- ----------- -----------
Total........................... 242,000 $49,068,000 $39,622,000
=========== ===========
Less amount representing
interest...................... (55,000)
--------
Present value of future minimum
lease payments................ $187,000
========
</TABLE>

The Company guarantees certain equipment financing for franchisees with a
third party lender. The Company's maximum obligation for all loans funded by the
lender as of May 31, 1998, was approximately $1,263,000.

LITIGATION

In January, 1992, the Company filed a Petition for Declaratory Judgment
against a third party seeking to dissolve an alleged joint venture between the
Company and the third party. The third party opposed the dissolution,
counterclaimed, and sought damages arising from amounts expended in developing
new locations and lost profits from the termination of the joint venture. A
bench trial was completed in April 1995, and the court subsequently awarded the
defendant damages in the amount of $241,000 plus costs and attorney fees. The
case was appealed by both the Company and the third party, and in November 1996,
the appeal was argued before the Supreme Court of New Hampshire. In December
1997, the Supreme Court ruled in favor of the Company, vacated the damage award,
reversed the award of attorney fees, and remanded to a trial court for a
determination of damages for the alleged breach of fiduciary duty to the
partnership. In May 1998, the trial court awarded the third party compensatory
damages in the amount of $200,000, which is being appealed by the Company. The
Company is fully accrued for this matter at May 31, 1998.

F-47
<PAGE> 211
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

In connection with the above case and the favorable resolution of other
legal matters, in 1998 the Company reduced its legal accrual by $219,000.

The Company and its subsidiaries are parties to various other legal actions
arising in the ordinary course of business. The Company is vigorously contesting
these actions and currently believes that the outcome of such cases will not
have a material adverse effect on the Company.

11. STOCK OPTION PLAN AND WARRANTS

The Company's stock option plan provides for the granting of non-qualified
stock options for the purchase of up to 1,875,000 shares of common stock of the
Company by directors, officers, employees and consultants. Under the terms of
the plan, options may be granted for a term of up to 10 years at a price not
less than the market value of the common stock on the date of grant.

The following is a summary of stock option activity under the plan during
each of the last three years:

<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE
OPTION PRICE PER SHARE
--------- ----------------
<S> <C> <C>
Balance at May 31, 1995.................... 1,177,025 $12.12
Granted.................................. 322,250 7.24
Exercised................................ (6,250) 2.00
Cancelled................................ (50,000) 10.68
--------- ------
Balance at May 31, 1996.................... 1,443,025 11.16
Granted.................................. 23,500 3.40
Exercised................................ -- --
Cancelled................................ (362,350) 8.44
--------- ------
Balance at May 31, 1997.................... 1,104,175 11.96
Granted and repriced..................... 487,500 3.00
Exercised................................ -- --
Cancelled................................ (962,250) 12.48
--------- ------
Balance at May 31, 1998.................... 629,425 $ 4.24
========= ======
Options exercisable at May 31, 1998........ 629,425 $ 4.24
========= ======
</TABLE>

During 1998, 341,500 outstanding stock options at an average exercise price
of $8.80 per share were amended to reduce the exercise price to $ 3.00 per
share, representing the market value of the common stock at the time of the
amendment.

F-48
<PAGE> 212
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

The Company accounts for employee stock options in accordance with the
intrinsic value method prescribed in APB No. 25. Accordingly, no compensation
cost is recognized at the time stock options are granted. Had employee
compensation expense been determined based on the fair value at the grant date
for options granted in each of the last three years consistent with the
provisions of SFAS No. 123, net income (loss) would have been $(57,000),
$(334,000), and $(90,000), and basic and diluted net income (loss) per share
would have been $ .00, $( .01), and $ .00, respectively. The fair market value
of each option grant was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions: expected option term of 10
years; expected volatility of 58.2% in 1998 and 27.1% in 1997 and 1996; risk
free interest rate of 6.75%; and zero dividend yield.

At May 31, 1998, 102,400 options and 25,000 warrants are outstanding at
average exercise prices of $8.64 and $24.00 per share, respectively.

12. RELATED PARTY TRANSACTIONS

At May 31, 1998, the Company leased six restaurant properties from Kavala,
Inc., a private company owned by the Company's chairman of the board and chief
executive officer, Gus Boulis. Rent expense for all leases between the Company
and Kavala was $424,000 in 1998, $412,000 in 1997, and $491,000 in 1996. Future
minimum rental commitments due to Kavala at May 31, 1998 under existing leases
was approximately $414,000 for each of the next four years, $337,000 for 2003,
and $1,938,000 for all remaining years thereafter. In fiscal year 1997, the
Company leased a vacant, non-Miami Subs property to a company owned by Boulis.
The Company believes that rents charged under these leases are not materially
different from the rents that would have been incurred or obtained from leasing
arrangements with unaffiliated parties or on a stand alone basis.

In February 1998, the Company entered into a management agreement with
Boulis providing for the Company to manage an existing Miami Subs Grill
restaurant owned by Boulis for a fee of 5.0% of the restaurant's gross
restaurant sales. The agreement was terminated in June 1998 upon the sale of the
restaurant to a third party franchisee.

Mr. Bartsocas, an officer of the Company at May 31, 1998, was also an
officer and director of Subies Enterprises, Inc. ("Subies"), a franchisee of the
Company. Under an agreement which was entered into in 1991 between the Company
and Subies, Subies paid a franchise fee of $5,000 for each of five restaurants
developed by Subies, and Subies was exempt from paying royalty fees on the
restaurants as long as the restaurants were owned by Subies. Three of the
restaurants were subsequently sold to independent franchisees.

Mr. Donald L. Perlyn, who has been an officer of the Company since 1990 and
a director since 1997, was appointed president and chief operating officer of
the Company in July 1998. Mr. Perlyn is also an officer and principal of DEMAC
Restaurant Corp. which owns and operates a Miami Subs Grill restaurant in
Florida. In connection with his appointment in July, Mr. Perlyn agreed to sell
to the Company the Miami Subs restaurant owned by DEMAC for approximately
$260,000. Mr. Perlyn is also indebted to the

F-49
<PAGE> 213
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1998

Company in the amount of $85,000. The loan incurs interest at an interest rate
of prime plus 1.5%, and is due in full in June 1999.

In November 1997, an existing Miami Subs Grill restaurant owned by the
Company was reopened as a co-branded unit with Arthur Treacher's, Inc.
("Treacher's"). Treacher's is operating and managing the restaurant pursuant to
an agreement with the Company. Under the terms of the agreement, the Company and
Treacher's share in the operating profits of the restaurant, and Treacher's has
an option to acquire the restaurant from the Company. Mr. Bruce Galloway is a
member of the board of directors of the Company and is Chairman of the Board of
Treacher's.

In March 1995, the Company's former chairman of the board and president
exercised options to acquire 112,500 shares of common stock of the Company. As
payment for the stock, the Company received a non-interest bearing note in the
amount of $563,000 which is collateralized by the stock and due in full in
January 1999.

13. SUBSEQUENT EVENTS

On December 29, 1998, the Company's Board of Directors unanimously adopted
a resolution to amend the Company's Articles of Incorporation to effect, as of
the close of business on January 7, 1999, a one-for-four reverse stock split of
the Company's common stock, pursuant to which each four shares of common stock
were converted into one share of common stock. All amounts in the accompanying
consolidated financial statements have been adjusted to reflect the reverse
stock split.

On January 15, 1999, the Company and Nathan's Famous, Inc. ("Nathan's")
entered into a definitive merger agreement pursuant to which Nathan's has
proposed to acquire all of the outstanding shares of common stock of the Company
for shares of Nathan's common stock. The proposed merger is subject to certain
conditions, including completion of due diligence, receipt of a fairness
opinion, and approval by a majority of the shareholders of both Nathan's and
Miami Subs. In November 1998, Nathan's acquired, in a private transaction,
approximately 30% of the outstanding common stock of the Company.

Also in January 1999, the Company was served with a class action lawsuit
which was filed against the Company's directors and Nathan's in a Florida state
court by a shareholder of the Company. The suit alleges that the proposed merger
between the Company and Nathan's is unfair to the Company's shareholders and
constitutes a breach by the defendants of their fiduciary duties to the
shareholders of the Company. The plaintiff seeks among other things (i) class
action status; (ii) preliminary and permanent injunctive relief against
consummation of the proposed merger and (iii) unspecified damages to be awarded
to the shareholders of the Company. The Company believes that the suit is
without merit and intends to defend against it vigorously.

F-50
<PAGE> 214

MIAMI SUBS CORPORATION

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
FEBRUARY 28, 1999 MAY 31, 1998
----------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including unexpended
marketing fund contributions of $1,617,000 and
$970,000, respectively)........................ $ 4,206,000 $ 3,457,000
Notes and accounts receivable -- net............. 1,766,000 1,743,000
Food and supplies inventories.................... 164,000 179,000
Other............................................ 60,000 77,000
Total Current Assets............................. 6,196,000 5,456,000
Notes receivable................................. 5,915,000 6,076,000
Property and equipment -- net.................... 10,998,000 11,612,000
Intangible assets -- net......................... 6,405,000 6,718,000
Other............................................ 538,000 464,000
----------- -----------
TOTAL....................................... $30,052,000 $30,326,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities......... $ 4,770,000 $ 4,276,000
Current portion of notes payable and capitalized
lease obligations.............................. 914,000 1,092,000
----------- -----------
Total Current Liabilities........................ 5,684,000 5,368,000
Long-term portion of notes payable and
capitalized lease obligations.................. 4,962,000 5,613,000
Deferred franchise fees and other deferred
income......................................... 1,301,000 1,577,000
Accrued liabilities and other.................... 1,467,000 1,735,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized
12,500,000 shares.............................. 71,000 71,000
Additional paid-in capital....................... 24,777,000 24,777,000
Accumulated deficit.............................. (6,603,000) (7,208,000)
18,245,000 17,640,000
Note receivable from sale of stock............... -- (563,000)
Treasury Stock................................... (1,607,000) (1,044,000)
----------- -----------
Total Shareholders' Equity....................... 16,638,000 16,033,000
----------- -----------
TOTAL....................................... $30,052,000 $30,326,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-51
<PAGE> 215

MIAMI SUBS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Restaurant sales...................................... $4,387,000 $4,209,000
Revenues from franchised restaurants.................. 1,034,000 907,000
Net gain from sales of restaurants.................... 12,000 1,000
Interest income....................................... 159,000 159,000
Other revenues........................................ 115,000 103,000
---------- ----------
Total............................................ 5,707,000 5,379,000
---------- ----------
EXPENSES
Restaurant operating costs............................ 4,166,000 3,948,000
General, administrative and franchise costs........... 770,000 688,000
Depreciation and amortization......................... 379,000 357,000
Interest expense...................................... 146,000 194,000
Merger costs.......................................... 144,000 --
---------- ----------
Total............................................ 5,605,000 5,187,000
---------- ----------
Income before provision for income taxes.............. 102,000 192,000
Provision for income taxes............................ 19,000 71,000
---------- ----------
Net income............................................ $ 83,000 $ 121,000
========== ==========
Net income per share:
Basic............................................... $ .01 $ .02
========== ==========
Diluted............................................. $ .01 $ .02
========== ==========
Shares used in computing net income per share:
Basic............................................... 6,705,000 6,780,000
========== ==========
Diluted............................................. 6,705,000 6,780,000
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-52
<PAGE> 216

MIAMI SUBS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Restaurant sales.................................... $13,716,000 $13,341,000
Revenues from franchised restaurants................ 3,276,000 3,262,000
Net gain from sales of restaurants.................. 63,000 17,000
Interest income..................................... 455,000 546,000
Other revenues...................................... 283,000 278,000
----------- -----------
Total............................................... 17,793,000 17,444,000
=========== ===========
EXPENSES
Restaurant operating cost........................... 12,880,000 12,749,000
General, administrative and franchise costs......... 2,450,000 2,406,000
Depreciation and amortization....................... 1,093,000 1,086,000
Interest expense.................................... 479,000 600,000
Merger costs........................................ 144,000 --
----------- -----------
Total............................................... 17,046,000 16,841,000
=========== ===========
Income before provision for income taxes............ 747,000 603,000
Provision for income taxes.......................... 142,000 214,000
----------- -----------
Net income.......................................... $ 605,000 $ 389,000
=========== ===========
Net income per share:
Basic............................................. $ .09 $ .06
=========== ===========
Diluted........................................... $ .09 $ .06
=========== ===========
Shares used in computing net income per share:
Basic............................................. 6,755,000 6,780,000
=========== ===========
Diluted........................................... 6,755,000 6,780,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-53
<PAGE> 217

MIAMI SUBS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
-------------------------
1999 1998
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................... $ 605,000 $ 389,000
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization........................ 765,000 760,000
Amortization of intangible assets.................... 328,000 326,000
Net gain and franchise fees from sales of
restaurants........................................ (88,000) (17,000)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable........... 15,000 (153,000)
Decrease in food and supplies inventories............ 15,000 20,000
Decrease in other current assets..................... 17,000 12,000
(Increase) decrease in other assets.................. (89,000) 22,000
Increase (decrease) in accounts payable and accrued
liabilities........................................ 533,000 (483,000)
(Decrease) in deferred fees and accrued
liabilities........................................ (202,000) (272,000)
---------- -----------
Net Cash Provided By Operating Activities............ 1,899,000 604,000
---------- -----------
INVESTMENT ACTIVITIES:
Purchase of restaurant, property, and equipment...... (757,000) (215,000)
Proceeds from sales of restaurants................... 80,000 20,000
Payments received on notes receivable................ 356,000 719,000
---------- -----------
Cash (Used In) Provided By Business Investment
Activities......................................... (321,000) 524,000
---------- -----------
FINANCING ACTIVITIES:
Repayment of debt.................................... (829,000) (1,400,000)
New borrowings....................................... -- 424,000
---------- -----------
Cash (Used For) Financing Activities................. (829,000) (976,000)
---------- -----------
INCREASE IN CASH..................................... 749,000 152,000
CASH AT BEGINNING OF PERIOD.......................... 3,457,000 2,940,000
---------- -----------
CASH AT END OF PERIOD................................ $4,206,000 $ 3,092,000
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................... $ 481,000 $ 604,000
========== ===========
Loans to franchisees in connection with sales of
restaurants........................................ $1,015,000 $ 345,000
========== ===========
Reacquisition of restaurants/equipment in exchange
for notes receivable -- net........................ $ 597,000 $ 432,000
========== ===========
Acquisition of treasury stock in exchange for note
receivable......................................... $ 563,000
==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-54
<PAGE> 218

MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 (UNAUDITED)

1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the Company's financial position
and results of operations for the periods presented. The financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all the
information and footnotes required for annual financial statements. The
financial statements included herein should be read in conjunction with the
financial statements presented in the Company's Annual Report on Form 10-K for
the year ended May 31, 1998.

Results of operations reported for interim periods are not necessarily
indicative of results for the entire fiscal year.

2. REVENUES FROM FRANCHISED RESTAURANTS

Revenues from franchised restaurants consist of the following:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Royalties..................................... $1,014,000 $ 930,000
Franchise and development fees................ 69,000 51,000
Sublease rental income (expense) -- net....... (49,000) (74,000)
---------- ----------
Total.................................... $1,034,000 $ 907,000
========== ==========
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Royalties..................................... $3,009,000 $2,738,000
Franchise and development fees................ 296,000 296,000
Sublease rental income (expense) -- net....... (76,000) 38,000
Cancellation of development agreements........ 47,000 190,000
---------- ----------
Total.................................... $3,276,000 $3,262,000
========== ==========
</TABLE>

F-55
<PAGE> 219
MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1999 (UNAUDITED)

3. NOTES AND ACCOUNTS RECEIVABLE

Notes and accounts receivable consist of the following:

<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1999 1998
------------ -----------
<S> <C> <C>
Notes receivable............................ $ 6,949,000 $ 7,112,000
Royalties and other receivables due from
franchisees............................... 711,00 666,000
Other....................................... 92,000 229,000
----------- -----------
Total....................................... 7,752,000 8,007,000
Less allowance for doubtful accounts........ ( 71,000) (188,000)
----------- -----------
7,681,000 7,819,000
Less notes receivable due after one year.... (5,915,000) (6,076,000)
----------- -----------
Notes and accounts receivable-current
portion................................... $ 1,766,000 $ 1,743,000
=========== ===========
</TABLE>

Notes receivable principally result from sales of restaurant businesses to
franchisees and are generally guaranteed by the purchaser and collateralized by
the restaurant businesses and assets sold. The notes are generally due in
monthly installments of principal and interest, with interest rates ranging
principally between 8% and 12%.

4. INCOME TAXES

The Company's federal income tax returns for fiscal years 1991 through
1996, inclusive, have been examined by the Internal Revenue Service. The reports
of the examining agent issued in connection with these examinations indicate
that additional taxes and penalties totaling approximately $2.4 million are due
for such years. The Company is appealing substantially all of the proposed
adjustments. Due to net operating losses anticipated to be lost in connection
with the examination, the Company has accrued approximately $211,000 for this
matter and believes that such accruals are adequate. The Company has recently
been notified that its federal income tax return for fiscal year 1997 will also
be examined by the IRS.

5. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE

On December 29, 1998, the Company's Board of Directors unanimously adopted
a resolution to amend the Company's Articles of Incorporation to effect, as of
the close of business on January 7, 1999, a one-for-four reverse stock split of
the Company's common stock, pursuant to which each four shares of common stock
were converted into one share of common stock. All amounts in the accompanying
unaudited consolidated financial statements have been adjusted to reflect the
reverse stock split.

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MIAMI SUBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1999 (UNAUDITED)

In January 1999, the Company acquired as treasury stock 112,500 shares of
its common stock as a result of the non-payment of a note due to the Company.
The note receivable was included in shareholders' equity at May 31, 1998.

6. PROPOSED MERGER

On January 15, 1999, the Company and Nathan's Famous, Inc. ("Nathan's")
entered into a definitive merger agreement pursuant to which Nathan's has
proposed to acquire all of the outstanding shares of common stock of the Company
for shares of Nathan's common stock. The proposed merger is subject to certain
conditions, including completion of due diligence and approval by a majority of
the shareholders of both Nathan's and Miami Subs. In November 1998, Nathan's
acquired, in a private transaction, approximately 30% of the outstanding common
stock of the Company.

7. LITIGATION

In January 1999, the Company was served with a class action lawsuit which
was filed against the Company, its directors and Nathan's in a Florida state
court by a shareholder of the Company. The suit alleges that the proposed merger
between the Company and Nathan's is unfair to the Company's shareholders and
constitutes a breach by the defendants of their fiduciary duties to the
shareholders of the Company. The plaintiff seeks among other things (i) class
action status, (ii) preliminary and permanent injunctive relief against
consummation of the proposed merger and (iii) unspecified damages to be awarded
to the shareholders of the Company.

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ANNEX A -- AGREEMENT AND PLAN OF MERGER, AS AMENDED
<PAGE> 222

AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NATHAN'S FAMOUS, INC.
MIAMI ACQUISITION CORP.
AND
MIAMI SUBS CORPORATION

DATED AS OF JANUARY 15, 1999
<PAGE> 223

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER....................................... 1
1.1. The Merger......................................... 1
1.2. Effective Time; Closing............................ 1
1.3. Effect of the Merger............................... 2
1.4. Articles of Incorporation; Bylaws; Directors and
Officers............................................... 2
1.5. Directors and Officers............................. 2
1.6. Effect on Capital Stock............................ 2
1.7. Dissenting Shares.................................. 3
1.8. Surrender of Certificates.......................... 4
1.9. No Further Ownership Rights in MSC Capital Stock... 5
1.10. Lost, Stolen or Destroyed Certificates............. 5
1.11. Taking of Necessary Action; Further Action......... 5
1.12. Material Adverse Effect............................ 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF MIAMI SUBS.... 6
2.1. Organization of Miami Subs......................... 6
2.2. Miami Subs Capital Structure....................... 6
2.3. Subsidiaries....................................... 7
2.4. Obligations With Respect to Capital Stock.......... 7
2.5. Authority; Enforceability; Non Contravention;
Consents............................................... 8
2.6. Section 607.0902 of the Florida Business
Corporation Act Not Applicable......................... 9
2.7. SEC Filings; Miami Subs' Financial Statements...... 9
2.8. Absence of Certain Changes or Events............... 10
2.9. Taxes.............................................. 10
2.10. Intellectual Property.............................. 10
2.11. Compliance; Permits; Restrictions.................. 11
2.12. Litigation......................................... 11
2.13. Brokers' and Finders' Fees......................... 11
2.14. Employee Benefit Plans............................. 12
2.15. Absence of Liens and Encumbrances.................. 12
2.16. Environmental Matters.............................. 12
2.17. Labor Matters...................................... 13
2.18. Agreements, Contracts and Commitments.............. 13
2.19. Change of Control Payments......................... 14
2.20. Statements; Proxy Statement/Prospectus............. 14
2.21. Board Approval..................................... 15
2.22. Minute Books....................................... 15
</TABLE>

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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2.23. Political Contributions............................ 15
2.24. Disclosure......................................... 15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF NATHAN'S AND
MERGER SUB...................................... 16
3.1. Organization of Nathan's........................... 16
3.2. Nathan's Capital Structure......................... 16
3.3. Subsidiaries....................................... 17
3.4. Obligations With Respect to Capital Stock.......... 17
3.5. Authority; Enforceability; Non Contravention;
Consents............................................... 18
3.6. SEC Filings; Nathan's Financial Statements......... 19
3.7. Absence of Certain Changes or Events............... 20
3.8. Taxes.............................................. 20
3.9. Intellectual Property.............................. 20
3.10. Compliance; Permits; Restrictions.................. 21
3.11. Litigation......................................... 21
3.12. Brokers' and Finders' Fees......................... 21
3.13. Employee Benefit Plans............................. 21
3.14. Absence of Liens and Encumbrances.................. 21
3.15. Environmental Matters.............................. 22
3.16. Labor Matters...................................... 22
3.17. Agreements, Contracts and Commitments.............. 22
3.18. Change of Control Payments......................... 23
3.19. Statements; Proxy Statement/Prospectus............. 24
3.20. Board Approval..................................... 24
3.21. Minute Books....................................... 24
3.22. Political Contributions............................ 24
3.23. Disclosure......................................... 25
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............. 25
4.1. Conduct of Business................................ 25
ARTICLE V ADDITIONAL AGREEMENTS............................ 27
5.1. Proxy Statement/Prospectus; Registration Statement;
Other Filings...................................... 27
5.2. Meetings of Stockholders........................... 29
5.3. Access to Information; Confidentiality............. 29
5.4. No Solicitation by Miami Subs...................... 29
5.5. Public Disclosure.................................. 30
5.6. Legal Requirements................................. 30
5.7. Third Party Consents............................... 30
</TABLE>

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<PAGE> 225

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.8. FIRPTA............................................. 30
5.9. Notification of Certain Matters.................... 31
5.10. Best Efforts and Further Assurances................ 31
5.11. Stock Options...................................... 31
5.12. Registration Rights................................ 31
5.13. Indemnification and Insurance...................... 32
5.14. NASDAQ Listing..................................... 33
5.15. Board of Directors of Nathan's..................... 33
5.16. Employment Agreements.............................. 33
ARTICLE VI CONDITIONS TO THE MERGER........................ 33
6.1. Conditions to Obligations of Each Party to Effect
the Merger............................................. 33
6.2. Additional Conditions to Obligations of Miami
Subs................................................... 34
6.3. Additional Conditions to the Obligations of
Nathan's and Merger Sub................................ 35
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............. 36
7.1. Termination........................................ 36
7.2. Notice of Termination; Effect of Termination....... 37
7.3. Fees and Expenses.................................. 38
7.4. Amendment.......................................... 38
7.5. Extension; Waiver.................................. 38
ARTICLE VIII GENERAL PROVISIONS............................ 38
8.1. Non-Survival of Representations and Warranties..... 38
8.2. Notices............................................ 38
8.3. Interpretation; Knowledge.......................... 39
8.4. Counterparts....................................... 40
8.5. Entire Agreement................................... 40
8.6. Severability....................................... 40
8.7. Other Remedies; Specific Performance............... 40
8.8. Governing Law...................................... 40
8.9. Rules of Construction.............................. 40
8.10. Assignment......................................... 40
</TABLE>

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INDEX OF EXHIBITS

<TABLE>
<S> <C>
Exhibit A ................................... Form of Warrant Agreement
Exhibit B ........... Form of Employment Agreement for Donald L. Perlyn
Exhibit C .............. Form of Employment Agreement for Jerry W. Woda
Exhibit D ................ Form of Employment Agreement for Frank Baran
</TABLE>

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of January 15, 1999, among Nathan's Famous, Inc., a Delaware corporation
("Nathan's"), Miami Acquisition Corp., a Florida corporation and a wholly-owned
subsidiary of Nathan's ("Merger Sub"), and Miami Subs Corporation, a Florida
corporation ("Miami Subs").

RECITALS

A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Florida Business Corporation Act ("FBCA"), Nathan's and
Miami Subs will enter into a business combination transaction pursuant to which
Merger Sub will merge with and into Miami Subs (the "Merger") so that Miami Subs
will continue as the surviving corporation and will become a wholly owned
subsidiary of Nathan's.

B. The respective Boards of Directors of Nathan's and Merger Sub (i) have
determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Nathan's and in its best interests, (ii) have
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) have resolved to recommend that the stockholders of
Nathan's vote to approve the Merger.

C. The Board of Directors of Miami Subs (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Miami Subs and in its best interests, (ii) has approved this Agreement, the
Merger and the other transactions contemplated by this Agreement and (iii) has
resolved to recommend that the shareholders of Miami Subs vote to approve the
Merger.

D. Nathan's and Merger Sub, on the one hand, and Miami Subs on the other
hand, desire to make certain representations and warranties and other agreements
in connection with the Merger.

NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:

ARTICLE I

THE MERGER

1.1. The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the FBCA, Merger Sub shall be merged with and into
Miami Subs, the separate corporate existence of Merger Sub shall cease and Miami
Subs shall continue as the surviving corporation. Miami Subs as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."

1.2. Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing Articles
of Merger (the "Articles of Merger") with the Department of State of the State
of Florida in accordance with the relevant provisions of the FBCA (the time of
such filing (or such later time as may be agreed in writing by the parties and
specified in the Articles of Merger) being the

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"Effective Time") as soon as practicable on or after the Closing Date (as herein
defined). Unless the context otherwise requires, the term "Agreement" as used
herein refers collectively to this Agreement and the Articles of Merger. The
closing of the Merger (the "Closing") shall take place at the offices of Blau,
Kramer, Wactlar & Lieberman, P.C. at a time and date to be specified by the
parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other time, date and location as the parties hereto agree in writing (the
"Closing Date").

1.3. Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
FBCA. Without limiting the generality of the foregoing, and subject thereto, by
virtue of the Merger and the FBCA all the property, rights, privileges, powers
and franchises of Miami Subs and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Miami Subs and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.

1.4 Articles of Incorporation; Bylaws; Directors and Officers.

(a) Unless otherwise determined by Nathan's prior to the Effective Time, at
the Effective Time, the Articles of Incorporation of Miami Subs, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the Surviving Corporation until thereafter amended as provided by the FBCA
and such Articles of Incorporation; provided, however, that at the Effective
Time the Articles of Incorporation of the Surviving Corporation shall be amended
so that the terms will be substantially similar to those contained in the
Articles of Incorporation of Merger Sub.

(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended, altered, or repealed as provided therein,
in the Articles of Incorporation of the Surviving Corporation and the FBCA.

1.5. Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.

1.6. Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof:

(a) Conversion of MSC Capital Stock. Each share of Common Stock, par
value $.01 per share, of Miami Subs (the "MSC Capital Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares
of MSC Capital Stock to be canceled pursuant to Section 1.6(b) and any
Dissenting Shares (as defined in and to the extent provided in Section
1.7(a)) will be canceled and extinguished and automatically converted
(subject to Sections 1.6(e)) into the right to receive (i) a fraction of a
share of Common Stock, par value $.01 per share, of Nathan's (the "Nathan's
Common Stock") having a value of $2.068 (the "Exchange Ratio") upon
surrender of the certificate representing such share of MSC Capital Stock
in the manner provided in Section 1.8 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if
required) in the manner provided in Section 1.10); provided, however that
Nathan's shall not be required to issue more than one share of Nathan's
Common Stock for each two shares of MSC Capital Stock. In addition, for
each four shares of Nathan's Common

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Stock that a holder of MSC Capital Stock is entitled to receive, such
holder shall be entitled to receive one warrant to purchase one share of
Nathan's Common Stock (the "Warrant") at an exercise price of $6.00 per
share pursuant to the terms of a Warrant Agreement, substantially in the
form of Exhibit A hereto. Nathan's will not issue Warrants to purchase a
fraction of a share of Nathan's Common Stock. For the purpose of
calculating the Exchange Ratio, the value of a share of Nathan's Common
Stock shall be the average closing price of a share of Nathan's Common
Stock for the ten most recent days that Nathan's Common Stock has traded,
ending on the trading day immediately prior to the Closing Date, as
reported on the Nasdaq National Market System.

(b) Cancellation of Nathan's-Owned Stock. Each share of MSC Capital
Stock held in the treasury of Miami Subs or owned by Merger Sub, Nathan's
or any direct or indirect wholly owned subsidiary of Miami Subs or of
Nathan's immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.

(c) Stock Options. At the Effective Time, all options to purchase MSC
Capital Stock then outstanding under Miami Subs's 1990 Executive Option
Plan (the "Miami Subs Option Plan"), and the options and warrants to
purchase shares of Miami Subs Common Stock otherwise listed on Schedule
1.6(c) (the "Miami Subs Stock Options") shall be assumed by Nathan's in
accordance with Section 5.11 hereof.

(d) Capital Stock of Merger Sub. Each share of Common Stock, par
value $.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of Common Stock, par
value $.01 per share, of the Surviving Corporation. Each stock certificate
of Merger Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving
Corporation.

(e) Fractional Shares. No fraction of a share or Warrant to purchase
a fraction of a share of Nathan's Common Stock will be issued by virtue of
the Merger, but in lieu of fractional shares of Nathan's Common Stock, each
holder of shares of MSC Capital Stock who would otherwise be entitled to a
fraction of a share of Nathan's Common Stock (after aggregating all
fractional shares of Nathan's Common Stock to be received by such holder)
shall receive from Nathan's an amount of cash (rounded to the nearest whole
cent) equal to the product of (i) such fraction, multiplied by (ii) the
average closing price of a share of Nathan's Common Stock for the ten most
recent days that Nathan's Common Stock has traded, ending on the trading
day immediately prior to the Closing Date, as reported on the Nasdaq
National Market System.

1.7. Dissenting Shares.

(a) Notwithstanding any provision of this Agreement to the contrary, the
shares of any holder of MSC Capital Stock who has demanded and perfected
appraisal rights for such shares in accordance with the FBCA and who, as of the
Effective Time, has not effectively withdrawn or forfeited such appraisal rights
("Dissenting Shares"), shall not be converted into or represent a right to
receive Nathan's Common Stock pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by the FBCA.

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(b) Notwithstanding the foregoing, if any holder of shares of MSC Capital
Stock who demands appraisal of such shares under the FBCA shall effectively
withdraw or forfeit the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive pursuant
to the Exchange Ratio Nathan's Common Stock and Warrants, without interest
thereon, upon surrender of the certificate(s) representing such shares in
compliance with Section 1.8.

(c) Miami Subs shall give Nathan's (i) prompt notice of any written demands
for appraisal of any shares of MSC Capital Stock, withdrawals of such demands,
and any other instruments served pursuant to the FBCA and received by Miami Subs
which relate to any such demand for appraisal and (ii) the opportunity to
participate in all negotiations and proceedings which take place prior to the
Effective Time with respect to demands for appraisal under the FBCA. Miami Subs
shall not, except with the prior written consent of Nathan's or as may be
required by applicable law, voluntarily make any payment with respect to any
demands for appraisal of MSC Capital Stock or offer to settle or settle any such
demands or approve any withdrawal of such demands.

1.8. Surrender of Certificates.

(a) Exchange Agent. Nathan's shall select American Stock Transfer and
Trust Company or another institution reasonably satisfactory to Miami Subs to
act as the exchange agent (the "Exchange Agent") in the Merger.

(b) Nathan's to Provide Common Stock. Promptly after the Effective Time,
Nathan's shall make available to the Exchange Agent for exchange in accordance
with this Article I, the shares of Nathan's Common Stock (together with any
dividends or distributions with respect thereto) and Warrants issuable pursuant
to Section 1.6 in exchange for outstanding shares of MSC Capital Stock, and cash
in an amount sufficient for payment in lieu of fractional shares pursuant to
Section 1.6(e).

(c) Exchange Procedures. Promptly after the Effective Time, Nathan's shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of MSC Capital Stock
whose shares were converted into the right to receive shares of Nathan's Common
Stock and Warrants pursuant to Section 1.6 and cash in lieu of any fractional
shares pursuant to Section 1.6(e), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent accompanied by a properly executed letter of transmittal and shall be in
such form and have such other provisions as Nathan's may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Nathan's Common Stock, Warrants
and cash in lieu of any fractional shares pursuant to Section 1.6(e). Upon
surrender to the Exchange Agent of one or more Certificates for cancellation,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate(s)
shall be entitled to receive in exchange therefor a certificate representing the
number of whole shares of Nathan's Common Stock, and, as applicable, Warrants
and payment in lieu of fractional shares which such holder has the right to
receive pursuant to Section 1.6(e). Subject to Section 1.7 hereof, until so
surrendered, each outstanding Certificate will be deemed from and after the
Effective Time, for all corporate purposes, to evidence the ownership of the
number of full shares of Nathan's

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Common Stock and, as applicable, Warrants into which such shares of MSC Capital
Stock shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 1.6(e).

(d) Transfers of Ownership. If any certificate for shares of Nathan's
Common Stock or any Warrant is to be issued in a name other than that in which
the Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to the Exchange Agent any transfer or
any other taxes required by reason of the issuance of a certificate for shares
of Nathan's Common Stock or Warrant in any name other than that of the
registered holder of the Certificate surrendered, or established to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.

(e) No Liability. Notwithstanding anything to the contrary in this Section
1.8, neither the Exchange Agent, Nathan's, the Surviving Corporation nor any
party hereto shall be liable to any holder of MSC Capital Stock for any Nathan's
Common Stock (including dividends or distributions thereon), Warrants or cash in
lieu of fractional shares, properly delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.

1.9. No Further Ownership Rights in MSC Capital Stock. All shares of
Nathan's Common Stock (including dividends and distributions thereon) and
Warrants issued upon the surrender for exchange of Certificates in accordance
with the terms hereof (including any cash paid in respect thereof pursuant to
Section 1.6(e)) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of MSC Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of MSC Capital Stock which were outstanding immediately prior to the
Effective Time. If after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall, when accompanied by proper
documentation, be exchanged and canceled as provided in this Article I.

1.10. Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such whole number of
shares of Nathan's Common Stock into which the shares of MSC Capital Stock
evidenced thereby shall have been converted, and, as applicable, Warrants and
cash in lieu of fractional shares; provided, however, that Nathan's may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Nathan's or the Exchange Agent with respect to the Certificates alleged
to have been lost, stolen or destroyed.

1.11. Taking of Necessary Action; Further Action. If, at any time after
the date hereof, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Miami Subs and Merger Sub, the then officers and directors of
Miami Subs and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.

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1.12. Material Adverse Effect. When used in connection with Miami Subs or
Nathan's as the case may be, the term "Material Adverse Effect" means, for
purposes of this Agreement, any change, event or effect that individually or
when taken together with all other such changes, events or effects that have
occurred prior to the date of determination of the occurrence of the Material
Adverse Effect is or is reasonably likely to be materially adverse to the
business, operations, assets (including intangible assets), condition (financial
or otherwise), or results of operations or prospects of Miami Subs and its
subsidiaries or Nathan's and its subsidiaries, as the case may be, taken as a
whole.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF MIAMI SUBS

Miami Subs represents and warrants to Nathan's and Merger Sub, subject to
the exceptions specifically disclosed in writing in the disclosure letter
supplied by Miami Subs to Nathan's and Merger Sub (the "Miami Subs Schedules",
which are incorporated herein by reference and made a part hereof as if fully
set forth herein), as follows:

2.1. Organization of Miami Subs. Miami Subs is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, has the requisite corporate power and authority to own, lease and
operate its properties and assets as and where the same are owned, operated or
leased and to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on Miami Subs. Miami Subs has delivered to
Nathan's complete and correct copies of the Articles of Incorporation and Bylaws
of Miami Subs, each as amended to and as in effect on the date hereof.

2.2. Miami Subs Capital Structure. The authorized capital stock of Miami
Subs consists of 50,000,000 shares of Common Stock, par value $.01 per share, of
which there were 27,119,340 shares issued and outstanding as of November 30,
1998 and 8,000,000 shares of Preferred Stock, par value $.01 per share, of which
no shares were issued and outstanding as of November 30, 1998. All outstanding
shares of MSC Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of Miami Subs or any agreement or document
to which Miami Subs is a party or by which it is bound. As of December 1, 1998,
Miami Subs had reserved an aggregate of 4,338,716 shares of MSC Capital Stock,
net of exercises, for issuance to employees, consultants and non-employee
directors pursuant to the Miami Subs Stock Options outstanding as of such date.
All shares of MSC Capital Stock subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
nonassessable. Schedule 1.6(c) of the Miami Subs Schedules list each Miami Subs
Stock Option outstanding at November 30, 1998, the name of the holder of such
Miami Subs Stock Option, the number of shares subject to such Miami Subs Stock
Option, the exercise price of such Miami Subs Stock Option, the number of shares
as to which such Miami Subs Stock Option will have vested at such date and
whether the exercisability of such Miami Subs Stock Option will be accelerated
in any way by the transactions contemplated by this Agreement or for any other
reason, and indicate the extent of acceleration, if any.

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2. 3. Subsidiaries.

(a) Except for the subsidiaries listed in the Miami Subs Schedules there
are no entities 10% or more of whose outstanding voting securities or other
equity interest are owned, directly or indirectly through one or more
intermediaries, by Miami Subs. Each subsidiary of Miami Subs is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation (which jurisdiction is indicated in the Miami
Subs Schedules) and has all requisite corporate power and authority to own,
operate and lease its properties and assets as and where the same are owned,
operated or leased by such subsidiary and to conduct its business as it is now
being conducted. Each subsidiary is in good standing and duly qualified or
licensed as a foreign corporation to do business in each of the jurisdictions in
which the location of the property and assets owned, operated or leased by such
subsidiary or the nature of the business conducted by such subsidiary makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not have a Material Adverse Effect. Miami Subs has
delivered to Nathan's complete and correct copies of each of its subsidiaries'
articles of incorporation and bylaws (or similar organizational document), in
each case as amended to and as in effect on the date hereof.

(b) The Miami Subs Schedules set forth the authorized capital stock of each
subsidiary of Miami Subs, the number of outstanding shares of each class of such
capital stock and Miami Subs's (or in the case of subsidiaries indirectly owned
by Miami Subs, a specified subsidiary's) ownership of each such class. Miami
Subs or such subsidiary has good and valid title to all such shares free and
clear of all mortgages, pledges, claims, liens, security interests or other
restrictions or encumbrances of any kind or nature whatsoever ("Encumbrances").
All of the outstanding shares of capital stock of each subsidiary of Miami Subs
are validly issued, fully paid and nonassessable, and there are no preemptive or
similar rights in respect of any shares of capital stock of any subsidiary. All
of the outstanding shares of each subsidiary of Miami Subs were issued in
compliance with all requirements of all applicable federal and state securities
laws. Except as set forth in the Miami Subs Schedules, neither Miami Subs nor
any subsidiary owns any capital stock of or other equity interest of any kind or
nature in any person.

2.4. Obligations With Respect to Capital Stock. Except as set forth in
Section 2.2, there are no equity securities of any class of Miami Subs, or any
securities exchangeable or convertible into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except for securities
Miami Subs owns, directly or indirectly through one or more subsidiaries, there
are no equity securities of any class of any subsidiary of Miami Subs, or any
security exchangeable or convertible into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except as set forth in
Section 2.2, there are no options, warrants, equity securities, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Miami Subs or any of its subsidiaries is a party or by which it is bound
obligating Miami Subs or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause to be repurchased, redeemed or acquired, of any shares of
capital stock of Miami Subs or any of its subsidiaries or obligating Miami Subs
or any of its subsidiaries to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, call, right, commitment or
agreement. Except as set forth in the Miami Subs Schedules, there are no
registration rights and, to the knowledge of Miami Subs, there are no voting
trusts, proxies or other agreements or understandings with

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respect to any equity security of any class of Miami Subs or with respect to any
equity security of any class of any of its subsidiaries.

2.5. Authority; Enforceability; Non Contravention; Consents.

(a) Miami Subs has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby,
subject to the approval of this Agreement by the shareholders of Miami Subs.
Subject to such approval, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of Miami Subs, and this Agreement
has been duly executed and delivered by Miami Subs and, assuming the due
authorization, execution and delivery by Nathan's and Merger Sub, constitutes
the valid and binding obligation of Miami Subs, enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and subject to general
principles of equity. A vote of the holders of at least a majority of the
outstanding shares of the MSC Capital Stock is required for Miami Subs's
shareholders to approve this Agreement. Neither the execution, delivery and
performance of this Agreement by Miami Subs nor consummation by Miami Subs of
the transactions contemplated hereby will, (i) conflict with or violate the
Articles of Incorporation or Bylaws of Miami Subs or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to obtaining
the approval of Miami Subs's shareholders of the Merger as contemplated in
Section 5.2 and compliance with the requirements set forth in Section 2.5(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Miami Subs or any of its subsidiaries or by which its or
any of their respective properties is bound or affected, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or impair Miami Subs's rights or alter
the rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Miami
Subs or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Miami Subs or any of its subsidiaries is a
party or by which Miami Subs or any of its subsidiaries or its or any of their
respective properties are bound or affected, except, with respect to clauses
(ii) and (iii), for any such conflicts, violations, defaults or other
occurrences that would not have a Material Adverse Effect on Miami Subs. The
Miami Subs Schedules list all material consents, waivers and approvals under any
of Miami Subs's or any of its subsidiaries' agreements, contracts, licenses or
leases required to be obtained in connection with the consummation of the
transactions contemplated hereby.

(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Miami Subs in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of a Form S-4 Registration
Statement by Nathan's covering the shares of Nathan's Common Stock and the
Warrants (including the shares of Nathan's Common Stock underlying such
Warrants) (the "Registration Statement") with the Securities and Exchange
Commission ("SEC") in accordance with the Securities Act of 1933, as amended
(the "Securities Act"), (ii) the filing of the Articles of Merger with the
Department of State of the State of Florida, (iii) the filing of the Proxy
Statement (as defined in Section 2.20) with the SEC in

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accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (iv) the filing of a Current Report on Form 8-K with the SEC, (v) the
filing of a Form 15 with the SEC, (vi) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state laws and the laws of any foreign country and (vii)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Miami Subs
or have a material adverse effect on the ability of Miami Subs to consummate the
Merger.

2.6. Section 607.0902 of the Florida Business Corporation Act Not
Applicable. The Board of Directors of Miami Subs has taken all actions so that
the restrictions contained in Section 607.0902 of the FBCA will not apply to the
execution, delivery or performance of this Agreement or to the consummation of
the Merger or the other transactions contemplated by this Agreement.

2.7. SEC Filings; Miami Subs Financial Statements.

(a) Miami Subs has filed all forms, reports and documents required to be
filed with the SEC since November 1996 and has made available to Nathan's such
forms, reports and documents in the form filed with the SEC. All such required
forms, reports and documents, (including those that Miami Subs may file
subsequent to the date hereof) are referred to herein as the "Miami Subs SEC
Reports." As of their respective dates, the Miami Subs SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Miami Subs SEC Reports, and (ii) did not at the
time they were filed (or if amended or superseded by a filing on or prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
Miami Subs's subsidiaries is required to file any forms, reports or other
documents with the SEC.

(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Miami Subs SEC Reports, including
any Miami Subs SEC Reports filed after the date hereof until the Closing Date
(the "Miami Subs Financials"), (x) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, (y)
was prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved (except
as specified therein or as may be indicated in the notes thereto or, in the case
of unaudited interim financial statements, as may be permitted by the SEC on
Form 10-Q under the Exchange Act) and (z) fairly presented in all material
respects the consolidated financial position of Miami Subs and its subsidiaries
as at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring year
end adjustments which were not, or are not expected to be, material in amount.
The balance sheet of Miami Subs contained in the Miami Subs SEC Reports as of
November 30, 1998 is hereinafter referred to as the "Miami Subs Balance Sheet."
Neither Miami Subs nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) of a nature required to be disclosed on a
balance sheet or in the related notes to the consolidated financial statements
prepared in accordance with GAAP which are, individually or in the aggregate,
material to the business, results of operations or financial condition of Miami
Subs and its subsidiaries taken as a whole,

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except liabilities (i) provided for in the Miami Subs Balance Sheet, or (ii)
incurred since the date of the Miami Subs Balance Sheet in the ordinary course
of business consistent with past practices.

(c) Miami Subs has heretofore furnished to Nathan's a complete and correct
copy of any amendments or modifications, which have been prepared but have not
been filed with the SEC and which are not yet required to be filed therewith, to
agreements, documents or other instruments which previously had been filed by
Miami Subs with the SEC pursuant to the Securities Act or the Exchange Act.

2.8. Absence of Certain Changes or Events. Except as set forth in the
Miami Subs Schedules, since the date of the Miami Subs Balance Sheet through the
date of this Agreement, there has not been: (i) any Material Adverse Effect on
Miami Subs, (ii) any material change by Miami Subs in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP or
regulations and rules of the SEC, or (iii) any revaluation by Miami Subs of any
of its assets having a Material Adverse Effect on Miami Subs, including, without
limitation, writing down the value of capitalized software or inventory or
writing off notes or accounts receivable other than in the ordinary course of
business.

2.9. Taxes. Except as set forth in the Miami Subs Schedules, Miami Subs
and each of its subsidiaries has filed all tax returns required to be filed by
any of them and has paid (or Miami Subs has paid on its behalf), or has set up
an adequate reserve for the payment of, all material Taxes required to be paid
as shown on such returns, and the most recent financial statements contained in
the Miami Subs SEC Reports reflect an adequate reserve for all material Taxes
payable by Miami Subs and its subsidiaries accrued through the date of such
financial statements. Except as reasonably would not be expected to have a
Material Adverse Effect on Miami Subs, no deficiencies for any Taxes have been
proposed, asserted or assessed against Miami Subs or any of its subsidiaries.
For the purpose of this Agreement, the term "Taxes" shall include all Federal,
state, local and foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, withholding, excise and other taxes, duties or
assessments of any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts.

2.10. Intellectual Property.

(a) Miami Subs and its subsidiaries own, or have the right to use, sell or
license all patents, trademarks, trade names, service marks, copyrights,
technology, know-how, trade secrets, computer software programs or applications
and tangible proprietary information and other intellectual property necessary
or required for the conduct of their respective businesses as presently
conducted (such intellectual property and the rights thereto are collectively
referred to herein as the "Miami Subs IP Rights"), except for any failure to own
or have the right to use, sell or license that would not have a Material Adverse
Effect on Miami Subs.

(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Miami Subs IP Rights (the
"Miami Subs IP Rights Agreements"), will not cause the forfeiture or termination
or give rise to a right of forfeiture or termination of any Miami Subs IP Rights
or impair the right of Miami Subs and its subsidiaries, the Surviving
Corporation or Nathan's to use, sell or license any Miami Subs IP Rights or
portion thereof, except for the occurrence of any such breach,

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forfeiture, termination or impairment that would not result in a Material
Adverse Effect on Miami Subs.

(c) (i) neither the manufacture, marketing, license, sale or intended use
of any product currently licensed or sold or under development by Miami Subs or
any of its subsidiaries violates any license or agreement between Miami Subs or
any of its subsidiaries and any third party or infringes any intellectual
property right of any other party; and (ii) there is no pending or, to the
knowledge of Miami Subs, threatened claim, arbitration or litigation contesting
the validity, ownership or right to use, sell, license or dispose of any Miami
Subs IP Rights, nor has Miami Subs received any written notice asserting that
any Miami Subs IP Rights or the proposed use, sale, license or disposition
thereof conflicts or will conflict with the rights of any other party, except,
with respect to clauses (i) and (ii), for any violations, infringements, claims
or litigation that would not have a Material Adverse Effect on Miami Subs.

(d) Miami Subs has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all Miami Subs IP Rights.

2.11. Compliance; Permits; Restrictions.

(a) Neither Miami Subs nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Miami Subs or any of its subsidiaries or by which its or
any of their respective properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Miami Subs or any of its subsidiaries is
a party or by which Miami Subs or any of its subsidiaries or its or any of their
respective properties is bound or affected, except, with respect to clauses (i)
and (ii), for any conflicts, defaults or violations which would not have a
Material Adverse Effect on Miami Subs. Except as set forth in the Miami Subs
Schedules, to the knowledge of Miami Subs, no investigation or review by any
Governmental Entity is pending or threatened against Miami Subs or its
subsidiaries, nor has any Governmental Entity indicated to Miami Subs an
intention to conduct the same, other than, in each such case, those the outcome
of which would not have a Material Adverse Effect on Miami Subs.

(b) Miami Subs and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from Governmental Entities which are material
to the operation of the business of Miami Subs and its subsidiaries taken as a
whole (collectively, the "Miami Subs Permits"). Miami Subs and its subsidiaries
are in compliance with the terms of Miami Subs Permits, except where the failure
to so comply would not have a Material Adverse Effect on Miami Subs.

2.12. Litigation. Except as set forth in the Miami Subs Schedules, as of
the date of this Agreement, there is no action, suit, proceeding, claim,
arbitration or, to Miami Subs's knowledge, any investigation pending, or as to
which Miami Subs or any of its subsidiaries has received any notice of assertion
nor, to Miami Subs's knowledge, is there a threatened action, suit, proceeding,
claim, arbitration or investigation against Miami Subs or any of its
subsidiaries which would have a Material Adverse Effect on Miami Subs, or which
in any manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated by this Agreement.

2.13. Brokers' and Finders' Fees. Miami Subs has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or

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any similar charges in connection with this Agreement or any transaction
contemplated hereby.

2.14. Employee Benefit Plans. With respect to each material employee
benefit plan, program, arrangement and contract (including, without limitation,
any "employee benefit plan" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) maintained or
contributed to by Miami Subs or any trade or business (an "ERISA Affiliate")
which is under common control with Miami Subs within the meaning of Section 414
of the Internal Revenue Code of 1986, as amended (the "Code") (the "Miami Subs
Employee Plans"), Miami Subs has made available to Nathan's a true and complete
copy of, to the extent applicable, (i) such Miami Subs Employee Plan, (ii) the
most recent annual report (Form 5500), (iii) each trust agreement related to
such Miami Subs Employee Plan, (iv) the most recent summary plan description for
each Miami Subs Employee Plan for which such a description is required, (v) the
most recent actuarial report relating to any Miami Subs Employee Plan subject to
Title IV of ERISA and (vi) the most recent United States Internal Revenue
Service ("IRS") determination letter issued with respect to any Miami Subs
Employee Plan.

2.15. Absence of Liens and Encumbrances. Miami Subs and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its material tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any Encumbrances except as reflected in the Miami Subs Financials and
except for liens for taxes not yet due and payable and such imperfections of
title and Encumbrances, if any, which would not have a Material Adverse Effect
on Miami Subs.

2.16. Environmental Matters.

(a) Hazardous Material. Except as would not have a Material Adverse Effect
on Miami Subs, no underground storage tanks and no amount of any substance that
has been designated by any Governmental Entity or by applicable federal, state
or local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, (a "Hazardous Material"), but excluding
office and janitorial supplies, are present, as a result of the deliberate
actions of Miami Subs or any of its subsidiaries, or, to Miami Subs's knowledge,
as a result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that Miami Subs or any of its subsidiaries has at any time owned,
operated, occupied or leased.

(b) Hazardous Materials Activities. Except as would not have a Material
Adverse Effect on Miami Subs, neither Miami Subs nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the date hereof, nor has Miami Subs or any of its subsidiaries
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (collectively "Hazardous Materials Activities") in violation
of any rule, regulation, treaty or statute promulgated by any Governmental

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Entity in effect prior to or as of the date hereof to prohibit, regulate or
control Hazardous Materials or any Hazardous Material Activity.

(c) Permits. Miami Subs and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the "Miami
Subs Environmental Permits") necessary for the conduct of Miami Subs's and its
subsidiaries' Hazardous Material Activities and other businesses of Miami Subs
and its subsidiaries as such activities and businesses are currently being
conducted, except where the failure to so hold would not have a Material Adverse
Effect on Miami Subs.

(d) Environmental Liabilities. No material action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending or, to
Miami Subs's knowledge, threatened concerning any Miami Subs Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of Miami Subs or
any of its subsidiaries which would have a Material Adverse Effect on Miami
Subs. Miami Subs is not aware of any fact or circumstance which could involve
Miami Subs or any of its subsidiaries in any environmental litigation or impose
upon Miami Subs or any of its subsidiaries any environmental liability that
would have a Material Adverse Effect on Miami Subs.

2.17. Labor Matters. To Miami Subs's knowledge, there are no activities or
proceedings of any labor union to organize any employees of Miami Subs or any of
its subsidiaries and there are no strikes, or material slowdowns, work stoppages
or lockouts, or threats thereof by or with respect to any employees of Miami
Subs or any of its subsidiaries. Miami Subs and its subsidiaries are and have
been in compliance with all applicable laws regarding employment practices,
terms and conditions of employment, and wages and hours (including, without
limitation, ERISA, WARN or any similar state or local law), except for any
noncompliance that would not have a Material Adverse Effect on Miami Subs.

2.18. Agreements, Contracts and Commitments. Except as set forth in the
Miami Subs Schedules, neither Miami Subs nor any of its subsidiaries is a party
to or is bound by:

(a) any collective bargaining agreements;

(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;

(c) any employment or consulting agreement, contract or commitment
with any officer or director level employee, not terminable by Miami Subs
or any of its subsidiaries on thirty days notice without liability, except
to the extent general principles of wrongful termination law may limit
Miami Subs's or any of its subsidiaries' ability to terminate employees at
will;

(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;

(e) any agreement of indemnification or guaranty not entered into in
the ordinary course of business other than indemnification agreements
between Miami Subs or any of its subsidiaries and any of its present or
former officers or directors;

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(f) any agreement, contract or commitment containing any covenant
limiting the freedom of Miami Subs or any of its subsidiaries to engage in
any line of business or compete with any person;

(g) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $100,000 and not
cancelable without penalty;

(h) any agreement, contract or commitment currently in force relating
to the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;

(i) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;

(j) any joint marketing or development agreement;

(k) any distribution agreement (identifying any that contain
exclusivity provisions); or

(l) any other agreement, contract or commitment (excluding real and
personal property leases) which involve payment by Miami Subs or any of its
subsidiaries under any such agreement, contract or commitment of $100,000
or more in the aggregate and is not cancelable without penalty within
thirty (30) days.

Neither Miami Subs nor any of its subsidiaries, nor to Miami Subs's
knowledge any other party to any Miami Subs Contract (as defined below), has
breached, violated or defaulted under, or received notice that it has breached
violated or defaulted under, any of the material terms or conditions of any of
the agreements, contracts or commitments to which Miami Subs is a party or by
which it is bound of the type described in clauses (a) through (l) above (any
such agreement, contract or commitment, a "Miami Subs Contract") in such a
manner as would permit any other party to cancel or terminate any such Miami
Subs Contract, or would permit any other party to seek damages, which
cancellation, termination or damages would have a Material Adverse Effect on
Miami Subs.

2.19. Change of Control Payments. There are no plans or agreements
pursuant to which any amounts may become payable (whether currently or in the
future) to current or former officers or directors of Miami Subs as a result of
or in connection with the Merger.

2.20. Statements; Proxy Statement/Prospectus. The information supplied or
to be supplied by Miami Subs in writing for inclusion or incorporation by
reference in the Registration Statement (as defined in Section 2.5(b)) shall not
at the time the Registration Statement is filed with the SEC and at the time it
or any amendment or supplement thereto becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading in light of the circumstances under which they
are made; and Nathan's shall have received a certificate, signed on behalf of
Miami Subs by the President and Chief Financial Officer of Miami Subs, to the
effect that nothing has come to their attention after due inquiry to cause them
to believe that such representation and warranty is not true and correct. The
information supplied or to be supplied by Miami Subs in writing for inclusion or
incorporation by reference in the proxy statement/prospectus to be sent to the
shareholders of Miami Subs

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and stockholders of Nathan's in connection with the meeting of Miami Subs's
shareholders to consider the approval of the Merger (the "Miami Subs
Shareholders' Meeting") and in connection with the meeting of Nathan's
stockholders to consider the approval of the Merger (the "Nathan's Stockholders'
Meeting") (such proxy statement/prospectus as amended or supplemented is
referred to herein as the "Proxy Statement") shall not, on the date the Proxy
Statement is first mailed to Miami Subs's shareholders and Nathan's
stockholders, or any amendment or supplement thereto, at the time of the Miami
Subs Shareholders' Meeting or the Nathan's Stockholders' Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Miami Subs Shareholders' Meeting or the Nathan's Stockholders'
Meeting which has become false or misleading; and Nathan's shall have received a
certificate, signed on behalf of Miami Subs by the President and Chief Financial
Officer of Miami Subs, to the effect that nothing has come to their attention
after due inquiry to cause them to believe that such representation and warranty
is not true and correct. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time, any event
relating to Miami Subs or any of its affiliates (other than Nathan's and its
affiliates), officers or directors should be discovered by Miami Subs which
should be set forth in an amendment or supplement to the Registration Statement
or a supplement to the Proxy Statement, Miami Subs shall promptly inform
Nathan's. Notwithstanding the foregoing, Miami Subs makes no representation or
warranty with respect to any information supplied by Nathan's or Merger Sub
which is contained in any of the foregoing documents.

2.21. Board Approval. The Board of Directors of Miami Subs has, as of the
date of this Agreement, (i) adopted the Merger, and (ii) resolved to recommend
that the shareholders of Miami Subs approve the Merger.

2.22. Minute Books. The minute books of Miami Subs made available to
counsel for Nathan's are the only minute books of Miami Subs and contain a
reasonably accurate summary, in all material respects, of all meetings of
directors (or committees thereof) and stockholders or actions by written consent
since the time of incorporation of Miami Subs.

2.23. Political Contributions. Neither Miami Subs nor any of its
subsidiaries has, directly or indirectly, (i) made any unlawful contribution to
any candidate for political office, or failed to disclose fully any contribution
in violation of law; or (ii) made any payment to any federal, state or foreign
governmental official, or any other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States and applicable foreign jurisdictions.

2.24. Disclosure. None of the representations and warranties by Miami Subs
in this Agreement and no statement on the part of Miami Subs in the Miami Subs
Schedules contains or will contain as to the applicable representation and
warranty any untrue statement of material fact or omits or will omit to state
any material fact necessary in order to make any of the statements herein or
therein, in light of the circumstances under which it was made, not misleading.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF NATHAN'S AND MERGER SUB

Nathan's and Merger Sub represent and warrant to Miami Subs, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by Nathan's to Miami Subs (the "Nathan's Schedules", which are incorporated
herein by reference and made a part hereof as if fully set forth herein), as
follows:

3.1. Organization of Nathan's. Nathan's and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has the requisite corporate power and
authority to own, lease and operate its properties and assets as and where the
same are owned, operated or leased and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect on Nathan's.
Nathan's has delivered to Miami Subs complete and correct copies of the Articles
of Incorporation and Bylaws of Nathan's, each as amended to and as in effect on
the date hereof .

3.2. Nathan's Capital Structure. The authorized capital stock of Nathan's
consists of 20,000,000 shares of Common Stock, par value $.01 per share, of
which there were 4,722,216 shares issued and outstanding as of November 30,
1998. The authorized capital stock of Merger Sub consists of 1,000 shares of
Common Stock, par value $.01 per share, 100 shares of which, as of the date
hereof, are issued and outstanding and are held by Nathan's. All outstanding
shares of the Common Stock of Nathan's are duly authorized, validly issued,
fully paid and non-assessable and are not subject to preemptive rights created
by statute, the Certificate of Incorporation or Bylaws of Nathan's or any
agreement or document to which Nathan's is a party or by which it is bound. All
of the shares of Nathan's Common Stock to be issued in exchange for MSC Capital
Stock at the Effective Time in accordance with this Agreement will be, when so
issued, duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights. All of the shares of Nathan's Common Stock to be issued
upon conversion of the Warrants to be granted in exchange for the MSC Capital
Stock at the Effective Time will be, when so issued, duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights. As of
November 30, 1998, Nathan's had reserved an aggregate of 1,225,000 shares of
Common Stock, net of exercises, for issuance to employees, consultants and
non-employee directors pursuant to Nathan's 1992 Stock Option Plan, its Outside
Director Stock Option Plan and 1998 Stock Option Plan (collectively, the
"Nathan's Stock Option Plans"), under which options are outstanding for an
aggregate 707,667 shares. As of November 30, 1998, Nathan's had reserved an
aggregate of 350,000 shares of Common Stock, net of exercises, for issuance upon
the exercise of 350,000 outstanding common stock purchase warrants. All shares
of the Common Stock of Nathan's subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
nonassessable. The Nathan's Schedules list each outstanding option and warrant
to acquire shares of Nathan's Common Stock at November 30, 1998, the name of the
holder of such option or warrant, the number of shares subject to such option or
warrant, the exercise price of such option or warrant, the number of shares as
to which such option or warrant will have vested at such date and whether the
exercisability of such option or warrant will be accelerated in any way by the
transactions contemplated by this Agreement or for any other reason, and
indicate the extent of acceleration, if any.

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3.3. Subsidiaries.

(a) Except for the subsidiaries listed in the Nathan's Schedules there are
no entities 10% of more of whose outstanding voting securities or other equity
interest are owned, directly or indirectly through one or more intermediaries,
by Nathan's. Each subsidiary of Nathan's is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation (which jurisdiction is indicated in the Nathan's Schedules and has
all requisite corporate power and authority to own, operate and lease its
properties and assets as and where the same are owned, operated or leased by
such subsidiary and to conduct its business as it is now being conducted. Each
subsidiary is in good standing and duly qualified or licensed as a foreign
corporation to do business in each of the jurisdictions in which the location of
the property and assets owned, operated or leased by such subsidiary or the
nature of the business conducted by such subsidiary makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect. Nathan's has delivered to Miami Subs
complete and correct copies of each of its subsidiaries' certificate of
incorporation and bylaws (or similar organizational document), in each case as
amended to and as in effect on the date hereof.

(b) The Nathan's Schedules set forth the authorized capital stock of each
subsidiary of Nathan's, the number of outstanding shares of each class of such
capital stock and Nathan's (or in the case of subsidiaries indirectly owned by
Nathan's, a specified subsidiary's) ownership of each such class. Nathan's or
such subsidiary has good and valid title to all such shares free and clear of
all Encumbrances. All of the outstanding shares of capital stock of each
subsidiary of Nathan's are validly issued, fully paid and nonassessable, and
there are no preemptive or similar rights in respect of any shares of capital
stock of any subsidiary. All of the outstanding shares of each subsidiary of
Nathan's were issued in compliance with all requirements of all applicable
federal and state securities laws. Except as set forth in the Nathan's
Schedules, neither Nathan's nor any subsidiary owns any capital stock of or
other equity interest of any kind or nature in any person.

3.4. Obligations With Respect to Capital Stock. Except as set forth in
Section 3.2, there are no equity securities of any class of Nathan's, or any
securities exchangeable or convertible into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except for securities
Nathan's owns, directly or indirectly through one or more subsidiaries, there
are no equity securities of any class of any subsidiary of Nathan's, or any
security exchangeable or convertible into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except as set forth in
Section 3.2 and as contemplated by this Agreement, there are no options,
warrants, equity securities, calls, rights (including preemptive rights),
commitments or agreements of any character to which Nathan's or any of its
subsidiaries is a party or by which it is bound obligating Nathan's or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock of Nathan's or any of
its subsidiaries or obligating Nathan's or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. There are no registration rights
and, to the knowledge of Nathan's there are no voting trusts, proxies or other
agreements or understandings with respect to any equity security of any class of
Nathan's or with respect to any equity security of any class of any of its
subsidiaries.

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3.5. Authority; Enforceability; Non Contravention; Consents.

(a) Each of Nathan's and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby, subject to the approval of this Agreement by the
stockholders of Nathan's. Subject to such approval, the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Nathan's and this Agreement has been duly executed and delivered by each of
Nathan's and Merger Sub and, assuming the due authorization, execution and
delivery of this Agreement by Miami Subs, this Agreement constitutes the valid
and binding obligations of each of Nathan's and Merger Sub, enforceable against
each of them in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to the enforcement of creditors' rights generally and subject to
general principles of equity. A vote of the holders of at least a majority of
the outstanding shares of Nathan's Common Stock is required for Nathan's
stockholders to approve the Merger. Neither the execution, delivery and
performance of this Agreement by each of Nathan's and Merger Sub nor
consummation by each of Nathan's and Merger Sub of the transactions contemplated
hereby will (i) conflict with or violate the Certificate of Incorporation or
Bylaws of Nathan's or the Articles of Incorporation or Bylaws of Merger Sub or
the equivalent organizational documents of any of its other subsidiaries, (ii)
subject to obtaining the approval of the Merger by Nathan's stockholders as
contemplated in Section 5.2 and compliance with the requirements set forth in
Section 3.5(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Nathan's or any of its subsidiaries (including
Merger Sub) or by which its or any of their respective properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair Nathan's rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Nathan's or any of its subsidiaries (including
Merger Sub) pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Nathan's or any of its subsidiaries (including Merger Sub) is a party
or by which Nathan's or any of its subsidiaries (including Merger Sub) or its or
any of their respective properties are bound or affected, except, with respect
to clauses (ii) and (iii), for any such conflicts, violations, defaults or other
occurrences that would not have a Material Adverse Effect on Nathan's. The
Nathan's Schedules list all material consents, waivers and approvals under any
of Nathan's or any of its subsidiaries' agreements, contracts, licenses or
leases required to be obtained in connection with the consummation of the
transactions contemplated hereby.

(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Nathan's or Merger Sub in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of the Registration Statement with the SEC in
accordance with the Securities Act, (ii) the filing of the Articles of Merger
with the Department of State of the State of Florida, (iii) the filing of the
Proxy Statement with the SEC in accordance with the Exchange Act, (iv) the
filing of a Current Report on Form 8-K with the SEC, (v) the listing of the
Nathan's Common Stock and Warrants (including the shares of Nathan's Common
Stock underlying the Warrants and Miami Subs Stock Options) on the Nasdaq
National Market System,

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(vi) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
laws and the laws of any foreign country and (vii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Nathan's or have a material
adverse effect on the ability of Nathan's to consummate the Merger.

3.6. SEC Filings; Nathan's Financial Statements.

(a) Nathan's has filed all forms, reports and documents required to be
filed with the SEC since November 1996, and has made available to Miami Subs
such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that Nathan's may file
subsequent to the date hereof) are referred to herein as the "Nathan's SEC
Reports." As of their respective dates, the Nathan's SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Nathan's SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing on or prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. None of Nathan's
subsidiaries is required to file any forms, reports or other documents with the
SEC.

(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in Nathan's SEC Reports (the "Nathan's
Financials"), including any Nathan's SEC Reports filed after the date hereof
until the Closing Date, (x) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (y) was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as
specified therein or as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (z) fairly presented in all material respects
the consolidated financial position of Nathan's and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year end adjustments
which were not or are not expected to be, material in amount. The balance sheet
of Nathan's contained in Nathan's SEC Reports as of September 27, 1998 is
hereinafter referred to as the "Nathan's Balance Sheet." Except as disclosed in
the Nathan's Financials, neither Nathan's nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) of a nature required to
be disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of Nathan's and its subsidiaries taken as a whole, except liabilities
(i) provided for in the Nathan's Balance Sheet, or (ii) incurred since the date
of the Nathan's Balance Sheet in the ordinary course of business consistent with
past practices.

(c) Nathan's has heretofore furnished to Miami Subs a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Nathan's with the SEC pursuant to
the Securities Act or the Exchange Act.

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3.7. Absence of Certain Changes or Events. Since the date of the Nathan's
Balance Sheet through the date of this Agreement, there has not been: (i) any
Material Adverse Effect on Nathan's, (ii) any material change by Nathan's in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP or rules and regulations of the SEC, or (iii) any revaluation by
Nathan's of any of its assets having a Material Adverse Effect on Nathan's,
including, without limitation, writing down the value of capitalized software or
inventory or writing off notes or accounts receivable other than in the ordinary
course of business.

3.8. Taxes. Nathan's and each of its subsidiaries has filed all tax
returns required to be filed by any of them and has paid (or Nathan's has paid
on its behalf), or has set up an adequate reserve for the payment of, all
material Taxes required to be paid as shown on such returns and the most recent
financial statements contained in the Nathan's SEC Reports reflect an adequate
reserve for all material Taxes payable by Nathan's and its subsidiaries accrued
through the date of such financial statements. Except as reasonably would not be
expected to have a Material Adverse Effect on Nathan's, no deficiencies for any
Taxes have been proposed, asserted or assessed against Nathan's or any of its
subsidiaries.

3.9. Intellectual Property.

(a) Nathan's and its subsidiaries own, or have the right to use, sell or
license all patents, trademarks, trade names, service marks, copyrights,
technology, know-how, trade secrets, computer software programs or applications
and tangible proprietary information and other intellectual property necessary
or required for the conduct of their respective businesses as presently
conducted (such intellectual property and the rights thereto are collectively
referred to herein as the "Nathan's IP Rights"), except for any failure to own
or have the right to use, sell or license that would not have a Material Adverse
Effect on Nathan's.

(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Nathan's IP Rights (the
"Nathan's IP Rights Agreements"), will not cause the forfeiture or termination
or give rise to a right of forfeiture or termination of any Nathan's IP Rights
or impair the right of Nathan's and its subsidiaries to use, sell or license any
Nathan's IP Rights or portion thereof, except for the occurrence of any such
breach, forfeiture, termination or impairment that would not individually or in
the aggregate, result in a Material Adverse Effect on Nathan's.

(c) (i) neither the manufacture, marketing, license, sale or intended
use of any product currently licensed or sold or under development by
Nathan's or any of its subsidiaries violates any license or agreement
between Nathan's or any of its subsidiaries and any third party or
infringes any intellectual property right of any other party; and (ii)
there is no pending or, to the knowledge of Nathan's, threatened claim,
arbitration or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any Nathan's IP Rights, nor has Nathan's
received any written notice asserting that any Nathan's IP Rights or the
proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, except, with respect to
clauses (i) and (ii), for any violations, infringements, claims or
litigation that would not have a Material Adverse Effect on Nathan's.

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(d) Nathan's has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its
proprietary rights in, all Nathan's IP Rights.

3.10. Compliance; Permits; Restrictions.

(a) Neither Nathan's nor any of its subsidiaries is in conflict with,
or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to Nathan's or any of its subsidiaries or by
which its or any of their respective properties is bound or affected, or
(ii) any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Nathan's or any of its subsidiaries is a party or by which Nathan's or any
of its subsidiaries or its or any of their respective properties is bound
or affected, except, with respect to clauses (i) and (ii), for any
conflicts, defaults or violations which would not have a Material Adverse
Effect on Nathan's. To the knowledge of Nathan's, no investigation or
review by any Governmental Entity is pending or threatened against Nathan's
or its subsidiaries, nor has any Governmental Entity indicated an intention
to conduct the same, other than, in each such case, those the outcome of
which would not have a Material Adverse Effect on Nathan's.

(b) Nathan's and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from Governmental Entities
which are material to the operation of the business of Nathan's and its
subsidiaries taken as a whole (collectively, the "Nathan's Permits").
Nathan's and its subsidiaries are in compliance with the terms of Nathan's
Permits, except where the failure to so comply would not have a Material
Adverse Effect on Nathan's.

3.11. Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or, to Nathan's knowledge, any
investigation pending, or as to which Nathan's or any of its subsidiaries has
received any notice of assertion nor, to Nathan's knowledge, is there a
threatened action, suit, proceeding, claim, arbitration or investigation against
Nathan's or any of its subsidiaries which would have a Material Adverse Effect
on Nathan's, or which in any manner challenges or seeks to prevent, enjoin,
alter or delay any of the transactions contemplated by this Agreement.

3.12. Brokers' and Finders' Fees. Nathan's has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.

3.13. Employee Benefit Plans. Nathan's has no employee benefit plan,
program, arrangement or contract (including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA) maintained or contributed to
by Nathan's or any trade or business which is under common control with Nathan's
within the meaning of Section 414 of the Code.

3.14. Absence of Liens and Encumbrances. Nathan's and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its material tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any Encumbrances except as reflected in the Nathan's Financials and
except for liens for taxes not yet due and payable and such imperfections of
title and Encumbrances, if any, which would not have a Material Adverse Effect
on Nathan's.

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3.15. Environmental Matters.

(a) Hazardous Material. Except as would not have a Material Adverse
Effect on Nathan's, no underground storage tanks and no Hazardous Materials
(but excluding office and janitorial supplies) are present as a result of
the deliberate actions of Nathan's or any of its subsidiaries, or, to
Nathan's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that Nathan's or any
of its subsidiaries has at any time owned, operated, occupied or leased.

(b) Hazardous Materials Activities. Except as would not have a
Material Adverse Effect on Nathan's, neither Nathan's nor any of its
subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Closing Date, nor has
Nathan's or any of its subsidiaries engaged in any Hazardous Materials
Activities in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity in effect prior to or as of the date
hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.

(c) Permits. Nathan's and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"Nathan's Environmental Permits") necessary for the conduct of Nathan's and
its subsidiaries' Hazardous Material Activities and other businesses of
Nathan's and its subsidiaries as such activities and businesses are
currently being conducted, except where the failure to so hold would not
have a Material Adverse Effect on Nathan's.

(d) Environmental Liabilities. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Nathan's knowledge, threatened concerning any Nathan's
Environmental Permit, Hazardous Material or any Hazardous Materials
Activity of Nathan's or any of its subsidiaries which would have a Material
Adverse Effect on Nathan's. Nathan's is not aware of any fact or
circumstance which could involve Nathan's or any of its subsidiaries in any
environmental litigation or impose upon Nathan's or any of its subsidiaries
any environmental liability that would have a Material Adverse Effect on
Nathan's.

3.16. Labor Matters. To Nathan's knowledge, there are no activities or
proceedings of any labor union to organize any employees of Nathan's or any of
its subsidiaries and there are no strikes, or material slowdowns, work stoppages
or lockouts, or threats thereof by or with respect to any employees of Nathan's
or any of its subsidiaries. Nathan's and its subsidiaries are and have been in
compliance with all applicable laws regarding employment practices, terms and
conditions of employment, and wages and hours (including, without limitation,
ERISA, WARN or any similar state or local law), except for any noncompliance
that would not have a Material Adverse Effect on Nathan's.

3.17. Agreements, Contracts and Commitments. Except as set forth in the
Nathan's Schedules, neither Nathan's nor any of its subsidiaries is a party to
or is bound by:

(a) any collective bargaining agreements;

(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;

(c) any employment or consulting agreement, contract or commitment
with any officer or director level employee, not terminable by Nathan's or
any of its subsidiaries

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on thirty days notice without liability, except to the extent general
principles of wrongful termination law may limit Nathan's or any of its
subsidiaries' ability to terminate employees at will;

(e) any agreement of indemnification or guaranty not entered into in
the ordinary course of business other than indemnification agreements
between Nathan's or any of its subsidiaries and any of its officers or
directors;

(f) any agreement, contract or commitment containing any covenant
limiting the freedom of Nathan's or any of its subsidiaries to engage in
any line of business or compete with any person;

(g) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $100,000 and not
cancelable without penalty;

(i) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;

(j) any joint marketing or development agreement;

(k) any distribution agreement (identifying any that contain
exclusivity provisions); or

(l) any other agreement, contract or commitment (excluding real and
personal property leases) which involves payment by Nathan's or any of its
subsidiaries under any such agreement, contract or commitment of $100,000
or more in the aggregate and is not cancelable without penalty within
thirty (30) days.

Neither Nathan's nor any of its subsidiaries, nor to Nathan's knowledge any
other party to any Nathan's Contract (as defined below), has breached, violated
or defaulted under, or received notice that it has breached violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which Nathan's is a party or by which it
is bound of the type described in clauses (a) through (l) above (any such
agreement, contract or commitment, a "Nathan's Contract") in such a manner as
would permit any other party to cancel or terminate any such Nathan's Contract,
or would permit any other party to seek damages, which would have a Material
Adverse Effect on Nathan's.

3.18. Change of Control Payments. There are no plans or agreements
pursuant to which any material amounts may become payable (whether currently or
in the future) to

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current or former officers or directors of Nathan's as a result of or in
connection with the Merger.

3.19. Statements; Proxy Statement/Prospectus. The information supplied or
to be supplied by Nathan's in writing for inclusion or incorporation by
reference in the Registration Statement (as defined in Section 2.5(b)) shall not
at the time the Registration Statement is filed with the SEC and at the time it
or any amendment or supplement thereto becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading in light of the circumstances under which they
are made; and Miami Subs shall have received a certificate, signed on behalf of
Nathan's by the President and Chief Financial Officer of Nathan's, to the effect
that nothing has come to their attention after due inquiry to cause them to
believe that such representation and warranty is not true and correct. The
information supplied or to be supplied by Nathan's in writing for inclusion or
incorporation by reference in the Proxy Statement to be sent to the stockholders
of Nathan's and the shareholders of Miami Subs in connection with the Nathan's
Stockholders' Meeting and Miami Subs Shareholders' Meeting shall not, on the
date the Proxy Statement is first mailed to Nathan's stockholders and Miami
Subs's shareholders, or any amendment or supplement thereto, at the time of the
Miami Subs Shareholders' Meeting or the Nathan's Stockholders' Meeting and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Nathan's Stockholders' Meeting or the Miami Subs
Shareholders' Meeting which has become false or misleading; and Miami Subs shall
have received a certificate, signed on behalf of Nathan's by the President and
Chief Financial Officer of Nathan's, to the effect that nothing has come to
their attention after due inquiry to cause them to believe that such
representation and warranty is not true and correct. The Proxy Statement will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder. If at any time prior to the
Effective Time, any event relating to Nathan's or any of its affiliates (other
than Miami Subs), officers or directors should be discovered by Nathan's which
should be set forth in an amendment or supplement to the Registration Statement
or a supplement to the Proxy Statement, Nathan's shall promptly inform Miami
Subs. Notwithstanding the foregoing, Nathan's makes no representation or
warranty with respect to any information supplied by Miami Subs which is
contained in any of the foregoing documents.

3.20. Board Approval. The Board of Directors of Nathan's has, as of the
date of this Agreement, (i) adopted the Merger, and (ii) resolved to recommend
that the stockholders of Nathan's approve the Merger.

3.21. Minute Books. The minute books of Nathan's made available to counsel
for Miami Subs are the only minute books of Nathan's and contain a reasonably
accurate summary, in all material respects, of all meetings of directors (or
committees thereof) and stockholders or actions by written consent since the
time of incorporation of Nathan's.

3.22. Political Contributions. Neither Nathan's nor any of its
subsidiaries has, directly or indirectly, (i) made any unlawful contribution to
any candidate for political office, or failed to disclose fully any contribution
in violation of law; or (ii) made any payment to any federal, state or foreign
governmental official, or any other person charged

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with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States and applicable foreign jurisdictions.

3.23. Disclosure. None of the representations and warranties by Nathan's
or Merger Sub in this Agreement and no statement on the part of Nathan's or
Merger Sub in the Nathan's Schedules contains or will contain as to the
applicable representation and warranty any untrue statement of material fact or
omits or will omit to state any material fact necessary in order to make any of
the statements herein or therein, in light of the circumstances under which it
was made, not misleading.

ARTICLE IV

CONDUCT PRIOR TO THE EFFECTIVE TIME

4.1. Conduct of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Miami Subs (which for the purposes
of this Article 4 shall include Miami Subs and each of its subsidiaries) and
Nathan's (which for the purposes of this Article 4 shall include Nathan's and
each of its subsidiaries) agree, except to the extent that the other party shall
otherwise consent in writing, to carry on its business diligently and in
accordance with good commercial practice and to carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform other material obligations
when due, and use its commercially reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings. In furtherance of the foregoing
and subject to applicable law, Miami Subs and Nathan's agree to confer, as
promptly as practicable, prior to taking any material actions or making any
material management decisions with respect to the conduct of business. In
addition, except in the case of Miami Subs as provided in Article 4 of the Miami
Subs Schedules and in the case of Nathan's as provided in Article 4 of the
Nathan's Schedules, without the prior written consent of the other, neither
Miami Subs nor Nathan's shall do any of the following, and neither Miami Subs
nor Nathan's shall permit its subsidiaries to do any of the following:

(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;

(b) Enter into any material partnership arrangements, joint
development agreements or strategic alliances;

(c) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing to the other, or adopt
any new severance plan;

(d) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Miami Subs IP
Rights or the Nathan's IP Rights, as the case may be, other than in the
ordinary course of business;

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(e) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or
split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;

(f) Repurchase or otherwise acquire, directly or indirectly, any
shares of capital stock except pursuant to rights of repurchase of any such
shares under any employee, consultant or director stock plan;

(g) Issue, deliver, sell, authorize or propose the issuance, delivery
or sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire and shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible
securities, other than (i) the issuance of shares of Nathan's Common Stock
or MSC Capital Stock, as the case may be, pursuant to the exercise of stock
options or warrants therefor outstanding as of the date of this Agreement,
(ii) options to purchase shares of MSC Capital Stock or Nathan's Common
Stock, as the case may be, to be granted at fair market value in the
ordinary course of business, consistent with past practice and in
accordance with existing stock option plans, (iii) shares of MSC Capital
Stock or Nathan's Common Stock, as the case may be, issuable upon the
exercise of the options referred to in clause (ii), and (iv) shares of
Nathan's Common Stock and Warrants pursuant to the terms hereof;

(h) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries), except to
increase the size of the Board of Directors of Nathan's to seven directors;

(i) Except as set forth on the Miami Subs Schedules or the Nathan's
Schedules, as the case may be, acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or a material
portion of the assets of, or by any other manner, any business or any
corporation, partnership interest, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to the
business of Miami Subs or Nathan's, as the case may be, or enter into any
joint ventures, strategic partnerships or alliances, other than in the
ordinary course of business consistent with past practice; provided that
Nathan's may enter into such a transaction if (i) Nathan's is a surviving
entity in such a transaction or (ii) if Nathan's is not the surviving
entity, such surviving entity specifically assumes the obligations of
Nathan's hereunder;

(j) Sell, lease, license, Encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of Miami Subs or Nathan's, as the case may be;

(k) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire debt securities
of Miami Subs or Nathan's, as the case may be, or guarantee any debt
securities of others (other than by Miami Subs on behalf of its franchisees
in connection with the Arthur Treacher's/Miami Subs Development Project);

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(l) Adopt or amend any employee benefit or stock purchase or option
plan, or enter into any employment contract, pay any special bonus or
special remuneration to any director or employee, or increase the salaries
or wage rates of its officers or employees other than in the ordinary
course of business, consistent with past practice;

(m) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;

(n) Make any grant of exclusive rights to any third party; or

(o) Agree in writing or otherwise to take any of the actions described
in Article 4 (a) through (n) above.

ARTICLE V

ADDITIONAL AGREEMENTS

5.1. Proxy Statement/Prospectus; Registration Statement; Other Filings. As
promptly as practicable after the execution of this Agreement, Miami Subs and
Nathan's will prepare and file with the SEC the Proxy Statement and Nathan's
will prepare and file with the SEC the Registration Statement in which the Proxy
Statement will be included as a prospectus. Each of Miami Subs and Nathan's will
respond to any comments of the SEC, will use its best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing and will cause the Proxy Statement to be mailed
to its shareholders and stockholders, respectively at the earliest practicable
time. As promptly as practicable after the date of this Agreement, Miami Subs
and Nathan's will prepare and file any other filings required under the Exchange
Act, the Securities Act or any other Federal, foreign or state securities or
blue sky laws relating to the Merger and the transactions contemplated by this
Agreement (the "Other Filings"). Each party will notify the other party promptly
upon the receipt of any comments from the SEC or its staff and of any request by
the SEC or its staff or any other government officials for amendments or
supplements to the Registration Statement, the Proxy Statement or any Other
Filing or for additional information and will supply the other party with copies
of all correspondence between such party or any of its representatives, on the
one hand, and the SEC, or its staff or any other government officials, on the
other hand, with respect to the Registration Statement, the Proxy Statement, the
Merger or any Other Filing. The Proxy Statement, the Registration Statement and
the Other Filings will comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement, the Registration Statement or any Other
Filing, Miami Subs or Nathan's, as the case may be, will promptly inform the
other party of such occurrence and cooperate in filing with the SEC or its staff
or any other government officials, and/or mailing to shareholders of Miami Subs
and stockholders of Nathan's, such amendment or supplement. The Proxy Statement
will also include the recommendations of (i) the Board of Directors of Miami
Subs in favor of approval of the Merger (except to the extent permitted by
Section 5.4) and (ii) the Board of Directors of Nathan's in favor of the
approval of this Agreement (except that the respective Board of Directors of
Nathan's and Miami Subs may withdraw, modify or refrain from making such
recommendations to the extent that the respective Board

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determines in good faith after consultation with outside legal counsel that such
Board's fiduciary duties under applicable law require it to do so).

5.2. Meetings of Stockholders. Promptly after the date hereof, Miami Subs
will take all action necessary in accordance with the FBCA and its Articles of
Incorporation and Bylaws to convene the Miami Subs Shareholders' Meeting to be
held as promptly as practicable, and in any event within 45 days after the
declaration of effectiveness of the Registration Statement, for the purpose of
voting upon the Merger. Miami Subs will consult with Nathan's and use its
commercially reasonable efforts to hold the Miami Subs Shareholders' Meeting no
more than one business day prior to the Nathan's Stockholders' Meeting. Promptly
after the date hereof, Nathan's will take all action necessary in accordance
with Delaware Law and its Certificate of Incorporation and Bylaws to convene the
Nathan's Stockholders' Meeting to be held as promptly as practicable, and in any
event within 45 days after the declaration of effectiveness of the Registration
Statement, for the purpose of voting upon the Merger. Nathan's will consult with
Miami Subs and will use its commercially reasonable efforts to hold the Nathan's
Stockholders' Meeting no more than one business day following the date on which
the Miami Subs Shareholders' Meeting is convened. Nathan's and Miami Subs will
each use its commercially reasonable efforts to solicit from its stockholders
and shareholders, respectively, proxies in favor of such approvals and will take
all other action necessary or advisable to secure the vote or consent of their
stockholders and shareholders, respectively, required by Delaware Law and the
FBCA, respectively, to obtain such approvals (except to the extent permitted by
Section 5.4).

5.3. Access to Information; Confidentiality. Each party will afford the
other party and its accountants, counsel and other representatives reasonable
access during normal business hours to the properties, books, records and
personnel of the other party (and its subsidiaries) during the period prior to
the Effective Time to obtain all information concerning the business, including
the status of product development efforts, properties, results of operations and
personnel of such party (and its subsidiaries), as the other party may
reasonably request. No information or knowledge obtained in any investigation
pursuant to this Section 5.3 will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.

5.4. No Solicitation by Miami Subs.

(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms, Miami
Subs and its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (i) solicit or knowingly encourage
submission of, any proposals or offers by any person, entity or group (other
than Nathan's and its affiliates, agents and representatives), or (ii)
participate in any discussions or negotiations with, or disclose any non-public
information concerning Miami Subs or any of its subsidiaries to, or afford any
access to the properties, books or records of Miami Subs or any of its
subsidiaries to, or otherwise assist or facilitate, or enter into any agreement
or understanding with, any person, entity or group (other than Nathan's and its
affiliates, agents and representatives), in connection with any Acquisition
Proposal with respect to Miami Subs. For the purposes of this Agreement, an
"Acquisition Proposal" with respect to an entity means any proposal or offer
relating to (i) any merger, consolidation, sale of substantial assets or similar
transactions involving the entity or any subsidiaries of the entity (other than
sales of assets or inventory in the ordinary course of

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business or permitted under the terms of this Agreement), (ii) sale of 5% or
more of the outstanding shares of capital stock of the entity (including without
limitation by way of a tender offer or an exchange offer), (iii) the acquisition
by any person of beneficial ownership or a right to acquire beneficial ownership
of, or the formation of any "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) which beneficially owns,
or has the right to acquire beneficial ownership of, 5% or more of the then
outstanding shares of capital stock of the entity (except for acquisitions for
passive investment purposes only in circumstances where the person or group
qualifies for and files a Schedule 13G with respect thereto); or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing. Miami Subs will immediately cease
any and all existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. Miami Subs will (i)
notify Nathan's as promptly as practicable if any inquiry or proposal is made or
any information or access is requested in writing in connection with an
Acquisition Proposal or potential Acquisition Proposal and (ii) as promptly as
practicable notify Nathan's of the significant terms and conditions of any such
Acquisition Proposal. In addition, subject to the provisions of Section 5.4(b),
from and after the date of this Agreement until the earlier of the Effective
Time and termination of this Agreement pursuant to its terms, Miami Subs and its
subsidiaries will not, and will instruct their respective directors, officers,
employees, representatives, investment bankers, agents and affiliates not to,
directly or indirectly, make or authorize any public statement, recommendation
or solicitation in support of any Acquisition Proposal made by any person,
entity or group (other than Nathan's); provided, however, that nothing herein
shall prohibit Miami Subs's Board of Directors from taking and disclosing to
Miami Subs's shareholders a position with respect to a tender offer pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act.

(b) Notwithstanding the provisions of paragraph (a)(i) above, prior to the
approval of this Agreement by the shareholders of Miami Subs at the Miami Subs
Shareholders' Meeting, Miami Subs may, to the extent the Board of Directors of
Miami Subs determines, in good faith, after consultation with outside legal
counsel, that the Board's fiduciary duties under applicable law require it to do
so, participate in discussions or negotiations with, and, subject to the
requirements of paragraph (c), below, furnish information to any person, entity
or group after such person, entity or group has delivered to Miami Subs in
writing, an unsolicited bona fide Acquisition Proposal which the Board of
Directors of Miami Subs in its good faith reasonable judgment determines, after
consultation with its independent financial advisors, would result in a
transaction more favorable to the shareholders of Miami Subs from a financial
point of view than the Merger and for which financing, to the extent required,
is then committed or which, in the good faith reasonable judgment of the Board
of Directors of Miami Subs (based upon the advice of independent financial
advisors), is reasonably capable of being financed by such person, entity or
group and which is likely to be consummated (a "Miami Subs Superior Proposal").
In addition, notwithstanding the provisions of paragraph (a)(i) above, in
connection with a possible Acquisition Proposal, Miami Subs may refer any third
party to this Section 5.4(b) or make a copy of this Section 5.4(b) available to
a third party. In the event Miami Subs receives a Miami Subs Superior Proposal,
nothing contained in this Agreement (but subject to the terms hereof) will
prevent the Board of Directors of Miami Subs from approving such Miami Subs
Superior Proposal or recommending such Miami Subs Superior Proposal to Miami
Subs's shareholders, if the Board determines that such action is required by its
fiduciary duties under applicable law; in such case, the Board of Directors of
Miami Subs may withdraw, modify or refrain from making its

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recommendation concerning the approval of the Merger; provided, however, that
Miami Subs shall not accept or recommend to its shareholders, or enter into any
agreement concerning, a Miami Subs Superior Proposal for a period of not less
than 48 hours after Nathan's receipt of a copy of such Miami Subs Superior
Proposal (or a description of the significant terms and conditions thereof, if
not in writing) unless the Board of Directors of Miami Subs determines in good
faith after consultation with outside legal counsel that the Board's fiduciary
duties under applicable law require it to do so sooner.

(c) Notwithstanding anything to the contrary in paragraph (b), Miami Subs
will not provide any non-public information to a third party unless: (x) Miami
Subs provides such non-public information pursuant to a nondisclosure agreement
with terms regarding the protection of confidential information; and (y) such
non-public information is the same information previously delivered to Nathan's.

5.5. Public Disclosure. Nathan's and Miami Subs will consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger, this Agreement or an Acquisition Proposal and will
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange, the Nasdaq or automated quotation system.

5.6. Legal Requirements. Each of Nathan's, Merger Sub and Miami Subs will
take all reasonable actions necessary or desirable to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals of or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby in
a manner mutually acceptable to the parties hereto) and will promptly cooperate
with and furnish information to any party hereto necessary in connection with
any such requirements imposed upon any of them or their respective subsidiaries
in connection with the consummation of the transactions contemplated by this
Agreement. Nathan's will use its commercially reasonable efforts to take such
steps as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of Nathan's Common Stock and
Warrants (including the shares of Nathan's Common Stock underlying such
Warrants) pursuant hereto. Miami Subs will use its commercially reasonable
efforts to assist Nathan's as may be necessary to comply with the securities and
blue sky laws of all jurisdictions which are applicable in connection with the
issuance of Nathan's Common Stock and Warrants (including the shares of Nathan's
Common Stock underlying such Warrants) pursuant hereto.

5.7. Third Party Consents. As soon as practicable following the date
hereof, Nathan's and Miami Subs will each use its commercially reasonable
efforts to obtain all material consents, waivers and approvals under any of its
or its subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions contemplated
hereby.

5.8. FIRPTA. At or prior to the Closing, Miami Subs, if requested by
Nathan's, shall deliver to the IRS a notice that the MSC Capital Stock is not a
"U.S. Real Property Interest" as defined and in accordance with the requirements
of Treasury Regulation Section 1.897-2(h)(2).

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5.9. Notification of Certain Matters. Nathan's and Merger Sub will give
prompt notice to Miami Subs, and Miami Subs will give prompt notice to Nathan's,
of the occurrence, or failure to occur, of any event, which occurrence or
failure to occur would be reasonably likely to cause (a) any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date of this Agreement to the Effective Time, or
(b) any material failure of Nathan's and Merger Sub or Miami Subs, as the case
may be, or of any officer, director, employee or agent thereof, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement. Notwithstanding the above, the delivery of any
notice pursuant to this section will not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.

5.10. Best Efforts and Further Assurances. Subject to the respective
rights and obligations of Nathan's and Miami Subs under this Agreement, each of
the parties to this Agreement will use its best efforts to effectuate the Merger
and the other transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement. Each party hereto, at
the reasonable request of another party hereto, will execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby.

5.11. Stock Options.

(a) At the Effective Time, each outstanding Miami Subs Stock Option,
whether or not exercisable, will be assumed by Nathan's. From and after the
Effective Time, each Miami Subs Stock Option so assumed by Nathan's under this
Agreement shall be deemed to constitute an option to acquire Nathan's Common
Stock, on the same terms and conditions as were applicable under such Miami Subs
Stock Option, and (i) will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of Nathan's Common
Stock equal to the product of the number of shares of MSC Capital Stock that
were issuable upon exercise of such Miami Subs Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Nathan's Common Stock, and (ii) the per share exercise
price for the shares of Nathan's Common Stock issuable upon exercise of such
assumed Miami Subs Stock Option will be equal to the amount determined by
multiplying the exercise price per share of MSC Capital Stock at which such
Miami Subs Stock Option was exercisable immediately prior to the Effective Time
by $2.068, rounded up to the nearest whole cent. As soon as practicable after
the Effective Time, Nathan's shall deliver to the holders of Miami Subs Stock
Options appropriate notices setting forth such holders' right pursuant to the
Miami Subs Option Plan (and agreements evidencing the grants of such Miami Subs
Stock Options) or, if not granted under the Miami Subs Option Plan, the
agreement governing and evidencing such Miami Subs Stock Options, and indicated
that such options shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 5.11(a) after giving effect
to the Merger and the assumption by Nathan's as set forth herein).

(b) Nathan's shall take all corporate action necessary to reserve
sufficient shares of Nathan's Common Stock for issuance under Section 5.11(a)
and under Section 1.6(c) hereof.

5.12. Registration Rights. As soon as practicable after the Effective Time
and in no event later than ten (10) business days after the Effective Time,
Nathan's shall file a

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registration statement on Form S-8 and Form S-3 with respect to the shares of
Nathan's Common Stock subject to such assumed Miami Subs Stock Options, and
following the effectiveness of such registration statements, Nathan's shall use
all commercially reasonable efforts to maintain the effectiveness of such
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.

5.13. Indemnification and Insurance.

(a) The Surviving Corporation shall assume all of the obligations of Miami
Subs or any of its subsidiaries under any indemnification agreement with any
present or former director, officer, employee, and/or agent of Miami Subs or any
of its subsidiaries, as in effect on or prior to the Effective Time. From and
after the Effective Time for a period of three years, the Surviving Corporation
shall provide with respect to each director, officer, employee and agent of
Miami Subs and its subsidiaries (as of the date hereof and through the Effective
Time) (the "Indemnified Parties), the indemnification rights (including any
rights to advancement of reasonable expenses) which such Indemnified Parties
had, whether from Miami Subs or any such subsidiary, immediately prior to the
Effective Time, whether under the FBCA, the Articles of Incorporation or Bylaws
of Miami Subs or such subsidiary. Notwithstanding the foregoing sentence, from
and after the Effective Time for a period of three years, the Surviving
Corporation shall honor any indemnification rights (including the advancement of
reasonable expenses) of any former director, officer, employee and/or agent of
Miami Subs or any of its subsidiaries, which any such person had, whether from
Miami Subs or any such subsidiary, immediately prior to the Effective Time,
whether under the FBCA, the Articles of Incorporation or Bylaws of Miami Subs or
such subsidiary. The Articles of Incorporation and Bylaws of the Surviving
Corporation will contain provisions with respect to indemnification and
elimination of liability for monetary damages of the Indemnified Parties
substantially similar to those set forth in the Articles of Incorporation and
Bylaws of Miami Subs, which provisions will not be amended, repealed or
otherwise modified for a period of three years from the Effective Time in any
manner that would adversely affect the rights thereunder of the Indemnified
Parties , unless such modification is required by law. Immediately following the
Effective Time, Nathan's shall cause to remain in effect, if applicable, the
current policies of directors' and officers' liability insurance maintained by
Miami Subs or any of its subsidiaries (provided that Nathan's may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
facts or events which occurred at or before the Effective Time, and Nathan's
shall maintain such coverage for a period of three years after the Effective
Time.

(b) After the Effective Time the Surviving Corporation and Nathan's will,
to the fullest extent permitted under applicable law or under the Surviving
Corporation's Articles of Incorporation or Bylaws and Nathan's Certificate of
Incorporation or Bylaws, respectively, indemnify and hold harmless, the
Indemnified Parties against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation, whether civil, administrative or investigative, to
the extent arising out of or pertaining to any action or omission in his or her
capacity as a director, officer, employee or agent of Miami Subs arising out of
or pertaining to the transactions contemplated by this Agreement for a period of
three years after the date hereof. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or

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after the Effective Time), (i) any counsel retained by the Indemnified Parties
for any period after the Effective Time will be reasonably satisfactory to the
Surviving Corporation and Nathan's, (ii) after the Effective Time, the Surviving
Corporation will pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received and (iii) the Surviving Corporation will
cooperate in the defense of any such matter; provided, however, that the
Surviving Corporation will not be liable for any settlement effected without its
written consent (which consent will not be unreasonably withheld); and provided,
further, that, in the event that any claim or claims for indemnification are
asserted or made within such three-year period, all rights to indemnification in
respect of any such claim or claims will continue until the disposition of any
and all such claims. The Indemnified Parties as a group may retain only one law
firm (in addition to local counsel) to represent them with respect to any single
action unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties.

(c) This Section 5.13 will survive any termination of this Agreement and
the consummation of the Merger at the Effective Time, is intended to benefit
Miami Subs, the Surviving Corporation and the Indemnified Parties and their
heirs and representatives (each of whom shall be entitled to enforce this
Section 5.13 against Nathan's or the Surviving Corporation to the extent
specified herein), and will be binding on all successors and assigns of Nathan's
and the Surviving Corporation.

5.14. NASDAQ Listing. Nathan's will use all commercially reasonable
efforts to cause to be approved for listing on the Nasdaq National Market the
shares of Nathan's Common Stock and Warrants issuable, and shares of Nathan's
Common Stock required to be reserved for issuance in respect of the Warrants and
the Miami Subs Stock Options, in connection with the Merger, upon official
notice of issuance.

5.15. Board of Directors of Nathan's. The Board of Directors of Nathan's
will take all actions necessary to cause the Board of Directors of Nathan's,
immediately after the Effective Time, to consist of seven persons, six of whom
shall have served on the Board of Directors of Nathan's immediately prior to the
Effective Time or otherwise be designated by Nathan's and one of whom, Donald
Perlyn, shall have served on the Board of Directors of Miami Subs immediately
prior to the Effective Time.

5.16. Employment Agreements. On the Closing Date, Nathan's (or a
subsidiary thereof) shall enter into employment agreements in form attached
hereto as Exhibits B, C and D, respectively, with each of Donald L. Perlyn,
Jerry W. Woda and Frank Baran, each of whom is presently an executive officer of
Miami Subs.

ARTICLE VI

CONDITIONS TO THE MERGER

6.1. Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:

(a) Stockholder Approval. This Agreement shall have been approved and
adopted, and the Merger shall have been duly approved, by the requisite
vote under applicable law by the shareholders of Miami Subs and by the
stockholders of Nathan's.

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(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Proxy Statement, shall have been initiated or threatened
by the SEC. At the effective date of the Registration Statement, the
Registration Statement shall not contain any untrue statement of a material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, and at the mailing of the Proxy
Statement and the date of Nathan's Stockholders' Meeting and Miami Subs
Shareholders' Meeting, the Proxy Statement shall not contain any untrue
statement.

(c) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger.

(d) Nasdaq Listing. The shares of Nathan's Common Stock and Warrants
issuable to shareholders of Miami Subs pursuant to this Agreement and such
shares of Nathan's Common Stock required to be reserved for issuance in
respect of the Warrants and the Miami Subs Stock Options shall have been
authorized for listing on the Nasdaq National Market upon official notice
of issuance.

(e) Authorizations; Consents. All authorizations, consents, waivers
and approvals from parties to contracts or other agreements to which any of
Miami Subs or Nathan's (or their respective subsidiaries) is a party, or by
which either is bound, as may be required to be obtained by them in
connection with the performance of this Agreement, the failure to obtain
which would prevent the consummation of the Merger or have a Material
Adverse Effect on Miami Subs or Nathan's, as the case may be.

6.2. Additional Conditions to Obligations of Miami Subs. The obligations
of Miami Subs to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Miami Subs:

(a) Representations and Warranties. The representations and
warranties of Nathan's and Merger Sub contained in this Agreement shall be
true and correct on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force
and effect as if made on and as of the Closing Date, except, in all such
cases where the failure to be so true and correct, would not have a
Material Adverse Effect on Nathan's; and Miami Subs shall have received a
certificate, signed on behalf of Nathan's by the President and the Chief
Financial Officer of Nathan's, to the effect that nothing has come to their
attention after due inquiry to cause them to believe that such
representations and warranties are not true and correct, except in all such
cases where the failure to be so true and correct would not have a Material
Adverse Effect on Nathan's;

(b) Agreements and Covenants. Nathan's and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants

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required by this Agreement to be performed or complied with by them on or
prior to the Closing Date, and Miami Subs shall have received a certificate
to such effect signed on behalf of Nathan's by the President and the Chief
Financial Officer of Nathan's to the best of their knowledge after due
inquiry;

(c) Material Adverse Effect. No Material Adverse Effect with respect
to Nathan's shall have occurred since the date of this Agreement;

(d) Legal Opinion. Miami Subs shall have received a legal opinion
from Blau, Kramer, Wactlar & Lieberman, P.C., counsel to Nathan's, in a
form reasonably acceptable to Miami Subs;

(e) Fairness Opinion. Miami Subs shall have received a written
opinion from Raymond James & Associates, Inc. to the effect that the Merger
is fair to Miami Subs's shareholders from a financial point of view and
shall have delivered to Nathan's a copy of such opinion; and

(f) Due Diligence. Miami Subs shall, in its sole and absolute
discretion, be satisfied with the results of its due diligence with respect
to Nathan's; provided that such due diligence must be completed by no later
than thirty (30) days after the delivery to Miami Subs of the completed
Nathan's Schedules. Absent written notification by Miami Subs within the
five (5) business days immediately after the end of such thirty (30) day
period, this condition shall be deemed waived.

6.3. Additional Conditions to the Obligations of Nathan's and Merger
Sub. The obligations of Nathan's and Merger Sub to consummate and effect the
Merger shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Nathan's:

(a) Representations and Warranties. The representations and
warranties of Miami Subs contained in this Agreement shall be true and
correct on and as of the Closing Date, except for changes contemplated by
this Agreement and except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such particular date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases where the
failure to be so true and correct, would not have a Material Adverse Effect
on Miami Subs; and Nathan's and Merger Sub shall have received a
certificate, signed on behalf of Miami Subs by the President and Chief
Financial Officer of Maimi Subs, to the effect that nothing has come to
their attention after due inquiry to cause them to believe that such
representations and warranties are not so true and correct, except in all
such cases where the failure to be so true and correct would not have a
Material Adverse Effect on Miami Subs;

(b) Agreements and Covenants. Miami Subs shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date, and Nathan's shall have received a certificate
to such effect signed on behalf of Miami Subs by the President and the
Chief Financial Officer of Miami Subs to the best of their knowledge after
due inquiry;

(c) Material Adverse Effect. No Material Adverse Effect with respect
to Miami Subs shall have occurred since the date of this Agreement;

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(d) Legal Opinion. Nathan's shall have received a legal opinion from
Greenberg Traurig, P.A., counsel to Miami Subs, in a form reasonably
acceptable to Nathan's;

(e) Fairness Opinion. Nathan's shall have received a written opinion
from Cruttenden & Roth Incorporated to the effect that the Merger is fair
to Nathan's stockholders from a financial point of view and shall have
delivered to Miami Subs a copy of such opinion; and

(f) Due Diligence. Nathan's and Merger Sub shall, in their sole and
absolute discretion, be satisfied with the results of their due diligence
with respect to Miami Subs; provided that such due diligence must be
completed by no later than thirty (30) days after the delivery to Nathan's
and Merger Sub of the completed Miami Subs Schedules. Absent written
notification by Nathan's and Merger Sub, within the five (5) business days
immediately after the end of such thirty (30) day period, this condition
shall be deemed waived.

ARTICLE VII

TERMINATION, AMENDMENT AND WAIVER

7.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of the Merger
by the stockholders of Nathan's and Miami Subs:

(a) by mutual written consent duly authorized by the Boards of
Directors of Nathan's and Miami Subs;

(b) by either Miami Subs or Nathan's if the Merger shall not have been
consummated by May 15, 1999; provided, however, that the right to terminate
this Agreement under this Section 7.1(b) shall not be available to any
party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement;

(c) by either Miami Subs or Nathan's if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (an "Order"), in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, which order,
decree or ruling is final and nonappealable;

(d) by either Miami Subs or Nathan's if the required approvals of the
shareholders of Miami Subs or stockholders of Nathan's, as the case may be,
contemplated by this Agreement shall not have been obtained by reason of
the failure to obtain the required vote upon a vote taken at a meeting of
shareholders of Miami Subs or stockholders of Nathan's, as the case may be,
duly convened therefor or at any adjournment thereof (provided that the
right to terminate this Agreement under this Section 7.1(d) shall not be
available to any party where the failure to obtain stockholder or
shareholder approval of such party, as the case may be, shall have been
caused by the action or failure to act of such party in breach of this
Agreement);

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(e) by either Miami Subs or Nathan's, if Miami Subs shall have
accepted an Miami Subs Superior Proposal or by Nathan's if the Miami Subs's
Board of Directors recommends a Miami Subs Superior Proposal to the
shareholders of Miami Subs;

(f) by Nathan's, if the Board of Directors of Miami Subs shall have
withheld, withdrawn or modified in a manner adverse to Nathan's its
recommendation to its shareholders in favor of approving the Merger;

(g) by Miami Subs, if the Board of Directors of Nathan's shall have
withheld, withdrawn or modified in a manner adverse to Miami Subs its
recommendation to its stockholders in favor of approving the Merger;

(h) by Miami Subs, upon a material breach of any representation,
warranty, covenant or agreement on the part of Nathan's set forth in this
Agreement, or if any representation or warranty of Nathan's shall have
become untrue in any material respect, in either case such that the
conditions set forth in Section 6.2(a) or Section 6.2(b) would not be
satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided that if such
inaccuracy in Nathan's representations and warranties or breach by Nathan's
is curable by Nathan's through the exercise of its commercially reasonable
efforts within fifteen (15) days of the time such representation or
warranty shall have become untrue or such breach, then Miami Subs may not
terminate this Agreement under this Section 7.1(h) during such fifteen-day
period provided Nathan's continues to exercise such commercially reasonable
efforts;

(i) by Nathan's, upon a material breach of any representation,
warranty, covenant or agreement on the part of Miami Subs set forth in this
Agreement, or if any representation or warranty of Miami Subs shall have
become untrue in any material respect, in either case such that the
conditions set forth in Section 6.3(a) or Section 6.3(b) would not be
satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in the Miami Subs's representations and warranties or breach by
Miami Subs is curable by Miami Subs through the exercise of its
commercially reasonable efforts within fifteen (15) days of the time such
representation or warranty shall have become untrue or such breach, then
Nathan's may not terminate this Agreement under this Section 7.1(i) during
such fifteen-day period provided Miami Subs continues to exercise such
commercially reasonable efforts;

(j) by either Miami Subs or Nathan's if the conditions set forth in
Sections 6.2(f) or 6.3(f), respectively, are not satisfied;

(k) by Miami Subs, if there shall have occurred any Material Adverse
Effect with respect to Nathan's since the date of this Agreement; or

(l) by Nathan's, if there shall have occurred any Material Adverse
Effect with respect to Miami Subs since the date of this Agreement.

7.2. Notice of Termination; Effect of Termination.

(a) Subject to Section 7.2(b), any termination of this Agreement under
Section 7.1 above will be effective immediately upon the delivery of written
notice of the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 7.1, this Agreement shall
be of no further force or effect, except (i) as set forth in this Section 7.2,
Section 7.3 and Article 8 (miscellaneous), each of which shall

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survive the termination of this Agreement, and (ii) nothing herein shall relieve
any party from liability for any willful breach of this Agreement.

(b) Any termination of this Agreement by Miami Subs pursuant to Section
7.1(e) hereof shall be of no force or effect unless prior to such termination
Miami Subs shall have paid to Nathan's any amounts payable pursuant to Section
7.3(b).

7.3. Fees and Expenses.

(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that Nathan's and Miami Subs shall share equally
all fees and expenses, other than reasonable attorneys' and accountants fees and
expenses, incurred in relation to the printing and filing of the Proxy Statement
(including any preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements thereto.

(c) Nathan's shall immediately make payment to Miami Subs (by wire transfer
or certified or cashiers' check) of (x) $250,000 in the event this Agreement is
terminated by Miami Subs pursuant to Section 7.1(g); or (y) $125,000 in the
event this Agreement is terminated by Miami Subs pursuant to Section 7.1(h).

7.4. Amendment. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto.

7.5. Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.

ARTICLE VIII

GENERAL PROVISIONS

8.1. Non-Survival of Representations and Warranties. The representations,
warranties, and covenants of Miami Subs, Nathan's and Merger Sub contained in
this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective Time.

8.2. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via

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telecopy (receipt confirmed) to the parties at the following addresses or
telecopy numbers (or at such other address or telecopy numbers for a party as
shall be specified by like notice):

(a) if to Nathan's or Merger Sub, to:

Nathan's Famous, Inc.
1400 Old Country Road
Westbury, New York 11590
Attention: Wayne Norbitz, President
Telephone No.: (516) 338-8500
Telecopy No.: (516) 338-7220

with a copy to:

Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, New York 11753
Attention: Nancy D. Lieberman, Esq.
Telephone No.: (516) 822-4820
Telecopy No.: (516) 822-4824

(b) if to Miami Subs, to:

Miami Subs Corporation
6300 N.W. 31st Avenue
Fort Lauderdale, Florida 33309
Attention: Donald Perlyn, President
Telephone No.: (954) 973-0000
Telecopy No.: (954) 973-7616

with a copy to:

Greenberg Traurig
1221 Brickell Avenue
Miami, Florida 33131
Attention: Harold E. Berritt, Esq.
Telephone No.: (305) 579-0876
Telecopy No.:(305) 579-0717

8.3. Interpretation; Knowledge.

(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation." The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. When
reference is made herein to "the business of" an entity, such reference shall be
deemed to include the business of all direct and indirect subsidiaries of such
entity. Reference to the subsidiaries of an entity shall be deemed to include
all direct and indirect subsidiaries of such entity.

(b) For purposes of this Agreement, the term "knowledge" means, with
respect to any matter in question, that the executive officers of Miami Subs or
Nathan's, as the case may be, have actual knowledge of such matter.

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8.4. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.

8.5. Entire Agreement. This Agreement and the documents and instruments
and other agreements among the parties hereto as contemplated by or referred to
herein, including the Miami Subs Schedules and the Nathan's Schedules (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
and (b) are not intended to confer upon any other person any rights or remedies
hereunder, except as set forth herein.

8.6. Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.

8.7. Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.

8.8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the State of Florida, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by
the laws of the State of Florida for such persons and waives and covenants not
to assert or plead any objection which they might otherwise have to such
jurisdiction and such process.

8.9. Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.

8.10. Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties.

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[SIGNATURE PAGE TO FOLLOW]

IN WITNESS WHEREOF, Nathan's, Merger Sub, and Miami Subs have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.

NATHAN'S FAMOUS, INC.

By: /s/ WAYNE NORBITZ
-----------------------------------
Name:
Title:

MIAMI SUBS CORPORATION

By: /s/ DONALD PERLYN
-----------------------------------
Name:
Title:

MIAMI ACQUISITION CORP.

By: /s/ WAYNE NORBITZ
-----------------------------------
Name:
Title:

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AMENDMENT TO AGREEMENT AND
PLAN OF MERGER

This Amendment to Agreement and Plan of Merger (the "Amendment") is made
this day of February 1999 by and among Nathan's Famous, Inc., a Delaware
corporation ("Nathan's"), Miami Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of Nathan's ("Merger Sub"), and Miami Subs Corporation,
a Florida corporation ("Miami Subs").

WHEREAS, the parties hereto executed an Agreement and Plan of Merger dated
as of January 15, 1999 (the "Agreement");

WHEREAS, the parties hereto desire to amend the Agreement as set forth
herein.

NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. DEFINITIONS. All capitalized terms used by not defined herein shall
have the meaning set forth in the Agreement.

2. CONDITIONS TO THE MERGER.

(a) The parties hereto hereby agree that Section 6.2(f) of the Agreement
shall be amended and restated as follows: "(f) Miami Subs shall, in its sole and
absolute discretion, be satisfied with the results of its due diligence with
respect to Nathan's; provided that such due diligence must be completed by no
later than March 24, 1999. Absent written notification by Miami Subs, within the
five (5) business days immediately after such date, this condition shall be
deemed waived."

(b) The parties hereto hereby agree that Section 6.3(f) of the Agreement
shall be amended and restated as follows: "(f) Nathan's and Merger Sub shall, in
their sole and absolute discretion, be satisfied with the results of its due
diligence with respect to Miami Subs; provided that such due diligence must be
completed by no later than March 24, 1999. Absent written notification by
Nathan's and Merger Sub within the five (5) business days immediately after such
date, this condition shall be deemed waived."

3. MISCELLANEOUS. Except as specifically set forth herein, the Agreement
and its terms shall remain in full force and effect in accordance with its
provisions.

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IN WITNESS WHEREOF, Nathan's, Merger Sub and Miami Subs have caused this
Amendment to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.

NATHAN'S FAMOUS, INC.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President

MIAMI ACQUISITION CORP.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz. President and CEO

MIAMI SUBS CORPORATION

By: /s/ DONALD PERLYN
-----------------------------------
Donald Perlyn, President

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AMENDMENT NO. 2 TO AGREEMENT AND
PLAN OF MERGER

This Amendment No. 2 to Agreement and Plan of Merger (the "Amendment") is
made this 24th day of March 1999 by and among Nathan's Famous, Inc., a Delaware
corporation ("Nathan's"), Miami Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of Nathan's ("Merger Sub"), and Miami Subs Corporation,
a Florida corporation ("Miami Subs").

WHEREAS, the parties hereto executed an Agreement and Plan of Merger dated
as of January 15, 1999;

WHEREAS, the parties hereto executed an amendment to Agreement and Plan of
Merger dated as of February 26, 1999(as so amended, the "Agreement");

WHEREAS, the parties hereto desire to further amend the Agreement as set
forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meaning set forth in the Agreement.

2. CONDITIONS TO THE MERGER.

(a) The parties hereto hereby agree that Section 6.2(f) of the Agreement
shall be amended and restated as follows:

"(f) Miami Subs shall, in its sole and absolute discretion, be
satisfied with the results of its due diligence with respect to Nathan's;
provided that such due diligence must be completed by no later than April
26, 1999. Absent written notification by Miami Subs, within the five (5)
business days immediately after such date, this condition shall be deemed
waived."

(b) The parties hereto hereby agree that Section 6.3(f) of the Agreement
shall be amended and restated as follows:

"(f) Nathan's and Merger Sub shall, in their sole and absolute
discretion, be satisfied with the results of its due diligence with respect
to Miami Subs; provided that such due diligence must be completed by no
later than April 26, 1999. Absent written notification by Nathan's and
Merger Sub within the five (5) business days immediately after such date,
this condition shall be deemed waived."

3. TERMINATION.

(a) The parties hereto hereby agree that Section 7.1(b) of the Agreement
shall be amended and restated as follows:

"(b) by either Miami Subs or Nathan's if the Merger shall not have
been consummated by July 31, 1999; provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available
to any party whose action or failure to act has been a principal cause of
or resulted in the failure of the Merger

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to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement."

4. MISCELLANEOUS. Except as specifically set forth herein, the Agreement
and its terms shall remain in full force and effect in accordance with its
provisions.

IN WITNESS WHEREOF, Nathan's, Merger Sub and Miami Subs have caused this
Amendment No. 2 to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.

NATHAN'S FAMOUS, INC.

By: /s/ RONALD DeVOS
-----------------------------------
Ronald DeVos, Vice
President -- Finance

MIAMI ACQUISITION CORP.

By: /s/ RONALD DeVOS
-----------------------------------
Ronald DeVos, Treasurer

MIAMI SUBS CORPORATION

By: /s/ JERRY WODA
-----------------------------------
Jerry Woda, Senior Vice
President -- Finance

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AMENDMENT NO. 3 TO AGREEMENT AND
PLAN OF MERGER

This Amendment No. 3 to Agreement and Plan of Merger (the "Amendment") is
made this 25th day of March 1999 by and among Nathan's Famous, Inc., a Delaware
corporation ("Nathan's"), Miami Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of Nathan's ("Merger Sub"), and Miami Subs Corporation,
a Florida corporation ("Miami Subs").

WHEREAS, the parties hereto executed an Agreement and Plan of Merger dated
as of January 15, 1999;

WHEREAS, the parties hereto executed Amendment No. 1 to Agreement and Plan
of Merger dated as of February 26, 1999;

WHEREAS, the parties hereto executed Amendment No. 2 to Agreement and Plan
of Merger dated as of March 24, 1999(as so amended, the "Agreement");

WHEREAS, the parties hereto desire to further amend the Agreement as set
forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meaning set forth in the Agreement.

2. FEES AND EXPENSES.

(a) The parties hereto hereby agree that Section 7.3(b) of the Agreement
shall be amended and restated as follows:

(b) Miami Subs shall immediately make payment to Nathan's (by wire
transfer or certified or cashiers check) of (x) $500,000 (i) in the event
this Agreement is terminated by Miami Subs or Nathan's pursuant to Section
7.1(e) hereof or (ii) in the event this Agreement is terminated by Nathan's
pursuant to Section 7.1(f) hereof; or (y) $250,000 in the event this
Agreement is terminated by Nathan's pursuant to Section 7.1(i) hereof.
Notwithstanding the foregoing, Miami Subs shall not be required to make any
payment to Nathan's under subclause (x)(ii) in the event that the Board of
Directors of Miami Subs has withheld, withdrawn or modified in a manner
adverse to Nathan's its recommendation to shareholders in favor of
approving the Merger solely due to the withdrawal by Raymond James &
Associates, Inc. of its written opinion dated March 19, 1999 to the Board
of Directors of Miami Subs to the effect that the consideration to be
received by Miami Subs shareholders (other than Nathan's) in the Merger is
fair, from a financial point of view, to such shareholders, excluding any
withdrawal of such opinion made at the request of Miami Subs."

3. MISCELLANEOUS. Except as specifically set forth herein, the Agreement
and its terms shall remain in full force and effect in accordance with its
provisions.

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IN WITNESS WHEREOF, Nathan's, Merger Sub and Miami Subs have caused this
Amendment No. 3 to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.

NATHAN'S FAMOUS, INC.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President and Chief
Operating Officer

MIAMI ACQUISITION CORP.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President

MIAMI SUBS CORPORATION

By: /s/ JERRY WODA
-----------------------------------
Jerry Woda, Senior Vice
President -- Finance

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AMENDMENT NO. 4 TO AGREEMENT AND
PLAN OF MERGER

This Amendment No. 4 to Agreement and Plan of Merger (the "Amendment") is
made this 26th day of April 1999 by and among Nathan's Famous, Inc., a Delaware
corporation ("Nathan's"), Miami Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of Nathan's ("Merger Sub"), and Miami Subs Corporation,
a Florida corporation ("Miami Subs").

WHEREAS, the parties hereto executed an Agreement and Plan of Merger dated
as of January 15, 1999;

WHEREAS, the parties hereto executed Amendment No. 1 to Agreement and Plan
of Merger dated as of February 26, 1999;

WHEREAS, the parties hereto executed Amendment No. 2 to Agreement and Plan
of Merger dated as of March 24, 1999;

WHEREAS, the parties hereto executed Amendment No. 3 to Agreement and Plan
of Merger dated as of March 25, 1999(as so amended, the "Agreement");

WHEREAS, the parties hereto desire to further amend the Agreement as set
forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meaning set forth in the Agreement.

2. CONDITIONS TO THE MERGER.

(a) The parties hereto hereby agree that Section 6.2(f) of the Agreement
shall be amended and restated as follows:

"(f) Miami Subs shall, in its sole and absolute discretion, be
satisfied with the results of its due diligence with respect to Nathan's;
provided that such due diligence must be completed by no later than May 28,
1999. Absent written notification by Miami Subs, within the five (5)
business days immediately after such date, this condition shall be deemed
waived."

(b) The parties hereto hereby agree that Section 6.3(f) of the Agreement
shall be amended and restated as follows:

"(f) Nathan's and Merger Sub shall, in their sole and absolute
discretion, be satisfied with the results of its due diligence with respect
to Miami Subs; provided that such due diligence must be completed by no
later than May 28, 1999. Absent written notification by Nathan's and Merger
Sub within the five (5) business days immediately after such date, this
condition shall be deemed waived."

3. MISCELLANEOUS. Except as specifically set forth herein, the Agreement
and its terms shall remain in full force and effect in accordance with its
provisions.

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IN WITNESS WHEREOF, Nathan's, Merger Sub and Miami Subs have caused this
Amendment No. 4 to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.

NATHAN'S FAMOUS, INC.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President and
Chief Operating Officer

MIAMI ACQUISITION CORP.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President

MIAMI SUBS CORPORATION

By: /s/ DONALD PERLYN
-----------------------------------
Donald Perlyn, President

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AMENDMENT NO. 5 TO AGREEMENT AND
PLAN OF MERGER

This Amendment No. 5 to Agreement and Plan of Merger (the "Amendment") is
made this 27th day of May, 1999, by and among Nathan's Famous, Inc., a Delaware
corporation ("Nathan's"), Miami Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of Nathan's ("Merger Sub"), and Miami Subs Corporation,
a Florida corporation ("Miami Subs").

WHEREAS, the parties hereto executed an Agreement and Plan of Merger dated
as of January 15, 1999;

WHEREAS, the parties hereto executed Amendment No. 1 to Agreement and Plan
of Merger dated as of February 26, 1999;

WHEREAS, the parties hereto executed Amendment No. 2 to Agreement and Plan
of Merger dated as of March 24, 1999;

WHEREAS, the parties hereto executed Amendment No. 3 to Agreement and Plan
of Merger dated as of March 25, 1999;

WHEREAS, the parties hereto executed Amendment No. 4 to Agreement and Plan
of Merger dated as of April 26, 1999(as so amended, the "Agreement");

WHEREAS, the parties hereto desire to further amend the Agreement as set
forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meaning set forth in the Agreement.

2. CONDITIONS TO THE MERGER.

(a) The parties hereto hereby agree that Section 6.2(f) of the Agreement
shall be amended and restated as follows:

"(f) Miami Subs shall, in its sole and absolute discretion, be
satisfied with the results of its due diligence with respect to Nathan's;
provided that such due diligence must be completed by no later than June
30, 1999. Absent written notification by Miami Subs, within the five (5)
business days immediately after such date, this condition shall be deemed
waived."

(b) The parties hereto hereby agree that Section 6.3(f) of the Agreement
shall be amended and restated as follows:

"(f) Nathan's and Merger Sub shall, in their sole and absolute
discretion, be satisfied with the results of its due diligence with respect
to Miami Subs; provided that such due diligence must be completed by no
later than June 30, 1999. Absent written notification by Nathan's and
Merger Sub within the five (5) business days immediately after such date,
this condition shall be deemed waived."

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3. MISCELLANEOUS. Except as specifically set forth herein, the Agreement
and its terms shall remain in full force and effect in accordance with its
provisions.

IN WITNESS WHEREOF, Nathan's, Merger Sub and Miami Subs have caused this
Amendment No. 5 to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.

NATHAN'S FAMOUS, INC.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President and
Chief Operating Officer

MIAMI ACQUISITION CORP.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President

MIAMI SUBS CORPORATION

By: /s/ DONALD PERLYN
-----------------------------------
Donald Perlyn, President

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AMENDMENT NO. 6 TO AGREEMENT AND
PLAN OF MERGER

This Amendment No. 6 to Agreement and Plan of Merger (the "Amendment") is
made this 23rd day of June, 1999, by and among Nathan's Famous, Inc., a Delaware
corporation ("Nathan's"), Miami Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of Nathan's ("Merger Sub"), and Miami Subs Corporation,
a Florida corporation ("Miami Subs").

WHEREAS, the parties hereto executed an Agreement and Plan of Merger dated
as of January 15, 1999;

WHEREAS, the parties hereto executed Amendment No. 1 to Agreement and Plan
of Merger dated as of February 26, 1999;

WHEREAS, the parties hereto executed Amendment No. 2 to Agreement and Plan
of Merger dated as of March 24, 1999;

WHEREAS, the parties hereto executed Amendment No. 3 to Agreement and Plan
of Merger dated as of March 25, 1999;

WHEREAS, the parties hereto executed Amendment No. 4 to Agreement and Plan
of Merger dated as of April 26, 1999;

WHEREAS, the parties hereto executed Amendment No. 5 to Agreement and Plan
of Merger dated as of May 27, 1999(as so amended, the "Agreement");

WHEREAS, the parties hereto desire to further amend the Agreement as set
forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meaning set forth in the Agreement.

2. TERMINATION.

(a) The parties hereto hereby agree that Section 7.1(b) of the Agreement
shall be amended and restated as follows:

"(b) by either Miami Subs or Nathan's if the Merger shall not have
been consummated by October 29, 1999; provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available
to any party whose action or failure to act has been a principal cause of
or resulted in the failure of the Merger to occur on or before such date
and such action or failure to act constitutes a breach of this Agreement."

3. MISCELLANEOUS. Except as specifically set forth herein, the Agreement
and its terms shall remain in full force and effect in accordance with its
provisions.

A-52
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IN WITNESS WHEREOF, Nathan's, Merger Sub and Miami Subs have caused this
Amendment No. 6 to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.

NATHAN'S FAMOUS, INC.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President
and Chief Operating Officer

MIAMI ACQUISITION CORP.

By: /s/ WAYNE NORBITZ
-----------------------------------
Wayne Norbitz, President

MIAMI SUBS CORPORATION

By: /s/ DONALD PERLYN
-----------------------------------
Donald Perlyn, President

A-53
<PAGE> 280

ANNEX B -- FAIRNESS OPINION OF CRUTTENDEN ROTH

CRUTTENDEN ROTH INCORPORATED

December 30, 1998

Board of Directors
Nathan Famous, Inc.
1400 Old Country Road
Westbury NY, 11590

Members of the Board:

We have been requested by the Board of Directors of Nathan's Famous, Inc.
("Nathan's") to render our opinion with respect to the fairness, from a
financial point of view, to the stockholders of Nathan's, of the consideration
to be paid by Nathan's to holders of Miami Subs Corporation ("Miami") Common
Stock with regard to a certain Merger Agreement (the "Proposed Transaction"). We
have not been requested to opine as to, and our opinion does not in any manner
address, Nathan's underlying business decision to proceed with or effect the
Proposed Transaction.

We understand that Nathan's and Miami have entered into a Proposed
Transaction dated November 25, 1998 whereby Miami will sell and Nathan's will
purchase essentially all of the outstanding shares of Miami Common Stock
including options and warrants relating thereto and become the surviving
corporation subsequent to the merger.

We further understand that the essential terms and conditions of the
Proposed Transaction call for the exchange of a fraction of one share of
Nathan's Common Stock having a value of $0.517 for each share of Miami Common
Stock, but no more than one share of Nathan's Common Stock for each eight shares
of Miami Common Stock. In addition, for each four shares of Nathan's Common
Stock received, the holder shall receive a warrant to purchase one additional
share of Nathan's Common Stock at an exercise price of $6.00 with a term of five
years (together, the "Relative Exchange Ratios").

In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement and the specific terms of the Proposed Transaction; (2) such publicly
available information relating to Nathan's and Miami which we believe to be
relevant to our analysis; (3) financial and operating information with respect
to the business, operations and prospects of Nathan's furnished to us by
Nathan's; (4) financial and operating information with respect to the business,
operations and prospects of Miami furnished to us by Miami; (5) trading history
of Nathan's common stock from its initial public offering date to the present
and a comparison of that trading history with those of other companies that we
deemed relevant; (6) a comparison of the historical financial results and the
present financial condition of Nathan's and Miami with other companies that we
deemed relevant; (7) a comparison of the quarterly and annual earnings estimates
of our research analyst for Nathan's and Nathan's actual results; (8) the
potential pro forma financial effects of the Proposed Transaction; (9) a
comparison of the financial terms of the Proposed Transaction with the financial
terms of certain other transactions that we deemed relevant; and (10) the
projections of the combined business and their relative contribution to
projected

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operating results in relation to the Relative Exchange Ratios. In addition, we
have had discussions with the management of Nathan's and Miami concerning their
respective businesses, operations, assets, financial condition and prospects and
the potential strategic benefits of the Proposed Transaction and have undertaken
such other studies, analyses, and investigations as we deemed appropriate.

In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management's of Nathan's and Miami
that they are not aware of any facts that would make such information inaccurate
or misleading. With respect to the financial projections of Nathan's, and of the
combined Nathan's which will emerge from the Proposed Transaction, we have
assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
respective management teams as to the future financial performance of Nathan's
and Miami and the combined Nathan's (not including the cost savings and
operating synergies, if any, which may result from a combination of Nathan's and
Miami). In arriving at our opinion, we have conducted a limited physical
inspection of the properties and facilities of both companies. We have not made
or obtained any evaluations or appraisals of the assets or liabilities of
Nathan's nor Miami. Our opinion necessarily is based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter.

Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Relative Exchange Ratios
are fair to the stockholders of Nathan's. Cruttenden Roth, Inc. will receive a
fee in connection with providing this fairness opinion that is not contingent
upon the closing of the Proposed Transaction. In addition, Nathan's has agreed
to indemnify us for certain liabilities that may arise out of the rendering of
this opinion. In the ordinary course of our business, we may trade in the equity
securities of Nathan's for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.

This opinion is for the use and benefit of the Board of Directors of
Nathan's and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of Nathan's as to
how such stockholder should vote with respect to the Proposed Transaction.

Sincerely,

/s/ CRUTTENDEN ROTH INCORPORATED
- ------------------------------------------------------
CRUTTENDEN ROTH INCORPORATED

B-2
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ANNEX C -- FAIRNESS OPINION OF RAYMOND JAMES & ASSOCIATES

RAYMOND JAMES & ASSOCIATES, INC.

March 19, 1999

Board of Directors
Miami Subs Corporation
6300 N.W. 31st Avenue
Ft. Lauderdale, FL 33309

Members of the Board:

You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Common Stock of Miami Subs Corporation ("Miami Subs"
or the "Company") of the consideration to be paid to the shareholders of Miami
Subs by Nathan's Famous, Inc. ("Nathan's") in the merger transaction (the
"Transaction") contemplated by the definitive agreement and plan of merger (the
"Merger Agreement") dated January 15, 1999 along with the related Warrant
Agreement ("Warrant Agreement"). The terms of the Transaction include, among
other things, that Nathan's will offer to exchange each share of the Common
Stock of Miami Subs it does not own (i.e. approximately 70% of such shares) for
the right to receive (i) a fraction of a share of Common Stock of Nathan's
having a value (determined as provided in the Merger Agreement) of $2.068,
provided, however, that Nathan's shall not be required to issue more than one
share of Nathan's Common Stock for each two shares of Miami Subs Common Stock.
In addition for each four shares of Nathan's Common Stock that a holder of Miami
Subs Common Stock is entitled to receive, such holder shall be entitled to
receive one warrant with a five-year life to purchase one share of Nathan's
Common Stock at an exercise price of $6.00 per share pursuant to the terms of
the Warrant Agreement.

In connection with our review of the Transaction and the preparation of
this opinion, we have among other things, (i) reviewed the financial terms and
conditions of the Transaction as contained in the executed Merger Agreement and
Warrant Agreement, (ii) reviewed the audited financial statements of the Company
for its fiscal years ended May 31, 1998 and 1997, and of Nathan's for its fiscal
years ended March 29, 1998 and March 30, 1997, (iii) reviewed the unaudited
interim financial statements of the Company for the periods ending November 30,
1998 and August 31, 1998, and for Nathan's for the periods ending December 27,
1998 and September 27, 1998, (iv) reviewed certain internal financial forecasts
and projections prepared by the management of the Company for the Company and by
the management of Nathan's for Nathan's, (v) reviewed other financial and
operating information requested from and/or provided by the Company and
Nathan's, (vi) relied upon the estimates of the operating synergies available as
a result of the Merger (the "Merger Synergies") provided by the management of
the Company and based upon discussions of such Merger Synergies with the
management of Nathan's, and (vii) reviewed certain other publicly available
financial information. Additionally, we held discussions with senior management
of the Company regarding past and current operations and the financial condition
and prospects of the Company and with senior management of Nathan's regarding
past and current operations and the financial condition and prospects of
Nathan's, and considered other matters which we deemed relevant to our inquiry.

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We have assumed and relied upon the accuracy and completeness of all such
information provided to us or publicly available and have not independently made
any attempt to verify such information. We have not made any attempt to make or
obtain an independent appraisal of the value of the assets or the liabilities
(contingent or otherwise) of the Company or Nathan's. This opinion is not meant
to be an indication of the price at which Miami Subs Common Stock or Nathan's
Common Stock will trade at any time or a recommendation as to any action a Miami
Subs shareholder should take. With respect to all financial forecasts and other
information and data provided by management of Miami Subs and Nathan's or
otherwise reviewed by or discussed with us, we have assumed that such financial
forecasts, information and data represent the best currently available knowledge
and judgment of such management and has been reasonably prepared. We have relied
on the management of Miami Subs and Nathan's to advise us promptly if any
information previously provided became inaccurate or was required to be updated
during the period of our review.

We express no opinion as to the underlying business decision to effect the
Transaction, the structure or tax consequences of the Transaction or the
availability or advisability of any alternatives to the Transaction. Raymond
James did not structure the Transaction or negotiate the terms of the
Transaction.

We have also been assured by the managements of Miami Subs and Nathan's
that neither the Company nor Nathan's, respectively, is a party to any pending
material transactions including, but not limited to, external financing,
recapitalizations, acquisitions or merger discussions, other than the
Transaction. Our opinion is based on market, financial, economic and other
conditions existing as of the date of this letter and any change in such
conditions would require a reevaluation of this opinion.

In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, net income and capitalization of the Company and Nathan's and certain
other companies we believe to be comparable to the Company and Nathan's, (ii)
the current financial position and operating results of the Company and Nathan's
and forecasted results of the Company and Nathan's, (iii) the historical market
prices and trading activities of the Company's and Nathan's Common Stock, (iv)
reported financial terms of business combinations comparable to the Transaction,
(v) the consideration to be exchanged in the Transaction, (vi) the general
condition of the securities markets, and (vii) such other financial criteria as
we deemed appropriate.

Raymond James & Associates, Inc. ("Raymond James") is actively
involved in investment banking activities and regularly undertakes the
evaluation of investment securities in connection with public offerings,
private placements, business combinations and similar transactions. Raymond
James has been paid a fee by the Company for services provided pursuant to
this engagement and will be paid an additional fee for this opinion upon
closing of the Transaction. In addition, the Company has agreed to
reimburse Raymond James for its expenses incurred during this engagement
and to indemnify Raymond James against certain liabilities arising out of
issuance of this opinion.

In the ordinary course of business, Raymond James may trade in the
securities of Miami Subs and Nathan's for Raymond James' own account and
for the accounts of

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customers and, accordingly, may at any time hold a long or short position
in such securities.

It is understood that this letter is for the information of the Board
of Directors of Miami Subs. This letter does not constitute a
recommendation of any type to any shareholder as to whether such
shareholder should vote his shares in connection with the Transaction.
Furthermore, this letter should not be construed as creating any fiduciary
duty on the part of Raymond James to any such party. Except as provided in
our engagement letter with Miami Subs, this opinion is not to be quoted or
referred to, in whole or in part, in any registration statement, prospectus
or proxy statement, or in any other document used in connection with the
offering or sale of securities, without our prior written consent. We have
consented to the inclusion of this opinion (in its entirety) in documents
to be filed with the Securities and Exchange Commission or with any court
or other government agency in connection with the Transaction.

Based upon and subject to the foregoing, it is our opinion that as of
March 19, 1999 the consideration to be received by the holders of Miami
Subs Common Stock (other than Nathan's and its affiliates) in the
Transaction is fair, from a financial point of view, to the Company's
shareholders.

Very truly yours,

/s/ RAYMOND JAMES & ASSOCIATES, INC.
- ------------------------------------------------------
RAYMOND JAMES & ASSOCIATES, INC.

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ANNEX D -- SECTIONS 607.1301, 607.1302 AND 607.1320 OF THE FLORIDA BUSINESS
CORPORATION ACT

607.1301 DISSENTERS' RIGHTS; DEFINITIONS. -- The following definitions
apply to ss. 607.1302 and 607.1320:

(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.

(2) "Fair value," with respect to a dissenter's shares, means the
value of the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.

(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on
which the corporation received written consents without a meeting from the
requisite number of shareholders in order to authorize the action, or, in
the case of a merger pursuant to s. 607.1104, the day prior to the date on
which a copy of the plan of merger was mailed to each shareholder of record
of the subsidiary corporation.

607.1302 RIGHT OF SHAREHOLDERS TO DISSENT. -- (1) Any shareholder of a
corporation has the right to dissent from, and obtain payment of the fair value
of his or her shares in the event of, any of the following corporate actions:

(a) Consummation of a plan of merger to which the corporation is a
party:

1. If the shareholder is entitled to vote on the merger, or

2. If the corporation is a subsidiary that is merged with its
parent under s. 607.1104, and the shareholders would have been entitled
to vote on action taken, except for the applicability of s. 607.1104;

(b) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation, other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange pursuant to s. 607.1202, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within 1 year after the date of sale;

(d) Consummation of a plan of share exchange to which the corporation
is a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;

(e) Any amendment of the articles of incorporation if the shareholder
is entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:

1. Altering or abolishing any preemptive rights attached to any of
his or her shares;

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<PAGE> 286

2. Altering or abolishing the voting rights pertaining to any of
his or her shares, except as such rights may be affected by the voting
rights of new shares then being authorized of any existing or new class
or series of shares;

3. Effecting an exchange, cancellation, or reclassification of any
of his or her shares, when such exchange, cancellation, or
reclassification would alter or abolish the shareholder's voting rights
or alter his or her percentage of equity in the corporation, or
effecting a reduction or cancellation of accrued dividends or other
arrearages in respect to such shares;

4. Reducing the stated redemption price of any of the shareholder's
redeemable shares, altering or abolishing any provision relating to any
sinking fund for the redemption or purchase of any of his or her shares,
or making any of his or her shares subject to redemption when they are
not otherwise redeemable;

5. Making noncumulative, in whole or in part, dividends of any of
the shareholder's preferred shares which had theretofore been
cumulative;

6. Reducing the stated dividend preference of any of the
shareholder's preferred shares; or

7. Reducing any stated preferential amount payable on any of the
shareholder's preferred shares upon voluntary or involuntary
liquidation; or

(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his or her shares.

(2) A shareholder dissenting from any amendment specified in
paragraph (1)(e) has the right to dissent only as to those of his or her
shares which are adversely affected by the amendment.

(3) A shareholder may dissent as to less than all the shares
registered in his or her name. In that event, the shareholder's rights
shall be determined as if the shares as to which he or she has dissented
and his or her other shares were registered in the names of different
shareholders.

(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share
exchange or a proposed sale or exchange of property, to the holders of
shares of any class or series which, on the record date fixed to
determine the shareholders entitled to vote at the meeting of
shareholders at which such action is to be acted upon or to consent to
any such action without a meeting, were either registered on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or held of record by not fewer than 2,000
shareholders.

(5) A shareholder entitled to dissent and obtain payment for his or
her shares under this section may not challenge the corporate action
creating his or her entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.

607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. -- (1)(a) If a
proposed corporate action creating dissenters' rights under s. 607.1302 is
submitted to a vote at a

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shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights and be accompanied by a copy of ss.
607.1301, 607.1302, and 607.1320. A shareholder who wishes to assert dissenters'
rights shall:

1. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for his or her shares if the
proposed action is effectuated, and

2. Not vote his or her shares in favor of the proposed action. A proxy
or vote against the proposed action does not constitute such a notice of
intent to demand payment.

(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for the shareholder's written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.

(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his or her shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent, to
each shareholder, excepting any who voted for, or consented in writing to, the
proposed action.

(3) Within 20 days after the giving of notice to him or her, any
shareholder who elects to dissent shall file with the corporation a notice of
such election, stating the shareholder's name and address, the number, classes,
and series of shares as to which he or she dissents, and a demand for payment of
the fair value of his or her shares. Any shareholder failing to file such
election to dissent within the period set forth shall be bound by the terms of
the proposed corporate action. Any shareholder filing an election to dissent
shall deposit his or her certificates for certificated shares with the
corporation simultaneously with the filing of the election to dissent. The
corporation may restrict the transfer of uncertificated shares from the date the
shareholder's election to dissent is filed with the corporation.

(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by

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the board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim,
if:

(a) Such demand is withdrawn as provided in this section;

(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;

(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or

(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.

(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:

(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and

(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.

(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his or her shares shall be made within 90 days
after the making of such offer or the consummation of the proposed action,
whichever is later. Upon payment of the agreed value, the dissenting shareholder
shall cease to have any interest in such shares.

(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his or her shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the

D-4
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manner provided by law for the service of a summons and complaint and upon each
nonresident dissenting shareholder either by registered or certified mail and
publication or in such other manner as is permitted by law. The jurisdiction of
the court is plenary and exclusive. All shareholders who are proper parties to
the proceeding are entitled to judgment against the corporation for the amount
of the fair value of their shares. The court may, if it so elects, appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers shall have such power and authority
as is specified in the order of their appointment or an amendment thereof. The
corporation shall pay each dissenting shareholder the amount found to be due him
or her within 10 days after final determination of the proceedings. Upon payment
of the judgment, the dissenting shareholder shall cease to have any interest in
such shares.

(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.

(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.

(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.

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MIAMI SUBS CORPORATION
6300 NW 31ST AVENUE
FORT LAUDERDALE, FL 33309

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby (1) acknowledges receipt of the notice of the
Special Meeting of Shareholders of Miami Subs Corporation, a Florida Corporation
(the "Corporation"), to be held on September 30, 1999, at 10:00 a.m., local time
("Special Meeting") at The Westin Fort Lauderdale Hotel, 400 Corporate Drive,
Fort Lauderdale, Florida, and the Joint Proxy Statement/ Prospectus in
connection therewith, and (2) appoints Donald L. Perlyn and Jerry Woda as
proxies, each with the power to act alone and to appoint his substitute, and
hereby authorizes them to represent and vote, as designated below, all the
shares of common stock in the corporation which the undersigned is entitled to
vote as of August 16, 1999, the record date, at the Special Meeting or any
adjournment or postponement thereof, upon the matter referred to below, and upon
any and all other matters which properly may be brought before the meeting.

The Board of Directors unanimously recommends a vote "FOR" Proposal 1.

Please mark your votes as indicated [X]

PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.

1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
JANUARY 15, 1999, AS AMENDED, BY AND AMONG NATHAN'S FAMOUS, INC., MIAMI SUBS
CORPORATION AND MIAMI ACQUISITION CORP. AND THE TRANSACTIONS CONTEMPLATED
THEREBY.

<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
<PAGE> 291

2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.

This Proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, the shares represented by
this Proxy will be voted FOR item 1.

Please sign exactly as name
appears below. When shares are
held by joint tenants, both
should sign. When signing as an
attorney, or as executor,
administrator, trustee or
guardian, please give full
title. If a corporation, please
sign in full corporate name by
president or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.

--------------------------------
Signature

--------------------------------
Signature if held jointly

Dated: , 1999
-------------------