SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
|X| Definitive proxy statement Commission only (as permitted by
| | Definitive additional materials Rule 14a-6(c)(2))
| | Soliciting materialpursuant to
Rule 14a-11(c) or Rule 14a-12
INTERNATIONAL FAST FOOD CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of filing fee (Check the appropriate box):
| | $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
| | $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
| | Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions apply:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total Fee Paid:
- --------------------------------------------------------------------------------
| | Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
| | Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date Filed:
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<PAGE>
INTERNATIONAL FAST FOOD CORPORATION
1000 Lincoln Road, Suite 200, Miami Beach, Florida 33139
___________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on August 18, 1997
___________________
To the Shareholders
of International Fast Food Corporation:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders (the
"Annual Meeting") of International Fast Food Corporation, a Florida corporation
(the "Company"), will be held at 9:00 a.m., local time, on Monday, August 18,
1997, at Cheeca Lodge in Islamorada, Florida for the following purposes:
(1) To elect four members to the Company's Board of Directors to hold
office until the Company's 1998 Annual Meeting of Shareholders or
until their successors are duly elected and qualified;
(2) To consider and act upon a proposal to approve an increase in the
number of shares which may be granted under the Company's 1993 Stock
Option Plan from 600,000 shares to 2,000,000 shares; and
(3) To transact such other business as may properly come before the
Annual Meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on July 7, 1997 as
the record date for determining those shareholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournments or postponements thereof.
Whether or not you expect to be present, please sign, date and return the
enclosed proxy card in the enclosed pre-addressed envelope as promptly as
possible. No postage is required if mailed in the United States.
By Order of the Board of Directors
MITCHELL RUBINSON
Chairman of the Board, Chief Executive
Officer and President
Miami Beach, Florida
July 29, 1997
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. ALL SHAREHOLDERS ARE RESPECTFULLY URGED TO EXECUTE AND RETURN
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO EXECUTE A
PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING, REVOKE THEIR PROXY AND VOTE
THEIR SHARES IN PERSON.
<PAGE>
1997 ANNUAL MEETING OF SHAREHOLDERS
OF
INTERNATIONAL FAST FOOD CORPORATION
___________________
PROXY STATEMENT
___________________
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of International Fast Food Corporation, a Florida
corporation (the "Company"), of proxies from the holders of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), for use at the 1997 Annual
Meeting of Shareholders of the Company to be held at 9:00 a.m., local time, on
Monday, August 18, 1997, or at any adjournment(s) or postponement(s) thereof
(the "Annual Meeting"), pursuant to the foregoing Notice of Annual Meeting of
Shareholders.
The approximate date that this Proxy Statement and the enclosed form of
proxy are first being sent to shareholders is July 29, 1997. Shareholders should
review the information provided herein in conjunction with the Company's 1996
Annual Report on Form 10-KSB, which accompanies this Proxy Statement. The
Company's principal executive offices are located at 1000 Lincoln Road, Suite
200, Miami Beach, Florida 33139, and its telephone number is (305) 531-5800.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any shareholder giving the proxy so desire. Shareholders have an
unconditional right to revoke their proxy at any time prior to the exercise
thereof, either in person at the Annual Meeting or by filing with the Company's
Secretary at the Company's headquarters a written revocation or duly executed
proxy bearing a later date; however, no such revocation will be effective until
written notice of the revocation is received by the Company at or prior to the
Annual Meeting.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders and the enclosed proxy is to be borne
by the Company. In addition to the use of mail, employees of the Company may
solicit proxies personally and by telephone. The Company's employees will
receive no compensation for soliciting proxies other than their regular
salaries. The Company may request banks, brokers and other custodians, nominees
and fiduciaries to forward copies of the proxy material to their principals and
to request authority for the execution of proxies. The Company may reimburse
such persons for their expenses in so doing.
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's shareholders will consider and vote
upon the following matters:
(1) The election of four members to the Company's Board of Directors to
serve until the Company's 1998 Annual Meeting of Shareholders or
until their successors are duly elected and qualified;
(2) A proposal to approve an increase in the number of shares which may
be granted under the Company's 1993 Stock Option Plan from 600,000
shares to 2,000,000 shares (the "Amended Plan"); and
<PAGE>
(3) Such other business as may properly come before the Annual Meeting,
including any adjournments or postponements thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth above)
will be voted for the election of the three nominees for director named below.
In the event a shareholder specifies a different choice by means of the enclosed
proxy, his shares will be voted in accordance with the specification so made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on July 7, 1997 as
the record date (the "Record Date") for determining shareholders of the Company
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
there were 17,555,517 shares of Common Stock issued and outstanding, all of
which are entitled to be voted at the Annual Meeting. Each share of Common Stock
is entitled to one vote on each matter submitted to shareholders for approval at
the Annual Meeting. Shareholders do not have the right to cumulate their votes
for directors.
The attendance, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Directors will be elected by a plurality of
the votes cast by the shares of Common Stock represented in person or by proxy
at the Annual Meeting. The proposal to approve the increase in the number of
shares authorized for issuance under the Company's Amended Plan and any other
matter that may be submitted to a vote of the shareholders will be approved if
the number of shares of Common Stock voted in favor of the matter exceeds the
number of shares voted in opposition to the matter, unless such matter is one
for which a greater vote is required by law or by the Company's Articles of
Incorporation or Bylaws. If less than a majority of outstanding shares entitled
to vote are represented at the Annual Meeting, a majority of the shares so
represented may adjourn the Annual Meeting to another date, time or place, and
notice need not be given of the new date, time or place if the new date, time or
place is announced at the meeting before an adjournment is taken.
Prior to the Annual Meeting, the Company will select one or more
inspectors of election for the meeting. Such inspector(s) shall determine the
number of shares of Common Stock represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive, count and
tabulate ballots and votes and determine the results thereof. Abstentions will
be considered as shares present and entitled to vote at the Annual Meeting and
will be counted as votes cast at the Annual Meeting, but will not be counted as
votes cast for or against any given matter.
A broker or nominee holding shares registered in its name, or in the name
of its nominee, which are beneficially owned by another person and for which it
has not received instructions as to voting from the beneficial owner, may have
discretion to vote the beneficial owner's shares with respect to the election of
directors and other matters addressed at the Annual Meeting. Any such shares
which are not represented at the Annual Meeting either in person or by proxy
will not be considered as shares present at the Annual Meeting, and will not be
considered to have cast votes on any matters addressed at the Annual Meeting.
2
<PAGE>
SECURITY OWNERSHIP
The following table sets forth, as of July 7, 1997, the number of shares
of Common Stock of the Company which were owned beneficially by (i) each person
who is known by the Company to own beneficially more than 5% of its Common
Stock, (ii) each director and nominee for director, (iii) the Chief Executive
Officer and the Chief Financial Officer of the Company (collectively, the "Named
Executive Officers") and (iv) all directors and executive officers of the
Company as a group:
Amount and
Nature of Percentage of
Name and Address of Beneficial Outstanding
Beneficial Owner(1) Ownership Shares Owned(2)
- -------------------------------------- -------------- ----------------
Mitchell Rubinson ................... 4,650,000(3) 26.26%
Marilyn Rubinson..................... 4,750,000 27.06%
Jaime Rubinson....................... 1,000,000 5.70%
Kim Rubinson......................... 1,000,000 5.70%
Joel Hirschhorn P.A.................. 2,370,000 13.22%
Dr. Mark Rabinowitz.................. 136,197(4) *
James F. Martin...................... 106,000(5) *
Larry H. Schatz...................... 50,000(6) *
Leon Blumenthal...................... 100,000(7) *
All directors and executive officers as a group
(five persons)...................... 5,042,197(8) 28.08%
___________________________________
* Less than 1%.
(1) The address of each of the listed beneficial owners identified is c/o 1000
Lincoln Road, Suite 200, Miami Beach, Florida 33139. Unless otherwise
noted, the Company believes that all persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Proxy
Statement upon the exercise of options. Each beneficial owner's percentage
ownership is determined by assuming that options that are held by such
person (but not those held by any other person) and that are exercisable
within 60 days from the date of this Proxy Statement have been exercised.
As of July 7, 1997 there were 17,555,517 shares of Common Stock
outstanding.
(3) Such figure includes options to purchase 150,000 shares of Common Stock
granted to Mr. Rubinson pursuant to the Company's 1993 Stock Option Plan
that are immediately exercisable at an exercise price of $.40. Such figure
includes 80,000 outstanding shares of Common Stock presently owned by
Mitchell and Edda Rubinson which are subject to an option granted to Whale
Securities Co., L.P. ("Whale") to purchase at any time until August 30,
1998 at a purchase price of $5.50 per share (the "Rubinson/Whale Option").
(4) Such figure includes options to purchase 50,000 shares of Common Stock
granted to Dr. Rabinowitz that are immediately exercisable at an exercise
price of $.40.
(5) Such figure includes options to purchase 100,000 shares of Common Stock
granted to Mr. Martin pursuant to an employment agreement that vest over a
three (3) year period beginning in July 1998 at an exercise price of $.40.
(6) Such figure includes options to purchase 50,000 shares of Common Stock
granted to Mr. Schatz that are immediately exercisable at an exercise
price of $.40.
(7) Such figure includes options to purchase 100,000 shares of Common Stock
granted to Mr. Blumenthal pursuant to an employment agreement that vest
over a three (3) year period beginning in July 1998 at an exercise price
of $.40.
(8) See Notes (3)-(7) above.
3
<PAGE>
POSSIBLE CHANGES IN CONTROL OF THE COMPANY
As of July 7, 1997, Mitchell Rubinson beneficially owned 25.6% of the
outstanding Common Stock of the Company. To the extent that non-affiliates of
Mitchell Rubinson utilize (and Mr. Rubinson does not) the following described
securities to purchase shares of the Company's Common Stock, Mitchell Rubinson's
percentage ownership of the Company will be reduced. As of July 7, 1997, the
Company had 17,555,517 shares of Common Stock issued and outstanding not
including shares of Common Stock reserved for issuance consisting of: (i)
1,231,654 shares of Common Stock reserved for issuance upon conversion of shares
of the Company's Preferred Stock (conversion price of $3.00 per share); (ii)
290,800 shares of Common Stock reserved for issuance upon exercise of warrants
(exercise price of $7.00 per share); (iii) 324,235 shares of Common Stock
reserved for issuance upon conversion of $2,756,000 in principal amount of
Debentures (conversion price of $8.50 per share); and (iv) 570,000 shares of
Common Stock reserved for issuance upon the exercise of outstanding options
under the Company's Stock Option Plan and Directors' Stock Option Plan.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were
completed except that Mr. Leon Blumenthal did not file one report and Dr. Mark
Rabinowitz did not file one report; however, these filings have been made as of
the date hereof.
ELECTION OF DIRECTORS; NOMINEES
The Company's Bylaws provide that the number of directors shall be fixed
from time to time by resolution of the Board of Directors within limits
specified by the Company's Articles of Incorporation. The Board of Directors has
fixed at four (4) the number of directors that will constitute the Board for the
ensuing year. Each director elected at the Annual Meeting will serve for a term
expiring at the Company's 1998 Annual Meeting of the Shareholders or when his
successor has been duly elected and qualified.
The Company has nominated each of Mitchell Rubinson, James F. Martin,
Larry H. Schatz and Dr. Mark Rabinowitz to be elected as a director at the
Annual Meeting. The Board of Directors has no reason to believe that any nominee
will refuse or be unable to accept election; however, in the event that one or
more nominees are unable to accept election or if any other unforeseen
contingencies should arise, each proxy that does not direct otherwise will be
voted for the remaining nominees, if any, and for such other persons as may be
designated by the Board of Directors.
4
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
Name Age Position
- ------------------------------- ----- --------------------------------------
Mitchell Rubinson.............. 50 Chairman of the Board, Chief Executive
Officer and President
Leon Blumenthal................ 56 Senior Vice President, Chief Operating
Officer and General Manager
James F. Martin................ 36 Chief Financial Officer, Treasurer and
Director
Dr. Mark Rabinowitz............ 49 Director
Larry H. Schatz................ 51 Vice Chairman of the Board
MITCHELL RUBINSON has served as the Chairman of the Board, Chief Executive
Officer and President of the Company since its incorporation in December 1991.
Mr. Rubinson has served as the Chairman of the Board, Chief Executive Officer
and President of Capital Brands from March 1988 to April 26, 1996, and was the
Treasurer of Capital Brands from March 1992 to April 1993. Mr. Rubinson has
served as the Chairman of the Board, Chief Executive Officer and President of
QPQ from July 1993 to May 1997 and served as the Chief Operating Officer of QPQ
from October 1995 to May 1997.
LEON BLUMENTHAL has served as the Senior Vice President, Chief Operating
Officer and General Manager of the Company since March 1995. Mr. Blumenthal has
served as the Senior Vice President and Chief Operating Officer of Pizza King
Polska, a wholly owned subsidiary of the Company, since March 1995. Mr.
Blumenthal served as General Manager of Hanna Holding Fast Foods from January
1991 to March 1994. As General Manager, Mr. Blumenthal was responsible for the
operation of twenty (20) Burger King restaurants within Denmark, Sweden and
Norway. From 1986 to 1990, Mr. Blumenthal owned and operated two franchised
restaurants of C. & M. Foods, Inc., d/b/a Bojangles Chicken & Biscuits in
Lilburn, Georgia. From 1968 to 1982, Mr. Blumenthal served as the Director of
European Operations for the Burger King Corporation.
JAMES F. MARTIN, C.P.A., has served as the Vice President, Chief Financial
Officer and Director of the Company since April 1, 1997. Mr. Martin served as
the Vice President and Chief Financial Officer of QPQ Corporation ("QPQ") from
April 1996 to May 1997. Mr. Martin served as the Director of Finance for
International Fast Foods Polska, S.P., z.o.o. and Pizza King located in the
Republic of Poland, from November 1993 through February 1995. From May 1995
through September 1996, Mr. Martin was a 50% owner in an information systems and
software consulting company located in South Florida. Additionally, Mr. Martin
has nine (9) years of commercial banking experience.
DR. MARK RABINOWITZ has served as a director of the Company since January
1996. Dr. Rabinowitz has also served as a director of QPQ from January 1996 to
May 1997. Since 1983, Dr. Rabinowitz' principal occupations have been serving as
a medical doctor for and the Vice President of Jose E. Gilbert and Mark
Rabinowitz MDS, P.A. and as President and a medical doctor for and the President
of Women's Centre for Health, Inc.
LARRY H. SCHATZ has served as Vice Chairman of the Board of the Company
since July 1997. Mr. Schatz has served as "of counsel" for the law firm of
Grubman, Indursky & Schindler P.C. from January 1996. From 1991 through 1995
Mr. Schatz worked as an attorney in private practice. Mr. Schatz has a J.D. from
Brooklyn Law School and a B.A. from The City University of New York.
5
<PAGE>
The Company's officers are elected annually by the Board of Directors and
serve at the discretion of the Board. The Company's directors hold office until
the next annual meeting of shareholders or until their successors have been duly
elected and qualified. The Company reimburses all directors for their expenses
in connection with their activities as directors of the Company. It is
anticipated that the directors will make themselves available to consult with
the Company's management. Directors of the Company who are also employees of the
Company will not receive additional compensation for their services as directors
except the Vice Chairman of the Board, who receives $25,000 annually for his
services as director. Under the terms of the Burger King Corporation Development
Agreement (as defined below), the Company is required to use its reasonable best
efforts to elect Mr. Rubinson as a director and officer of the Company. Mr.
Rubinson has agreed to serve in those capacities if elected.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the Company's fiscal year ended December 31, 1996, the Company's
Board of Directors took action twelve (12) times by unanimous written consent.
The Board does not currently have a stock, audit or nomination committee.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid to the
Named Executive Officers. None of the Company's other executive officers' total
annual salary and bonus for the year ended December 31, 1996 was $100,000 or
more.
<TABLE>
<CAPTION>
Long Term
Annual Compensation(1) Compensation
------------------------------- -------------
Number of
Fiscal Other Annual Options All Other
Name and Principal Position Year Salary Compensation Granted(2) Compensation
- ---------------------------- -------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Mitchell Rubinson, 1996 $181,093 $12,993(6) 0 -
Chief Executive Officer 1995 $159,976 $15,223(3) 0 -
1994 $149,382 $ 5,912(4) 0(5) -
Stephen R. Groth,* 1996 $84,375(13) $11,179(7) 0 -
Chief Financial Officer 1995 $117,962(8) $12,084(9) 0 -
1994 $150,000(10) $16,396(11) 0(12) -
______________________________
* Mr. Groth resigned his positions from the Company effective April 1, 1997.
(1) The columns for "Bonus," "Restricted Stock Awards" and "LTIP Payouts" have been omitted because
there is no compensation required to be reported in such columns.
(2) See "Aggregated Fiscal Year-End Options Value Table" for additional information concerning options
granted.
(3) Represents an automobile allowance of $12,000 and medical insurance premiums of $3,223.
(4) Represents medical insurance premiums of $5,912.
(5) As of July 1, 1997 each of the options held by Mr. Rubinson was amended to reduce the stated
exercise price therein to the fair market value of the Common Stock of such date ($.40). See
"Option Repricings."
(6) Represents an automobile allowance of $12,000 and medical insurance premiums of $993.
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<PAGE>
(7) Represents an automobile allowance of $7,687 and medical insurance premiums of $3,492.
(8) Paid by the Company, which figure includes $35,389 paid by QPQ Corporation ("QPQ") to the Company
for Mr. Groth's services.
(9) Represents an automobile allowance of $9,000 and medical insurance premiums of $3,084. Such figure
also represents the following sums paid by QPQ to the Company for Mr. Groth's services: an
automobile allowance of $2,700 and medical insurance premiums of $925.
(10) Paid by the Company, which figures include $75,000 paid by QPQ to the Company for Mr. Groth's
services.
(11) Represents an automobile allowance of $4,500, medical insurance premiums of $1,896 and a housing
allowance in Poland of $10,000. Such figure also represents the following sums paid by QPQ to the
Company for Mr. Groth's services: an automobile allowance of $2,250, medical insurance premiums of
$948 and a housing allowance in Poland of $5,000.
(12) As of February 27, 1995 each of the options held by Mr. Groth was amended to reduce the stated
exercise price therein to the fair market value of the Common Stock on such date ($1.375). See
"Option Repricings."
(13) Paid by the Company, which figure includes $1,869 paid by QPQ to the Company for Mr. Groth's
services.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mitchell Rubinson,
effective June 1, 1992. Mr. Rubinson's employment agreement provides that he
will serve as Chairman of the Board, Chief Executive Officer and President for
an initial term of three (3) years, which the Company may extend for up to two
(2) additional years. His annual salary for the first year is $125,000, subject
to annual 10% increases. Additionally, Mr. Rubinson is entitled to receive an
annual incentive bonus in the amount of 2.5% of the Company's net income, after
tax. Pursuant to his employment agreement, Mr. Rubinson is required to devote
such portion of his business time to the Company as may be reasonably required
by the Company's Board of Directors. Mr. Rubinson is entitled to four weeks of
paid vacation during the first year of the initial term and six weeks of paid
vacation during any subsequent year of his employment with the Company. As of
November 1, 1994, Mr. Rubinson's employment agreement with the Company was
amended to provide that for each day of vacation that Mr. Rubinson elects not to
take, the Company will pay him an amount of money equal to the quotient of his
then annual salary divided by 260. Mr. Rubinson's employment agreement requires
that he not compete or engage in any business competitive with the Company's
business for the term of the agreement and for one year thereafter. Mr. Rubinson
is, in addition to salary, entitled to certain fringe benefits including an
automobile allowance. Mr. Rubinson's employment agreement provides for a payment
of $125,000 in the event his employment is terminated by reason of his death or
disability and a severance payment of twice the minimum annual salary then in
effect plus the incentive bonus paid in the prior year, in the event his
employment is terminated by the Company without cause. Mr. Rubinson's employment
agreement does not provide for a severance payment in the event his employment
is terminated for cause. On November 7, 1996, the Company amended its employment
agreement with Mr. Rubinson pursuant to which the employment agreement was
extended to December 31, 1999. The amended agreement provides for a minimum
annual salary of $183,012.50, during the first year subject to a 10% annual
increase for each of the remaining two years.
The Company entered into an employment agreement with James F. Martin,
effective July 1, 1997. Mr. Martin's employment agreement provides that he will
serve as Chief Financial Officer of the Company and/or that of its subsidiaries
or affiliates that may be founded, for an initial term of three (3) years, which
the Company may extend for up to two (2) additional years. His annual salary for
the first year is $85,000. Pursuant to his employment agreement, Mr. Martin is
required to devote his full business time, attention and best efforts to the
performance of his duties under the employment agreement. Mr. Martin is entitled
to three (3) weeks of paid vacation during any year of employment. Mr. Martin is
also entitled to an automobile allowance of $400 per month, however, Mr. Martin
shall be responsible for all associated expenses relating to such automobile,
7
<PAGE>
including, without limitation, insurance, gas and repairs. Mr. Martin is
eligible to receive stock option grants under the Company's Stock Option Plans
in the discretion of the Company's Board of Directors or Option Committees. The
Company has granted Mr. Martin a stock option to acquire 100,000 shares of the
Company's Common Stock at an exercise price per share equal to the current price
of the Common Stock on the date of the grant, such options to be exercisable in
whole or in part and cumulatively as follows, provided in each case that Mr.
Martin is an employee of the Company on the date of reference: (i) twenty
percent (20%) one (1) year after the effective date of the employment agreement;
(ii) sixty percent (60%) two (2) years after the effective date of the
employment agreement; and (iii) one hundred percent (100%) three (3) years after
the effective date of the employment agreement. In the event Mr. Martin is
required to move to Poland, the Company shall provide Mr. Martin an appropriate
housing allowance, to be determined at that time. Mr. Martin's employment
agreement provides for a payment of $20,000 in the event his employment is
terminated by reason of his death or disability and a severance pay in the event
Mr. Martin's employment is terminated without cause, such severance to be
calculated as follows: (i) July 1, 1997 through June 30, 1998 a $20,000
severance amount; (ii) July 1, 1998 through June 30, 1999 a $15,000 severance
amount; and (iii) July 1, 1999 through June 30, 2000 a $10,000 severance amount.
Mr. Martin's employment agreement does not provide for a severance payment in
the event his employment is terminated for cause. Mr. Martin's employment
agreement requires that he not compete or engage in any business competitive
with the Company's business for the term of the agreement and for a period of
two (2) years thereafter.
The Company entered into an employment agreement with Leon Blumenthal,
effective July 1, 1997. Mr. Blumenthal's employment agreement provides that he
will serve as the Company's Senior Vice President, Chief Operating Officer and
General Manager, and shall serve as the President of International Fast Food
Polska for an initial term of three (3) years, which the Company may extend for
up to an additional two (2) years. His annual salary for the first year is
$100,000. Additionally, under the terms of the employment agreement, Mr.
Blumenthal shall be eligible to receive stock option grants under the Company's
Stock Option Plans in the discretion of the Company's Board of Directors or
Option Committees. The Company granted Mr. Blumenthal a stock option to acquire
100,000 shares of the Company's Common Stock at an exercise price of $.40 per
share equal to the current price of the Common Stock on the date of the grant,
such options to be exercisable in whole or in part and cumulatively according to
the following schedule: (i) twenty percent (20%) one (1) year after the
effective date of the employment agreement; (ii) sixty percent (60%) two (2)
years after the effective date of the employment agreement; and (iii) one
hundred percent (100%) three (3) after the effective date of the employment
agreement. Mr. Blumenthal is, in addition to salary, entitled to certain fringe
benefits including an automobile to use in connection with the performance of
his duties under the agreement. Mr. Blumenthal shall be entitled to three (3)
weeks of paid vacation during his employment. Mr. Blumenthal's employment
agreement provides for a payment of $25,000 in the event his employment is
terminated by reason of his death or disability and, in the event his employment
is terminated without cause, Mr. Blumenthal is entitled to a severance payment
as follows: if the termination occurs (i) on or prior to July 1, 1998, the
severance amount will be $25,000; (ii) after July 1, 1998 but on or prior to
July 1, 1999, the severance amount will be $20,000; and (iii) after July 1,
1999, the severance amount will be $15,000. Mr. Blumenthal's employment
agreement does not provide for a severance payment in the event his employment
is terminated for cause. Mr. Blumenthal's employment agreement requires that he
not compete or engage in any business competitive with the Company's business
for the term of the agreement and for two (2) years thereafter.
AGGREGATED FISCAL YEAR-END OPTIONS VALUE TABLE
The following table sets forth certain information concerning unexercised
stock options held by the Named Executive Officers as of December 31, 1996. No
stock options were exercised by the Named Executive Officers during the year
ended December 31, 1996. No stock appreciation rights were granted or are
outstanding.
8
<PAGE>
<TABLE>
<CAPTION>
Number of Unexercised Options Held Value of Unexercised In-the-Money Options
at December 31, 1996(1) at December 31, 1996
----------------------------------- -----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- -------------- ----------------- --------------------- ----------------
<S> <C> <C> <C> <C>
Mitchell Rubinson.......... 150,000 0 $ 0 $ 0
Stephen R. Groth........... 40,000 10,000 $ 0 $ 0
____________________________
(1) The closing bid quotation for the Company's Common Stock as reported by the Wall Street Journal on
December 31, 1996 was $.16 and $.44 on July 22, 1997.
</TABLE>
OPTION REPRICINGS
Since the Company's inception, the Company has issued, pursuant to the
terms of the 1993 Stock Option Plan and 1993 Directors Stock Option Plan, a
number of stock options to directors, executive officers and key employees. See
"Security Ownership" for more information regarding the options granted to
Mitchell Rubinson and Stephen R. Groth. As of February 27, 1995 the exercise
price of each of the stock options granted by the Company was above the fair
market value of the Common Stock underlying the stock options. In an effort to
provide the holders of the stock options additional incentive to use their best
efforts on behalf of the Company, as of February 27, 1995 each of the stock
option agreements between the Company and Mitchell Rubinson and Stephen R. Groth
was amended to reduce the exercise price stated therein to the fair market value
of the underlying Common Stock on such date ($1.375). On July 1, 1997 Mr.
Rubinson's stock option agreement was amended to reduce the exercise price
stated therein to $.40.
CERTAIN TRANSACTIONS
SHARED FACILITIES
The Company has shared with QPQ the use and cost of office space, Suites
200, 206 and 210 at 1000 Lincoln Road, Miami, Florida. With respect to Suite
200, the Company and QPQ were responsible for $2,563 and $11,315, respectively,
of the lease payments made in the year ended December 31, 1996 and $10,274 and
$0, respectively, of the lease payments made in the year ended December 31,
1995. With respect to Suite 206, the Company and QPQ were ultimately responsible
for $0 and $5,438, respectively, of the lease payments made in the year ended
December 31, 1996 and $0 and $750, respectively, of the lease payments made in
the year ended December 31, 1995. As of May 1997, the Company no longer shares
office space with QPQ and has subleased Suite 210 to another Company.
During 1996, the Company operated a Burger King restaurant adjacent to a
Domino's pizza store operated by Pizza King Polska in Poland ("PKP"). The
restaurant has its own counter service and kitchen area, but shares a common
seating area. The Company and PKP are jointly and severally liable for, and
costs are allocated between the companies with respect to the leasehold payments
for the site.
CONSULTING AGREEMENT WITH QPQ CORPORATION
On July 25, 1993 the Company entered into a three year consulting
agreement (the "QPQ Consulting Agreement") with QPQ, of which Mitchell Rubinson
and Capital Brands owned approximately 18% and 22.8%, respectively, of the
outstanding common stock of QPQ as of April 15, 1995. Under the terms of the QPQ
Consulting Agreement, the Company is required to assist QPQ generally with
operational and administrative matters. Pursuant to the QPQ Consulting
Agreement, as amended on July 27, 1994 and January 1, 1995, the Company provides
to QPQ: (1) the services of the Company's Chief Financial Officer for not more
than 30% of his business time; (2) the services of the Company's Controller for
not more than 30% of his business time; and (3) the services of managerial,
general office and staff personnel of the Company. In exchange for such
services, QPQ is required to pay the Company: (1) 30% of the cost of all
9
<PAGE>
compensation and benefits provided by the Company to its Chief Financial
Officer; (2) 27.5% of all compensation and benefits provided by the Company to
its Controller; and (3) all costs and expenses incurred by the Company in
connection with the services rendered pursuant to the QPQ Consulting Agreement.
In the year ended December 31, 1996 and the year ended December 31, 1995, QPQ's
obligations to the Company pursuant to the terms of the QPQ Consulting Agreement
aggregated to $4,225 and $218,742, respectively. QPQ terminated the QPQ
Consulting Agreement with the Company in June 1996. In connection with the
signing of the QPQ Consulting Agreement, QPQ granted the Company an option to
purchase up to 250,000 shares of QPQ's Common Stock at an exercise price of
$6.00 per share. This option was terminated in June 1996 for a $10,000 cash
payment to the Company from QPQ.
In April 1995, the Company's majority-owned subsidiary (85%),
International Fast Food Polska ("IFFP"), entered into a consulting agreement
(the "Subsidiary Consulting Agreement") with the wholly-owned subsidiary of QPQ,
Pizza King Polska, pursuant to which IFFP has agreed to provide Pizza King
Polska with all general staff and administrative support required by Pizza King
Polska to operate its Domino's Store business. The services of Leon Blumenthal
have been made available to Pizza King Polska and QPQ pursuant to the Subsidiary
Consulting Agreement. In exchange for such services, IFFP receives from Pizza
King Polska a sum equivalent to 10% of Pizza King Polska's sales and
reimbursement of expenses. In the years ended December 31, 1996 and December 31,
1995, Pizza King Polska's obligations to IFFP pursuant to the terms of the
Subsidiary Consulting Agreement aggregated to $64,999 and $116,723,
respectively. In June 1996, the Subsidiary Consulting Agreement was terminated.
TRANSACTION WITH CAPITAL BRANDS
In connection with the share exchange between CompScript and Capital
Brands in April 1996, CompScript required Capital Brands to exchange 1,300,000
shares of Common Stock of the Company for 1,300,000 shares of Capital Brands
Common Stock owned by Mitchell Rubinson and his wife Edda Rubinson. This
transaction was consummated on April 26, 1996.
SECURITIES TRANSACTIONS
In June 1996, after considering various alternatives including the market
price for the Company's Common Stock, its trading volume and various time
constraints, the Board of Directors authorized the issuance of 2,200,000 shares
of the Company's Common Stock for a total purchase price of $110,000 to Mitchell
Rubinson and his wife, Edda Rubinson. The Company used the proceeds from the
sale of the shares for payment of interest on the Company's Convertible
Subordinated Debentures.
In September 1996, the Company had working capital needs and incurred
additional expenses in connection with the BKC Litigation. The Board of
Directors of the Company authorized the sale of 2,500,000 shares of the
Company's Common Stock, of which the Company sold 250,000 shares each to Marilyn
Rubinson, Jaime Rubinson and Kim Rubinson, the mother and daughters of Mitchell
Rubinson, at $.10 per share.
In November 1996, the Company had additional working capital needs. The
Board of Directors of the Company authorized the sale of 500,000 shares of
Common Stock of the Company. The Company sold 250,000 shares each to Jaime
Rubinson and Kim Rubinson, the daughters of Mitchell Rubinson, at $.10 per
share.
In December 1996, the Company had outstanding an interest payment of
approximately $125,000 in connection with its Convertible Subordinated
Debentures and additional working capital needs. After considering various
alternatives and factors, the Board of Directors of the Company authorized the
sale of 1,500,000 shares of Common Stock of the Company to Marilyn Rubinson, the
mother of Mitchell Rubinson, at $.10 per share.
In January 1997, Marilyn Rubinson, the mother of Mitchell Rubinson, Jaime
Rubinson and Kim Rubinson, Mr. Rubinson's daughters, purchased $300,000, $50,000
and $50,000 aggregate principal amount of convertible debentures, respectively.
The debentures bear interest at 8% per annum and mature on January 13, 1999. The
debenture are convertible into shares of the Company's Common Stock at $.10 per
10
<PAGE>
share. The proceeds from the sale of debentures were used to fund the cost and
expenses in connection with the Company's litigation against Burger King
Corporation and general working capital. In January 1997, Mr. Rubinson and his
wife, Edda, purchased from the Company convertible debentures in the aggregate
principal amount of $100,000. The debentures bear interest at 8% percent per
annum and mature on January 13, 1999. The debentures convert into shares of the
Company's Common Stock at $.10 per share. All of such holders have converted
their entire holdings of debentures into an aggregate of 5,000,000 shares of the
Company's Common Stock.
Each party has taken the position that they have not entered into any
contracts, arrangements, or understandings with Mr. Rubinson with respect to
control of the Company.
LITIGATION FINANCING AGREEMENT; MERGER WITH LITIGATION FUNDING, INC.
From September 1991 to May 1996, the relationship between the Company and
Burger King Corporation ("BKC") was governed principally by the BKC Development
Agreement (the "BKC Development Agreement") and by franchise agreements relating
to each restaurant, as described below. Pursuant to the BKC Development
Agreement, the Company was granted the exclusive right until September 24, 1996
to develop and to be franchised to operate Burger King Restaurants in Poland,
with certain exceptions. During the term of the BKC Development Agreement,
certain disputes arose between the Company and BKC and, on March 17, 1995, the
Company and its majority owned (85%) subsidiary, IFFP (the Company and IFFP
collectively referred to as the "IFFC Affiliates"), filed suit (the "BKC
Litigation") against BKC in the Eleventh Circuit Court of the State of Florida.
In their amended complaint, the IFFC Affiliates alleged, among other things,
that BKC breached certain of its express and implied obligations under the BKC
Development Agreement and the eight existing franchise agreements (the
"Franchise Agreements") pertaining to IFFP's eight (8) Burger King restaurants.
The IFFC Affiliates further alleged that in connection with BKC's sale of
certain of its rights pursuant to the BKC Development Agreement and the
Franchise Agreements, BKC failed to timely deliver to the IFFC Affiliates a
complete and accurate franchise offering circular in accordance with rules
promulgated by the Federal Trade Commission (the "FTC Count"). The IFFC
Affiliates also alleged that BKC committed certain acts which constitute fraud
and/or deceptive and unfair business practices. The IFFC Affiliates asked the
court to, among other things, award them compensatory damages of not less than
$15,000,000, punitive damages and certain costs and expenses.
On March 11, 1997, BKC, the Company, IFFP and Mitchell Rubinson,
individually and on behalf of Litigation Funding, Inc., a Florida corporation
("Funding"), entered into a Settlement Agreement. In connection with the
execution of the Settlement Agreement, the Company and BKC entered into the New
BKC Development Agreement (the "New BKC Development Agreement") and eight (8)
new Franchise Agreements. BKC paid to the Company the sum of $5,000,000 (less
$21,865 of royalties owed by IFFP to BKC for February 1997) for a net amount of
$4,978,135. In addition, BKC forgave $499,768 representing all monies owed BKC
by IFFP and the Company through January 31, 1997. Under the terms of the
Settlement Agreement, a portion of such proceeds, not to exceed $2,000,000 cash
may be used to immediately satisfy the actual legal fees and costs of the
Company and IFFP incurred in connection with the BKC Litigation, including the
Company's and IFFP's obligation under the agreement between the Company, IFFP
and Funding. The remaining $3,000,000 is to be used by the Company and IFFP for
the development of additional BKC restaurants in Poland or working capital for
IFFP pursuant to the New BKC Development Agreement. The New BKC Development
Agreement calls for certain cash contributions from BKC to the Company over the
term of such Agreement and additional sums based upon an incentive arrangement
when earned to be retained by the Company out of BKC's future royalties. The
Company contributes these funds into a marketing fund administered by the
Company. All parties to the litigation stipulated to dismissal of the litigation
and executed mutual releases.
The Company has entered into two (2) agreements specifically designed to
assist it in financing the BKC Litigation. First, as of January 25, 1996, the
IFFC Affiliates entered into an Agreement to Assign Litigation Proceeds (the
"Funding Agreement") with Funding. This agreement was later amended in July
1996. Mitchell Rubinson, the Chairman of the Board, Chief Executive Officer and
President of the Company is also the Chairman of the Board, Chief Executive
Officer, President and the principal shareholder of Funding.
11
<PAGE>
Pursuant to the amended Funding Agreement, Funding agreed to pay on behalf
of the Company and/or IFFP up to $750,001 (the "Amount") for all expenses
(including attorneys' fees, court costs and other related expenses, but not
judgments or amounts paid in settlement) actually incurred by or on behalf of
the Company and/or IFFP in connection with investigating, defending,
prosecuting, settling or appealing the BKC Litigation and any and all claims or
counterclaims of BKC against the Company and/or IFFP (collectively, the "BKC
Matter"). Funding has paid all amounts it has been requested to pay pursuant to
the Funding Agreement.
In consideration of the Amount, the Company and IFFP each assigned to
Funding a portion of any and all benefits and gross sums, amounts and proceeds
that each of them may receive, collect, realize, otherwise obtain or benefit
from in connection with, resulting from or arising in connection with the BKC
Matter or any related claim, demand, appeal, right and/or cause of action of the
IFFC Affiliates, including, but not limited to, amounts received or entitled to
be received by the IFFC Affiliates in respect of (i) the gross proceeds of any
court ordered decision or judgment (a "Judgment") entered in favor of the
Company and/or IFFP, (ii) the Sales Proceeds (as such term is defined in the
Agreement, the "Sales Proceeds") of any sale of the assets of the Company and/or
IFFP to BKC, any of BKC's affiliates and/or any entity which is introduced to
the IFFC Affiliates by BKC (collectively, the "BKC Entities") in connection with
a settlement of the BKC Matter, (iii) any amounts paid in compromise or
settlement (a "Settlement") of the BKC Matter in whole or in part, (iv) any
liabilities or indebtedness of the Company or IFFP assumed or satisfied by the
BKC Entities (the "Debt Relief Proceeds") and (v) the monetary value to the IFFC
Affiliates of any concessions made by BKC with respect to its rights under (a)
the Development Agreement and/or (b) the Franchise Agreements and any future
franchise agreements between BKC and IFFP and/or the Company (the "Contract
Modification Proceeds"). All of the IFFC Affiliates' rights, titles and
interests, legal and equitable, in and to such aforementioned benefits and gross
sums, amounts and proceeds are collectively referred to herein as the
"Proceeds."
Specifically, the Company and IFFP each individually assigned, set over,
transferred and conveyed to Funding all of its right, title and interest in and
to the sum of the following (the "Assigned Proceeds"): (i) seventy-five percent
(75%) of the Proceeds to the extent that such amount does not exceed Funding's
expenses ("Funding's Expenses"), which are defined as the sum of the aggregate
amount of money paid by Funding as the Amount and the amount of money expended
by Funding if it assumes the prosecution of the BKC Matter; (ii) seventy-five
percent (75%) of any Proceeds, excluding any Sales Proceeds, in excess of the
sum of Funding's Expenses and the IFFC Affiliates' expenses (the "IFFC
Affiliates' Expenses"); and (iii) seventy-five percent (75%) of any Sales
Proceeds in excess of the sum of Funding's Expenses and the IFFC Affiliates'
Expenses.
Subject to Funding's recovery of Funding's expenses, the Company and IFFP
have retained the right to and shall be entitled to recover from the Proceeds
the sum of (i) $303,731, and (ii) all of the amounts they may expend in the
future in connection with the BKC Matter, before Funding shall be entitled to
receive any other Proceeds.
In connection with the execution and delivery of the Funding Agreement,
the Company, IFFP, Funding and a law firm (the "Escrow Agent") entered into an
Escrow Agreement. Pursuant to the Funding Agreement and the Escrow Agreement,
except for Proceeds which the Escrow Agent cannot reduce to physical possession,
all Proceeds, if any, resulting from the BKC Matter are to be delivered to the
Escrow Agent before they are delivered to the IFFC Affiliates and/or Funding.
The Escrow Agent is required to dispose of Proceeds only in accordance with (1)
the joint written instructions of the Company, IFFP and Funding, or (2) the
instructions of a court of competent jurisdiction. The Funding Agreement
provides that the Escrow Agent shall first apply all Readily Available Cash
Proceeds (as such term is defined below, the "Readily Available Cash Proceeds")
to satisfy Funding's rights to Proceeds (assigned to Funding by the Company or
IFFP) before any non-Readily Available Cash Proceeds are delivered to Funding by
the Escrow Agent on behalf of such company. Readily Available Cash Proceeds are
defined to be all cash Proceeds payable to the Company, IFFP or Funding within
one (1) year of a Judgement or Settlement. In the event that the Readily
Available Cash Proceeds are not sufficient to satisfy Funding's rights in
Proceeds (assigned to Funding by such company), then the Company and IFFP have
each agreed to pay out of its individually available "cash and cash equivalents"
(the "Cash Resources") an amount of Cash Resources to satisfy the deficiency. In
the event that the Readily Available Cash Resources of a company are
insufficient to cover the deficiency, such company, subject to Funding's
agreement, will have the right to elect which assets it will deliver to Funding
in satisfaction of Funding's rights to receive Proceeds. In the event that
Funding is unable to agree with a company with respect to which assets such
company will deliver to Funding, then the matter shall be submitted to a court
of competent jurisdiction.
12
<PAGE>
In consideration of the Amount, the Company also assigned to Funding a
security interest (the "Security Interest") in its entire equity interest in
IFFP (the "IFFP Stock"). The Security Interest secures the delivery to Funding
of all the Assigned Proceeds. In order to perfect the Security Interest, the
Company has agreed to take all such actions as are necessary under the laws of
the Republic of Poland ("Poland") and the State of Florida to transfer title to
the IFFP Stock to the Escrow Agent; provided, however, that the Company has
retained beneficial ownership of the IFFP Stock, including the right to vote the
IFFP Stock, unless Funding does not receive the Assigned Proceeds in accordance
with the terms of the Funding Agreement and such nonreceipt is not rectified
within 45 days (an "Event of Default"). The Company has further agreed to
deliver to the Escrow Agent such documents as are necessary to file with the
appropriate authorities in Poland to, if an Event of Default occurs, officially
transfer legal and beneficial title to the IFFP Stock to Funding. The Company
and Funding have agreed that record title to the IFFP Stock is being transferred
to the Escrow Agent to provide Funding a perfected security interest in the IFFP
Stock without being forced to rely on Poland's apparently deficient system of
recording and perfecting security interests. If (1) Funding receives the
Assigned Proceeds in accordance with the terms of the Funding Agreement or (2)
it becomes apparent that Funding shall not ever be entitled to receive any
Proceeds, then Funding is required to immediately issue a notice to the Escrow
Agent with respect to the IFFP Stock, and the Security Interest is to be
satisfied and extinguished.
In connection with the settlement of the BKC Litigation, the New
Development Agreement was entered into between BKC and the Company, which was
then assigned by the Company to IFFP on March 14, 1997; however, the Company
remains liable for the obligations contained in the New BKC Development
Agreement. Pursuant to the New BKC Development Agreement, the Company has been
granted the exclusive right until September 30, 2007 to develop and be
franchised to operate Burger King restaurants in Poland with certain exceptions
discussed below. Pursuant to the New BKC Development Agreement, the Company is
required to open forty-five (45) Development Units during the term of the
Agreement. Each traditional Burger King restaurant, in-line Burger King
restaurant, or drive-thru Burger King restaurant shall constitute one unit. A
Burger King kiosk restaurant shall, for purposes of the New BKC Development
Agreement, be considered one quarter unit. Pursuant to the New BKC Development
Agreement, the Company is to open three (3) Development Units through September
30, 1998, four (4) units beginning October 1, 1998 and ending September 30,
2001, and five (5) units in each year beginning October 1, 2001 and ending
September 30, 2007.
Pursuant to the New BKC Development Agreement, the Company shall pay BKC
$1,000,000 as a development fee. However, the Company shall not be obligated to
pay the development fee if the Company is in compliance with the development
schedule by September 30, 1999, and has achieved gross sales of $11,000,000 for
12 months preceding the September 30, 1999 target date. If the development
schedule has been achieved but gross sales were less than $11,000,000, but
greater than $9,000,000, the development fee shall be reduced to $250,000. If
the development fee is payable due to failure to achieve the performance targets
set forth above, the Company, at its option, may either pay the development fee
or provide BKC with the written and binding undertaking of Mr. Mitchell
Rubinson, the Company's Chairman, that the Rubinson Group (as defined below)
will completely divest themselves of any interest in the Company and the Burger
King restaurants opened or operated by the Company in Poland within six (6)
months of the date the development fee payment is due. The Rubinson Group shall
include any entity that Mr. Rubinson or they directly or indirectly own an
aggregate interest of ten percent (10%) or more of the legal or beneficial
equity interest and any parent, subsidiary or affiliate of a Rubinson entity.
Mr. Rubinson has personally guaranteed payment of the development fee.
On May 9, 1997, the Company, IFFP and Funding entered into an agreement
(the "LFI Agreement") whereby the parties acknowledged that Funding is owed
certain amounts with respect to the "Contract Modification Proceeds", as a
result of the settlement of the BKC Litigation and the terms of the initial
Funding Agreement, including, but not limited to the value of the "marketing
spendback" and "incentive marketing spendback" provisions of the New BKC
Development Agreement, as such term is defined in the Funding Agreement.
13
<PAGE>
The Company issued a promissory note (the "Note") payable to Funding in
the principal amount of $2,198,494, which sum is a portion of the net settlement
proceeds due to Funding plus reimbursement of legal fees and costs paid by
Funding on behalf of the Company and/or IFFP, less the remaining balance due to
Funding which was paid by the Company in May 1997. The Note bears interest at
prime plus one percent (1%), and matures on December 31, 1998. Interest is
payable quarterly beginning on July 1, 1997. The Note may be prepaid in whole or
in part at any time without penalty. The Note is collateralized by the Company's
equity interest in IFFP. In addition, the Company remains liable to Funding for
its interest in the economic value of the development agreement and its spend
back and incentive spend back provisions.
On July 14, 1997, the Company and IFFC Acquisition, Inc., a wholly-owned
subsidiary of the Company ("Acquisition Sub") entered into a Merger Agreement
with Funding and Mitchell and Edda Rubinson, the sole shareholders of Funding.
Under the terms of the Agreement, Funding will be merged with and into
Acquisition Sub. At the effective time of the Merger, shares of common stock of
Funding will be converted into and shall become the right to receive 23,238,569
shares of common stock of the Company (subject to adjustment no later than
August 14, 1997, such adjustment to reflect that number of shares equal to
$3,021,014 (the value assigned to Funding) divided by the book value per share
of the Company's common stock as at June 30, 1997).
LOAN TO QPQ CORPORATION
On May 23, 1997, the Company entered into an Undertaking and Loan
Agreement (the "Loan Agreement") with QPQ and Pizza King Polska, whereby the
Company granted to QPQ a loan in the amount of Five Hundred Thousand Dollars
($500,000), plus interest at the rate of nine percent (9%) per annum (the "QPQ
Loan"). By the terms of the Loan Agreement, the QPQ Loan shall be repaid by QPQ
(in U.S. dollars) in full no later than three (3) months from the date of the
Loan Agreement. QPQ has the right to prepay the principal amount without
penalty. In order to secure the Company's rights under the Loan Agreement, QPQ
has agreed to transfer to the Company Forty-One Thousand Two Hundred Fifty-Eight
(41,258) shares of Common Stock of Pizza King Polska (the "PKP Shares") owned by
QPQ pursuant to an Agreement on Transfer of Shares as Collateral dated May 23,
1997 (the "Transfer Agreement"). Under the Transfer Agreement, the Company
agrees to transfer the PKP Shares back to QPQ upon full repayment of the QPQ
Loan. In the event that QPQ defaults under the Loan Agreement, the Company shall
be released from its obligation to transfer the PKP Shares back to QPQ and shall
have the right to apply the PKP Shares against the sums due under the Loan
Agreement or any agreement entered into pursuant to the Loan Agreement. The Loan
Agreement and the Transfer Agreement are governed by the laws of Poland. On June
27, 1997, the Company agreed to permit QPQ to transfer the shares to Krolewska
Pizza Sp.z.o.o. ("KP") and the Company further agreed to an assignment of QPQ's
obligations to the Company to KP.
PURCHASE OF KROLEWSKA PIZZA SP.Z.O.O.
On July 18, 1997, the Company entered into an Agreement for sale of shares
with Tomasz Barylski (the "Barylski Agreement"), whereby the Company purchased
from Tomasz Barylski ("Barylski") one hundred percent (100%) of Krolewska Pizza
Sp.z.o.o., a limited liability company ("KP"), for a nominal consideration
and assumption of all liabilities, including the obligations of KP to the
Company under a $500,000 promissory note.
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<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
NOMINEES
Four (4) of the current members of the Board of Directors are to be
elected at the Annual Meeting, each to hold office until the next Annual Meeting
and until their successors are elected and qualified. The Board of Directors has
nominated for election as directors the four (4) persons indicated in the
following table. In the election of directors, the proxy holders intend, unless
directed otherwise, to vote for the election of the nominees named below. It is
not anticipated that any of the nominees will decline or be unable to serve as
director. If, however, that should occur, the proxy holders will vote the
proxies in their discretion for any nominee designated by the present Board of
Directors to fill the vacancy.
The following table gives certain information as to each person nominated
for election as a director:
Director
Name Age Since Positions
- ---- --- ----- ---------
Mitchell Rubinson 50 12/91 Chairman of the Board, Chief Executive
Officer and President
James F. Martin 36 4/97 Vice President, Chief Financial Officer,
Treasurer and Director
Dr. Mark Rabinowitz 49 1/96 Director
Larry H. Schatz 51 7/97 Vice Chairman of the Board
MITCHELL RUBINSON has served as the Chairman of the Board, Chief Executive
Officer and President of the Company since its incorporation in December 1991.
Mr. Rubinson has served as the Chairman of the Board, Chief Executive Officer
and President of Capital Brands from March 1988 to April 26, 1996, and was the
Treasurer of Capital Brands from March 1992 to April 1993. Mr. Rubinson has
served as the Chairman of the Board, Chief Executive Officer and President of
QPQ from July 1993 to May 1997 and served as the Chief Operating Officer of QPQ
from October 1995 to May 1997.
JAMES F. MARTIN has served as the Vice President, Chief Financial Officer
and Director of the Company since April 1, 1997. Mr. Martin served as the Vice
President and Chief Financial Officer of QPQ Corporation ("QPQ") from April 1996
to May 1997. Mr. Martin served as the Director of Finance for International Fast
Foods Polska, S.P., z.o.o. and Pizza King located in the Republic of Poland,
from November 1993 through February 1995. From May 1995 through September 1996,
Mr. Martin was a 50% owner in an information systems and software consulting
company located in South Florida. Additionally, Mr. Martin has nine (9) years of
commercial banking experience.
DR. MARK RABINOWITZ has served as a director of the Company since January
1996. Dr. Rabinowitz has also served as a director of QPQ from January 1996 to
May 1997. Since 1983, Dr. Rabinowitz' principal occupations have been serving as
a medical doctor for and the Vice President of Jose E. Gilbert and Mark
Rabinowitz MDS, P.A. and serving as a medical doctor for and the President of
Women's Centre for Health, Inc.
LARRY H. SCHATZ has served as Vice Chairman of the Board of the Company
since July 1997. Mr. Schatz has served as "of counsel" for the law firm of
Grubman, Indursky & Schindler P.C. from January 1996. From 1991 through 1995
Mr. Schatz worked as an attorney in private practice. Mr. Schatz has a J.D. from
Brooklyn Law School and a B.A. from The City University of New York.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE
15
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PROPOSAL 2:
PROPOSAL TO APPROVE THE INCREASE OF THE NUMBER OF SHARES AUTHORIZED
TO BE ISSUED UNDER THE PLAN TO 2,000,000 SHARES FROM 600,000 SHARES
In order to continue to offer incentive compensation in the form of stock
ownership in the Company and for the Company to be able to continue to issue
stock options and other forms of stock-based incentive compensation under the
Stock Option Plan, the compensation committee and the board have deemed it
advisable to amend the Stock Option Plan to increase the number of shares
authorized to be issued under the Stock Option Plan to 2,000,000 shares from
600,000 shares. In the opinion of the compensation committee and the Board, the
authorization to issue additional shares would provide an additional incentive
to attract and retain qualified and competent persons who provide management
services or upon whose efforts and judgment the success of the Company and its
subsidiaries is largely dependent, through the encouragement of stock ownership
in the Company by such persons. The affirmative vote of the holders of a
majority of shares of the Company's Common Stock voting at the Annual Meeting is
necessary to approve the Amended Plan.
STOCK OPTION FEATURES
The Amended Plan shall be administered by a Committee of the Company's
Board of Directors, which shall consist of not less than two (2) Directors which
interprets the Stock Option Plan and is authorized, in its discretion to grant
options thereunder to all eligible employees of the Company including officers
and directors whether or not employees of the Company. The Amended Plan provides
for the granting of incentive stock options (as defined in Section 422(a) of
Internal Revenue Code (the "Code")) and non-statutory options. Options can be
granted under the Amended Plan on such terms and at such prices as determined by
the Committee, except that in no event shall the exercise price per share of any
incentive stock option be less than the fair market value of the shares
underlying such option on the date the option is granted. Additionally, any
person owning directly or indirectly at the date of grant, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company unless the option price of such option is at least 110% of the fair
market value of the shares subject to such option on the date the option is
granted. Options otherwise qualifying as incentive stock options will not be
treated as incentive stock options to the extent that the aggregate fair market
value (determined at the time the option is granted) of the shares, with respect
to which options meeting the requirements of Section 422(b) of the Code are
exercisable for the first time by any individual during any calendar year,
exceeds $100,000.
Options under the Amended Plan will be exercisable after the period or
periods specified in the option agreement. Options granted under the Amended
Plan are not exercisable after the expiration of ten (10) years from the date of
grant and are non-transferrable other than by will or by laws of descent and
distribution.
Except as otherwise provided in the option agreements, each outstanding
option shall become immediately fully exercisable: (i) if there occurs any
transaction that has the result that the shareholders of the Company immediately
before such transaction cease to own at least 51% of the voting stock of the
Company or of any entity that results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction; (ii) if the shareholders of the Company shall approve a
plan of merger, consolidation, reorganization, liquidation or dissolution in
which the Company does not survive (unless the approved transaction is
subsequently abandoned); or (iii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Company (unless such plan is
subsequently abandoned). The Committee may, in its sole discretion, accelerate
the date on which any option may be exercised and may accelerate the vesting of
any shares subject to any option.
Mitchell Rubinson owns options to purchase 150,000 shares of the Common
Stock pursuant to the Company's 1993 Stock Option Plan that are immediately
exercisable at an exercise price of $.40 per share. Additionally, Dr. Mark
Rabinowitz owns options to purchase 50,000 shares of Common Stock that are
immediately exercisable at an exercise price of $.40 per share. Mr. James Martin
16
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owns options to purchase 100,000 shares of Common Stock pursuant to an
employment agreement that vest over a three (3) year period beginning in July
1998 at an exercise price of $.40. Larry H. Schatz owns options to purchase
50,000 shares of Common Stock that are exercisable at an exercise price of $.40.
Leon Blumenthal owns options to purchase 100,000 shares of Common Stock that are
exercisable at an exercise price of $.40. Mr. Schatz's options are immediately
exercisable and Mr. Blumenthal's options vest over a three (3) year period
beginning in July 1998.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain federal income tax
consequences of option grants and exercises under the Amended Plan based upon
the federal income tax laws in effect on the date hereof. This summary is not
intended to be exhaustive and does not describe state or local tax consequences.
The grant of incentive stock options to an employee does not result in any
income tax consequences. The exercise of an incentive stock option does not
result in any income tax consequences to the employee if the incentive stock
option is exercised by the employee during his employment with the Company, or
within a specified period after termination of employment due to death or
retirement for age or disability under then established rules of the Company.
However, the excess of the fair market value of the shares of stock as of the
date of exercise over the option price is a tax preference item for purposes of
determining an employee's alternative minimum tax. An employee who sells shares
acquired pursuant to the exercise of an incentive stock option after the
expiration of (i) two (2) years from the date of grant of the incentive stock
option, and (ii) one (1) year after the transfer of the shares to him (the
"Waiting Period") will generally recognize long term capital gain or loss on the
sale.
An employee who disposes of his incentive stock option shares prior to the
expiration of the Waiting Period (an "Early Disposition") generally will
recognize ordinary income in the year of sale in an amount equal to the excess,
if any, of (a) the lesser of (i) the fair market value of the shares as of the
date of exercise or (ii) the amount realized on the sale, over (b) the option
price. Any additional amount realized on an Early Disposition should be treated
as capital gain to the employee, short or long term, depending on the employee's
holding period for the shares. If the shares are sold for less than the option
price, the employee will not recognize any ordinary income but will recognize a
capital loss, short or long term, depending on the holding period.
The Company will not be entitled to a deduction as a result of the grant
of an incentive stock option, the exercise of an incentive stock option, or the
sale of incentive stock option shares after the Waiting Period. If an employee
disposes of his incentive stock option shares in an Early Disposition, the
Company will be entitled to deduct the amount or ordinary income recognized by
the employee.
The grant of non-qualified stock options under the Amended Plan will not
result in the recognition of any taxable income by the participants. A
participant will recognize income on the date of exercise of the non-qualified
stock option equal to the difference between (i) the fair market value on that
date of the shares acquired, and (ii) the exercise price. The tax basis of these
shares for purpose of a subsequent sale includes the option price paid and the
ordinary income reported on exercise of the option. The income reportable on
exercise of the option by an employee is subject to federal and state income and
employment tax withholding.
Generally, the Company will be entitled to a deduction in the amount
reportable as income by the participant on the exercise of a non-qualified stock
option.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF INCREASING THE NUMBER OF
SHARES RESERVED FOR ISSUANCE UNDER THE COMPANY'S 1993 STOCK OPTION PLAN
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INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Moore Stephens Lovelace, P.L. served as the Company's
independent public accountants for the fiscal year ended December 31, 1996. The
Board of Directors has selected Moore Stephens Lovelace, P.L. as the Company's
independent public accountants for the fiscal year ending December 31, 1997. One
or more representatives of Moore Stephens Lovelace, P.L. are expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
they desire to do so and are expected to be available to respond to appropriate
questions from shareholders.
OTHER BUSINESS
The Board knows of no other business to be brought before the Annual
Meeting. If, however, any other business should properly come before the Annual
Meeting, the persons named in the accompanying proxy will vote proxies as in
their discretion they may deem appropriate, unless they are directed by a proxy
to do otherwise.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
A shareholder intending to present a proposal to be included in the
Company's proxy statement for the Company's 1998 Annual Meeting of Shareholders
must deliver a proposal in writing to the Company's principal executive offices
no later than March 24, 1998.
By Order Of The Board of Directors
MITCHELL RUBINSON
Chairman of the Board, Chief Executive
Officer and President
Miami Beach, Florida
July 29, 1997
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INTERNATIONAL FAST FOOD CORPORATION
1000 Lincoln Road, Suite 200
Miami, Florida 33139
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
COMMON STOCK
The undersigned holder of Common Stock of International Fast Food
Corporation, a Florida corporation (the "Company"), hereby appoints Mitchell
Rubinson and James F. Martin, and each of them, as proxies for the undersigned,
each with full power of substitution, for and in the name of the undersigned to
act for the undersigned and to vote, as designated below, all of the shares of
stock of the Company that the undersigned is entitled to vote at the 1997 Annual
Meeting of Shareholders of the Company, to be held on Monday, August 18, 1997,
at 9:00 a.m., local time, at Cheeca Lodge in Islamorada, Florida, and at any
adjournment(s) or postponement(s) thereof.
The Board of Directors unanimously recommends a vote FOR the election of
all the director nominees listed in proposal (1) below and FOR the approval of
proposal (2).
(1) Election of Mitchell Rubinson, Larry H. Schatz, James F. Martin and Dr.
Mark Rabinowitz as directors of the Company.
[ ] VOTE FOR all nominees listed above, except vote withheld from the
following nominee(s) (if any).
_____________________________________________________________________________
[ ] VOTE WITHHELD from all nominees.
(2) Proposal to approve the increase of the number of shares reserved for
issuance under the Company's 1993 Stock Option Plan from 600,000 shares to
2,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Upon such other matters as may properly come before the Annual Meeting and
any adjournments thereof.
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Annual Meeting, and any
adjournments or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE ELECTION OF ALL DIRECTOR NOMINEES LISTED IN PROPOSAL (1)
ABOVE AND "FOR" THE APPROVAL OF PROPOSAL (2).
(see reverse side)
<PAGE>
(continued from other side)
The undersigned hereby acknowledges receipt of (i) the Notice of Annual
Meeting, (ii) the Proxy Statement and (iii) the Company's 1996 Annual Report on
Form 10-KSB.
Dated: _________________________, 1997
______________________________________
(Signature)
______________________________________
(Signature if held jointly)
IMPORTANT: Please sign exactly as your
name appears hereon and mail it
promptly even though you may plan to
attend the meeting. When shares are
held by joint tenants, both should
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. 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.
PLEASE MARK, SIGN AND DATE THIS PROXY
CARD AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED. NO POSTAGE NECES-
SARY IF MAILED IN THE UNITED STATES.
2
