SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ Annual Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1998
/ / Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from _______________ to _______________
Commission file number: 1-11386
INTERNATIONAL FAST FOOD CORPORATION
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(Name of Small Business Issuer in Its Charter)
Florida 65-0302338
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139
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(Address of Principal Executive Offices) (Zip Code)
(305) 531-5800
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the
Exchange Act:
Common Stock, par value $.01 per share
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(Title of Class)
Warrants to Purchase Common Stock
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB./ /
The issuer's revenues for its most recent fiscal year were $8,489,151.
The aggregate market value of the common stock held by non-affiliates
of the registrant on March 22, 1999 (computed by reference to the closing bid
price of $.54 on such date) was $7,508,573.
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's Common Stock, par
value $.01 per share as of March 20, 1999, was 45,106,172.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. Description of Business.
History
International Fast Food Corporation ("IFFC" or the "Company") was
incorporated in December 1991 as a Florida corporation to develop franchised
Burger King restaurants in the Republic of Poland. In July 1997, IFFC purchased
all of the outstanding shares of Krolewska Pizza Sp.zo.o. ("KP") and Pizza King
Polska, Sp.zo.o. ("PKP"), which together control the exclusive development
rights and franchises of Domino's Pizza stores in Poland. In September 1998,
IFFC purchased from Agros Investments, S.A., a Polish company, the remaining 15%
of the outstanding shares of International Fast Food Polska, Sp.zo.o. ("IFFP"),
IFFC's Polish subsidiary which operates its Burger King division, for $1.5
million.
IFFC has the exclusive right to develop franchised Burger King
restaurants and Domino's Pizza stores in the Republic of Poland and currently
operates 21 Burger King restaurants and 15 Domino's stores. The Burger King
restaurants and the majority of the Domino's stores are similar to their
respective U.S. versions and are developed to the strict corporate standards set
out in the respective development agreements and franchise agreements.
Burger King Division
IFFC operates its Burger King division through its Polish subsidiary,
IFFP, and IFFP's wholly owned Polish limited liability corporations, IFF
Polska-Kolmer and IFF-DX Management. IFFP receives operational support from
Burger King Corporation ("BKC") through BKC's London-based office in areas
including site selection and construction review, operating systems and
controls, marketing, sourcing of food and equipment, distribution and training,
and other operational matters.
Through IFFP, IFFC currently operates 21 Burger King restaurants. The
restaurants, which operate under individual franchise agreements, are
traditional free standing and/or attached drive-through restaurants with dine-in
seating capacity ranging from 60 to 120 people. The typical store size is
approximately 2,800 square feet and is located near and in metropolitan areas
and/or adjacent to service station sites. Currently all Burger King restaurants
in Poland are operated by IFFP. There are no non-affiliated Burger King
franchisees.
IFFC's Burger King restaurants offer flame-broiled hamburgers and
cheeseburgers, french fries and soft drinks. Other menu items may include
salads, pastries, chicken sandwiches, fish sandwiches, ice cream sundaes and
shakes. IFFC anticipates that its future Burger King restaurants will expand
their menus by offering additional food items. IFFC typically offers a Burger
King meal for the zloty equivalent of approximately $1.51 to $3.29, depending
upon the menu items selected. IFFC believes, to the extent a comparison is
possible, that the prices it charges for meals are comparable to the prices
charged by IFFC's American-style fast food competitors in Poland.
By October 1994, IFFC had opened eight Burger King restaurants in urban
locations, including five in Warsaw, and had created an organizational
infrastructure to manage future growth. During 1994, however, a dispute emerged
between IFFC, IFFP and BKC regarding BKC's logistical development support and
other matters, which resulted in litigation between the parties commencing in
March 1995. During the period from the beginning of the dispute with BKC in 1994
until its settlement, IFFC curtailed its Burger King restaurant expansion. In
March 1997, IFFC, IFFP and BKC settled the litigation and, pursuant to such
settlement, BKC and IFFC entered into a new ten year development agreement (the
"BKC Agreement"). IFFC and BKC have enjoyed a strong, working relationship since
the settlement.
IFFC's Burger King operations are managed by Joanna Makowska, who began
her career with IFFC in 1992. Pursuant to the requirements of the BKC Agreement,
Ms. Makowska has been approved by BKC as the Director of Operations of the
Burger King restaurants. Ms. Makowska is supported in Poland by a team of 16
managers, 75 assistant managers and approximately 608 other full time or part
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time employees as of December 31, 1998. In addition, Michael Welch has been
approved by BKC as a managing director and is responsible for the development of
restaurants pursuant to the BKC Agreement.
BKC Agreement and Standard Franchise Agreements. In February 1999, the
Company entered into an amendment to the BKC Agreement, pursuant to which the
Company agreed, among other thing, to increase its development schedule of
Burger King restaurants. Under the BKC Agreement, as amended, IFFP is required
to open 135 "Development Units" prior to September 30, 2007. Each traditional
restaurant or drive-through restaurant constitutes one Development Unit and each
kiosk constitutes a quarter of a Development Unit. Beginning January 1, 2000,
four of the Development Units in each year must be in-line or free-standing
restaurants within city centers or shopping mall locations. The schedule for
IFFP's required opening of the Development Units is as follows:
Number of
Development Units
To Be Opened
Time Period During Time Period
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From execution through September 30, 1998 3
October 1, 1998 through September 30, 1999 4
October 1, 1999 through December 31, 1999 4
January 1, 2000 through December 31, 2000 16
January 1, 2001 through December 31, 2001 16
January 1, 2002 through December 31, 2002 16
January 1, 2003 through December 31, 2003 16
January 1, 2004 through December 31, 2004 16
January 1, 2005 through December 31, 2005 16
January 1, 2006 through December 31, 2006 16
January 1, 2007 through September 30, 2007 12
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Total units to be opened by September 30, 2007 135
IFFC has opened 13 Burger King restaurants pursuant to the BKC
Agreement and has satisfied its development requirements through 1999.
Pursuant to the BKC Agreement, IFFP is required to pay BKC a $1.0
million development fee unless IFFP is in compliance with the development
schedule by September 30, 1999 and has achieved gross sales of $11.0 million for
the preceding 12 months. If the development schedule has been achieved but gross
sales are less than $11.0 million but greater than $9.0 million, the development
fee will be $250,000. If the development fee is payable due to failure to
achieve the performance targets described above, IFFP, at its option, may either
pay the development fee or provide BKC with the written and binding undertaking
of Mitchell Rubinson (IFFC's Chairman of the Board and Chief Executive Officer)
that the Rubinson Group will completely divest itself of any interest in IFFP
and the Burger King restaurants opened or operated by IFFP in Poland within six
months of the date that the development fee payment is due. Pursuant to the BKC
Agreement, the "Rubinson Group" has been defined to include any entity of which
Mr. Rubinson directly or indirectly owns an aggregate interest of 10% or more of
the legal or beneficial equity interest and any parent, subsidiary or affiliate
thereof. Such divestiture of the Rubinson Group or Mitchell Rubinson could
result in a change in control of IFFC under the indenture governing the terms of
the Company's currently outstanding 11% Convertible Senior Subordinated Discount
Notes. If so, IFFC would be required to commence an offer to repurchase the
Convertible Notes within 30 days of such change in control at a purchase price
equal to 101% of the accreted value of such notes. Mr. Rubinson has personally
guaranteed payment of the development fee.
For each restaurant opened, IFFP is obligated to pay BKC an initial fee
of up to $40,000 for franchise agreements with a term of 20 years and $25,000
for franchise agreements with a term of ten years. Each such fee is payable not
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later than 20 days prior to the restaurant's opening. Pursuant to the amendment
to the BKC Agreement, BKC agreed to defer payment of $280,000 in accrued
franchise fees until December 31, 1999. Each franchised restaurant must also pay
a percentage of the restaurant's gross sales, irrespective of profitability, as
a royalty for the use of the Burger King system and Burger King trademarks. The
annual royalty fee is 5% of gross sales. However, BKC has agreed to reduce the
royalty fee to 2% through September 30, 1998 and 3% through December 31, 2002.
Thereafter, the annual royalty fee will be 5%. The restaurants must also
contribute a monthly advertising and promotion fee of 6% of gross sales to be
used for advertising, sales promotion, and public relations. Payment of all
amounts due from IFFP to BKC pursuant to the franchise agreements is guaranteed
by IFFC.
BKC may terminate rights granted to IFFP under the BKC Agreement,
including franchise approvals for restaurants not yet opened, for a variety of
possible defaults by IFFP, including, among others, failure to open restaurants
in accordance with the development schedule; failure to obtain BKC site approval
prior to the commencement of each restaurant's construction; and failure to meet
various operational, financial, and legal requirements, including the
maintenance of IFFP's net worth at $7.5 million beginning on June 1, 1999. Upon
termination of the BKC Agreement, whether resulting from default or expiration
of its term, BKC has the right to license third parties to develop and operate
Burger King restaurants in Poland, or to do so itself. In addition, pursuant to
the amendment to the BKC Agreement, in order for IFFC to open Burger King
restaurants in excess of number set forth in the development schedule, BKC must
be reasonably satisfied that the management infrastructure of IFFP is
sufficiently strong to ensure that the proposed restaurant operations will meet
BKC's standards.
Specifically excluded from the scope of the BKC Agreement are
restaurants on United States military establishments. BKC has also reserved the
right to open restaurants in hotel chains with which it has, or may in the
future have, a multi-territory agreement encompassing Poland. With respect to
restaurants in airports, train stations, hospitals and other hotels, IFFP has
the right of first refusal for of such sites. If IFFP is unable to reach a
mutually acceptable agreement with the owners of such sites, BKC or its
affiliates or designated third parties may initiate negotiations for such sites.
IFFP and the Rubinson Group are restricted from engaging in the fast food
hamburger restaurant business, without the prior written consent of BKC, which
consent may not be withheld so long as IFFC and the franchises operating Burger
King restaurants by designation of IFFC are adequately funded.
Subject to certain exceptions, as long as IFFC is a principal of IFFP,
BKC has the right to review and consent to equity issuances by IFFC. Such
consent is not to be unreasonably withheld, provided that IFFC has complied with
all reasonable conditions established by BKC in connection with the proposed
sale or issuance of applicable equity securities by IFFC.
IFFC has obtained all required BKC, government and regulatory approvals
and permits for its 21 Burger King restaurants.
Co-Development Agreements. IFFC intends to develop a majority of the
new Burger King restaurants in conjunction with oil companies which are
presently expanding throughout Poland. In July 1997, IFFP executed letters of
intent with Conoco Poland Sp.zo.o ("Conoco") and BP Poland Sp.zo.o, an affiliate
of British Petroleum ("BP"), for the co-development of Burger King restaurants
and service stations throughout Poland. In connection with the execution of such
letters of intent, Conoco and BP agreed to cooperate with IFFP to achieve the
rapid and coordinated growth of the respective networks and operations in
Poland. The letters, although not binding, state that Conoco and BP agree to
make sites available to IFFP to lease for a specific term plus option periods at
IFFP's discretion, subject to Burger King approval. Rental terms will be based
on a minimum monthly rental fee and/or a percentage of sales.
In September 1997, IFFP entered into an agreement with Statoil to
develop up to 22 Burger King restaurants on Statoil service station properties
in Poland. Pursuant to the agreement, the rental terms for each site consists of
a 20-year term with a ten-year option. The annual lease payments are 4% of sales
or $36,000, whichever is higher.
In October 1998, IFFP and the Polish subsidiary of Shell Oil ("Shell")
entered into a joint venture and became equal partners in the newly incorporated
polish limited liability company, CRSB Sp.zo.o. IFFP and Shell intend to
co-develop a limited number of Burger King restaurants and Shell service
stations throughout Poland.
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The various agreements, letters of intents and joint ventures with the
oil companies provide for the initial development of approximately 50 Burger
King restaurants, plus additional restaurants in the future. Currently, IFFP has
executed seven leases with BP, one lease with Conoco and ten leases with
Statoil. The Company has not currently executed any leases pursuant to its joint
venture with Shell. As of December 31, 1998, IFFP had opened three Burger King
restaurants adjacent to BP stations, one restaurant attached to a Conoco station
and four restaurants adjacent to Statoil stations. In addition, IFFC is
currently negotiating with other international oil companies for the development
of Burger King restaurants throughout Poland.
Agreement with Marriott. In March 1999, the Company entered into a
letter agreement whereby it granted Host Marriott Service Corporation ("Host
Marriott") the rights to develop and operate Burger King restaurants within
enclosed shopping centers located in Poland where Host Marriott has leased
substantially all of the food and beverage facilities. Pursuant to such
agreement, Host Marriott will pay IFFC (a) an initial start-up fee of US $25,000
per location in exchange for IFFC's pre-opening support and assistance,
including furnishing design and construction advice, hiring and training
management staff, and advising on the selection of information and accounting
systems for each Burger King restaurant developed by Host Marriott, and (b)an
on-going annual fee equal to the greater of U.S. $7,000 per location, or 1.5% of
Host Marriott's gross receipts from the operation of each Burger King
restaurant, in exchange for IFFC's on-going technical assistance and services,
including maintaining quality standards, procurement and supply services, and
on-going staff training. The annual fee will be payable monthly, with an annual
reconciliation, and will continue for the duration of Host Marriott's operation
of the location as a Burger King restaurant. Additionally, Host Marriott will be
responsible for all amounts payable to BKC (e.g., franchise fees, advertising
contributions, and royalty fees) for the franchise rights for each location
developed by it pursuant to the agreement.
Host Marriott will offer IFFC the option to acquire up to 50% interest
in any Burger King restaurants developed by it pursuant to the agreement. IFFC
may exercise such option by giving Host Marriott written notice, at any time
prior to the opening of each Burger King restaurant, specifying the percentage
interest that IFFC intends to acquire. If IFFC exercises such option, it will be
responsible for a pro rata portion of the total costs incurred by Host Marriott
in building, equipping and opening such restaurant, together with a pro rata
portion of the cost of any common facilities (e.g., seating areas, tray wash
areas, office and storage space, point of sale and telecommunications systems,
etc.) used in connection therewith. The letter agreement terminates
simultaneously with the BKC Agreement.
Burger King Restaurant System. The Burger King restaurant system is one
of the world's largest restaurant systems, with approximately 10,000 restaurants
currently located in the United States and 53 foreign countries and territories
around the world, including extensive company-owned and franchised operations in
Europe. BKC has developed a restaurant format and operating system, which
includes a recognized design, decor and color scheme for restaurant buildings;
kitchen and dining room equipment and layout; service format; quality and
uniformity of products and services offered; procedures for inventory and
management control; and the Burger King marks, which include such trademarks,
services marks and other marks as BKC may authorize from time to time for use in
connection with Burger King restaurants. All Burger King restaurants are
required to be operated in accordance with BKC standards. Most Burger King
restaurants offer a substantially similar core menu, featuring flame-broiled
hamburgers, cheeseburgers, french fries, and soft drinks. Other menu items may
include salads, pastries, chicken sandwiches, fish sandwiches, ice cream
sundaes, shakes and breakfast menu items. IFFC's current menu does not include
breakfast items. Sandwich menu items account for the most significant amount of
system-wide sales. Prices for the menu items are determined by IFFC and,
accordingly, may vary from other Burger King restaurants in other countries.
The standard restaurant floor plan consists of a kitchen/preparation
area and ordering counter and customer seating area. The design must comply with
specified BKC standards, which are relatively flexible, and can be located in an
existing building or a specially constructed free-standing building with varying
floor plans and configurations. IFFC currently estimates that once space has
been leased and made available to IFFC, approximately 120 days are required to
complete construction, obtain necessary licenses and approvals and open a
restaurant. IFFC currently estimates the cost of opening a Burger King
restaurant to be approximately $450,000 to $1,000,000, including the
construction of the restaurant, road and leasehold improvements, the initial
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franchise fee, furniture, fixtures, and equipment, opening inventories and staff
training (but excluding the cost of land). Such estimates, however, vary
depending on the size and condition of a proposed restaurant and the extent of
leasehold improvements required.
Burger King Restaurant Development. IFFC's restaurant development
strategy is to lease prominent sites in major Polish metropolitan areas and
adjacent to service stations on major thoroughfares. All sites are subject to
the approval of BKC. IFFC considers restaurant location to be critical to its
success and devotes significant efforts to locating and evaluating potential
sites. The site selection process involves an evaluation of a variety of
factors, including demographics (such as population density); specific site
characteristics (such as visibility, accessibility and traffic volume);
proximity to activity centers (such as office or retail shopping districts and
hotel and office complexes); and potential competition in the area. Company
personnel inspect and approve a proposed site for each restaurant and a detailed
site package is prepared for BKC review and approval prior to the execution of a
lease. The opening of restaurants is contingent upon, among other things,
locating satisfactory sites, negotiating acceptable leases or similar rights to
a site, completing any necessary construction, and securing required government
permits and approvals.
Advertising and Promotion. IFFP's franchise agreements with BKC provide
that each franchised restaurant must spend 6% of its gross sales on advertising,
sales promotion, and public relations. IFFC contributes these funds into a
self-administered marketing fund. All expenditures are based on a marketing plan
created jointly by IFFC and BKC, except for local store marketing programs. In
addition, the fund reimburses IFFC up to a certain amount for its marketing
manager. As the number of IFFC's Burger King restaurants increases, IFFC
believes that the increased advertising funds will provide the financial
resources necessary to conduct a fully integrated marketing effort using all
advertising media.
Sources of Supply. IFFP is dependent upon BKC-approved suppliers for
its food products and other supplies. Pursuant to the BKC Agreement and the
standard franchise agreements, all of these supplies must be of a quality and
conform to specifications acceptable to BKC. Additionally, IFFP currently
obtains its restaurant furniture and fixtures, prefabricated kitchen equipment
and point of sale equipment in Poland and obtains other equipment and paper
products from BKC-approved sources in the United States and Europe.
IFFP has established BKC-approved lines of supply for all major
ingredients used in its menu with substantially all of its inventory needs
sourced in Poland and employs a BKC-approved quality inspector who monitors the
quality of supplies obtained from third-party vendors. IFFC believes local
sourcing is important because it avoids expensive import duties and taxes. IFFP
has entered into multi-year contracts with its major suppliers of soft drinks,
buns, meat patties and condiment supplies, and for the distribution of its
supplies to each of its restaurants throughout Poland. The distributor has been
IFFC's comprehensive logistics and distribution coordinator since 1994,
providing state of the art inventory and cost controls to complement IFFP's
point of sale system, which electronically disseminates information on a daily
basis, controls inventory levels and maintains promotional, marketing and food
preference information. Shipments of food and supplies are delivered directly to
the Burger King restaurants. IFFP maintains approximately a seven to 30-day
inventory of food products and supplies for its Burger King restaurants.
Restaurant Operations and Personnel. IFFC operates its restaurants
under uniform standards set forth in BKC's operating manual, including
specifications relating to food quality and preparation, design and day-to-day
operations. IFFP uses BKC training techniques and manuals and solicits the
assistance and counsel of BKC personnel. IFFP is responsible, at its expense,
for the translation of BKC manuals into Polish and pays BKC for certain support
services relating to employee training in BKC facilities in Europe and the U.S.
In addition, IFFP operates two BKC-approved training facilities in Poland. IFFP
maintains financial, accounting and management controls for its restaurants
through the use of centralized accounting systems, detailed budgets and
computerized management information systems.
IFFP's President, Chief Financial Officer, Development Director,
Director of Operations and all key personnel reside in Poland. As of December
31, 1998, IFFP employed approximately 239 full-time and 490 part-time employees.
IFFP's restaurant managers are responsible for supervising the day-to-day
operations of the restaurants, including food preparation, customer relations,
restaurant maintenance, inventory and cost
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control and personnel relations. In addition, restaurant managers are
responsible for selecting and training new crew personnel, who undergo
on-the-job training.
Trademarks. IFFC is authorized to use such trademarks, service marks
and such other marks as BKC may authorize from time to time for use in
connection with Burger King restaurants (collectively, the "Burger King Marks").
BKC has applied for and received trademark registrations in Poland for the
Burger King logo, the words "Burger King" and the word "Whopper." Under the
terms of the BKC Agreement and the individual franchise agreements, IFFC is
required to assist in the defense of any action relating to the right to use or
the validity of the Burger King Marks and to cooperate in the prosecution of any
action to prevent the infringement, imitation, illegal use or misuse of the
Burger King Marks or the Burger King system. BKC is obligated to bear the legal
expenses and costs incidental to IFFC's participation in any such action. BKC
has made no warranty or representation that the Burger King Marks will be
available to IFFC on an exclusive basis or at all.
Domino's Division
KP and PKP control the exclusive development rights and franchises,
respectively, for Domino's Pizza stores in Poland pursuant to a Master Franchise
Agreement (the "Domino's Agreement") with Domino's Pizza International, Inc.
("DPI"), a wholly-owned subsidiary of Domino's Pizza, Inc. ("Domino's"), which
was executed in August 1997. KP has also entered into a commissary agreement
with DPI (the "Commissary Agreement") pursuant to which KP has been granted the
exclusive right to open and operate one or more commissaries for all Domino's
stores in Poland for the term of the Domino's Agreement and any renewal term.
Through PKP, IFFC operates 15 Domino's stores. These stores, which
operate under individual franchise agreements, feature carry-out services and
delivery services to all customers who can be reached in approximately 30
minutes. The stores also provide limited customer seating. The typical Domino's
store size is approximately 1,000 square feet and located in a residential area
with a high base of telephone installations. One such store shares space with an
existing Burger King restaurant.
IFFC's Domino's stores offer various types of pizza, soft drinks,
salads, sandwiches, breadsticks and ice cream, and IFFC anticipates that its
future Domino's stores will offer other food items. IFFC typically offers pizzas
for the zloty equivalent of approximately $4.52 to $8.84, depending upon the
size of the pizza and the number of toppings selected. IFFC believes, to the
extent a comparison is possible, that the prices it charges for meals is
comparable to the prices charged by IFFC's American-style fast food competitors
in Poland.
IFFC's Domino's operations are managed by Andrzej Janus, who began his
career with PKP in 1993 as a manager of a Domino's store. In 1994, Mr. Janus was
promoted to District Manager where he supervised all managers and assistant
managers of PKP's Domino's stores in Poland. The Domino's Agreement requires KP
to designate a full-time general manager, acceptable to DPI, to be responsible
for the Domino's stores to be developed pursuant to the agreement. In August
1997, KP designated and DPI approved Mr. Janus as its General Manager. Mr. Janus
is supported by a team of 10 managers, 26 assistant managers and approximately
241 other employees as of December 31, 1998.
Domino's Agreement and Standard Franchise Agreements. The relationship
between IFFC and Domino's is governed principally by the Domino's Agreement and
the individual Domino's store standard franchise agreements. Pursuant to the
Domino's Agreement, IFFC has the exclusive right to develop, operate and
franchise Domino's stores in Poland. Pursuant to the Domino's Agreement, the
schedule for IFFC's required opening of Domino's stores is as follows:
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Number of Stores
To Be Opened
Time Period During Time Period
----------- ------------------
August 1, 1997 through December 31, 1997 1
January 1, 1998 through December 31, 1998 5
January 1, 1999 through December 31, 1999 6
January 1, 2000 through December 31, 2000 7
January 1, 2001 through December 31, 2001 8
January 1, 2002 through December 31, 2002 9
January 1, 2003 through December 31, 2003 10
---
Total stores to be opened by December 31, 2003 46
IFFC has opened 11 Domino's stores pursuant to the Domino's Agreement
and has satisfied its development requirements for 1997 and 1998.
As a condition to the Domino's Agreement IFFC contributed $2,000,000 to
KP. IFFC also agreed that any additional capital required above such amount will
also be dedicated to KP as needed to permit KP to meet its development quotas.
Pursuant to the Domino's Agreement, Domino's received $300,000 as a
non-refundable development fee. The term of the Domino's Agreement will expire
on December 31, 2003, and if KP is in compliance with all material provisions of
the agreement, it may be extended for an additional 10 years in accordance with
certain minimum development quotas which KP and Domino's may agree upon by
execution of an amendment to the Domino's Agreement.
With respect to each operating Domino's store, KP is required to pay an
initial franchise fee of up to $5,000 and a monthly royalty fee equal to 3% of
each store's gross sales, net of taxes, irrespective of profitability. KP's
royalty payments to DPI are payable in U.S. currency, or at DPI's option, in
local currency. Although DPI may elect to accept payment in alternative
currencies if payment in U.S. currency is prohibited by applicable law, DPI may
terminate the Domino's Agreement if KP is unable to pay DPI in U.S. currency for
a period of one year.
Under the terms of the Domino's Agreement, Domino's is required to
provide, on an ongoing basis, all information and materials necessary to make KP
familiar with the Domino's system and the methods used to operate and manage
Domino's stores and commissaries, including, without limitation, plans and
specifications for Domino's stores and commissaries, site selection criteria,
advertising and marketing plans, methods and procedures for the preparation,
serving and delivery of food and beverages and management control systems. Such
information is to be provided by DPI to IFFC in the form of the Domino's
Operations Manual, memoranda or through consultations with Domino's experienced
staff members.
Domino's has reserved the right to review and audit certain of KP's
operations, financial and tax accounting reports, statements and returns.
Domino's may terminate rights granted to KP under the Domino's Agreement,
including franchise approvals for stores not yet opened, for a variety of
possible defaults by KP, including, among others, failure to open Domino's
stores in accordance with the development schedule; failure to obtain Domino's
site approval prior to the commencement of each Domino's store's construction;
failure to obtain Domino's approval of any non-affiliated franchisee; and
failure to meet various operational, financial, and legal requirements set forth
in the Domino's Agreement and the standard franchise agreements. Upon
termination of the Domino's Agreement, whether resulting from default or
expiration of its terms, Domino's has the right to license others to develop and
operate Domino's stores in Poland, or to do so itself. If KP fails to meet its
development schedule during the initial term of the agreement or any successor
development term, KP would lose its rights to develop and franchise additional
Domino's stores, but would be entitled to continue to act as a master franchiser
and a franchisee with respect to all franchise agreements theretofore granted
and executed. Under certain other circumstances of default, Domino's has the
right to terminate the Domino's Agreement and force the sale of, at the then
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current market value, all of KP's rights and interests as a master franchiser of
Domino's stores and all of the assets of each Domino's store controlled by KP.
Upon termination of the Domino's Agreement under certain circumstances,
Domino's also has the right to purchase KP's outstanding rights and interests as
master franchisor at a fair market value. In order to exercise this right,
within ten days of termination of the Domino's Agreement, Domino's is required
to request an appraisal of all of KP's rights and interests as a master
franchisor and is entitled to full access to all of KP's books and records. If
KP and Domino's are unable to agree upon the fair market value of KP's rights
and interests as a master franchisor within 30 days of Domino's request for
appraisal, the fair market value shall be determined by an appraiser, which
appraiser is selected according to a prescribed method. The appraiser is
required to submit an appraisal report within 60 days of his or her appointment
and Domino's then has the option within 30 days of such submission to purchase
all of KP's rights and interests as a master franchisor at the fair market value
stated in the appraisal report. If Domino's exercises its option to purchase
KP's rights and interests as a master franchisor, Domino's will also have the
option for 30 days from the date of the termination of the Domino's Agreement to
give notice of appraisal, review KP's books and records, and purchase, at fair
market value, all of the assets of each Domino's store controlled by KP. Fair
market value of the assets of each Domino's store is determined through a
process similar to that described above.
Prior to the opening of each Domino's store, KP is required to pay
Domino's a franchise fee and, as master franchisor, is required to enter into a
standard franchise agreement with the store franchisee (whether or not
affiliated with IFFC). Each franchisee and each Domino's store location is
subject to the approval of Domino's, which approval may not be unreasonably
withheld. The standard franchise agreement for a Domino's store has a ten-year
term with a ten-year renewal option. During such periods the franchisee is
permitted to use the Domino's system in an exclusive area, free of competition
from other franchisees. With respect to each of its operating Domino's stores, a
franchisee is required to pay KP an initial franchise fee and a monthly royalty
fee, as well as an advertising fee based on a percentage of the gross sales of
each Domino's store, net of taxes, irrespective of profitability. The financial
terms of the standard franchise agreement may be renewed at the expiration of
the term. A franchisee's rights under a standard franchise agreement may not be
transferred without the consent of KP and Domino's. PKP is currently the only
Domino's franchisee in Poland. There are no non-affiliated franchisees. Thus,
the fees which may be charged to the franchisee by the master franchisor have
been eliminated, thereby reducing the overall operating costs of the individual
stores.
Each franchisee must comply strictly with the Domino's system, and the
standards, specifications and procedures comprising such system may be changed
from time to time. Each Domino's store must be constructed, equipped, furnished
and operated at the cost and expense of the franchisee in accordance with
Domino's specifications. Each Domino's store is required to offer for sale only
those pizza and beverage products authorized by Domino's. In addition, each
Domino's store is obligated to offer delivery services to all customers within a
prescribed delivery area, which delivery area is restricted to allow a delivery
order to be satisfied within 30 minutes. All of the food products and other
supplies used in Domino's stores must be of a quality that conforms to Domino's
specifications. Compliance with requirements as to signage, equipment, menu,
service, hygiene, hours of operation and data and voice communications is
similarly prescribed. Domino's and KP each reserve the right to enter each
Domino's store, conduct inspection activities, and require prompt correction of
any features that deviate from the requirements of the relevant standard
franchise agreement. Similarly, KP has the right to review and audit each
franchisee's operations, financial and tax accounting statements, reports and
returns. KP is obligated to use its best efforts to ensure that each
non-affiliated franchisee complies with its franchise agreement and local laws
and regulations.
Under the terms of the standard franchise agreement, each franchisee is
entitled to receive from KP, on an ongoing basis, all information and materials
necessary to make the franchisee familiar with the Domino's system and the
methods used to operate and manage Domino's stores. Domino's and KP require
extensive training of Domino's store personnel. All franchisees, or their
designees, must successfully complete KP's Domino's store manager training
program and any additional training programs required by Domino's or KP. Each
franchisee must implement a training program for store employees in accordance
9
<PAGE>
with training standards and procedures prescribed by Domino's and KP and must
staff each Domino's store at all times with a sufficient number of trained
employees.
The standard franchise agreement provides that a franchisee may not
have any interest in, be employed by, advise or assist any other business that
is the same as or similar to a Domino's store during the term of the agreement
and, for a period of one year after termination or expiration of the franchise
agreement, may not have any interest in, be employed by, advise or assist any
other business that is the same as or similar to a Domino's store within ten
miles of the Domino's store it had operated. KP may terminate the franchise
agreement for any Domino's store for, among other things, failure to pay amounts
due with respect to that Domino's store, failure to operate the Domino's store
in accordance with prescribed operating standards, and persistent breaches. Upon
termination, the franchisee's rights to use the Domino's trademarks and Domino's
store system terminate, and KP becomes entitled to assume the franchisee's
leasehold interest and purchase the Domino's store at the fair market value
thereof.
During the term of the Domino's Agreement, KP and its controlling
shareholders, including the controlling shareholder of IFFC, cannot have any
interest as an owner, investor, partner, licensee or in any other capacity in
any business engaged in sit-down, delivery or carry-out pizza or in any business
or entity which franchises or licenses or otherwise grants to others the right
to operate a business engaged in such business which is located in Poland. The
latter restriction shall apply for a period of one year following the effective
date of termination of the Domino's Agreement.
Domino's Commissary. In conjunction with its exclusive right to develop
and franchise Domino's stores in Poland, the Domino's Agreement grants KP the
exclusive right to develop and operate the commissaries from which all
franchisees in Poland purchase food and supplies. Because KP is the owner of the
Domino's commissary, additional mark-up costs on supplies provided by the
commissary are eliminated for the Domino's stores operated by PKP. Domino's has
agreed to provide IFFC, on an ongoing basis, all information and materials
necessary to make IFFC familiar with the methods used to operate and manage a
Domino's commissary. In January 1995, KP commenced operations of the
full-service commissary in approximately 1,500 square feet of the Jana Pawla
Domino's store.
On March 18, 1999, PKP entered into a new ten year lease for
approximately 7300 square feet of warehouse space to be used for a new Domino's
commissary. The initial annual lease payment will be paid in Polish zloty and
will be approximately $32,724, excluding the cost of electricity. Monthly lease
payments commence on June 1, 1999 at approximately $2,700 per month; increasing
by 2% starting on January 1st, 2000 and each subsequent year thereafter for the
duration of the lease. The site has been approved for its intended use by
Domino's. KP expects to service up to 60 Domino's stores from this facility and
expects it to be operational by July 1999. KP will be relocating its existing
commissary equipment to the new facility and estimates the costs to be
approximately $100,000 including leasehold improvements, equipment, and
furniture and fixtures. KP has the right to develop additional commissaries as
needed. KP intends to conduct all of its purchasing, distribution and main food
supply operations from the new commissary.
Domino's Store System. Domino's is the world's second largest pizza
company, with approximately 6,100 stores in over 60 countries. All Domino's
stores are required to be operated in accordance with Domino's standards.
Domino's stores feature carry-out services and delivery services to all
customers located within prescribed service areas and offer a substantially
similar core menu including various types of pizza and soft drinks. Other menu
items include salads, sandwiches and breadsticks. Pizza accounts for the most
significant amount of system-wide sales. Prices for Domino's menu items are
determined by the various operators of Domino's stores and, accordingly, may
vary throughout the Domino's store system.
Domino's has developed a store format and operating system, which
includes a recognized design, decor and color scheme for store buildings;
kitchen equipment and layout; service format; quality and uniformity of products
and services offered; procedures for inventory and management control; and a
delivery system. Domino's stores may incorporate varying floor plans and
configurations and may be located in a specially constructed freestanding
building or in existing buildings.
IFFC's initial Domino's stores are in existing buildings and range from
1,000 square feet to 2,500 square feet, depending upon whether only delivery and
pick-up services are offered or counter service with limited seating for
customers is also available. In the future, IFFC intends to focus its efforts on
10
<PAGE>
the development of traditional Domino's stores which provide primarily delivery
and pick-up services and Domino's stores developed by IFFC should range in size
from 900 to 1200 square feet. IFFC estimates that once the space has been leased
and made available to IFFC, approximately 30 to 90 days are required to
renovate, equip, furnish and obtain necessary licenses and approvals to open a
Domino's store. IFFC estimates the cost of opening a Domino's store to be
between $125,000 and $200,000, including leasehold improvements, furniture,
fixtures, equipment, the initial franchise fee and opening inventories (but
excluding the cost of land). Such estimates may vary depending on the size and
condition of a proposed Domino's store and the extent of leasehold improvements
required.
Domino's Store Development. To date, IFFC has concentrated its efforts
on the development of Domino's stores in Warsaw, Poland, however, it intends to
focus most of its future Domino's store development efforts on other Polish
cities. All sites are subject to the approval of Domino's. IFFC considers a
Domino's store location to be critical to its prospects and devotes significant
efforts to the investigation and evaluation of potential leases and sites. IFFC
believes that the Domino's store concept may be successful in a wide variety of
areas within a city. Accordingly, the site selection process involves an
evaluation of a variety of factors, including demographics (such as population
density); specific site characteristics (such as visibility, accessibility and
traffic volume); proximity to activity centers (such as office or retail
shopping districts and apartment, hotel and office complexes); potential
competition in the area; construction or renovation costs; and lease terms and
conditions. Because traditional Domino's stores provide delivery and pick-up
services only, IFFC has sought and seeks to place Domino's stores in
metropolitan areas with adequate levels of telephone ownership. Company
personnel inspect and approve a proposed site for each Domino's store prior to
the execution of a standard franchise agreement and store lease.
Advertising and Promotion. The Domino's standard franchise agreement
provides that each franchisee will contribute a monthly advertising and
promotion fee equal to 4% of its gross sales to a fund self-administered by each
Franchisee to be used for advertising, sales promotion and public relations.
Each Franchisee is responsible for using the proceeds of the advertising fund to
develop and implement advertising and promotional plans, materials and
activities on behalf of the Domino's stores in Poland, which plans, materials
and activities are subject to Domino's approval. Non-affiliated franchisees will
be permitted to conduct their own advertising and promotion subject to IFFC's
and Domino's approval. Domino's is required to provide advertising and
promotional assistance to IFFC. IFFC believes that many marketing methods that
have proven successful for Domino's are adaptable to the Polish market. Most
marketing efforts by currently operating Domino's stores in continental Europe
have been carried out on a local store basis, through newspaper coupons, flyers
and similar media. As the number of IFFC's Domino's stores increases, IFFC
believes that the increased advertising funds will provide the financial
resources necessary to conduct a fully integrated marketing effort using all
advertising media.
Sources of Supply. IFFC is substantially dependent upon third parties
for all of its capital equipment (including furniture, fixtures and equipment),
food products, and other supplies. Pursuant to the Domino's Agreement and the
standard franchise agreements, all of these supplies must be of a quality and
conform to specifications acceptable to Domino's. IFFC currently obtains
substantially all of its supplies and food products, including cheese, soft
drinks, cold cuts and paper products from Polish sources and maintains
approximately a seven to 30 day inventory of food products and supplies for its
Domino's stores. IFFC currently obtains its store furniture and fixtures from
sources in Poland and obtains its restaurant equipment, flour and tomato sauce
primarily from Domino's approved sources in the United States and Europe. IFFC
currently has no written, long-term supply agreements. Shipments of food and
supplies are delivered directly to the commissary or Domino's stores.
Store Operations and Personnel. IFFC operates its Domino's stores under
uniform standards set forth in Domino's Operating Manuals, including
specifications relating to food quality and preparation, design and decor and
day-to-day operations. IFFC's operations are similar to those of other Domino's
stores. IFFC hires Domino's store managers who are responsible for supervising
the day-to-day operations of the Domino's stores, including food preparation,
customer relations, store maintenance, cost control and personnel relations. In
addition, Domino's store managers are responsible for selecting and training new
employees, who undergo on-the-job training. As of December 31, 1998, IFFC
employed approximately 344 full-time and 681 part-time employees.
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<PAGE>
To date, IFFC believes that it has successfully attracted and trained
local managers and other employees. IFFC operates its own Domino's approved
training facility in Poland, with assistance from Domino's. IFFC maintains
financial, accounting and management controls for its Domino's stores through
the use of centralized accounting systems, detailed budgets and computerized
management information systems.
Trademarks. IFFC is authorized to use such trademarks, service marks
and such other marks as Domino's may authorize from time to time for use in
connection with Domino's stores. Domino's has received trademark approval In
Poland for certain marks including the Domino's logo and the words "Domino's
Pizza."
DOING BUSINESS IN POLAND
The information presented in this section has been extracted from
publicly available documents and is not intended to be a complete description of
all information about the Republic of Poland that may be material to the
Company.
Area and Population. Poland is one of the largest countries in Europe
with a total land area of approximately 312,000 square kilometers. It shares
land borders with Germany, the Czech Republic, Slovakia, Ukraine, Belarus,
Lithuania and the Russian Federation. Its population, which was estimated at
approximately 39 million (as of December 31, 1998), makes it one of the most
populous countries in Europe, with approximately 62% of the population living in
urban areas. Poland has an extensive network of roads, railways and canals, and
has four major ports on the Baltic sea.
Government and Political System. Poland is a democratic republic base
on the three-party system. The President is elected in general elections. The
President nominates the Prime Minister and the remaining Ministers who
constitute the executive branch of the government. The Parliament, which is also
elected in general elections, consists of a lower house (the Sejm) and an upper
house (the Senate). Judicial power is vested in independent courts, which answer
to the Supreme Court.
Economic Overview. Since the fall of the Communist government in 1989,
Poland has embarked on a program of economic reforms, based on a transition to a
market economy and private ownership. Poland has become the first former
centrally planned economy in Central and Eastern Europe to end its recession and
return to growth. In 1990, the first post-communist government introduced the
"Economic Transformation Program" (also known as the "Balcerowicz Plan" after
the first post-communist Minister of Finance). The radical economic reform
program was designed to stabilize the economy and promote structural reforms.
Key elements included the ending of state subsidies to state enterprises and
eliminating administrative controls of most prices. After a significant decline
in GDP in real terms, a sharp rise in unemployment and an acceleration in
inflation, Poland returned to growth, with positive rates of GDP growth for the
years 1992 to 1998.
Poland today stands out as one of the most successful and open
transition economies. The privatization of small and medium-sized companies and
a liberal law on establishing new firms marked the rapid development of a
private sector now responsible for at least two-thirds of the economic activity.
Currently, the Polish economy is generally characterized by lower rates of
inflation, prices that are almost completely freed from administrative control,
sustained growth, liberalized rules on foreign exchange transactions and a
generally rising level of foreign exchange reserves.
The economic recovery in Poland since 1992 has benefited most sectors
of the economy. Unemployment which peaked in 1994 at 16% dropped to 10.4% in
1998. Real wages have grown during the last four years, increasing 4.8% in 1998.
Domestic demand has been driven by an increase in investment and private
consumption and exports have increased. In addition, Poland also benefits from
increasing productivity. A significant portion of the growing domestic demand,
however, has been met through imports, resulting in a growing trade deficit.
The composition of Poland's trade has changed dramatically since the
1980's. In 1998, approximately 89% of total direct investment in Poland came
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<PAGE>
from countries participating in the Organization for Economic Cooperation and
Development. The European Economic Union ("EU") accounted for approximately 60%
of total trade, with Germany becoming Poland's dominant trading partner,
followed by the United States, France and Italy. Although the composition of
Poland's exports by category has remained broadly unchanged, there has been a
major shift in the quality of exported manufactured goods to meet the expected
standard of more competitive western markets.
Poland's government has run a budget deficit throughout the 1990's,
although since 1993 the deficit has remained below the annually set target and
was 1.5% of GDP in 1998. In recent years, the financing of the budget deficit
has been secured mainly through the issuance of treasury securities on the
domestic market with very limited recourse to external sources, and has been
characterized by increasingly longer average maturities. Budgetary discipline
has been maintained by cuts in areas such as defense, health care and education.
During the period of reform since 1992, successive governments have
supported structural transformation of the economy directed at reforming
state-owned enterprises, selling certain state-owned assets, modernizing the
banking system and creating a modern capital market. The process of structural
reform is ongoing and not all stated government goals have been achieved. In
particular, the goal of selling state-owned assets through privatization began
slowly and is only partially complete. Current privatizations include the
General Insurance Office, Bank Pekao S.A. (the largest bank in Poland), and
Polish Telecom, as well as entire sectors, such as sugar (planned conclusion in
2000), steel, arms, crude oil and power generation industries.
Poland is a member of the International Monetary Fund, the World Bank,
the United Nations Organization and the Organization for Economic Cooperation
and Development, and is an associate member of the EU. Additionally, in 1999
Poland became a formal member of the North Atlantic Treaty Organization
("NATO").
Gross Domestic Total. Poland is one of the fastest growing economies in
Europe. In 1998, unofficial preliminary estimates indicated that Poland's GDP
grew by 4.8% in real terms, following increasing real growth rates based on IMF
estimates in 1994, 1995, 1996, 1997 and 1998 of 5.2%, 7.0%. 6.1%, 6.9% and 4.8%,
respectively.
Inflation. Although inflation has generally declined since prices were
liberalized in the beginning of 1990, the rate of inflation in Poland is still
high compared to Western Europe or the United States. The annual increase in the
consumer price index ("CPI") has been continuously but gradually declining from
a rate of almost 250% in 1990 to 8.6% in 1998. This decline has occurred
together with increases in real GDP and decreasing unemployment. Similarly, the
annual increase in the producer price index ("PPI") decreased from approximately
293% in 1990 to 4.9% in 1998.
Employment and Wages. Before 1989, unemployment was not officially
recognized in Poland and over-employment was evident in many enterprises. By the
end of the first quarter of 1994, registered unemployment had reached over 16.0%
of the labor force but by the end of that year it had decreased for the first
time since 1990 to 16.0% of the labor force. At December 31, 1998, registered
unemployment was 10.4% of the labor force.
All employees, Polish and foreign, must be paid in zlotys. Foreign
employees require work permits from local authorities, which are typically not
difficult to obtain for executive or managerial employees, and are typically
obtained in due course. Employers are required to pay a minimum wage. All wages
are subject to payroll taxes payable by the employer, and income tax payable by
the employee.
Polish Currency. As of January 1, 1995, the National Bank of Poland
introduced a new denomination of its currency unit which is named a "zloty." New
zlotys are equivalent to 10,000 old zlotys. Old zlotys remained legal tender
until December 31, 1996, after which date they are exchangeable only at certain
banks. The only currency that may be used in Poland is the zloty. The value of
the zloty is determined pursuant to a system based on a basket of currencies
(whose weights in the basket reflect their relative importance in Poland's
foreign trading transactions), as well as all other economic and political
factors that effect the value of currencies generally. At December 31, 1998, the
exchange rate was 3.494 zlotys per dollar.
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<PAGE>
Foreign Direct Investment in Poland. In general, foreign investors are
not required to obtain any special permits to invest in Polish companies. A
foreign investor may establish a limited liability company (roughly analogous to
a closely held corporation in the United States), in which it will hold 100% of
the shares; establish a limited liability company, with the equity jointly
contributed by it and other foreign and/or Polish parties; or enter business in
Poland through acquisition of stock of an existing Polish limited liability
company. A foreign investor may also invest in "joint stock companies," which
are roughly analogous to publicly held corporations in the United States.
Subject to certain restrictions, the Polish foreign investment law generally
allows for full repatriation of capital dividends and profits by foreign
investors.
Other than pursuant to provisions of the Polish Commercial Code
generally applicable to all limited liability companies, there is no minimum
level of investment required of a foreign person investing in a Polish limited
liability company. The minimum capital required for establishment of any limited
liability company is 4,000 zlotys (approximately $1,145 at December 31, 1998
exchange rates), which must be made in Polish currency obtained from the sale of
convertible currency (including United States or West European funds) to a
foreign exchange bank, or, to the extent designated in the company's
incorporation documents, through in-kind, nonmonetary contributions that are
transferred from abroad or purchased with Polish currency obtained from the sale
of convertible currency to a foreign exchange bank. To the extent designated in
the company's incorporation documents, fixed assets may constitute in-kind,
non-monetary contributions to equity.
Governmental Regulation of Restaurant Operations. Restaurant operations
are subject to a number of national and local laws and regulations, primarily
related to sanitation. All imported food products are subject to specific
sanitary requirements. Restaurants are subject to national regulations relating
to health and sanitation standards, generally implemented, administered and
enforced at the local level. All properties are subject to local zoning,
building code and land-use regulations. In general, necessary approvals and
permits for restaurant operations are granted without undue delay.
Taxation. A limited liability company with foreign investors is subject
to the same taxes, and general tax reductions, as domestic Polish companies
without foreign participation. A limited liability company is subject to
corporate income tax, VAT, which is known in Poland as the "Tax on Goods and
Services," and excise tax and, depending on the nature of its business
activities, may also be subject to real estate tax, local tax, and stamp duty.
The corporate income tax rate is currently 34%. The rate is generally calculated
by the extent to which revenues exceed expenses, including operating losses,
which may be carried forward for three years. The shareholder of a limited
liability company is liable for any income taxes not paid by the company.
Goods and services, including imported goods and services, are subject
to a VAT tax. Certain commodities like liquors and automobiles are subject to
excise tax, based on the value of such items. With respect to imports, the value
of such items is equal to the customs' value plus any customs' duties. The VAT
basic rate is 22%, but in the case of certain products (including food
products), it is reduced to 7% or eliminated entirely. Under the VAT system,
credit is given for VAT paid against VAT collected.
Currently, dividends are taxed at the rate of 20%. However, Poland has
executed a bilateral tax agreement with the United States, pursuant to which the
tax on dividends of corporations in which at least 10% of the voting stock is
held by a United States corporation may not exceed 5%. Thus, though current
regulations would otherwise provide for a 20% tax on dividends, taxes on
dividends paid by a limited liability company which is a subsidiary of IFFC will
be at the rate of 5%.
Customs Duties and Import Restrictions. IFFC's operations may be
subject to various levels of customs duties on certain types of items imported
into Poland. Customs duties and other similar fees, however, are not levied on
non-monetary, in-kind contributions to capital, provided that such contributions
constitute "fixed assets" and are not disposed of during the three-year period
following customs clearance. Although IFFC has contributed as capital
substantially all of its subsidiaries' furniture, fixtures and equipment, there
can be no assurance that such equipment will ultimately qualify as "fixed
assets" for purposes of this exclusion.
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<PAGE>
Item 2. Description of Property.
Offices of IFFC. IFFC maintains its executive offices in approximately
2,500 square feet of leased office space at 1000 Lincoln Road, Suite 200, Miami
Beach, Florida 33139. Annual lease payments under the lease are approximately
$38,000. IFFC currently subleases approximately 1,400 square feet for an annual
fee of $30,700. IFFC has exercised its third of three two-year renewal options
under the lease, which expires in December 2000.
In April 1998, IFFP executed a lease for approximately 4,680 square
feet of space located at 16 Jagiellonska St., Warsaw, Poland. The annual rental
payment is approximately $110,000, including common area charges. The agreement
is for a five-year term and IFFC has the right of first refusal in leasing the
premises for subsequent annual periods, provided that the lessor is notified of
IFFC's intention to continue leasing the premises no later than six months
before the expiration of the initial term. IFFC relocated to such offices in
July 1998.
Management believes that all of IFFC's properties are adequately
covered by insurance. IFFC has not incurred nor does it anticipate incurring any
material costs or expenses associated with compliance with the environmental
laws of the United States or Poland.
Burger King Stores. The following table sets forth, as of March 22,
1999, the location, opening date, lease or sublease expiration date (including
all renewal options), square meters and minimum annual lease payments (in U.S.
dollars) for each of IFFC's Burger King restaurants:
<TABLE>
<CAPTION>
Lease Square Minimum Annual
Location Opening Date Expiration Date Meters(3) Lease Payments
-------- ------------ --------------- --------- --------------
<S> <C> <C> <C> <C>
Warsaw, Poland December 1992 January 2004 522 $28,942
Warsaw, Poland April 1993 (1) 720 $43,352
Warsaw, Poland May 1993 (1) 851 $41,300
Warsaw, Poland July 1993 January 2009 476 $26,151
Lublin, Poland March 1994 January 2014 824 $54,000
Warsaw, Poland March 1994 January 2009 276 $86,000
Kielce, Poland May 1994 May 2013 390 $21,000
Katowice, Poland October 1994 November 2003 550 $103,200
Mikolow, Poland July 1998 November 2017 600 $12,000
Torun, Poland August 1998 January 2018 1,135 $30,000
Plonsk, Poland September 1998 April 2018 3,610 $30,000
Pabianice, Poland November 1998 June 2018 560 $36,000
Raciborz, Poland November 1998 July 2018 360 $36,000
Olsztyn, Poland November 1998 July 2018 800 $36,000
Gorzow, Poland November 1998 October 2018 850 $36,000
Wroclaw, Poland December 1998 September 2018 2,200 $30,000
Szczecin, Poland January 1999 November 2018 1,650 $36,000
Walbrzych, Poland January 1999 December 2018 1,600 $36,000
Opole, Poland February 1999 September 2018 1,600 $30,000
Czestochowa, Poland February 1999 November 2018 1,180 $36,000
Czechowice, Poland March 1999 November 2038 3,733 $21,000
Krakow, Poland April 1999(2) August 2018 1,500 $36,000
Tychy, Poland April 1999(2) January 2018 2,078 $30,000
Warsaw, Poland April 1999(2) October 2018 1,250 $36,000
Warsaw, Poland April 1999(2) November 2018 1,360 $30,000
Warsaw, Poland July 1999(2) January 2018 2,078 $30,000
</TABLE>
- -----------------------
(1) Indicates lease is for an unlimited period of time, but may be
terminated upon three months notice by the lessor, subject to certain
conditions.
(2) Expected opening date.
(3) Includes basement, second floor and land area.
Domino's Stores. The following table sets forth, as of March 22, 1999,
the name, location, opening date, lease or sublease expiration date (including
all renewal options), square meters and minimum annual lease payments (in U.S.
dollars) for each of IFFC's Domino's Stores:
15
<PAGE>
<TABLE>
<CAPTION>
Lease Square Minimum Annual
Location Opening Date Expiration Date Meters Lease Payments
-------- ----------- --------------- ------ --------------
<S> <C> <C> <C> <C>
Warsaw, Poland March 1994 January 2009 480 $86,000
Warsaw, Poland May 1994 (1) 130 $8,290
Warsaw, Poland August 1994 March 2004(2)(3) 482 $35,000
Warsaw, Poland July 1997 (1) 100 $6,250
Warsaw, Poland December 1997 (1) 97 $13,400
Warsaw, Poland March 1998 (1)(4) 190 $10,760
Warsaw, Poland March 1998 January 2008 93 $14,400
Warsaw, Poland April 1998 February 2008 100 $15,025
Warsaw, Poland June 1998 (1) 137 $9,883
Warsaw, Poland July 1998 (1) 83 $6,247
Lublin, Poland December 1998 September 2008 125 $15,420
Lomianki, Poland December 1998 October 2008 116 $9,600
Lodz, Poland December 1998 October 2008 211 $6,840
Warsaw, Poland January 1999 June 2007 120 $12,000
Legionowo, Poland January 1999 October 2008 120 $10,800
Piaseczno, Poland May 1999(5) October 2008 92 $7,800
</TABLE>
- --------------------
(1) Indicates lease is for an unlimited period of time, but may be
terminated upon three months notice by the lessor, subject to certain
conditions and payments to lessee.
(2) Includes corporate office space.
(3) Includes commissary.
(4) Includes training facility.
(5) Expected opening date.
Item 3. Legal Proceedings.
Polish Fiscal Authority Disputes
As of July 1995, IFFP may have become subject to penalties for failure
to comply with an amended tax law requiring the use of cash registers with
certain calculating and recording capabilities and which are approved for use by
the Polish Fiscal Authorities. As a penalty for noncompliance, Polish tax
authorities may disallow certain value added tax deductions for July and August
1995. Additionally, penalties and interest may be imposed on these disallowed
deductions. IFFP believes that its potential exposure is approximately $560,000,
which amount was accrued for in its 1998 consolidated financial statements. IFFP
has requested a final determination by the Polish Minister of Finance. IFFC is
unable to predict the timing and nature of the Minister's ruling. Although
IFFP's NCR Cash Register System was a modern system, it could not be modified.
IFFP has replaced the system with a new Siemen's system which complies with
Polish regulations.
Other Litigation
The Company is a party to the following legal proceeding: Elpoint
Company, LLC and Gennady Yakovlev, vs. Mitchell Rubinson, Marilyn Rubinson, Edda
Rubinson, Nigel Norton, James F. Martin, Leon Blumenthal, C. Lawrence Rutstein,
Shulman & Associates, Inc., Manny Schulman, Franklyn Weichselbaum, James
Miranti, International Fast Food Corporation, Domino's Pizza International,
Inc., Regenesis Holdings Corporation, United States District Court, Northern
District of California (Case No. 99-1107 CRB). On March 10, 1999, certain
shareholders of Regenesis Holdings Corporation (f/k/a QPQ Corporation)
("Regenesis") filed a complaint against IFFC and certain of its senior
management and principal shareholders, including Mitchell Rubinson, IFFC's
Chairman of the Board and Chief Executive Officer, and James Martin, IFFC's Vice
President and Chief Financial Officer. Regenesis formerly held the right to
develop Domino's Pizza stores in Poland. Certain former officers and principal
stockholders of Regenesis are officers and principal shareholders of IFFC. The
complaint alleges, among other things, that the defendants fraudulently
transferred the Domino's development rights to IFFC, thereby causing Regenesis
to lose value. Additionally, the complaint alleges that IFFC engaged in the
misappropriation of corporate opportunities of QPQ Corporation. The plaintiffs
are seeking unspecified monetary damages, including treble and punitive damages,
16
<PAGE>
and reasonable costs and attorney's fees. Because this matter is in its
preliminary stages, management is unable to determine what effect it will have
upon IFFC's financial condition, results of operation or liquidity; however,
management believes that the claims are without merit.
The Company is not a party to any other litigation or governmental
proceedings that management believes would result in any judgments or fines that
would have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
17
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information. The common stock is listed on the NASD OTC Bulletin
Board under the symbol "IFFC." The following table sets forth, for the period
since January 1, 1997, the high and low closing bid quotations for the common
stock as reported by the NASD OTC Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
High Low
1997 ---- ----
----
First Quarter............................... $.57 $.15
Second Quarter.............................. $.42 $.27
Third Quarter............................... $.55 $.37
Fourth Quarter.............................. $.91 $.40
1998
----
First Quarter............................... $.55 $.31
Second Quarter.............................. $.85 $.43
Third Quarter............................... $.90 $.70
Fourth Quarter.............................. $1.03 $.72
Holders. As of March 22, 1999, there were 85 record holders of IFFC's
common stock. Management believes that there are over 600 beneficial holders of
IFFC's common stock.
Dividends. IFFC has not paid any cash dividends on its Common Stock and
does not currently intend to declare or pay cash dividends in the foreseeable
future. IFFC intends to retain any earnings that may be generated to provide
funds for the operation and expansion of its business.
Florida law provides that no distribution may be made to shareholders
if, after giving effect to such distribution, (a) the corporation would be
unable to pay its debts as they become due in the usual course of business, or
(b) the corporation's total assets would be less than the sum of its total
liabilities plus, unless the articles of incorporation provide otherwise, the
amount that would be needed in a dissolution to satisfy the preferential rights
of shareholders whose preferential rights are senior to those receiving the
distribution. The Board of Directors is empowered to base its evaluation of
whether a distribution is permitted under the statute either on (a) financial
statements that are prepared on a basis of accounting principles and practices
that are reasonable under the circumstances or (b) fair valuation or other
method that is reasonable in the circumstances. Accordingly, the payment of
dividends on the common stock will be subject to the statutory insolvency test.
In addition, IFFC has in the past failed to pay the dividends on its outstanding
preferred stock. A condition of the payment of dividends on the common stock is
the payment of the dividends, in arrears, owing to the holders of the preferred
stock. There is no assurance that IFFC will be able to pay any future dividends
on either its preferred stock or common stock.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Special Note Regarding Forward Looking Statements
Information contained in this Annual Report on Form 10-K contains
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "could," "intends," "estimates," "projected," "contemplated" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology. No assurances can be given that the future results covered by the
forward-looking statements will be achieved. These statements, by their nature,
involve substantial risks and uncertainties, certain of which are beyond IFFC's
control. The following factors and other factors described elsewhere in this
annual report could cause actual experience to vary materially from the future
18
<PAGE>
results covered in such forward-looking statements. Other factors, such as the
general state of the economy, could also cause actual experience to vary
materially from the matters covered in such forward-looking statements.
o the future growth of our business and our ability to comply with the
BKC Agreement and Domino's Agreement;
o our ability to improve levels of profitability; the sufficiency of
cash flow provided by our operations, investing and financing activities;
o changes in our financial condition, and the economic, business and
political conditions in Poland;
o the demand for our products and the ability of our third-party
suppliers to meet our quantity and quality requirements;
o the ability to consummate joint ventures or other strategic
associations with third parties or lessors;
o the ability to obtain suitable restaurant sites;
o changes in the level of operating expenses and revenues;
o changes in the present and future level of competition; and
o our future liquidity and capital resource needs.
General
IFFC currently operates 21 Burger King restaurants and 15 Domino's
Pizza stores. IFFC has incurred losses and anticipates that it will continue to
incur losses until, at the earliest, it establishes a number of restaurants and
stores generating sufficient revenues to offset its operating costs and the
costs of its proposed continuing expansion. There can be no assurance that IFFC
will ever achieve profitability or be able to successfully establish a
sufficient number of restaurants to achieve profitability.
In July 1997, the Company purchased KP and PKP which currently own the
exclusive master franchise rights and commissary rights, and the individual
store franchises, respectively, for Domino's pizza stores in Poland. The
acquisition was accounted for under the purchase method of accounting, and the
net assets acquired are included in the Company's consolidated balance sheet
based upon their estimated fair values at the date of acquisition. Results of
operations of KP are included in the Company's consolidated statement of
operations subsequent to the date of acquisition. The excess of the net assets
acquired over the purchase price is accounted for as a reduction of furniture,
equipment and leasehold improvements.
19
<PAGE>
On September 4, 1998, the Company purchased the remaining 15% of the
outstanding capital stock of IFFP from the minority shareholder in exchange for
$1.5 million in cash, plus expenses associated with the purchase.
Year-Ended December 31, 1998 vs. Year-Ended December 31, 1997
Results of Operations. Results of operations for the year ended
December 31, 1997 include the results of KP and PKP, which were acquired in July
1997 in a transaction accounted for as a purchase. During the period from their
acquisition in July through December 31, 1997, KP and PKP generated $612,757 of
store sales from their four Domino's pizza stores and incurred food and
packaging costs of $220,328, payroll and related costs of $155,135, occupancy
and other operating expenses of $259,150 and depreciation and amortization of
$107,171. As a percentage of sales, food and packaging costs were 36.0%, payroll
and related costs were 25.3%, occupancy and other operating expenses were 42.3%
and depreciation and amortization were 17.5%.
For the years ended December 31, 1998 and December 31, 1997, IFFC
generated sales of $8,489,151 and $6,083,011, respectively, which includes sales
of $6,384,691 and $5,470,254 for the Burger King restaurants and sales of
$2,104,460 and $612,757 for the Domino's Pizza stores in 1998 and 1997,
respectively. Excluding miscellaneous revenue, Burger King restaurant sales
increased by 17.4% in U.S. dollar terms and 25.2% in Polish zloty terms for the
year ended December 31, 1998 as compared to the year ended December 31, 1997.
The increase is primarily attributable to new restaurants opened in 1998. The
Domino's store sales increased by 243% in U.S. dollar terms and 266% in Polish
zloty terms for the year ended December 31, 1998 as compared to 1997. This
increase is primarily attributable to the Company's full year of reporting for
Domino's in 1998 coupled with new stores opening.
During the year ended December 31, 1998, IFFC incurred food and
packaging costs of $3,347,477, payroll and related costs of $1,608,283,
occupancy and other operating expenses of $2,963,262 and depreciation and
amortization expenses of $1,508,520.
Food and packaging costs applicable to Burger King restaurants for the
years ended December 31, 1998 and 1997 were 41.3% and 41.9% of restaurant sales
(exclusive of miscellaneous revenue), respectively. The 0.6% decrease is
primarily attributable to improved product sourcing. Food and packaging costs
applicable to Domino's stores for the years ended December 31, 1998 and 1997
were 35.1% and 36.0% of store sales (exclusive of miscellaneous revenue). The
0.9% decrease was primarily attributable to greater purchasing power due to
increased stores in 1998.
Payroll and related costs applicable to Burger King restaurants for the
years ended December 31, 1998 and 1997 were 17.9% and 16.9% of restaurant sales
(exclusive of miscellaneous revenue), respectively. The 1.0% increase was
primarily as a result of higher payroll in new restaurants during initial
openings of each. Payroll and related costs applicable to Domino's stores for
the 1998 and 1997 fiscal years were 22.8% and 25.3% of store sales (exclusive of
miscellaneous revenue). The 2.5% decrease was primarily attributable to more
efficient staffing resulting from the implementation of a new store labor matrix
system.
Occupancy and other operating expenses applicable to Burger King
restaurants for the years ended December 31, 1998 and 1997 were 31.9% and 29.2%
of restaurant sales (exclusive of miscellaneous revenue), respectively. The 2.7%
increase as a percentage of restaurant sales is primarily attributable to an
increase in advertising expense, utilities and repairs and maintenance.
Occupancy and other operating expenses applicable to Domino's stores for the
1998 and 1997 fiscal years were 45.1% and 42.3% of store sales (exclusive of
miscellaneous revenue). The 2.8% increase was primarily attributable to
increased advertising expenditures.
Depreciation and amortization expense applicable to Burger King
restaurants as a percentage of restaurant sales (exclusive of miscellaneous
revenue) was 17.5% and 14.5% in the years ended December 31, 1998 and 1997,
respectively. The 3% increase as a percentage of restaurant sales is primarily
attributable to the amortization of pre-opening costs. Depreciation and
amortization expense applicable to Domino's stores as a percentage of store
sales was 19.3% and 17.5% for the 1998 and 1997 fiscal years (exclusive of
miscellaneous revenue), respectively. The 1.8% increase was primarily due to
amortization of pre-opening costs.
20
<PAGE>
General and administrative expenses for the years ended December 31,
1998 and 1997 (which include $297,223 and $96,384 applicable to KP and PKP) were
39.2% and 32.3% of sales, respectively. The 6.9% increase as a percentage of
sales is primarily attributable to increased office rent, salaries and benefits,
increase in the provision for disputes with Polish Fiscal Authorities (see "Item
3. Legal Proceedings - Polish Fiscal Authority Disputes"), and costs associated
with a planned private placement of the Company's securities. Excluding the
general and administrative expenses applicable to KP and PKP, general and
administrative expenses applicable to Burger King restaurants was 22.1% for the
years ended December 31, 1998 and 1997. For the year ended December 31, 1998,
general and administrative expenses include executive and office staff salaries
and benefits ("Salary Expense") of $1,149,363; legal and professional fees,
office rent, travel, telephone and other corporate expenses ("Corporate Overhead
Expense") of $1,980,599, and depreciation and amortization of $197,035. For the
year ended December 31, 1997, general and administrative expense included Salary
Expenses of $612,225; Corporate Overhead Expenses of $1,250,151, and
depreciation and amortization of $100,857.
For the year ended December 31, 1998, IFFC generated a net loss of
$5,872,136 or $.14 per share of IFFC's Common Stock compared to a net loss
of $1,252,850, or $.05 per share of IFFC's Common Stock for the year ended
December 31, 1997. During the year ended December 31, 1997, IFFC recognized a
non-recurring gain of $1,327,070 or $.05 per share of IFFC's Common Stock in
connection with the settlement of the BKC litigation with BKC (the "BKC
Litigation").
IFFC anticipates that it will continue to incur certain expenses in
connection with its disputes with the Polish Fiscal Authorities. See "Item 3.
Legal Proceedings - Polish Fiscal Authority Disputes" for a description of such
matters.
Interest and other income consisted of the following for the year ended
December 31:
1998 1997
---- ----
Interest income............................. $822,029 $263,714
Management fee.............................. - 18,190
Forgiveness of indebtedness................. - 329,465
All other, net.............................. 3,156 (134,316)
-------- ---------
$825,185 $477,053
======== =========
All other, net includes various non-recurring charges and credits not
specifically related to operating activity.
Interest expense consisted of the following for the year ended December 31:
<TABLE>
<CAPTION>
1998 1997
---- -----
<S> <C> <C>
Interest Expense on Subordinated Convertible Debentures........... $ 258,375 $248,040
Interest Expense on Note Payable to Litigation Funding............. -- 73,767
Interest Expense on 8% Convertible Promissory Notes................ -- 16,178
Amortization of Debt Issuance Costs................................ 93,034 74,304
Accretion of Discount on 11% Convertible Senior Subordinated
Discount Notes................................................ 2,290,522 354,588
Interest Expense on Bank Facilities................................ 173,041 178,721
Less: Capitalized Interest........................................ (142,658) --
---------- --------
Total.................................................... $2,672,314 $945,598
========== ========
</TABLE>
21
<PAGE>
IFFC's interest expense on bank facilities was $173,041 and $178,721
for the years ended December 31, 1998 and 1997, respectively. The $5,680
decrease is attributable to lower average outstanding borrowings under bank
credit facilities during the current year.
Liquidity and Capital Resources. To date, IFFC's business operations
have been principally financed by proceeds from public offerings of IFFC's
equity and debt securities, private offerings of equity and debt securities,
proceeds from various bank credit facilities, proceeds from the sale of certain
equity securities, the settlement of the BKC litigation, and proceeds from the
private sale of the 11% Convertible Senior Subordinated Discount Notes.
Net cash used in operating activities increased from $676,767 to
$1,192,863 for the years ended December 31, 1997 and 1998, respectively. The
increase is primarily attributable to increased losses from operations in 1998
which were partially offset by increased levels of accounts payable and accrued
expenses.
Net cash flows used in investing activities increased from $1,105,779
to $14,835,750 for the years ended December 31, 1997 and 1998, respectively. The
increase is primarily attributable to $12,875,611 of payments made for
furniture, equipment, buildings, and leasehold improvements and the acquisition
of the minority interest in IFFP in 1998 versus minimal activity in 1997.
Net cash flows provided by financing activities decreased from
$20,256,448 to $1,394,172 for the years ended December 31, 1997 and 1998,
respectively. The decrease is primarily attributable to the net proceeds
received from the issuance of the 11% convertible senior subordinated discount
notes and from the settlement of litigation in 1997 with no corresponding
amounts received in 1998.
As described in Note 14, the Company has significant commitments to
develop restaurants in accordance with the BKC Agreement and the Domino's
Agreement. The Company has sustained losses from operations since its
incorporation in December 1991. For the years ended December 31, 1998 and 1997,
the Company reported net losses of $5,872,136 and $1,252,850, respectively. At
December 31, 1998 the Company had an accumulated deficit of $21,449,239 and a
shareholders' deficit of $3,111,645. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management believes that cash flows from currently existing stores and
additional stores to be opened in 1999, when combined with existing financial
resources and drawings on the Company's $5,000,000 line of credit secured by BKC
(see Note 6), will be sufficient to fund operations and development costs
through at least January 1, 2000. However, no assurance can be given that
management's plans will be achieved. Further, no assurance can be given that the
cash flows from existing and new stores will be sufficient to fund operations
through January 2000. Management is seeking to obtain additional equity
financing to fund future development. No assurance can be given that such
financing will be obtained or that it can be obtained on favorable terms.
BKC Agreement and Domino's Agreement - IFFC's material commitments for
capital expenditures in its restaurant and store business relate to the
provisions of the BKC Agreement and the Domino's Agreement. See "Business - BKC
Agreement and Standard Franchise Agreements" and "Domino's Agreement and
Standard Franchise Agreements" for additional information regarding these
agreements.
Convertible Notes - In November 1997, the Company sold $27,536,000 of
its 11% Convertible Senior Subordinated Discount Notes Due October 31, 2007 (the
"Notes") in a private offering. Interest is payable semi-annually, in cash, on
April 30 and October 31 of each year, commencing April 30, 2001. The Notes are
comprised as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Face amount of notes at maturity................................ $27,536,000 $27,536,000
Unamortized discount to be accreted as interest expense
and added to the original principal balance of the
notes over a period of three years............................ (4,890,798) (7,181,320)
------------ ------------
Carrying value.................................................. $22,645,202 $20,354,680
============ ============
</TABLE>
The Company received net proceeds of $17,662,174 after reduction of the
face of the notes for unamortized discount of $7,535,908 and placement costs in
the amount of $2,337,918. In addition to the placement costs incurred, the
Company also issued to the placement agent 500,000 shares of Common Stock which
were valued at $150,000.
The Notes are redeemable at the option of the Company, in whole or in
part, at any time or from time to time on and after October 31, 2002; initially
at 105.5% of their Accreted Value (as such term is defined in the Note
Indenture) on the date of redemption, plus accrued interest, declining ratably
to 100% of their principal amount, plus accrued interest, on and after October
31, 2006. The Notes are convertible, at the option of the holder, into Common
Stock at any time after November 5, 1998. As of December 31, 1998, none of the
Notes had been converted into Common Stock. The number of shares of Common Stock
issuable upon conversion of the Notes is equal to the accreted value of the
Notes being converted, on the date of conversion, divided by $.70 (the
"Conversion Ratio"), subject to adjustment in certain events. Accordingly, the
number of shares of Common Stock issuable upon conversion of the Notes will
increase as the Accreted Value of the Notes increases. In addition, (a) if the
closing sale price (the "closing price") of the Common Stock on the Nasdaq
National Market or other securities exchange or system on which the Common Stock
is the traded or (b) if not so traded, then the best bid offered price on the
NASD OTC Bulletin Board (the "NASD BB") on the days when transactions in the
Common Stock are not effected, or on such days as transactions are effected on
the NASD BB, the highest price at which a trade was executed, during any period
described below has exceeded the price for such period for at least 20
consecutive trading days (the "Market Criteria Period"), and a registration
statement with respect to the resale of Common Stock to be issued upon
conversion of the Notes is effective, all of the Notes will be automatically
converted into Common Stock at the close of business on the last day of the
Market Criteria Period; provided, however, that if the Market Criteria is
satisfied during the third year after the closing date of the offering, the
conversion will occur only if the Closing Price or OTC Price, as applicable, of
the Common Stock is at least $2.80 on such date :
22
<PAGE>
12 Months Beginning Closing Sale Price
------------------- ------------------
October 31, 1999............................ $2.80
October 31, 2000............................ $3.25
The Note Indenture contains certain customary covenants and the
Noteholders were granted registration rights. Additionally, in the event of a
change of control, as defined in the Notes Indenture of IFFC, the holders of the
Notes will have the right to require the Company to purchase the Notes at a
purchase price of 101% of their accreted value on the date of such purchase,
plus accrued interest.
Dispute with Polish Fiscal Authorities - IFFC anticipates that it will
continue to incur certain expenses in connection with its disputes with the
Polish Fiscal Authorities. See "Item 3. Legal Proceedings Polish Fiscal
Authority Disputes" for a description of such matters and IFFC's best estimates
of the expenses IFFC anticipates incurring and the timing of such expenses.
Dividends - The June 15, 1996, December 15, 1996, and June 15, 1997
dividend payments with respect to the Series A 6% Convertible Preferred Stock
were not declared or made on their respective due dates. On December 15, 1997,
the Company issued 549,865 shares of Common Stock valued at $401,401 in payment
of all dividends in arrears as of that date. At December 31, 1998, no dividends
were in arrears.
Equity Offerings. In January 1997, Mr. Rubinson and his wife, Marilyn
Rubinson, Jaime Rubinson and Kim Rubinson, purchased $100,000, $300,000, $50,000
and $50,000 aggregate principal amount of convertible promissory notes,
respectively. The notes bore interest at 8% per annum and were to mature on
January 13, 1999. The notes were converted into shares of the Company's Common
Stock at $.10 per share. The proceeds from the sale of the notes were used to
fund the cost and expenses in connection with the Company's litigation against
BKC and general working capital. In June, 1997 the $500,000 principal amount of
the convertible promissory notes was converted into 5,000,000 shares of Common
Stock.
On March 14, 1997, IFFC issued a promissory note in the original
principal amount of $2,198,494 to Litigation Funding, Inc. ("Funding") as
partial payment of amounts due to Funding in connection with the settlement of
the BKC Litigation.
On July 14, 1997, IFFC and a subsidiary thereof entered into a Merger
Agreement with Funding and Mitchell and Edda Rubinson, the sole shareholders of
Funding. Under the terms of the Agreement, Funding was merged with and into the
subsidiary. The 25,909,211 shares of common stock of the Company received by the
Funding shareholders was determined by dividing the $3,021,014 value assigned to
Funding by the book value per share ($.1166) of the Company's common stock as of
June 30, 1997, before reduction for the liquidation preference applicable to the
outstanding shares of Preferred Stock.
The value assigned to Funding represents (i) the $2,198,494 plus
accrued interest owed to Funding by the Company pursuant to a promissory note
and (ii) $750,000 which represents 75% of the value attributable to the BKC
Development Agreement. Funding was entitled to receive 75% of the litigation
proceeds, as defined, under its prior agreements with the Company.
Polish Bank Accounts - As of December 31, 1998 and March 22, 1999, the
Company had approximately $1,842,966 and $213,307, respectively, in Polish bank
accounts with substantially all of such funds held as U.S. dollar denominated
deposits. Substantially all of the Company's remaining cash including the net
proceeds of the private placement is held in U.S. dollar accounts in U.S. Banks.
Credit Facilities - IFFC has also financed its operations through the
use of credit facilities.
In January 1993, IFFP entered into a revolving credit facility with
American Bank of Poland S.A. ("AmerBank") totaling 300,000 zlotys (approximately
$85,861 at December 31, 1998 exchange rates). Borrowings under the AmerBank
23
<PAGE>
credit facility were secured by a guarantee of IFFC and bore interest at a
monthly adjusted variable rate approximately equal to AmerBank's prime rate. In
April 1996, the credit available was decreased to 200,000 zlotys (approximately
$57,241 at December 31, 1998 exchange rates) and in March 1997, the credit
facility was further decreased to 100,000 zlotys (approximately $28,620 at
December 31, 1998 exchange rates). The credit facility is due on April 1, 1999.
On December 31, 1998 and March 22, 1999, the facility had an outstanding balance
of $386 and $0, respectively.
In February 1994, IFFC entered into a new $1,000,000 credit facility
with AmerBank. The credit facility was structured as a revolving credit facility
through May 31, 1994. Interest accrued on the outstanding balance at a rate of
12% per annum and was due and payable quarterly. In July 1994, the outstanding
balance under the credit facility became due and payable at a rate of $90,000
plus interest every three months with any principal outstanding as of April 30,
1996 immediately due and payable. In November 1996, AmerBank agreed to amend the
credit facility so that the outstanding principal balance becomes due and
payable at a rate of $100,000 on March 31, 1997, $100,000 on June 30, 1997 and
$110,000 on September 30, 1997 plus interest every three months. The balance of
the credit facility was paid in full on September 30, 1997.
In May 1994, IFFP, entered into a credit facility with Bank Handlowy
Warszawie, S.A. ("Bank Handlowy") in the principal amount of $10,000,000.
Borrowings under the Bank Handlowy credit facility were secured by: (i) amounts
on deposit with Bank Handlowy; (ii) an unconditional guarantee of IFFC; (iii)
the fixed assets of IFFP; and (iv) a letter of credit. Borrowings under the Bank
Handlowy credit facility were required be repaid in fourteen equal semi-annual
installments with the first installment due on November 30, 1997. Interest
accrued on the amount outstanding under the credit facility at the London
Interbank Offered Rate (LIBOR) for nine month deposits plus 3.875% per annum. In
December 1995, the principal amount of the credit facility was reduced to
$1,000,000 and borrowings under the credit facility were required to be repaid
in December 1996. The maturity date and payment terms of the facility were
further amended and principal payments of $100,000 and $50,000 were made in
December 1996 and January 1997, respectively. The balance of the credit facility
was paid in full in September 1997.
In September 1996, PKP entered into a revolving credit facility with
AmerBank totaling 100,000 zlotys (approximately $28,620 at December 31, 1998
exchange rates). The note is secured by the guarantee of IFFC. The credit
facility is due on June 1, 1999. The balance on this note as of December 31,
1998 was $25,288 and was $0 as of March 22, 1999.
In February 1996, IFFP entered into a $300,000 line of credit with
AmerBank. Pursuant to the line of credit, IFFC could make draws on the line of
credit until June 30, 1996. IFFP was required to make interest payments on the
outstanding principal amount of the credit facility at AmerBank's prime rate.
IFFP was also obligated to pay AmerBank a 1% per annum commission on the daily
average unutilized principal balance of the credit facility. Interest and
commission expenses were payable monthly. The outstanding principal balance of
the loan was payable in three quarterly installments of $100,000 commencing on
March 31, 1998. The credit facility was secured by: (i) a promissory note of
IFFP and (ii) a guarantee of IFFC. The balance of the credit facility was paid
in full on September 9, 1997.
In May 1997, IFFC entered into a $999,000 credit facility with
Totalbank which is collateralized by $999,000 of certificates of deposit. The
credit facility bears interest at 6.5% per annum and was originally scheduled to
mature in August 1998. The credit facility was renewed for six months under the
same terms. The outstanding balance of the facility as of December 31, 1998 and
March 22, 1999 was $982,586 and $999,000, respectively.
In August 1997, the Company executed a credit agreement with AmerBank
in the amount of $950,000. The purpose of this facility was to consolidate
existing debt owed to AmerBank totaling $300,000 with existing debt owed to Bank
Handlowy of $650,000. Pursuant to the terms of the new loan, interest is payable
monthly at the prevailing one month LIBOR rate plus 2.75%. Commencing in March
1998, the loan is to be repaid in monthly installments of $32,000 for 29 months
with a balloon payment of $22,000 due on August 12, 2000. The loan is secured by
all existing restaurant assets and the guarantee of IFFC. The balance of this
credit facility as of December 31, 1998 was $630,000 and as of March 22, 1999
was $566,000.
24
<PAGE>
On April 2, 1998, PKP entered into a $300,000 development loan with
AmerBank for the development of its Domino's stores. Borrowings under this
credit facility may be made until December 26, 1998 and are secured by: (a)
fixed assets of each new restaurant financed; and (b) a guarantee of IFFC. The
loan is required to be repaid in ten equal quarterly installments of $30,000
starting on December 26, 1998 with a final payment due at maturity (March 26,
2001). Interest is paid monthly at the prevailing one month LIBOR rate plus 3
1/8%. This rate approximates 8.75% as of August 12, 1998. According to the terms
of the agreement, the proceeds of the loan could be used to finance up to 50% of
the costs of furnishing and commencing operation of Domino's stores operated by
PKP. As of December 31, 1998 and March 22, 1999, approximately $266,362 was
outstanding on the facility.
On June 19, 1998, IFFP entered into a development loan in the principal
amount of $1.3 million with AmerBank. The purpose of this loan is to provide
partial credit for the development of new Burger King restaurants. Borrowings
under this credit facility are to be made until June 18, 2000 and are secured
by: (a) fixed assets of each new restaurant financed; and (b) a guarantee of
IFFC. The loan is scheduled to be repaid in thirty-five equal installments of
$36,111, starting in June 2000, with a final payment of $36,115 due at maturity,
which is May 18, 2003. Interest is to be paid monthly at the prevailing one
month LIBOR rate plus 2.5%. According to the terms of the agreement, the
proceeds of the loan are to be used to finance up to fifty percent (50%) of the
costs of furnishing and commencing operation of Burger King restaurants operated
by IFFP. On October 1, 1998, the Company executed an amendment to this facility
with AmerBank. The amendment increased the borrowing limit to $1.5 million. The
scheduled loan payments are as follows: thirty-five equal installments of
$41,666 starting in June 2000 with a final payment of $41,690 due at maturity of
May 18, 2003. As of December 31, 1998 and March 22, 1999, $1,500,000 was
outstanding on this credit facility.
On February 24, 1999, IFFP entered into a credit agreement (the "Credit
Agreement") with Citibank (Poland) S.A. pursuant to which Citibank granted IFFP
a loan in the amount of $5,000,000 (the "Loan"). The purpose of the loan is to
finance the construction of nine Burger King restaurants. The loan is priced at
0.8% above LIBOR and matures on January 15, 2000. As of March 22, 1999,
$1,734,953 was outstanding on this credit facility. In order for IFFP to enter
into the Credit Agreement, holders of the outstanding Notes were required to
waive certain provisions of the Note Indenture. As compensation for such waiver,
the Noteholders were issued an aggregate of 204,585 shares of Common Stock.
The Loan is guaranteed by BKC and the Company granted BKC a security
interest in the outstanding shares of IFFP. As a condition to the guarantee, BKC
required that IFFC, IFFP and Mitchell Rubinson enter into a general release in
favor of BKC for any and all matters occurring prior to the date of the
guarantee. Additionally, the Company and IFFP entered into a reimbursement
agreement (the "Reimbursement Agreement") pursuant to which they agreed to
reimburse BKC for any and all amounts paid out by BKC pursuant to the guaranty
and all costs and expenses incurred by BKC in connection with the enforcement of
its rights under the Reimbursement Agreement. BKC also required that the
Company, IFFP and Mitchell Rubinson, the Chairman of the Board and Chief
Executive Officer of the Company and a principal shareholder ("Rubinson"),
execute a general release of BKC relating to any matters that occurred prior to
the execution of the Credit Agreement.
Additionally, Rubinson entered into a purchase agreement with BKC which
provides that if IFFP and the Company default on their obligations under the
Reimbursement Agreement and BKC takes possession of the IFFP shares, Rubinson is
required to purchase the IFFP shares from BKC for an amount equal to all amounts
paid out by BKC pursuant to the guaranty and all costs and expenses incurred by
BKC in connection with the enforcement of its rights under the Reimbursement
Agreement. Mr. Rubinson received a fee of $150,000 from the Company in
connection with the Purchase Agreement.
IFFP - On December 28, 1995, IFFC increased its equity interest in IFFP
from 80% to 85% by purchasing from the minority shareholder 5% (25% of the
minority holdings) of the outstanding capital stock of IFFP in exchange for a
$500,000 non-interest bearing obligation due in full on December 28, 1996. The
obligation was paid in full in June 1997. In September 1998, the Company
purchased the remaining 15% of the outstanding capital stock of IFFP from the
minority shareholder in exchange for $1.5 million in cash, plus expenses
associated with the purchase.
25
<PAGE>
BKC Litigation - On March 17, 1995, IFFC and IFFP (collectively, the
"IFFC Affiliates") filed suit against BKC alleging, among other things, that BKC
breached certain of its express and implied obligations under the old BKC
development agreement and the eight original franchise agreements (the
"Franchise Agreements") and that BKC committed certain acts which constituted
fraud and/or deceptive and unfair business practices. In order to secure
additional funds to finance the BKC litigation, in January 1996, the IFFC
Affiliates entered into an Agreement to Assign Litigation Proceeds (the "Funding
Agreement") with Litigation Funding, Inc., a Florida corporation ("Funding").
Mitchell Rubinson, the Chairman of the Board and Chief Executive Officer of IFFC
was also the Chairman of the Board, Chief Executive Officer and President and
the principal shareholder of Funding. Pursuant to the Funding Agreement, Funding
agreed to pay on behalf of the IFFC Affiliates up to $750,001 for all expenses
(including attorneys' fees, court costs and other related expenses) actually
incurred by or on behalf of the IFFC Affiliates in connection with the BKC
litigation. In consideration thereof, IFFC and IFFP each assigned to Funding a
portion of any benefits and proceeds that each of them received in connection
with the BKC litigation
In March 1997, BKC, IFFC, IFFP and Rubinson, individually and on behalf
of Funding, settled the BKC litigation. In connection with the execution of the
settlement agreement, IFFC and BKC entered into the BKC Agreement and eight new
franchise agreements. BKC paid to IFFC $5,000,000 (less $21,865 of royalties
owed by IFFP to BKC for February 1997) and BKC forgave $499,768 representing all
monies owed BKC by IFFP and IFFC through January 31, 1997. Under the terms of
the settlement agreement, $2,000,000 of such proceeds was used to satisfy the
actual legal fees and costs of IFFC and IFFP incurred in connection with the BKC
litigation, including IFFC's and IFFP's obligation under the agreement with
Funding. The remaining $3,000,000 was used by IFFC and IFFP for the development
of additional BKC restaurants in Poland or working capital for IFFP pursuant to
the BKC Development Agreement.
On July 14, 1997, IFFC and IFFC Acquisition, Inc., a wholly-owned
subsidiary of IFFC ("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 was merged with and into Acquisition Sub. On
July 14, 1997, the common stock was trading at approximately $.34 per share.
However, due to the lack of an established trading market for the common stock,
the disinterested Directors of IFFC did not use the quoted price per share to
determine the number of shares to issue in connection with the merger agreement.
Instead the June 30, 1997 book value of the Company ($.1166 per share) was used
to determine the Company's fair value. As a result, the shareholders of Funding
received 25,909,211 shares of common stock of IFFC pursuant to the merger.
Pursuant to the Funding Agreement, the value assigned to Funding
represents (i) the $2,198,494 plus accrued interest owed to Funding by the
Company pursuant to a promissory note and (ii) $750,000 which represents 75% of
the value attributable to the BKC Agreement which was executed in connection
with the Company's settlement of its litigation against BKC.
Impact of Inflation and Currency Fluctuations
The official currency in Poland is the zloty. The value of the zloty is
pegged pursuant to a system based on a basket of currencies, as well as all
other economic and political factors that effect the value of currencies
generally. At December 31, 1998, the exchange rate was 3.494 zlotys per dollar.
The accounts of IFFC's Polish subsidiaries are maintained using the Polish
zloty.
IFFC's restaurant and store operations are conducted in Poland. The
Polish economy has historically been characterized by high rates of inflation
and devaluation of the Polish zloty against the dollar and European currencies.
However, in the years ended December 31, 1997 and 1998, the rates of inflation
and devaluation improved. For the years ended December 31, 1994, 1995, 1996,
1997 and 1998 the annual inflation rate in Poland was 32%, 21.6%, 19.5%, 13.0%
and 8.6% respectively, and as of December 31, 1994, 1995, 1996, 1997 and 1998
the exchange rate was 2.437, 2.468, 2.872, 3.514 and 3.494 zlotys per dollar,
respectively. Payment of interest and principal on the 9% Convertible
Subordinate Debentures, 11% Convertible Senior Subordinated Discount Notes and
payment of franchise fees to BKC and DPI for each restaurant and store opened
are in United States currency. Additionally, IFFC is dependent on certain
sources of supply which require payment in European or United States currencies.
Since IFFC's revenues from operations will be in zlotys, IFFC is subject to the
risk of currency fluctuations. IFFC has and intends to maintain substantially
26
<PAGE>
all of its unutilized funds in United States or Western European currency
denominated securities and/or European Currency Units. There can be no assurance
that IFFC will successfully manage its exposure to currency fluctuations or that
such fluctuations will not have a material adverse effect on IFFC.
Thus far, IFFC's revenues have been used to fund restaurant operations
and IFFC's expansion. As a result, such revenues have been relatively insulated
from inflationary conditions in Poland. There can be no assurance that
inflationary conditions in Poland will not have an adverse effect on IFFC in the
future.
Year 2000 Computer Issue
The SEC has issued Staff Legal Bulletin No. 5 stating that public
operating companies should consider whether there will be any anticipated costs,
problems and uncertainties associated with the Year 2000 issue, which affects
many existing computer programs that use only two digits to identify a year in
the date field. The Company has recently upgraded its computer operating systems
and believes that such systems are Year 2000 compliant. Additionally, IFFC
intends that any computer systems that it may purchase or lease in the future
will have already addressed the Year 2000 issue and anticipates that its
business operations will electronically interact with third parties very
minimally, if at all.
However, IFFC has not fully assessed the impact of the Year 2000 issue
on third parties with whom IFFC has material relationships, including its
distributors and suppliers. BKC is assisting the Company by assessing the
compliance of BKC-approved suppliers. Additionally, the Company is undertaking
an assessment of third parties with which it has material relationships and
expects to complete the assessment of this information by September 1999.
Certain of the Company's suppliers are not computerized and will not be affected
by the Year 2000. However, the Company has determined that a material number of
its suppliers have antiquated computer systems which may be materially affected.
As information is received, the Company intends to analyze the compliance issues
and develops a strategy for non-compliant third parties on whom the Company is
materially dependent.
To date, the Company estimates that it has spent approximately $50,000
on Year 2000 efforts across all areas and expects to spend a total of
approximately $150,000 when complete. The Company expects to fund Year 2000
costs through operating cash flows. All system modification costs associated
with Year 2000 will be expensed as incurred.
The Company currently believes that the Year 2000 issue will not
present a materially adverse risk to its future consolidated results of
operations, liquidity, and capital resources. However, if the Company's belief
that its computer operating systems are compliant is incorrect or the level of
timely compliance by key suppliers or vendors is not sufficient, the Year 2000
issue could have a material impact on the Company's operations including, but
not limited to, delays in delivery of supplies resulting in loss of revenue,
increased operating costs, loss of customers or suppliers, or other significant
disruptions to the Company's business. The Company is in the process of
formulating contingency and business continuation plans which address the Year
2000 issue.
Determining the Year 2000 readiness of third party products
(information technology and other computerized equipment) and business
dependencies (including suppliers and distributors) requires pursuit, collection
and appraisal of voluntary statements made or provided by those parties, if
available, together with independent factual research. Although the Company has
taken, and will continue to take, reasonable efforts to gather information to
determine and verify the readiness of such products and business dependencies,
there can be no assurance that reliable information will be offered or otherwise
available. In addition, verification methods (including testing methods) may not
be reliable or fully implemented. Accordingly, notwithstanding the foregoing
efforts, there are no assurances that the Company is correct in its
determination or belief that a product or a business dependency is Year 2000
ready.
Recently Issued Accounting Standards
IFFC adopted SFAS No. 130, Reporting Comprehensive Income, in the first
quarter of 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
The objective of SFAS No. 130 is to report comprehensive income, a measure of
all changes in equity of an enterprise that result from transactions and other
economic events in a period, other than transactions with owners. The adoption
of SFAS No. 130 did not have a material impact on IFFC's consolidated financial
statements as IFFC's net loss is equal to its comprehensive loss.
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for the way that public business enterprises
report information about operating segments and for related disclosures about
products and services, geographic area and major customers. IFFC adopted the
disclosure provisions of SFAS No. 131 effective December 31, 1998. See Note 17
for segment information.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, is effective for fiscal years ended after June 15, 1999. This
statement establishes accounting and reporting standards that require every
derivative instrument be recorded in the balance sheet as either an asset or
liability at its fair value. Management believes the adoption of this statement
will not have an impact on the Company's consolidated financial position because
the Company does not presently have any derivative or hedging-type investments
as defined by SFAS No. 133.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("ACSEC") issued Statement of
Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. SOP 98-1 establishes criteria for determining
which costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. The Company adopted SOP 98-1
prospectively on January 1, 1999. Management does not believe that the adoption
of SOP 98-1 will have a material effect on the Company's financial position or
results of operations.
In April 1998 the ACSEC issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998.
The Company capitalizes start-up costs associated with opening new
restaurant locations. Upon commencement of revenue producing activities at a
restaurant location, the related capitalized start-up costs are amortized over
one year. As of December 31, 1998 and 1997 the Company had recorded
approximately $620,000 and $0, respectively, of start-up costs which are
included in prepaid expenses in the accompanying consolidated balance sheets.
Amortization expense for the years ended December 31, 1998 and 1997 was
approximately $165,000 and $13,000, respectively.
The Company adopted SOP 98-5 on January 1, 1999. The impact of the
initial application of SOP 98-5 will be reported as a cumulative effect of a
change in accounting principle.
27
<PAGE>
Item 7. Financial Statements.
The information included in Appendix A hereto is incorporated herein by
reference.
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
On January 5, 1998, IFFC, the Company, upon recommendation of its Board
of Directors, advised Moore Stephens Lovelace, P.L. ("Moore Stephens") that it
would not be appointed as the Company's auditors for the year ended December 31,
1997. During the fiscal year December 31, 1997 and subsequent interim period
through January 5, 1998, there were no disagreements with Moore Stephens on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure or any reportable events. Moore Stephens' report on
the Company's financial statements for the year ended December 31, 1996 did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to an uncertainty, audit scope or accounting principles.
The Board appointed Arthur Andersen LLP as independent auditors of IFFC
for the fiscal years ended December 31, 1997 and December 31, 1998.
28
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Executive Officers and Directors
The executive officers and directors of IFFC are as follows:
<TABLE>
<CAPTION>
Name Age Position with IFFC
---- --- ------------------
<S> <C> <C>
Mitchell Rubinson(1)(2)(3)................ 51 Chairman of the Board and Chief Executive Officer
Michael T. Welch.......................... 46 President, Chief Operating Officer and Director
James F. Martin........................... 38 Vice President, Chief Financial Officer, Treasurer
and Director
Mark Rabinowitz(1)(2)(3).................. 50 Director
Larry H. Schatz(1)(2)(3).................. 52 Vice Chairman of the Board
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Stock Option Committee.
(3) Member of the Nomination Committee.
Mitchell Rubinson has served as the Chairman of the Board and Chief
Executive Officer of IFFC since its incorporation in December 1991 and served as
President from December 1991 to June 1998. Mr. Rubinson has served as the
Chairman of the Board, Chief Executive Officer and President of Capital Brands
from March 1988 to April 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 Corporation (now known as Regenesis
Holdings, Inc.) from July 1993 to May 1997. IFFC has obtained, and is the
beneficiary of, a $27 million key man life insurance policy on the life of Mr.
Rubinson.
Michael T. Welch has served as President and Chief Operating Officer
and a director of IFFC since June 1998. Prior to joining IFFC, Mr. Welch served
as Vice President of Operations at Checkers Drive-In Restaurants Inc. and was
with that company since June 1994. From April 1987 to May 1994, Mr. Welch was
president of W-S Acquisition Corporation, a franchisee of Wendy's International.
Mr. Welch also spent six years as Senior Vice President of Franchise Operations
with Wendy's International and has over 25 years experience in the restaurant
industry.
James F. Martin has served as Vice President, Chief Financial Officer,
Treasurer and Director of IFFC since May 1997 and as Director of Finance for
IFFC's Polish subsidiaries from November 1993 through February 1995. Mr. Martin
served as Chief Financial Officer of QPQ Corporation (now known as Regenesis
Holdings, Inc.) from October 1996 to May 1997. 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
years of commercial banking experience and is a Certified Public Accountant.
Mark Rabinowitz has served as a director of IFFC since January 1996.
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 M.D.S.,
P.A. and serving as a medical doctor and the President of Women's Centre for
Health, Inc. Dr. Rabinowitz served as a director of QPQ Corporation (now known
as Regenesis Holdings, Inc.) from January 1996 to May 1997.
29
<PAGE>
Larry H. Schatz has served as Vice Chairman of the Board of IFFC since
July 1997. Mr. Schatz has served as "of counsel" for the law firm of Grubman
Indursky & Schindler P.C. since January 1996. From January 1991 through December
1995 Mr. Schatz worked as an attorney in private practice.
Additional Senior Management of IFFC
Ian Scattergood has served as Director of Development of IFFC since
March 1998. Prior to joining IFFC, Mr. Scattergood served as Director of
Development for Burger King Corporation in its European, Middle Eastern and
African territories from December 1996 to September 1997. From March 1987 to
November 1996, Mr. Scattergood held various management positions with Burger
King Corporation. Mr. Scattergood has over ten years experience in the
restaurant industry.
Compensation of Directors
IFFC does not pay directors' fees, but reimburses all directors for
their expenses in connection with their activities as directors of IFFC.
Directors of IFFC who are also employees of IFFC do not receive additional
compensation for their services as directors. Mr. Schatz receives $25,000 per
annum for serving as Vice Chairman of the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's outstanding Common Stock, to file with the Securities and Exchange
Commission ("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 representation that no other reports were required, all
Section 16(a) filing requirements applicable to its officers, directors and 10%
beneficial owners have been complied with.
Item 10. Executive Compensation.
Executive Compensation
The following table sets forth, for the fiscal years ended December 31,
1996, 1997 and 1998, the aggregate compensation paid by IFFC to Mitchell
Rubinson, IFFC's Chairman of the Board and Chief Executive Officer (the "Named
Executive Officer"). None of IFFC's other executive officers' total annual
salary and bonus for the year ended December 31, 1998 exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation (1) Long Term Compensation
----------------------- ----------------------
Awards Payouts
------ -------
Other Annual Securities Underlying All Other
Name and Principal Position Year Salary Compensation Options/SARs (#)(2) Compensation
--------------------------- ---- ------ ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C>
Mitchell Rubinson.............. 1998 $212,928 $20,865(3) 0 0
Chairman of the Board and 1997 $192,163 $14,216(4) 0 0
Chief Executive Officer 1996 $181,093 $12,993(5) 0 0
</TABLE>
- ----------------
(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. IFFC has not granted any stock
appreciation rights.
(3) Represents an automobile allowance of $12,000 and medical insurance
premiums of $8,865.
(4) Represents an automobile allowance of $12,000 and medical insurance
premiums of $2,216.
30
<PAGE>
(5) Represents an automobile allowance of $12,000 and medical insurance
premiums of $993.
Option Grants
There were no grants of stock options or stock appreciation rights
("SARs") made during 1998 to the Named Executive Officer.
Aggregated Option/SAR Exercises and Fiscal Year-Ended Option/SAR Value Table
The following table sets forth information concerning unexercised stock
options held by the Named Executive Officer as of December 31, 1998. No stock
options were exercised by the Named Executive Officer during the year ended
December 31, 1998. No SARs were granted or are outstanding.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-the-Money Options/SARs at
December 31, 1998(#) December 31, 1998($)(1)
-------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mitchell Rubinson ..................... 150,000 0 $64,500 $0
- ----------------
</TABLE>
(1) The closing bid quotation for IFFC's common stock as reported by the NASD
OTC Bulletin Board on December 31, 1998 was $.83.
Employment Agreements
On November 7, 1996, IFFC amended its employment agreement with Mr.
Rubinson, Chairman of the Board and Chief Executive Officer of IFFC, extending
his employment term until December 31, 1999. The amended agreement also 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. Additionally, Mr.
Rubinson is entitled to receive an annual incentive bonus in the amount of 2.5%
of IFFC's net income, after tax. Pursuant to his employment agreement, Mr.
Rubinson is required to devote such portion of his business time to IFFC as may
be reasonably required by IFFC's Board. 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 IFFC. For each day of
vacation that Mr. Rubinson elects not to take, pursuant to the employment
agreement, IFFC 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 IFFC's business
for the term of the agreement and for one year thereafter. Mr. Rubinson is also
entitled to certain fringe benefits, including an automobile allowance. Mr.
Rubinson's employment agreement provides for certain payments 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 IFFC
without cause. Mr. Rubinson's employment agreement does not provide for a
severance payment in the event his employment is terminated for cause.
IFFC executed an employment agreement with Michael Welch, effective
June 15, 1998, which provides that he will serve as IFFC's President and Chief
Operating Officer for an initial term of three years, which IFFC may extend for
up to an additional two years. His annual salary for the first year is $165,000.
Additionally, under the terms of the employment agreement, Mr. Welch shall be
eligible to receive stock option grants under IFFC's stock option plans in the
discretion of IFFC's Board or Stock Option Committee. IFFC granted Mr. Welch
stock options to acquire 250,000 shares of IFFC's common stock at an exercise
price of $.71 per share, which are exercisable in whole or in part and
cumulatively according to the following schedule: (a) 20% one year after the
effective date of the employment agreement; (b) 60% two years after the
employment agreement; and (c) 100% three years after the effective date of the
employment agreement. In addition to salary, Mr. Welch is entitled to certain
fringe benefits, including an automobile to use in connection with the
performance of his duties under the agreement and an housing allowance of $2,500
31
<PAGE>
per month. The housing benefits will terminate when Mr. Welch's family relocates
to Poland. Mr. Welch's employment agreement provides for a payment of $50,000 in
the event that his employment is terminated by reason of death or disability
and, in the event his employment is terminated without cause, Mr. Welch is
entitled to a severance payment as follows: if termination occurs (a) on or
prior to December 14, 1998, the severance amount will be $25,000; (b) after
December 14, 1998, but on or prior to June 14, 1999, the severance amount will
be $50,000; and (c) after June 15, 1999, the severance amount will be $75,000.
Mr. Welch's employment agreement does not provide for a severance payment in the
event his employment is terminated for cause. Additionally, the employment
agreement requires that Mr. Welch not compete or engage in any business
competitive with IFFC's business for the term of the agreement and for a period
of two years thereafter.
IFFC's employment agreement with James F. Martin, effective July 1,
1997, provides that he will serve as Chief Financial Officer of IFFC, for an
initial term of three years, which IFFC may extend for up to two 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 weeks of paid vacation during any
year of employment and an automobile allowance of $400 per month. However, Mr.
Martin is responsible for all associated expenses relating to such automobile,
including, without limitation, insurance, gas and repairs. Mr. Martin is
eligible to receive stock option grants under IFFC's stock option plans in the
discretion of IFFC's Board or Stock Option Committee. IFFC has granted Mr.
Martin stock options to acquire 100,000 shares of IFFC's common stock at an
exercise price of $.40 per share and stock options to acquire 100,000 shares of
IFFC's common stock at an exercise price of $.81 per share, 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 IFFC on the date of exercise: (a) 20% one
year after the effective date of the employment agreement; (b) 60% two years
after the effective date of the employment agreement; and (c) 100% three years
after the effective date of the employment agreement. Mr. Martin also receives a
housing allowance while he is living in Poland. 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 payment in the
event Mr. Martin's employment is terminated without cause, to be calculated as
follows: (a) if such termination occurs between July 1, 1997 and June 30, 1998,
a $20,000 severance amount; (b) July 1, 1998 and June 30, 1999, a $15,000
severance amount; and (c) 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 IFFC's business for the term of the agreement and for
a period of two years thereafter.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of March 22, 1999, the number of
shares of common stock of IFFC which were owned beneficially by (a) each person
who is known by IFFC to own beneficially more than 5% of its common stock, (b)
each director of IFFC, (c) the Named Executive Officers and (d) all directors
and executive officers of IFFC as a group:
32
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Name and Address of Amount and Nature of Outstanding Shares
Beneficial Owner(1)(2) Beneficial Ownership Owned
---------------------- -------------------- -----
<S> <C> <C>
Directors and Executive Officers:
Mitchell Rubinson.............................. 30,559,211(3) 67.5%
Edda Rubinson.................................. 30,409,211(4) 67.4%
Mark Rabinowitz................................ 136,197(6) *
James F. Martin................................ 206,000(7) *
Larry H. Schatz................................ 50,000(8) *
Michael T. Welch............................... 250,000(9) *
All directors and executive officers
as a group (five persons)................... 31,201,408 68.1%
Other 5% Owners:
Marilyn Rubinson............................... 4,814,563(5) 10.7%
Joel Hirschhorn................................ 2,370,000 5.3%
Northstar Investment Management Corp........... 21,162,568(10) 32.0%
Two Pickwick Plaza
Greenwich, Connecticut 06830
BankAmerica Investment Corporation............. 3,253,587(10) 6.7%
231 S. LaSalle Street, 17th Floor
Chicago, Illinois 60697
Legg Mason High Yield Portfolio................ 8,138,718(10) 15.3%
117 E. Colorado Blvd.
Pasadena, California 91105
</TABLE>
- -----------------------
* Less than 1%
(1) Unless otherwise indicated, the address of each of the listed beneficial
owners identified is c/o 1000 Lincoln Road, Suite 200, Miami Beach,
Florida 33139.
(2) Under Rule 13d-3 of the exchange act, certain shares may be deemed to be
beneficially owned by more than one person. In addition, shares are deemed
to be beneficially owned by a person if the person has the right to acquire
the shares within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the amount
of shares outstanding is deemed to include the amount of shares
beneficially owned by such person by reason of these acquisition rights. As
a result, the percentage of outstanding shares of any person as shown in
this table does not necessarily reflect the person's actual ownership or
voting power with respect to the number of shares of common stock actually
outstanding as of the Record Date.
(3) Includes 30,409,211 shares held jointly with his wife, Edda Rubinson, and
options to purchase 150,000 shares of common stock granted to Mr. Rubinson
pursuant to IFFC's 1993 Stock Option Plan that are immediately exercisable
at an exercise price of $.40 per share.
(4) These shares are held jointly with Mitchell Rubinson, Edda Rubinson's
husband.
(5) Includes 37,666 shares of common stock that would be acquired upon the
conversion of 1,130 shares of preferred stock. Marilyn Rubinson is Mitchell
Rubinson's mother; however, Mitchell Rubinson disclaims beneficial
ownership of all shares of common and preferred stock owned by her.
(6) Includes options to purchase 50,000 shares of common stock granted to Dr.
Rabinowitz that are immediately exercisable at an exercise price of $.40
per share.
(7) Includes options to purchase 100,000 shares of common stock granted to Mr.
Martin pursuant to an employment agreement that vest over a three year
period beginning in July 1998 at an exercise price of $.40 per share and
options to purchase 100,000 shares of common stock that vest over a three
year period beginning in July 1998 at an exercise price of $.81 per share.
(8) Reflects options to purchase 50,000 shares of common stock granted to Mr.
Schatz that are exercisable at any time prior to July 2001 at an exercise
price of $.40 per share.
(9) Reflects options to purchase 250,000 shares of common stock granted to Mr.
Welch pursuant to an employment agreement that vest over a three year
period beginning in June 1999 at an exercise price of $.71 per share.
(10) Includes shares of Common Stock which would be acquired upon the conversion
of the Notes held by such entities based on the accreted value of the Notes
as of December 31, 1998. Northstar Investment Management Corp. is the
parent company of Northstar Balance Sheet Opportunities Fund, Northstar
High Total Return Fund and Northstar High Total Return Fund II which are
the record holders of the Notes.
33
<PAGE>
Item 12. Certain Relationships and Related Transactions.
In January 1997, after considering various alternatives, including the
market price for IFFC's common stock, its trading volume, various time
constraints, and the unavailability of funds from other sources, the
disinterested Directors of IFFC authorized the sale of $100,000, $300,000,
$50,000 and $50,000 aggregate principal amount of convertible promissory notes
to Mitchell Rubinson and his wife Edda, Marilyn Rubinson, his mother, Jaime
Rubinson and Kim Rubinson, his daughters, respectively. The notes bore interest
at 8% per annum and were to mature on January 13, 1999. The notes were
convertible into shares of IFFC's common stock at $.10 per share. The proceeds
from the sale of the notes were used to fund the cost and expenses in connection
with IFFC's litigation against BKC and general working capital. In June 1997,
the $500,000 aggregate principal amount of the convertible promissory notes was
converted into 5 million shares of common stock.
On March 14, 1997, IFFC issued a promissory note in the original
principal amount of $2,198,494 to Funding as partial payment of amounts due to
Funding in connection with the settlement of the BKC litigation. The note bore
interest at prime plus 1%, was payable in full on December 31, 1998, and was
prepayable in whole or in part at anytime, without penalty. On July 14, 1997,
IFFC and a newly formed subsidiary entered into a Merger Agreement with Funding
and Mitchell and Edda Rubinson, the sole shareholders of Funding. Under the
terms of this agreement, Funding was merged with and into the subsidiary, and
25,909,211 shares of IFFC's common stock were issued to such shareholders of
Funding. The exchange ratio was based on a valuation by the disinterested
Directors of the amount owed to Funding under the prior litigation financing
agreements between IFFC, IFFP and Funding and the value of Funding's rights to
proceeds of the settlement with BKC. The promissory note previously issued to
Funding was assumed by IFFC by virtue of the merger with Funding.
On February 24, 1999, IFFP entered into a credit agreement with
Citibank (Poland) S.A. pursuant to which Citibank granted IFFP a loan in the
amount of $5,000,000 (the "Loan"). The Loan is guaranteed by BKC and the Company
granted BKC a security interest in the outstanding shares of IFFP. As a
condition to the guarantee, BKC required that IFFC, IFFP and Mitchell Rubinson
enter into a general release in favor of BKC for any and all matters occurring
prior to the date of the guarantee. In order for IFFP to enter into the Loan,
holders of the outstanding Notes were required to waive certain provisions of
the Note Indenture. As compensation for such waiver, the Noteholders were issued
an aggregate of 204,585 shares of Common Stock at a value of $0.56 per share.
Such amount will be included as deferred issuance costs and amortized over the
remaining life of the Notes.
Additionally, in connection with such transaction, Mitchell Rubinson
entered into a purchase agreement with BKC which provides that (i) if IFFP and
IFFC default on the Loan and BKC takes possession of the IFFP shares and (ii)
IFFC is unable to repurchase the shares of IFFP from BKC, Rubinson is required
to purchase the IFFP shares from BKC for an amount equal to all amounts paid out
by BKC plus costs and expenses incurred by BKC in connection with the
enforcement of its rights under a reimbursement agreement with IFFC and IFFP. In
connection with such purchase agreement, the Company paid Mitchell Rubinson a
fee of $150,000.
All of the foregoing transactions were authorized by the disinterested
directors of IFFC.
34
<PAGE>
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) Exhibits:
Exhibit Description
------- -----------
<S> <C>
3.1 IFFC's Articles of Incorporation (1), as amended (7,20)
3.2 IFFC's Bylaws (1)
3.3 Amendment to Amended and Restated Articles of Incorporation
4.1 Specimen Common Stock Certificate (1)
4.3 Form of Indenture relating to 9% Convertible Subordinated Debentures Due 2007 (including form of Debenture) (2)(3)
4.5 Warrant Agreement, dated January 14, 1994, between IFFC and Continental Stock Transfer & Trust Company, including
form of Warrants (6)
4.6 Unit Certificate (6)
4.7 Series A 6% Convertible Preferred Stock Certificates (7)
10.4 IFFC's 1992 Stock Option Plan (1)*
10.5 IFFC's 1992 Directors Stock Option Plan (1)*
10.8 Product Distribution Agreement, dated September 21, 1994, between IFFC and Logistic and Distribution
Systems Sp.zo.o (10.2)(8)
10.9 Form of Indemnification Agreement between IFFC and each of IFFC's Directors and Executive Officers(1)*
10.10 Agreement to Assign Litigation Proceeds, dated as of January 25, 1996, among IFFC, IFFP and Funding,
with exhibits including the Escrow Indemnity Agreement among IFFC, IFFP, Funding and Escrow Agent (10.1)(11)
10.11 Amendment, dated August 31, 1995, to credit facility, dated January 28, 1993, between IFFP and AmerBank (10)
10.18 Litigation Fee Agreement, dated April 7, 1996, among Joel Hirschhorn, P.A., IFFC and IFFP (10)
10.20 Credit Facility, dated February 1, 1996, between IFFP and AmerBank (10)
10.23 Credit Facility, dated February 12, 1993, between IFFC and AmerBank in Poland S.A. (4)
10.24 Credit Facility, dated January 28, 1993, between IFFC and AmerBank in Poland S.A. (4)
10.25 Employment Agreement, dated as of January 28, 1992, between IFFC and Mitchell Rubinson, as amended (19.1)(5)*
10.31 Agreement dated June 8, 1995, to purchase the sublease rights relating to Dantex (10.1)(9)
10.39 Stock Option Agreement, dated as of May 21, 1992, between IFFC and Mitchell Rubinson (6)*
10.41 Stock Option Agreement, dated as of February 1, 1993, between IFFC and Mitchell Rubinson (6)*
10.46 Management Agreement, dated January 1, 1995, between IFFC and IFFP (7)
10.48 Amendment No. 2 to Employment Agreement, dated March 31, 1995, between IFFC and Mitchell Rubinson (7)*
10.49 Credit Facility, dated February 23, 1994, between IFFC and American Bank in Poland, S.A.(7)
10.57 Amendment No. 3 to Employment Agreement, dated November 7, 1996 between Mitchell Rubinson and IFFC (14)*
10.58 Restaurant Development Agreement dated March 14, 1997 between IFFC and BKC (13)
10.59 Franchise Agreement dated March 14, 1997 between IFFC and BKC (13)
10.60 Amendment to Agreement to Assign Litigation Proceeds, dated as of July 3, 1996, among IFFC, IFFP and Litigation
Funding (10.1)(12)
10.61 Agreement to Assign Litigation Proceeds, dated as of September 11, 1996, among IFFC and IFFP (14)
10.62 Promissory Note dated March 11, 1997 by International Fast Food Corporation to Litigation Funding,
Inc. (10.1)(15)
35
<PAGE>
10.63 Second Amendment to Agreement to Assign Litigation Proceeds dated March 13, 1997 between International Fast Food
Corporation, International Fast Food Polska Sp.zo.o and Litigation Funding, Inc. (10.2)(15)
10.64 Agreement dated May 9, 1997, between Litigation Funding, Inc., International Fast Food Corporation
and International Fast Food Polska Sp.zo.o. (10.2)(15)
10.67 Indenture dated November 5, 1997 (10.01)(16)
10.68 Securities Purchase Agreement dated November 5,1997 (10.02)(16)
10.69 Registration Rights Agreement dated November 5, 1997 (10.03)(16)
10.70 Voting and Disposition Agreement dated November 5, 1997 (10.04)(16)
10.71 Employment Agreement, dated as of July 1, 1997, between IFFC and James F. Martin (17)*
10.74 Employment Agreement, dated as of June 15, 1998, between IFFC and Michael T. Welch (18)*
10.75 Amendment to Restaurant Development Agreement dated as of February 24, 1999 by and among Burger King Corporation and
IFFC
10.76 Reimbursement Agreement dated as of February 24, 1999 by and among IFFC, IFFP and Burger King Corporation
10.77 Agreement for the Transfer of Title to Shares By Way of Security dated as of February 24, 1999 by and between IFFC,
IFFP and Burger King Corporation
10.78 General Release dated as of February 24, 1999 by and among Burger King Corporation, IFFC, IFFP and Mitchell Rubinson
10.79 Purchase Agreement dated as of February 24, 1999 by and among IFFC, IFFP, Mitchell Rubinson and Burger King
Corporation
10.80 Credit Agreement dated February 24, 1999, as amended, between IFFP and Citibank (Poland) S.A.
10.81 Addendum dated March 17, 1999, by and among Burger King Corporation, IFFC, IFFP and Mitchell Rubinson
10.82 Letter Agreement dated March 18, 1999 between IFFC and Host Marriott Services Corporation
14.1 Trademark Protection Certificate No. 74441; Trademark [logo] Burger King; Owner: BKC(7)
14.2 Trademark Protection Certificate No. 74442; Trademark [word] Whopper; Owner: BKC (7)
14.3 Trademark Protection Certificate No. 74443; Trademark [words] Burger King; Owner: KC(7)
21.1 Subsidiaries of IFFC
27.1 Financial Data Schedule **
- -----------------
* These exhibits are management contracts or compensatory plans or arrangements.
** Filed electronically only.
(1) Incorporated by reference to the exhibit of the same number filed with IFFC's Registration Statement on
Form S-1 (File No. 33-46784)
(2) Incorporated by reference to the exhibit of the same number filed with IFFC's Registration Statement on
Form S-1 (File No. 33-55284)
(3) Incorporated by reference to the exhibit number indicated filed with IFFC's Registration Statement on
Form S-1 (File No. 33-55284)
(4) Incorporated by reference to the exhibit of the same number filed with the Company's Form 10-KSB for the
fiscal year ended December 31, 1992.
(5) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 10-KSB for the fiscal year
ended December 31, 1992.
(6) Incorporated by reference to the exhibit of the same number filed with IFFC's Form 10-KSB for the year
ended December 31, 1993.
36
<PAGE>
(7) Incorporated by reference to the exhibit of the same number filed with IFFC's From 10-KSB for the year
ended December 31, 1994.
(8) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 10-QSB for the quarter
ended March 31, 1995.
(9) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 10-QSB for the quarter
ended June 30, 1995.
(10) Incorporated by reference the exhibit number indicated filed with IFFC's Form 10-K for the year ended
December 31, 1995.
(11) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 8-K dated January 30, 1996.
(12) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 8-K dated July 3, 1996.
(13) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 8-K dated March 14, 1997.
(14) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 10-KSB for the year
ended December 31, 1996.
(15) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 10-QSB for the quarter
ended March 31, 1997.
(16) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 10-QSB for the quarter
ended September 30, 1997.
(17) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 10-KSB for the year ended
December 31, 1996.
(18) Incorporated by reference to the exhibit number indicated filed with IFFC's Form 10-QSB.
(b) Reports on Form 8-K: None
</TABLE>
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTERNATIONAL FAST FOOD CORPORATION
DATE: March 31, 1999 By: /s/ Mitchell Rubinson
----------------------------------------
Mitchell Rubinson, Chairman of the Board,
Chief Executive Officer and President
[Principal Executive Officer]
DATE: March 31, 1999 By: /s/ James F. Martin
----------------------------------------
James F. Martin, Vice President, Chief
Financial Officer and Treasurer
[Principal Financial Officer and
Principal Accounting Officer]
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
DATE: March 31, 1999 /s/ Mitchell Rubinson
-----------------------------
Mitchell Rubinson, Director
DATE: March 31, 1999 /s/ James F. Martin
-----------------------------
James F. Martin, Director
DATE: March 31, 1999
-----------------------------
Dr. Mark Rabinowitz, Director
DATE: March 31, 1999 /s/ Larry H. Schatz
-----------------------------
Larry H. Schatz, Director
DATE: March 31, 1999 /s/ Michael Welch
-----------------------------
Michael Welch, Director
38
<PAGE>
APPENDIX A
----------
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997......................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1998 and 1997........................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997. F-6 - F-7
Notes to Consolidated Financial Statements........................................... F-8 - F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
International Fast Food Corporation:
We have audited the accompanying consolidated balance sheets of International
Fast Food Corporation (a Florida Corporation) and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 consolidated financial position of
International Fast Food Corporation and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 19, 1999.
F-2
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................. $4,013,371 $18,642,335
Restricted cash and certificates of deposit........................... 999,990 999,990
Receivables........................................................... 1,573,480 101,528
Inventories........................................................... 842,867 372,599
Prepaid expenses and other............................................ 1,150,700 130,711
----------- -----------
Total Current Assets.............................................. 8,580,408 20,247,163
Furniture, Equipment, Buildings and Leasehold Improvements, net............ 17,137,181 5,959,378
Deferred Debenture Issuance Costs, net of accumulated amortization of
$190,666 and $157,410, respectively..................................... 241,659 274,915
Deferred Issuance Costs of 11% Convertible Senior Subordinated
Discount Notes, net of accumulated amortization of $100,827 and 2,417,546 2,446,869
$41,049, respectively...................................................
Other Assets, net of accumulated amortization of $284,532 and
$199,484, respectively.................................................. 991,461 333,533
Burger King Development Rights, net of accumulated amortization of 810,811 918,919
$189,189 and $81,081, respectively......................................
Domino's Development Rights, net of accumulated amortization of 142,477 173,561
$46,626 and $15,542, respectively.......................................
Costs in excess of net assets acquired, net of accumulated
amortization of $19,307 and $0, respectively............................ 1,525,260 --
----------- -----------
Total Assets...................................................... $31,846,803 $30,354,338
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable...................................................... $ 3,889,528 $ 581,555
Accrued interest payable.............................................. 87,077 17,911
Other accrued expenses................................................ 1,176,019 788,412
Current portion of bank credit facilities............................. 1,512,260 1,349,995
----------- -----------
Total Current Liabilities......................................... 6,664,884 2,737,873
11% Convertible Senior Subordinated Discount Notes due October 31, 22,645,202 20,354,680
2007....................................................................
Bank Credit Facilities..................................................... 1,892,362 630,000
9% Subordinated Convertible Debentures, due December 15, 2007.............. 2,756,000 2,756,000
----------- -----------
Total Liabilities................................................. 33,958,448 26,478,553
----------- -----------
Deferred Credit............................................................ 1,000,000 1,000,000
----------- -----------
Minority Interest in Net Assets of Consolidated Subsidiary................. -- 115,294
----------- -----------
Commitments and Contingencies (Notes 2, 14 and 15)
Shareholders' Equity (Deficit):
Preferred Stock, $.01 par value, 2,000,000 shares authorized; 32,985 and
33,450 shares issued and outstanding, respectively
(liquidation preference of $3,298,500).............................. 330 334
Common Stock, $.01 par value, 200,000,000 shares authorized;
44,901,587 and 44,641,247 shares issued and outstanding, 449,016 446,413
respectively........................................................
Additional paid-in capital............................................ 17,888,248 17,691,542
Accumulated deficit................................................... (21,449,239) (15,377,798)
----------- -----------
Total Shareholders' Equity (Deficit).............................. (3,111,645) 2,760,491
----------- -----------
Total Liabilities and Shareholders' Equity (Deficit).............. $31,846,803 $30,354,338
=========== ===========
</TABLE>
See Accompanying Notes
F-3
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Sales.................................................................. $8,489,151 $ 6,083,011
Food and Packaging Costs................................................... 3,347,477 2,476,775
------------ -------------
Gross Profit............................................................... 5,141,674 3,606,236
------------ -------------
Operating Expenses:
Payroll and related costs.............................................. 1,608,283 1,067,282
Occupancy and other operating expenses................................. 2,963,262 1,828,894
Depreciation and amortization.......................................... 1,508,520 888,538
------------ -------------
Total operating expenses.......................................... 6,080,065 3,784,714
------------ -------------
Loss from operations before general and administrative expenses............ (938,391) (178,478)
General and Administrative Expenses........................................ 3,326,997 1,963,233
------------ -------------
Loss from operations....................................................... (4,265,388) (2,141,711)
------------ -------------
Other Income (Expenses):
Interest and other income, net......................................... 825,185 477,053
Interest expense, including amortization of issuance costs............. (2,672,314) (945,598)
Foreign currency exchange gain/(loss).................................. 124,903 (314,731)
Gain on settlement of litigation, net of applicable costs............. -- 1,327,070
------------ -------------
Total other income (expenses)..................................... (1,722,226) 543,794
------------ -------------
Loss before minority interest.............................................. (5,987,614) (1,597,917)
Minority interest in losses of consolidated subsidiary..................... 115,478 345,067
------------ -------------
Net Loss................................................................... $ (5,872,136) $ (1,252,850)
============ =============
Basic and Diluted Net Loss Per Common Share................................ $ (.14) $ (.05)
============ =============
Weighted Average Number of Common Shares Outstanding....................... 44,727,685 26,246,885
============ =============
</TABLE>
See Accompanying Notes
F-4
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Total
Additional Shareholders'
Common Stock Preferred Stock Paid-In Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficit)
------ ------ ------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996..... 10,322,521 $103,225 38,240 $382 $14,523,361 $(13,723,547) $903,421
Conversion of Preferred Stock... 159,650 1,597 (4,790) (48) (1,549) -- --
Common Stock issued in
exchange for professional
services...................... 2,000,000 20,000 -- -- 180,000 -- 200,000
Common Stock issued in
exchange for Underwriter
and debenture warrants........ 200,000 2,000 -- -- (2,000) -- --
Conversion of 8% Convertible
Promissory Notes.............. 5,000,000 50,000 -- -- 450,000 -- 500,000
Conversion of Litigation
Funding Promissory Note....... 25,909,211 259,092 -- -- 2,000,828 -- 2,259,920
Issuance of Common Stock in
payment of dividends on
Preferred Stock............... 549,865 5,499 -- -- 395,902 (401,401) --
Issuance of Common Stock in
payment of costs associated
with issuance of debt
securities.................... 500,000 5,000 -- -- 145,000 -- 150,000
Net loss........................ -- -- -- -- -- (1,252,850) (1,252,850)
---------- --------- -------- ------ ----------- ------------ -----------
Balances, December 31, 1997..... 44,641,247 446,413 33,450 334 17,691,542 (15,377,798) 2,760,491
Conversion of preferred stock... 15,500 155 (465) (4) (151) -- --
Issuance of Common Stock in
payment of dividends on
Preferred Stock............... 244,840 2,448 -- -- 196,857 (199,305) --
Net loss........................ -- -- -- -- -- (5,872,136) (5,872,136)
---------- --------- -------- ------ ----------- ------------ -----------
Balances, December 31, 1998..... 44,901,587 $449,016 32,985 $330 $17,888,248 $(21,449,239) $(3,111,645)
========== ========= ======== ====== =========== ============ ===========
</TABLE>
See Accompanying Notes
F-5
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss............................................................... $(5,872,136) $ (1,252,850)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization and depreciation of furniture, equipment,
buildings, leasehold improvements and development rights............. 1,702,444 989,395
Amortization of debt discount and issuance costs..................... 2,383,556 428,892
Minority interest in losses of subsidiary............................ (115,478) (345,067)
Other operating items................................................ (24,620) 287,261
Gain on forgiveness of indebtedness.................................. -- (329,465)
Changes in operating assets and liabilities, net of
acquisition of business:
Receivables.......................................................... (1,471,952) (10,890)
Inventories.......................................................... (470,268) (15,507)
Prepaid expenses and other........................................... (1,019,989) (64,873)
Accounts payable and accrued expenses................................ 3,695,580 (363,663)
------------ -----------
Net cash used in operating activities.................................. (1,192,863) (676,767)
------------ -----------
Cash Flows From Investing Activities:
Purchase of business, net of cash acquired............................. -- (209,357)
Increase in restricted cash and certificates of deposit................ -- (499,990)
Payments for furniture, equipment, buildings and leasehold
improvements......................................................... (12,875,611) (368,797)
Payments for franchise fees and other assets........................... (415,754) (57,635)
Refund of franchise fees............................................... -- 30,000
Purchase of minority interest in subsidiary............................ (1,544,385) --
------------ -----------
Net cash used in investing activities.................................. (14,835,750) (1,105,779)
------------ -----------
Cash Flows From Financing Activities:
Advances from Affiliate................................................ -- 19,941
Repayments of bank credit facilities................................... (384,889) (1,510,000)
Net proceeds from issuance of 11% Convertible
Senior Subordinated Discount Notes................................... -- 17,662,174
Net proceeds from settlement of litigation............................. -- 3,227,015
Payment to Litigation Funding.......................................... -- (1,028,521)
Payment of other notes payable......................................... -- (69,307)
Payment of non-interest bearing obligation to minority
shareholder of IFF Polska............................................ -- (500,000)
Borrowings under bank credit facilities................................ 1,809,516 1,955,146
Net proceeds from issuance of convertible promissory notes............. -- 500,000
Payment of registration costs.......................................... (30,455) --
------------ -----------
Net cash provided by financing activities.............................. 1,394,172 20,256,448
------------ -----------
Effect of Exchange Rate Changes on Cash and Cash Equivalents........... 5,477 (25,836)
------------ -----------
Increase (Decrease) in Cash and Cash Equivalents....................... (14,628,964) 18,448,066
Beginning Cash and Cash Equivalents.................................... 18,642,335 194,269
------------ -----------
Ending Cash and Cash Equivalents....................................... $4,013,371 $18,642,335
============ ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of capitalized interest of $142,658 and $0 in
1998 and 1997, respectively)........................................ $ 405,258 $ 447,705
============ ===========
</TABLE>
(continued)
F-6
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Year Ended December 31, 1998:
Issuance of 15,500 shares of common stock upon the exchange of 465
shares of Preferred Stock.
Issuance of 244,840 shares of common stock in payment of $199,305 of
dividends on Preferred Stock.
Year Ended December 31, 1997:
Issuance of 159,650 shares of Common Stock upon the exchange of 4,790
shares of Preferred Stock.
Issuance of 2,000,000 shares of Common Stock in payment of $200,000 of
legal fees.
Issuance of 5,000,000 shares of Common Stock upon conversion of $500,000
principal amount of 8% Convertible Promissory Notes.
Issuance of 200,000 shares of Common Stock in exchange for the
cancellation of 130,000 Underwriter Common Stock warrants and
Underwriter $1,000,000 debenture warrants.
Issuance of 25,909,211 shares of Common Stock in payment of $2,198,424
principal amount of a promissory note payable to Litigation Funding
plus $61,425 of accrued interest.
Issuance of 549,865 shares of Common Stock in payment of $401,401 of
dividends on Preferred Stock.
Issuance of 500,000 shares of Common Stock in payment of a portion of the
placement fee in connection with the issuance of the 11% Convertible
Senior Subordinated Discount Notes Due 2007.
See Accompanying Notes
F-7
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
International Fast Food Corporation (the "Company" or "IFFC") was
organized for the purpose of developing and operating franchised Burger King
restaurants in the Republic of Poland.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION -- The accompanying consolidated financial
statements include the accounts of the Company and its Polish subsidiary,
International Fast Food Polska, Sp.zo.o. ("IFFP"), a limited liability
corporation, and IFFP's three wholly-owned Polish limited liability
corporations. Additionally, the consolidated financial statements include the
accounts of the Company's two wholly-owned Polish limited liability
corporations, Krolewska Pizza, Sp.zo.o.("KP") and Pizza King Polska,
Sp.zo.o.("PKP") for the period from their acquisition in July 1997 through
December 31, 1997 and for the year ended December 31, 1998. All significant
intercompany transactions and balances have been eliminated in consolidation.
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.
IFFC's restaurant and store operations are conducted in Poland. The
Polish economy has historically been characterized by high rates of inflation
and devaluation of the Polish zloty against the dollar and European currencies.
However, in the years ended December 31, 1998 and 1997, the rates of inflation
and devaluation improved. For the years ended December 31, 1994, 1995, 1996,
1997 and 1998 the annual inflation rate in Poland was 32%, 21.6%, 19.5%, 13.0%
and 8.6% respectively. Payment of interest and principal on the 9% Subordinated
Convertible Debentures, 11% Convertible Senior Subordinated Discount Notes and
payment of franchise fees to Burger King Corporation ("BKC") and Domino's Pizza
International ("Domino's") for each restaurant and store opened are in United
States currency. Additionally, IFFC is dependent on certain sources of supply
which require payment in European or United States currencies. Because IFFC's
operating revenues are in zlotys, IFFC is subject to the risk of currency
fluctuations. IFFC has and intends to maintain substantially all of its
unutilized funds in United States or Western European currency denominated
securities and/or European Currency Units. There can be no assurance that IFFC
will successfully manage its exposure to currency fluctuations or that such
fluctuations will not have a material adverse effect on IFFC.
The official currency of Poland is the Zloty. The value of the Zloty is
pegged pursuant to a system based on a basket of currencies, as well as all
other economic and political factors that effect the value of currencies
generally. At December 31, 1998 and 1997, the exchange rate was 3.494 and 3.514
zlotys per dollar, respectively. The accounts of IFFC's Polish subsidiaries are
maintained in zlotys and are remeasured into U.S. dollars, the functional
currency, at the end of each reporting period. Monetary assets and liabilities
are remeasured using current exchange rates. Non-monetary assets, liabilities
and related expenses, primarily furniture, equipment, buildings and leasehold
improvements and related depreciation and amortization, are remeasured using
historical exchange rates. Income and expense accounts, excluding depreciation
and amortization, are remeasured using an annual weighted average exchange rate.
Transaction gains and losses that arise from exchange rate fluctuations in
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred.
LIQUIDITY AND PLAN OF OPERATIONS -- As of December 31, 1998, IFFC had
working capital of $1,915,524 and cash and cash equivalents of $4,013,371. As
described in Note 14, the Company has significant commitments to develop
restaurants in accordance with the BKC Development Agreement and the New Master
Franchise Agreement with Domino's. The Company has sustained losses from
operations since its incorporation in December 1991. For the years ended
December 31, 1998 and 1997, the Company reported net losses of $5,872,136 and
$1,252,850, respectively. At December 31, 1998 the Company had an accumulated
deficit of $21,449,239 and a shareholders' deficit of $3,111,645. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The following paragraph sets forth
management's plans with respect to addressing the foregoing factors:
Management believes that cash flows from currently existing stores and
additional stores to be opened in 1999, when combined with existing financial
resources and drawings on the Company's $5,000,000 line of credit secured by BKC
(see Note 6), will be sufficient to fund operations and development costs
through at least January 1, 2000. However, no assurance can be given that
management's plans will be achieved. Further, no assurance can be given that the
cash flows from existing and new stores will be sufficient to fund operations
through January 2000. Management is seeking to obtain additional equity
financing to fund future development. No assurance can be given that such
financing will be obtained or that it can be obtained on favorable terms.
F-8
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with a maturity of three months or less at the time of
acquisition to be cash equivalents. The Company maintains its U.S. cash in bank
deposit accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. The Company believes it
is not exposed to any significant credit risk on cash and cash equivalents.
INVENTORIES -- Inventories are stated at the lower of cost (first in,
first out) or market and consist primarily of restaurant food items.
NET (LOSS) PER COMMON SHARE -- The net loss per common share in the
accompanying Statements of Operations has been computed based upon the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings per Share, which became effective for reporting periods ending after
December 15, 1997, and requires restatement of previously reported per share
amounts. The basic and diluted net loss per common share in the accompanying
statements of operations is based upon the net loss after preferred dividend
requirements of $199,305 and $171,961 in 1998 and 1997, respectively, divided by
the weighted average number of shares outstanding during each period. Diluted
per share data is the same as basic per share data since the inclusion of all
potentially dilutive common shares that would be issuable upon the exercise of
options and warrants and the assumed conversion of convertible debt and
preferred stock would be anti-dilutive.
FURNITURE, EQUIPMENT, BUILDINGS AND LEASEHOLD IMPROVEMENTS --
Furniture, equipment, buildings and leasehold improvements are stated at cost.
Maintenance and repairs are charged to expense, when incurred. Leasehold
improvements, additions, major renewals and betterments are capitalized.
Furniture and equipment is being depreciated over periods ranging from three to
five years on a straight-line basis. Buildings and leasehold improvements are
amortized over the shorter of their expected useful lives or the respective
lease term. When items are sold, or otherwise disposed of, the related costs and
accumulated amortization or depreciation are removed from the accounts and any
resulting gains or losses are recognized. In connection with the development of
new restaurants, the Company has capitalized certain development costs. These
costs include direct and indirect costs of the projects that are incremental to
normal operations and specifically identifiable to the related projects. The
amount of such costs included in the accompanying consolidated balance sheets
are approximately $434,000 and $0 as of December 31, 1998 and 1997,
respectively. In addition, the Company capitalizes interest incurred to finance
construction of the Company's stores. Capitalized interest was $142,658 and $0
in 1998 and 1997, respectively.
ACQUISITION COSTS OF DEVELOPMENT RIGHTS -- All costs associated with
the acquisition of Burger King and Domino's Development Rights were capitalized.
The cost of these rights is being amortized over the term of the respective
agreements.
DEFERRED CHARGES AND OTHER ASSETS -- All costs incurred in connection
with the organization of the Company were deferred and amortized on a
straight-line basis over the five year period ended December 31, 1997. Software
costs are amortized on a straight-line basis over five years. Franchise fees are
amortized over the primary term of each agreement ranging from five to twenty
years. Debt issuance costs related to the issuance of the 9% Subordinated
Convertible Debentures due December 15, 2007 and the 11% Convertible Senior
Subordinated Discount Notes due October 31, 2007, have been capitalized and are
amortized using the effective interest method over the life of the related debt.
COST IN EXCESS OF NET ASSETS ACQUIRED - Cost in excess of net assets
acquired principally represents the excess of cost over the fair value of the
net assets of IFFP which were acquired with the purchase of the remaining
interest of IFFP's minority shareholder, Agros Investments, S.A., in September
1998. The amount is being amortized on the straight-line method over 35 years
commencing in October 1998. When events and circumstance so indicate, all
long-term assets, including the Cost In Excess of Net Assets Acquired, are
assessed for recoverability based upon cash flow forecasts.
INCOME TAXES - Deferred Income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts. Deferred tax assets are also
established for the future tax benefits of loss and credit carryforwards.
Valuation allowances are established to reduce deferred tax assets to the amount
expected to be realized. Advertising expense for the years ended December 31,
1998 and 1997 was approximately $719,000 and $390,000, respectively.
ADVERTISING AND PROMOTION EXPENSES -- Production costs of future media
advertising are deferred until the advertising occurs. All other advertising and
promotion costs are expensed when incurred. At December 31, 1998 and 1997, the
Company had no significant deferred advertising costs.
F-9
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENTLY ISSUED ACCOUNTING STANDARDS -- IFFC adopted SFAS No. 130,
Reporting Comprehensive Income, in the first quarter of 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of financial statements. The objective of SFAS No. 130
is to report comprehensive income, a measure of all changes in equity of an
enterprise that result from transactions and other economic events in a period,
other than transactions with owners. The adoption of SFAS No. 130 did not have a
material impact on IFFC's consolidated financial statements as IFFC's net loss
is equal to its comprehensive loss.
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for the way that public business enterprises
report information about operating segments and for related disclosures about
products and services, geographic area and major customers. IFFC adopted the
disclosure provisions of SFAS No. 131 effective December 31, 1998. See Note 17
for segment information.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, is effective for fiscal years ended after June 15, 1999. This
statement establishes accounting and reporting standards that require every
derivative instrument be recorded in the balance sheet as either an asset or
liability at its fair value. Management believes the adoption of this statement
will not have an impact on the Company's consolidated financial position because
the Company does not presently have any derivative or hedging-type investments
as defined by SFAS No. 133.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("ACSEC") issued Statement of
Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. SOP 98-1 establishes criteria for determining
which costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. The Company adopted SOP 98-1
prospectively on January 1, 1999. Management does not believe that the adoption
of SOP 98-1 will have a material effect on the Company's financial position or
results of operations.
In April 1998 the ACSEC issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998.
The Company capitalizes start-up costs associated with opening new
restaurant locations. Upon commencement of revenue producing activities at a
restaurant location, the related capitalized start-up costs are amortized over
one year. As of December 31, 1998 and 1997, the Company had recorded
approximately $620,000 and $0, respectively, of start-up costs which are
included in prepaid expenses in the accompanying consolidated balance sheets.
Amortization expense for the years ended December 31, 1998 and 1997, was
approximately $165,000 and $13,000, respectively.
The Company adopted SOP 98-5 on January 1, 1999. The impact of the
initial application of SOP 98-5 will be reported as a cumulative effect of a
change in accounting principle.
3. RESTRICTED CASH:
At December 31, 1998 and 1997, the Company had $999,990 in certificates
of deposit which represents collateral for an outstanding line of credit.
4. FURNITURE, EQUIPMENT, BUILDINGS AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment, buildings and leasehold improvements are
comprised of the following at December 31:
F-10
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Vehicles................................................. $ 614,119 $ 92,470
Office furniture and equipment........................... 604,841 405,205
Restaurant equipment..................................... 12,469,826 3,730,027
Buildings and leasehold improvements..................... 8,346,745 6,044,228
Add: capitalized interest................................ 142,658 --
------------- -------------
22,178,189 10,271,930
Less: accumulated depreciation and amortization.......... (5,041,008) (4,312,552)
------------- -------------
Total........................................... $17,137,181 $ 5,959,378
============= =============
Depreciation expense..................................... $ 1,430,340 $ 848,838
============= =============
</TABLE>
5. OTHER ASSETS:
Other assets are comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Franchise fees........................................... $662,714 $339,386
Deferred lease costs..................................... 459,664 91,350
Software and other intangibles........................... 153,615 102,281
---------- ----------
1,275,993 533,017
Less: accumulated amortization........................... (284,532) (199,484)
---------- ----------
Total........................................... $ 991,461 $333,533
---------- ----------
Amortization expense..................................... $ 113,603 $ 43,934
========== ==========
</TABLE>
6. BANK CREDIT FACILITIES:
Bank credit facilities are comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
AmerBank in Poland, S.A., PKP overdraft credit line, variable rate
approximately equal to prime, expires June 1, 1999...................... $ 25,288 $ 15,772
AmerBank in Poland, S.A., IFFP overdraft credit line, variable rate
approximately equal to prime, expires April 1, 1999..................... 386 15,223
AmerBank, IFFP line of credit of $950,000 payable in twenty-nine installments
of $32,000 commencing on March 31, 1998 interest payable monthly at 2.75%
above LIBOR, $22,000 due at maturity on August 12, 2000................. 630,000 950,000
AmerBank IFFP revolving credit facility of $1,500,000, interest is payable
monthly at 2.50% above LIBOR, and principal is payable in thirty-five
monthly installments of $41,666 starting in June 2000 with a final payment
of $41,690 due at maturity on May 18, 2003.............................. 1,500,000 --
Totalbank IFFC line of credit of $999,000 payable in full on February 18, 1999,
interest at 6.5% payable quarterly collateralized by
certificates of deposit in the amount $999,990.......................... 982,586 999,000
AmerBank, PKP line of credit of $300,000 payable in ten quarterly installments
of $30,000 commencing on December 26, 1998, interest payable monthly at
3 1/8% above LIBOR, due at maturity on March 26,
2001.................................................................... 266,362 --
------------ -----------
Total bank credit facilities................................................. 3,404,622 1,979,995
Less: current maturities..................................................... (1,512,260) (1,349,995)
------------ -----------
Long term bank credit facilities............................................. $1,892,362 $ 630,000
============ ===========
</TABLE>
On February 24, 1999, IFFP entered into a credit agreement (the "Credit
Agreement") with Citibank (Poland) S.A. pursuant to which Citibank granted IFFP
a loan in the amount of $5,000,000 (the "Loan"). The purpose of the loan is to
finance the construction of nine Burger King restuarants. The loan is priced at
0.8% above LIBOR and matures on January 15, 2000. As of March 22, 1999,
$1,734,953 was outstanding on this credit facility. In order for IFFP to enter
into the Credit Agreement, holders of the outstanding Notes were required to
waive certain provisions of the Note Indenture. As compensation for such waiver,
the Noteholders were issued an aggregate of 204,585 shares of Common Stock,
with a fair value of $0.56 per share. The fair value of the common stock will be
recorded as a deferred financing cost and amortized using the effective interest
method over the life of the debt.
The Loan is guaranteed by BKC and the Company granted BKC a security
interest in the outstanding shares of IFFP. As a condition to the guarantee, BKC
required that IFFC, IFFP and Mitchell Rubinson enter into a general release in
favor of BKC for any and all matters occurring prior to the date of the
guarantee. Additionally, the Company and IFFP entered into a reimbursement
agreement (the "Reimbursement Agreement") pursuant to which they agreed to
reimburse BKC for any and all amounts paid out by BKC pursuant to the guaranty
and all costs and expenses incurred by BKC in connection with the enforcement of
its rights under the Reimbursement Agreement. BKC also required that the
Company, IFFP and Mitchell Rubinson, the Chairman of the Board and Chief
Executive Officer of the Company and a principal shareholder ("Rubinson"),
execute a general release of BKC relating to any matters that occurred prior to
the execution of the Credit Agreement.
Additionally, Rubinson entered into a purchase agreement with BKC which
provides that if IFFP and the Company default on their obligations under the
Reimbursement Agreement and BKC takes possession of the IFFP shares, Rubinson is
required to purchase the IFFP shares from BKC for an amount equal to all amounts
paid out by BKC pursuant to the guaranty and all costs and expenses incurred by
BKC in connection with the enforcement of its rights under the Reimbursement
Agreement. Mr. Rubinson received a fee of $150,000 from the Company in
connection with the Purchase Agreement.
F-11
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 9% SUBORDINATED CONVERTIBLE DEBENTURES:
The Convertible Subordinated Debentures (the "Debentures") mature on
December 15, 2007 and provide for the payment of interest at 9% semi-annually
until maturity.
The Debentures are subordinated and subject in right of payment to the
prior payment of all Senior Indebtedness. The indenture contains no provision
restricting the incurrence of additional debt or the issuance of additional
securities. The Debentures may be redeemed together with accrued interest at the
option of the Company in whole or in part, at any time on at least 30 days
notice to Debenture holders at decreasing redemption prices from 109% in 1993 to
100% in 2002 and thereafter. The Debentures are redeemable through the operation
of a sinking fund. Sinking fund payments are reduced for Debentures previously
converted or redeemed by the Company. In January 1994, the Company offered to
exchange units of Common Stock and warrants to purchase common stock for its
outstanding Debentures. The Company exchanged approximately $7.0 million of the
Debentures pursuant to such offer and, as a result, is not required to fund the
Debenture sinking fund until 2004.
8. 11% CONVERTIBLE SENIOR SUBORDINATED DISCOUNT NOTES:
On November 5, 1997, the Company sold $27,536,000 of 11% Convertible
Senior Subordinated Discount Notes Due October 31, 2007 (the "Notes") in a
private offering. The Notes are comprised as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Face amount of notes at maturity...................................... $27,536,000 $27,536,000
Unamortized discount to be accreted as interest expense and
added to the original principal balance of the notes over a
period of three years............................................... (4,890,798) (7,181,320)
----------- ------------
Carrying value........................................................ $22,645,202 $20,354,680
=========== ============
</TABLE>
The Company received net proceeds of $17,662,174 after reduction of the
face of the notes for unamortized discount of $7,535,908 and placement costs in
the amount of $2,337,918. In addition to the placement costs incurred, the
Company also issued to the placement agent 500,000 shares of Common Stock which
were valued at $150,000. The value of the shares was included in deferred
issuance costs on the accompanying balance sheets and is being amortized using
the effective interest method over the life of the Notes.
The Notes mature on October 31, 2007, and interest is payable
semi-annually, in cash, on April 30 and October 31 of each year, commencing
April 30, 2001.
The Notes are redeemable at the option of the Company, in whole or in
part, at any time or from time to time on and after October 31, 2002; initially
at 105.5% of their accreted value on the date of redemption, plus accrued
interest, declining ratably to 100% of their principal amount, plus accrued
interest, on and after October 31, 2006.
The Notes are convertible, at the option of the holder, into Common
Stock at any time after November 5, 1998. As of December 31, 1998, none of the
Notes had been converted into Common Stock. The number of shares of Common Stock
issuable upon conversion of the Notes is equal to the accreted value of the
Notes being converted, on the date of conversion, divided by $.70 (the
"Conversion Ratio"), subject to adjustment in certain events. Accordingly, the
number of shares of Common Stock issuable upon conversion of the Notes will
increase as the accreted value of the Notes increases. In addition, (a) if the
closing sale price (the "closing price") of the Common Stock on the Nasdaq
National Market or other securities exchange or system on which the Common Stock
is the traded or (b) if not so traded, then the best bid offered price on the
OTC Bulletin Board Service (the "BBS") on the days when transactions in the
Common Stock are not effected, or on such days as transactions are effected on
the BBS, the highest price at which a trade was executed, during any period
described below has exceeded the price for such period for at least 20
consecutive trading days (the "Market Criteria Period"), and a registration
statement with respect to the resale of Common Stock to be issued upon
conversion of the Notes is effective, all of the Notes will be automatically
F-12
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
converted into Common Stock at the close of business on the last day of the
Market Criteria Period; provided, however, that if the Market Criteria is
satisfied during the third year after the closing date of the offering, the
conversion will occur only if the Closing Price or OTC Price, as applicable, of
the Common Stock is at least $2.80 on such date :
12 Months Beginning Closing Price
------------------- -------------
October 31, 1999........... $2.80
October 31, 2000........... $3.25
The Company was obligated to cause a registration statement to be
declared effective registering the resale of the shares of Common Stock to be
issued upon conversion of the Notes. The registration statement was declared
effective on September 10, 1998. If such registration statement, subject to
certain exceptions, ceases to be effective, then IFFC is obligated to pay
certain liquidated damages to the holders of the Notes ranging from 1/2% to a
maximum of 5.0% of the principal balance of such Notes, depending upon the
length of the period of time the registration statement is not effective.
In the event of a change of control, as defined in the Convertible
Senior Subordinated Discount Notes Indenture (the "Indenture"), the holders of
the Notes will have the right to require the Company to purchase the Notes at a
purchase price of 101% of their accreted value on the date of such purchase,
plus accrued interest.
The Indenture contains certain covenants which among other things,
restrict the ability of IFFC and its Restricted Subsidiaries (as defined in the
Indenture) to: incur additional indebtedness; create liens, pay dividends or
make distributions in respect to their capital stock; make investments; or make
certain other restricted payments; sell assets, issue or sell stock of
Restricted Subsidiaries; enter into transactions with stockholders or
affiliates; engage in unrelated lines of business; or consolidate, merge, or
sell all or substantially all of IFFC's assets. In addition, Mitchell Rubinson
must remain the Company's Chief Executive Officer.
The Indenture specifically requires that any temporary cash investments
can only be placed in banks that have total capital in excess of $100 million.
9 FUTURE MATURITIES OF DEBT
Future maturities of Bank credit facilities, Debentures and Notes at
December 31, 1998 are as follows:
Years Ending
December 31,
------------
1999.......... $1,512,260
2000.......... 657,662
2001.......... 526,354
2002.......... 499,992
2003.......... 208,354
Thereafter.... 30,292,000
--------------
$33,696,622
==============
10. FINANCIAL INSTRUMENTS:
Fair Value of Financial Instruments - The carrying amounts of cash and
cash equivalents, receivables, accounts payable, accrued expenses and bank
credit facilities payable approximate fair value because of the short maturity
of these items. The fair value of the Company's 9% Subordinated Convertible
Debentures and 11% Convertible Senior Subordinated Discount Notes are not
readily determinable at December 31, 1998, due to the lack of trading activity.
F-13
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
However, management believes that the carrying value approximates fair value
using valuation assumptions that would apply to similar debt instruments issued
by companies with similar risks.
11. SHAREHOLDERS' EQUITY:
The Company's stock option plan provides for the granting of options to
qualified employees and directors of the Company. Stock option activity is shown
below at December 31:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
1998 Share Price 1997 Share Price
---- ----------- ---- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year......................... 570,000 $.40 210,000 $.40
Granted............................ 450,000 .66 410,000 .40
Exercised.......................... -- -- -- --
Expired............................ -- -- (50,000) .40
------------- -------
Outstanding at end of year......... 1,020,000 .52 570,000 .40
============= =======
Exercisable at end of year......... 350,500 .42 256,000 .40
============= =======
Price range of options outstanding
at end of year.................. $.40 - $.81 $.40
Available for grant at end of year. 980,000 1,430,000
</TABLE>
In January 1995, and July 1997, all options outstanding were repriced
to $1.375 and $.40, respectively, which was equivalent to the market price of
the Common Stock on such dates.
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
was issued during 1995 and was effective for the year ended December 31, 1996.
This pronouncement establishes financial accounting and disclosure standards for
stock-based employee compensation plans. It encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees and directors based on new fair value
accounting rules. SFAS No. 123 requires fair value accounting for options and
other equity instruments issued to non-employees. Companies that choose not to
adopt the new fair value accounting rules for options and equity instruments
issued to employees and directors are required to disclose pro forma net income
and earnings per share as if the provisions of SFAS No.123 had been adopted.
The Company continues to account for options granted to employees and directors
under the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", but has adopted the disclosure provisions of
SFAS No.123. Had compensation costs for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123 for options
granted in 1998 and 1997, the Company's net loss and basic and diluted net loss
per share for those years would have increased by approximately $85,000 and
$170,000 or $0.002 and $0.006 per share respectively. The fair value of the
options granted during 1998 and 1997 are estimated at $271,000 and $49,000,
respectively, on the dates of grant using the Black-Scholes option-pricing model
with the following assumptions: expected volatility of 107%, expected dividend
yield of 0%, risk-free interest rate of 5%, and terms of 8.7 years.
On December 15, 1997, the Company issued 549,865 shares of Common Stock
valued at $401,401 in payment of the December 15, 1997 dividend ($171,961) and
all dividends in arrears as of that date. At December 31, 1998, no dividends
were in arrears.
During the year ended December 31, 1997 the Company issued shares of
Common Stock in satisfaction of outstanding liabilities, payment of expenses and
acquisition of working capital. In the opinion of management, the value assigned
to the Common Stock issued was approximately equivalent to its fair market value
on the date such shares were issued.
During the years ended December 31, 1998 and 1997, 15,500 and 159,650
shares of Common Stock were issued upon exchange of 465 and 4,790 shares of
Preferred Stock, respectively.
F-14
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, IFFC had reserved the following shares of Common
Stock for issuance:
<TABLE>
<CAPTION>
<S> <C>
Stock option plans.......................................................................... 2,000,000
Warrants issued in connection with 1994 exchange offer, exercisable at $7.00 per
share through August 1, 1999.............................................................. 290,800
Convertible Debentures convertible into Common Stock at a conversion price of $8.50
per share on or before December 15, 2007.................................................. 324,235
Preferred Stock convertible into Common Stock at a conversion rate of 33 1/3 Common
Shares per share.......................................................................... 1,099,500
Warrants to purchase 50,000 shares of Common Stock at an exercise price of $.2831 per
share..................................................................................... 50,000
Convertible Senior Subordinated Discount Notes convertible into Common Stock, after
November 5, 1998, at a conversion price of $.70 per share................................. 39,337,143
----------
Total reserved shares....................................................................... 43,101,678
==========
</TABLE>
12. INCOME TAXES:
The Company follows SFAS No. 109, Accounting for Income Taxes, which
requires, among other things, recognition of future tax benefits measured at
enacted rates attributable to deductible temporary differences between financial
statement and income tax bases of assets and liabilities and to tax net
operating loss carryforwards to the extent that realization of said benefits is
more likely than not. As of December 31, 1998 and 1997, the Company had net
operating loss carryforwards of approximately $9,245,000 and $4,417,000
respectively, for U.S. tax purposes which expire in various years through 2018.
Deferred tax assets as of December 31, 1998 and 1997 of approximately $3,476,000
and $1,661,000 respectively, were subject to and presented net of a 100%
valuation allowance. At December 31, 1998 and 1997, the Company has capital loss
carryforwards of approximately $1,338,000, which expire in 1999.
As of December 31, 1998 and 1997, the Company's Poland subsidiaries had
net operating loss carry-forwards of approximately $2,340,000 and $6,952,000
respectively, which expire in various years through 2001. Deferred tax assets,
which primarily result from the net operating loss carried forward as of
December 31, 1998 and 1997 of approximately $936,000 and $2,781,000
respectively, were subject to and presented net of a 100% valuation allowance.
13. RELATED PARTY TRANSACTIONS:
In January 1997, Mitchell Rubinson and his wife, Marilyn Rubinson, the
mother of Mitchell Rubinson, Jaime Rubinson and Kim Rubinson, Mr. Rubinson's
daughters, purchased $100,000, $300,000, $50,000, and $50,000 aggregate
principal amount of convertible promissory notes, respectively. The notes bore
interest at 8% per annum and were convertible into shares of the Company's
Common Stock at $.10 per share. The proceeds from the sale of the notes were
used to fund the cost of the Company's litigation against BKC and for general
working capital purposes. In June 1997 the $500,000 aggregate principal amount
of the convertible promissory notes were converted into 5,000,000 shares of
Common Stock.
See Note 15 for a description of transactions with Litigation Funding,
Inc.
See Note 16 for a description of the Company's purchase of KP and PKP,
two Polish limited liability companies. Prior to KP's purchase of PKP, PKP was
wholly-owned by QPQ Corporation, a former affiliate of the Company.
On February 24, 1999, IFFP entered into a credit agreement with
Citibank (Poland) S.A. pursuant to which Citibank granted IFFP a loan in the
amount of $5,000,000 (the "Loan"). The Loan is guaranteed by BKC and the Company
granted BKC a security interest in the outstanding shares of IFFP. As a
condition to the guarantee, BKC required that IFFC, IFFP and Mitchell Rubinson
enter into a general release in favor of BKC for any and all matters occurring
prior to the date of the guarantee. In order for IFFP to enter into the Loan,
holders of the outstanding Notes were required to waive certain provisions of
the Note Indenture. As compensation for such waiver, the Noteholders were issued
an aggregate of 204,585 shares of Common Stock with a fair value of $0.56 per
share. The fair value of the Common Stock will be recorded as a deferred
financing cost and will be amortized using the effective interest method over
the life of the Notes.
F-15
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, in connection with such transaction, Mitchell Rubinson
entered into a purchase agreement with BKC which provides that (i) if IFFP and
IFFC default on the Loan and BKC takes possession of the IFFP shares and (ii)
IFFC is unable to repurchase the shares of IFFP from BKC, Rubinson is required
to purchase the IFFP shares from BKC for an amount equal to all amounts paid out
by BKC plus costs and expenses incurred by BKC in connection with the
enforcement of its rights under a reimbursement agreement with IFFC and IFFP. In
connection with such purchase agreement, the Company paid Mitchell Rubinson a
fee of $150,000.
14. COMMITMENTS AND CONTINGENCIES:
On March 14, 1997, IFFC and BKC entered into a new Development
Agreement (the "BKC Development Agreement"), which was then assigned by IFFC to
IFFP; IFFC continues to remain liable for the obligations contained in the BKC
Development Agreement. The BKC Development Agreement was amended in February
1999. Pursuant to the BKC Development Agreement, IFFP 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 BKC Development Agreement, as amended, IFFC is required to open
135 restaurants 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 restaurant. A Burger King kiosk restaurant shall, for
purposes of the BKC Development Agreement, be considered one quarter of a
restaurant. Beginning January 1, 2000, four of the Development Units opened in
each year must be in-line or free-standing restaurants within city centers or
shopping mall locations.
Pursuant to the BKC Development Agreement, IFFC is to open three
restaurants through September 30, 1998, four restaurants in each year beginning
October 1, 1998 and ending December 31, 1999, 16 restaurants in each year
beginning January 1, 2000 and ending December 31, 2006 and 12 restaurants in the
period beginning January 1, 2007 and ending September 30, 2007. IFFC has
opened 13 Burger King restuarants pursuant to the BKC Development Agreement
and has satisfied its development requirements through 1999.
Pursuant to the BKC Development Agreement, IFFC shall pay BKC
$1,000,000 as a development fee. IFFC shall not be obligated to pay the
development fee if IFFC 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, IFFC, at its option, may either pay the development fee or provide BKC
with the written and binding undertaking of Mr. Mitchell Rubinson, IFFC's
Chairman, that the Rubinson Group (as defined below) will completely divest
themselves of any interest in IFFC and the Burger King restaurants opened or
operated by IFFC in Poland within six months of the date the development fee
payment is due. The Rubinson Group shall be defined to include any entity that
Mr. Rubinson directly or indirectly owns an aggregate interest of 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.
For each restaurant opened, IFFP is obligated to pay BKC an initial fee
of up to $40,000 for franchise agreements with a term of 20 years and $25,000
for franchise agreements with a term of ten years. Each such fee is payable not
later than 20 days prior to the restaurant's opening. Pursuant to the amendment
to the BKC Development Agreement, BKC agreed to defer $280,000 in franchise fees
for seven Burger King restaurants currently under construction until December
31, 1999. Each franchised restaurant must also pay a percentage of the
restaurant's gross sales, irrespective of profitability, as a royalty for the
use of the Burger King system and Burger King trademarks. The annual royalty fee
is 5% of gross sales. However, BKC has agreed to reduce the royalty fee to 2%
through September 30, 1998 and 3% through December 31, 2002. Thereafter, the
annual royalty fee will be 5%. The restaurants must also contribute a monthly
advertising and promotion fee of 6% of gross sales to be used for advertising,
sales promotion, and public relations. Payment of all amounts due from IFFP to
BKC pursuant to the franchise agreements is guaranteed by IFFC.
BKC may terminate rights granted to IFFC under the BKC Development
Agreement, including franchise approvals for restaurants not yet opened, for a
variety of possible defaults by IFFC, including, among others, failure to open
restaurants in accordance with the schedule set forth in the BKC Development
Agreement; failure to obtain BKC site approval prior to the commencement of each
F-16
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
restaurant's construction; failure to meet various operational, financial, and
legal requirements set forth in the BKC Development Agreement, including
maintaining of IFFP's net worth of $7,500,000 beginning on June 1, 1999. (IFFC
was in compliance with such provision as of January 1999.) Upon termination of
the BKC Development Agreement, whether resulting from default or expiration of
its terms, BKC has the right to license others to develop and operate Burger
King restaurants in Poland, or to do so itself.
Subject to certain exceptions, as long as IFFC is a principal of IFFP,
BKC has the right to review and consent to certain types of new stock issuances
of IFFC for which the consent will not be unreasonably withheld, provided that
IFFC has complied with all reasonable conditions then established by BKC in
connection with the proposed sale or issuance of applicable equity securities by
IFFC.
On August 28, 1997, KP entered into a New Master Franchise Agreement
with Domino's which granted KP the exclusive right to develop and operate and to
sub-license Domino's Pizza stores and to operate a commissary for the Domino's
system and the use of the Domino's and related marks in the operation of stores
in Poland. IFFC, as a condition to the New Master Franchise Agreement,
contributed $2,000,000 to KP in 1997. IFFC also agreed that any additional
capital required above such amount will also be dedicated to KP as needed to
permit KP to meet its development quotas. The term of the New Master Franchise
Agreement will expire on December 31, 2003, and if KP is in compliance with all
material provisions of the New Master Franchise Agreement, it may be extended
for an additional ten years in accordance with certain minimum development
quotas which KP and Domino's may agree upon by execution of an amendment to the
New Master Franchise Agreement. Under the terms of the New Master Franchise
Agreement, KP is obligated to open 5, 6, 7, 8, 9, and 10 stores, respectively,
beginning in 1998 and ending in the year 2003 for a total of 45 new stores. Of
such stores, third party franchise stores shall not exceed 25% of the number of
open and operating stores and all stores located in Warsaw, Poland shall be
corporate stores. IFFC has opened 11 Domino's Stores pursuant to the New Master
Franchise Agreement and has satisfied its development requirements for 1997 and
1998.
During the term of the New Master Franchise Agreement, KP and its
controlling shareholders, including the controlling shareholder of IFFC, will
not have any interest as an owner, investor, partner, licensee or in any other
capacity in any business engaged in sit-down, delivery or carry-out pizza or in
any business or entity which franchises or licenses or otherwise grants to
others the right to operate a business engaged in such business which is located
in Poland. The latter restriction shall apply for a period of one year following
the effective date of termination of the New Master Franchise Agreement.
The Company maintains its executive offices in approximately 2,500
square feet of leased office space. Annual lease payments are approximately
$32,200. IFFC has exercised its second of three, two year renewal options.
IFFP maintains principal offices in Warsaw, Poland in approximately
4,680 square feet of office space. Annual lease payments are $110,000. The term
of the lease is for an unlimited period; however, either party may terminate the
lease after the first year with six month written notice. IFFP has the right of
first refusal to the purchase of the building and will be reimbursed for the net
book value of its improvements to the space upon termination of the lease
agreement by the landlord.
On November 7, 1996, IFFC amended its employment agreement with the
Chairman of the Board and Chief Executive Officer, extending his
employment term until December 31, 1999. The minimum annual salary during the
first year is $183,013 subject to a 10% annual increase for each of the
remaining two years. The agreement provides for an annual incentive bonus of
2.5% of the Company's net income. The agreement also provides for various fringe
benefits, certain payments if employment is terminated by reason of 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 employment
is terminated by the Company without cause.
On July 1, 1997, the Company entered into an employment agreement with
its Chief Financial Officer for an initial term of three years, which may be
extended by the Company for up to two additional years. Minimum annual salary
for the first year is $85,000. The agreement provides for various fringe
benefits, a payment of $20,000 in the event employment is terminated by reason
of death or disability and a maximum payment of $20,000 if employment is
F-17
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
terminated without cause by the Company.
On June 15, 1998, the Company executed an employment agreement with the
Company's President and Chief Operating Officer for an initial term of three
years, which the Company may extend for up to an additional two years. Minimum
annual salary for the first year is $165,000. The agreement provides for various
fringe benefits, a payment of $50,000 in the event employment is terminated by
reason of death or disability and a payment ranging from $25,000 to $75,000 in
the event employment is terminated without cause by the Company.
In connection with the procurement of restaurant sites, IFFP and PKP
have entered into various long-term arrangements for restaurant space. The terms
of the various agreements range from approximately two to ten years, plus
extensions based upon agreement between the parties. The following is a schedule
by years of minimum future rentals on noncancellable operating leases as of
December 31, 1998, based on the year end exchange rate:
<TABLE>
<CAPTION>
Years Ending December 31, Poland U.S.A.
------------------------- ------ ------
<S> <C> <C> <C>
1999............... $1,237,460 $37,100
2000............... 1,237,460 40,800
2001............... 1,237,460 --
2002............... 1,237,460 --
2003............... 1,223,210 --
Thereafter......... 10,290,509 --
------------ ---------
$16,461,719 $77,900
============ =========
</TABLE>
Rent expense for 1998 and 1997 was $805,110 and $560,933, respectively.
IFFP has entered into long-term purchase agreements with its suppliers
for its major menu items, which are sourced in Poland. The range of prices and
volume of purchases under the agreements vary according to IFFP's demand for the
products and fluctuations in market rates.
15. LITIGATION:
BKC Litigation. On March 17, 1995, IFFC and IFFP (collectively, the
"IFFC Affiliates"), filed suit against BKC in the Eleventh Judicial 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 old BKC Development Agreement and the eight
existing franchise agreements (the "Franchise Agreements") pertaining to IFFP's
eight Burger King restaurants. The IFFC Affiliates further alleged that in
connection with BKC's sale of certain of its rights pursuant to the old 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, IFFC, IFFP and Rubinson, individually and on
behalf of Litigation Funding, Inc. entered into a Settlement Agreement. In
connection with the execution of the Settlement Agreement, IFFC and BKC entered
into the BKC Development Agreement and eight (8) new franchise agreements. BKC
paid to IFFC 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 IFFC through January 31,
1997. Under the terms of the Settlement Agreement, a portion of such proceeds,
not to exceed $2,000,000, could be used to immediately satisfy the actual legal
fees and costs of IFFC and IFFP incurred in connection with the BKC litigation,
F-18
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
including IFFC's and IFFP's obligation under the agreement between IFFC, IFFP
and Litigation Funding, Inc. The remaining $3,000,000 is to be used by IFFC and
IFFP for the development of additional BKC restaurants in Poland or working
capital for IFFP pursuant to the BKC Development Agreement. All parties to the
litigation stipulated to dismissal of the litigation and executed mutual
releases.
Litigation Financing Agreements. IFFC entered into two 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 Litigation Funding, Inc., a
Florida corporation ("Funding"). This agreement was later amended in July 1996.
Mitchell Rubinson, the chairman of the board, chief executive officer and
president of IFFC is also the chairman of the board, chief executive officer and
president and the principal shareholder of Funding.
Pursuant to the amended Funding Agreement, Funding agreed to pay on
behalf of IFFC 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
IFFC 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 IFFC and/or IFFP (collectively, the "BKC Matter"). Funding paid
all amounts it was requested to pay pursuant to the Funding Agreement.
In consideration of the Amount, IFFC 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 to (i) the gross proceeds of any
court ordered decision or judgment (a "Judgment") entered in favor of IFFC
and/or IFFP, (ii) the Sale Proceeds (as such term is defined in the agreement,
the "Sales Proceeds") of any sale of the assets of IFFC 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
IFFC 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 IFFC (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, IFFC 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 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 (as such term is defined below, 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, IFFC and IFFP have
retained the right in 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,
IFFC, 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
F-19
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 IFFC 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 IFFC, IFFP or Funding within one (1)
year of a Judgment 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 IFFC 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.
In consideration of the Amount, IFFC 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, IFFC
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 IFFC 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"). IFFC 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. IFFC 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 system of recording and perfecting security
interest. 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.
The IFFC Affiliates also entered a second agreement to assist in the
financing of the BKC Litigation. On April 7, 1996, the IFFC Affiliates entered
into a letter agreement (the "Fee Agreement") with the law firm (the "Litigation
Counsel") representing the IFFC Affiliates in the BKC Litigation. Pursuant to
the Fee Agreement, IFFC and IFFP have agreed to pay Litigation Counsel the
greater of (a) Litigation Counsel's accrued hourly fees for legal services
provided in connection with the BKC Litigation; and (b) a certain percentage of
any final monetary recovery obtained by the IFFC Affiliates in the BKC
Litigation, in exchange for Litigation Counsel's services. The Company's legal
fees and related costs in connection with the BKC litigation, exclusive of the
$750,001 paid by Funding, were approximately $1,447,082, of which $200,000 was
paid by issuance of 2,000,000 shares of Common Stock to Litigation Counsel, in
April 1997.
<TABLE>
<CAPTION>
The gain on settlement of the BKC Litigation is comprised as follows:
<S> <C>
Settlement Proceeds:
Cash received from BKC........................... $ 5,000,000
Forgiveness of liabilities due to BKC............ 499,768
Value attributable to Development Agreement...... 1,000,000
------------
Total proceeds............................ 6,499,768
Less Settlement Costs and Deferred Credits:
Legal fees and costs paid by IFFC................ (1,447,082)
Legal fees and costs paid by Funding............. (750,001)
Deferred Credit.................................. (1,000,000)
------------
Net settlement proceeds.......................... 3,302,685
Portion of net settlement proceeds due to Funding (2,477,014)
Legal fees and costs paid by IFFC in prior to 1997
and charged against operations................... 501,399
------------
IFFC gain on settlement.......................... $1,327,070
============
</TABLE>
F-20
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IFFC has valued the New Development Agreement at $1,000,000 which is
its best estimate of the cost that it would incur in obtaining such agreement
from BKC exclusive of all other matters associated with the BKC settlement. Due
to the uncertainty relating to IFFC's ability to meet the performance
requirements specified in the New Development Agreement, which must be achieved
by September 30, 1999, coupled with the $1,000,000 amount that will be payable
to BKC if the minimum performance requirements are not met, IFFC has recorded a
Deferred Credit of $1,000,000 in connection with recognition of gain on
settlement of the BKC Litigation. If the minimum performance objectives required
by the New Development Agreement are achieved by September 30, 1999, $750,000
will be recognized by IFFC as additional gain on the BKC Litigation settlement
and $250,000 will become payable to BKC. If the maximum performance objectives
required by the New Development Agreement are achieved by September 30, 1999,
$1,000,000 will be recognized by IFFC as additional gain on the BKC Litigation
settlement. If the minimum performance objectives are not met the $1,000,000
Deferred Credit will become payable to BKC.
<TABLE>
<CAPTION>
The payable to Funding was calculated as follows:
<S> <C>
Portion of net settlement proceeds due to Funding........ $2,477,014
Reimbursement of legal fees and costs paid by Funding.... 750,001
----------
Balance due to Funding................................... 3,227,015
Payment made in May 1997................................. 1,028,521
----------
Promissory note payable to Funding....................... $2,198,494
==========
</TABLE>
The promissory note provided for interest at prime plus 1%, and was
scheduled to mature on December 31, 1998. The note was collateralized by the
Company's equity interest in IFFP.
On July 14, 1997, IFFC and IFFC Acquisition, Inc., a wholly-owned
subsidiary of the Company ("Acquisition Sub") entered into a Merger Agreement
with Litigation Funding, Inc. ("Funding") and Mitchell and Edda Rubinson, the
sole shareholders of Funding. Under the terms of the Agreement, Funding was
merged with and into Acquisition Sub. The 25,909,211 shares of common stock of
the Company to be received by the Funding shareholders was determined by
dividing the $3,021,014 value assigned to Funding by the book value per share
($.1166) of the Company's common stock as of June 30, 1997, before reduction for
the liquidation preference applicable to the outstanding shares of Preferred
Stock.
On July 14, 1997, the date of the Merger Agreement with Litigation
Funding, Inc., the Company's Common Stock was trading at approximately $.34 per
share. However, due to the lack of an established trading market for the
Company's Common Stock, the disinterested Directors of the Company did not
utilize the quoted price per share to determine the number of shares to issue in
connection with the Merger Agreement. Instead the June 30, 1997 book value of
the Company ($.1166 per share) was utilized to measure the Company's fair value.
In the opinion of the disinterested Directors of the Company, the value assigned
to the Common Stock issued was approximately equivalent to its fair value on the
date such shares were issued.
The value assigned to Funding represents (i) the $2,198,494 plus
accrued interest owed to Funding by the Company pursuant to a promissory note
and (ii) $750,000 which represents seventy-five percent (75%) of the value
attributable to the New Development Agreement between Burger King Corporation
("BKC") and IFFC and its affiliates which was executed on March 14, 1997 in
connection with the Company's settlement of its litigation against BKC.
F-21
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dispute with Polish Fiscal Authorities. As of July 1995, IFFC may have
become subject to penalties for failure to comply with an amended tax law
requiring the use of cash registers with certain calculating and recording
capabilities and which are approved for use by the Polish Fiscal Authorities. As
a penalty for noncompliance, Polish tax authorities may disallow certain value
added tax deductions for July and August 1995. Additionally, penalties and
interest may be imposed on these disallowed deductions. IFFP believes that its
potential exposure is approximately $560,000, which amount has been accrued for
in the accompanying consolidated financial statements as of December 31, 1998.
IFFP has requested a final determination by the Polish Minister of Finance. The
Company is unable to predict the timing and nature of the Minister's ruling.
Although IFFP's NCR Cash Register System was a modern system, it could not be
modified. In 1998, IFFP replaced the system with a new Siemen's system which
complies with Polish regulations.
Regenesis Matter. The Company is a party to the following legal
proceeding: Elpoint Company, LLC and Gennady Yakovlev, vs. Mitchell Rubinson,
Marilyn Rubinson, Edda Rubinson, Nigel Norton, James F. Martin, Leon Blumenthal,
Lawrence Rutstein, Shulman & Associates, Inc., Manny Schulman, Franklyn
Weichselbaum, James Miranti, International Fast Food Corporation, Domino's Pizza
International, Inc., Regenesis Holdings Corporation, United States District
Court, Northern District of California (Case No. 99-1107 CRB). On March 10,
1999, certain shareholders of Regenesis Holdings Corporation (f/k/a QPQ
Corporation) ("Regenesis") filed a complaint against IFFC and certain of its
senior management and principal shareholders, including Mitchell Rubinson,
IFFC's Chairman of the Board and Chief Executive Officer, and James Martin,
IFFC's Vice President and Chief Financial Officer. Regenesis formerly held the
right to develop Domino's Pizza stores in Poland. Certain former officers and
principal stockholders of Regenesis are officers and principal shareholders of
IFFC. The complaint alleges, among other things, that the defendants
fraudulently transferred the Domino's development rights to IFFC, thereby
causing Regenesis to lose value. Additionally, the complaint alleges that IFFC
engaged in the misappropriation of corporate opportunities of QPQ Corporation.
The plaintiffs are seeking unspecified monetary damages, including treble and
punitive damages, and reasonable costs and attorney's fees. Because this matter
is in its preliminary stages, management is unable to determine what effect it
will have upon IFFC's financial condition, results of operation or liquidity;
however, management believes that the claims are without merit.
16. OTHER TRANSACTIONS:
In July 1997, the Company purchased 100% of KP and PKP, two Polish
limited liability companies, for a nominal consideration and assumption of all
liabilities, including the liabilities of KP to the Company under a $500,000
promissory note. KP owns the exclusive master franchise rights and PKP owns the
individual store franchises for Domino's pizza stores and a Domino's approved
commissary in Poland.
The acquisition was accounted for under the purchase method of
accounting, and the net assets acquired are included in the Company's
consolidated balance sheet based upon their estimated fair values at the date of
acquisition. Results of operations of KP are included in the Company's
consolidated statement of operations subsequent to the date of acquisition. The
excess of the net assets acquired over the purchase price are accounted for as a
reduction of furniture, equipment and leasehold improvements.
The following unaudited pro forma summary presents the consolidated
results of operations for the year ended December 31, 1997 as if the acquisition
had occurred at January 1, 1997 and does not purport to be indicative of what
would have occurred had the acquisition actually been made as of such date or of
results which may occur in the future.
Total revenues................................ $ 6,673,191
Net loss...................................... $ (1,384,323)
Basic and diluted net loss per share.......... $(.05)
In September 1998, IFFC purchased from Agros Investments, S.A., a
Polish company, the remaining 15% of the outstanding shares of IFFP, IFFC's
polish subsidiary which operates its Burger King Division, for approximately
$1.5 million. The excess of purchase price over the carrying value of the
minority interest has been recorded as cost in excess of net assets acquired in
the accompanying 1998 balance sheet and is being amortized over 35 years.
F-22
<PAGE>
17. SEGMENT INFORMATION
The Company operates subsidiaries in the fast food industry in the
Republic of Poland. The Company, through its two wholly owned subsidiaries,
International Fast Food Polska, Sp. z o.o. ("IFFP") and Pizza King Polska, Sp. z
o.o. ("PKP"), operates franchised Burger King restaurants and Domino's Pizza
stores, respectively, in the Republic of Poland. The Company's reportable
segments are strategic business units that offer different products. The Company
evaluates the performance of its segments based on revenue and operating income.
The Company's Burger King restaurants offer dine-in and take out hamburgers,
cheeseburgers, chicken sandwiches, fish sandwiches, french fries, soft drinks
including milk shakes and ice cream. The Company's Domino's Pizza stores offer
its customers take out and delivery service for its pizzas, salads, sandwiches,
chicken wings, breadsticks, soft drinks and ice cream. There is no material
intersegment revenue. Interest expense related to working capital and
development activity is included the Company's Consolidated Statements of
Operations.
The following table presents financial information regarding the
Company's different industry segments as of and for the year ended December 31,
1998 (in thousands):
<TABLE>
<CAPTION>
IFFP PKP Total Corporate Consolidated
---- --- ----- --------- ------------
<S> <C> <C> <C> <C> <C>
Restaurant/store sales................ $ 6,322 $2,104 $8,426 $-- $ 8,426
Other revenue......................... 63 -- 63 -- 63
-------- ------- -------- ------ --------
Total revenue......................... 6,385 2,104 8,489 -- 8,489
Restaurant operating expenses......... 5,754 2,165 7,919 -- 7,919
Depreciation and amortization......... 1,104 405 1,509 -- 1,509
General and administrative expenses... 1,410 297 1,707 1,619 3,326
-------- ------- -------- ------ --------
Loss from operations.................. $ (1,883) $ (763) $ (2,646) (1,619) $ (4,265)
======== ======= ======== ====== ========
Capital expenditures.................. 11,247 2,031 13,278 13 13,291
Total assets.......................... 18,536 3,406 21,942 9,905 31,847
Total foreign non-current assets...... 15,150 2,681 17,831 -- 17,831
</TABLE>
F-23
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INTERNATIONAL FAST FOOD CORPORATION
RESOLVED, that Article III of the Corporation's Articles of
Incorporation shall be amended in its entirety to read as follows:
ARTICLE III
Capital Stock
The aggregate number of shares of all classes of capital stock that
this Corporation shall have authority to issue is Two Hundred and Two Million
(202,000,000) shares, consisting of (i) Two Hundred Million (200,000,000) shares
of common stock, par value $0.01 per share (the "common stock"), and (ii) Two
Million (2,000,000) shares of preferred stock, par value $0.01 per share (the
"Preferred Stock").
The designations and the preferences, limitations and relative rights
of the Preferred Stock and the common stock are as follows:
A. Provisions Relating to the Preferred Stock.
1. General. The Preferred Stock may be issued from time to
time in one or more classes or series, the shares of each class or series to
have such designations and powers, preferences, and rights, and qualifications,
limitations and restrictions thereof as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such class or series
adopted by the Board of Directors as hereinafter prescribed.
2. Preferences. Subject to the rights of the holders of the
Corporation's common stock, as set forth in Section B of this Article III,
authority is hereby expressly granted to and vested in the Board of Directors to
authorize the issuance of the Preferred Stock from time to time in one or more
classes or series, to determine and take necessary proceedings fully to effect
the issuance and redemption of any such Preferred Stock, and, with respect to
each class or series of the Preferred Stock, to fix and state by the resolution
or resolutions from time to time adopted providing for the issuance thereof the
following:
(a) whether or not the class or series is to have
voting rights, full or limited, or is to be without voting rights;
(b) the number of shares to constitute the class or
series and the designations thereof;
(c) the preferences and relative, participating,
optional or other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
1
<PAGE>
(d) whether or not the shares of any class or series
shall be redeemable and if redeemable the redemption price or prices, and the
time or times at which and the terms and conditions upon which such shares shall
be redeemable and the manner of redemption;
(e) whether or not the shares of a class or series
shall be subject to the operation of retirement or sinking funds to be applied
to the purchase or redemption of such shares for retirement, and if such
retirement or sinking fund or funds be established, the annual amount thereof
and the terms and provisions relative to the operation thereof;
(f) the dividend rate, whether dividends are payable
in cash, stock of the Corporation or other property the conditions upon which
and the times when such dividends are payable, the preference to or the relation
to the payment of the dividends payable on any other class or classes or series
of stock, whether or not such dividend shall be cumulative or noncumulative and
if cumulative, the date or dates from which such dividends shall accumulate;
(g) the preferences, if any, and the amounts thereof
that the holders of any class or series thereof shall be entitled to receive
upon the voluntary or involuntary dissolution of, or upon any distribution of
the assets of, the Corporation;
(h) whether or not the shares of any class or series
shall be convertible into, or exchangeable for, the shares of any other class or
classes or of any other series of the same or any other class or classes of the
Corporation and the conversion price or prices or ratio or ratios or the rate or
rates at which such conversion or exchange may be made, with such adjustments,
if any, as shall be stated and expressed or provided for in such resolution or
resolutions; and
(i) such other special rights and protective
provisions with respect to any class or series as the Board of Directors may
deem advisable.
The shares of each class or series of the Preferred Stock may vary from
the shares of any other series thereof in any or all of the foregoing respects.
The Board of Directors may increase the number of shares of Preferred Stock
designated for any existing class or Series A authorized and unissued shares of
Preferred Stock not designated for any other class or series. The Board of
Directors may decrease the number of shares of the Preferred Stock designated
for any existing class or series by a resolution subtracting from such series
unissued shares of the Preferred Stock designated for such class, or series, and
the shares so subtracted shall become authorized, unissued and undesignated
shares of the Preferred Stock.
3. Provisions Relating to the Series A Preferred Stock.
(a) Designation and Rank.
The series of preferred stock is designated "Series A Convertible
Preferred Stock", and the number of shares which shall constitute such Series
shall be 83,920 shares, par value $.01 per share. All shares of Series A
Convertible Preferred Stock shall rank equally with respect to dividend payments
and liquidation preferences with the highest ranking preferred stock of the
Company hereinafter designated by the Board of Directors.
(b) Dividends.
The Company shall pay dividends on the Series A Convertible Preferred
Stock at an annual rate of 6% ($6.00 per share) and no more. All such dividends
may, at the option of the Company, be paid through the issuance of shares of the
Company's common stock, $.01 par value, per share (the "common stock"), cash or
a combination of cash and common stock, whether or not such dividends have been
declared by the Company's Board of Directors. Dividends shall accrue
cumulatively from and including the date of issuance of the Series A Convertible
Preferred Stock and shall be paid in equal semi-annual payments on June 15 and
December 15 (the "Dividend Payment Dates") in each year through the date of
conversion or redemption of such preferred stock, to all holders of record on a
2
<PAGE>
date not more than 10 days prior to the date on which such dividends are
payable. For purposes of paying dividends in common stock, the price of the
common stock shall be the average of the daily closing prices of the common
stock for the 30 consecutive full business days preceding the day in question.
The closing price for each business day shall be the last reported sale price,
or, in the case that no such reported sale takes place on such day, the average
of the last reported sale prices for the last three trading days, in either case
as officially reported by the principal securities exchange on which the common
stock is listed or admitted for trading or as reported in the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or, if
the common stock is not listed or quoted on a principal securities exchange or
NASDAQ (or if NASDAQ ceases to report closing sales prices), the closing bid
price furnished by the National Association of Securities Dealers, Inc. through
NASDAQ, or similar organization if NASDAQ is no longer reporting such
information, or if the common stock is not quoted by NASDAQ, then as reported by
the National Quotation Bureau Incorporated, or if not quoted by the National
Quotation Bureau Incorporated, the average of the closing bid and asked prices
as furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose.
(i) The Series A Convertible Preferred Stock
shall be preferred as to the payment of dividends over the shares of all common
stock and any other class or classes of stock of the Company but shall rank in
parity with any class of preferred stock of the Company, if any, which so
provides. Dividends (whether current or in arrears) on the Series A Convertible
Preferred Stock shall be paid before any dividends on any junior stock shall be
declared and set apart for payment or paid.
(ii) All dividends payable on the Series A
Convertible Preferred Stock shall be cumulative.
(iii) Accruals of dividends shall not bear
interest.
(c) Dissolution, Liquidation or Winding-Up.
In the event of a dissolution, liquidation or winding-up of the
Company, whether voluntary or involuntary, the holders of each share of Series A
Convertible Preferred Stock by reason of their ownership thereof, shall be
entitled to receive in exchange for and in redemption of their Series A
Convertible Preferred Stock, prior and in preference to any distribution of any
of the assets or surplus funds of the Company to the holders of common stock and
any other class or classes of stock of the Company (except those that shall rank
in parity with the Series A Convertible Preferred Stock), an amount equal to One
Hundred Dollars ($100) per share, plus all accrued but unpaid dividends, whether
or not declared, on such shares.
If upon any such liquidation, dissolution or winding-up of the Company,
its net assets shall be insufficient to permit the payment in full of the
amounts to which holders of all outstanding shares of the Series A Convertible
Preferred Stock are entitled as above provided, the entire net assets of the
Company remaining shall be distributed among the holders of shares of Series A
Convertible Preferred Stock in amounts proportionate to the full preferential
amounts to which they and holders of shares of preferred stock if any, ranking
in parity with the Series A Convertible Preferred Stock as to rights and
preferences are respectively entitled. For the purpose of this Section III, the
voluntary sale, lease, exchange or transfer, for cash, shares of stock,
securities or other consideration, of all or substantially all of the Company's
property or assets to, or its consolidation or merger with, one or more
corporations, shall not be deemed to be a liquidation, dissolution or winding-up
of the Company, voluntary or involuntary.
(d) Voting Rights.
Except as otherwise specifically provided by the Company's Articles of
Incorporation or by Florida law, the holders of Series A Convertible Preferred
Stock shall not be entitled to vote on any matters required or permitted to be
submitted to the shareholders of the Company for their approval.
3
<PAGE>
(e) Conversion Provisions.
The holders of the Series A Convertible Preferred Stock shall have
conversion rights as follows:
(i) Right to Convert. Subject to the
provisions for adjustment set forth below, after June 30, 1995 (the "Conversion
Date"), and for a period prior to its earlier redemption or repurchase by the
Company, each of Series A Convertible Preferred Stock shall be convertible, at
the option of the holder thereof and upon surrender of the certificate or
certificates evidencing the shares to be converted to the transfer agent or the
Company for the Series A Convertible Preferred Stock, into fully paid and
nonassessable shares of common stock of the Company at a conversion price of
$3.00 per share (the "Conversion Price"), subject to adjustment as described in
paragraph (c) below. The right to convert shares of the Series A Convertible
Preferred Stock called for redemption shall terminate on the date fixed for
redemption provided that the Company has complied with Section VI(c).
(ii) Issuance of Shares of common stock on
Conversion. As promptly as practicable after the surrender of shares of Series A
Convertible Preferred Stock for conversion in the manner herein provided, the
Company shall deliver or cause to be delivered, at the office or agency at which
such surrender is made, to or upon the written order of the holder of shares of
Series A Convertible Preferred Stock so surrendered, certificates representing
the number of duly authorized, validly issued, fully paid and nonassessable
shares of common stock of the Company into which such shares of Series A
Convertible Preferred Stock may be converted and cash in respect of any fraction
of a share of common stock issuable upon such conversion. Any such conversion
shall be deemed to have been made immediately prior to the close of business on
the date on which such share(s) of Series A Convertible Preferred Stock shall
have been surrendered for conversion in the manner herein provided accompanied
by written notice, so that the rights of the holder of such share(s) of Series A
Convertible Preferred Stock as holders thereof, shall cease at such time and the
person or persons entitled to receive the shares of common stock upon conversion
of the Series A Convertible Preferred Stock shall be treated for all purposes as
having become the record holder or holders of such shares of common stock at
such time; provided, however, that no such surrender on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the person or persons entitled to receive shares of common stock, upon
conversion of such shares of Series A Convertible Preferred Stock, as the record
holder or holders of such shares on such date, but such surrender shall be
effective to constitute the person or persons entitled to receive such shares of
common stock as the record holders or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open and such conversion shall be at the applicable Conversion Price
in effect at such time.
(iii) Adjustment of Conversion Price. The
Conversion Price shall be subject to adjustment from time to time as follows:
a) In the event that the Company
shall at any time after the date hereof subdivide or combine the outstanding
shares of common stock or issue additional shares of common stock as a dividend
or other distribution on the common stock, the Conversion Price in effect
immediately prior to such subdivision or combination of such shares or share
dividend or distribution shall be proportionately adjusted so that, with respect
to each such subdivision of shares or share dividend or distribution, the number
of shares of common stock deliverable upon conversion of each share of Series A
Convertible Preferred Stock shall be increased in proportion to the increase in
the number of shares of the then outstanding common stock resulting from such
subdivision of shares or share dividend or distribution, and with respect to
each such combination of shares, the number of shares of the common stock
deliverable upon conversion of each share of Series A Convertible Preferred
Stock shall be decreased in proportion to the decrease in the number of shares
of the then outstanding common stock resulting from such combination of shares.
Any such adjustment in the Conversion Price shall become effective, in the case
of any such subdivision or combination of shares, at the close of business on
the effective date thereof, and, in the case of any such share dividend or
distribution, at the close of business on the record date fixed for the
determination of shareholders entitled thereto or on the first business day
during which the stock transfer books of the Company shall be closed for the
purpose of such determination, as the case may be.
4
<PAGE>
b) In the case of any capital
reorganization or any reclassification of the common stock, or in the case of
the consolidation or merger of the Company with or into any other corporation or
in case of any sale or transfer of all or substantially all of the assets of the
Company, the holder of each share of Series A Convertible Preferred Stock then
outstanding shall have the right thereafter to convert the Series A Convertible
Preferred Stock into the kind and amount of shares of stock and other securities
and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or transfer by a holder of the number of shares of
common stock of the Company into which such share(s) of Series A Convertible
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger, sale or transfer; and
in any such case, appropriate adjustment (as determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions of this Section V(c) (including provisions with regard to the
adjustment of the Conversion Price) in order that the rights and interests of
the holders thereafter shall be as nearly equivalent as may be practicable to
the rights and interests provided for in this Section.
c) Whenever the Company shall fix a
record date for the holders of the common stock for the purpose of determining
the holders entitled (for a period expiring within 45 days after such record
date) to subscribe for or purchase shares of common stock at a price per share
less than the Market Price (as defined below) of the common stock as of such
record date, the Conversion Price shall be adjusted so that the number of shares
of the common stock into which each share of Series A Convertible Preferred
Stock shall thereafter be convertible shall be determined by multiplying the
number of shares of the common stock into which each share of Series A
Convertible Preferred Stock was theretofore convertible by a fraction of which
the numerator shall be the number of shares of the common stock outstanding
immediately prior to the taking of such record plus the number of additional
shares of common stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of the common stock outstanding
immediately prior to the taking of such record plus the number of shares of the
common stock which the aggregate offering price (without deduction of any
expenses, including commissions or discounts) of the total number of shares of
the common stock so offered would purchase at the Market Price of the common
stock as of the record date. In the case of the proposed issuance of common
stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined by the Board of Directors of the Company. This subsection shall not
apply in the case of any shares of common stock proposed to be issued by the
Company as or as a result of a stock dividend payable in shares of common stock
or as a result of any subdivision or split-up of the outstanding shares of
common stock.
The term "Market Price" means the average of the daily closing prices
of the common stock for the 30 consecutive full business days preceding the day
in question. The closing price for each business day shall the last reported
sale price, or, in the case that no such reported sale takes place on such day,
the average of the last reported sale prices for the last three trading days, in
either case as officially reported by the principal securities exchange on which
the common stock is listed or admitted for trading or as reported on NASDAQ or,
If the common stock is not listed or quoted on a principal securities exchange
or NASDAQ (or if NASDAQ ceases to report closing sales prices), the closing bid
price furnished by the National Association of Securities Dealers, Inc. through
NASDAQ, or similar organization if NASDAQ is no longer reporting such
information, or if the common stock is not quoted by NASDAQ, then as reported by
the National Quotation Bureau Incorporated, or if not quoted by the National
Quotation Bureau Incorporated, the average of the closing bid and asked prices
as furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose.
d) Whenever the Company shall fix a
record date for the holders of the common stock for the purpose of determining
the holders entitled to receive any distribution of evidences of its
indebtedness, capital stock or assets (other than dividends or distributions
payable out of earnings or earned surplus and dividends payable in stock for
which adjustment is made pursuant to subparagraph i) of this Section V(c)), or
rights to subscribe for or purchase any evidences of the Company's indebtedness
or assets (other than rights referred to in the preceding subparagraph iii)),
the Conversion Price shall be adjusted so that the number of shares of common
stock into which each share of Series A Convertible Preferred Stock shall
thereafter be convertible shall be determined by multiplying the number of
shares of the common stock into which each share of Series A Convertible
Preferred Stock was theretofore convertible by a fraction of which the numerator
shall be the aggregate Market Price of the common stock as of the record date
and of which the denominator shall be the aggregate Market Price of the common
5
<PAGE>
stock as of the record date less the difference between the aggregate fair
market value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the assets, capital stock
or evidences of indebtedness so distributed or of such subscription or purchase
rights and the aggregate consideration, if any, received therefore, applicable
to the common stock.
e) Notwithstanding anything to the
contrary provided herein, no adjustment in the Conversion Price shall be
required unless such adjustment would result in an increase or decrease of at
least 1% in the Conversion Price or the Conversion Price as last adjusted, as
the case may be; provided however, that any adjustments which by reason of this
subparagraph v) are not required to be made shall be carried forward until used
and taken into account in any subsequent adjustment.
f) The provisions of this Section
V(c) shall similarly apply to successive subdivisions, combinations
reorganizations, reclassifications, consolidations, mergers, sales or transfers.
Adjustments made pursuant to subparagraphs iii) and iv) of this Section V(c)
shall be made successively whenever any record date referred to therein is
fixed; and in the event that any rights offering or subscription referred to in
such subparagraphs is not made, the Conversion Price shall again be adjusted to
be Conversion Price which would be in effect if such record date had not been
fixed.
g) For the purpose of making the
adjustments referred to in the applicable provisions of this Section V, the
books of the Company shall, absent manifest error, control absolutely in
determining the number of outstanding shares of common stock and the number of
additional shares issued or decreased as a result of any stock dividend,
subdivision or combination.
(iv) No Fractional Shares to be Issued. No
fractional share of common stock shall be issued upon the conversion of the
Series A Convertible Preferred Stock. Instead of any fractional share of common
stock which would otherwise be issuable upon conversion of any share(s) of
Series A Convertible Preferred Stock, the Company shall pay to the holder
thereof, a cash adjustment in respect of such fraction in an amount equal to the
same fraction of the closing puce per share of common stock (determined in the
manner provided in the second sentence of the definition of "Market Price" in
Section V(c)(iii) above) as of the business day next preceding the date of such
conversion as of which the closing price can be determined.
(v) Reservation of common stock Issuable
Upon Conversion. The Company shall at all times reserve and keep available out
of its authorized but unissued shares the full number of shares of common stock
into which all shares of Series A Convertible Preferred Stock from time to time
outstanding are convertible.
(vi) Payment of Taxes Upon Conversion. The
Company will pay any and all issue and other taxes that may be payable in
respect of any issue or delivery of shares of common stock on conversion of
shares of Series A Convertible Preferred Stock. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of common stock in a name other than that in
which the shares of Series A Convertible Preferred Stock converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Company the amount of any such tax,
or has established, to the satisfaction of the Company, that such tax has been
paid.
(vii) Notices of Record Date. In the event
of any taking by the Company of a record of the holders of securities other than
the Series A Convertible Preferred Stock for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each holder of the Series A Convertible Preferred
Stock at least twenty (20) days prior to the date specified therein a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or rights, and the amount and character of such
dividend, distribution or rights.
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(f) Redemption.
(i) Optional Redemption. Shares of the
Series A Convertible Preferred Stock may, at the option of the Company, be
redeemed by the Company at any time, provided that the closing price of the
common stock exceeds 150% of the Conversion Price of the Series A Convertible
Preferred Stock for a period of ten (10) consecutive trading days prior to such
redemption. If the Company should determine to redeem the Series A Convertible
Preferred Stock, such shares shall be redeemable at the Company's election in
whole or in part at any time or from time to time, with funds legally available
for such purpose under Florida law, at a redemption price of One Hundred Dollars
($100) per share plus an amount equal to all accrued and unpaid dividends.
(ii) Pro Rata Redemption. If less than all
shares of Series A Convertible Preferred Stock are redeemed at any time under
this Section IV, shares of Series A Convertible Preferred Stock held by each
holder of record thereof shall be called for redemption pro rata, according to
the number of shares of Series A Convertible Preferred Stock held by such holder
subject, however, to such adjustment as may be equitably determined by the
Company in order to avoid the redemption of fractional shares.
(iii) Redemption Procedures. Any redemption
of any or all of the outstanding shares of Series A Convertible Preferred Stock,
whether mandatory or optional, shall be effected as follows:
a) Any such redemption shall be
effected by written notice given by certified or registered mail, postage
prepaid, not less than thirty (30) days nor more than fifty (50) days prior to
the date fixed for redemption to the holders of record of Series A Convertible
Preferred Stock whose shares are to be redeemed at their respective addresses as
the same shall appear on the books of the Company. Each such notice of
redemption shall specify the date fixed for redemption, the redemption price and
place of payment thereof, and if less than all outstanding shares of Series A
Convertible Preferred Stock are to be redeemed, the number of shares of Series A
Convertible Preferred Stock held by each holder of record thereof which are
being called for redemption.
b) On the date fixed for redemption
of any shares of Series A Convertible Preferred Stock, the Company shall, at
least one business day prior to such date, deposit the aggregate amount of the
redemption price of the shares called for redemption, except that no such
deposit shall be required with respect to any such shares which prior to the
date of such deposit shall have been converted pursuant to the exercise of any
conversion right, with the transfer agent or with a paying agent designated in
the notice of such redemption, for payment to the holders of the shares of
Series A Convertible Preferred Stock being called for redemption and deliver
irrevocable written instructions authorizing such transfer agent to apply such
deposit solely to the redemption of the shares of Series A Convertible Preferred
Stock called for redemption except that any of such deposit which shall not be
required for such redemption because of the exercise of any conversion right of
the shares called for redemption shall be released or repaid to the Company.
c) Notice of redemption having been
duly given, the redemption price of the shares being called for redemption
having been deposited as aforesaid, then on the date for such redemption, the
certificates for the Series A Convertible Preferred Stock called for redemption
(whether or not surrendered) shall be deemed no longer outstanding for any
purpose; and all rights with respect to such shares shall thereupon cease and
terminate, except the right of the holders of such shares to receive, out of
such deposit in trust, on the redemption date, the redemption price to which
they are entitled, without interest
d) If any holder of shares of Series
A Convertible Preferred Stock called for redemption shall, after the mailing by
the Company of notice of such redemption and prior to the date fixed for such
redemption convert any shares of Series A Convertible Preferred Stock, such
shares of Series A Convertible Preferred Stock so converted by such holder (not
exceeding, however, the number of shares of Series A Convertible Preferred Stock
held by such holder which shall have been called for redemption) shall be deemed
to constitute shares of Series A Convertible Preferred Stock held by such holder
which shall have been so called for redemption.
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e) In case any certificate for
shares of Series A Convertible Preferred Stock shall be surrendered by the
holder thereof for payment in connection with the redemption of only a portion
of the shares represented thereby, the Company shall deliver to or upon the
order of the holder thereof a certificate or certificates for the number of
shares of Series A Convertible Preferred Stock represented by such surrendered
certificate which are not being redeemed.
In case any holder of Series A
Convertible Preferred Stock called for redemption shall not, within ninety (90)
days after deposit by the Company of funds for the redemption thereof claim the
amount deposited for redemption thereof, the bank trust company or transfer
agent with which such funds were deposited shall, upon demand pay over to the
Company the balance of such amount so deposited and such bank, trust company or
transfer agent shall thereupon be relieved of all responsibility to such holder,
who shall thereafter look solely to the Company for payment of the redemption
price of his shares.
(iv) No Reissue. Shares of Series A
Convertible Preferred Stock which have been converted by the holder thereof or
redeemed, purchased or otherwise acquired by the Company shall be canceled and
may not be reissued, but may be redesignated as provided in Section IV hereof.
(g) Reacquired Shares.
Any shares of Series A Convertible Preferred Stock that have been
issued and subsequently reacquired by the Company upon their conversion for
shares of common stock or redeemed or purchased or otherwise acquired by the
Company in any manner whatsoever shall be retired and canceled promptly after
the acquisition thereof. All such shares upon their cancellation shall become
authorized but unissued shares of the preferred stock, par value $.01 per share,
of the Company and may be reissued as part of a new series of preferred stock of
the Company to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth in
the Company's Articles of Incorporation.
B. Provisions Relating to the common stock.
1. Voting Rights. Except as otherwise required by law or as
may be provided by the resolutions of the Board of Directors authorizing the
issuance of any class or series of the Preferred Stock, as hereinabove provided,
all rights to vote and all voting power shall be vested exclusively in the
holders of the common stock.
2. Dividends. Subject to the rights of the holders of the
Preferred Stock, the holders of the common stock shall be entitled to receive
when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends payable in cash, stock or otherwise.
3. Liquidating Distributions. Upon any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
and after the holders of the Preferred Stock shall have been paid in full the
amounts to which they shall be entitled (if any) or a sum sufficient for such
payment in full shall have been set aside, the remaining net assets of the
Corporation shall be distributed pro rata to the holders of the common stock in
accordance with their respective rights and interests to the exclusion of the
holders of the Preferred Stock.
8
AMENDMENT TO RESTAURANT DEVELOPMENT AGREEMENT
AMENDMENT dated as of February 24, 1999 (the "Amendment"), to that
certain RESTAURANT DEVELOPMENT AGREEMENT dated as of March 14, 1997 (the
"Development Agreement"), by and among BURGER KING CORPORATION, a company
organized under the laws of State of Florida, United States ("BKC"), and
INTERNATIONAL FAST FOOD CORPORATION, a company organized under the laws of the
State of Florida, United States ("IFFC").
WHEREAS, pursuant to the Development Agreement, BKC has granted IFFC
the right to develop new "Burger King" restaurants in the Republic of Poland;
WHEREAS, IFFC is the owner of all the issued and outstanding shares
(the "IFFP Shares") of International Fast Food Polska S.P. z.o.o. ("IFFP");
WHEREAS, Citibank (Poland) S.A. ("Citibank") has agreed to provide
credit to IFFP in the aggregate amount of U.S. $5,000,000, pursuant to a credit
agreement dated February 24, 1999 (the "Credit Agreement");
WHEREAS, It is a condition to the disbursement of funds under the
Credit Agreement that BKC issue a guarantee in favor of Citibank to secure the
repayment by IFFP of amounts borrowed under the Credit Agreement (the
"Guarantee");
WHEREAS, in consideration of the Guarantee, IFFC has agreed to grant
BKC a perfected security interest in the IFFP Shares to secure BKC's claims
which may arise as a result of the payment by BKC of any amounts under the
Guarantee;
WHEREAS, pursuant to a Reimbursement Agreement of even date herewith
(the "Reimbursement Agreement") by and among IFFC, IFFP and BKC, IFFC has agreed
to reimburse BKC for any payments that it may be required to make to Citibank
under the Guarantee, together with related costs, expenses and interest, as more
fully said forth herein;
WHEREAS, pursuant to an Agreement for the Transfer of Title to Share by
way of Security dated of even date herewith (the "Security Agreement") by and
between IFFC, BKC and IFFP, IFFC has granted BKC a security interest in and to
the IFFP Shares, which permits BKC to retain the IFFP Shares in the event that
BKC is required to make any payment under the Guarantee and neither IFFC nor
IFFP reimburse BKC for the amount of such payment and other items under the
Reimbursement Agreement; and
WHEREAS, in connection with, and in consideration of, the foregoing,
BKC and IFFC desire to amend the Development Agreement upon the terms, and
subject to the conditions, hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree has follows:
1. Defined Terms. Unless otherwise defined herein, all capitalized terms used
herein shall have the respective meanings assigned to such terms in the
Development Agreement.
2. Amendment to Schedule 1. Schedule 1 of the Development Agreement is hereby
amended to provide that in each year during the Term of the Development
Agreement, commencing January 1, 2000, the Developer shall develop no less than
16 Development Units, of which no fewer than four Development Units in each such
year in-line or free-standing restaurants within city centers or shopping mall
locations. The Developer may develop Burger King Restaurants at a rate faster
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than the rate specified herein (16 per annum) upon written notice thereof to the
BKC (subject to the following sentence); provided that each Burger King
Restaurant is developed in accordance with the franchise and location procedures
described herein and in the Development Agreement. If IFFC (or IFFP) notifies
BKC that it intends to build in any year more than 16 Burger King Restaurants,
it shall provide BKC such information as BKC may request regarding the
management structure of IFFP. If BKC is reasonably satisfied that the management
structure of IFFP is sufficiently strong to ensure that the proposed accelerated
development and related restaurant operations will meet BKC's required
standards, BKC shall not withhold its consent to such development on the basis
that IFFP lacks the requisite management breadth to develop such additional
restaurants. If in any annual period the total number of Development Units
opened is less than the number required for such period (16), but the total
number of Development Units opened prior to and during such annual period is
equal to or exceeds the required total for the period commencing January 1, 2000
to the end of such annual period, the Developer shall have complied with its
obligation. In the event that the foregoing development schedule has not been
met, the Development Agreement shall be automatically terminated pursuant to
paragraph 7.1(b) of the Development Agreement.
3. Amendment to Schedule 2. Schedule 2 of the Development Agreement is
hereby amended and restated in its entirety as follows:
Time Period for Royalty Amount of Royalty Marketing Spendback
- ----------------------- ----------------- -------------------
From February 24, 1999 until 3% of Gross Sales 2% of Gross Sales
December 31, 2002
Commencing January 1, 2003 5% of Gross Sales Not applicable
4. Amendment to Section 5.3.1. Section 5.3.1 of the Development Agreement
is hereby amended and restated in its entirety as follows:
"5.3.1 Standard Fees. Each franchise agreement for a Burger King Restaurant to
be opened during the term of this Agreement shall provide for a payment of a
royalty equal to five percent (5%) of "Gross Sales" (as defined in the form of
Franchise Agreement attached as Exhibit C) and for payment of an advertising
contribution equal to five percent (5%) of "Gross Sales"."
5. Deferral of Specified Franchise Fees. Franchise Fees in the aggregate amount
of $280,000 payable pursuant to Section 5.2 of the Development Agreement with
respect to seven Burger King Restaurants scheduled to open in 1999 shall not be
payable until December 31, 1999.
6. Representations and Warranties
6.1 Representations and Warranties of IFFC, IFFP and Rubinson. IFFC
represents and warrants to BKC that:
(a) Corporate Existence and Qualification. IFFC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. IFFC has all required power and authority to own
its properties and to carry on its business as presently conducted.
(b) Authority, Approval and Enforceability. This Amendment has been
duly executed and delivered by IFFC, and IFFC has all requisite power and legal
authority to execute and deliver this Amendment, to consummate the transactions
contemplated hereby, and to perform its obligations hereunder. This Amendment
constitutes the legal, valid and binding obligation of each of IFFC, enforceable
in accordance with its terms.
(c) No Company Defaults or Consents. Neither the execution and delivery
of this Amendment nor the effectuation of the transactions contemplated hereby
will:
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(i) violate or conflict with any of the terms,
conditions or provisions of the certificate of incorporation or bylaws (or
similar organizational documents) of IFFC;
(ii) violate any legal requirements applicable to
IFFC;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or permit
applicable to IFFC;
(iv) result in the creation of any lien, charge or
other encumbrance on any property of IFFC (except as expressly contemplated
hereby); or
(v) require IFFC to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private non-governmental third party or any
governmental authority.
(d) No Proceedings. No suit, action or other proceeding is pending or,
to the Knowledge of IFFC, threatened, before any governmental authority seeking
to restrain such or prohibit its entry into this Amendment, or seeking damages
against IFFC or its properties, as a result of the transactions contemplated by
this Amendment.
(e) Disclosure; Due Diligence. This Amendment, when taken as a whole
with other documents and certificates furnished by each of IFFC, IFFP or
Rubinson to BKC or its counsel have been furnished in good faith and, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
7.2 Representations and Warranties by BKC. BKC represents and warrants
to IFFC that:
(a) Corporate Existence and Qualification. BKC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. BKC has all required power and authority to own
its properties and to carry on its business as presently conducted.
(b) Authority, Approval and Enforceability This Amendment has been duly
executed and delivered by BKC, and BKC has all requisite power and legal
authority to execute and deliver this Amendment, to consummate the transactions
contemplated hereby, and to perform its obligations hereunder. This Amendment
constitutes the legal, valid and binding obligation of BKC, enforceable in
accordance with its terms.
8. Miscellaneous.
8.1 Further Assurances. Each of the parties hereto agrees with the
other parties hereto that it will cooperate with such other parties and will
execute and deliver, or cause to be executed and delivered, all such other
instruments and documents, and will take such other actions, as such other
parties may reasonably request from time to time to effectuate the provisions
and purposes of this Amendment.
8.2 Binding on Successors, Transferees and Assigns; Assignment. This
Amendment shall be binding upon the parties hereto and their respective
successors, transferees and assigns. Notwithstanding the foregoing none of the
parties hereto may assign any of its obligations hereunder with the prior
written consent of the other parties hereto; provided, that BKC may assign its
rights and delegate its duties under this Amendment and the Development
Agreement to one or more of its subsidiaries or affiliates.
8.3 Amendments; Waivers; Conflicts. No amendment to or waiver of any
provisions of this Amendment, nor consent to any departure therefrom by any
party hereto, shall in any event be effective unless the same shall be in
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writing and signed by such party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Except as amended hereby, the Development Agreement shall continue in
full force and effect. In the event of any conflict between the terms of this
Amendment and the terms of the Development Agreement, this Amendment shall be
determinative, and shall control the outcome of any such conflict.
8.4 No Waiver; Remedies. No failure on the part of any party hereto to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any right. The
remedies herein provided are cumulative and not exclusive of any remedy provided
by law.
8.5 Expenses. IFFC shall pay or reimburse BKC for all of its legal,
accounting and other expenses directly related to the consummation of the
transactions contemplated hereby, together with the costs and expenses of
enforcing any of its rights hereunder.
8.6 Jurisdiction. Any claim arising out of this Amendment shall be
brought in any state or federal court located in Miami-Dade County, Florida,
United States. For the purpose of any suit, action or proceeding instituted with
respect to any such claim, each of the parties hereto irrevocably submits to the
jurisdiction of such courts in Miami-Dade County, Florida, United States. Each
of the parties hereto further irrevocably consents to the service of process out
of said courts by mailing a copy thereof by registered mail, postage prepaid, to
such party and agrees that such service, to the fullest extent permitted by law,
(i) shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding and (ii) shall be taken and held to be a valid
personal service upon and a personal delivery to it. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court located in Miami-Dade County,
Florida, United States, and any claim that any such suit, action or proceeding
brought in such court has been brought in an inconvenient forum. Notwithstanding
the foregoing, at the option of BKC, any claims against IFFP hereunder shall be
settled by the Arbitration Court at the Polish Chamber of Commerce with its seat
in Warsaw in accordance with its rules, and all such proceedings will be
conducted in the English language.
8.7 Governing Law; Severability. This Amendment shall be governed by
and construed in accordance with the internal laws of the State of Florida,
United States, without regard to any conflict of law, rule or principle that
would give effect to the laws of another jurisdiction.
8.8 Notices. All notices, requests and other communications to any
party hereunder shall be writing (including facsimile transmission or similar
writing) and shall be given to such party, addressed to it, at its address or
facsimile number set forth on the signature pages below, or at such other
address or facsimile number as such party may hereafter specify for such purpose
by notice to the other party. Each such notice, request or communication shall
be deemed effective when received at the address or facsimile number specified
below.
8.9 Counterparts. This Amendment may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, when taken together,
shall constitute one and the same Amendment.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
INTERNATIONAL FAST FOOD CORPORATION
By:__________________________
Name:
Title:
c/o Mitchell Rubinson
1000 Lincoln Road, Suite 200
Miami Beach, FL 33139, USA
BURGER KING CORPORATION
By:_________________________
Name:
Title:
c/o Burger King EMA
Charter Place
Vine Street
Uxbridge, England UB81BZ
Attn: General Counsel and
Vice President - Financial Affairs
5
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (this "Agreement"), dated as of February 24,
1999, by and among INTERNATIONAL FAST FOOD CORPORATION, a company organized
under the laws of the State of Florida, United States ("IFFC"), INTERNATIONAL
FAST FOOD POLSKA S.P. z.o.o., a Polish limited liability company organized under
the laws of Poland ("IFFP") and BURGER KING CORPORATION, a company organized
under the laws of State of Florida, United States ("BKC").
WHEREAS, IFFC is the owner of all the issued and outstanding shares
(the "IFFP Shares") of IFFP;
WHEREAS, Citibank (Poland) S.A. ("Citibank") has agreed to provide
credit to IFFP in the aggregate amount of U.S. $5,000,000, pursuant to a credit
agreement dated February 24, 1999 (the "Credit Agreement");
WHEREAS, It is a condition to the disbursement of funds under the
Credit Agreement that BKC issue a guarantee in favor of Citibank to secure the
repayment by IFFP of amounts borrowed under the Credit Agreement (the
"Guarantee");
WHEREAS, in consideration of the Guarantee, IFFC has agreed to grant
BKC a perfected security interest in the IFFP Shares to secure BKC's claims
which may arise as a result of the payment by BKC of any amounts under the
Guarantee; and
WHEREAS, it is a condition to the making of the Guarantee that IFFC
agree to reimburse BKC for any payments that it may be required to make to
Citibank under the Guarantee, together with related costs, expenses and
interest, as more fully said forth herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree has follows:
1. Reimbursement. IFFC and IFFP agree, jointly and severally, to pay or
reimburse BKC within 72 hours of its written demand (which demand may be made
upon either IFFC or IFFP) for (i) any payments to be made or previously made by
BKC under the Guarantee (such amounts are hereinafter referred to as "Indemnity
Payments"), (ii) interest on the amount of any Indemnity Payment remaining
unpaid by IFFC or IFFP under clause (i) above, from (and including) date of such
Indemnity Payment, until payment in full thereof (after as well as before
judgment) at a rate equal to the Base Rate (as defined below) from time to time
in effect plus two hundred basis points, such interest to be payable on demand
(which demand may be made upon IFFC or IFFP) and (iii) all fees, costs and
expenses incurred by BKC in connection with the enforcement of its rights
hereunder. "Base Rate" means, on any date, a fluctuating rate of interest per
annum equal to the rate of interest published in the "Wall Street Journal" on
such date as the "prime rate" for U.S. dollar loans by major money center banks.
Interest accruing on the Base Rate shall be computed on the basis of the actual
number of days elapsed in a 365 day year.
(b) Any failure of IFFC or IFFP to perform its obligations pursuant to
this Section 1 shall constitute an event of Default within the meaning and for
purposes of the Agreement for the Transfer of Title to Share by way of Security
dated of even date herewith (the "Security Agreement") by and between IFFC, BKC
and IFFP.
2. Covenants. IFFC and IFFP agree that, except for actions taken solely and
directly in connection with the repayment of amounts outstanding under the
Credit Agreement or due under this Agreement, from the date hereof until the
later to occur of (i) the date of repayment by IFFP of all amounts borrowed
under the Credit Agreement or (ii) the date of payment by IFFC or IFFP of all
amounts due and owing BKC under this Agreement, as follows:
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(a) Neither IFFC nor IFFP shall incur any Indebtedness of other than
Indebtedness as in effect on the date hereof, without the prior written consent
of BKC. BKC shall not unreasonably withhold its consent in the case of
Indebtedness proposed to be incurred by IFFC. BKC may refuse to consent in its
sole and absolute discretion for any reason or for no reason in the case of
Indebtedness proposed to be incurred by IFFP.
(b) Upon the consummation by IFFC of the sale of any of its equity or
debt securities (including any securities convertible into any of the
foregoing), whether in a private transaction or through a public offering, IFFC
shall cause the proceeds, if any, from such sale which are in excess of
$10,000,000 first to be paid to BKC to the extent required under the
Reimbursement Agreement, and then to be promptly paid to Citibank under the
Credit Agreement to repay outstanding borrowings thereunder, and shall use its
best efforts to cause the amount of the Guarantee to be reduced by the amount of
such payment(s).
(c) BKC's authorized officers and representatives shall have the right
during normal business hours upon reasonable notice to examine the books and
records of IFFC and IFFP and to make copies and notes therefrom for the purpose
of ascertaining compliance with or obtaining enforcement of the this Agreement
or the Credit Agreement.
(d) Except with respect to operating leases entered into in the
ordinary course of business and consistent with past practices and IFFP's
development plans, neither IFFC nor IFFP shall become liable with respect to any
guarantee, including any reimbursement obligation, whether contingent or matured
under letters of credit or otherwise (or become contractually committed to do
so).
(e) Neither IFFC nor IFFP shall make any dividend or other distribution
with respect to its outstanding equity securities (or become contractually
committed to do so) except for dividends payable solely in the securities of
IFFC or IFFP or as permitted by the Credit Facility.
(f) Neither IFFC nor IFFP shall enter into any agreement, instrument,
deed or lease which prohibits or limits the ability of IFFC or IFFP to create,
incur, assume or suffer to exist any Lien upon any of their respective
properties, assets or revenues, whether now owned hereafter acquired, or which
requires the grant of any collateral for such obligation if such collateral is
granted for another obligation, except with respect to borrowings under the
Credit Agreement. Notwithstanding the foregoing, the covenants set forth in this
Section 2 shall not be deemed to preclude the sale and leaseback of assets so
long as the terms of such transaction are at least as favorable to IFFC or IFFP
and IFFC or IFFP, as the case may be, could have obtained in an arms-length
transaction with an unaffiliated party.
(g) Neither IFFC nor IFFP shall effect any transaction with any of
their respective Affiliates (as such term is defined under the Securities Act of
1933, as amended (except for IFFC and IFFP) on a basis less favorable to IFFC
and IFFP than would be the case if such transaction had been effected with a
non-Affiliate.
(h) IFFP shall not engage in any business other than the business in
which it is currently engaged on the date hereof.
(i) IFFC and IFFP shall observe and comply with all of the covenants
set forth in the Credit Agreement.
(j) For purposes of the foregoing covenants, the following terms shall
have the respective meanings set forth below:
"Indebtedness" means all obligations, contingent or otherwise, which in
accordance with U.S. generally accepted accounting principles are
required to be classified upon a balance sheet of the specified person
as liabilities.
"Lien" means, with respect to the specified person:
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(a) any lien, encumbrance, mortgage, pledge, charge, or
security interest of any kind upon any property or assets
of such person, whether now owned or hereafter acquired,
or upon the income or profits therefrom;
(b) the sale, assignment, pledge or transfer of any accounts
or general intangibles of such person for purposes of
creating a security interest; and
(c) the transfer of any tangible property or assets for the
purpose of creating or granting a security interest.
3. Representations and Warranties
3.1 Representations and Warranties of IFFC and IFFP. Each of IFFC and
IFFP represents and warrants to BKC that:
(a) Corporate Existence and Qualification. Each of IFFC and IFFP is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of IFFC and IFFP has all required
power and authority to own its properties and to carry on its business as
presently conducted.
(b) Authority, Approval and Enforceability. This Agreement has been
duly executed and delivered by each of IFFC and IFFP, and each of IFFC and IFFP
has all requisite power and legal authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby, and to perform
its obligations hereunder. This Agreement constitutes the legal, valid and
binding obligation of each of IFFC and IFFP, enforceable in accordance with its
terms.
(c) No Company Defaults or Consents. Neither the execution and delivery
of this Agreement nor the effectuation of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the certificate of incorporation or bylaws (or
similar organizational documents) of IFFC or IFFP;
(ii) violate any legal requirements applicable to
IFFC or IFFP;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or permit
applicable to IFFC or IFFP;
(iv) result in the creation of any lien, charge or
other encumbrance on any property of IFFC or IFFP (except as expressly
contemplated hereby); or
(v) require IFFC or IFFP to obtain or make any
waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third party or
any governmental authority.
(d) No Proceedings. Except as disclosed in IFFC's filings with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, or for matters which are not, individually or in the
aggregate, material to IFFC, no suit, action or other proceeding is pending or,
to the Knowledge of IFFC or IFFP, threatened, before any governmental authority
seeking to restrain such or prohibit its entry into this Agreement, or seeking
damages against IFFC or IFFP or their respective properties as a result of the
transactions contemplated by this Agreement.
(e) Compliance with Laws. Each of IFFC and IFFP has all material
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its businesses as presently
conducted. The business and operations of each of IFFC and IFFP have been and
are being conducted in accordance in all material respects with all applicable
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laws, rules and regulations, and each of IFFC and IFFP is not in violation of
any judgment, law or regulation.
(f) Disclosure; Due Diligence. This Agreement, when taken as a whole
with other documents and certificates furnished by each of IFFC and IFFP to BKC
or its counsel have been furnished in good faith and, do not contain any untrue
statement of material fact or omit any material fact necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading.
3.2 Representations and Warranties by BKC. BKC represents and warrants
to each of IFFC and IFFP that:
(a) Corporate Existence and Qualification. BKC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. BKC has all required power and authority to own
its properties and to carry on its business as presently conducted.
(b) Authority, Approval and Enforceability This Agreement has been duly
executed and delivered by BKC, and BKC has all requisite power and legal
authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby, and to perform its obligations hereunder. This Agreement
constitutes the legal, valid and binding obligation of BKC, enforceable in
accordance with its terms.
4. Miscellaneous.
4.1 Further Assurances. Each of the parties hereto agrees with the
other parties hereto that it will cooperate with such other parties and will
execute and deliver, or cause to be executed and delivered, all such other
instruments and documents, and will take such other actions, as such other
parties may reasonably request from time to time to effectuate the provisions
and purposes of this Agreement.
4.2 Binding on Successors, Transferees and Assigns; Assignment. This
Agreement shall be binding upon the parties hereto and their respective
successors, transferees and assigns. Notwithstanding the foregoing neither no
party hereto may assign any of its obligations hereunder with the prior written
consent of the other parties hereto; provided, that BKC may assign its rights
and delegate its duties under this Agreement to one or more of its subsidiaries
or affiliates.
4.3 Amendments; Waivers. No amendment to or waiver of any provisions of
this Agreement, nor consent to any departure therefrom by any party hereto,
shall in any event be effective unless the same shall be in writing and signed
by such party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
4.4 No Waiver; Remedies. No failure on the part of any party hereto to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any right. The
remedies herein provided are cumulative and not exclusive of any remedy provided
by law.
4.5 Expenses. IFFC shall pay or reimburse BKC for all of its legal,
accounting and other expenses directly related to the consummation of the
transactions contemplated hereby, together with the costs and expenses of
enforcing any of its rights hereunder including, without limitation, the
reimbursement rights provided in Section 1 hereof.
4.6 Jurisdiction. Any claim arising out of this Agreement shall be
brought in any state or federal court located in Miami-Dade County, Florida,
United States. For the purpose of any suit, action or proceeding instituted with
respect to any such claim, each of the parties hereto irrevocably submits to the
jurisdiction of such courts in Miami-Dade County, Florida, United States. Each
of the parties hereto further irrevocably consents to the service of process out
of said courts by mailing a copy thereof by registered mail, postage prepaid, to
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such party and agrees that such service, to the fullest extent permitted by law,
(i) shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding and (ii) shall be taken and held to be a valid
personal service upon and a personal delivery to it. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court located in Miami-Dade County,
Florida, United States, and any claim that any such suit, action or proceeding
brought in such court has been brought in an inconvenient forum. Notwithstanding
the foregoing, at the option of BKC, any claims against IFFP hereunder shall be
settled by the Arbitration Court at the Polish Chamber of Commerce with its seat
in Warsaw in accordance with its rules, and all such proceedings will be
conducted in the English language.
4.7 Governing Law; Severability. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Florida,
United States, without regard to any conflict of law, rule or principle that
would give effect to the laws of another jurisdiction.
4.8 Notices. All notices, requests and other communications to any
party hereunder shall be writing (including facsimile transmission or similar
writing) and shall be given to such party, addressed to it, at its address or
facsimile number set forth on the signature pages below, or at such other
address or facsimile number as such party may hereafter specify for such purpose
by notice to the other party. Each such notice, request or communication shall
be deemed effective when received at the address or facsimile number specified
below.
4.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, when taken together,
shall constitute one and the same Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INTERNATIONAL FAST FOOD CORPORATION
By:__________________________
Name:
Title:
c/o Mitchell Rubinson
1000 Lincoln Road, Suite 200
Miami Beach, FL 33139, USA
INTERNATIONAL FAST FOOD POLSKA S.P. Z.O.O.
By:__________________________
Name:
Title:
15 Jagiellonska Street
Warsaw, Poland
BURGER KING CORPORATION
By:_________________________
Name:
Title:
c/o Burger King EMA
Charter Place
Vine Street
Uxbridge, England UB81BZ
Attn: General Counsel and
Vice President - Financial Affairs
6
AGREEMENT FOR THE TRANSFER OF TITLE TO SHARES BY WAY OF SECURITY
THIS AGREEMENT FOR THE TRANSFER OF TITLE TO SHARES BY WAY OF SECURITY
(hereinafter referred to as the "Agreement") is entered into as of February 24,
1999, by and between INTERNATIONAL FAST FOOD CORPORATION, a company organized
under the laws of Florida, USA, having its principal place of business at 1000
Lincoln Road, Suite 200, Miami Beach, Florida 33139, USA (hereinafter referred
to as "IFFC"), BURGER KING CORPORATION a company organized under the laws of
Florida, USA, having its principal place of business at 17777 Old Cutler Rd,
Miami, Florida, USA (hereinafter referred to as "BKC"), and INTERNATIONAL FAST
FOOD POLSKA Sp. z o.o. , a Polish limited liability company organized under the
laws of Poland, having its registered office at 15 Jagiellonska Street, Warsaw,
Poland, hereinafter referred to as "IFFP"),
WHEREAS, the IFFC is the owner of one issued share having a nominal
value of PLN 54,866,089.57 at present constituting 100% of entire share capital
(hereinafter referred to as the "Shares"), of IFFP;
WHEREAS, Citibank (Poland) S.A. has agreed to grant IFFP a credit in
the total amount of USD 5,000,000 (Five Million US dollars) (hereinafter
referred to as the "Facility") pursuant to the Framework Agreement and the
Credit Agreement dated February 24, 1999 (hereinafter referred to as the "Credit
Agreement");
WHEREAS, it is a condition of the disbursement of the Facility that BKC
issue a guarantee for the benefit of Citibank (Poland) S.A. of the repayment of
the Facility and BKC has agreed to issue such guarantee (hereinafter referred to
as the "Guarantee");
WHEREAS, IFFC along with IFFP have executed a certain Reimbursement
Agreement, of even date (the "Reimbursement Agreement"), agreeing to reimburse
BKC for any loss, cost or expense which BKC may or might incur by reason of its
execution of or performance under the Guarantee;
WHEREAS, IFFC is willing to transfer title to the Shares to BKC as
security for the performance of the obligations of IFFC and IFFP under the
Reimbursement Agreement;
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. DEFINITIONS
"Business Day" means a day (other than Saturday) when banks are open for
business in Miami Beach, Florida.
"Collateral" means the Shares, together with all certificates, options or rights
of any nature that may be issued or granted by IFFP with respect thereto, any
property received or otherwise distributed in connection therewith, all
dividends and income with respect thereto, and all Proceeds thereof.
"Event of Default" shall have the meaning set forth in Section 7 hereof.
"Lien" means a mortgage, pledge, lien, security interest or other charge or
encumbrance or any segregation of assets or revenues or other preferential
arrangement (whether or not constituting a security interest) with respect to
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any present or future assets, including fixtures, revenues or rights to the
receipt of income of the Person referred to in the context in which the term is
used.
"Person" means any natural person, corporation, unincorporated organization,
trust, joint-stock company, joint venture, association, company, partnership or
government, or any agency or political subdivision of any government.
"PLN" or "Polish Zlotys" means the lawful currency of the Republic of Poland.
"Proceeds" means all "proceeds" as such term is defined in Section 679.306 of
the Uniform Commercial Code in effect in the State of Florida on the date
hereof.
"Secured Liabilities" means all liabilities of IFFC to BKC which may arise under
the Reimbursement Agreement.
All capitalized terms not otherwise defined herein shall have the meanings given
to such terms in the Reimbursement Agreement.
2. SECURITY
As security for the prompt payment and complete performance when due (whether by
acceleration or otherwise) of the Secured Liabilities, IFFC hereby transfers to
BKC the ownership title to the Shares.
3. REPRESENTATIONS AND WARRANTIES OF IFFC
IFFC represents and warrants to BKC as follows:
(a) The execution and performance of this Agreement does not
violate any provisions of any existing indenture, contract or
agreement to which IFFC is a party.
(b) The Shares have been duly and validly issued and are fully
paid and nonassessable, except the amount of 279,109.50 PLN
which has not been paid to date.
(c) IFFC is the sole legal and beneficial owner of, and has good
and marketable title to, the Shares, free and clear of any and
all Liens or options in favor of, or claims of, any other
Person, except the Lien created by this Agreement, and has the
unqualified right and power to grant the security interest in
the Collateral granted hereby without the consent of any other
Person.
(d) The Shares are all of the shares of IFFP owned by IFFC, and
constitute 100% of the issued and outstanding share capital of
IFFP.
(e) IFFC has delivered to BKC all documents evidencing the Shares,
together with all documents permitting transfer of title to
the Shares in BKC.
(f) The Lien granted pursuant to this Agreement constitutes a
valid, perfected first priority Lien on the Collateral,
enforceable as such against all creditors of IFFC and any
Persons purporting to purchase any Shares from IFFC.
(g) IFFC is not in default under any agreement, obligation or duty
to which it is a party, which default would threaten the
ability of IFFC to fulfill its obligations under this
Agreement;
(h) Neither the signing of this Agreement nor the performance of
any of the transactions contemplated in it does or will
controvert or constitute a default under, or cause to be
exceeded, any limitation imposed on IFFC by or contained in:
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(i) any law by which it or any of its assets is bound or
affected; or
(ii) any agreement to which it is a party or is bound,
(i) The execution and delivery of this Agreement has been duly
authorized by all required corporate action and IFFC has
received all required consents and approvals from IFFP and its
shareholders to transfer the Shares to BKC according to this
Agreement;
(k) Except as otherwise disclosed in IFFC's periodic reports filed
with the United States Securities and Exchange Commission
under the Securities and Exchange Act of 1934, as amended, no
litigation, arbitration or administrative proceedings claim in
which there is a serious possibility of an adverse decision
which could by itself or together with any other such
proceedings or claims either have a material adverse effect on
the business, assets or condition thereof, or materially and
adversely affect its ability to observe or perform its
obligations under this Agreement, is currently in progress or
pending against IFFC;
(l) Except as disclosed in IFFC's periodic reports filed under the
Securities Exchange Act of 1934, as amended, IFFC is not in
default in the payment of any taxes, or other public dues and
no material claim is being asserted with respect to taxes or
other public dues.
4. UNDERTAKINGS OF IFFC
IFFC covenants and agrees with BKC that until its obligations under the
Reimbursement Agreement have been satisfied:
(a) Without the prior written consent of BKC, the IFFC shall not
(i) vote to enable, or take any other action to permit, IFFP
to issue any stock or other equity securities of any nature or
to issue any other securities convertible into or granting the
right to purchase or exchange for any stock or other equity
securities of any nature; (ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with
respect to, the Collateral; or (iii) create, incur or permit
to exist any Lien or option in favor of, or any claim of any
Person with respect to, any of the Collateral, or any interest
therein, except for the Lien provided for by this Agreement.
(b) At any time and from time to time, upon the written request of
BKC, and at the sole expense of the IFFC, IFFC will promptly
and duly execute and deliver such further instruments and
documents and take such further actions as BKC may reasonably
request for the purposes of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein
granted.
(c) Without the prior written consent of BKC, IFFC shall not
receive, collect or have paid over any dividends or other
distributions declared or paid on the Shares, including, but
not limited to, (i) dividends or redistributions constituting
dividends, (ii) dividends or distributions in property other
than cash or stock, and (iii) liquidation dividends (either
partial or complete), and any and all such dividends and
distributions shall constitute and be additional security for
the obligations hereby secured, shall be held by the IFFC in
trust for BKC without commingling such dividends and
distributions with any other funds of IFFC and shall be paid
over and/or pledged and deposited with BKC, duly endorsed or
accompanied by appropriate instruments of transfer duly
executed by IFFC, all in form and substance satisfactory to
BKC, and BKC shall have in respect thereof all of the other
powers and rights as are herein provided in respect of the
Share.
(d) IFFC shall take, at its own expense, whatever action BKC may
require for establishing, maintaining, or enforcing the
Security over the Shares, and the giving of any notice, order
or direction, and the making of any registration, which BKC
may think expedient. Specifically, IFFC shall execute and file
with the Florida Secretary of State a UCC-1 financing
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statement, which shall be in form and substance satisfactory
to BKC and shall execute and file with the Polish Antimonopoly
Office a notification of transfer of the Shares to BKC.
(e) IFFC shall not do or knowingly permit to be done any act or
thing which might reasonably be expected to jeopardize the
right of BKC as owner of the Shares.
5. UNDERTAKINGS OF IFFP
IFFP recognizes the transfer evidenced by this Agreement and undertakes, upon
the execution hereof, to enter BKC into IFFP's register of shares as beneficiary
of the security interest with respect to the Shares. IFFP further undertakes
that after BKC is entered into share register, it will deliver the share
register to BKC or its designated agent in Warsaw to hold in trust for the term
of this Agreement. IFFP further undertakes to maintain its existence, keep its
properties in good repair, maintain insurance as reasonably required by the
conduct of its business and defend BKC's security interests in the Collateral
against claims of third parties. IFFP shall provide BKC with proof of the
keeping of this undertaking from time to time, as reasonably requested by BKC.
6. UNDERTAKINGS OF BKC
BKC hereby undertakes to transfer and or release the ownership title to, or any
security interest in, the Shares and all other Collateral to IFFC immediately
after expiration of the Guarantee (including the termination or the Guarantee
upon the termination of the Facility), unless before such expiration Citibank
(Poland) S.A. has demanded BKC to pay the Guarantee.
7. EVENTS OF DEFAULT
As used herein, the term "Event of Default" shall include any or all of the
following:
(a) The filing or issuance of a notice of any lien, warrant or
notice of levy for taxes or assessment against the assets of
IFFC or IFFP (except for those which relate to claims which
are not, individually or in the aggregate, material to IFFC or
IFFC or those which are being contested in good faith and for
which adequate reserves have been created); or
(b) The occurrence of a default under the Reimbursement Agreement;
or
(c) The adjudication of IFFC or IFFP as bankrupt, or the taking of
any voluntary action by IFFC or IFFP or any involuntary action
against IFFC or IFFP seeking an adjudication of IFFC or IFFP
as bankrupt, or seeking relief by or against IFFC or IFFP
under any provision of the United States Bankruptcy Code or
analogous code of the Republic of Poland.
8. REMEDIES
Subject to the provisions of that certain Purchase Agreement of even date
herewith (the "Purchase Agreement"), by and among IFFC, Mitchell Rubinson, IFFP
and BKC, upon the occurrence any Event of Default, BKC may, without demand of
performance or other demand, advertisement or notice (except, the notice
specified below with respect to sales) to or upon IFFC or IFFP, all of which are
expressly hereby waived, and in addition to other rights it may have, or
hereafter acquire, (i) immediately collect, receive, appropriate, retain and, if
it so chooses, realize upon, the Shares, or any part thereof, have such Shares
registered in the name of BKC or its nominee, and thereafter exercise all voting
and other rights with respect to the Shares; (ii) sell, assign, give options to
purchase, or otherwise dispose of, in one or more parcels, the Shares, or (iii)
exercise the rights of a secured creditor under the Uniform Commercial Code of
Florida or similar law in any applicable jurisdiction. Without limiting the
foregoing, subject to the provisions of the Purchase Agreement, BKC shall have
the right to retain the Collateral in discharge of the indebtedness secured
thereby. Any notice of sale, disposition, or other intended action by BKC,
mailed by ordinary mail to the address of IFFC as shown on the records of BKC at
least five (5) days before the action, shall constitute reasonable notice. In
case of any sale or other disposition of any of the Collateral aforesaid, after
deducting all costs and expenses of every kind for care, safekeeping,
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collection, sale, delivery and for reasonable attorneys' fees for legal services
in connection therewith, BKC shall apply the residue of the proceeds of the sale
or sales or other disposition of the Collateral, in full or partial payment of
the obligations hereby secured, as it may deem proper, and returning the
surplus, if any, to IFFC.
9. REALIZATION
BKC may, if it deems it advisable to do so, restrict the prospective bidders or
purchasers to Persons who will represent and agree that they are purchasing for
their own account for investment and not with a view to the resale or
distribution of any of the Collateral and, in particular may restrict the
prospective bidders of purchasers to Persons which, in its judgment will have
the capacity to perform the commitments required by an owner of IFFP as the
holder of rights under any development or franchise agreement with BKC.
10. ASSIGNMENT
BKC may assign or transfer this Agreement, or any instrument evidencing the
obligations hereby secured, and may transfer and/or deliver any and/or all of
the Collateral, whether now owned or hereafter acquired, held as security
hereunder, or any part hereof, to any subsidiary or affiliate of BKC, which
shall thereupon become vested with all the powers and rights and obligations in
respect thereto given to BKC in this Agreement or in the instruments so
transferred. BKC shall thereafter be forever relieved and fully discharged from
any liability or responsibility with respect to such Collateral, but BKC shall
retain all rights and powers hereby given with respect to any and all
instruments, rights or Collateral not so transferred. No delay on the part of
BKC shall operate as a waiver of such rights, nor shall the waiver of any breach
hereunder operate as a waiver of any subsequent breach. IFFC hereby agrees that
its obligations under this Agreement shall be absolute and unconditional,
irrespective of:
(i) any lack of validity or enforceability of the
Reimbursement Agreement, the Guarantee, or any other agreement or
instrument relating to any of the foregoing;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations secured hereunder,
or any other amendment or waiver of or any consent to any departure
from the Reimbursement Agreement, the Guarantee, or any other agreement
or instrument relating to any of the foregoing, in each case so long as
IFFC shall have received written notice thereof; or
(iii) any exchange, release or non-perfection of any other
collateral securing the obligations secured hereby, or any release or
amendment or waiver of or consent to departure from any guaranty, for
all or any of such obligations.
11. POWER OF ATTORNEY TO BKC
IFFC hereby appoints BKC as IFFC's attorney-in-fact for the purpose of carrying
out the provisions of this Agreement and taking any action contemplated or
permitted hereby and executing any instrument that BKC may deem necessary or
advisable to accomplish the purposes hereof. Without limiting the generality of
the foregoing, if an Event of Default shall have occurred, BKC shall have the
right and power to receive, endorse and collect all checks and other orders for
the payment of money made payable to IFFC representing any dividend, payment or
other distribution payable in respect of the Shares or any part thereof and to
give full discharge for the same.
12. POWER OF ATTORNEY TO IFFC
For the time the transfer of ownership title to the Shares under this Agreement
is effective, BKC hereby gives IFFC the Power of Attorney subject to the
covenants contained at Paragraph 4, above, to vote in the name and on behalf of
BKC at the ordinary and extraordinary Shareholders' Meetings of IFFP in all
matters which may be placed on the agenda of these meetings. BKC has the right
to revoke this Power of Attorney at any time during the term of this Agreement
upon the occurrence of an Event of Default. This power of attorney does not
give the right:
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a) to receive notices of convening the Shareholders' Meeting
(IFFP should separately notify IFFC and BKC on the convening
of any Shareholders' Meeting); and
b) to vote at the Shareholders' Meeting held without formal
convening.
13. BKC's DUTIES WITH RESPECT TO COLLATERAL
Except as may result from BKC's gross negligence or willful misconduct, BKC
shall not be under any liability or obligation to take any steps whatsoever to
preserve the value of any Collateral pledged hereunder, to fix any liability
upon, or to collect or to enforce payment of the obligations hereby secured,
whether by giving any notice, presenting, demanding payment, protesting,
instituting suit or otherwise.
14. EXPENSES AND INDEMNITY
IFFC will indemnify BKC with respect to all liabilities and expenses incurred by
it in good faith in the execution or purported execution of any right, powers,
or discretion vested in it pursuant hereto. BKC shall not be liable for any
losses arising in connection with the exercise or purported execution of any of
its rights hereunder.
15. NOTICES
Except as otherwise expressly provided herein, all notices, requests, demands or
other communications required or contemplated by the provisions hereof shall be
in writing, or by telex or facsimile transmission, and shall be deemed to have
been given or made on the third Business Day after the deposit thereof in the
United States mail, registered mail postage prepaid, or when received if sent by
telex or facsimile transmission or delivered by hand, addressed to the
appropriate party at its address set forth next to such party's signature
hereto, or at such other address as may be designated by such party by notice to
the other parties hereto given pursuant to this Section 12.
The addresses, and facsimile number of the for all notices under or in
connection with this Agreement are as follows:
As to BKC:
Burger King Corporation
P.O. Box 020783
17777 Old Cutler Rd,
Miami, Florida 33102-0783,
USA
telephone: __________________
facsimile: __________________
As to IFFC:
International Fast Food Corporation
1000 Lincoln Road, Suite 200,
Miami Beach, Florida 33139,
USA
telephone: (305) 531 58 00
facsimile: (305) 538 50 37
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As to IFFP:
International Fast Food Polska
15 Jagiellonska Street,
03-719 Warsaw,
Poland
telephone: (22) 670 01 22
facsimile: (22) 670 01 32
or such other as such party may notify to the others by not less than 5 Business
Days' notice.
16. NON-EXCLUSIVITY OF REMEDIES
No remedy herein conferred upon or reserved to BKC is intended to be exclusive
of any other available remedy or remedies, but each and every such remedy shall
be cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity. No delay or omission
to exercise any right or power accruing upon any default, omission or failure of
performance hereunder shall impair any such right or power or shall be construed
to be a waiver thereof, but any such right and power may be exercised from time
to time and as often as may be deemed expedient. In order to entitle BKC to
exercise any remedy reserved to it in this Agreement, it shall not be necessary
to give any notice, other than such notice as may be herein expressly required.
In the event any provision contained in this Agreement should be breached by
IFFC and hereafter duly waived by BKC, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder. No waiver, amendment, release or modification of this Agreement shall
be established by conduct, custom or course of dealing, but solely by an
instrument in writing duly executed by BKC.
17. ENTIRE AGREEMENT
This Agreement, together with the Reimbursement Agreement, the Purchase
Agreement and the Guarantee, constitute the entire agreement with respect to the
pledge of the Collateral, and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and may be executed simultaneously in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
18. SEVERABILITY
The invalidity or unenforceability of any one or more phrases, sentences,
clauses or sections in this Agreement shall not affect the validity or
enforceability of the remaining portions of this Agreement, or any part thereof.
This Agreement shall be governed and construed exclusively by the laws of the
State of Florida without reference to the conflict of laws rules thereof.
19. BINDING EFFECT
The terms and provisions of this Agreement shall be binding upon and shall inure
to the benefit of IFFC and BKC, and their respective successors, assigns, heirs,
devisees, and personal representatives. This Agreement may not be assigned by
either party hereto without the prior written consent of the other party hereto;
provided, that BKC may assign its rights and delegate its duties hereunder to
one of its subsidiaries or affiliates.
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21. LANGUAGE
All notices or communications under or in connection with this Agreement shall
be in English. This Agreement shall be executed in English Language.
22. WAIVER OF TRIAL BY JURY
IFFC AND BKC, BY THEIR ACCEPTANCE OF THIS AGREEMENT, EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR BKC ACCEPTING THIS AGREEMENT.
23. SETTLEMENT OF DISPUTES
Any claim arising out of this Agreement shall be brought in any state
or federal court located in Miami-Dade County, Florida, United States. For the
purpose of any suit, action or proceeding instituted with respect to any such
claim, each of the parties hereto irrevocably submits to the jurisdiction of
such courts in Miami-Dade County, Florida, United States. Each of the parties
hereto further irrevocably consents to the service of process out of said courts
by mailing a copy thereof by registered mail, postage prepaid, to such party and
agrees that such service, to the fullest extent permitted by law, (i) shall be
deemed in every respect effective service of process upon it in any such suit,
action or proceeding and (ii) shall be taken and held to be a valid personal
service upon and a personal delivery to it. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding brought in any such court located in Miami-Dade County, Florida,
United States, and any claim that any such suit, action or proceeding brought in
such court has been brought in an inconvenient forum.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day first above written.
BURGER KING CORPORATION
By: ________________________________________
INTERNATIONAL FAST FOOD CORPORATION
By: ________________________________________
INTERNATIONAL FAST FOOD POLSKA Sp. z o.o.
By: ________________________________________
9
GENERAL RELEASE
THIS GENERAL RELEASE, dated as of February 24, 1999 ("Agreement"), is
entered into by and among Burger King Corporation, a Florida corporation
("BKC"), International Fast Food Corporation, a Florida corporation ("IFFC"),
International Fast Food Polska S.A. z.o.o., a limited liability company
organized under the laws of Poland ("IFFP") and Mitchell Rubinson ("Rubinson",
and together with IFFP and IFFC, the "IFFC Parties").
WHEREAS, pursuant to a Development Agreement by and among BKC and IFFC
(the "Development Agreement") BKC has granted IFFC the right to develop new
"Burger King" restaurants in the Republic of Poland;
WHEREAS, IFFC is the owner of all the issued and outstanding shares
(the "IFFP Shares") of International Fast Food Polska S.P. z.o.o. ("IFFP");
WHEREAS, Citibank (Poland) S.A. ("Citibank") has agreed to provide
credit to IFFP in the aggregate amount of U.S. $5,000,000, pursuant to a credit
agreement dated February 24, 1999 (the "Credit Agreement");
WHEREAS, It is a condition to the disbursement of funds under the
Credit Agreement that BKC issue a guarantee in favor of Citibank to secure the
repayment by IFFP of amounts borrowed under the Credit Agreement (the
"Guarantee");
WHEREAS, in consideration of the Guarantee, IFFC has agreed to grant
BKC a perfected security interest in the IFFP Shares to secure BKC's claims
which may arise as a result of the payment by BKC of any amounts under the
Guarantee;
WHEREAS, pursuant to a Reimbursement Agreement of even date herewith
(the "Reimbursement Agreement") by and among IFFC, IFFP and BKC, IFFC has agreed
to reimburse BKC for any payments that it may be required to make to Citibank
under the Guarantee, together with related costs, expenses and interest, as more
fully said forth herein;
WHEREAS, pursuant to an Agreement for the Transfer of Title to Share by
way of Security dated of even date herewith (the "Security Agreement") by and
between IFFC, BKC and IFFP, IFFC has granted BKC a security interest in and to
the IFFP Shares, which permits BKC to retain the IFFP Shares in the event that
BKC is required to make any payment under the Guarantee and neither IFFC nor
IFFP reimburse BKC for the amount of such payment and other items under the
Reimbursement Agreement; and
WHEREAS, in connection with, and in consideration of, the foregoing,
BKC and IFFC have agreed to amend the Development Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree has follows:
1. General Release.
(a) As a material inducement to enter into the Guarantee, the
IFFC Parties hereby irrevocably and unconditionally release, acquit and forever
discharge BKC, including its shareholders, officers, directors, consultants,
agents, predecessors, successors, assigns, employees, representatives,
affiliates, and all persons acting by, through, under or in concert with any of
them (such persons are collectively referred to herein as the "BKC Parties"),
whether in their individual or professional capacities, from any and all
charges, complaints, claims, liabilities, obligations, promises, agreements
1
<PAGE>
(including, without limitation, the Development Agreement and any franchise
agreements), controversies, damages, actions, causes of action, suits, rights,
demands, costs, losses, debts and expenses (including reasonable attorney's fees
and costs incurred) of any nature whatsoever, known or unknown, suspected or
unsuspected, relating to any matter up to and through the date hereof; provided,
that nothing contained herein shall be deemed to relieve the parties to the
Development Agreement from its obligations under the Development Agreement, as
amended from time to time, from and after the date hereof.
(b) The IFFC Parties agree not to bring any action, suit or
proceeding whatsoever (including the initiation of governmental proceedings or
investigations of any type) against any of the BKC Parties hereto for any matter
or circumstance concerning which the IFFC Parties have released the BKC Parties
under this Agreement. Furthermore, the IFFC Parties agree not to encourage any
other person or suggest to any other person that he or it institute any legal
action against the BKC Parties.
2. Legal Advice; Reliance.
(a) The parties represent and acknowledge that they have been
given adequate time with which to consider this Agreement and have been advised
to discuss all aspects of this Agreement with their private attorney and that
each party has in fact done so, that each party has carefully read and fully
understands all the provisions of this Agreement and that each party has
voluntarily entered into this Agreement, without duress or coercion.
(b) Each party represents and acknowledges that in executing
this Agreement they have not relied and do not rely upon any representation or
statements which are not set forth in this Agreement made by any other party
hereto or by any of the agents, representatives or attorneys of such party or
parties with regard to the subject matter, or relating to the basis or effect,
of this Agreement.
3. Miscellaneous.
(a) Third Party Beneficiaries. All releasees under Section 1
who are not signatories to this Agreement shall be deemed to be third party
beneficiaries of this Agreement to the same extent as if they were signatories
hereto.
(b) Further Assurances. Each of the parties hereto agrees with
the other parties hereto that it will cooperate with such other parties and will
execute and deliver, or cause to be executed and delivered, all such other
instruments and documents, and will take such other actions, as such other
parties may reasonably request from time to time to effectuate the provisions
and purposes of this Amendment.
(c) Binding on Successors, Transferees and Assigns;
Assignment. This Amendment shall be binding upon the parties hereto and their
respective successors, transferees and assigns. Notwithstanding the foregoing
none of the parties hereto may assign any of its obligations hereunder with the
prior written consent of the other parties hereto; provided, that BKC may assign
its rights and delegate its duties under this Agreement to one or more of its
subsidiaries or affiliates.
(d) Amendments; Waivers. No amendment to or waiver of any
provisions of this Amendment, nor consent to any departure therefrom by any
party hereto, shall in any event be effective unless the same shall be in
writing and signed by such party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(e) No Waiver; Remedies. No failure on the part of any party
hereto to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any right. The remedies herein provided are cumulative and not exclusive of
any remedy provided by law.
2
<PAGE>
(f) Expenses. IFFC shall pay or reimburse BKC for all of its
legal, accounting and other expenses directly related to the consummation of the
transactions contemplated hereby, together with the costs and expenses of
enforcing any of its rights hereunder including, without limitation, the
purchase rights provided in Section 1 hereof.
(g) Jurisdiction. Any claim arising out of this Amendment
shall be brought in any state or federal court located in Miami-Dade County,
Florida, United States. For the purpose of any suit, action or proceeding
instituted with respect to any such claim, each of the parties hereto
irrevocably submits to the jurisdiction of such courts in Miami-Dade County,
Florida, United States. Each of the parties hereto further irrevocably consents
to the service of process out of said courts by mailing a copy thereof by
registered mail, postage prepaid, to such party and agrees that such service, to
the fullest extent permitted by law, (i) shall be deemed in every respect
effective service of process upon it in any such suit, action or proceeding and
(ii) shall be taken and held to be a valid personal service upon and a personal
delivery to it. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding brought
in any such court located in Miami-Dade County, Florida, United States, and any
claim that any such suit, action or proceeding brought in such court has been
brought in an inconvenient forum. Notwithstanding the foregoing, at the option
of BKC, any claims against IFFP hereunder shall be settled by the Arbitration
Court at the Polish Chamber of Commerce with its seat in Warsaw in accordance
with its rules, and all such proceedings will be conducted in the English
language.
(h) Governing Law; Severability. This Amendment shall be
governed by and construed in accordance with the internal laws of the State of
Florida, United States, without regard to any conflict of law, rule or principle
that would give effect to the laws of another jurisdiction.
(i) Notices. All notices, requests and other communications to
any party hereunder shall be writing (including facsimile transmission or
similar writing) and shall be given to such party, addressed to it, at its
address or facsimile number set forth on the signature pages below, or at such
other address or facsimile number as such party may hereafter specify for such
purpose by notice to the other party. Each such notice, request or communication
shall be deemed effective when received at the address or facsimile number
specified below.
(j) Counterparts. This Amendment may be executed in any number
of counterparts, each of which counterparts, when so executed and delivered,
shall be deemed to be an original, and all of which counterparts, when taken
together, shall constitute one and the same Amendment.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date indicated.
BURGER KING CORPORATION
By:____________________________________
Name:
Title:
c/o Burger King EMA
Charter Place
Vine Street
Uxbridge, England UB81BZ
INTERNATIONAL FAST FOOD
CORPORATION
By:____________________________________
Name:
Title:
c/o Mitchell Rubinson
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139, USA
INTERNATIONAL FAST FOOD POLSKA S.A. Z.O.O.
By:____________________________________
Name:
Title:
15 Jagiellonska Street
Warsaw, Poland
_______________________________________
Mitchell Rubinson
c/o International Fast Food Corporation
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139, USA
4
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated as of February 24, 1999,
by and among INTERNATIONAL FAST FOOD CORPORATION, a company organized under the
laws of the State of Florida, United States ("IFFC"), MITCHELL RUBINSON
("Rubinson"), INTERNATIONAL FAST FOOD POLSKA S.P. z.o.o., a Polish limited
liability company organized under the laws of Poland ("IFFP") and BURGER KING
CORPORATION, a company organized under the laws of State of Florida, United
States ("BKC").
WHEREAS, Rubinson is a principal shareholder, and an officer and
director, of IFFC;
WHEREAS, IFFC is the owner of all the issued and outstanding shares
(the "IFFP Shares") of IFFP;
WHEREAS, Citibank (Poland) S.A. ("Citibank") has agreed to provide
credit to IFFP in the aggregate amount of U.S. $5,000,000), pursuant to a credit
agreement dated February 24, 1999 (the "Credit Agreement");
WHEREAS, It is a condition to the disbursement of funds under the
Credit Agreement that BKC issue a guarantee in favor of Citibank to secure the
repayment by IFFP of amounts borrowed under the Credit Agreement (the
"Guarantee");
WHEREAS, in consideration of the Guarantee, IFFC has agreed to grant
BKC a perfected security interest in the IFFP Shares to secure BKC's claims
which may arise as a result of the payment by BKC of any amounts under the
Guarantee;
WHEREAS, pursuant to a Reimbursement Agreement of even date herewith
(the "Reimbursement Agreement") by and among IFFC, IFFP and BKC, IFFC has agreed
to reimburse BKC for any payments that it may be required to make to Citibank
under the Guarantee, together with related costs, expenses and interest, as more
fully said forth herein;
WHEREAS, pursuant to an Agreement for the Transfer of Title to Share by
way of Security dated of even date herewith (the "Security Agreement") by and
between IFFC, BKC and IFFP, IFFC has granted BKC a security interest in and to
the IFFP Shares, which permits BKC to retain the IFFP Shares in the event that
BKC is required to make any payment under the Guarantee and neither IFFC nor
IFFP reimburse BKC for the amount of such payment and other items under the
Reimbursement Agreement; and
WHEREAS, in the event that BKC acquires the IFFP Shares as described
above, the parties hereto wish to provide for the sale of the IFFP Shares by BKC
to Rubinson, upon the terms, and subject to the conditions, hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree has follows:
1. Sale and Purchase of IFFP Shares. In the event that BKC is required to make
any payment under the Guarantee and neither IFFC nor IFFP reimburse BKC in full
for the amount of such payment and the other items specified under the
Reimbursement Agreement within fifteen days following written demand therefor by
BKC to either IFFC or IFFP, then BKC shall sell to IFFC, and IFFC shall purchase
from BKC, the IFFP Shares for a purchase price (the "Purchase Price") equal to
(i) any payments to be made or previously made by BKC under the Guarantee (such
amounts are hereinafter referred to as "Indemnity Payments"), (ii) interest on
the amount of any Indemnity Payment remaining unpaid by IFFC or IFFP under
clause (i) above, from (and including) date of such Indemnity Payment, until
payment in full thereof (after as well as before judgment) at a rate equal to
the Base Rate (as defined below) from time to time in effect plus two hundred
basis points, such interest to be payable on demand (which demand may be made
1
<PAGE>
upon IFFC or IFFP) and (iii) all fees, costs and expenses incurred by BKC in
connection with the enforcement of its rights hereunder. "Base Rate" means, on
any date, a fluctuating rate of interest per annum equal to the rate of interest
published in the "Wall Street Journal" on such date as the "prime rate" for U.S.
dollar loans by major money center banks. Interest accruing on the Base Rate
shall be computed on the basis of the actual number of days elapsed in a 365 day
year. In the event that IFFC defaults in its obligation to purchase the IFFP
Shares in accordance with this Section 1, then BKC shall send IFFC a written
notice (the "Default Notice") informing IFFC and Rubinson of such default, and
BKC shall sell to Rubinson, and Rubinson shall purchase from BKC, the IFFP
Shares for the Purchase Price. The closing of the sale by BKC and purchase by
Rubinson of the IFFP Shares in accordance with this Section 1 shall occur within
15 days following the delivery by BKC to Rubinson of the Default Notice. The
Purchase Price shall be payable by wire transfer of immediately available funds
to an account designated in writing by BKC to Rubinson.
(b) In the event that neither IFFC nor Rubinson purchase the IFFP
Shares in accordance with, and subject to the limitations set forth in, Section
1(a), above, then BKC shall have the right, but not the obligation, to terminate
without any additional consideration that certain Restaurant Development
Agreement dated as of March 14, 1997, by and among BKC and IFFP and to retain
the IFFP Shares for its own account or to sell the IFFP Shares to a third party,
subject to compliance with the terms and conditions of the Security Agreement.
2. Representations and Warranties
2.1 Representations and Warranties of IFFC, IFFP and Rubinson. Each of
IFFC, IFFP and Rubinson represents and warrants to BKC that:
(a) Corporate Existence and Qualification. Each of IFFC and IFFP is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of IFFC and IFFP has all required
power and authority to own its properties and to carry on its business as
presently conducted.
(b) Authority, Approval and Enforceability. This Agreement has been
duly executed and delivered by each of IFFC, IFFP and Rubinson, and each of
IFFC, IFFP and Rubinson has all requisite power and legal authority to execute
and deliver this Agreement, to consummate the transactions contemplated hereby,
and to perform its obligations hereunder. This Agreement constitutes the legal,
valid and binding obligation of each of IFFC, IFFP and Rubinson, enforceable in
accordance with its terms.
(c) No Company Defaults or Consents. Neither the execution and delivery
of this Agreement nor the effectuation of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the certificate of incorporation or bylaws (or
similar organizational documents) of IFFC or IFFP;
(ii) violate any legal requirements applicable to
IFFC or IFFP or Rubinson;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or permit
applicable to IFFC or IFFP;
(iv) result in the creation of any lien, charge or
other encumbrance on any property of IFFC or IFFP (except as expressly
contemplated hereby); or
(v) require IFFC or IFFP to obtain or make any
waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third party or
any governmental authority.
(d) No Proceedings. No suit, action or other proceeding is pending or,
to the Knowledge of IFFC, IFFP or Rubinson, threatened, before any governmental
2
<PAGE>
authority seeking to restrain such or prohibit its entry into this Agreement, or
seeking damages against IFFC, IFFP or Rubinson or their respective properties,
as a result of the transactions contemplated by this Agreement.
(e) Disclosure; Due Diligence. This Agreement, when taken as a whole
with other documents and certificates furnished by each of IFFC, IFFP or
Rubinson to BKC or its counsel have been furnished in good faith and, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they are made not misleading.
2.2 Representations and Warranties by BKC. BKC represents and warrants
to each of IFFC and IFFP that:
(a) Corporate Existence and Qualification. BKC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. BKC has all required power and authority to own
its properties and to carry on its business as presently conducted.
(b) Authority, Approval and Enforceability This Agreement has been duly
executed and delivered by BKC, and BKC has all requisite power and legal
authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby, and to perform its obligations hereunder. This Agreement
constitutes the legal, valid and binding obligation of BKC, enforceable in
accordance with its terms.
3. Miscellaneous.
3.1 Further Assurances. Each of the parties hereto agrees with the
other parties hereto that they will cooperate with such other parties and will
execute and deliver, or cause to be executed and delivered, all such other
instruments and documents, and will take such other actions, as such other
parties may reasonably request from time to time to effectuate the provisions
and purposes of this Agreement.
3.2 Binding on Successors, Transferees and Assigns; Assignment. This
Agreement shall be binding upon the parties hereto and their respective
successors, transferees and assigns. Notwithstanding the foregoing, none of the
parties hereto may assign any of its obligations hereunder with the prior
written consent of the other parties hereto; provided, that BKC may assign its
rights and delegate its duties under this Agreement to one or more of its
subsidiaries or affiliates.
3.3 Amendments; Waivers. No amendment to or waiver of any provisions of
this Agreement, nor consent to any departure therefrom by any party hereto,
shall in any event be effective unless the same shall be in writing and signed
by such party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
3.4 No Waiver; Remedies. No failure on the part of any party hereto to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any right. The
remedies herein provided are cumulative and not exclusive of any remedy provided
by law.
3.5 Expenses. IFFC shall pay or reimburse BKC for all of its legal,
accounting and other expenses directly related to the consummation of the
transactions contemplated hereby, together with the costs and expenses of
enforcing any of its rights hereunder including, without limitation, the
purchase rights provided in Section 1 hereof.
3.6 Jurisdiction. Any claim arising out of this Agreement shall be
brought in any state or federal court located in Miami-Dade County, Florida,
United States. For the purpose of any suit, action or proceeding instituted with
respect to any such claim, each of the parties hereto irrevocably submits to the
jurisdiction of such courts in Miami-Dade County, Florida, United States. Each
of the parties hereto further irrevocably consents to the service of process out
3
<PAGE>
of said courts by mailing a copy thereof by registered mail, postage prepaid, to
such party and agrees that such service, to the fullest extent permitted by law,
(i) shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding and (ii) shall be taken and held to be a valid
personal service upon and a personal delivery to it. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court located in Miami-Dade County,
Florida, United States, and any claim that any such suit, action or proceeding
brought in such court has been brought in an inconvenient forum. Notwithstanding
the foregoing, at the option of BKC, any claims against IFFP hereunder shall be
settled by the Arbitration Court at the Polish Chamber of Commerce with its seat
in Warsaw in accordance with its rules, and all such proceedings will be
conducted in the English language.
3.7 Governing Law; Severability. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Florida,
United States, without regard to any conflict of law, rule or principle that
would give effect to the laws of another jurisdiction.
3.8 Notices. All notices, requests and other communications to any
party hereunder shall be writing (including facsimile transmission or similar
writing) and shall be given to such party, addressed to it, at its address or
facsimile number set forth on the signature pages below, or at such other
address or facsimile number as such party may hereafter specify for such purpose
by notice to the other party. Each such notice, request or communication shall
be deemed effective when received at the address or facsimile number specified
below.
3.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, when taken together,
shall constitute one and the same Agreement.
3.10 Indemnification. IFFC, IFFP and Rubinson, jointly and severally,
agree to indemnify and hold harmless BKC and its officers, directors, employees,
agents, subsidiaries and affiliates (collectively, the "BKC Parties") from and
against all losses, liabilities, damages, deficiencies, costs or expenses
(including, without limitation, interest, penalties and actual attorneys' fees
and disbursements) (collectively, "Losses") based upon any claim by any
shareholder, creditor or employee of IFFC or IFFP arising from or relating to
the purchase and sale of the IFFP Shares described in Section 1 hereof.
Notwithstanding the foregoing, neither IFFC, IFFP nor Rubinson shall be required
to indemnify the BKC parties to the extent it is judicially determined that such
Losses resulted from the gross negligence or willful misconduct of BKC; and
provided, further, that the obligation of Rubinson to indemnify the BKC Parties
hereunder shall only arise in the event that Rubinson acquires the IFFP Shares
pursuant to Section 1 hereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
_______________________________
Mitchell Rubinson
c/o International Fast Food Corporation
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139, USA
INTERNATIONAL FAST FOOD CORPORATION
By:__________________________
Name:
Title:
c/o Mitchell Rubinson
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139, USA
INTERNATIONAL FAST FOOD POLSKA S.P. Z.O.O.
By:__________________________
Name:
Title:
15 Jagiellonska Street
Warsaw, Poland
BURGER KING CORPORATION
By:_________________________
Name:
Title:
c/o Burger King EMA
Charter Place
Vine Street
Uxbridge, England UB81BZ
Attn: General Counsel and
Vice President - Financial Affairs
5
FRAMEWORK AGREEMENT No. UR 081/99
FOR VARIOUS FORMS OF CREDIT TRANSACTIONS
This Framework Agreement (the "Agreement") was entered into on February 24,
1999, between:
1. INTERNATIONAL FAST FOOD POLSKA, a limited liability company (the
"Borrower"), having its seat in Warsaw at 15 Jagiellonska Str., according
to an extract from the entry in the Commercial Register under no. RHB
32513, maintained by the District Court for the capital city of Warsaw,
Commercial Court, XVI, Commercial and Registration Division; the Management
Board of the Borrower consists of the following persons: Michael Thomas
Welch - President of Management Board; the share capital of the Borrower is
PLN 28.876.082,33;
represented by the following persons duly authorized:
James F. Martin
---------------
and
2. Citibank (Poland) S.A. (the "Bank") having its seat in Warsaw at 16
Senatorska Str., according to an extract from the entry in the Commercial
Register under no. RHB 29183, maintained by the District Court for the
capital city of Warsaw, Commercial Court, XVI Commercial and Registration
Division; the Management Board of the Bank consists of the following
persons: Shirish Apte - President, Edward B. Ward - Vice President, Harit
Talwar - Vice President, David C. Meechie - Director, Stanislaw Wojnicki -
Director, Aneta M. Poplawska - Director, Maciej Bardan - Director, Sandeep
Desai - Director, Ted Dabrowski - Director, Robert Litwin - Director, Vivek
Vig - Director, Albert May - Director, Peter Nathanial - Director. The
share capital of the Bank is PLN 310.064.040.00;
represented by the following persons duly authorized:
Michal H. Mrozek
----------------
name illegible
--------------
The Parties agree as follows:
1. FORMS OF FACILITY
(1) The Bank may make available to the Borrower on its request
various forms of short-term credits (the "Facility") including
short-term credits and current account credits (the "Credits")
and letters of credit, bank guarantees and other banking
products (the "Products") on the terms agreed from time to
time between the parties to the Agreement.
(2) The Facility shall be made available from the date of this
Agreement, on the terms and conditions set out herein, until
the termination of this Agreement.
<PAGE>
2. USE OF THE FACILITY
(1) The Borrower may from time to time request that the Bank makes
available specified Products and/or Credits. The Products
and/or Credits shall be made available at the sole discretion
of the Bank. In particular, without limiting the foregoing,
the Bank may refuse to make available Products and/or Credits
if that results in a breach of the laws and regulations
applicable to the Bank.
(2) Subject to the Bank's acceptance, the Borrower shall be able
to use the Facility by carrying out transactions: (i) in case
of Credits, in accordance with the terms as set out in the
Credit Agreement, substantially in the form contained in
Schedule A hereto, and (ii) in case of Products, in accordance
with the terms as set out in a completed request for the bank
guarantee or letter of credit in the form made available by
the Bank (jointly (i) and (ii) the "Facility Agreement"), and
by
(a) delivering to the Bank at least two business days
prior to the proposed day of availability of Credits
and/or Products the Facility Agreement duly signed by
the Borrower; and
(b) providing payment instructions or other instructions
to debit the current account of the Borrower in the
case of a current account credit, or submitting other
instructions, which require the Borrower's current
account to be debited, as provided for in the then
current Banking Law, orders of the President of the
National Bank of Poland or banking customs.
3. CONDITIONS PRECEDENT
The right of the Borrower to request the Products and/or Credits
pursuant to the Facility shall be contingent on the Borrower carrying
out the following as determined by the Bank:
(a) opening a current account at the Bank (the
"Account");
(b) establishing security, if required by the Bank;
(c) providing certified copies of all the permits
necessary for the Borrower to use the Facility and to
provide documents confirming the current shareholding
structure of the Borrower and guarantors and sureties
for the Borrower's obligations under the Facility;
(d) providing copies of constitutive documents including
deed of association and statutes of both the Borrower
and all the guarantors and sureties for the
Borrower's obligations under the Facility.
4. PAYMENTS AND THEIR SCHEDULE
(1) The Borrower shall make all payments under the Facility in
respect of Products and/or Credits in Polish approved currency
or in another currency in which they are due, in compliance
with the provisions of the foreign exchange law and so that
the funds are immediately available in the accounts specified
in the Facility Agreement on the due date. If the due date for
any payment under this Agreement or any Facility Agreement
would otherwise fall on a day which is not a business day,
then such payment shall instead be due on the next succeeding
business day.
(2) Any amounts payable by the Borrower in convertible currencies may
be paid as follows:
(a) in a convertible currency by debiting the currency
account specified in the Facility Agreement; or
2
<PAGE>
(b) in a convertible currency purchased from the Bank at
the exchange rate for the selling of such currency
prevailing at the Bank on the day of purchase by
debiting the zloty account specified in the Facility
Agreement, provided that the Borrower is entitled to
purchase such currency in accordance with the foreign
exchange law; or
(c) in zlotys in an amount being the equivalent of the
amount due in the convertible currency at the
exchange rate for the selling of such currency
prevailing at the Bank on the day of purchase by
debiting the zloty account specified in the Facility
Agreement.
(3) If a payment is made in a currency other than the currency of
the given obligation, the Borrower shall notify the Bank of
such payment at least 2 business days before it is made,
specifying the kind of currency in which the payment is to be
made.
(4) In the case of payments in convertible currencies other than
the currency of the given obligation, the amount to be paid in
the given currency shall be determined by reference to the
relevant rate of exchange of that currency into zlotys used by
the Bank. The zloty amount shall then be converted into the
amount of the currency as determined by the Facility
Agreement.
(5) Sums repaid by the Borrower in the performance of its
obligations shall be applied (regardless of the Borrower's
instructions) towards the payment of the following and in the
following order:
(a) commissions, fees and costs under the given Facility
Agreement;
(b) ancillary amounts which are due;
(c) default interest;
(d) contract interest;
(e) the principal;
provided that if there are a number of due and payable debts
under clause 5(a), (b), (c), (d) or (e), sums repaid shall be
applied in the order of the maturity of those debts.
(6) The Borrower is not permitted any set-off against the amounts
owed to it by the Bank.
5. DISBURSEMENT OF CREDITS AND/OR PRODUCTS
(1) Credits and/or Products shall be disbursed as specified in the
Facility Agreement.
(2) The Bank may refuse to disburse a Credit and/or Product if in
the Bank's opinion the Borrower has not fulfilled the
conditions precedent hereunder and conditions (if any) for the
disbursement of the Credit and/or Product, and, in particular,
if any security set out in the Facility Agreement has not been
established or the Borrower has failed to pay on time
commissions and fees set out in the Facility Agreement which
are due and payable to the Bank.
6. INTEREST
Unless the Facility Agreement provides otherwise, all interest due to
the Bank shall be payable on the last business day on each calendar
month. Interest shall be calculated on the basis of a 365-day year or a
360-day year, in accordance with the Bank's policies, as advised from
time to time, and the actual number of days elapsed (including the
first but excluding the last day) in the relevant interest period.
3
<PAGE>
7. FEES
(1) The Bank may charge fees for the granting of Products and/or
Credits, in particular a fee for the management of the Credit
and/or Products, a commitment fee, a fee for the granting of a
bank guarantee or the issuing of a letter of credit. The
amount and method of payments of such fees, if any, shall be
set out in the Facility Agreement.
(2) The Bank may also charge fees and commissions for banking
actions related to the making available of the Products and/or
Credits in the amount specified in the schedules of fees
prevailing at the Bank on the day of a given action or in the
amount agreed with the Borrower.
8. COSTS AND EXPENSES
(1) The Borrower shall pay on demand all the expenses, including
legal fees, incurred by the Bank in connection with the
negotiation, preparation and execution of this Agreement,
and/or Facility Agreements or the enforcement of the Bank's
rights under this Agreement and/or the Facility Agreements
and/or any security agreement.
(2) The Borrower undertakes to pay to the Bank all amounts which,
according to the written statement by the Bank, are necessary
to cover additional costs, taxes and other fees resulting from
the Bank's compliance with changes in Polish laws, including
requirements in respect of mandatory reserves, mandatory funds
including Bank Guarantee Fund or special deposits, if the
necessity to cover such costs is directly related to the use
of the Products and/or Credits.
9. REPRESENTATIONS
(1) The representations contained in this clause 9 constitute an
element of the credit evaluation of the Borrower and they
belong to (in common intention of the parties) the material
provisions of this Agreement and the Facility Agreements.
(2) The Borrower represents as follows:
(a) The Borrower has the power to enter into and perform
under, and has done all that is necessary to
authorize the entry into and performance of this
Agreement and the Facility Agreements as well as the
transactions contemplated thereby;
(b) This Agreement and the Facility Agreements shall
constitute legal, valid and binding obligations of
the Borrower enforceable in accordance with its
terms;
(c) There has been no material adverse change in the
financial or business condition of the Borrower since
the date to which the most recent audited accounts
delivered to the Bank were drawn up;
(d) No litigation, arbitration or administrative
proceedings are current or, to the Borrower's best
knowledge, pending, suspended or threatened, which
might, if adversely determined, have a material
adverse effect on the business condition (financial
or otherwise) or the ability of the Borrower to
perform its obligations under this Agreement or the
Facility Agreements.
(3) The representations set out in this clause 9 are made on the
date of conclusion of this Agreement. Furthermore, the
Borrower agrees to repeat these representations on each date
of execution of each Facility Agreement, in which case the
representations are deemed to be made implicitly by signing of
the Facility Agreement by the Borrower.
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<PAGE>
10. UNDERTAKINGS
For as long as any financial obligations of the Borrower under this
Agreement and/or Facility Agreements have not been discharged in full,
the Borrower undertakes:
(a) to comply with all the applicable provisions of law
and the Borrower's by-laws and statutes;
(b) to promptly fulfill all of its obligations, including
tax obligations;
(c) to establish on demand within the time limit
prescribed by the Bank the additional security
required by the Bank, if in the opinion of the Bank
the value of the security established by the Borrower
has decreased or its economic or financial conditions
has deteriorated;
(d) maintain monthly inflows into the Account at the
level of not less than 400.000 zlotys;
(e) not to create any lien on any of its assets for any
financial debt, unless such lien equally and rateably
secures the repayment of the Products and/or Credits
and in the creation of any such lien express
provisions are made to that effect;
(f) that all obligations of the Borrower under the
Products and/or Credits rank and will rank at least
pari passu with all its other unsecured obligations
subject to mandatory provisions of law.
11. EVENTS OF DEFAULT
(1) Any of the following shall be deemed "Events of Default"
under the Facility:
(a) the Borrower fails to make any payment to the Bank
at a time fixed under this Agreement or any Facility
Agreement;
(b) the Borrower fails to perform or improperly performs
any of its obligations under this Agreement or any
Facility Agreement;
(c) any representation made by the Borrower to the Bank
in accordance with clause 9 of this Agreement is
found to be untrue or misleading when made;
(d) the Borrower breaches any of the Undertakings;
(e) a situation arises whereby any security or
undertaking in favor of the Bank, which secures the
Borrower's obligations under this Agreement or any
Facility Agreement, is withdrawn, or is no longer
valid and enforceable, or the Borrower defaults on
any agreement establishing such security;
(f) a petition is filed for the bankruptcy of the
Borrower or for the institution of arrangement
proceedings with its creditors, or a competent court
makes an order or a relevant authority resolves to
dissolve the Borrower;
(g) the Borrower fails to perform its obligation to make
a payment under a final and binding court judgment or
order;
(h) the Borrower is in breach of or defaults under any
agreement or document evidencing or regulating its
indebtedness;
5
<PAGE>
(i) any indebtedness of the Borrower becomes due and
payable prior to its original maturity or any
circumstances occur having the effect of permitting
any creditor of the Borrower to cause any
indebtedness of the Borrower to such creditor to
become due and payable prior it its stated maturity;
(j) a registered pledge is established in favor of a
third party over (i) the Account, (ii) any account in
which funds are frozen in favor of the Bank, or (iii)
any account in respect of which the Bank obtained a
power of attorney as a security in its favor;
(k) any event or series of events occurs which, in the
Bank's opinion, might have a material adverse effect
on the business condition (financial or otherwise) or
the results of operations of the Borrower or on the
ability of the Borrower to comply with its
obligations under this Agreement and/or any Facility
Agreement;
(l) any event or series of events occur which, in the
Bank's opinion, might have a material adverse effect
on the business condition (financial or otherwise) of
International Fast Food Corporation or on the results
of its operations or on its ability to comply with
any of its obligations (if any).
(2) If any of the Events of Default occurs the Bank shall be
entitled to:
(a) suspend disbursements related to the use by the
Borrower of the Facility, unless this conflicts with
the substance of the bank transaction being carried
out;
(b) request the Borrower to provide collateral for
repayment of Credits and/or Products;
(c) terminate the Facility Agreement in its entirety or
in part;
(d) declare all the sums owed by the Borrower to the Bank
under the Credits and/or Products to be due and
payable on a date to be notified by the Bank to the
Borrower.
(3) Omission or delay by the Bank to ascertain an Event of Default
shall not constitute a waiver by the Bank of its
right to ascertain such Event of Default at a later date.
12. SET-OFF
(1) In the case of an Event of Default, the Bank may set-off,
without any prior notification to the Borrower, any mutual
obligations, whether or not matured, and apply towards the
repayment of the outstanding obligations of the Borrower any
money (whether or not expressed in the same currency as the
indebtedness of the Borrower) held by the Borrower in its
account with the Bank or credited to such account at a later
date until all the Bank's claims are satisfied. If such
amounts owed to the Bank are expressed in various currencies,
for the purpose of set-off the Bank shall adopt the
appropriate exchange rate prevailing at the Bank on the
set-off date.
(2) The above set-off right shall not prejudice any claims the
Bank may have in respect of the Borrower in the case of
an improper performance of an obligation.
13. INFORMATION
(1) The Borrower undertakes to deliver to the Bank its annual
audited accounts within 180-days of the end of the fiscal year
of the Borrower, F-01 financial statements on a quarterly
basis within 20 days after each quarter and/or at the request
of the Bank, interim financial statements and other
information reasonably required by the Bank not later than 14
days after the announcement.
6
<PAGE>
(2) The Borrower undertakes to immediately notify the Bank of any
events which endanger or may endanger the timely servicing or
repayment of the Credit, materially alter its economic or
legal situation, reduce the value of the security established,
or otherwise endanger or may endanger the fulfillment of
obligations set out in this Agreement or Agreements entered
into hereunder.
14. ASSIGNMENT OF RIGHTS
(1) No rights under this Agreement or Facility Agreements may be
assigned by the Borrower without Bank's written consent.
(2) The Bank has the right to assign all its rights and benefits
under this Agreement and/or any Facility Agreement.
(3) The Borrower hereby authorizes the Bank to disclose
information relating to the Borrower, this Agreement and/or
Facility Agreements and copies thereof to any assignee or
potential assignee as might be necessary to properly fulfill
any assignment agreement or agreements.
15. NOTICES
(1) All notices or other communications under this Agreement
and/or Facility Agreement shall be given in writing and,
unless otherwise stated, may be by registered letter or
facsimile.
(2) Any notices to the Bank shall be deemed to be given upon
actual receipt.
(3) Any notices to the Borrower shall be deemed to be given as
follows:
(a) if by letter, when delivered personally on actual
receipt, or when sent by mail five days after sending
or upon actual receipt (whichever occurs earlier); or
(b) if by facsimile, when dispatched, but only if, at the
time of transmission, the correct confirmation report
appears at the beginning and at the end of the
sender's copy of the notices.
(4) A notice given in accordance with the above but received by
the Bank on a day other than a business day or after business
hours at the place of receipt will only be deemed to be given
as of the next applicable business day.
16. TERMINATION
Notwithstanding the provisions of clause 11.2:
(a) the Bank may at any time terminate this Agreement on
30 days' notice in writing provided that no
obligations are outstanding to the Bank under any
Facility Agreement;
(b) the Borrower may terminate this Agreement on 30 days'
notice in writing provided that no obligations are
outstanding to the Bank under any Facility Agreement.
17. SETTLEMENT OF DISPUTES
Any disputes, arising from or related to this Agreement, shall be
settled by the common court competent in respect of the seat of the
Bank.
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<PAGE>
18. FINAL PROVISIONS
(1) This Agreement is executed in both English and Polish
languages, one copy of each language version for each party.
In the event of any discrepancies or litigation, the Polish
version shall prevail.
(2) This Agreement is governed by and shall be construed in
accordance with the Polish law.
(3) This Agreement is not a credit agreement within the meaning
of the Banking Law.
(4) Any amendments to this Agreement must be made in writing,
otherwise being null and void.
On behalf of the Borrower: /s/ James F. Martin
--------------------------
Surname and name: James F. Martin
On behalf of the Bank: /s/ Michal H. Mrozek
--------------------------
Surname and name: Michal H. Mrozek
<PAGE>
Schedule A
- --------------------------------------------------------------------------------
Credit Agreement
executed on 24/02/1999 between International Fast Food Polska Sp. z o.o. with
its seat in 15 Jagielonska St, Warsaw (the "Borrower") and Citibank (Poland)
S.A. with its seat in 16 Senatorska St, Warsaw (the "Bank").
1. The provisions of Framework Agreement No. UR 081/99 on various forms of
credit transaction dated 24/02/1999 between the Bank and the Borrower (the
"Framework Agreement") shall apply and shall be effective in respect to the
validity and performance of this Credit Agreement.
2. Unless otherwise provided for in this Credit Agreement, the terms defined in
the Framework Agreement shall have the same meaning in this Credit Agreement.
3. Acting pursuant to the provisions of Banking Law, the Bank hereby undertakes
to extend a credit (the "Credit") to the Borrower upon the terms and conditions
hereunder and the Borrower hereby accepts these terms and conditions:
(1) Type of the Credit: Credit
(2) Amount and currency of the Credit: USD 5,000,000 (in words:
five million's zlotych)
(3) Form of availability of Credit: By crediting the Borrower's
account no. xxxxxx
(4) Purpose of the Credit: Working capital financing
(5) Date of availability of funds to the Borrower: 02/03/89
(6) Method of repayment of the Credit: By debiting by the Bank
the Borrower's account no. xxxxxx
(7) Date of repayment of the Credit: 31/12/1999
(8) Interest base: 360 day year
(9) Interest rate: LIBOR for 1-months deposits applicable on the
first day of every Interest Period 0.85% p.a.
(10) Interest Period: 3 months
(11) Interest Payment Date: The last day of every Interest Period
(12) Security: Guarantee from Burger King Corporation
(13) Fees and costs: N/A
(14) Other provisions:
The Borrower may, upon at least 7 days notice to the Bank, prepay all or a
portion of the Credit at the end of any Interest Period. Such prepayments shall
not be available for redrawing.
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<PAGE>
4. In any matters not regulated by this Credit Agreement, the provisions of the
Framework Agreement shall apply.
5. This Credit Agreement is executed in both English and Polish languages, one
copy of each language version for each party. In the event of any discrepancies
or litigation, the Polish version shall prevail.
6. Any amendments to this Agreement must be made in writing, otherwise null and
void.
7. The Borrower hereby declares that, pursuant to Art. 97 of the Banking Law,
submits to execution in favour of the Bank in respect of obligations under this
Credit Agreement up to the amount of USD 6,000,000, as named by the bank
executory entitlements that may be issued by the Bank until 31/03/2000.
Bank Borrower
Michal H. Mrozek James F. Martin
- -------------------- --------------------
Authorized signature Authorized signature
- -------------------- --------------------
Authorized signature Authorized signature
10
<PAGE>
ANNEX of 30 March, 1999
to the Loan Agreement (hereinafter referred to as the "Loan Agreement") executed
on 24/02/1999 by and between International Fast Food Poiska Sp. Z o.o. with its
seat in Warsaw at 15 Jagielonska St. (hereinafter referred to as the "Borrower")
and CITIBANK (POLAND) S.A. with its seat in Warsaw, 16 Senatorska St.
(hereinafter referred to as the "Bank").
ss.1
All of the terms defined in the Loan Agreement and used in this Annex shall have
the same meaning in this Annex as in the Loan Agreement.
ss.2
1. The sub-paragraph 3.7. is replaced by the following:
Date of repayment of the Credit: 15/01/2000
ss.3
The remaining provisions of the Loan Agreement have not been altered and shall
continue to apply.
ss.4
This Annex constitutes a part of the Loan Agreement.
ss.5
This Annex has been executed in two language versions; Polish and English. In
case of any inconsistencies between the two language versions, the Polish
version shall prevail.
Borrower Bank
/s/ Michael Welch /s/ Piotr Krosnowski
ADDENDUM
THIS ADDENDUM, dated as of March 17, 1999 ("Addendum"), is entered into
by and among Burger King Corporation, a Florida corporation ("BKC"),
International Fast Food Corporation, a Florida corporation ("IFFC"),
International Fast Food Polska S.A. z.o.o., a limited liability company
organized under the laws of Poland ("IFFP"), and Mitchell Rubinson ("Rubinson",
and together with IFFP and IFFC, the "IFFC Parties").
WHEREAS, pursuant to a Development Agreement by and among BKC and IFFC
(the "Development Agreement") BKC has granted IFFC the right to develop new
"Burger King" restaurants in the Republic of Poland;
WHEREAS, IFFC is the owner of all the issued and outstanding shares
(the "IFFP Shares") of International Fast Food Polska S.P. z.o.o. ("IFFP");
WHEREAS, Citibank (Poland) S.A. ("Citibank") has agreed to provide
credit to IFFP in the aggregate amount of U.S. $5,000,000, pursuant to a credit
agreement dated February 24, 1999 (the "Credit Agreement");
WHEREAS, BKC has issued a guarantee in favor of Citibank to secure the
repayment by IFFP of amounts borrowed under the Credit Agreement (the
"Guarantee");
WHEREAS, in consideration of the Guarantee, IFFC has granted BKC a
perfected security interest in the IFFP Shares to secure BKC's claims which may
arise as a result of the payment by BKC of any amounts under the Guarantee;
WHEREAS, pursuant to a Reimbursement Agreement (the "Reimbursement
Agreement") by and among IFFC, IFFP and BKC, IFFC has agreed to reimburse BKC
for any payments that it may be required to make to Citibank under the
Guarantee, together with related costs, expenses and interest, as more fully set
forth therein;
WHEREAS, pursuant to an Agreement for the Transfer of Title to Share by
way of Security dated of even date herewith by and between IFFC, BKC and IFFP
(the "Security Agreement), IFFC has granted BKC a security interest in and to
the IFFP Shares, which permits BKC to retain the IFFP Shares in the event that
BKC is required to make any payment under the Guarantee and neither IFFC nor
IFFP reimburse BKC for the amount of such payment and other items under the
Reimbursement Agreement;
WHEREAS, pursuant to a Purchase Agreement by and among the IFFC Parties
and BKC (the "Purchase Agreement", and together with the Development Agreement,
the Credit Agreement, the Guarantee, the Reimbursement Agreement, and the
Security Agreement, the "Transaction Documents"), in the event that BKC has the
right to retain the IFFP Shares in the event that BKC is required to make a
payment under the Guarantee, BKC has agreed to sell the IFFP Shares to IFFC and
IFFC has agreed to purchase such shares upon the terms and subject to the
conditions set forth therein
WHEREAS, in connection with, and in consideration of, the foregoing,
BKC and IFFC have agreed to amend the Development Agreement; and
WHEREAS, Citibank and IFFP have agreed to extend the maturity date of
indebtedness under the Credit Agreement from December 31, 1999 to January 15,
2000.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree has follows:
1
<PAGE>
1. Confirmation.
The IFFC Parties and BKC hereby acknowledge and agree that the
amendment to the Credit Agreement which extends the maturity date of the
indebtedness thereunder until January 15, 2000 shall not affect their respective
obligations under the Transaction Documents.
2. Miscellaneous.
(a) Third Party Beneficiaries. Citibank shall be deemed to be
a third party beneficiary of this Addendum to the same extent as if it was a
party hereto.
(b) Further Assurances. Each of the parties hereto agrees with
the other parties hereto that it will cooperate with such other parties and will
execute and deliver, or cause to be executed and delivered, all such other
instruments and documents, and will take such other actions, as such other
parties may reasonably request from time to time to effectuate the provisions
and purposes of this Addendum.
(c) Binding on Successors, Transferees and Assigns;
Assignment. This Addendum shall be binding upon the parties hereto and their
respective successors, transferees and assigns. Notwithstanding the foregoing
none of the parties hereto may assign any of its obligations hereunder with the
prior written consent of the other parties hereto; provided, that BKC may assign
its rights and delegate its duties under this Addendum to one or more of its
subsidiaries or affiliates.
(d) Amendments; Waivers. No amendment to or waiver of any
provisions of this Addendum, nor consent to any departure therefrom by any party
hereto, shall in any event be effective unless the same shall be in writing and
signed by such party, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. Further, any
subsequent amendment to the Credit Agreement or any departure from the terms
thereof shall require the prior written consent of BKC.
(e) No Waiver; Remedies. No failure on the part of any party
hereto to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any right. The remedies herein provided are cumulative and not exclusive of
any remedy provided by law.
(f) `Expenses. IFFC shall pay or reimburse BKC for all of its
legal, accounting and other expenses directly related to the consummation of the
transactions contemplated hereby, together with the costs and expenses of
preparing this Addendum.
(g) Jurisdiction. Any claim arising out of this Addendum shall
be brought in any state or federal court located in Miami-Dade County, Florida,
United States. For the purpose of any suit, action or proceeding instituted with
respect to any such claim, each of the parties hereto irrevocably submits to the
jurisdiction of such courts in Miami-Dade County, Florida, United States. Each
of the parties hereto further irrevocably consents to the service of process out
of said courts by mailing a copy thereof by registered mail, postage prepaid, to
such party and agrees that such service, to the fullest extent permitted by law,
(i) shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding and (ii) shall be taken and held to be a valid
personal service upon and a personal delivery to it. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court located in Miami-Dade County,
Florida, United States, and any claim that any such suit, action or proceeding
brought in such court has been brought in an inconvenient forum. Notwithstanding
the foregoing, at the option of BKC, any claims against IFFP hereunder shall be
settled by the Arbitration Court at the Polish Chamber of Commerce with its seat
in Warsaw in accordance with its rules, and all such proceedings will be
conducted in the English language.
2
<PAGE>
(h) Governing Law; Severability. This Addendum shall be
governed by and construed in accordance with the internal laws of the State of
Florida, United States, without regard to any conflict of law, rule or principle
that would give effect to the laws of another jurisdiction.
(i) Notices. All notices, requests and other communications to
any party hereunder shall be writing (including facsimile transmission or
similar writing) and shall be given to such party, addressed to it, at its
address or facsimile number set forth on the signature pages below, or at such
other address or facsimile number as such party may hereafter specify for such
purpose by notice to the other party. Each such notice, request or communication
shall be deemed effective when received at the address or facsimile number
specified below.
(j) Counterparts. This Addendum may be executed in any number
of counterparts, each of which counterparts, when so executed and delivered,
shall be deemed to be an original, and all of which counterparts, when taken
together, shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Addendum on the date
indicated.
BURGER KING CORPORATION
By: /s/ Philip Kindersly
--------------------
Name: Philip Kindersly
Title: Vice President
c/o Burger King EMA
Charter Place
Vine Street
Uxbridge, England UB81BZ
INTERNATIONAL FAST FOOD
CORPORATION
By: /s/ James F. Martin
-------------------
Name: James F. Martin
Title: Vice President
c/o Mitchell Rubinson
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139, USA
INTERNATIONAL FAST FOOD POLSKA S.P. Z.O.O.
By: /s/ James F. Martin
-------------------
Name: James F. Martin
Title: Vice President
15 Jagiellonska Street
Warsaw, Poland
/s/ Mitchell Rubinson
---------------------
Mitchell Rubinson
c/o International Fast Food Corporation
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139, USA
4
International Fast Food Corporation
1000 Lincoln Road
Suite 200
Miami Beach, FL 33139
Attn: Mitchell Rubinson,
Chief Executive Officer
Letter Agreement
Gentlemen:
This letter will confirm the mutual understanding between International
Fast Food Corporation, on behalf of itself and its direct and indirect
subsidiaries (hereinafter collectively referred to as "IFFC"), and Host Marriott
Services Corporation, on behalf of itself and its direct and indirect
subsidiaries (hereinafter collectively referred to as "Host Marriott"), with
respect to the development and operation of Burger King restaurants within
shopping center food courts in the Republic of Poland.
Specifically, we have agreed as follows:
1. IFFC will, subject to any necessary approvals of Burger King
Corporation ("BKC"), grant Host Marriott the rights to develop and operate
Burger King restaurants within enclosed shopping centers located in Poland where
Host Marriott has leased substantially all of the food and beverage facilities.
2. Host Marriott will pay:
(a) an initial start-up fee of US $25,000 per location to
IFFC in exchange for IFFC's pre-opening support and assistance, including
furnishing design and construction advice, hiring and training management staff,
advising on the selection of information and accounting systems, etc. for each
Burger King restaurant developed by Host Marriott pursuant to this agreement.
The start-up fee will be paid simultaneously with the payment of any initial
franchise fees payable to BKC for such location.
(b) an on-going annual fee to IFFC equal to the greater of
U.S. $7,000 per location, or 1.5% of Host Marriott's gross receipts from the
operation of each Burger King restaurant developed by Host Marriott pursuant to
this agreement, in exchange for IFFC's on-going technical assistance and
services, including maintaining quality standards, procurement and supply
services, on-going staff training, etc. The fee will be payable monthly, with an
annual reconciliation and will continue for the duration of Host Marriott's
operation of the location as a Burger King restaurant.
(c) all amounts payable to BKC (e.g., franchise fees,
advertising contributions, royalty fees) for the franchise rights for each
location developed by Host Marriott pursuant to this agreement.
3. Host Marriott will, subject to any necessary approvals of BKC,
offer IFFC the option to acquire an interest in the pre-tax profits of any
Burger King restaurants developed by Host Marriott pursuant to this agreement.
IFFC may exercise such option by giving Host Marriott written notice, at any
time prior to the opening of each Burger King restaurant, specifying the
percentage interest (the "Percentage Interest") that IFFC intends to acquire, up
to a maximum of 50% per location. Within 60 days after the opening of any Burger
King restaurant for which IFFC has exercised its option, Host Marriott will
provide IFFC with (i) a statement, certified by its Chief Financial Officer,
setting forth in reasonable detail the total costs incurred by Host Marriott in
building, equipping and opening such restaurant, together with a pro rata
portion of the cost of any common facilities (e.g., seating areas, tray wash
areas, office and storage space, point of sale and telecommunications systems,
etc.) used in connection therewith; and (ii) an invoice equal to the amount of
the statement multiplied by the Percentage Interest. IFFC will pay the amount of
1
<PAGE>
the invoice within thirty (30) days after its receipt thereof, or its option
will have been deemed to lapse. IFFC's share of the pre-tax profits for each
Burger King restaurant will be calculated as set forth in Exhibit A attached
hereto.
4. This agreement will be coterminous with IFFC's March 1997
Development Agreement with BKC; provided, however, no such termination or
expiration of the Development Agreement shall be deemed to terminate IFFC's
right to receive the payments and IFFC's obligation to perform the services set
forth above for any Burger King restaurants previously developed by Host
Marriott pursuant to this agreement.
If the foregoing accurately reflects our mutual understanding, please
sign this letter agreement in the space provided below and return one fully
signed original to use for our files.
Sincerely,
Host Marriott Services Corporation
By: signature illegible
------------------------------
Vice President
Agreed:
International Fast Food Corporation
By: /s/ Mitchell Rubinson
------------------------------
Title: Chairman
------------------------------
Date: 3-18-99
------------------------------
2
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
<S> <C>
Gross Receipts from Burger King (excluding sales taxes and VAT) __________________
Less Cost of Products Sold (__________________)
Gross Profit __________________
Less Expenses as follows:
(a) All local, direct operating expenses such as salaries, wages
and related costs; rental payments and charges; advertising;
franchise fees payable to BKC; fees payable to IFFC;
insurance, utilities; taxes (exclusive of income taxes and
those taxes excluded in the definition of gross receipts);
business license fees; and like items of direct operating
expense (__________________)
(b) Amortization of leasehold acquisition costs and leasehold
improvements, furnishings, fixtures and equipment (based on
amortizing the cost on a straight-line basis for the full
lease term or the useful life, whichever is less) (__________________)
(__________________)
(c) General and administrative overhead at 4.5% of gross receipts
(d) Less any accumulated losses from prior fiscal years (__________________)
Balance of Profit for Distribution __________________
Multiplied by IFFC's Percentage Interest X __________________
Balance Payable to IFFC __________________
</TABLE>
3
Subsidiaries of IFFC
1. International Fast Food Polska, Sp.Zo.o.
2. IFF - DX Management Sp.Zo.o.
3. IFF Polska-Kolmer, Sp.Zo.o.
4. Pizza King Polska, Sp.Zo.o.
5. Kroseska Pizza, Sp.Zo.o.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,013,361
<SECURITIES> 0
<RECEIVABLES> 1,573,480
<ALLOWANCES> 0
<INVENTORY> 842,867
<CURRENT-ASSETS> 8,580,408
<PP&E> 22,178,189
<DEPRECIATION> (5,041,008)
<TOTAL-ASSETS> 31,846,803
<CURRENT-LIABILITIES> 6,664,884
<BONDS> 25,401,202
0
330
<COMMON> 449,016
<OTHER-SE> (3,560,991)
<TOTAL-LIABILITY-AND-EQUITY> 31,846,803
<SALES> 8,489,151
<TOTAL-REVENUES> 8,489,151
<CGS> 3,347,477
<TOTAL-COSTS> 9,407,062
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,672,314
<INCOME-PRETAX> (5,872,136)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,872,136)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,872,136)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
